<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
FILED BY THE REGISTRANT /X/
FILED BY A PARTY OTHER THAN THE REGISTRANT / /
- ----------------------------------------------
Check the appropriate box:
/X/ Preliminary Proxy Statement / / Confidential, For Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
VERMONT PURE HOLDINGS, LTD.
(Name of Registrant as Specified In Its Charter)
NOT APPLICABLE
(Name of Person(s) Filing Proxy Statement)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:_____
(2) Aggregate number of securities to which transaction applies:_____
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):_____
(4) Proposed maximum aggregate value of transaction:_____
(5) Total fee paid:_____
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:_____
(2) Form, Schedule or Registration Statement no.:_____
(3) Filing Party:_____
(4) Date Filed: _____
- ------------------------------------------------------------------------------
<PAGE> 2
VERMONT PURE HOLDINGS, LTD.
ROUTE 66, CATAMOUNT INDUSTRIAL PARK
RANDOLPH, VERMONT 05060
---------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 15, 1999
---------------------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Vermont
Pure Holdings, Ltd. ("Company") will be held at the Sheraton Burlington Hotel
and Conference Center, 870 Williston Road, South Burlington, Vermont 05403 on
Tuesday, June 15, 1999 at 1:30 P.M. local time, for the following purposes:
1. To elect eight directors to hold office until the Annual Meeting of
Stockholders in 2000 and until their respective successors have been duly
elected and qualified;
2. To approve the Vermont Pure Holdings, Ltd. 1999 Employee Stock Purchase
Plan, a copy of which is appended to the Proxy Statement as Exhibit A;
3. To amend the Certificate of Incorporation of the Company to increase the
number of authorized shares of Common Stock of the Company from 20,000,000
to 50,000,000; and
4. To transact such other business as may properly come before the meeting, and
any adjournment(s) thereof.
The record date for the Annual Meeting is April 30, 1999. Only stockholders
of record at the close of business on April 30, 1999 will be entitled to notice
of, and to vote at, the Meeting and any adjournments thereof.
YOU ARE URGED TO READ THE ATTACHED PROXY STATEMENT, WHICH CONTAINS
INFORMATION RELEVANT TO THE ACTIONS TO BE TAKEN AT THE MEETING. IN ORDER TO
ASSURE THE PRESENCE OF A QUORUM, WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING
IN PERSON, PLEASE SIGN AND DATE THE ACCOMPANYING PROXY CARD AND MAIL IT PROMPTLY
IN THE ENCLOSED ADDRESSED, POSTAGE PREPAID ENVELOPE. YOU MAY REVOKE YOUR PROXY
IF YOU SO DESIRE AT ANY TIME BEFORE IT IS VOTED.
By Order of the Board of Directors
Robert C. Getchell
Secretary
Randolph, Vermont
May 15, 1999
<PAGE> 3
VERMONT PURE HOLDINGS, LTD.
---------------
PROXY STATEMENT
---------------
GENERAL INFORMATION
This Proxy Statement and the enclosed form of proxy are furnished in
connection with solicitation of proxies by the Board of Directors ("Board") of
Vermont Pure Holdings, Ltd. ("Company") to be used at the Annual Meeting of
Stockholders of the Company to be held on Tuesday, June 15, 1999, and any
adjournment or adjournments thereof ("Annual Meeting"). The matters to be
considered at the Annual Meeting are set forth in the attached Notice of
Meeting.
The Company's executive offices are located at Route 66, Catamount
Industrial Park, Randolph, Vermont 05060. The Company's telephone number is
802-728-3600. This Proxy Statement and the enclosed form of proxy are first
being sent to stockholders on or about May 15, 1999.
RECORD DATE AND OUTSTANDING SHARES
The Board has fixed the close of business on April 30, 1999 as the record
date for the determination of stockholders entitled to notice of, and to vote
at, the Annual Meeting. Only stockholders of record at the close of business on
that date will be entitled to vote at the Annual Meeting or any and all
adjournments thereof. As of the record date, the Company had issued and
outstanding 10,259,758 shares of Common Stock, par value $.001 ("Common Stock"),
comprising all of the Company's issued and outstanding voting stock. Each
stockholder of the Company will be entitled to one vote for each share of Common
Stock.
SOLICITATION AND REVOCATION
Proxies in the form enclosed are solicited by and on behalf of the Board.
The persons named in the proxy have been designated as proxies by the Board. Any
proxy given pursuant to such solicitation and received in time for the Annual
Meeting will be voted as specified in such proxy. If no instructions are given,
proxies will be voted
"FOR" the election of the nominees listed below under "Election of
Directors,"
"FOR" approval of the 1999 Employee Stock Purchase Plan,
"FOR" approval of the amendment to the Certificate of Incorporation
increasing the authorized Common Stock of the Company to 50,000,000 shares,
and in the discretion of the proxies named on the proxy card with respect to any
other matters properly brought before the Meeting and any adjournments thereof.
In the event that any other matters are properly presented at the Annual Meeting
for action, the persons named in the proxy will vote the
<PAGE> 4
proxies in accordance with their best judgment. Any proxy given pursuant to this
solicitation may be revoked by the stockholder at any time before it is
exercised by written notification delivered to the Secretary of the Company, by
voting in person at the Annual Meeting, or by delivering another proxy bearing a
later date. Attendance by a stockholder at the Annual Meeting does not alone
serve to revoke his or her proxy.
QUORUM
The presence, in person or by proxy, of a majority of the shares of Common
Stock issued and outstanding and entitled to vote at the Annual Meeting will
constitute a quorum at the Annual Meeting. A proxy submitted by a stockholder
may indicate that all or a portion of the shares represented by such proxy are
not being voted with respect to a particular matter. Similarly, a broker may not
be permitted to vote stock ("broker non-vote") held in street name on a
particular matter in the absence of instructions from the beneficial owner of
such stock. The shares subject to a proxy which are not being voted on a
particular matter (because of either stockholder withholding or broker non-vote)
will not be considered shares entitled to vote on such matter. These shares,
however, may be considered present and entitled to vote on other matters and
will count for purposes of determining the presence of a quorum.
VOTING
If a quorum is present at the Meeting, the persons nominated for election
as directors will be elected by a plurality of the shares of Common Stock voted
at the Annual Meeting. "Plurality" means that the nominees who receive the
highest number of votes will be elected as the directors of the Company for the
ensuing year. Also, if a quorum is present, the vote of a majority of the shares
of Common Stock present or represented at the Meeting and entitled to vote is
necessary to approve the 1999 Employee Stock Purchase Plan. Shares subject to
broker non-votes are not entitled to vote and do not affect the outcome of this
matter, but abstentions will have the effect of negative votes. Finally, if a
quorum is present, the vote of a majority of the shares of Common Stock issued
and outstanding on the record date is necessary to amend the Certificate of
Incorporation of the Company to increase the number of authorized shares of
Common Stock of the Company to 50,000,000. Broker non-votes and abstentions will
have the effect of negative votes on this matter.
PROPOSAL 1 --- ELECTION OF DIRECTORS
The current directors of the Company, all of whom are listed in the table
below, have been designated by the Board as candidates for re-election as
directors to serve until the next annual meeting of stockholders or until their
respective successors have been elected and qualified. Unless otherwise
specified in the form of proxy, the proxies solicited by the management will be
voted "FOR" the election of these candidates. In case any of these nominees
become unavailable for election to the Board, an event which is not anticipated,
the persons named as proxies, or their substitutes, shall have full discretion
and authority to vote or refrain from voting for any other nominee in accordance
with their judgment.
DIRECTORS AND EXECUTIVE OFFICERS
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<PAGE> 5
The following table sets forth certain information concerning each director
of the Company continuing in office, each nominee for election as director and
each executive officer of the Company:
NAME AGE POSITION
Timothy G. Fallon 45 Chief Executive Officer,
President and Chairman
of the Board
Phillip Davidowitz 66 Director
Robert C. Getchell 50 Director and Secretary
Frank G. McDougall, Jr. 48 Director
David R. Preston 58 Director
Norman E. Rickard 62 Director
Beat Schlagenhauf 47 Director
Richard Worth 49 Director
Bruce S. MacDonald 40 Vice President of Finance,
Chief Financial Officer and
Treasurer.
The business experience during at least the last five years of each of the
directors and the executive officers of the Company is as follows:
Timothy G. Fallon has been the Chief Executive Officer and President and a
director of the Company since November 1994. In April 1998, he was appointed
Chairman of the Board of Directors. From January 1992 to November 1994, Mr.
Fallon was the Senior Vice President, Sales and Marketing for Cadbury Beverages,
Inc. From October 1989 to December 1991, Mr. Fallon was Vice President of Sales
for Canada Dry USA, a division of Cadbury Beverages, Inc. From July 1984 to
September 1989, Mr. Fallon served as Vice President - Sales and Marketing for
Pepsi Cola Bottling Company New York City, Inc.
Phillip Davidowitz has been a director of the Company since June 1998. Mr.
Davidowitz has been President of TSE Clearing Services, Inc. since 1980 and Vice
Chairman of Transatlantic Securities Co., a member of The New York Stock
Exchange, since 1988.
Robert C. Getchell has been a director of the Company since December 1994.
In December 1995, Mr. Getchell was appointed the Secretary of the Company. Mr.
Getchell has been a principal of Getchell Professional Association, a firm of
certified public accountants in Quechee, Vermont, for more than the past five
years. In July 1992, Mr. Getchell was appointed to the Vermont Economic
Development Authority and served as its chairman from 1996 through 1998.
Frank G. McDougall, Jr. is a director of the Company and was Chairman of
the Board of the Company from June, 1994 to March, 1998. From January 1995 to
December 1997, Mr. McDougall was a part-time employee of the Company. From
December 1993 until January 1995 and since January 1998, Mr. McDougall has acted
as a consultant to the Company in the areas of management and government
relations and regulation through Frank McDougall & Associates, a company he
founded in October 1993. Since March 1996, Mr. McDougall has been the Director
of Corporate and Government Relations for the Dartmouth Hitchcock Medical Center
and the Lahey Hitchcock Clinic. From July 1990 to October 1993, Mr. McDougall
was the Secretary of the Agency of Development
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<PAGE> 6
and Community Affairs of the State of Vermont. In March 1997, Mr. McDougall was
appointed to the Vermont Board of Education.
David R. Preston has been a director of the Company since October 1995. Mr.
Preston has been a consultant and adjunct professor of Suffolk University in
Boston, Massachusetts since September 1995. From 1990 to July 1995, Mr. Preston
was a division president at Kayser-Roth Corporation, a sock and hosiery
manufacturer, located in Greensboro, North Carolina. Since September 1996, he
has been a Senior Associate with Renaissance Management Group LLC, a management
consulting firm. Mr. Preston is a retired division president and corporate
officer of the Gillette Company.
Norman E. Rickard has been a director of the Company since May 1995. Mr.
Rickard has been the President of Xerox Document Services Group of Xerox
Corporation and was a Corporate Senior Vice President. Mr. Rickard retired from
Xerox in 1999. He had been employed by Xerox since 1967 in various capacities,
including President of Xerox Business Services, Director of Business
Effectiveness, Director of the Worldwide Strategic Manufacturing Project,
Director of Staff Operations and Vice President of Quality. He is also a
director of American Direct of Windsor, Connecticut and Fastcast of Louisville,
Kentucky.
Beat Schlagenhauf has been a director of the Company since July 1993. Mr.
Schlagenhauf has been a principal of Schlagenhauf & Partners, a portfolio
management company in Zurich, Switzerland, for more than the past twelve years.
Richard Worth has been a director of the Company since June 1994. Since
1997, Mr. Worth has been the Chairman and Chief Executive Officer of Cool
Fruits, Inc. From 1994 to 1997, Mr. Worth was the Chairman and Chief Executive
Officer of The Delicious/Frookie Co., a manufacturer and marketer of cookies and
snack products. From 1986 to 1994, Mr. Worth was the Chairman and Chief
Executive Officer of R.W. Frookies, Inc., a manufacturer and marketer of cookies
and snack products. From 1978 to 1985, Mr. Worth owned and operated Sorrell
Ridge, Inc., a manufacturer and marketer of jams.
Bruce S. MacDonald has been Vice President of Finance, Chief Financial
Officer and Treasurer of the Company since May 1993. From 1987 to May 1993, Mr.
MacDonald was Controller of Cabot Cooperative Creamery Incorporated.
THE BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
During the fiscal year ended October 31, 1998, the Board of Directors of
the Company met five times, and the Audit Committee and Compensation Committee
met three times and one time, respectively. The Board has no Nominating
Committee but does have an Executive Committee. Except for Mr. Davidowitz, who
because of illness was absent from one of the three meetings held while he was
in office, no incumbent director attended fewer than 75% of the total number of
meetings of the Board and Committees of the Board on which he served.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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<PAGE> 7
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's officers, directors and persons who beneficially own more than 10%
of a registered class of the Company's equity securities ("ten percent
stockholders") to file reports of ownership and changes in ownership with the
Securities and Exchange Commission ("SEC"). Officers, directors and ten percent
stockholders are charged by the SEC regulation to furnish the Company with
copies of all Section 16(a) forms they file.
Based solely upon a review of Forms 3, 4 and 5 and amendments thereto
furnished to the Company during fiscal 1998, and, if applicable, written
representations that Form 5 was not required, the Company believes that all
Section 16(a) filing requirements applicable to its officers, directors and ten
percent stockholders were fulfilled in a timely manner.
REMUNERATION OF EXECUTIVE OFFICERS AND DIRECTORS
EXECUTIVE COMPENSATION
The following tables show (1) the cash compensation paid by the Company, as
well as certain other compensation paid or accrued, to the Chief Executive
Officer and Chief Financial Officer of the Company for the fiscal years ended
October 26, 1996, October 25, 1997 and October 31, 1998 (2) information
reporting options granted to the Chief Executive Officer and the Chief Financial
Officer during the fiscal year ended October 31, 1998, and (3) information
regarding the value of all options granted to the Chief Executive Officer and
Chief Financial Officer at the end of the fiscal year ended October 31, 1998.
The Company has no other executive officers. Amounts under "All Other
Compensation" represent automobile and insurance allowances.
- --------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
-------------------------------------------------------------
Fiscal
Name and Principal Position Year Salary Bonus Options/ Compensation ($)
($) ($) (# Shares)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Timothy G. Fallon 1998 $186,400 $202,500 -0- $ 6,859
Chief Executive Officer and President 1997 $184,000 $150,000 690,000(1) $ 5,278
1996 $172,000 $ 50,000 30,000 $14,400
- -------------------------------------------------------------------------------------------------------------------
Bruce S. MacDonald 1998 $ 85,000 $ 55,000 30,000 $ 3,937
Vice President of Finance, Chief 1997 $ 75,000 $ 30,000 101,000(2) $ 4,204
Financial Officer and Treasurer 1996 $ 72,000 -0- 10,000 $ 1,976
===================================================================================================================
</TABLE>
(1) This amount represents 440,000 options with an exercise price per share of
$2.50 issued in replacement for 400,000 options with an exercise price of
$2.25 per share, a net increase of 40,000 options, under a repricing
arrangement in 1997 and 250,000 options granted in conjunction with an
employment agreement with an exercise price per share of $2.50.
(2) This amount represents 51,000 options with an exercise price per share
issued of $2.50 issued in replacement for 45,000 options with a weighted
average exercise price of $2.58 per share, a net increase of 6,000
5
<PAGE> 8
options, under a repricing arrangement in 1997, and 50,000 options granted
in conjunction with an employment agreement with an exercise price per
share of $2.50.
The Company cannot determine, without unreasonable effort or expense, the
specific amount of certain personal benefits afforded to its employees, or the
extent to which benefits are personal rather than business. The Company has
concluded that the aggregate amounts of such personal benefits which cannot be
specifically or precisely ascertained do not in any event exceed, as to the
individuals named in the preceding table, the lesser of $50,000 or 10% of the
compensation reported in the preceding table for such individuals, and that such
information set forth in the preceding table is not rendered materially
misleading by virtue of the omission of the value of such personal benefits.
- --------------------------------------------------------------------------------
OPTIONS/SHARES GRANTS IN LAST FISCAL YEAR
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Annual Rates of Stock
Price Appreciation for Option
Individual Grants Term (1)
------------------------------------------------------------------------------------------------
% of Total
Options/Shares Market
Granted to Exercise Price on
Options/Shares Employees in Price Date of Expiration
Name Granted (#) Fiscal Year ($/Share) Grant ($) Date 0% ($) 5% ($) 10% ($)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Timothy G. Fallon
Chief Executive -- -- -- -- -- -- -- --
Officer and President
=======================================================================================================================
Bruce S. MacDonald, 30,000(2) 21% $3.38 $3.38 9/10/08 -0- $47,167 $119,531
Vice President of
Finance, Chief
Financial Officer and
Treasurer
=======================================================================================================================
</TABLE>
(1) Based on the difference between the aggregate market price on the date of
grant and the aggregate exercise prices of the options granted. The amounts
shown as potential realizable value illustrate what might be realized upon
exercise immediately prior to expiration using the 5% and 10% appreciation
rates established in regulations of the SEC, compounded annually. The
potential realizable value is not intended to predict future appreciation
of the price of the Company's Common Stock. The values shown do not
consider non-transferability, applicable vesting periods or earlier
termination of the options upon termination of employment.
(2) Consists of 30,000 newly granted options vesting November 1999 through
November 2001 and expiring in September 2008 with an exercise price of
$3.38.
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<PAGE> 9
- --------------------------------------------------------------------------------
AGGREGATE YEAR-END OPTION VALUES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED OPTIONS VALUE OF UNEXERCISED IN-THE-MONEY
AT FISCAL YEAR-END (#) OPTIONS AT FISCAL YEAR-END ($)(1)
----------------------------------------------------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Timothy G. Fallon 510,000 210,000 $318,750 $131,250
Chief Executive Officer and
President
- ----------------------------------------------------------------------------------------------------------------
Bruce S. MacDonald, Vice President 64,500 76,500 $ 44,113 $ 29,063
of Finance, Chief Financial
Officer and Treasurer
================================================================================================================
</TABLE>
(1) As of October 31, 1998, the market value of a share of Common Stock was
$3.125.
EXECUTIVE PARTICIPATION IN COMPENSATION DECISIONS AND COMPENSATION COMMITTEE;
AUDIT COMMITTEE
Compensation decisions during the fiscal year ended October 31, 1998 were
made by the Board of Directors upon the recommendation of the Compensation
Committee. The Compensation Committee is empowered to make recommendations to
the Board relating to the overall compensation arrangements for senior
management of the Company and any compensation plans in which officers and
directors of the Company are eligible to participate. The Compensation Committee
is comprised of Messrs. McDougall, Preston and Getchell. No person serving on
the Compensation Committee at any time during fiscal 1998 was an executive
officer the Company or had any relationship required to be disclosed under Item
404 of Regulation S-B promulgated by the Securities and Exchange Commission. As
disclosed elsewhere in this Proxy Statement, Mr. McDougall was a part-time
employee of the Company through December 1997.
The Company also has an Audit Committee, the member of which are Messrs.
Getchell, Preston and Rickard. The Audit Committee, among other things, is
empowered to recommend to the Board the engagement of the independent auditors
and to review the scope and procedures of the activities of the independent
auditors and the reports on their audits. The Audit Committee meets periodically
with the independent auditors and management to review their work and confirm
that they are properly discharging their responsibilities.
EMPLOYMENT CONTRACTS AND CHANGE-IN-CONTROL ARRANGEMENTS
In October 1997, the Company executed an employment agreement with Timothy
G. Fallon which has an effective date of November 1, 1996 and expires November
1, 2001. Pursuant to the agreement, which replaced a prior agreement dated
November 4, 1994, Mr. Fallon acts as the Chief Executive Officer and President
of the Company. His annual base salary is $186,400, which is reviewed annually
by the Board. The Company provides Mr. Fallon with an automobile and disability
insurance allowance. If his employment is terminated without cause (including a
deemed termination by reason of a "Change of Control," as defined), Mr. Fallon
is entitled to receive life and health insurance benefits together with
severance payments equal to 1.5 times the annual base salary plus $175,000
payable over 18 months if such termination occurs in 1998, and 1.0 times his
annual base salary plus $150,000 payable over 12 months if such termination
occurs in fiscal years 1999 through 2001. In each case, Mr. Fallon
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<PAGE> 10
will be subject to a period of non-competition equal to the greater of 12 months
or the period during which severance is paid. No benefits are due if Mr.
Fallon's employment is terminated for "cause," as defined.
In addition to bonus payments disclosed above that were paid to him with
respect to fiscal 1998, Mr. Fallon is entitled to incentive bonuses based upon
the achievement of certain performance goals of the Company for fiscal years
1999 to 2001. For fiscal years 1999, 2000 and 2001, his incentive compensation
will include payments of $75,000 for meeting Board approved target sales and
$75,000 for meeting Board approved target EBITDA, again with greater or lesser
payments (non-cumulative) for achieving targets within specified ranges above or
below budget.
On and as of November 1, 1997, the Company entered into an employment
agreement with Bruce S. MacDonald which expires November 1, 2001. Pursuant to
the agreement, Mr. MacDonald acts as the Vice President of Finance, Chief
Financial Officer and Treasurer of the Company. His annual base salary is
$75,000, to be reviewed annually by the Board. The Company provides Mr.
MacDonald with automobile and disability insurance allowances. If his employment
is terminated without cause (including a deemed termination by reason of a
"Change of Control," as defined), Mr. MacDonald is entitled to receive life and
health insurance benefits together with severance payments equal to 1.5 times
the annual base salary plus $50,000 payable over 18 months if such termination
occurs in 1998, and 1.0 times his annual base salary plus $50,000 payable over
12 months if such termination occurs in fiscal years 1999 through 2001. In each
case, Mr. MacDonald will be subject to a period of non-competition equal to the
greater of 12 months or the period during which severance is paid. No benefits
are due if Mr. MacDonald's employment is terminated for "cause," as defined.
In addition to the bonus payments disclosed above that were paid to him
with respect to fiscal 1998, Mr. MacDonald is entitled to incentive bonuses
based upon the achievement of certain performance goals of the Company for
fiscal years 1999 to 2001. Mr. MacDonald's incentive compensation for each of
these years is $50,000 for meeting Board approved target EBITDA, with greater or
lesser payments (non-cumulative) for meeting EBITDA targets within specified
ranges.
Effective December 31, 1997, the Company entered into a consulting
agreement with Frank G. McDougall, Jr., a director of the Company, through Frank
McDougall & Associates for a term of one year. Pursuant to that agreement, Mr.
McDougall provides consulting services to the Company in the area of government
relations and regulations. Mr. McDougall was paid an initial fee of $10,000 on
December 31, 1997 and will receive $1,000 per month from the Company in exchange
for providing consulting services. From January 1995 to December 1997, Mr.
McDougall was a part-time employee of the Company.
COMPENSATION OF DIRECTORS
Directors who are employees of the Company do not receive any fees for
attending Board meetings. Currently, directors who are not employees of the
Company receive $5,000 each year, $2,500 payable on July 1 and $2,500 payable on
January 1, provided the directors participate in a stipulated percentage of the
meetings of the Board for the six months prior to the July 1 and January 1
payment dates, and $500 for each meeting of the Board attended. Based on review
of industry surveys of director compensation for comparable public companies,
effective July 15, 1999 the Company expects to increase these compensation
levels to $7,500 per year, with $3,750 payable July 15 and $3,750 payable
January
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<PAGE> 11
15, provided that required attendance levels have been satisfied. The fee for
attendance at a Board meeting will increase to $750, with a fee of $400 for each
committee meeting attended. The Board voted in September 1998 to automatically
issue 5,000 Common Stock options to each outside director at the beginning of
each fiscal year. Such option issuances to directors are limited to 105,000
options in the aggregate.
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Board is composed of three directors,
Messrs. McDougall, Getchell and Preston. The Compensation Committee also
administers the Company's stock option plans and employee stock purchase plan.
This Committee is charged with the responsibility of reviewing and approving
executive officers' compensation and approving all discretionary grants of stock
options under the Company's stock option plan. The following describes the
compensation programs in effect during fiscal 1998.
Compensation Policy
The Company's compensation policies are designed to pay executives an
annual salary that is industry competitive and an annual bonus that is based
both on the performance of the Company and on individual goals established for
each of the executives for the fiscal year. The Company also has longer term
incentives based on stock options. All three components of compensation are
reviewed annually by the Committee to ensure that salaries remain competitive,
that bonuses reward performance and that stock options provide continued
incentives.
Salaries for executive officers are based on the duties and
responsibilities of the position held by the executive compared with executive
officers of other companies in the industry. Salaries are reviewed and
established within the parameters set forth in employment agreements. Various
industry salary surveys are reviewed and provided to the Committee to review in
establishing compensation.
The officer's performance over the prior year is assessed by comparing it
to objectives and goals that are established by the Board, the Committee and
management in a strategic planning process. Payment of bonuses is currently
determined by reference to specific performance related formulas in the
employment agreements. The Committee approves all such determinations.
The Company periodically grants stock options to some or all of its
executives and key employees as a means of creating a long-term incentive and
benefit. Such stock options are generally granted at the fair market value of
shares of Common Stock on the date of grant. Thus, no benefit will accrue to the
executive or key employee from the stock option grant until the Common Stock
appreciates. This creates a long-term goal for appreciation of the Common Stock
which coincides with the interests of the stockholders.
Chief Executive Officer Compensation
As noted under "Employment Contracts and Change-in-Control Agreements," the
Company has an employment contract with Mr. Fallon that provides for bonuses
upon the achievement of sales and EBITDA goals approved by the Board. The bonus
paid to Mr. Fallon in fiscal 1998 was determined and
9
<PAGE> 12
calculated with reference to those goals. The Company did not grant any stock
options to Mr. Fallon in fiscal 1998.
COMPENSATION COMMITTEE
Frank G. McDougall, Jr.
Robert C. Getchell
David R. Preston
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Frank G. McDougall, Jr., Robert C. Getchell and David R. Preston served on
the Compensation Committee during fiscal 1998. Persons serving on the
Compensation Committee had no relationships with the Company other than their
relationship to the Company as directors entitled to the receipt of standard
compensation as directors and members of certain committees of the Board and
their relationship to the Company as stockholders. No person serving on the
Compensation Committee or on the Board of Directors is an executive officer of
another entity for which an executive officer of the Company serves on the board
of directors or on that entity's compensation committee.
PERFORMANCE GRAPH
The following Performance Graph compares the performance of the Company's
cumulative stockholder return with that of a broad market index (the NASDAQ
Market Index) and a published industry index (the SIC Code Index) for each of
the most recent five fiscal years. The cumulative stockholder return for shares
of Common Stock and each of the indices is calculated assuming that $100 was
invested on October 31, 1993. The Company paid no cash dividends during the
periods shown. The performance of the indices is shown on a total return
(dividends reinvested) basis. The graph lines merely connect year-end dates and
do not reflect fluctuations between those dates.
[Graph omitted]
<TABLE>
FISCAL YEAR ENDING
-----------------------------------------------------------------------
COMPANY/INDEX/MARKET 10/29/93 10/31/94 10/31/95 10/31/96 10/31/97 10/30/98
- -------------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Vermont Pure 100.00 58.54 34.15 43.90 80.49 60.98
Groceries, Related Prods, NEC 100.00 96.56 97.43 89.76 123.23 61.31
NASDAQ Market Index 100.00 106.32 126.11 148.10 194.09 219.46
</TABLE>
10
<PAGE> 13
PROPOSAL 3 -- APPROVAL OF THE VERMONT PURE HOLDINGS, LTD. 1999 EMPLOYEE STOCK
PURCHASE PLAN
The Vermont Pure Holdings, Ltd. 1999 Employee Stock Purchase Plan (the
"Plan") was adopted by the Board of Directors on December 7, 1998. The Plan is
being submitted to the Company's stockholders as required by applicable
provisions of Section 423 of the Code relating to "employee stock purchase
plans" as defined therein. If the Plan is approved by stockholders, an employee
participating in the Plan will incur no federal income tax liability upon the
purchase of shares under the Plan, subject to the rules described below.
The Company will reserve for issuance and purchase by employees under the
Plan an aggregate of 500,000 shares of the Company's Common Stock, subject to
adjustment for stock splits or stock dividends. Shares subject to the Plan may
be shares of the Company's Common Stock now or hereafter authorized but unissued
or shares that were once issued but subsequently reacquired by the Company.
A copy of the Plan is attached to this Proxy Statement as Exhibit A. The
following summary of some of its provisions is qualified in its entirety by
reference to the text of the Plan.
Purpose and Eligibility
The purpose of the Plan is to secure for the Company and its stockholders
the benefits of the incentives inherent in the ownership of the Company's
capital stock by present and future employees of the Company and its
subsidiaries. The Plan is intended to strengthen the mutuality of interests
between the Company's stockholders and employees, including non-management
employees, by encouraging greater numbers of such employees to acquire and hold
shares of the Company's Common Stock. Stock purchase plans similar to the Plan
are common in industry and have proven to be an effective method of motivating
and retaining associates at all levels. The Company anticipates that
participation in the Plan will benefit the Company and its stockholders through
enhanced associate motivation and awareness of the Company's stock performance.
Any of the approximately 170 employees of the Company and its subsidiaries
as of April 30, 1999, and any future employees of the Company or of any future
subsidiaries of the Company, if they are eligible employees, may participate
under the Plan except as noted below.
All regular employees who have attained the age of majority as determined
by the laws of their state of residence and who have completed at least six
months employment and have customary employment of a minimum of 20 hours per
week are eligible to participate. Employees who own 5% or more of the Company's
voting stock are not eligible to participate in the Plan. Additionally, there is
a dollar limit for certain highly compensated employees, and highly compensated
employees who are also directors of the Company are ineligible.
Employees on leave of absence or on temporary layoff as of either of the
twice-yearly offering commencement dates who are otherwise eligible to
participate in the Plan are permitted to enroll in the offering beginning on
that offering commencement date; payroll deductions with respect to any such
employee will begin as of the first pay period after he or she resumes
employment.
Tax Effects of Participation
11
<PAGE> 14
Generally, a participant does not recognize any income for federal income
tax purposes upon joining the Plan or upon purchasing shares under the Plan.
If an employee acquires shares of stock pursuant to the Plan and does not
dispose of them within two years after the commencement of the offering period
in which the shares were acquired, nor within one year after the date on which
the shares were acquired, then any gain realized upon the subsequent disposition
of those shares will be taxable as a long-term capital gain, except that the
portion of such gain equal to the lesser of (a) the excess of the fair market
value of the shares on the date of disposition over the amount paid to the
Company upon purchase of the shares or (b) the excess of the fair market value
of the shares on the date the offering commenced over the amount paid upon
purchase of the shares, is taxable as ordinary income. However, there is no
corresponding deduction for the Company. If an employee disposes of the shares
at a price less than the price at which he or she acquired the shares, then the
employee realizes no ordinary income and has a long-term capital loss measured
by the difference between the purchase price and the selling price.
If an employee disposes of shares acquired in an offering under the Plan
within two years after the date the offering commenced, or within one year after
the date on which the shares were acquired, then the difference between the
purchase price and the fair market value of the shares at the time of purchase
will be taxable to him or her as ordinary income in the year of disposition. In
this event, the Company may deduct from its gross income an amount equal to the
amount treated as ordinary income to each such employee. Any excess of the
selling price over the fair market value at the time the employee purchased the
shares will be taxable as long-term or short-term capital gain, depending upon
the period for which the shares were held. If any shares are disposed of within
either the two-year or one-year period at a price less than the fair market
value at the time of purchase, then the same amount of ordinary income (i.e.,
the difference between the purchase price and the fair market value of the
shares at the time of purchase) is realized, and a capital loss is recognized
equal to the difference between the fair market value of the shares at the time
of purchase and the selling price.
If a participating employee should die while owning shares acquired under
the Plan, then ordinary income may be reportable on his or her final income tax
return.
Commencement, Termination and Modification
The Plan was adopted by the Board of Directors on December 7, 1998 and,
subject to stockholder approval, is expected to commence with an offering period
beginning January 1, 2000.
The Plan and all rights of employees under the Plan will terminate (a) on
the investment date that participating employees would, but for the limitation
set forth below, become entitled to purchase a number of shares greater than the
number of reserved shares remaining available for purchase or (b) at the
discretion of the Board of Directors, at any time before that. If the Plan
terminates because participating employees have become entitled to purchase more
shares than are available for purchase, reserved shares remaining available for
purchase as of the termination date will be issued to participating associates
on a pro rata basis, and any excess funds thereafter remaining in employees'
accounts will be refunded.
The Board of Directors may amend the Plan in any respect, except that the
Plan may not be amended in any way that will cause rights issued under it to
fail to meet the requirements for an
12
<PAGE> 15
employee stock purchase plan as defined in Section 423 of the Internal Revenue
Code which, among other things, requires stockholder approval for an increase in
the number of shares issued under the Plan except pursuant to the anti-dilution
provisions of the Plan.
If the stockholders do not approve the Plan, it is possible that the Board
of Directors may terminate the Plan. Without stockholder approval, current
federal tax law provides the 15% discount from the fair market value of the
stock will be treated as taxable compensation in the year of purchase by the
participating associate, thus negating the advantageous federal tax treatment
the Plan is expected to provide to employees.
Administration
The Plan is administered, at the Company's expense, by the Compensation
Committee of the Board of Directors. The Committee may request advice or
assistance and employ or direct any other persons necessary for the proper
administration of the Plan. Subject to the express provisions of the Plan, the
Committee has the authority to interpret the Plan, to prescribe, amend and
rescind rules and regulations relating to the Plan, and to make all other
determinations necessary or advisable in administering the Plan, all of which
determinations will be final and binding upon all persons, unless otherwise
determined by the Board of Directors.
Purchase Price and Method of Purchase
Participating employees will authorize the Company or subsidiary employer
to make payroll deductions, not exceeding 10% of the salary or wages during the
prior 12-month period, divided by the number of pay periods in the following 12
months. The minimum deduction shall be $10.00 per pay period. The payroll
deductions will be used to purchase shares of stock at the end of each offering
period, as determined by the Committee, at a price equal to 85% of the lesser of
the last trading price of the Common Stock traded on Nasdaq, or any stock
exchange on which the Common Stock is listed, on the commencement and
termination dates of such offering period. The Company will maintain an account
for each participating employee, and will issue periodic reports to the employee
of his or her account balances, although the Plan does not expressly require
such reports to be issued. Participating employees will not pay any brokerage or
similar commission in connection with the purchase of stock under the Plan.
Because the Plan limits each employee's participation to 10% of his or her
compensation, such participation not to exceed $25,000 of the fair market value
of the purchase stock in a calendar year, any employee with an annual
compensation exceeding $250,000, including any executive officers named in the
Summary Compensation Table, could obtain a maximum annual benefit of $3,750.00
(that is, 15% of $25,000) under the Plan. Lesser-paid employees would have
available a proportionately reduced maximum annual benefit.
On April 30, 1999, the closing price of the Company's Common Stock on
Nasdaq was $3.1875. To date, no shares have been issued under the Plan. Based on
the closing price on April 30, 1999, the total market value of the 500,000
shares issuable under the Plan is $1,593,750. If the Plan is approved by the
stockholders, the Company intends to file a registration statement under the
Securities Act of 1933 covering the 500,000 shares thus authorized.
13
<PAGE> 16
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" PROPOSAL
NUMBER 2.
PROPOSAL 3 -- AMENDMENT OF THE CERTIFICATE OF INCORPORATION OF THE COMPANY TO
INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK OF THE COMPANY FROM
20,000,000 SHARES TO 50,000,000 SHARES
By a Board of Directors resolution dated December 7, 1998, the Board of
Directors recommended to the stockholders that the Corporation amend the
Company's Restated Certificate of Incorporation (the "Charter") to increase the
number of authorized shares of capital stock of the Company to 50,500,000, of
which 50,000,000 shares shall be Common Stock, par value $.001 per share, and
500,000 shares shall be Preferred Stock, par value $.001 per share. The current
amount of authorized capital is 20,500,000 shares, including 20,000,000 shares
of Common Stock. No shares of Preferred Stock have been issued. Shares of the
Company's Common Stock, including the additional shares proposed for
authorization, do not have preemptive or similar rights.
As of April 30, 1999, there were 10,259,758 shares issued and outstanding
and approximately __________ shares reserved for future issuance pursuant to
outstanding warrants, convertible debt and options. If the amendment to the
Charter is approved, the Board of Directors will have the authority to issue
__________ additional shares of Common Stock without further stockholder
approval. The Board of Directors believes that the authorized number of shares
of Common Stock should be increased to provide sufficient shares for such
corporate purposes as the Board of Directors may determine to be necessary or
desirable. These purposes may include, without limitation, to acquire other
businesses in exchange for shares of Common Stock, to attract and retain
valuable employees by the issuance of stock options, including additional shares
reserved for future option grants under the any existing or proposed stock
option or employee stock purchase plan of the Company, and to acquire
complementary assets, products or businesses from third parties in exchange for
Common Stock.
Under the Delaware General Corporation Law, the Board of Directors
generally may issue authorized but unissued shares of Common Stock without
further stockholder approval. The Board of Directors does not currently intend
to seek stockholder approval prior to any future issuance of additional shares
of Common Stock, unless stockholder action is required in a specific case by
applicable law, the rules of any exchange or market on which the Company's
securities may then be listed, or the Charter or By-Laws of the Company then in
effect.
The additional shares of Common Stock authorized for issuance pursuant to
this proposal will have all of the rights and privileges which the presently
outstanding shares of Common Stock possess under the Company's Charter. The
increase in authorized shares would not affect the terms or rights of holders of
existing shares of Common Stock. All outstanding shares of Common Stock would
continue to have one vote per share on all matters to be voted on by the
stockholders, including the election of directors.
The issuance of any additional shares of Common Stock by the Company may,
depending on the circumstances under which those shares are issued, reduce
stockholders' equity per share and may reduce the percentage ownership of Common
Stock of existing stockholders. The Company, however, will
14
<PAGE> 17
receive consideration for any additional shares of Common Stock issued, thereby
reducing or eliminating the economic effect to each stockholder of such
dilution.
The authorized but unissued shares of Common Stock could be used to make
more difficult a change in control of the Company. For example, such shares
could be sold to purchasers who might side with the Board of Directors in
opposing a takeover bid that the Board determines not to be in the best
interests of the Company and its stockholders. Such a sale could have the effect
of discouraging an attempt by another person or entity, through the acquisition
of a substantial number of shares of the Company's Common Stock, to acquire
control of the Company, since the issuance of new shares could be used to dilute
the stock ownership of the acquirer. Neither the Charter nor By-Laws of the
Company now contain any provisions that are generally considered to have an
anti-takeover effect, and the Board of Directors does currently plan to propose
any anti-takeover measures in future proxy solicitations. The Company is not
aware of any pending or threatened efforts to obtain control of the Company, and
the Board of Directors has no current intention to use the additional shares of
Common Stock to impede such efforts.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR"
PROPOSAL NUMBER 3.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The table and accompanying footnotes on the following pages set forth
certain information as of April 30, 1999 with respect to the stock ownership of
(I) those persons or groups who beneficially own more than 5% of the Company's
Common Stock, (ii) each director and director-nominee of the Company, (iii) the
Company's Chief Executive Officer and Chief Financial Officer, and (iv) all
directors and executive officers of the Company as a group (based upon
information furnished by such persons). The Company has no other executive
officers. Shares of Common Stock issuable upon exercise of options and warrants
which are currently exercisable or exercisable within 60 days of the date of
this table have been included in the following table.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENTAGE OF
BENEFICIAL OUTSTANDING SHARES
OWNER'S NAME AND ADDRESS OWNERSHIP OWNED
- ------------------------ -------------------- ------------------
<S> <C> <C>
Timothy G. Fallon 512,000(2) 4.6%
Phillip Davidowitz 25,000(3) .2%
Robert C. Getchell 57,000(4) .5%
Frank G. McDougall, Jr. 97,000(1) .9%
</TABLE>
15
<PAGE> 18
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENTAGE OF
BENEFICIAL OUTSTANDING SHARES
OWNER'S NAME AND ADDRESS OWNERSHIP OWNED
- ------------------------ -------------------- ------------------
<S> <C> <C>
David R. Preston 58,000(5) .5%
Norman E. Rickard 54,000(4) .5%
Beat Schlagenhauf 52,000(1) .5%
Richard Worth 59,500(4) .5%
M. Dolores Paoli 947,600(6) 8.4%
41 Bermuda Road
Westport, CT 06880
Bruce S. MacDonald 71,000(1) .6%
All Officers and Directors 985,500(7) 8.6%
as a group (9 individuals)
- --------------------------
</TABLE>
(1) Represents shares of Common Stock issuable pursuant to outstanding stock
options exercisable within 60 days of the date of this table.
(2) Includes 510,000 shares of Common Stock issuable pursuant to outstanding
stock options exercisable within 60 days of the date of this table.
(3) Includes 20,000 shares of Common Stock issuable pursuant to outstanding
stock options exercisable within 60 days of the date of this table.
(4) Includes 52,000 shares of Common Stock issuable pursuant to outstanding
stock options exercisable within 60 days of the date of this table.
(5) Includes 56,000 shares of Common Stock issuable pursuant to outstanding
stock options exercisable within 60 days of the date of this table.
(6) Includes 687,500 shares owned by Ms. Paoli directly, 135,100 shares owned
by Condor Ventures, Inc., a business of which Ms. Paoli's husband is
President, and 125,000 shares issuable pursuant to an outstanding stock
option held by Condor Ventures. See "Certain Relationships and Related
Transactions."
16
<PAGE> 19
(7) Includes 960,000 shares of Common Stock issuable pursuant to outstanding
stock options exercisable within 60 days of the date of this table.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Condor Ventures, Inc. ("Condor"), which is an affiliate of Adnan A.
Durrani, a former director of the Company, and his wife, M. Dolores Paoli, a
former officer and currently a greater than 5% stockholder of the Company, was a
consultant to the Company from January 1990 to December 1997, when the
arrangement terminated. In October 1993, the Company entered into a consulting
agreement under which Condor agreed to render consulting services, including
services in connection with acquisitions by the Company, on a non-exclusive
basis for a period of five years. During the term of the agreement, Condor was
paid $100,000 annually plus an initial fee of $50,000. Condor also received an
option to purchase up to 125,000 shares of Common Stock at an exercise price of
$5.00 per share, which exercise price was reduced to $2.25 per share on May 12,
1995 by action of the Company's Board. This option is fully vested and is
exercisable until October 2003. The Company has also granted Condor certain
"piggyback" and demand registration rights for the Common Stock issuable upon
exercise of the options. On December 12, 1997, the Company and Condor entered
into a Termination Agreement pursuant to which the Company paid Condor $41,667
as a termination payment.
INDEPENDENT ACCOUNTANTS
The Company has selected Feldman Sherb Ehrlich & Co., P.C. (formerly
Feldman Radin & Co., P.C.), of New York City as its independent accountants for
the fiscal year ending October 30, 1999. A representative of Feldman Sherb
Ehrlich & Co., P.C., is expected to be present at the meeting with an
opportunity to make a statement if he desires to do so and is expected to be
available to respond to appropriate questions.
SOLICITATION OF PROXIES
The solicitation of proxies in the enclosed form is made on behalf of the
Company and the cost of this solicitation is being paid by the Company. In
addition to the use of the mails, proxies may be solicited personally or by
telephone or telegraph using the services of directors, officers and regular
employees of the Company at nominal cost. Banks, brokerage firms and other
custodians, nominees and fiduciaries will be reimbursed by the Company for
expenses incurred in sending proxy material to beneficial owners of the
Company's stock.
17
<PAGE> 20
STOCKHOLDER PROPOSALS
In order to be eligible for inclusion in the Company's proxy statement and
form of proxy for the annual meeting scheduled to be held in April 2000,
stockholder proposals must comply with SEC Rule 14a-8 and any other applicable
rules and must be delivered to the Company's principal executive offices at
least 120 days prior to the anniversary date of mailing of this Proxy Statement
or, where the annual meeting date has changed more than 30 days from the prior
year, a reasonable time before the Company mails its proxy materials for the
ensuing year. This year's Annual Meeting was delayed more than 30 days from the
prior year's date, April 2. The Company believes that a reasonable time for
receipt of a proposal complying with Rule 14a-8 for the anticipated April 2000
meeting will be 120 days before the anticipated March 2 mailing date for the
meeting, or November 2, 1999.
In addition, SEC Rule 14a-4 provides that with respect to any proposal or
nomination made by a stockholder at the annual meeting scheduled for April 2000,
the persons named as proxies by the Company in its solicitation materials will
have discretionary authority to vote on such proposal or nomination if the
Company did not have notice of the matter within 45 days of the anniversary date
of mailing of this Proxy Statement or, where the annual meeting date has changed
more than 30 days from the prior year, a reasonable time before the Company
mails its proxy materials for the ensuing year. This year's Annual Meeting was
delayed more than 30 days from the prior year's date, April 2. The Company
believes that a reasonable time for receipt of notice of any stockholder
proposal or nomination for the anticipated April 2000 meeting will be 45 days
before the anticipated March 2 mailing date for the meeting, or January 16,
2000.
OTHER BUSINESS
Action may be taken on the business to be transacted at the meeting on the
date provided in the Notice of the Annual Meeting or any date or dates to which
an original or later adjournment of such meeting may be adjourned. As of the
date of this Proxy Statement, the management does not know of any other matters
to be presented at the meeting. If, however, other matters properly come before
the meeting, whether on the original date provided in the Notice of Annual
Meeting or any dates to which any original or later adjournment of such meeting
may be adjourned, it is intended that the holders of the proxy have discretion
to vote in accordance with their best judgment.
By Order of Board of Directors
Robert C. Getchell
Secretary
Randolph, Vermont
May 15, 1999
18
<PAGE> 21
Exhibit A
---------
VERMONT PURE HOLDINGS, LTD.
1999 EMPLOYEE STOCK PURCHASE PLAN
1. PURPOSE.
The Vermont Pure Holdings, Ltd. 1999 Employee Stock Purchase Plan (the
"Plan") is intended to provide a method whereby employees of Vermont Pure
Holdings, Ltd. (the "Company") will have an opportunity to acquire an ownership
interest (or increase an existing ownership interest) in the Company through the
purchase of shares of the Common Stock of the Company. It is the intention of
the Company that the Plan qualify as an "employee stock purchase plan" under
Section 423 of the Internal Revenue Code of 1986, as amended (the "Code"). The
provisions of the Plan shall, accordingly, be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. DEFINITIONS.
(a) "Board" means the Board of Directors of the Company.
(b) "Code" shall have the meaning set forth in Paragraph 1.
(c) "Committee" means the Compensation Committee of the Board.
(d) "Common Stock" means the common stock, par value $.001 per share, of
the Company.
(e) "Company" shall also include any Subsidiary (as hereinafter defined) of
Vermont Pure Holdings, Ltd. designated as a participant in the Plan by the
Board, unless the context otherwise requires.
(f) "Compensation" means, for the purpose of any Offering pursuant to this
Plan, base pay in effect as of the Offering Commencement Date (as hereinafter
defined). Compensation shall not include any deferred compensation other than
contributions by an individual through a salary reduction agreement to a cash or
deferred plan pursuant to Section 401(k) of the Code or to a cafeteria plan
pursuant to Section 125 of the Code.
(g) "Employee" means any person who is customarily employed by the Company
for more than 20 hours per week and more than five months in any calendar year.
(h) "Offering" shall have the meaning set forth in Paragraph 4.
(i) "Offering Commencement Date" shall have the meaning set forth in
Paragraph 4.
<PAGE> 22
(j) "Offering Termination Date" shall have the meaning set forth in
Paragraph 4.
(k) "Plan" shall have the meaning set forth in Paragraph 1.
(l) "Subsidiary" shall mean any present or future corporation which is or
would constitute a "subsidiary corporation" as that term is defined in Section
424 of the Code.
3. ELIGIBILITY.
(a) Participation in the Plan is completely voluntary. Participation in any
one or more of the Offerings under the Plan shall neither limit, nor require,
participation in any other Offering (as hereinafter defined).
(b) Each employee of the Company shall be eligible to participate in the
Plan on the first Offering Commencement Date, as hereinafter defined, following
the completion of six months of continuous service with the Company.
Notwithstanding the foregoing, no employee shall be granted an option under the
Plan:
(i) if, immediately after the grant, such employee would own stock,
and/or hold outstanding options to purchase stock, possessing 5% or more of
the total combined voting power or value of all classes of stock of the
Company or any Subsidiary; for purposes of this Paragraph, the rules of
Section 424(d) of the Code shall apply in determining the stock ownership
of any employee; or
(ii) which permits his rights to purchase stock under all Section 423
employee stock purchase plans of the Company and its Subsidiaries to exceed
$25,000 of the fair market value of the stock (determined at the time such
option is granted) for each calendar year in which such option is
outstanding; for purposes of this Paragraph, the rules of Section 423(b)(8)
of the Code shall apply.
4. OFFERING DATES.
The right to purchase stock hereunder shall be made available by a series
of six-month offerings (the "Offering" or "Offerings") to employees eligible in
accordance with Paragraph 3 hereof. The Committee will, in its discretion,
determine the applicable date of commencement ("Offering Commencement Date") and
termination date ("Offering Termination Date") for each Offering. Participation
in any one or more of the Offerings under the Plan shall neither limit, nor
require, participation in any other Offering.
5. PARTICIPATION.
Any eligible employee may become a participant by completing a payroll
deduction authorization form provided by the Company and filing it with the
Company's Chief Financial
-2-
<PAGE> 23
Officer 20 days prior to each applicable Offering Commencement Date, as
determined by the Committee pursuant to Paragraph 4.
6. PAYROLL DEDUCTIONS.
(a) At the time a participant files an authorization for a payroll
deduction, the participant shall elect to have deductions made from his or her
pay on each payday during any Offering in which he or she is a participant, at a
specified percentage of his or her Compensation as determined on the applicable
Offering Commencement Date; said percentage shall be in increments of one
percent up to a maximum percentage of ten percent.
(b) Payroll deductions for a participant shall commence on the Offering
Commencement Date when the applicable authorization for a payroll deduction
becomes effective and shall end on the Offering Termination Date of the Offering
to which such authorization is applicable, unless sooner terminated by the
participant as provided in Paragraph 9.
(c) All payroll deductions made for a participant shall be credited to his
or her account under the Plan. A participant may not make any separate cash
payment into such account.
(d) A participant may withdraw from the Plan at any time during the
applicable Offering period.
7. GRANTING OF OPTION.
(a) On the Offering Commencement Date of each Offering, a participating
employee shall be deemed to have been granted an option to purchase a maximum
number of shares of the Common Stock equal to an amount determined as follows:
(i) 85% of the market value per share of the Common Stock on the applicable
Offering Commencement Date shall be divided into an amount equal to the sum of
(X) the percentage of the employee's Compensation which he or she has elected to
have withheld (multiplied by the employee's Compensation over the Offering
period) plus (Y) any amounts in the employee's account on the Offering
Commencement Date that have been carried forward from prior Offerings,
multiplied by (ii) two. Such market value per share of the Common Stock shall be
determined as provided in clause (i) of Paragraph 7 (b).
(b) The option price of the Common Stock purchased with payroll deductions
made during each such Offering for a participant therein shall be the lower of-.
(i) 85% of the average of the bid and the asked prices as reported by
the Nasdaq Stock Market in the Wall Street Journal, or, if the Common Stock
is designated as a national market security by the National Association of
Securities Dealers, Inc. ("NASD"), the last trading price of the Common
Stock as reported by the Nasdaq
-3-
<PAGE> 24
National Market System in the Wall Street Journal, or, if the Common Stock
is listed on an exchange, the closing price of the Common Stock on the
exchange on the Offering Commencement Date applicable to such Offering (or
on the next regular business date on which shares of the Common Stock shall
be traded, in the event that no shares of the Common Stock have been traded
on the Offering Commencement Date); or if the Common Stock is not quoted on
Nasdaq, not designated as a Nasdaq national market security and not listed
on an exchange, 85% of the fair market value on the Offering Commencement
Date as determined by the Committee; and
(ii) 85% of the average of the bid and the asked prices as reported by
the Nasdaq Stock Market in the Wall Street Journal, or, if the Common Stock
is designated as a national market security by the NASD, the last trading
price of the Common Stock as reported by the Nasdaq National Market System
in the Wall Street Journal, or, if the Common Stock is listed on an
exchange, the closing price of the Common Stock on the exchange on the
Offering Termination Date applicable to such Offering (or on the next
regular business date on which shares of the Common Stock shall be traded,
in the event that no shares of the Common Stock shall have been traded on
the Offering Termination Date); or if the Common Stock is not quoted on
Nasdaq, not designated as a Nasdaq national market security and not listed
on an exchange, 85% of the fair market value on the Offering Termination
Date as determined by the Committee.
8. EXERCISE OF OPTION.
(a) Unless a participant gives written notice to the Chief Financial
Officer of the Company as hereinafter provided, his or-her option for the
purchase of Common Stock with payroll deductions made during any Offering will
be deemed to have been exercised automatically on the Offering Termination Date
applicable to such Offering for the purchase of the number of full shares of
Common Stock which the accumulated payroll deductions in his or her account at
that time (plus any amounts in his or her account that have been carried forward
from prior Offerings) will purchase at the applicable option price (but not in
excess of the number of shares for which options have been granted to the
employee, pursuant to Paragraph 7(a)), and any excess in his account at that
time will be automatically returned to the Participant, except as otherwise
provided in Paragraph 8(b).
(b) Fractional shares will not be issued under the Plan and any accumulated
payroll deductions which would have been used to purchase fractional shares
shall be automatically carried forward to the next Offering unless the
participant elects, by written notice to the Chief Financial Officer of the
Company, to have the excess cash returned to the participant.
9. WITHDRAWAL AND TERMINATION.
(a) Prior to the Offering Termination Date for an Offering, any participant
may withdraw the payroll deductions credited to his or her account under the
Plan for such Offering
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<PAGE> 25
by giving written notice to the Chief Financial Officer of the Company. All of
the participant's payroll deductions credited to such account will be paid to
the participant promptly after receipt of notice of withdrawal, without
interest, and no future payroll deduction will be made from his or her pay
during such Offering. The Company will treat any attempt to borrow by a
participant on the security of accumulated payroll deductions as an election to
withdraw such deductions.
(b) A participant's election not to participate in, or withdrawal from, any
Offering will not have any effect upon his or her eligibility to participant in
any succeeding Offering or in any similar plan which may hereafter be adopted by
the Company.
(c) Upon termination of the participant's employment for any reason,
including retirement but excluding death, the payroll deductions credited to his
or her account will be returned to the participant, or, in the case of his or
her death, to the person or persons entitled thereto under Paragraph 13.
(d) Upon termination of the participant's employment because of death, his
or her beneficiary (as defined in paragraph 13) shall have the right to elect,
by written notice given to the Company's Chief Financial Officer prior to the
expiration of a period of 90 days commencing with the date of the death of the
participant, either:
(i) to withdraw all of the payroll deductions credited to the
participant's account under the Plan; or
(ii) to exercise the participant's option for the purchase of stock on
the Offering Termination Date next following the date of the participant's
death for the purchase of the number of full shares which the accumulated
payroll deductions in the participant's account at the date of the
participant's death will purchase at the applicable option price (subject
to the limitation contained in Paragraph 7(a)), and any excess in such
account will be returned to said beneficiary. In the event that no such
written notice of election shall be duly received by the office of the
Company's Chief Financial Officer, the beneficiary shall automatically be
deemed to have elected to withdraw the payroll deductions credited to the
participant's account at the date of the participant's death and the same
will be paid promptly to said beneficiary.
10. INTEREST.
No interest will be paid or allowed on any money paid into the Plan or
credited to the account of any participating employee.
11. STOCK.
(a) The maximum number of shares of Common Stock available for issuance and
purchase by employees under the Plan, subject to adjustment upon changes in
capitalization of
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<PAGE> 26
the Company as provided in Paragraph 16, shall be 500,000 shares of Common
Stock, $.001 par value per share, of the Company, either authorized but unissued
or held in treasury. If the total number of shares for which options are
exercised on any Offering Termination Date in accordance with Paragraph 8
exceeds the number of shares that remain available for issuance and purchase by
employees under the Plan, the Company shall make a pro rata allocation of the
shares available for delivery and distribution in an equitable manner, with the
balances of payroll deductions credited to the account of each participant under
the Plan returned to the participant.
(b) The Participant will have no interest in the stock covered by his or
her option until such option has been exercised.
12. ADMINISTRATION.
The Plan shall be administered by the Committee. The interpretation and
construction of any provision of the Plan and adoption of rules and regulations
for administering the Plan shall be made by the Committee Determinations made by
the Committee with respect to any matter or provision contained in the Plan
shall he final, conclusive and binding upon the Company and upon all
participants, their heirs or legal representatives. Any rule or regulation
adopted by the Committee shall remain in full force and effect unless and until
altered. or repealed by the Committee.
13. DESIGNATION OF BENEFICIARY.
A participant shall file with the Chief Financial Officer of the Company a
written designation of a beneficiary who is to receive any Common Stock and/or
cash under the Plan. Such designation of beneficiary may be changed by the
participant at any time by written notice. Upon the death of a participant and
upon receipt by the Company of proof of the identity and existence of a
beneficiary validly designated by the participant under the Plan, the Company
shall deliver such Common Stock and/or cash to such beneficiary. In the event of
the death of a participant and upon receipt by the Company of proof of the
identity and existence of a beneficiary validly designated by the participant
under the Plan, the Company shall deliver such Common Stock and/or cash to such
beneficiary. In the event of the death of a participant and in the absence of a
beneficiary validly designated under the Plan who is living at the time of such
participant's death, the Company shall deliver such Common Stock and/or cash to
the executor or administrator of the estate of the participant. No beneficiary
shall, prior to the death of the participant by whom he or she has been
designated, acquire any interest in the Common Stock and/or cash credited to the
participant under the Plan.
14. TRANSFERABILITY.
Neither payroll deductions credited to a participant's account nor any
rights with regard to the exercise of an option or to receive Common Stock under
the Plan may be assigned, transferred, pledged, or otherwise disposed of in any
way by the participant other than by will or
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<PAGE> 27
the laws of descent and distribution. Any such attempted assignment, transfer,
pledge, or other disposition shall be without effect.
15. USE OF FUNDS.
All payroll deductions received or held by the Company under this Plan may
be used by the Company for any corporate purpose, and tile Company shall not be
obligated to segregate such payroll deductions.
16. EFFECT OF CHANGES OF COMMON STOCK.
If the Company shall subdivide or reclassify the Common Stock which has
been or may be optioned under this Plan, or shall declare thereon any dividend
payable in shares of such Common Stock, or shall take any other action of a
similar nature affecting such Common Stock, then the number and class of shares
of Common Stock which may thereafter be optioned (in the aggregate and to any
participant) shall be adjusted accordingly and in the case of each option
outstanding at the time of any such action, the number and class of shares which
may thereafter be purchased pursuant to such option and the option price per
share shall be adjusted to such extent as may be determined by the Committee,
following consultation with the Company's independent public accountants and
counsel, to be necessary to preserve the rights of the holder of such option.
17. AMENDMENT OR TERMINATION.
The Board may at any time terminate or amend the Plan. No such termination
shall affect options previously granted, nor may an amendment make any change in
any option theretofore granted which would adversely affect the rights of any
participant holding options under the Plan, provided, that in the event the Plan
is not approved by the stockholders of the Company pursuant to Paragraph 20, the
Plan may be terminated, and funds received or held by the Company under this
Plan returned to participants, without regard to any such rights.
18. NOTICES.
All notices or other communications by a participant to the Company under
or in connection with the Plan shall be deemed to have been duly given when
received by the Chief Financial Officer of the Company.
19. MERGER OR CONSOLIDATION.
If the Company shall at any time merge into or consolidate with another
corporation, the holder of each option then outstanding will thereafter be
entitled to receive at the next Offering Termination Date, upon the exercise of
such option and for each share as to which such option shall be exercised, the
securities or property which a holder of one share of the Common Stock
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<PAGE> 28
was entitled to upon and at the time of such merger or consolidation. In
accordance with this Paragraph and Paragraph 16, the Committee shall determine
the kind and amount of such securities or property which such holder of an
option shall be entitled to receive. A sale of all or substantially all of the
assets of the Company shall be deemed a merger or consolidation for the
foregoing purposes.
20. APPROVAL OF STOCKHOLDERS.
The Plan was approved by the Board of Directors on December 7, 1998. The
Plan is subject to the approval of the stockholders of the Company at their next
annual meeting or at any special meeting of the stockholders for which one of
the purposes of such a special meeting shall be to act upon the Plan.
21. GOVERNMENTAL AND OTHER REGULATIONS.
The Plan, and the grant and exercise of the rights to purchase shares
hereunder, and the Company's obligation to sell and deliver shares upon the
exercise of rights to purchase shares, shall be subject to all applicable
federal, state and foreign laws, rules and regulations, and to such approvals by
any regulatory or governmental agency as may, in the opinion of counsel for the
Company, be required. The Plan shall be governed by, and construed and enforced
in accordance with, the provisions of Sections 421, 423 and 424 of the Code and
the substantive laws of the Commonwealth of Massachusetts. In the event of any
inconsistency between such provisions of the Code and any such laws, said
provisions of the Code shall govern to the extent necessary to preserve the
favorable federal income tax treatment afforded employee stock purchase plans
under Section 423 of the Code.
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<PAGE> 29
VERMONT PURE HOLDINGS, LTD. - PROXY
SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING TO BE HELD ON JUNE 15, 1999
The undersigned Stockholder(s) of VERMONT PURE HOLDINGS, LTD., a Delaware
corporation ("Company"), hereby appoints Frank G. McDougall, Jr. and Timothy G.
Fallon, or either of them, with full power of substitution and to act without
the other, as the agents, attorneys and proxies of the undersigned, to vote the
shares of stock held by the undersigned or which the undersigned may be entitled
to vote at the Annual Meeting of Stockholders of the Company to be held on June
15, 1999 and at all adjournments thereof. This proxy will be voted in accordance
with the instructions given on the reverse and in the discretion of the proxies
upon all other matters that may properly come before the Meeting. IF NO
INSTRUCTIONS ARE GIVEN, THIS PROXY WILL BE VOTED FOR ALL OF THE FOLLOWING
PROPOSALS.
The undersigned hereby revokes all proxies, if any, hitherto given by him
to others for said Meeting.
(CONTINUED, AND TO BE SIGNED, ON OTHER SIDE.)
<PAGE> 30
PLEASE DATE, SIGN AND MAIL YOUR PROXY
CARD BACK AS SOON AS POSSIBLE!
ANNUAL MEETING OF STOCKHOLDERS
VERMONT PURE HOLDINGS, LTD.
JUNE 15, 1999
PLEASE DETACH AND MAIL IN THE ENVELOPE PROVIDED
<TABLE>
<S> <C> <C> <C>
Please mark your
A [X] votes as in this
example
FOR all nominees WITHHOLD NOMINEES: FOR AGAINST ABSTAIN
listed at right AUTHORITY to Timothy G. Fallon 2. To approve the
except as marked vote for all Phillip Davidowitz Vermont Pure
to the contrary nominees Robert C. Getchell Holdings, Ltd. 1999 [ ] [ ] [ ]
below listed at right Frank G. McDougall, Jr. Employee Stock
David R. Preston Purchase Plan.
1. Election of Norman E. Rickard
the following [ ] [ ] Beat Schlagenhauf 3. To amend the Certifi-
Directors: Richard Worth cate of Incorporation
to increase the
authorized common [ ] [ ] [ ]
stock of the Company
to 50,000,000 shares.
4.In their discretion, the proxies are
authorized to vote upon such other
business as may come before the meeting or
any adjournment thereof.
INSTRUCTIONS: To withhold authority to vote for
any individual nominee, write that nominee's name
in the space below.
____________________________________________ I PLAN ON ATTENDING THE ANNUAL MEETING [ ]
Signature __________________________Signature if held jointly _______________________________________ Dated ________________, 1999
</TABLE>
NOTE: Please sign exactly as name appears above. When shares are held by
joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such.
If a corporation, please sign in full corporate name by President or
other authorized officer. If a partnership, please sign in
partnership name by authorized person.
