SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended October 30, 1999
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _____ to_______
Commission File Number 1-11254
VERMONT PURE HOLDINGS, LTD.
(Exact name of business issuer in its charter)
DELAWARE 06-1325376
(State or other jurisdiction of I.R.S. Employer Identification Number
incorporation or organization)
P.O. BOX C, ROUTE 66, CATAMOUNT INDUSTRIAL PARK, RANDOLPH, VERMONT 05060
(Address of principal executive offices and zip code)
Issuer's telephone number, including area code: (802) 728-3600
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, par value $.001 per share
(Title of Class)
Check whether the Issuer: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes [X] No [ ]
Check if no disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is contained herein, and no disclosure will be contained, to the best of the
Issuer's knowledge, in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Yes [X] No [ ]
The Issuer's revenues for the most recent fiscal year were $31,396,375.
Based on the last sale at the close of business on January 15, 2000, the
aggregate market value of the Issuer's common stock held by non-affiliates of
the Issuer was approximately $ 30,171,820.
The number of shares outstanding of the Issuer's Common Stock, $.001 par value,
was 10,289,758 on January 19, 2000.
Transitional Small Business Disclosure Format (check one): Yes [] No [X]
ITEM 1. BUSINESS.
The Company bottles, markets and distributes natural spring water under
the "Vermont Pure" and "Hidden Spring" brands to the retail consumer and
home/office markets. The Company sells its products primarily in New England,
New York and New Jersey as well as Mid-Atlantic and Mid-Western states and the
northern Virginia, Washington, D.C., Baltimore metropolitian area.
INDUSTRY BACKGROUND
Bottled water has been and continues to be a fast growing segment of
the beverage industry. According to studies prepared by the Beverage Marketing
Corporation, total bottled water consumption in the United States more than
quadrupled from 1980 to 1998. Annual consumption increased from 2.8 gallons per
capita in 1980 to 13.9 gallons per capita in 1998, and it is projected to reach
14.2 gallons per capita by the year 2000. Since 1991, bottled water per capita
consumption has grown by over 44% or almost 4 gallons. Bottled water volume in
the United States has grown significantly, increasing from the approximately 1.1
billion gallons in 1984 to approximately 3.8 billion gallons in 1998; from
approximately $1.3 billion in sales in 1984 to over $4.3 billion in 1998. The
studies show that bottled water is the fastest growing beverage category in
the industry.
The bottled water market may be divided into two distinct categories:
non-sparkling (still or non-carbonated water) which accounts for approximately
91% of bottled water sales and sparkling (carbonated) which accounts for
approximately 9% of bottled water sales. Non-sparkling water picked up over 98%
of incremental gain since 1990. All of the Company's natural spring water
products are in the non-sparkling category.
The Company believes that the development and continued growth of
bottled water markets since the early 1980's reflects growing public awareness
of, and fears about, environmental pollution, including the effect on many
municipal water sources of lead, carcinogenic chemical by-products from
over-chlorination, toxic waste dumps, landfills and bacterial contamination. In
addition, the Company believes that consumers perceive bottled water as a
healthy and refreshing beverage alternative to beer, liquor, wine, soft drinks,
coffee, tea, juices and juice products. The Company anticipates that sales of
bottled water will continue to grow as increased health and fitness
consciousness, alcohol moderation and caffeine and sodium avoidance continue to
influence consumer choice.
COMPANY BACKGROUND
Incorporated in Delaware in 1990, the Company acquired the business of
Vermont's Hidden Spring, Inc., a local Vermont bottled water company, in July
1991. The assets included one spring on 1.7 acres of land, a 10,000 square foot
office facility and bottling plant in Randolph, Vermont and the "Vermont's
Hidden Spring" brand. Since that acquisition, the Company has acquired
additional springs on approximately 65 acres of land and built a second office,
bottling and warehouse facility of 32,000 square feet in Randolph, Vermont. This
facility is currently being expanded to approximately 71,000 square feet.
Immediately after the acquisition of the business of Vermont's Hidden
Spring, Inc., the Company developed a new brand under the label, "Vermont Pure."
The Vermont Pure brand is positioned as a premium brand for the general consumer
market with a wide distribution in supermarkets, convenience stores and other
consumer outlets, as well as in home and office markets. The Company has focused
on distributing the Vermont Pure brand in the New England, New York, New Jersey
and Mid-Atlantic regions since 1991, and more recently the Company has expanded
its distribution into the Northern Virginia - Washington, D.C. - Baltimore
metropolitan and the Northern Mid-Western markets.
The Company retained its original product tradename, "Vermont's Hidden
Spring," and subsequently modified it to "Hidden Spring". The Company currently
markets this brand to essentially the same types of markets as the Vermont Pure
brand. It also actively uses trademarks and brands that it has acquired through
acquisitions including Happy Spring Water (TM), Excelsior Spring Water (TM),
Vermont Natural's(TM) and Coffee Time of Vermont. The Company considers its
trademarks, trade names and brand identities to be very important to its
competitive position, and defends its brands vigorously. See "Competition"
below.
Because the home/office bottled water distribution market is a
fragmented yet well established part of the bottled water market and generates
margins and cash flows that compare favorably with consumer bottled water, the
Company has since the mid-1990's sought to expand home/office distribution in
its home market of Vermont and more recently developed and expanded its share of
the Northern New York and Northern New England home/office markets. In May 1996,
the Company through its wholly owned subsidiary, Vermont Pure Springs Inc.
("Springs"), purchased certain assets of the spring water division of Happy Ice
Corporation used in the bottling, sale and distribution of spring water in three
and five gallon bottles, the sale of a variety of coffee, tea and hot beverage
supplies for home and office customers. In addition, Springs assumed a lease for
a distribution warehouse in Buffalo, New York. The market and distribution area
for these products is in Buffalo, Syracuse, Rochester and Western New York.
The Company has continued a strategy of incremental growth by
acquisition in fiscal 1997, 1998, and 1999. In March 1997, the Company purchased
certain assets and assumed selected liabilities of the home/office business of
Greatwater Refreshment Services, Inc., based in upstate New York. In July 1997,
the Company acquired A.M. Fridays, Inc., a home/office distributor of bottled
water, coffee, and vending services, with warehouse distribution based in
Manchester, New Hampshire and Shelton, Connecticut. The Company believes this
acquisition has facilitated its expansion into northern Massachusetts. In August
1997, the Company purchased the stock of Excelsior Springs Water Company, Inc.,
a home and commercial bottled water and coffee distributor in the Albany,
Saratoga Springs and Plattsburgh, New York markets.
During fiscal 1998, the Company acquired the worldwide trademark and
distribution rights for AKVA Icelandic bottled spring water, absorbing the
United States distribution of AKVA into its existing operations in December
1997. In January 1998, the Company acquired the assets of Vermont Coffee Time,
Inc. of Williston, Vermont. Vermont Coffee Time, which had total sales of $1.5
million in 1997, delivers Green Mountain Coffee and spring water to offices and
homes in Vermont and parts of upstate New York and New Hampshire. In May,
Vermont Pure acquired the home and office delivery assets of Perrier Group of
America in the Albany, New York market. Perrier's sales in this market at the
time of the acquisition were about $2 million annually. The Company also
completed four small acquisitions of home and office customer bases with
combined sales of about $500,000 annually.
Continuing with this strategy during fiscal 1999, the Company acquired
the stock of Adirondack Coffee Services, Inc., which had 1998 annual sales of
approximately $1.5 million. Adirondack Coffee serviced home and office customers
primarily in the Albany, New York and Rutland, Vermont areas. During fiscal
1999, the Company also completed 8 small acquisitions of home and office
customer bases with sales aggregating at approximately $800,000. In all cases,
the acquisitions of the home and office businesses were absorbed into the
Company's existing operations in the respective market area.
To date, the Company has not experienced significant problems in
integrating its acquired businesses with its existing operations. However, the
acquisition of new businesses may require management to devote time and energy
to the successful, efficient and timely integration of operations, labor forces,
administrative systems (including accounting practices and procedures and
management information systems), and varying corporate cultures. Although the
Company does not expect to grow by acquisition faster than its ability to
integrate new businesses with existing operations, there can be no assurance
that management will not find it necessary to devote unanticipated time and
effort to integrating new businesses, with possible adverse effects on the
Company's business as a whole.
DESCRIPTION OF WATER SOURCES
The primary sources of the natural spring water used by the Company are
springs located at the Company's properties in Randolph and Tinmouth, Vermont,
and a spring owned by a third party in Stockbridge, Vermont, that is subject to
a water supply contract in favor of the Company.
Percolation through the earth's surface is nature's best filter of
water. The Company believes that the exceptionally long percolation period of
natural spring water in the central Vermont area and in particular in the area
of its springs assures a high level of purity. Moreover, the long percolation
period permits the water to become mineralized and Ph balanced.
Management believes that the age and extended percolation period of its
natural spring water provides the natural spring water with certain distinct
attributes: a purer water; noteworthy mineral characteristics including the fact
that the water is sodium free and has a naturally balanced Ph; and a light,
refreshing taste.
In addition to drawing water from its own springs, the Company
purchases bulk quantities of water from natural springs owned or operated by
non-affiliated entities. All of such springs are approved sources for natural
spring water. See "Government Regulation". During fiscal 1999 and 1998,
purchases of spring water from a non-affiliated source in Vermont amounted to
approximately half of the Company's usage of spring water. The Company is
actively exploring the acquisition of additional spring sources that would
enable it to reduce its reliance on third-party springs.
The Company has for several years purchased spring water from an
unaffiliated source in Stockbridge, Vermont. Until late 1999, the Company had no
contract with respect to this source. Commencing in November 1999, the Company
has obtained a 50-year water supply contract to purchase, on a first priority
basis, up to 5,000,000 gallons per month from the spring owner. For additional
information, see Item 5, "Market for Common Equity and Related Stockholder
Matters." Because this amount is well in excess of the Company's current needs
and within the apparent capacity of the spring, the Company believes it can
readily meet its bulk water supply needs for the foreseeable future. However, if
this supplier's spring source were no longer an approved source for natural
spring water by reason of contamination or otherwise, then, unless the Company
could find adequate amounts of bulk spring water from other suppliers or
sources, the Company's business would likely be materially adversely affected by
an interruption in supply. The Company believes that it could find adequate
supplies of bulk spring water from other sources, but that it might suffer
inventory shortages or inefficiencies, such as increased purchase or transport
costs, in obtaining such supplies.
The Company is highly dependent on the integrity and existence of the
natural springs from which it obtains its spring water. Natural occurrences
beyond the control of the Company such as drought, earthquake or other
geological changes, a change in the chemical or mineral content or purity of the
water or environmental pollution may affect the amount and quality of the water
emanating from the springs the Company uses. Any such occurrence may have an
adverse impact on the business of the Company.
PRODUCTS
The Company's natural spring water is sold under the Vermont Pure and
Hidden Spring brands and is packaged in various bottle sizes ranging from 8
ounces to 1.5 liters and is sold in single units and plastic rings of six and
eight bottles. These are sold in twelve pack and twenty four pack cases,
depending on the market to which the product is targeted. In recent years, sales
indicate that the most preferred container sizes are "single serve" sizes" - 750
ml and .5 liter. The Company uses a sports cap on various product sizes to
create interest and add extra value. Consumer sizes are bottled in clear PET
(polyethylene terephthalate) recyclable bottles which is perceived in the
marketplace as a high quality package. The home/office natural spring water
products are sold in three and five gallon bottles. The Company rents water
coolers to dispense the bottled water from. These coolers are available in cold,
warm and/or hot temperature configurations. In conjunction with the home/office
accounts, the Company also distributes a variety of coffee, tea and other hot
beverage products and related supplies. The Company rents or supplies multi
burner coffee machines to customers. In addition, the Company supplies whole
beans and coffee grinders for fresh ground coffee as well as cappuccino machines
to restaurants.
MARKETING
The Company generally markets its Vermont Pure products as "premium"
domestic bottled water products. A premium bottled water product is
distinguished from other available bottled water products by being packaged in
small portable containers, typically PET recyclable bottles, and by being
classified as a natural spring water by the Food and Drug Administration
("FDA"). The Company prices its Vermont Pure brand competitive to other domestic
premium brands but lower than imported premium water products. The Hidden Spring
products are similarly packaged and sold to retail grocery and convenience
markets.
The Company markets its products by highlighting the unique
characteristics of the Company's water, namely a natural spring source, purity,
mineral composition and desirable taste. The Company also uses the image of the
State of Vermont in its marketing and brand identification. The Company believes
that products originating from Vermont have the general reputation for being
pure, wholesome, trustworthy and natural. The State of Vermont also is
nationally recognized as an environmentally clean and health conscious state
with strict regulations protecting its natural resources.
The Company's premium products are bottled in sleek, clear plastic PET
recyclable bottles. The Company believes that this is the "ultimate" consumer
bottle package because it is clean, clear, light and recyclable and generally is
perceived by consumers to be upscale. The Company believes that the high quality
packaging of its products enhances their image as premium domestic bottled water
products.
The Company has focused its consumer product marketing and sales
activities in the eastern and mid-western United States. The Company currently
distributes its products in the New England, New York, New Jersey, Mid-Atlantic
and Northern Mid-Western states and the Northern Virginia - Washington, D.C. -
Baltimore metropolitan area.
The Company's home/office sales are generated and serviced using
directly operated facilities, Company employees and vehicles as well as Company
designated distributors. The Company generally uses the Vermont Pure brand for
this market and maintains distribution routes in its various market areas.
SLOTTING FEES
For the Company to achieve placement of its retail consumer products in
certain supermarket chains and individual supermarket stores, it may sometimes
be necessary for the Company to purchase shelf space by paying slotting fees.
Typically, supermarket chains and prominent local supermarkets impose these
charges as a one time payment before the products are permitted in the store or
chain. Slotting fees are less frequently imposed by other types of retail
outlets such as individual convenience stores and delicatessens. The fees are
negotiated on an individual basis. As the Company has become better established
and its brands have achieved greater recognition, the Company has become less
dependent on slotting fees to gain space. Nevertheless, like many producers of
food products, the Company pays slotting fees in some cases, and expects to
continue to do so.
ADVERTISING AND PROMOTION
The Company advertises its products primarily through television and
radio media. In connection with this advertising, the Company uses point of
sale, in-store displays, price promotions, store coupons, free-standing inserts
and cooperative and trade advertising. The Company has also actively promoted
its products through sponsorship of various organizations and sporting events.
In recent years, the Company has sponsored professional golf and tennis events,
as well as major ski areas and sports arenas, and various charitable and
cultural organizations, such as Vermont Special Olympics and the Vermont
Symphony Orchestra.
DISTRIBUTION AND SALES
The Company uses major beverage distributors for the distribution of
its consumer products, and distributes its home/office products directly. Using
distributors is typical in the beverage industry as an efficient use of capital
for maximum market penetration. Beverage distributors purchase the products of
many companies and then wholesale them to retail chains or make bulk retail
sales. Distributors generally have established relationships with local retail
outlets for beverage products and facilitate obtaining shelf space.
Occasionally, the Company sells its products directly to grocery store chains.
The Company distributes its Vermont Pure brand with a number of
distributors. The Company is obligated to supply the distributors with their
requirements of the Vermont Pure brand at established prices.
The Company made a significant change to its distribution network
effective in April 1999 when it terminated its relationship with Coca-Cola
Enterprises, Inc. ("CCE"), a long-time distributor. CCE had been a significant
customer of the Company for several years, with sales to CCE, expressed as a
percentage of total sales, equal to 16%, 30% and 31% in fiscal years 1999, 1998
and 1997, respectively. Early in calendar 1999, the Company concluded that it
was highly likely that Coca Cola USA would market its own brand of purified
water in the relatively near future, and that CCE would probably distribute that
brand. To alleviate the uncertainty and disruption to its distribution network
that would accompany any ill-timed decision by CCE not to distribute Vermont
Pure water, the Company decided to terminate its relationship with CCE in early
spring of 1999. This provided the Company with an opportunity to establish
alternative distribution systems in areas served by CCE, and to do so before the
warm summer months when sales volumes rise sharply. Coca Cola USA subsequently
introduced Dasani, Coca Cola's brand of purified water, which is distributed by
CCE.
Although sales of the Company's retail PET products declined in fiscal
year 1999, in part due to distribution factors, management believes that the
timing of its decision to terminate the Company's relationship with CCE helped
to minimize the disruption and inefficiencies that inevitably follow a
significant change in distribution. Although it was necessary for the Company to
use several smaller distributors to replace CCE, the Company believes that it
has taken steps to solidify and improve its distribution system and that it is
in a better position than if it had left the timing of the matter to CCE. The
continuing growth of the Company's home and office business also lessened the
adverse effects of changing this part of the Company's retail PET distribution
system.
As discussed elsewhere, the Company is pursuing an acquisition strategy
to purchase independent home and office bottlers and distributors in New England
and New York State. Management's decision to expand in this market has been
driven by, among other things, attractive margins and good cash flows from
equipment rentals, as well as by the advantages of product diversification, such
as diminished reliance on a single segment of the market. Moreover, the Vermont
Pure brand in the multi gallon or home/office setting affords consumers an
opportunity to sample the product, which the Company believes augments retail
sales and contributes to brand awareness.
The Company markets and distributes its water directly to homes and
offices in five and three gallon reusable bottles. These products are
distributed from Company operated warehouses and vehicles by employees
throughout Northern New York and New England. Deliveries are made to customers
on a regularly scheduled basis. Water coolers, coffee brewers, coffee and other
products related to these lines are also distributed on the routes. The Company
also sells its Hidden Spring consumer products on these lines to homes, offices
and retail outlets. The Company utilizes a network of outside distributors to
distribute the Company's water and ancillary products. The Company does not own
any of the assets or employ any of the personnel involved with the distribution
of the water in these areas.
The Company ships its consumer products from its bottling facilities in
Randolph, Vermont by common carrier either directly to beverage distributors,
retail outlets or to authorized warehouses for later distribution to beverage
distributors and retail outlets. Storage is charged on a per pallet basis and
transportation costs vary according to the distance of the shipment.
The Company employs a sales force of 27 persons for retail and
home/office sales. The Company's sales personnel act as liaison between
distributors/customers and the Company for ordering product, facilitating
distribution, servicing retail outlets, home/office customers and warehouse
distribution. Sales personnel actively seek to expand the number of retail
outlets, distributors, offices, and homes purchasing the Company's products.
CONTRACT PACKAGING
The Company performs private label contract packaging of its natural
spring water for distributors of other brands of bottled water and grocery store
chains for house brands. The Company also packs five gallon home and office
containers for third parties. Contract packaging is very price competitive and
typically is performed under short-term arrangements. The Company seeks
opportunities for contract packaging for a variety of reasons, including the
fact that it develops favorable relationships with retail chains.
SUPPLIES
The Company does not manufacture any of the bottles or packaging in
which its products are sold. The Company purchases all of its PET bottles and
the plastic caps used thereon from major plastic bottle vendors. Because of the
intense demand for this form of bottle, from time to time the Company has
experienced delays in obtaining an adequate number of bottles. Moreover, in 1994
and 1995, the market for plastic bottles and corrugated packaging was volatile
and had an adverse impact on the cost of goods sold at that time. In 1996, resin
prices that dictate the cost of PET plastic dropped and industry capacity
increased. Consequently, the Company's cost for plastic bottles dropped
significantly and remained stable in 1997. During this period, the Company
negotiated a three-year contract with a bottle supplier for all of its needs. In
1998, this agreement was extended through 2001. During 1999, the Company
experienced two price increases due to the cost of resin rising. The bottles
supplied under the contract for many of its raw materials are priced by
reference to the market price of resin. Notwithstanding its contracts, the
Company may experience market instability with respect to raw material supplies.
No assurance can be given that the Company will be able to obtain the supplies
it requires on a timely basis or that the Company will be able to obtain them at
prices that allow it to maintain the profit margin it has had in the past. Any
raw material disruption or price increase may result in an adverse impact on the
financial condition and prospects for the Company.
For information about the Company's spring water sources, see
"Description of Water Sources".
SEASONALITY
The Company's business is seasonal, with the consumer portion of the
business being somewhat more seasonal than the home and office market. The
period from June to September represents the peak period for sales and revenues
due to increased consumption of beverages during the summer months in the
Company's core Northeastern United States market.
COMPETITION
Management believes that bottled natural spring water historically has
been a regional business in the United States. As a result there are numerous
operating springs within the United States producing a large number of branded
products which are offered in local supermarkets and other retail outlets in the
smaller consumer sizes and sold to the home and office markets in one gallon and
multiple gallon containers.
More recently, the trend has been toward the development of national
brands of natural spring water. Dominating the national market are The Perrier
Group of America, Inc. (whose brands include Arrowhead Mountain Spring Water,
Poland Spring, Ozarka Spring Water, Great Bear, Deer Park, Ice Mountain and
Zephyrhills Natural Spring Water) and Great Brands of Europe (whose brands
include Evian Natural Spring Water and Dannon Natural Spring Water). Perrier is
owned by Nestle. In addition, there are many other strong regional brands, such
as Naya, Crystal Geyser and Sparkletts. Coca-Cola Bottling Company is
distributing its own brand of purified water under the Dasani trademark. The
Pepsi-Cola Company distributes a brand of bottled spring water under the Avalon
label and is now selling a purified drinking water under the Aquafina trademark.
Consumers may also choose home water purification systems in lieu of drinking
spring water, or may choose to drink beverages other than spring waters, such as
soft drinks, coffee, juices, beer and wine.
Many of the Company's regional and national competitors are well
established companies with recognized brand names and consumer loyalty.
Moreover, these companies, as compared to Vermont Pure, have substantially
greater financial resources and have established market positions, proprietary
trademarks, distribution networks and bottling facilities. The Company also
faces competition from the fast growing "private label" and contract packaged
brands of natural spring water. These brands compete on a low-price basis and
often occupy premium shelf space because they are retailer brands (also see
"Contract Packaging"). Additionally, the Company faces competition from Canadian
spring waters which price their product aggressively due to the exchange rate
differential between the Canadian and U.S. dollars.
The home and office distribution markets include a number of national
companies, such as Culligan, Perrier (Poland Spring, Great Bear and Deer Park),
as well as Suntory Group (Belmont Springs). There are also local well
established bottled water operators that compete with the Company.
The Company competes on the basis of pricing, association with the
image of the State of Vermont, attractive packaging, customer service in the
home/office business, and brand recognition. The Company considers its
trademarks, trade names and brand identities to be very important to its
competitive position, and defends its brands vigorously.
TRADEMARKS
The Company sells its natural spring water products under the trade
names Vermont Pure Natural Spring Water, Hidden Spring, Excelsior Spring Water,
Happy Spring Water and Vermont Naturals. The Company's labels which include
these trade names are registered with the United States Patent and Trademark
Office.
GOVERNMENT REGULATION
The Federal Food and Drug Administration ("FDA") regulates bottled
water as a "food." Accordingly, the Company's bottled water must meet FDA
requirements of safety for human consumption, of processing and distribution
under sanitary conditions and of production in accordance with the FDA "good
manufacturing practices." To assure the safety of bottled water, the FDA has
established quality standards that address the substances that may be present in
water which may be harmful to human health as well as substances that affect the
smell, color and taste of water. These quality standards also require public
notification whenever the microbiological, physical, chemical or radiological
quality of bottled water falls below standard. The labels affixed to bottles and
other packaging of the water are subject to FDA restrictions on health and
nutritional claims for foods under the Fair Packaging and Labeling Act. In
addition all drinking water must meet Environmental Protection Agency standards
established under the Safe Drinking Water Act for mineral and chemical
concentration and drinking water quality and treatment which are enforced by the
FDA.
The Company is subject to the food labeling regulations required by the
Nutritional Labeling and Education Act of 1990. The regulations, which are
administered by the Secretary of Health and Human Services through the FDA,
require all companies which offer food for sale and have annual gross sales of
more than $500,000, including the Company, to place uniform labels disclosing
the amounts of specified nutrients on all food products intended for human
consumption and offered for sale. The act contains exemptions and modifications
of labeling requirements for certain types of food products, such as those
served in restaurants and other institutions, bulk foods, foods in small
packages and foods containing insignificant amounts of nutrients. The act also
establishes the circumstances in which companies may place nutrient content
claims or health claims on labels. The Company believes it is in substantial
compliance with these regulations.
The Company is subject to periodic, unannounced inspections by the FDA.
Upon inspection, the Company must be in compliance with all aspects of the
quality standards and good manufacturing practices for bottled water, the Fair
Packaging and Labeling Act, and all other applicable regulations that are
incorporated in the FDA quality standards.
In May 1996, new FDA regulations became effective which redefined the
standards for the identification and quality of bottled water. The Company
believes that it meets the current regulations of the FDA, including the
classification as spring water.
The Company also must meet state regulations in a variety of areas. The
Department of Health of the State of Vermont regulates water products for
purity, safety and labeling claims. Bottled water sold in Vermont must originate
from an "approved source." The water source must be inspected and the water
sampled, analyzed and found to be of safe and wholesome quality. The water and
the source of the water is subject to an annual "compliance monitoring test" by
the State of Vermont. In addition the Company's bottling facilities are
inspected by the Department of Health of the State of Vermont.
The Company's product labels are subject to state regulation (in
addition to the federal requirements) in each state where the water products are
sold. These regulations set standards for the information that must be provided
and the basis on which any therapeutic claims for water may be made. The Company
has received approval for its Vermont Pure and its Hidden Spring brands from 49
states.
The bottled water industry has a comprehensive program of
self-regulation. The Company is a member of the International Bottled Water
Association ("IBWA"). As a member of the IBWA, the Company's facilities are
inspected annually by an independent laboratory, the National Sanitation
Foundation ("NSF"). By means of unannounced NSF inspections, IBWA members are
evaluated on their compliance with the FDA regulations and the association's
performance requirements which in certain respects are more stringent than those
of the federal and various state regulations.
EMPLOYEES
As of January 19, 2000, the Company had 179 full-time employees and 12
part-time employees. None of the employees belongs to a labor union. The Company
believes that its relations with its employees are good.
The Company relies to a great degree on the combined efforts of its
executive officers, Timothy G. Fallon, its President and Chief Executive
Officer, and Bruce S. MacDonald, its Chief Financial Officer and Treasurer, for
its day to day management and strategic direction. Both of these officers have
signed employment agreements with the Company that extend to November 1, 2001.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company owns office, bottling and warehouse properties and natural
springs in Randolph, Vermont. It also owns a spring and recharge acreage in
Sharon Springs, New York. The Company currently does not intend to use this
spring. The Company rents on a monthly basis an office in an office suite in
While Plains, New York.
The Company rents warehouse space in different locations from time to
time for the purpose of the trans-shipment of its bottled water products to its
distributors and retailers. This space is rented on a per pallet basis.
As part of the Company's acquisitions in 1997, 1998 and 1999, it has
entered into or assumed various lease agreements for properties used as
distribution points and office space for it's home and office service. The
following table summarizes these arrangements:
LOCATION LEASE EXPIRATION SQ. FT. ANNUAL RENT
- -------------- ---------------- ------- -----------
Williston, VT .......... July, 2003 8,500 $ 53,380
Wilmington, MA ......... October, 2003 10,670 $ 82,159
Rochester, NY .......... July, 2003 8,000 $ 24,000
Buffalo, NY ............ October, 2000 6,760 $ 44,616
Syracuse, NY ........... April, 2000 3,500 $ 25,200
Halfmoon, NY ........... April, 2008 22,500 $118,125
Plattsburgh, NY ........ August, 2004 3,640 $ 20,568
Shelton, CT ............ month to month 5,200 $ 32,422
White River Junction, Vt March, 2004 3,275 $ 16,211
The Company is currently expanding its PET bottling plant to
accommodate increased bottling operations and to gain the efficiencies of
internal warehouse space. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources".
ITEM 3. LEGAL PROCEEDINGS.
In connection with its purchase of certain loan documents, the
Company, as creditor-plaintiff, filed three lawsuits during the first quarter of
fiscal year 2000 to enforce its rights under those loan documents. These suits
were settled favorably to the Company on December 1, 1999. For additional
information, see Item 5, "Market for Common Equity and Related Stockholder
Matters."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Common Stock is traded on the American Stock Exchange ("AMEX")
under the symbols "VPS". The table below indicates the range of the high and low
prices of the Common Stock as reported by AMEX. Prior to May 18, 1999 the
Company traded its common stock on the Nasdaq SmallCap Market under the symbols
"VPUR".
HIGH LOW
------- --------
FISCAL YEAR ENDED OCTOBER 25, 1997
- -------------------------------------
First Quarter ................................... 3 1/8 1 11/16
Second Quarter .................................. 2 13/16 1 7/8
Third Quarter ................................... 2 1/2 1 3/4
Fourth Quarter .................................. 4 3/4 2 1/8
FISCAL YEAR ENDED OCTOBER 31, 1998
- -------------------------------------
First Quarter ................................... 4 9/16 3 13/16
Second Quarter .................................. 5 7/16 3 5/8
Third Quarter ................................... 4 7/8 3 7/8
Fourth Quarter .................................. 4 1/2 2 3/4
FISCAL YEAR ENDED OCTOBER 30, 1999
- -------------------------------------
First Quarter ..................................... 4 13/16 3 1/8
Second Quarter .................................... 4 1/2 3 3/16
Third Quarter ..................................... 3 7/8 3 3/16
Fourth Quarter .................................... 3 5/8 2 5/8
The last reported sale price of the Common Stock on the American Stock
Exchange on January 19, 2000 was $2.9375.
The Company had 216 record owners of the Common Stock as of January 19,
2000. As of that date, the Company believes that there were in excess of 1,500
beneficial holders of the Common Stock.
No dividends have been declared or paid to date on the Company's common
stock, and the Company does not anticipate paying dividends in the foreseeable
future. The Company has adopted a policy of cash preservation for future use in
the business.
SECURITIES SOLD AND EXEMPTION FROM REGISTRATION CLAIMED.
On October 1, 1999, the Company issued its $975,000 non-interest
bearing Convertible Debenture due September 30, 2001 (the "Debenture") to Marcon
Capital Corporation ("Marcon"). The transaction was exempt from registration
under the Securities Act of 1933 as a private placement under Section 4(2)
thereof.
CONSIDERATION.
In consideration for the issuance of the Debenture, Marcon transferred
to the Company all of its rights under various loan documents, including related
collateral. The loan documents pertained to a loan by Marcon to an affiliate
(the "Affiliate") of the owner (the "Spring Owner") of the Company's largest
spring water source. The collateral included a mortgage and security interests
on the spring site and associated equipment; a guaranty by the Spring Owner in
favor of Marcon; a water supply contract in favor of Marcon; the right to buy an
equity ownership position in the Affiliate; and other rights. As a result of
this transaction, the Company became a creditor of the Spring Owner and the
Affiliate in the amount of approximately $905,000. The purpose of the
transaction was to minimize the possible adverse effect on the Company's water
supply due to defaults by the Spring Owner and the Affiliate in their
obligations to Marcon.
Following its purchase of Marcon's position, the Company, as creditor,
attempted to negotiate with the Spring Owner and the Affiliate to resolve the
matter. When that failed, the Company advised the Spring Owner and the Affiliate
that it was exercising its rights to take possession of the water supply
contract and acquire an equity interest in the Affiliate. The Spring Owner and
the Affiliate then attempted to repudiate the Company's rights under the water
supply contract. The Company filed three different lawsuits to enforce its
rights: a foreclosure action (Vermont Pure Holdings, Ltd. v. Pristine Mountain
Springs, Inc., et al., Windsor County Superior Court, Vermont, filed October 22,
1999) and actions for equitable and injunctive relief (Vermont Pure Holdings,
Ltd. v. Pristine Mountain Springs, Inc., Amsource LLC and Ronald Colton, Windsor
County Superior Court, Vermont, filed November 17, 1999, and Vermont Pure
Holdings, Ltd. v. Pristine Mountain Springs, Inc., Amsource LLC, Ronald Colton,
et al., Sullivan County Superior Court, New Hampshire, filed November 16, 1999).
These matters were settled by arbitration on December 1, 1999. As part
of the settlement, the Spring Owner, the Affiliate and others paid to the
Company $1,270,000 and acknowledged the Company's rights under the amended water
supply contract and right of first refusal to purchase the spring site. As
amended, the 50-year water supply contract provides that the Company and the
Affiliate shall each have the right to purchase, on a first priority basis, up
to 5,000,000 gallons per month from the Spring Owner.
TERMS OF CONVERSION OR EXERCISE.
The Debenture may not be prepaid, redeemed or repurchased without the prior
written consent of the holder. The holder may convert the Debenture at any time
into shares of the Company's Common Stock at a conversion price equal to 85% of
the average closing price of the Common Stock during the 20 business days prior
to conversion. If the Debenture is not sooner converted, it shall, subject to
the satisfaction of various conditions, be automatically converted into Common
Stock on the maturity date, September 30, 2001.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Fiscal Years Ended
October 30, October 31, October 27, October 26, October 28,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Net sales ................................. $ 31,396,375 $ 29,169,185 $ 17,685,442 $ 11,878,829 $ 8,517,470
Net Income (loss) ......................... $ 3,398,641 $ 2,858,750 $ 1,067,395 $ (1,267,331) $ (2,804,101)
Net Income (loss) per share - diluted ..... $ .31 $ .26 $ .11 $ (.13) $ (.30)
Total assets .............................. $ 33,834,230 $ 26,173,503 $ 16,546,766 $ 9,971,394 $ 9,266,544
Long term obligations ..................... $ 13,733,268 $ 10,422,803 $ 5,739,889 $ 2,878,353 $ 1,882,154
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
FORWARD-LOOKING STATEMENTS
When used in the Form 10-K and in future filings by the Company with
the Securities and Exchange Commission, the words or phrases "will likely
result" and "the Company expects", "will continue", "is anticipated",
"estimated", "project", or "outlook" or similar expressions are intended to
identify "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. The Company wishes to caution readers
not to place undue reliance on any such forward-looking statements, each of
which speak only as of the date made. Such statements are subject to certain
risks and uncertainties that could cause actual results to differ materially
from historical earnings and those presently anticipated or projected. The
Company has no obligation to publicly release the result of any revisions which
may be made to any forward-looking statements to reflect anticipated or
unanticipated events or circumstances occurring after the date of such
statements.
RESULTS OF OPERATIONS
YEAR ENDED OCTOBER 30, 1999 COMPARED TO YEAR ENDED OCTOBER 31, 1998
Sales for 1999 were $31,396,000 compared to $29,169,000 for 1998, an
increase of $2,227,000 or 8%. 1999 sales attributable to acquisitions made
during the year were $2,137,000, which represented 7 percentage points of the
overall 8 point increase. Excluding revenues attributable to acquisitions, sales
for 1999 net of acquisitions were $29,259,000. The Company's revenue growth
trend was slowed primarily due to the Company terminating its distribution
agreement with its largest distributor which resulted in some loss of sales
revenue as new distributors were brought on line. For discussion of this action,
See "Business - Marketing Distribution and Sales." The Company's 1 percentage
point (1999 over 1998) increase in sales, net of acquisitions, was accounted for
by increases in the following distribution channels: 6 points for Hidden Spring,
5 points for private label and 6 points for home/office. These were mostly
offset by the 16 point decrease in retail size Vermont Pure, a direct result of
the change in distribution networks. Due to the fact that the Company operates
on a "52-53 week" reporting year, 1999 had 52 weeks of sales while 1998 had 53
weeks of sales.
Sales of the Company's retail-size products were $15,996,000 in 1999, a
decrease of 8% compared to 1998, when sales of these products were $17,455,000.
The sales decline is partially attributable to the termination of the Company's
agreement with its largest distributor and deccreased average selling prices.
Year to year average selling price per case was down 28%. Vermont Pure brand
sales decreased 34% compared to 1998. Hidden Spring brand sales were up 89% for
the year, due to continued growth through market expansion in secondary
distribution channels. During the year, the Company increased the number of
private label customers that it packs for, resulting in an 83% increase in sales
for these products.
Sales for the home and office delivery category of the business
increased in 1999 to $15,400,000 from $11,714,000 in 1998, an increase of
$3,686,000 or 31%. In addition to internal growth, the Company continued to
expand its home and office distribution through acquisitions. New sales
attributable to acquisitions in 1999 were $2,137,000. Net of acquisitions,
home/office sales increased 13% in 1999. The increase in internal growth in
existing market areas is a result of strong market growth for bottled water, in
general, and greater brand awareness.
Cost of goods sold for 1999 were $11,742,000 or 37% of sales, compared
to $11,550,000, or 40% of sales, for 1998. The decrease in cost of goods sold as
a percentage of sales compared to the prior year is partially attributable to
lower bottling costs as a result of higher production volumes and more efficient
production, and an increase in home and office distribution, which has better
margins. The Company's mix of sales continued to skew more toward product for
home and office delivery- to 49% in 1999 from 40% in 1998, in large part the
result of acquisitions. The home and office category is characterized by lower
bottling costs because of larger sizes and re-fillable bottles. As a result, the
gross profit was higher in 1999, $19,654,000 or 63% of sales, than in 1998 when
it was $17,619,000, or 60% of sales.
Total operating expenses increased to $17,019,000 in 1999 from
$15,555,000 in 1998, an increase of $1,464,000, or 9%. Of these amounts,
selling, general and administrative expenses were $13,149,000 and $10,235,000
for 1999 and 1998, respectively, an increase of $2,914,000, or 28%. The increase
in selling, general and administrative expenses was due to increased personnel,
rent and lease expenses needed to grow the business as well as expenses
associated with the businesses acquired in 1999. Advertising expenses decreased
to $3,258,000 in 1999 from $4,702,000 in 1998, a decrease of $1,444,000, or 31%.
The decrease is related primarily to the Company's use of different distribution
channels that require less promotional support. However, given the competitive
nature of the industry, the Company anticipates that it is likely to continue to
spend significant amounts in the future for advertising and promotion as it
continues to develop brand recognition and increase market penetration but can
give no assurances that increases in spending will result in higher sales.
Amortization expense decreased slightly to $612,000 in 1999 from $617,000 in
1998, a decrease of $5,000.
Profit from operations in 1999 was $2,635,000 compared to $2,065,000
for 1998, an increase of $570,000. Net interest expense increased to $1,030,000
in 1999 from $755,000 in 1998, an increase of $275,000. The increase was a
result of greater amounts borrowed during the period primarily related to
acquisitions. The improvement in profit before income taxes to $1,605,000 in
1999 from $1,412,000 in 1998 was the result of increased sales and decreased
manufacturing and operating costs, on a per unit basis.
Net income of $3,399,000 in 1999 compared to $2,859,000 in 1998, an
improvement of $540,000. The Company recorded a tax benefit of $1,793,000 in
1999 compared to $1,447,000 in 1998. This benefit reflects a partial recognition
of the Company's total available deferred tax assets of approximately $4.6
million at October 30, 1999, based on an evaluation of likely utilization. If
the Company continues to be profitable, the remaining $832,000 of unrecorded
deferred tax benefits will be available for recognition in future years. No
assurance can be given that the Company will be profitable in the future and
that these tax benefits will actually be used. Based on the weighted number of
shares of common stock outstanding of 10,279,377 during 1999 and 10,248,389
during 1998, the basic net income per share was $.33 and $.28 per share,
respectively. Based on the weighted number of shares of diluted common stock
outstanding of 10,790,722 and 10,927,025 for the same respective periods, the
diluted net income per share was $.31 per share in 1999 and $.26 per share in
1998.
YEAR ENDED OCTOBER 31, 1998 COMPARED TO YEAR ENDED OCTOBER 25, 1997
Sales for 1998 were $29,169,000 compared to $17,685,000 for 1997, an
increase of $11,484,000 or 65%. 1998 sales attributable to acquisitions made
during the year were $5,305,000, which represented 30 percentage points of the
overall 65 point increase. Excluding revenues attributable to acquisitions,
sales for 1998 net of acquisitions were $23,864,000. Average selling price per
case was unchanged. The Company's 35 percentage point (1998 over 1997) increase
in sales, net of acquisitions, was accounted for by increases in the following
distribution channels: 17 percentage points for retail size Vermont Pure, 4
points for Hidden Spring, 4 points for Private Label, 8 points for home/office
and 2 points from other sources. In addition, the Company operates on a "52-53
week" reporting year. Sales and other financial results were favorably affected
by the 1998 fiscal year having 53 weeks compared to 52 weeks for 1997 and 1996.
Sales of the Company's retail-size products were $17,455,000 in 1998,
an increase of 41% over 1997, when sales of these products were $12,375,000. The
Vermont Pure brand continued to grow in its core markets, particularly the
metropolitan New York City area. Total sales for this brand increased 33% over
1997. Sales for the Hidden Spring brand, up 53% for the year, continued to grow
through market expansion in secondary distribution channels. The Company
increased the number of private label customers that it packs for, resulting in
a 79% increase in sales for these products.
Sales for the home and office delivery category of the business more
than doubled in 1998 to $11,714,000 from $5,310,000 in 1997. The Company
continued to expand its home and office distribution through acquisitions. New
sales attributable to acquisitions in 1998 were $4,950,000. Net of acquisitions,
home/office sales increased 27% in 1998, more than double the 12% rate of
internal growth in 1997. The increase in internal growth in existing market
areas is a result of strong market growth for bottled water, in general, and
greater brand awareness.
Cost of goods sold for 1998 were $11,550,000 or 40% of sales, compared
to $7,644,000, or 43% of sales, for 1997. The decrease in cost of goods sold as
a percentage of sales compared to the prior year is due to lower bottling costs
as a result of higher production volumes and more efficient production, and an
increase in home and office distribution. In addition, new production equipment
was installed to improve the capacity and efficiency of the bottling line. As a
result of acquisitions, the Company's mix of sales skewed more toward product
for home and office delivery- to 40% in 1998 from 30% in 1997. The home and
office category is characterized by lower bottling costs because of larger sizes
and re-fillable bottles. Consequently, the gross profit was higher in 1998,
$17,619,000 or 60% of sales, than in 1997 when it was $10,042,000, or 57% of
sales.
Total operating expenses increased to $15,555,000 in 1998 from
$9,204,000 in 1997, an increase of $6,351,000, or 69%. Of these amounts,
selling, general and administrative expenses were $10,235,000 and $5,898,000 for
1998 and 1997, respectively, an increase of $4,337,000, or 74%. The increase in
selling, general and administrative expenses is correlated to the resources
needed to grow and administratively service the business. Advertising expenses
increased to $4,702,000 in 1998 from $3,077,000 in 1997, an increase of
$1,625,000, or 53%. This increase reflects amounts spent on product promotion,
primarily for retail-size product, to stay competitive in the marketplace and
continue the Company's sales growth trend. The Company anticipates that it will
have to continue to make significant promotional expenditures and/or reduce
selling prices in order to stay competitive in an increasingly competitive
market. Amortization expense increased to $617,000 from $229,000 in 1998 and
1997, respectively, an increase of $388,000, as a result of the 1998
acquisitions.
Profit from operations in 1998 was $2,065,000 compared to $838,000 for
1997, an increase of $1,227,000. Net interest expense increased to $755,000 in
1998 from $368,000 in 1997, an increase of $387,000. The increase was a result
of greater amounts borrowed during the period primarily related to the
acquisitions.The improvement in profit before income taxes to $1,412,000 in 1998
from $523,000 in 1997 was the result of increased sales and decreased
manufacturing and operating costs, on a per unit basis.
Net income of $2,859,000 in 1998 compared to $1,067,000 in 1997, an
improvement of $1,792,000. The Company recorded a tax benefit of $1,447,000 in
1998 compared to $544,000 in 1997. This benefit reflects a partial recognition
of the Company's total available deferred tax assets of approximately $5.2
million at October 31, 1998, based on an evaluation of likely utilization. If
the Company continues to be profitable, the remaining $3.2 million of unrecorded
deferred tax benefits will be available for recognition in future years. No
assurance can be given that the Company will be profitable in the future and
that these tax benefits will actually be used. Based on the weighted number of
shares of common stock outstanding of 10,248,389 during 1998 and 9,771,347
during 1997, the basic net income per share was $.28 and $.11 per share,
respectively. Based on the weighted number of shares of diluted common stock
outstanding of 10,927,025 and 9,805,500 for the same respective periods, the
diluted net income per share was $.26 per share in 1998 and $.11 per share in
1997.
LIQUIDITY AND CAPITAL RESOURCES
At October 30, 1999, the Company had working capital of $3,028,000.
This represents an increase of $2,293,000 from the $735,000 of working capital
on October 31, 1998. The increase in working capital primarily reflects a PET
inventory buildup to accommodate summer demand as well as the prepayment of the
new home and office computer system and a building expansion in Randolph,
Vermont. When these two projects are finished they will be capitalized.
In April, 1998 the Company entered into a five (5) year revolving
credit line with CoreStates Bank, N.A. (now First Union National Bank) in order
to borrow up to $15 million under certain terms and conditions. The purpose of
this loan is for permitted (under the agreement) acquisitions and capital
expenditures, working capital and consolidation of debt. Under the agreement and
supplemental instruments the Company is required to pay interest monthly at a
rate of LIBOR plus 2.5%, currently approximately 8.4%. The line of credit is
contingent upon the Company continuing to meet certain loan covenants that are
customary for credit facilities of this type. On October 30, 1999 the Company
was entitled to borrow up to $3 million for operating working capital and the
balance for acquisitions under the agreement. At October 30, 1999 the Company
had borrowed $2.0 million on the operating portion and $9.7 million on the
acquisition portion of the line. The Company has signed a letter of intent with
First Union National Bank to increase the line of credit to $25 million. Of the
$25 million, $4.3 million will be allocated to a letter of credit to underwrite
a new bond issue for the Randolph, Vermont building expansion as well as new
production equipment purchases. The Company believes that its working capital
and access to available credit are adequate to fund its current day to day
operations and that revenues will continue to cover operating and capital
expenses and debt repayment in the 2000 fiscal year. However, there can be no
assurance that this will be the case.
Cash flow from operations was $876,000 for the fiscal year ended
October 30, 1999 as compared to $2,806,000 in the fiscal year ended October 31,
1998, a decrease of $1,930,000. Operating cash usage was up due primarily to a
planned inventory build up. Cash flows from investing activities had a net
outflow of approximately $4,746,000, with $2,024,000 expended for acquisitions
and $2,775,000 expended for property, plant and equipment being the primary
uses. Financing activities provided a net cash inflow of $4,076,000, Proceeds
from debt, proceeds from line of credit and the exercise of stock options were
$3,743,000 and 1,025,000 and $88,000 respectively. These borrowings were
slightly offset by principal payment of debt of $780,000.
At October 30, 1999, the Company has recorded a deferred tax asset of
$3,793,000. Based on current levels of profitability, the realization of such
deferred tax asset would take approximately four more years.
In addition to the bank debt associated with its recent acquisitions,
the Company financed certain of these transactions with notes to the sellers. As
of October 30, 1999, these notes had an unpaid balance of $1,335,000. The notes
are at interest rates ranging from 8% to 10% and are being repaid through August
2004.
The Company anticipates that it will spend approximately $6.3 million
for capital items in fiscal 2000 to maintain and continue to grow its business.
The Company believes that it will have adequate resources available from
internal cashflow and existing debt instruments to fund its capital plan. The
Company has begun the expansion of its facility in Randolph, Vermont. The cost
of this expansion, including a new high speed bottling line, is approximately
$4.3 million. The expansion is being funded through a combination of debt and
working capital. The remaining $2 million consists of fixed assets, which
include water coolers, coffee machines and 5 gallon water bottles for the
Home/Office segment of the business.
The Company is pursuing an active program of evaluating acquisition
opportunities. To complete any acquisitions, the Company anticipates using its
capital resources and obtaining financing from outside sources. Except for the
current loan facilities discussed above, the Company has no other current
arrangements with respect to, or sources of, additional financing for its
business or future plans. Although the Company believes it will be able to
obtain any required financing, there can be no assurance given that financing
will be available to the Company on acceptable terms or at all.
Inflation has not had a material impact on the Company's operations to
date.
YEAR 2000 READINESS DISCLOSURE
Computers, software and other equipment utilizing microprocessors that
use only two digits to identify a year in a date field may be unable to
accurately process certain date-based information at or after the January 1,
2000. This is commonly referred to as the "Year 2000" or "Y2K" problem.
The Company has experienced no problems or issues relating to the Y2K
problem as of the date of this report. We will gain more confidence that this
issue will not impede our business once we have gone through a transaction cycle
with every customer and vendor. We anticipate that this cycle should be
complete, for the most part, by the end of our first fiscal quarter in the year
2000.
We will maintain our contingency plans until we are satisfied that the
business will not be impacted by the possibility of a Y2K problem.
The foregoing Year 2000 capital disclosure constitutes a "Year 2000
readiness disclosure" under the Year 2000 Information and Readiness Disclosure
Act.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risks relating to the Company's operations result primarily from
changes in interest rates and commodity prices (the resin prices for PET
bottles).
INTEREST RATE RISKS
At October 30, 1999 the Company had $11,689,792 of long term debt
subject to variable interest rates. Under the revolving line of credit agreement
with First Union National Bank the Company currently pays interest at a rate of
LIBOR plus 2.5%. A hypothetical 100 basis increase in the LIBOR rate would
result in an additional $116,898 of interest expense on an annualized basis.
COMMODITY PRICE RISKS
Although the Company has yearly contracts with its vendors that sets
the purchase price of its PET bottles, the vendors are entitled to pass on to
the Company any resin price increases. These prices are related to supply and
demand market factors for PET and, to a lesser extent the price of petroleum,
from where PET is derived. A hypothetical resin price increase of $.05 per pound
would result in an approximate price increase per bottle of $.005.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Since inception, the Company has not changed accountants and has had no
disagreement on any matter of accounting principles or practices or financial
statement disclosure.
ITEM 9. FINANCIAL STATEMENTS AND OTHER SUPPLEMENTARY DATA
Financials statements and their footnotes are set forth on pages F-1
through F-18
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning each
director and executive officer of the Company:
NAME AGE POSITION
Timothy G. Fallon 45 Chief Executive Officer, President and
Chairman of the Board
Phillip Davidowitz 67 Director
Robert C. Getchell 51 Director
Frank G. McDougall 49 Director
David R. Preston 59 Director
Norman E. Rickard 63 Director
Beat Schlagenhauf 48 Director
Richard Worth 50 Director
Bruce S. MacDonald 41 Chief Financial Officer and Secretary
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 a
member of The New York Stock Exchange and Vice Chairman of Transatlantic
Securities Co. since 1988.
ROBERT C. GETCHELL has been a director of the Company since December 1994.
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. has been a director since June 1994 and was
chairman of the board from November 1994 through 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 Hitchcock Clinic. From July 1990 to October 1993, Mr. McDougall was the
Secretary of the Agency of Development 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, who is retired, was the President of Xerox Document Services Group of
Xerox Corporation and a Corporate Senior Vice President. Mr. Rickard was
employed by Xerox Corporation from 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 currently a director of
National Alliance of Business, Optical Dynamic Corporation and Health Now.
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 thirteen
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 Chief Financial Officer and Treasurer of the
Company since May 1993, during 1999 he was assigned the additional
responsibility of Chief Operating Officer. From 1987 to May 1993, Mr. MacDonald
was Controller of Cabot Cooperative Creamery Incorporated.
SECTION 16(a) COMPLIANCE
Section 16(a) of the Securities and Exchange Act of 1934, as amended,
requires the Company's officers, directors and persons who beneficially own more
than ten percent 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 on its review of the copies of such forms received by it
the Company believes that with respect to the Company's fiscal year ended
October 30, 1999, all filings and reports were made on time and no such event
went unreported.
ITEM 11. 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 25, 1997, October 31, 1998,and October 30, 1999 (2) information
reporting options granted to the Chief Executive Officer and the Chief Financial
Officer during the fiscal year ended October 30,1999, 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 30, 1999.
The Company has no other executive officers.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
FISCAL ANNUAL COMPENSATION LONG TERM COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS/ ALL OTHER
($) ($) (# SHARES) COMPENSATION ($)
<S> <C> <C> <C> <C> <C>
Timothy G. Fallon ................... 1999 $186,400 $195,000 -0- $ 14,740
Chief Executive Officer and President 1998 $186,400 $202,500 -0- $ 4,240
1997 $184,000 $150,000 690,000(1) $ 5,278
Bruce S. MacDonald .................. 1999 $ 85,000 $ 75,000 -0- $ 8,612
Chief Financial Officer and Treasurer 1998 $ 85,000 $ 55,000 30,000 $ 3,937
1997 $ 75,000 $ 30,000 101,000(2) $ 4,204
</TABLE>
(1) This amount under "Options" includes 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, and
250,000 options granted with an exercise price per share of $2.50. The
amount under "All Other Compensation" represents a car allowance and life
and disability insurance expenses.
(2) This amount under "Options" includes 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
options, and 50,000 options granted with an exercise price per share of
$2.50. The amount under "All Other Compensation" represents car and
disability insurance allowances.
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 $50,000 or 10% of the
compensation reported in the preceding table for such individuals, and that such
information set forth in the preceding table is not rendered materially
misleading by virtue of the omission of the value of such personal benefits.
The executive officers named in the preceding summary compensation table
were not granted options or shares during the fiscal year ended October 30,
1999.
<TABLE>
<CAPTION>
AGGREGATE YEAR-END OPTION VALUES
NUMBER OF UNEXERCISED OPTIONS VALUE OF UNEXERCISED IN-THE-MONEY
AT FISCAL YEAR-END (#) OPTIONS AT FISCAL YEAR-END ($)(1)
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C>
Timothy G. Fallon 570,000 150,000 $178,410 $46,950
Chief Executive Officer and
President
Bruce S. MacDonald, Chief 91,000 50,000 $29,153 $9,390
Financial Officer and Treasurer
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) As of October 30, 1999, the closing price per share of Common Stock was
$2.813 on the American Stock Exchange.
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, 1997 and expires November
1, 2001. This agreement was amended during October 1999 but still expires on
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 $205,000, 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 1.0 times his annual base salary plus $150,000
payable over 12 months if such termination occurs in fiscal years 2000 through
2001. In each case, Mr. Fallon 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 1999, Mr. Fallon is entitled to incentive bonuses based upon
the achievement of certain performance goals of the Company for fiscal years
2000 and 2001. For fiscal years 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. Mr. Fallon is also entitled to receive special bonuses if the Company
achieves sales of $40,000,000 or $50,000,000 during fiscal year October 2000 or
October 2001. These bonuses are, respectively, $25,000 and $50,000. These
bonuses are cumulative and may be earned in the same fiscal year. If the Company
can maintain or exceed a $5.00 per share stock price for 54 out of 60
consecutive trading days during the period November 1, 1999 through October 31,
2001 Mr. Fallon will receive a special bonus of $50,000.
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 Chief Financial Officer and Treasurer
of the Company. His annual base salary is $100,000, 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 1.0 times his annual base salary plus $50,000
payable over 12 months if such termination occurs in fiscal years 2000 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 1999, Mr. MacDonald is entitled to incentive bonuses
based upon the achievement of certain performance goals of the Company for
fiscal years 2000 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 November 1, 1999, 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 November 1,
1999 and receives $1,000 per month from the Company in exchange for providing
consulting services. As part of this agreement, Mr. McDougall has waived all
compensation as a director.
COMPENSATION OF DIRECTORS
Directors who are employees of the Company do not receive any fees for
attending Board meetings. Directors who are not employees of the Company receive
$7,500 each year, $3,750 payable on July 1 and $3,750 payable on January 1,
provided the directors participate in 80% or more of the meetings of the Board
for the six months prior to the July 1 and January 1 payment dates, and $750 for
each meeting of the Board attended. In addition, 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 stock option issuance to directors
are limited to 105,000 options in total.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The table and accompanying footnotes on the following pages set forth
certain information as of January 19, 2000 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 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.
AMOUNT AND
NATURE OF BENEFICIAL PERCENTAGE OF
OWNERSHIP OUTSTANDING SHARES OWNED
OWNER'S NAME AND ADDRESS
TIMOTHY G. FALLON ................. 570,000(2) 5.3%
Route 66, Catamount Industrial Park
Randolph, VT 05060
Robert C. Getchell ................ 67,000(3) .6%
Frank G. McDougall, Jr ............ 82,000(1) .8%
David R. Preston .................. 71,000(4) .7%
Norman E. Rickard ................. 67,000(5) .6%
Beat Schlagenhauf ................. 67,000(1) .6%
Richard Worth ..................... 67,000(6) .6%
M. Dolores Paoli .................. 947,600(7) 8.8%
41 BERMUDA ROAD
Westport, CT 06880
BRUCE S. MACDONALD ................ 91,000(1) .8%
Phillip Davidowitz ................ 15,000(1) .1%
All Officers and Directors
AS A GROUP (9 INDIVIDUALS) ........ 1,097,000(8) 10.2%
- ----------------------------------------------------- --------------------------
<TABLE>
<CAPTION>
<S> <C>
(1) Represents shares of Common Stock issuable pursuant to outstanding stock options exercisable within 60 days of the date of
this table.
(2) Includes 568,000 shares of Common Stock issuable pursuant to outstanding stock options exercisable within 60 days of the date
of this table.
(3) Includes 62,000 shares of Common Stock issuable pursuant to outstanding stock options exercisable within 60 days of the date
of this table.
(4) Includes 69,000 shares of Common Stock issuable pursuant to outstanding stock options exercisable within 60 days of the date
of this table.
(5) Includes 65,000 shares of Common Stock issuable pursuant to outstanding stock options exercisable within 60 days of the date
of this table.
(6) Includes 59,500 shares of Common Stock issuable pursuant to outstanding stock options exercisable within 60 days of the date
of this table.
(7) Includes 687,000 shares own 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.
(8) Includes 1,078,500 shares of Common Stock issuable pursuant to outstanding stock options exercisable within 60 days of the
date of this table.
</TABLE>
EMPLOYEE STOCK PURCHASE PLAN
The Company has an employee stock purchase plan under section 423 of the
Internal Revenue Service code in which participating employees may utilize
payroll deductions to purchase chares of the Company's common stock at a
discount from fair market value. The plan is expected to commence April, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
The following documents are filed as part of this report:
Financial Statements and Financial Statement Schedules.
Reference is made to the Index to Financial Statements
included in Item 7 of Part II hereof, where such documents are
listed.
EXHIBITS AS REQUIRED BY ITEM 601 OF REGULATION S-K:
EXHIBIT DESCRIPTION
NUMBER
3.1 Amended and Restated Certificate of Incorporation of Registrant dated
January 12, 1994. (Incorporated by reference from Exhibit 3.3 of Form
10-KSB for fiscal year ended October 30, 1993 - File No. 1-11254.)
3.2 Amendment of Certificate of Incorporation of Registrant dated June 15,
1999.
3.3 By-Laws of Registrant. (Incorporated by reference from Exhibit 3.4 of
Registration Statement 33-46382.)
3.4 Amendment to By-Laws of Registrant Adopted March 26, 1997.
(Incorporated by reference from Exhibit 3.3 of Form 10-KSB for fiscal
year ended October 25, 1997 - File No. 1-11254.)
10.1* Employment Agreement between the Registrant and Timothy G. Fallon
dated as of November 1, 1996. (Incorporated by reference from Exhibit
10.1 of Form 10-KSB for fiscal year ended October 25, 1997 - File No.
1-11254.)
10.2* Amendment to the November 1, 1996 Employment Agreement between the
Registrant and Timothy G. Fallon. Dated November 1, 1999.
10.3* Employment Agreement between the Registrant and Bruce S. MacDonald
dated as of November 1, 1997. (Incorporated by reference from Exhibit
10.2 of Form 10-KSB for fiscal year ended October 25, 1999 - File No.
1-11254.)
10.4* Stock Option Agreement between Registrant and Mr. Fallon.
(Incorporated by reference from Exhibit 10.7 of Form 10-K for fiscal
year ended October 28, 1994, File No. 1-11254.)
10.5 1993 Performance Equity Plan. (Incorporated by reference from Exhibit
10.9 of Registration Statement 33-72940.)
10.6 Stock Purchase Agreement between Springs and Carolyn Howard relating
to the acquisition of A.M. Fridays, Inc. dated July 16, 1997.
(Incorporated by reference from Exhibit 10.1 of the Report on Form
10-QSB for the Quarter Ended July 26, 1997.)
10.7 Stock Purchase Agreement between the Registrant and David Eger dated
August 27, 1997 relating to Excelsior Spring Water Co. ("Excelsior").
(Incorporated by reference from Exhibit 10.1 of the Report on Form 8-K
dated September 11, 1997.)
10.8 Promissory Note from the Registrant to Mr. Eger in the principal
amount of $503,000. (Incorporated by reference from Exhibit 10.2 of
the Report on Form 8-K dated September 11, 1997.)
10.9 Form of Note Purchase Agreement between the Registrant and certain
note holders of Excelsior dated August 27, 1997. (Incorporated by
reference from Exhibit 10.3 of the Report on Form 8-K dated September
11, 1997.)
10.10 Form of Stock Purchase Agreement between the Registrant and certain
stockholders of Excelsior dated August 27, 1997. (Incorporated by
reference from Exhibit 10.4 of the Report on Form 8-K dated September
11, 1997.)
10.11 Schedule of Stock and Note Purchase Agreement information dated August
27, 1997 regarding the Excelsior purchase. (Incorporated by reference
from Exhibit 10.7 of the Report on Form 8-K dated September 11, 1997.)
10.12 Consulting Agreement between the Registrant and Corporate Investors
Network, Inc. dated December 1, 1996. (Incorporated by reference from
Exhibit 10.1 of the Report on Form 10-QSB for the Quarter Ended
January 25, 1997.)
10.13 Warrant Agreement between the Registrant and Eugene F. Malone dated
December 1, 1996. (Incorporated by reference from Exhibit 10.2 of the
Report on Form 10-QSB for the Quarter Ended January 25, 1997.)
10.14 1998 Incentive and Non-Statutory Stock Option Plan (Incorporated by
reference to Appendix A of the Registrant 1998 Proxy Statement.)
10.15 Asset Purchase Agreement between Vermont Pure Holding, Ltd. and
Vermont Coffee Time, Inc. relating to the purchase certain assets and
liabilities dated December 19, 1997. (Incorporated by reference from
Exhibit 10.1 of the report on Form 10-QSB for the Quarter ended
January 24, 1998).
10.16 Promissory Note Between Vermont Pure Springs, Inc. and Vermont Pure
Holdings and Coffee Time, Inc. dated January 5, 1998. (Incorporated by
reference from Exhibit 10.2 of the report on Form 10-QSB for the
Quarter ended January 24, 1998).
10.17 Security Agreement between Vermont Pure Springs, Inc. and Vermont Pure
Holdings and Coffee Time, Inc. dated January 5, 1998. (Incorporated by
reference from Exhibit 10.3 of the report on Form 10-QSB for the
Quarter ended January 24, 1998).
10.18 Consulting Agreement between Amy Berger and Vermont Pure Holdings,
Ltd. dated January 5, 1998. (Incorporated by reference from Exhibit
10.4 of the report on Form 10-QSB for the Quarter ended January 24,
1998).
10.19 Non Compete Agreement of Fred Beauchamp and Jim Creed between Vermont
Pure Holdings, Ltd. and Sagamon Springs, Inc. dated January 6, 1998.
(Incorporated by reference from Exhibit 10.5 of the report on Form
10-QSB for the Quarter ended April 25, 1998).
10.20 Loan and Security Agreement Between Vermont Pure Springs, Inc. and
CoreStates Bank, N.A. dated April 8, 1998. (Incorporated by reference
from Exhibit 10.6 of the report on Form 10-QSB for the Quarter ended
April 25, 1998).
10.21 Amended Loan and Security Agreement between Vermont Pure Springs, Inc
and First Union National Bank (formerly CoreStates Bank, N.A.) dated
January 20, 1999. 1999 Employee Stock Purchase Plan (Incorporated by
reference to Exhibit A of the Registrant 1999 Proxy Statement.)
10.22 Stock Purchase Agreement between the Registrant, Paul Hayes and
Michael Hayes dated July 27, 1999 relating to Adirondack Coffee
Services, Inc.
10.23 Promissory Note dated July 27, 1999 from the Registrant to Mr. Hayes
in the Principal 10.24 amount of $303,734.00 10.25 Amended and
Restated Spring Water Licenses and Supply Agreement between Registrant
and Pristine Mountain Springs of Vermont, Inc and Amsource, LLC dated
April 13, 1999.
10.24 Promissory Note dated July 27, 1999 from the Registrant to Mr. Hayes
in the Principal amount of $303,734.00.
10.25 Amended and Restated Wpring Water Licenses and Supply Agreement
between Registrant and Pristine Mountian Springs of Vermont, Inc and
Amsource, LLC dated April 13,1999
10.26 Loan Purchase Agreement to spring source dated September 30, 1999
between the Registrant and Marcon Capital Corporation.
10.27 Convertible Debenture Agreement dated September 30, 1999 between the
Registrant and Marcon Capital Corporation in the amount of $975,000.
22 Subsidiaries are incorporated by reference from Exhibit 22 of Form
10KSB for fiscal year ended October 31, 1998, File No. 1-11254.
23.1 Consent of Independent Auditors
27 Financial Data Schedule
* Relates to compensation Reports on Form 8-K
The Registrant filed a Report on Form 8-K dated October 7,
1998 with respect to its distribution arrangement with Coca
Cola Enterprises, Inc.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Vermont Pure Holdings, Ltd. has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
VERMONT PURE HOLDINGS, LTD.
BY:/S/ TIMOTHY G. FALLON
Dated: January 28, 2000 Timothy G. Fallon, Chief Executive Officer,
President, and Chairman of the Board of
Directors
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
NAME TITLE DATE
/S/ TIMOTHY G. FALLON Chief Executive Officer, January 28, 2000
Timothy G. Fallon President, and Chairman
of the Board of Directors
/S/ PHILLIP DAVIDOWITZ Director January 28, 2000
Phillip Davidowitz
/S/ ROBERT C. GETCHELL Director January 28, 2000
Robert C. Getchell
/S/ FRANK G. MCDOUGALL, JR. Director January 28, 2000
Frank G. McDougall, Jr.
/S/ DAVID R. PRESTON Director January 28, 2000
David R. Preston
/S/ NORMAN E. RICKARD Director January 28, 2000
Norman E. Rickard
/S/ BEAT SCHLAGENHAUF Director January 28, 2000
Beat Schlagenhauf
/S/ RICHARD WORTH Director January 28, 2000
Richard Worth
/S/ BRUCE S. MACDONALD Chief Financial Officer January 28, 2000
Bruce S. MacDonald and Secretary
<PAGE>
EXHIBITS TO VERMONT PURE HOLDINGS, LTD.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED OCTOBER 30, 1999
Exhibit
NUMBER DESCRIPTION
3.2 Amendment of Certificate of Incorporation of Registrant dated June 15,
1999.
10.2 Amendment to the November 1, 1996 Employment Agreement between the
Registrant and Timothy G. Fallon. Dated November 1, 1999.
10.21 Amended Loan and Security Agreement between Vermont Pure Springs, Inc.
and First Union National Bank dated January 20, 1999.
10.23 Stock Purchase Agreement between the Registrant, Paul Hayes and
Michael Hayes dated July 27, 1999 relating to Adirondack Coffee
Services, Inc.
10.24 Promissory Note dated July 27, 1999 from the Registrant to Mr. Hayes
in the Principal amount of $303,734.00
10.25 Amended and Restated Spring Water Licenses and Supply Agreement
between Registrant and Pristine Mountain Springs of Vermont, Inc and
Amsource, LLC dated April 13, 1999.
10.26 Loan Purchase Agreement to spring source dated September 30, 1999
between the Registrant and Marcon Capital Corporation.
10.27 Convertible Debenture Agreement dated September 30, 1999 between the
Registrant and Marcon Capital Corporation in the amount of $975,000.
23.1 Consent of Independent Auditors
27 Financial Data Schedule
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
VERMONT PURE HOLDINGS, LTD.
Vermont Pure Holdings, Ltd., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware, DOES
HEREBY CERTIFY:
FIRST: That the Board of Directors of said corporation has adopted
resolutions proposing and declaring advisable that the Restated Certificate of
Incorporation of the Corporation be amended and that such amendment be submitted
to the stockholders of the Corporation for their consideration, as follows:
That the Company's Restated Certificate of Incorporation, as
amended to date, be further amended by deleting in its
entirety the first sentence of Article 4 thereof and replacing
said first sentence with the following sentence:
"The total number of shares of capital stock which the
Corporation shall have authority to issue is Fifty Million
Five Hundred Thousand (50,500,000) shares, of which Fifty
Million (50,000,000) shares will be Common Stock, par value
$.001 per share, and Five Hundred Thousand (500,000) shares
shall be Preferred Stock, par value $.001 per share",
it being understood that the other provisions of said Article
4 shall be and remain unchanged.
SECOND: That the aforesaid amendment was duly adopted in accordance
with the applicable provisions of Section 242 of the General Corporation Law of
the State of Delaware.
IN WITNESS WHEREOF, said corporation has caused this Certificate to be
signed by Timothy Fallon, its PRESIDENT, THIS 15TH day of June, 1999.
/s/ Timothy Fallon
Timothy Fallon, President
EXECUTION COPY
AMENDMENT TO EMPLOYMENT AGREEMENT
Reference is made to the Employment Agreement made as of November 1,
1996 (the "Employment Agreement"), by and between VERMONT PURE HOLDINGS, LTD., a
Delaware corporation (the "Company"), VERMONT PURE SPRINGS, INC., a Delaware
corporation that is a wholly owned subsidiary of the Company ("Springs"), and
TIMOTHY FALLON (the "Executive").
The Employment Agreement is hereby amended as set forth herein. The
effective date of these amendments is November 1, 1999.
1. SECTION 3.1 of the Employment Agreement is amended by changing the
annual base salary from $186,400 to $205,000.
2. SECTION 3.2 of the Employment Agreement is amended by inserting the
following new Sections 3.2.5, 3.2.6 and 3.2.7:
SECTION 3.2.5 BONUS FOR ACHIEVING SALES OF $40,000,000. With
respect to the Company's fiscal years ending October 2000 and October
2001: if the Company has annual sales equal to or in excess of
$40,000,000, then there shall be a bonus of $25,000.
This bonus is payable only once.
SECTION 3.2.6 BONUS FOR ACHIEVING SALES OF $50,000,000. With
respect to the Company's fiscal years ending October 2000 and October
2001: if the Company has annual sales equal to or in excess of
$50,000,000, then there shall be a bonus of $50,000. This bonus is
payable only once. The bonuses set forth in Sections 3.2.5 and 3.2.6
are cumulative and may (but need not) be earned in the same fiscal
year, but in each case are payable only once.
SECTION 3.2.7. BONUS FOR ACHIEVING AND MAINTAINING $5.00 STOCK
PRICE. With respect to the period from November 1, 1999 to October 31,
2001: if the closing price of the Company's Common Stock on its
principal trading market (currently the American Stock Exchange) is
equal to or in excess of $5.00 per share for 54 trading days in any
period of 60 consecutive trading days, where a "trading day" is a
business day on which the principal trading market for the Company's
Common Stock is open for trading, then there shall be a bonus of
$50,000. This bonus is payable only once.
3. SECTION 3.2 of the Employment Agreement is amended by renumbering
the previously existing Section 3.2.5 as Section 3.2.8, which shall be amended
to read in its entirety as follows:
SECTION 3.2.8. TIME OF BONUS PAYMENTS. Each bonus required to
be paid to the Executive under Section 3.2, except for the bonus set
forth in Section 3.2.7, shall be paid as soon as practicable after the
filing with the Securities and Exchange Commission of
-1-
<PAGE>
the Company's Annual Report on Form 10-K or 10-KSB or successor form,
as the case may be. The bonus set forth in Section 3.2.7 shall be paid
as soon as practicable following the delivery to the Company's Chief
Financial Officer of a certificate in writing, signed by the Chairman
(or if there is no Chairman, any member) of the Compensation Committee
of the Board of Directors, stating that the conditions in Section 3.2.7
have been satisfied.
4. In all other respects, the terms and provisions of the Employment
Agreement are hereby confirmed by the parties hereto.
IN WITNESS WHEREOF, the parties have executed this Amendment to
Employment Agreement on October __, 1999.
COMPANY: VERMONT PURE HOLDINGS, LTD.
By:__/s/ David R. Preston_____________
Name: David R. Preston
Title: Director
SPRINGS: VERMONT PURE SPRINGS, INC.
By:__/s/ Frank G. McDougall, Jr.________
Name: Frank G. McDougall, Jr.
Title: Director
EXECUTIVE: __/s/ Timothy Fallon___________________
TIMOTHY FALLON
-2-
FIRST AMENDMENT TO
LOAN AND SECURITY AGREEMENT
This AGREEMENT is made this 2nd day of January, 1999, by and
between VERMONT PURE HOLDINGS, LTD., a Delaware business corporation with its
chief executive offices at Route 66, Catamount Industrial Park. Randolph, VT
05060, VERMONT PURE SPRINGS, INC., a Delaware business corporation with its
chief executive offices at Route 66, Catamount industrial Park, Randolph, VT
05060 jointly and severally, the "Borrowers", and FIRST UNION NATIONAL Bank
successor by merger to CORESTATES Bank N.A., a national banking association with
offices at 1339 Chestnut Street, Philadelphia, Pennsylvania 19101-7618 (The
"Bank"),
BACKGROUND
A. The Bank and the Borrowers are parties to a Loan and Security
Agreement dated April 8, 1998 (as the foregoing may be amended, modified
supplemented or restated from time to time, the "Loan Agreement"), pursuant to
Which the Bank has made available to the Borrowers credit facilities in the form
of a Working capital line of credit, and loans to facilitate the acquisition of
specified types of businesses and assets. Unless otherwise indicated, all
capitalized terms used in this Agreement shall have the meaning given to them in
the Loan Agreement.
B. The Borrowers have requested that the Bank increase by One
Million Dollars ($I,000,000) the maximum amount available under the Working
Capital Line of Credit, which the Bank has agreed to do subject to, and in
reliance upon, the terms, conditions, representations, warranties and other
matters set for& below.
<PAGE>
AGGREEMENT
In consideration of the foregoing, and the covenants set forth
below, and intending to be legally bound, the Borrowers and Bank agree:
1. AMENDMENT TO LOAN AGREEMENT. Effective as of the date of
this Agreement, Sections 2.01, 2.02 and 2.05 are amended by deleting the number
"'Two Million
Dollars ($2,000,000) everywhere where number appears in those sections, and
inserting in its place the number Three Million Dollars
2. Representations and warranties In order to induce the
Bank to enter into this Agreement, the Borrowers represent and warrent to the
Bank that:
(a) The execution, delivery and performance of this Agreement
has been duly authorized by all necessary corporate or other required action
of the Borrowers and the Sureties,
and does not and will not violate on of law, or any agreement, trust or other
Indenture or instrument to which they are a by which their properties may be
bound, or any order or decree affecting them or their properties, so that this
Agreement will be a legal valid and binding obligation of the Borrowers
Sureties, enforceable in accordance with their terms.
(b) The financial state of the Borrowers prepared by
management as of October 31, 1998, and previously filed to the Bank were
prepared in accordance with GAAP, and present fairly the financial position of
the Borrowers as of that date and the results of their operations for the
period then ended. The Borrowers have no material or substantial contingent
obligations or liabilities, for taxes or otherwise, not otherwise disclosed or
reserved against in such financial statements. Since October 31, 1998, there
bas been no material adverse of operations of the Borrowers or the Sureties
from that set forth in such financial statements.
<PAGE>
(e) All representations and warranties made to
the Bank in the Loan Agreement and the Loan Documents are true
and correct, with the same effect as though 'Made on and as of
the date of this Agreement, there has neither occurred, nor is
there continuing, any event of Default or potential Death.
(d) The Borrowers and the Sureties
acknowledge and confirm that the
loan Agreement and Loan Documents are valid and
binding obligations, enforceable in accordance with
the terms and conditions and that First Union
National Bank is ihe successor by merger to Core
States Bank N.A., and is entitled to all of the
benefits and other rights set forth in the Loan
Agreement and the Loan Documents.
3. Conditions Precedent. As
conditions precedent to the matters ,contemplated by this
Agreement (including the increased availability under the
working capital Line of Credit), the Borrowers shall cause
to be delivered to the Bank the following agreements,
documents, instruments or other evidence, all in a form and
content satisfactory to the Bank and
its counsel:
<PAGE>
(a) This Agreement, duly executed
(b) An Allonge to the working Capital, increasing the original principal
amount of the Working Capital Note to $3,000,000
(c) Consent of the Securities to the matters contemplated by
this Agreement, as evidenced by their signature of this Agreement in the
place provided below.
(d) Such additional agreements, documents, instruments or
other matters as the Bank or its counsel may request or require under the terms
of the Loan Agreement, or otherwise.
4. MISCELLANEOUS,
(a) This Agreement shall be deemed a modification of the Loan
Agreement and the Loan Documents, to the extent it is
inconsistent with any of those agreements.
(b) This Agreement shall be binding upon and inure to the
benefit of the respective successors and assigns of the Borrowers and the
Bank, aud shall be construed and enforced in accordance with the laws in
effect in the Commonwealth of Pennsylvania.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day and year first above written.
<PAGE>
VERMONT PURE HOLDINGS, LTD.
By:
Timothy Fallon President
VERMONT PURE SPRINGS, INC.
By:
Timothy Fallon President
VERMONT PURE SPRINGS, INC.
FIRST UNION NATIONAL
Bank successor by
merger to CORESTATES
Bank N.A.
BY
The undersigned, being identified in the above agreement as Sureties, do
execute this Agreement in the place provided below for the purpose of evidencing
their consent
<PAGE>
in the above transactions, and confirming as in full force and effect (without
setoff, counterclaim, deduction or other claim of avoidance of my nature). their
unlimited LIABILITY AS TO sureties for the Indebtedness,
EXCELSIOR SPRINGS WATER
COMPANY, INC.
By:
Timothy G. Fallon
President
A.M. FRIDAYS, INC.
By
Timothy G. Fallon, President
LISA ANN LYONS
NOTARY PUBLIC, STATE OF NEW YORK
NOTARY PUBLIC NO. 0ILY5071942
QUALIFIED IN WESTCHESTER COUNTY
MY COMMISSION EXPIRES JANUARY 21, 1999
ALLONGE TO COMMERCIAL PROMISSORY NOTE
Payor: VERMONT PURE HOLDINGS, LTD. and
VERMONT PURE SPRINGS, INC.
Payee: FIRST UNION NATIONAL BANK, as successor by merger to
CoreStates Bank,
N.A. (the "Bank')
Date of
NOTE: April 8, 1998
Original
Principal Amount $2,000,000
BACKGROUND
<PAGE>
A.The Bank is the holder of a certain Commercial
Promissory Note executed on or about April 8, 1998, and executed
and delivered to the Bank by the Borrower in the original
principal amount of
$2,000,000 (the "Note").
B.The Borrower has requested that the Bank increase
the loan availability evidenced by the Note from $2,000,000 to
$3,000,000, as set forth in that certain First Amendment to Loan
and Security
Agreement dated the date hereof between the Borrowers and
the Bank (the "First Amendment").
C.As a condition to entering
into the First Amendment,
the Bank has required the
Borrowers to execute this
Allonge.
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby
acknowledged, and intending to be legally bound hereby,
the parties agree:
1.This Allonge shall be and remain attached to and
shall constitute an integral part of the Note.
2.Terms capitalized but not defined
in this Allonge shall have
the meanings ascribed to
them respectively in the
Note.
3.The dollar amount appearing at the top left comer of the Note
and elsewhere in the Note,is amended and restated as follows:
Three Million Dollars
($3,000,000).
4.Allonge, and all documents comprising or
relating to this Allonge, shall be construed inaccordance
with the laws in effort in the Commonwealth of Pennsylvania.
5.This Allonge, and all documents referred to in,
comprising or relating to this Allonge (including,
without limitation. the First Amendment) constitute the
sole agreement
Of the parties with respect to their subject matter
and supersede all oral negotiations and prior writings
with respect to their subject matter.
6.Except as modified by this Allonge, all of The
terms and provisions of the Note are hereby ratified and
confirmed, including, without limitation, those
provisions authorizing the Bank to exercise a warrent of attorney
to confess judgment subject to the terms and conditions set
forth or referred to in the Note.
IN WITNESS WHEREOF, the Borrowers have caused
this Allonge to Commercial Promissory Note to be executed by its
duly authorized officer as of the
20th day of January, 1999.
<PAGE>
VERMONT PURE HOLDINGS, LTD.
Timothy G, Fallon, President
VERMONT PURE SPRINGS, INC.
By:
Timothy G, Fallon, President
STATE OF NEW YORK
COUNTY OF WESTCHESTER
On this 20th day of January, 1999,
before me, a notary public, the undersigned
officer, personally appeared Timothy G.
Fallon, who acknowledged himself to be the
President of Vermont Pure Holdings, Ltd.,
Vermont Pure Springs, Inc., Excelsior
Springs Water Company, Inc. and A.M.
Fridays, Inc., a Pennsylvania corporation,
and that he as such officer, being authorized
to do so, executed the First Amendment to
Loan and Security Agreement and Allonge to
Commercial Promissory Note for the
purposes therein contained by singing the
name of the corporation by himself as such
officer.
IN WITNESS WHEREFOR, I have hereunto set my hand and
official seal.
Notary Public
<PAGE>
My commission expires:
LISA ANN LYONS
NOTARY PUBLIC, STATE OF NEW YORK
NOTARY PUBLIC NO. 0ILY5071942
QUALIFIED IN WESTCHESTER COUNTY
MY COMMISSION EXPIRES JANUARY 21, 1999
AMENDED AND RESTATED
SPRING WATER LICENSE AND SUPPLY AGREEMENT
This Amended and Restated Spring Water License and Supply Agreement
(the "AGREEMENT") IS BY AND BETWEEN PRISTINE MOUNTAIN SPRINGS OF VERMONT, INC.,
A VERMONT CORPORATION ("PMSV"), AND AMSOURCE, LLC, a New Hampshire limited
liability company ("AMSO").
BACKGROUND
1. AMSO and PMSV are parties to a Priority Spring Water Supply Contract
dated January 28, 1999, pursuant to which AMSO agreed to purchase from PMSV and
PMSV agreed to sell to AMSO certain spring water (the "1/28/98 Supply
Agreement").
2. AMSO and PMSV now desire to amend and restate the 1/28/98 Supply
Agreement in its entirety, on the terms and conditions hereinafter set forth
N O W, T H E R E F O R E,
In consideration of the premises and the mutual covenants and
agreements herein set forth, and in reliance on the representations and
warranties contained herein, the parties hereby agree as follows:
SECTION 1. PURCHASE AND SALE: AMSO'S REQUIREMENTS. PMSV shall sell to
AMSO and AMSO shall purchase from PMSV all of AMSO's requirements for spring
water from PMSV's spring located on property in Stockbridge, Vermont (the
"Water"). Further PMSV grants AMSO the right and license to enter the
Stockbridge Property (as defined in Section 11 below) to take and purchase Water
in accordance with the terms of this Agreement. PMSV covenants and agrees that
during the term of this Agreement it will not enter into any contracts,
commitments, arrangements, agreements or undertakings with other purchasers
which would in any way impair, impede or prevent it from meeting all of AMSO's
requirements for Water.
SECTION 2. TERM: RENEWAL TERM. The initial term of this Agreement
begins on January 4, 1999 and continues through December 31, 2023, unless sooner
terminated, renewed or extended as hereinafter provided. AMSO shall have the
option to renew this Agreement for an additional term beginning on January 1,
2024 and ending on January 15, 2049, on the same terms and conditions herein set
forth, except with respect to the purchase price adjustment set forth in Section
3 hereof. AMSO's option to renew shall be exercised, if at all, by written
notice form AMSO to PMSV given not later than six (6) months prior to the
expiration of the initial term of this Agreement.
SECTION 3. PRICE: ADJUSTMENT OF PRICE. AMSO shall pay to PMSV during the
period from the date hereof through and including December 31, 2009 (the "Base
Sales Price"):
<PAGE>
(a) During each calendar year, one and one-half cents ($0.015) per
gallon of Water for gallons 1 - 3,000,000;
(b) During each calendar year, one cent ($0.01) per gallon of
Water for gallons 3,000,001 - 10,000,000; and
(c) During each calendar year, eight tenths of a cent ($0.008) per
gallon of Water for Gallons 10,000,000 or more.
Thereafter, the Base Sales Price shall be reviewed every five years by the
parties and adjusted accordingly to market conditions as mutually determined and
agreed by the parties. If, by March 15 in years 2014, 2019, 2024, 2029, 2034,
2039 and 2044, the parties have not been able to agree upon an amount for the
adjustment, the adjustment shall automatically be based on the average Consumer
Price Index (CPI) increase or decrease during the immediately preceding
five-year period. The Base Sales Price, as so adjusted, shall become the
applicable sales price for the next succeeding five-year incremental period.
PMSV shall invoice AMSO monthly for Water sold to AMSO during the preceding
month, and AMSO shall pay each invoice within sixty (60) days after receipt
thereof.
SECTION 4. HOURS OF OPERATION. PMSV represents and warrants to AMSO
that AMSO shall be entitled to take the Water by tanker truck at any time
twenty-four (24) hours a day, seven days a week, without violation of any
permits held by PMSV (all of which have been disclosed to AMSO) or applicable
law. PMSV shall immediately notify AMSO of any changes in permits, provisions,
restrictions or laws that would prohibit AMSO from taking Water during the times
and days specified above, and AMSO shall have no liability to PMSV with respect
to the foregoing indemnification until PMSV has so notified AMSO of any such
changes. AMSO shall indemnify and hold PMSV harmless from any cost or expenses
relating to any suits, controversies, actions or otherwise filed by any person,
corporation, entity or other governmental BODY, WHETHER FEDERAL, STATE OR LOCAL,
DUE TO ANY VIOLATION BY AMSO of any permit conditions or applicable laws
relating to hours of operation after PMSV has notified AMSO of such conditions
or changes in applicable law.
SECTION 5. BULK WATER LOADING STATION. PMSV shall maintain its high
volume loading facility (the "Bulk Water Loading Station") located on the
Stockbridge Property (as defined in Section 11 below) in accordance with
applicable industry and governmental regulations. PMSV shall make the Bulk Water
Loading Station available to AMSO on a priority basis, and if the Bulk Loading
Station is being repaired or if it is otherwise not available for any reason not
in violation of PMSV's obligations under this Agreement, PMSV agrees to make
available to AMSO the original facility on a priority basis.
SECTION 6. TRANSPORTATION. AMSO shall be responsible for arranging for the
transportation of all Water purchased from PMSV and PMSV shall have no liability
or obligations with respect thereto.
SECTION 7. COMPLIANCE WITH LAW. AMSO shall be responsible for obtaining and
maintaining all federal, state and local permits and licenses that may be
required by it in order for
<PAGE>
it to purchase, haul, bottle and distribute the Water. If any federal, state or
local governmental authority imposes any requirements in connection with the
sale of Water to AMSO which would require testing or equipment in addition to
that presently performed or used by PMSV, AMSO shall so notify PMSV and PMSV
shall immediately purchase the required equipment and/or commence the required
testing.
In the event the Water does not meet Vermont EPA standards, or if the
water does not meet the then existing highest federal, state or local
governmental standards imposed in areas in which AMSO distributes or intends to
distribute, then AMSO shall have the right to purchase water from other
acceptable sources until such time as PMSV, at its own expense, can return and
sustain water quality to those water quality standards. In addition, AMSO shall
be entitled to purchase water from other sources in the event PMSV is not able
to meet all of AMSO's water supply needs.
SECTION 8. REPRESENTATIONS AND WARRANTIES OF PMSV. PMSV represents and
warrants to AMSO as follows:
(a) It has authority to execute and perform this Agreement, and
such performance will not violate, infringe or cause a default
under any other contract, agreement, order, judgment or
understanding by which it is legally bound or any law, order,
regulation, writ or ruling by which it is bound or to which it
or its business is subject.
(b) it is a validly formed corporation in good standing under the
laws of the State of Vermont.
(c) The spring on the Stockbridge Property which is the subject of
this Agreement (the "Spring") was pump tested in August, 1992
and showed a total flow of at least 900 gallons per minute.
The water from the spring meets or exceeds the Vermont EPA
water quality standards. PMSV knows of no change or other
event that would make the foregoing test results inaccurate.
(d) PMSV possesses all licenses, permits, franchises, easements or
rights thereto, necessary to conduct PMSV's business as now
conducted and as presently proposed to be conducted and to
sell Water to AMSO, and is not in violation of any valid
rights of others with respect to any of the foregoing.
SECTION 9. REPRESENTATIONS AND WARRANTIES OF AMSO.. AMSO represents and
warrants to PMSV as follows:
(a) It has the authority to execute and perform this Agreement,
and such performance will not violate, infringe or cause a
default under any other contract, agreement, order, judgment
or understanding by which it is legally bound or any law,
order, regulation, writ or ruling by which it is bound or to
which it or its business is subject.
<PAGE>
(b) it is a validly formed limited liability company in good
standing under the laws of the State of New Hampshire.
(c) AMSO possesses all licenses, permits, franchises, easements,
or rights thereto, necessary to conduct AMSO's business as now
conducted and as presently proposed to be conducted and to
purchase Water to PMSV, and is not in violation of any valid
rights of others with respect to any of the foregoing.
SECTION 10. EVENTS OF DEFAULT. Upon the occurrence of any of the following
events (each of which is herein called an "Event of Default"):
(a) AMSO fails to make a scheduled payment for Water it purchases
within ninety (90) days after the invoice therefor becomes
due;
(b) If AMSO or PMSV shall:
1. apply for or consent to the appointment of a receiver,
trustee or liquidator
of it or any of its property;
2. admit in writing its inability to pay its debts as
they mature
3. make a general assignment or trust mortgage for the
benefit of creditors;
4. file a voluntary petition in bankruptcy, or a
petition or an answer seeking reorganization or any
arrangement with creditors or to take advantage of
any bankruptcy, reorganization, insolvency,
readjustment of debt, dissolution or liquidation law
or statute, or an answer admitting the material
allegations of a petition filed against it in any
proceeding under any such law, take any action for
the purpose of effecting any of the foregoing;
(c) If an order, judgment or decree shall be entered against
either party by any court of competent jurisdiction, approving
a petition seeking reorganization of such party, or appointing
a receiver, trustee or liquidator of the party or of all or a
substantial portion of its assets, and the same shall not be
dismissed or discharged within one hundred eighty (180) days
after notice thereof given by one party to the other; or
(d) If any judgment, writ, warrant of attachment or execution or
similar process shall be issued or levied against a
substantial part of the property of a party, and such
judgment, writ, or similar process shall not be released,
vacated, or fully bonded within one hundred eighty (180) days
after its issue or levy; or
(e) If default shall be made by either party in the performance or
compliance with any of the agreements, terms, covenants or
conditions in this Agreement, other than that referred to in
the foregoing subparagraph (a) with respect to payments
<PAGE>
required to be made by AMSO, for a period of thirty (30) days
after notice from non-breaching party to the other party
specifying the items in default, or in the case of a default
of which cannot with due diligence be cured within said thirty
(30) day period, if the breaching party fails to commence
within said thirty (30) day period the steps necessary to cure
the same or thereafter to prosecute the curing of such default
with due diligence (it being understood that the time of the
breaching party within which to cure shall be extended for
such period as may be necessary to complete the same with all
due diligence);
then, and in case of every such Event of Default, and at any time thereafter,
the non-breaching party may, at its option elect to terminate this Agreement,
effective on written notice to the other. No such termination shall relieve
either party form the duty to perform all duties and obligations that accrued
prior to the effective date of termination.
SECTION 11. RIGHT OF FIRST REFUSAL. PMSV hereby grants to AMSO a right
of first refusal to purchase and/or to lease the Spring and the land, premises
and property on which the Spring is located, in Stockbridge, Vermont, together
with all improvements thereon, as more particularly descried on Exhibit "A"
hereto (the "Stockbridge Property"), during the term of this Agreement and any
renewal or extension, on the following terms and conditions. If PMSV shall
desire to sell or lease the Stockbridge Property and shall receive a bona fide
written offer to acquire or lease the same, PMSV shall promptly transmit a copy
of such offer to AMSO and shall offer to convey or lease the Stockbridge to
AMSO, at the price and on the terms and conditions set forth in such bona fide
offer. AMSO shall have thirty (30) days within which to accept such offer form
PMSV, by giving written notice thereof to PMSV. In the event AMSO accepts such
offer form PMSV, the parties shall fully and promptly comply with all terms of
the contract so created. If AMSO does not so accept, PMSV shall have the right
to transfer or lease the Stockbridge Property to the person or entity and at the
price and upon the terms and conditions set forth in such bona fide offer
received by PMSV, but only so long as such transfer or lease is effected within
ninety (90) days after the date on which AMSO received such offer form PMSV. The
Stockbridge Property in the hands of such transferee or transferees shall
continue to be subject to the restrictions of this section.
SECTION 12. PERSONAL PROPERTY: TAXES. AMSO is solely responsible for
all of its personal property placed upon the Stockbridge Property during the
term of this Agreement, which responsibility includes, by way of illustration
and not by way of limitation, payment of all taxes and fees assessed against
such personal property and insurance for all personal property. Further at the
expiration or earlier termination of this Agreement, AMSO shall remove its
personal property from Stockbridge Property exercising due care not to damage
the Stockbridge Property by such removal. PMSV shall be entitled to all tax
deductions form any sums for depletion, depreciation or amortization with
respect to the Stockbridge Property.
SECTION 13. FORCE MAJEURE. In the event that either party shall be
delayed, hindered in or prevented from the performance of any act required
hereunder, by reason of strikes, lock-outs, labor troubles, inability to procure
materials, failure of power, restrictive governmental laws or regulations,
riots, insurrection, war or other reason beyond its control (including the act,
failure to act or default of the other party), then performance of such act
shall be excused for the period
<PAGE>
of the delay and the period for the performance of any such act shall be
extended for a period equivalent to the period of such delay. If, despite all
diligent efforts by PMSV to correct such event or circumstance, such event or
circumstance continues for more than one hundred eighty (180) days, AMSO, at its
option may elect to terminate this Agreement. No such termination shall relieve
either party form the duty to perform all duties and obligations that accrued
prior to the effective date of termination.
SECTION 14. ADVERTISING AND PACKAGING. No advertising materials or
other information distributed by AMSO about the Water shall contain any
disparaging remarks about other purchases of Water from PMSV. PMSV covenants and
agrees with AMSO to include a provision comparable to this Section 14 in all
agreements, arrangements, commitments and undertakings PMSV may have with all of
its purchasers and others with whom it does business os that AMSO may become a
third party beneficiary with respect thereto.
SECTION 15. NO WAIVER. Neither the failure of a party to exercise, nor
the delay of a party in exercising any right, power, or privilege under this
Agreement shall operate as a waiver thereof, nor shall any single or partial
exercise or any right, power or privilege preclude any other or further exercise
of any other right, power or privilege.
SECTION 16. SPECIFIC PERFORMANCE. The parties acknowledge that it would
be difficult if not impossible to measure in money alone the damages that could
result from failure to perform the obligations created by this Agreement.
Accordingly, if any party bound by or entitled to the benefit of this Agreement
shall institute an action or proceeding or enforce it, any person against whom
such action or proceeding is brought hereby waives the claim or defense that the
party bringing such action has an adequate remedy at law, and irrevocably agrees
not to urge in any such action or proceeding the claim or defense that such a
remedy exists. The parties intend and agree that upon the institution of any
such action or proceeding, the provisions of this Agreement shall be required to
be specifically performed.
SECTION 17. FORUM SELECTION: VENUE. All questions or controversies
arising out of or in any way relating to this Agreement or any other aspect of
the commercial relationships between the parties shall be submitted to the
United States District Court for the District of Vermont or, in the event that
District Court is without subject matter to the courts of the State of Vermont
having subject matter jurisdiction, and the parties submit themselves to the
personal jurisdiction of such District Court or Vermont State Court, as the case
may be, and any service of a summons, process or other paper in connection with
such proceedings may be made by giving notice as provided in this Agreement.
Nothing herein contained shall be construed as intended to preclude or in any
way prohibit either party form institution and otherwise prosecuting to judgment
a lawsuit in any court of competent jurisdiction to effect the collection of any
sums due it or to enforce any right or remedy arising hereunder or otherwise.
SECTION 18. COSTS OF SUIT AND ENFORCEMENT. If either party resorts to
suit or other legal proceedings to enforce any right or remedy hereunder, the
non-prevailing party agrees to pay the prevailing party's costs of suit and
enforcement, including reasonable attorneys' fees.
SECTION 19. NOTICES. Any notice or other communication to be given
hereunder shall be
<PAGE>
in writing and mailed or telecopied to such part at the address or number set
forth below:
If to AMSO: AmSource, LLC
135 Maple Avenue
Claremont, NH 03743
Telephone No.: (603) 543-0000
Telecopier No.: (603) 543-0040
If to PMSV: Pristine Mountain Springs of Vermont, Inc.
P.O. Box 662
Pittsfield, VT 05762
Telephone NO.: (802) 746-8146
Telecopier No.: (802) 746-7935
or to such other person, address or number as the party entitled to such notice
or communication shall have specified by notice to the other party given in
accordance with the provisions of this Section. Any such notice or other
communication shall be deemed given: (i) if mailed, when deposited in the mail,
properly addressed and with postage prepaid; or (ii) if sent by telecopy, when
transmitted.
SECTION 20. REMEDIES CUMULATIVE. The rights and remedies herein are
cumulative, and not exclusive of other rights and remedies which may be granted
or provided by law.
SECTION 21. RELATIONSHIP OF PARTIES. Nothing in this Agreement shall be
construed to place the parties in the relationship of partners or joint
ventureres, or of agency or employment, and, except to the extent, if at all,
otherwise expressly provided herein, no party shall have the power to obligate
or bind any other party in any manner whatsoever.
SECTION 22. ASSIGNABILITY. PMSV shall not assign this Agreement, by
operation of law or otherwise, without the prior written consent of AMSO (which
consent shall not be unreasonably withheld or delayed, due to consideration
being given to the financial stature and ability to conduct the business
contemplated of such proposed assignee). AMSO, and its successors and assigns,
may assign this Agreement, by operation of law otherwise, on notice to PMSV.
This Agreement shall bind and inure to the benefit of the parties and their
respective permitted successors and assigns. This Agreement is intended to run
with the land and shall be binding upon any purchaser of the Stockbridge
Property.
SECTION 23. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Vermont.
SECTION 24. FURTHER ASSURANCES. The parties agree to execute,
acknowledge, if necessary, and deliver such documents, certificates or other
instruments and take such other actions as may be reasonably required from time
to time to carry out the intents and purposes of this Agreement.
SECTION 25. CAPTIONS: HEADINGS. The caption and section numbers appearing
in this
<PAGE>
Agreement are inserted only as a matter of convenience. They do not define,
limit, construe or describe the scope or intent of such sections, nor in any way
affect this Agreement or have any substantive effect.
SECTION 26. REFORMATION: SEVERABILITY. If any of the terms, covenants
or conditions set forth herein are found by a court to be unenforceable, then
and in that case such provision shall nevertheless remain effective but shall be
considered amended in such manner so as to make the provision enforceable as
determined by such court and as so amended shall be enforced. If any term,
covenant or condition of this Agreement or the application thereof to any person
or circumstance shall, to any extent, be invalid or unenforceable, the remainder
of this Agreement, or the application of such term, covenant or condition to
persons or circumstances other than those as to which it is held invalid or
unenforceable, shall not be affected thereby and each term, covenant or
condition of this Agreement shall be valid and be enforced to the fullest extent
permitted by law.
SECTION 27. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
SECTION 28. SHORT-FORM AGREEMENT TO BE RECORDED. The parties expressly
agree that a short-form of this Agreement may be recorded by AMSO in the land
records in the office of the Town Clerk of Stockbridge, Vermont.
SECTION 29. ENTIRE AGREEMENT: AMENDMENT. This Agreement embodies the entire
agreement and understanding between the parties relating to the subject matter
hereof. This Agreement may not be amended, waived or discharged except by an
instrument in writing executed by the party against whom such amendment, waiver
or discharge is to be enforced.
IN WITNESS WHEREOF, the parties have executed or cause this Agreement
to be executed as of the __ day of April, 1999.
IN PRESENCE OF:
AMSOURCE, LLC.
____________________________________ By:________________________________
Witness Duly Authorized Agent
_____________________________________ By:________________________________
Witness Duly Authorized Agent
STATE OF NEW HAMPSHIRE
COUNTY OF SULLIVAN, SS.
<PAGE>
At Claremont, in said County and State, this __ day of April, 1999,
personally appeared BARTON E. LORD, DULY AUTHORIZED AGENT OF AMSOURCE, LLC, and
he acknowledged this INSTRUMENT, BY HIM SIGNED, TO BE HIS FREE ACT AND DEED AND
THE FREE ACT AND DEED OF AMSOURCE, LLC.
Before me, _________________________
My commission expires:
<PAGE>
STATE OF NEW HAMPSHIRE
COUNTY OF SULLIVAN, SS.
At Claremont, in said County and State, this __ day of April, 1999,
personally appeared RONALD E. COLTON, DULY AUTHORIZED AGENT OF PRISTINE MOUNTAIN
SPRINGS OF VERMONT, and he acknowledged this instrument, by him signed, to be
his free act and deed AND THE FREE ACT AND DEED OF PRISTINE MOUNTAIN SPRINGS OF
VERMONT.
Before me, _________________________
My commission expires:
<PAGE>
EXHIBIT "A"
PARCEL A
Being all and the same lands and premises conveyed to Pristine Mountain Springs
of Vermont, Inc. by Warranty Deed of Ronald E. Colton dated July 31, 1995 and
recorded in Book 52, Page 115 of the Town of Stockbridge Land Records and being
more particularly described therein as follows:
Being all and the same lands and premises conveyed to Ronald E. Colton by
Warrranty Deed of Michael B. Barrett dated May 6, 1994 and recorded in Book 51
at page 30 of the Land Records of the Town of Stockbridge and being more
particularly described as follows:
Being all and the same lands and premises conveyed to Michael B. Barrett, by
Warranty Deed of Geoffrey O. Ventura dated February 13, 1987, and which is
recorded at Book 43, Pages 332-336 in the Land Records of the Town of
Stockbrdige and being more particularly described as follows:
Being a portion of all and the same lands and premises conveyed to Geoffrey O.
Ventura by QuitClaim Deed of Delores O. Ventura dated July l9, 1984 and recorded
in the Town of Stockbridge Land Records in Book 40 at Pages 632-634. Said lands
and premises are more particularly described as follows:
Being a portion of the Delores O. and Geoffrey O. Ventura property located on
the southerly side OF VERMONT ROUTE NO. 100 IN THE TOWN OF STOCKBRIDGE, VERMONT
HEREINAFTER REFERRED TO AS LOT NO. B-1 and described as follows:
Beginning at an iron pipe set in the westerly line of the property belonging to
John C. and Henrietta W. and Lloyd H. Whit which iron pipe marks the
southeasterly corner of Lot B-2 of the Delores O. and Geoffrey Ventura property
(said point of beginning being on a bearing of South 21' 16' 15" West at a
distance of three hundred seventy seven and seventy three one hundredths
(377.73) feet from an iron pipe set in the southerly line of Vermont Route No.
100 which iron pipe marks the northwesterly corner of the property belonging to
John C. and Henrietta W. and Lloyd H. White and also marks the northeasterly
corner of the property belonging to the said Ventura in the Town of Stockbridge,
County of Windsor, State of Vermont); thence from the point of beginning South
21' 16' 15" West a distance of eighty eight and zero one hundredths (88.00) feet
along a portion of the property belonging to John C. and Henrietta W. and Lloyd
H. White to an iron pipe (existing) set in the westerly line of the said White
property and marking the northeasterly corner of the property belonging to
Robert E. Jr. and Janet A. Lee; thence North 57' 52' 05" West a distance of two
hundred ninety seven and zero one hundredths (297.00) feet along the northerly
line of the property belonging to Robert E. Jr. and Janet A. Lee and the
northerly line of the property belonging to Robert P. Flannigan, et al and a
portion of the northerly line of the property belonging to Stratton Estates,
Inc. to an iron pipe set in an inner corner in the northerly line of the said
Stratton Estates, Inc. property; thence South 37' 22' 55"
<PAGE>
West a distance of twenty one and zero one hundredths (21.00) feet along a jog
in the northerly line of Stratton Estates, Inc. property to an iron pipe; thence
North 52' 22' 05" West a distance of four hundred twenty eight and fourteen one
hundredths (428.14) feet along the northerly line of the property belonging to
the Stratton Estates, Inc. and the northerly line of the property belonging to
Pach, Inc. and the northerly line of the property belonging to Dan R. Civiello
and the northerly line of the property belonging to Mary Grace Civiello to an
iron pipe set in a stone wall which marks the easterly line of the property
belonging to John S. Jr. and Mary Louise Bernhard and the easterly line of the
property belonging to Frank and Cathryn Finizio and John A. and Marie G. Miko
and the northerly line of the property belonging to Keith Blakeslee to an iron
pipe set in the northerly line of the said Blakeslee property in a stone wall
and marking the southwesterly corner of Parcel A of the property belonging to
Delores O. and Geoffrey O. Ventura; thence South 39' 58' 45" East a distance of
four hundred eleven and ninety seven one hundredths (411.97) feet along the
southerly line of the said Parcel A to an iron pipe set in the southerly line of
the said Parcel A and also marking the northwesterly corner of Lot B- 2 of the
Delores O. and Geoffrey O. Ventura property; thence South 31' 14' 45" West a
distance of one hundred twenty four and seventy four one hundredths (124.74)
feet along the westerly line of the said Lot B-2 to an iron pipe set at the
southeasterly corner of Lot B-2 of the Delores O. and Geoffrey O. Ventura
Property; thence South 57' 52' 05" East a distance of three hundred sixty eight
and zero one hundredths (368.00) feet along the southerly line of the said Lot
B-2 to the point or place of beginning.
All bearings in the description are based on magnetic North (Novermber 1983) and
the above described parcel Lot B-1 Delores O. and Geoffrey O. Ventura Property
Vermont Route No. 100- Stockbridge, Vermont contains three and zero one one
hundredths (3.01) acres be the same more or less.
Further reference is made to a survey plat (map) entitled Delores O. and
Geoffrey O. Ventura Vermont Route No. 100 Stockbridge, Vermont Dated February
1984 (Parcel A Lots B-1, B-2and B-3 surveyed and added to this plan in April
1986). The survey was performed by Roberts & Franzoni, Inc.(Professional
Engineers and Registered Land Surveyors) of Rutland, Vermont.
There is included with the above described parcel a right-of-way 20 feet in
width extending from the southerly line of Vermont Route No.100 through Lot B-3
of the Delores O. and Geoffrey O. Ventura property to the northerly line of the
above described Lot B-1, said twenty foot right-of- ways are more particularly
described as follows:
Beginning at an iron pipe (flush) set in the southerly line of Vermont Route No.
100 said iron pipe being on a bearing of North 69' 03' 40" West at a distance of
fifty six and zero one hundredths (56.00) feet from an iron pipe set in the
southerly line of Vermont Route No.100 and marking the northwesterly corner of
the property belonging to John C. and Henrietta W. and Lloyd H. White; thence
from the point of beginning South 20' 56' 20" West a distance of twenty four and
nine on hundredths (24.09) feet to an iron pipe (flush); thence South 69' 47'
45" West a distance of one hundred thirty one and twenty seven on hundredths
(131.27) feet to an iron pipe (flush); thence South 47' 21' 20" West a distance
of sixty and eighteen one hundredths (60.18) feet to an iron pipe (flush);
thence continuing South 47' 21' 20" West a distance of eighty three and thirty
two one hundredths (83.32) feet to an iron pipe (flush); thence South 40' 59'
35" West
<PAGE>
a distance of ninety five and twenty three one hundredths (95.23) feet to an
iron pipe set in the northerly line of the above described Lot B-1; thence North
57' 52' 05" West a distance of twenty four one hundredths (20.24) feet along the
northerly line of the above described Lot B-1 to an iron pipe set in the
northerly line of the said Lot B-1; thence North 40' 59' 35" East a distance of
ninety nine and forty six on hundredths (99.46) feet to an iron pipe (flush);
thence North 47' 21' 20' East a distance of fifty four and ninety seven on
hundredths (54.97) feet to an iron pipe (flush); thence South 81' 31' 20" West a
distance of thirty three and fourteen one hundredths (33.14) feet to an iron
pipe (flush); thence South 62' 14' 35" West a distance of one hundred forty nine
and ninety seven one hundredths (149.97) feet to an iron pipe set in the
northerly line of the above described Lot B-1, thence North 57' 52' 05" West a
distance of twenty three and twelve one hundredths (23.12) feet along the
northerly line of Lot B-1 of the property belonging to Delores O. and Geoffrey
O. Ventura to an iron pipe set at the southwesterly corner of Lot B-2 of the
Delores O. and Geoffrey O. Ventura property; thence North 62' 14' 35" East a
distance of one hundred sixty four and ninety seven one hundredths (164.97) feet
to an iron pipe (flush); thence North 81' 31' 20" East a distance of sixty six
and zero one hundredths (66.00) feet to an iron pipe (flush); thence North 47'
21' 20' East a distance of fifty eight and zero one hundredths (58.00) feet to
an iron pipe (flush); thence North 69' 47' 45" East a distance of one hundred
twenty six and fifteen one hundredths (126.15) feet to an iron pipe (flush);
thence North 20' 56' 20" East a distance of fifteen and zero one hundredths
(15.00) feet to an iron pipe (flush) set in the southerly line of Vermont Route
No. 100; thence South 69' 03' 40" East a distance of twenty and zero one
hundredths (20.00) feet along the southerly line of Vermont Route No.100 to the
point or place of beginning.
The above described rights-of-ways shall be for common driveway and utility
access to and from Route 100 to Lots B-1, B-2, and B-3, respectively, as shown
on said survey plat. Grantor shall bear no cost nor be responsible for the
construction or maintenance of a road or utilities upon said rights-of-way. The
entire cost of construction and maintenance of a road over and upon the second
right-of-way leading from a Y-intersection with the principal right-of-way to
and from Route 100, and which said second right-of-way proceeds in a general
southwesterly direction across the far westerly portion of Lot B-2 to Lot B-1,
shall be borne exclusively by the owner of Lot B-1.
The costs of construction and maintenance of a road or utilities over and upon
the principal right-of-way leading to and from Route 100 shall be apportioned
among the respective owners as follows:
Owner Share of Road Cost
Lot B-1 50%
Lot B-2 35%
Lot B-3 15%
Nothing herein shall be constructed to require an owner to incur any
utility costs unless that owner is going to use the utility lines
constructed in the right-of-way.
Provided, however, the first owner to construct a dwelling on his
respective lot shall be
<PAGE>
responsible for the full costs of construction and maintenance of said
road and utilities until such time as the other lot owners shall
construct a dwelling on their respective lot whereupon the owner having
borne the original cost of construction of the road shall be entitled
to reimbursement in accord with the prorations specified above for the
cost of construction of the road and utilities. The owner deciding to
build first, shall give notice to the other owners and an estimate of
costs prior to starting construction of the road. An owner shall only
be responsible to pay his share of such construction expenses that can
be accurately verified by the presentation of written paid receipts
which describe the costs of that portion of work done for the joint
portion of the right-of-way as opposed to any other work done on any
driveway or other improvements outside of said joint right-of-way.
Failure to pay the prorata share specified herein above within thirty
(30) days of the time that payment is due shall give rise to a lien in
favor of the owner having paid the original cost of construction. In
the event that said owner first constructing has to resort to legal
action to collect said construction costs, he or she shall be entitled
to collect his attorney's fees and reasonable costs of suit.
Reimbursement shall be due thirty (30) days after the date that an
owner receives a building permit from the Town of Stockbridge or
completes his foundation, whichever first occurs. Thereafter said
owners shall share the costs of maintenance in accordance with the
apportionment set forth herein. Said first owner to construct a
dwelling shall not be entitled to receive any reimbursement for
maintenance costs paid prior to the date of use by a second lot owner.
Lots B-1, B-2, and B-3 as shown on said survey plat shall be subject to the
following restrictions and covenants which shall be deemed covenants running
with the land:
1. No mobile homes or trailers shall be permitted.
2. No commercial uses shall be permitted.
3.No dwelling shall be permitted except a single family residence
dwelling and appurtenant out buildings
4. No farming or other commercial agricultural enterprise shall be
permitted, including the raising of livestock. This covenant shall
not be deemed to prohibit the keeping of pets of animals for
pleasure or personal use.
Said restrictions and covenants shall be binding upon and inure to the
benefit of Grantor and Grantee, and their respective heirs and assigns,
and shall be enforceable exclusively by Grantor and the respective
owners of Lots B-1, B-2, and B-3.
For purposes of reference to prior conveyances made by the late John V. and J.
Lavern Dutton during lifetimes, and to which prior conveyances this conveyance
is made subject, reference is made to the following:
<PAGE>
1. Deed to State of Vermont for highway purposes dated November 5, 1936,
and recorded in Book 29 at Page 302, Stockbridge Land Records;
2. Deed to Cecil White, part of the homefarm south of the Tweed River, dated
September 10, 1946, recorded in Book 29, Page 103, of the said Land Records;
3. Deed to Mussey Estate for small parcel of land with spring thereon, dated
October 11, 1949, and recorded in Book 29, Page 157, of said Land Records;
5. Deed to John J. Giorgetti, 6 acres of land, mor or less, recorded in Book 32,
Page 63, of said Land Records;
6. Deed to John C. White of a right-of-way across the meadow 12 feet wide and 12
rods long recorded in Book 32, Page 60A of said Land Records;
7. Deed to Alice K. Turro of 50 acres, more or less, recorded in Book 32, Page
251 of said Land Records;
8. Easement deed to Pittsfield Electric Co. recorded in Book 27, Page 408, of
said Land Records.
Reference may be had to the above mentioned deeds and the deeds and references
contained therein for a more particular description.
PARCEL B
Being all the same lands and premises conveyed to Pristine Mountain Springs of
Vermont, Inc. by Warranty Deed of Ronald E. Colton and H. Jenette Colton,
husband and wife, dated July 31, 1995 and recorded in Book 52, Page 130 of the
Town of Stockbridge Land Records and being more particularly described therein
as follows:
Being all the same lands and premises conveyed to Ronald E. Colton and H.
Jenette Colton, husband and wife, by Warranty Deed o f David L. North and Karen
North, husband and wife, dated January 14, 1994 and recorded in Book 50 at Page
549 of the Town of Stockbridge Land Records and being more particularly
described therein as follows:
Being all the same lands and premises conveyed by David L. North to David L.
North and Karen North, by Warranty Deed dated December 11, 1985, and recorded in
Book 42 at Pages 128-29 of the Town of Stockbridge Land Records and being more
particularly described therein as follows:
Being all the same lands and premises conveyed by Lynne A. Holmes to David L.
North, by Warranty Deed dated December 21, 1983, and recorded in Book 40 at
Pages 254-56 of the Town of
<PAGE>
Stockbridge Land Records and being more particularly described therein as
follows:
Being all the same lands and premises conveyed to Lynne A. Holmes by Warranty
Deed of Gerald E. Mickel, dated December 7, 1978, which is recorded in Book 37
at Pages 63-65 of the Land Records of the Town of Stockbridge and being more
particularly described therein as follows:
Being all the same lands and premises conveyed by Stratton Estates, Inc., to
Gerald E. Mickel and Anne E. Mickel, his then wife, now deceased, by deed dated
June 29, 1972, and recorded in Book 33, Pages 474 of the Town of Stockbridge,
Vermont Land Records and more particularly described in said deed as follows:
Beginning at an iron pin situated in the north line of Schaff-Haus Drive, which
iron pin marks the southeast corner of Lot #1 as shown on a Revised Plan
entitled "CHALET VILLAGE, REVISED PLAN-JOHN GIORGETTI-BUILDER-ROUTE
100-STOCKBRIDGE, VT' which revised Plan is dated June 30, 1967 and is on file in
Stockbridge, Vermont Town Clerk's Office; thence running northerly along the
east line of Lot #1 for a distance of 110 feet to the west line of Lot L; thence
running northerly along the west line of Lot L for a distance of 15 feet to a
point which marks the intersection of the west line of Lot L with the north line
of Lot #1; thence running westerly along the south line of Lot #15 for a
distance of 100 feet to the northeast corner of Lot #3; thence running southerly
along the east line of Lot #3 for a distance of 125 feet to the north line of
Schaff-Haus Drive; thence running easterly along the north line of Schaff-Haus
Drive, for a distance of 106 feet, to the place of beginning.
Meaning hereby to convey Lot #1 as shown on the aforesaid Plan and being a part
of the same lands and premises conveyed by J ohn J. Giorgetti to Stratton
Estates, Inc. by deed dated March 20, 1967 and recorded in Book 32, Page 428 of
Stockbridge, Vermont Land Records.
This conveyance is made subject to a pole line easement as conveyed by John
Giorgetti to Central Vermont Public Service Corporation by instrument recorded
November 18, 1961 in Book 32, Page 145 of the Stockbridge, Vermont Land Records
and is also made subject to such rights of way and easements of record as affect
the above described premises.
To which deed and the record thereof and the deeds and records therein referred
to, reference is hereby had for a more particular description of the premises
hereby conveyed.
And the Grantee, by the acceptance of this deed, covenants and agrees for
herself, her heirs and assigns, to pay to Ronald E. Colton (the present owner of
the water system transferred to him by Stratton Estates, Inc.), his heirs and
assigns, the sum of $75.00 a year for water furnished by said Ronald E. Colton
to the Grantee from the water system and pump house situated on Lot 1 of the
aforesaid plan.
This conveyance is made subject to an easement for water pipes, if any, as cross
the above described premises and connect to the water system furnishing water to
the chalets in the Chalet Village."
<PAGE>
PARCEL C
Being all the same lands and premises conveyed by John C. White and Lloyd H.
white to Pristine Mountain Springs of Vermont, inc. by Warranty Deed dated
August 24, 1995 and recorded in book 52, 167 of the Town of Stockridge lands
records and more particularly described therein as follows:
Being a portion of the lands and premises conveyed to John. C. White, Henrietta
W. White (now deceased) and Lloyd H. White by Warranty Deed and from John C.
White and Henrietta W. White dated September 29, 1980 and recorded in Book 38,
Page 200 of the land records of the Town of Stockridge, Vermont and being more
particularly described as follows:
"Being designate "Parcel B, 5.99 +/- acres, to be conveyed to Ronald E. Colton"
as shown on a survey entitled "Division of a Portion of Lands of John C. White
and Lloyd H. White", prepared by Michael Engineering Company, P.C. dated May 9,
1995 and bearing the seal and signature of Ralph J. Michael, State of Vermont
R.L.S. No. 130.
Said parcel herein conveyed is more particularly described below:
Beginning at a point marked with an iron pipe driven in the ground of in the
westerly boundary of lands of the herein grantors John C. White and Lloyd H.
White, said point being the northeasterly corner of land of the herein grantee,
Ronald E. Colton and the southeasterly corner of a parcel of land now or
formerly of Christopher Antonucci; thence South 21 degrees 19 minutes 50 seconds
West along land of said Ronald E. Colton 88.19 feet to a point marked with an
iron pin driven in the ground at the northeasterly corner of land new or
formerly Jane Spindis and Robert Gore; thence South 21 degrees 13 minutes 05
seconds West along said Spindis and Gore land 103.98 feet to a point marked with
an iron pin driven in the ground; thence South 71 degrees 15 minutes 50 seconds
East in a straight line through lands herein grantors 555.14 feet to a point
marked with an iron pin driven in the ground; thence North 19 degrees 13 minutes
35 seconds East in a straight line through land of the herein grantors 561.67
feet to a point marked with an iron pin supposed to be in the southerly boundary
of the public highway known as Vermont Route 100, so called; thence North 70
degrees 16 minutes 15 seconds West along the southerly boundary of said highway
315.79 feet to a point marked with an iron pin driven in the ground; thence
South 47 degrees 09 minutes 10 seconds West in straight line through lands of
the herein grantors 428.13 feet to a point marked with an iron pin driven in the
ground; thence North 68 degrees 45 minutes 35 seconds West in a straight line
through lands of the herein grantors 32.00 feet to the point and place of
beginning and contains 5.99 acres by measure.
PARCEL D
Being all and the same lands and premises conveyed to Pristine Springs of
Vermont, Inc. by Warranty Deed of Ronald E. Colton dated July 31, 1995 and
recorded in Book 52, Page 148 of the Town of
<PAGE>
Stockbridge Land Records and being more particularly described therein as
follows:
Being all and the same lands and premises conveyed by John J. Giorgetti and Mary
C. Giorgetti, Husband and wife, to Ronald E. Colton by Warranty Deed dated
November 19, 1977 and recorded in Book 36 at Page 174 in the Town of Stockbridge
Land Records and being more particularly described therein as follows:
"Beginning at the southeasterly corner of Lot No. 1 and the southwesterly corner
of lot L as shown on plan entitled "CHALET VILLAGE REVISED PLAN JOHN GIORGETTI -
BUILDER ROUTE 100 STOCKBRIDGE, VT. SCALE 1"=60' DATED JUNE 30, 1967" which plan
is on file in the office of the Stockbridge, Vermont Town Clerk, said point of
beginning being situated in the north line of Schaff-Haus Drive, so-called, in
Chalet Village, thence running north 24 degrees 00' East along the east line of
Lot No. 1 and the west line of Lot L for a distance of 115 feet, more or less,
to a point, thence South 40 degrees 30' East for a distance of 110 feet, more or
less, to a point in the north line of Schaff-Haus Drive, thence South 45 degrees
30' East along Schiff-Haus Drive for a distance of 34 feet, more or less, to the
place of beginning."
"Meaning by these presents to convey a triangular piece of land situated on the
easterly portion of Lot No. 1 and westerly of Lot L and being a part of those
lands and premises conveyed by John J. Giorgetti to Stratton Estates, inc. by
deed dated March 20, 1967 and recorded in Book 32, Page 428 of Stockbridge,
Vermont Land Records and also being a portion of those lands and premises
conveyed by Stratton Estates, inc. to john J. Giorgetti and Mary C. Giorgetti,
husband and wife, by deed dated October 20, 1977and recorded in Book 36, Page
97-9 of Stockbridge Vermont land Records."
"This conveyance is made subject to any rights and easements of records as may
affect the premises hereby conveyed."
"Also conveying the building situated on the above described premises, together
with the entire water system as heretofore operated by Stratton Estates, Inc.
consisting of, but not limited to, the well, the water pipes therefrom to the
pressure tank, thence to all of the Chalets located in Chalet Village.
Also hereby conveying and transferring all of the equipment used in the
operation of said water system and presently housed in the building on the
aforesaid triangular piece of land, also all of the plastic piping, fittings and
other personal property therein located to be used in the operation and
maintenance of said water system.
Also conveying and transferring the metal building now situate on Lot No. 1
subject to the proviso, however, that the Grantee, his heirs and assigns, shall
be obligated to remove said building from its present location upon the request
of the owner of said lot No. 1.
And the Grantee, by the acceptance of this deed, does for himself, his heirs,
executors, administrators and assigns, covenant and agree to the chalets located
in Chalet Village as well as to the Stockbridge General Store adjacent thereto
upon the terms and conditions recited in the deeds from Stratton Estates, Inc.
and by John J. Giorgetti and Mary C. Giorgetti conveying the lots upon which
said
<PAGE>
chalets are situated, to various grantees, which deeds are of record in the
Stockbridge Town Clerk's Office, it being understood that there is no written
agreement with the Stockbridge General Store for the furnishing of water and the
Grantee may, if he sees fit, work out a written contract for water with said
owner.
Also conveying and transferring whatever interest the Grantors have in the
snowplowing business heretofore conducted by Stratton Estates, Inc. with the
owners of the chalets in Chalet Village, it being understood that the Grantee,
his heirs or assigns, shall use their own equipment and make their own
arrangements for future business with said owners, if necessary."
LOAN PURCHASE AGREEMENT
This Loan Purchase Agreement ("Agreement' is by and between MARCON
CAPITAL CORPORATION, a Connecticut corporation and Small Business Investment
Company licensed under the Small Business Investment Act of 1958, as amended
("Marcon") and VERMONT PURE HOLDINGS, LTD., a Delaware corporation with an
address of 70 West Red Oak Lane, White Plains, New York 106043602 (-VP').
BACKGROUND
1. Marcon has extended financing to Amsource, UC (the "Borrower). in the
principal amount of Seven Hundred Thousand Dollars ($700,000.00) (the "Loan").
'Me Loan has taken the form of the purchase by Marcon of a convertible debenture
issued by the Borrower in the original principal amount of Six Hundred Fifty
Thousand Dollars ($650,000-00) (the 'Debenture), pursuant to a Debenture
Purchase Agreement dated as of December 29, 1998 by and among the Borrower,
Marcon, Pristine Mountain Springs of Vermont Inc. and certain individual
guarantors identified therein (the "Debenture Purchase Agreement"), an Option
Purchase Agreement by and between Marcon and the Borrower dated as of March 31,
1999 (the "Option Purchase Agreement), and a promissory note issued in
connection therewith dated as of March 31, 1999 (the "Option Note) dated as of
@h 31, 1999. The proceeds of the Loan were to be used by the Borrower for
,working capital and retirement of certain liabilities. Repayment of the Loan is
secured by various types of collateral.
2. VP has agreed to purchase the Loan from Marcon pursuant to this
Agreement. Unless otherwise defined herein, all capitalized terms shall have the
meanings provided them in the Debenture Purchase Agreement For purposes of this
Agreemen4 the term Loan Documents shall specifically include all agreements,
documents, certificates and instruments executed and delivered in connection
with the Option Purchase Agreement and the Option Note.
NOW, THEREFORE,
In consideration of the premises and the mutual covenants and agreements
herein set forth, and in reliance on the representations and warranties
contained herein, the parties hereby agree as follows:
SECTION 1. PURCHASE OF THE-INTEREST. At the Closing, as that term is
defined in Section 3 below, Marcon agrees to sell, transfer and convey all of
its right, title and interest in and to the Loan, free and clear from all liens,
claims and encumbrances whatsoever, to VP by execution and delivery of the
Assignment in the form annexed hereto as Schedule "A" (the "Assignment'). Marcon
agrees to execute and deliver such further documents and to take such other
actions as are necessary to confirm the sale of the Loan to VP.
SECTION 2. PURCHASE PRICE AND PAYMENT. At closing, VP shall execute and
deliver a convertible debenture in the principal amount of Nine Hundred Seventy
Five Thousand Dollars ($975,000.00) (the "VP Debenture'@ to Marcon as payment in
full for the Loan. Payment and performance of the VP Debenture shall be secured
by a first priority security interest in the Loan, as set forth in Section 4
below.
SECTION 3. !CLOSING. The closing of the transaction shall take place effective
as of September ' )O, 1999 at the offices of Gravel and Shea, 76 St. Paul
Street, 7th Floor, Corporate Plaza, Burlington, Vermont 05401, or at such other
time and place as may be mutually agreed upon by the parties. At the closing,
Marcon and VP shall execute and deliver all documents, agreements, instruments
and certificates as may
be necessary to consummate the transaction as described herein, including the
Assignment and the VP Debenture.
SECTION 4. SECURITY INTEREST. VP hereby grants to Marcon a first
priority security interest and lien in
<PAGE>
the Loan and the Loan Documents to secure the payment and performance by VP of
its obligations under the VP Debenture, and this Agreement pursuant to and in
accordance with the provisions of the Uniform Commercial Code. VP agrees to
execute and deliver such UCC-1 financing statements, and other documents and
instrument as are necessary to perfect and confirm such security interest and
lien. Marcon shall be entitled to all rights and remedies of a secured party
under the Uniform Commercial Code. VP will not create, incur, assume, or suffer
to exis4 or permit any subsidiary to create, incur, assume or suffer
to exist, any lien, mortgage, pledge, encumbrance, security interest, attachment
or change of any kind upon the Loan without the prior written consent of Marcon.
SECTION 5. REPRESENTATIONS AND WARRANTIES,
(a) Marcon hereby represents and warrants that it
has good and marketable title to the Loan, free and clear from
any lien, claim or encumbrance whatsoever.
(b) Marcon hereby represents and warrants that the
agreements, documents, certificates, and
instruments 'set forth in Schedule 'B' attached constitute all
material agreements, documents, certificates, and instruments
with respect to the Loan, the Debenture Purchase Agreement, and
the Loan Documents, and that Marcon has not entered into any
agreement to modify the terms and conditions of the Debenture,
the Debenture Purchase Agreement or any Loan Document except as
set forth on Schedule "B" attached.
(C) Marcon hereby represents and wan-ants that it
has provided an acceleration notice with
respect to the Loan, as set forth in its letter dated July 28,
1999, and that neither the Borrower nor any Guarantor, nor any
of their representatives has made any written assertion that
Marcon has breached any of its obligations under the Debenture,
the Purchase Agreement, or any Loan Document. Marcon further
represents and warrant that on September 10, 1999, the Borrower
reaffirmed its intention to retire the Loan in full and has
represented to Marcon that it is actively seeking financing
sufficient to do so, and that the Borro,6ver has made no
payments to Marcon since the date of the acceleration notice.
(d) Marcon hereby represents and warrants that an
Event of Default has occurred and is continuing under the
Debenture Purchase Agreement.
(e) Marcon hereby represents and wan-ants that, as
of September 30, 1999, its claims against
the Borrower are as set forth on Schedule 'C" attached, and
include the following:
(I) principal and interest under the
Debenture, including default interest, which as of
September 30, 1999 total S724,110.04.
(I I) principal and interest under the Optio
Note, which as of September 30 1999 total $53,519.43.
(iii) any residual value of the option rights retaine
by Marcon under the Option Purchase Agreement.
<PAGE>
(iv) any late fees, prepayment premiums, or
forbearance fees due from the Borrower under the
Debenture or the Debenture Purchase Agreement which as of
September 30, 1999 total $80,900.1 1.
(v) any consulting and monitoring- fees to be paid
by the Borrower to Marcon, pursuant to the
Debenture Purchase Agreement or the Monitoring Agreement
executed and delivered in connection therewith which, as of
September 30, 1999 total $9,500.00.
(vi) any reimbursements of Marcon's out-of-pocket
expenses, including but not limited to legal fees and
expenses, due from the Borrower under the Debenture Purchase
Agreement which as of September 30, 1999 total $36,949.75.
(f) VP hereby represents and warrants in favor of Marcon as
follows:
(I) VP has the corporate power and authority to
execute, deliver and perform this Agreement, to issue
the VP Debenture, and to and to issue, sell and deliver shares of
its Common Stock issuable upon conversion of the VP Debenture
(the 'Conversion Shares).
(ii) 'ne Conversion Shares have been duly reserved
for issuance upon conversion of the VP Debenture,
and, when so issued, will be duly authorized, validly issued,
full paid and nonassessable shares of Common Stock with no
personal liability attaching to the ownership thereof and will be
free and clear of all liens, charges, restrictions, claims and
encumbrances imposed by or through VP.
(g) Except as set forth above in this Section 5, and in
Section 19 below, neither Marcon nor VP has made to
the other any warranty or representation, expressed or implied, with
respect to the loan transaction, the Loan, the Debenture, the Debenture
Purchase Agreement, the adequacy of security, the existing, or future
solvency or financial worth of the Borrower, the ability of the Borrower
to repay the Loan, the Debenture, or any other document or instrument
received by it in connection with the Loan. It is acknowledged by the
parties hereto that the Loan carries a high degree of risk, and that it
is possible that the Borrower may default on its obligations under the
Loan, which may result in a bankruptcy case and/or foreclosure action
and/or a deterioration of the collateral for the Loan. It may not be
possible to collect the full principal loan balance and/or accrued
interest, and/or other amounts due with respect to the Loan. All
information, data- projections and other materials heretofore supplied
to or by VP has been extrapolated from material supplied by the Borrower
or due diligence. VP acknowledges and agrees that Marcon has not and
makes no representation or warranty as to the nature and quality of such
information. VP acknowledges and agrees that it has had an opportunity
to make and have made such investigations as it has deemed necessary
under the circumstances.
SECTION 6. COVENANTS.
3 -
(a) VP covenants and agrees to utilize all commercially
reasonable efforts to maintain the listing of the shares
of its common stock into which the VP Debenture is convertible (the
"Common Stock") on the American Stock Exchange, the New York Stock
Exchange, the National Association of Securities Dealers Automatic
Quotation System, or another nationally recognized stock exchange
reasonably satisfactory to Marcon.
(b) VP shall at all times reserve and keep available out of
its authorized but unissued shares of Common Stock,
for the purpose of effecting the conversion of the VP Debenture, such
number of its duly authorized shares of Common Stock as shall be
sufficient to effect the conversion of the VP Debenture. If at any time
the number of authorized but unissued shares of Common Stock shall not
be sufficient to effect the conversion of the VP Debenture, VP will
forthwith take such corporate action as may be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares
as shall be sufficient for such
<PAGE>
purposes.
SECTION 7. REGISTRATION AND SALE RIGHTS.
(A) OPPORTUNITY REGISTER AND SELL. If at any time VP
determines to register any shares of its Common Stock
by filing a registration statement in compliance with the Securities
Act, Marcon will be given 60 days prior notice thereof and will be
afforded the opportunity to include in the same registration and to sell
as part of any related offering of such shares, a percentage of the
shares issuable upon conversion of the Debenture equal to the highest
percentage of shares owned by any then current shareholder (or holder of
rights to acquire or convert into shams) which such shareholder had the
right to include in such registration and sale, subject to usual and
customary cutbacks and limitations which may be imposed by VP and its
underwaters; provided, however, that in any case Marcon shall be
permitted to register and sell at least the same percentage of shares
(including in such calculation all rights to acquire shares or to
convert into shares) that are actually registered and sold by any other
shareholder. Such right shall apply to each registration and sale of
shares effected by VP for as long as the Debenture is outstanding (other
than those effected pursuant to a Registration Statement filed on Form
S-4, or on Form S-8).
(B) INDEMNIFICATION. No shares to be issued on conversion o
Debentures shall be included in any registration unless Marcon furnishes
to VP and the underwriter or selling agent all reasonable information
requested by them and agree to indemnify VP and the underwriter or
selling agent against liability arising out of information furnished by
Marcon for inclusion in the registration statement (at which time Marcon
will receive a similar cross indemnification from VP and the
underwriter).
(C) NO REQUIREMENT TO FILE OR PROSECUTE REGISTRATION. VP
shall not be required at any time to file a registration statement or to
prosecute a filing to effectiveness, may determine not to file even
though notice has been given pursuant to Section 6(a) or may withdraw a
registration after it has been filed.
(D) RULE 144 INFORMATION. VP will make timely all filings
required under the Securities Exchange Act of 1934 so as to enable the
holders of shares into which the Debentures may be or may have been
converted to sell such shares under Securities and Exchange
Commission Rule 144 to the extent that the benefits of that rule
are otherwise available to them.
(E) UNDERWRITER'S COMMISSIONS. If shares into whic
the Debenture is convertible are included in any underwriting
hereunder, Marcon shall pay its pro rata share of the
underwriter's commissions or discounts, but shall not be
responsible for legal fees, printing costs and other fees and
expenses except to the extent the same demonstrably increase by
reason of inclusion of such shares in the underwriting.
(F) TERMINATION OF REGISTRATION AND SALE RIGHTS.
The registration and sale rights provided for in this
Section 7 shall expire and terminate on September 30, 2009.
SECTION 8. EVENTS OF DEFAULT Each of the
Following events shall constitute an 'Event of Default,
<PAGE>
hereunder
(a) VP shall default in making any payment of
principal or interest when the same shall become due
under the VP Debenture or any of the Loan Documents, and which
default shall continue for ten (10) days after the due date
therefor.
(b) VP shall fail to comply with any term, covenant
or agreement of this Agreement, which default
shall continue for ten (10) days from the date of notice from Marcon.
(C) Any Event of Default or other default under, or
a failure to comply with any term or provision of the VP
Debenture.
(d) Commencement of proceedings under any bankruptc
or insolvency law by or against VP or an
inability of VP to pay its obligations when due.
(e) Commencement of any levy or sale upon or
execution or other proceedings of any nature against VP,
including a foreclosure of a subordinate lien on the assets of
the Loan whereby VP shall or may be deprived of title or right
of possession to either property or any part thereof.
(f) The dissolution or termination of existence of VP.
SECTION 9. REMEDIES UPON DEFAULT. If an Event of Default shall occur,
Marcon may declare the entire indebtedness evidenced by the VP Debenture and to
be immediately due and payable, without presentment, protest, demand or notice
of any kind, all of which, are hereby expressly waived by VP and may pursue any
and all remedies provided for hereunder and in the VP Debenture or at law or in
equity, including, without limitation, the following:
(a) Exercise all rights of a secured party under th
Uniform Commercial Code, or otherwise, with respect to the Loan;
(b) If in the event of the sale or other dispositio
of the Loan, the proceeds thereof are insufficient to pay all
amounts to which Marcon is legally entitled, VP shall be liable
for the deficiency and the reasonable fees of any attorneys
employed by Marcon to collect such deficiency. VP agrees that if
any notification of intended disposition of any of the Loan
is required by law, such notification shall be deemed reasonably
and properly given if deposited in the mails first class postage
prepaid, addressed as provided in this Agreement at least ten
(10) days before such intended disposition;
(C) Set off and apply against any indebtedness or
liability of VP to Marcon any indebtedness owing- from VP to
Marcon at any time and from time to time either before or after
maturity and without demand upon or notice to anyone; and
No remedy conferred upon or reserved to Marcon herein is intended to be
exclusive of any other available remedy or remedies, but each and every such
remedy shall be cumulative and- shall be in addition to any other remedy given
hereunder or in the VP Debenture or now or hereafter existing at law or in
equity or by statute and the exercise of any remedy or remedies shall not be an
election of the remedies. The remedies and rights of Marcon may be exercised
concurrently, alone or in any combination. The foregoing recitation of the
rights and remedies available to Marcon is not intended to constitute an express
or implied guarantee or warranty as to the repayment of any amounts due from the
Borrower, or any guarantors of the Borrower's obligations under the Debenture,
the Debenture Purchase Agreement, or the Loan Documents.
<PAGE>
Section 10. Cooperation. VP agrees to cooperate with Marcon in
effectuating the purposes hereof notwithstanding any unanticipated inability of
VP to pay the VP Debenture or otherwise perform the obligations of this
Agreement or the VP Debenture. Marcon agrees to cooperate with VP in confirming
VP's right, title and interest in the Loan, by taking such further actions and
executing and delivering such further agreements, DOCUMENTS, CERTIFICATES AND
INSTRUMENTS AS MAY BE REASONABLY NECESSARY TO DO SO. MARCON FURTHER AGREES to
assist VP in providing supplemental information and otherwise in collecting
amounts due under the Loan, provided that Marcon shall be entitled to reasonable
compensation for its efforts in this regard, in an amount to be mutually a-
.,reed upon, and to reimbursement of all of its costs and expenses which it
incurs in doing so.
SECTION I 1. NOTICES. Any notice or other communication to be given
hereunder shall be in writing and shall be mailed or telescoped to such party at
the address or number set forth below:
If to VP: Vermont Pure Holdings, Ltd. 70 West Re
Oak Lane White Plains, New York-
10604-3602 Attn: President
with a copy to:Michael J. Marks, Esq. Tarrant, Marks
& Gillies 44 E State Street
P.O. Box 1440
Montpelier, VT 05601-1440 Telephone No.: (802) 223-1112 Telecopier No.:
(802) 223-6225
6 -
If to Marcon: Marcon Capital Corporation 1470 Barnum
Avenue Suite 301 Bridgepor4
CT 06610 Telephone No.: (203) 337@ Telecopier No.: (203) 3374449
with a copy to: Peter S. Erly, Esq.
Gravel & Shea
76 St. Paul Street, 7th Floor Burlington, VT 05401 Telephone No.: (802)
658-0220 Telecopier No.: (802) 658-1456
or to such. other person, address or number as the party entitled to such notice
or communication shall have specified by notice to the other party given in
accordance with the provisions of this Section. Any such notice or other
communication shall be deemed given: (I) if mailed, when deposited in the mail,
property addressed and with postage prepaid; or (ii) if sent by telecopy, when
transmitted.
SECTION 12. COST OF SUIT OR ENFORCEMENT, If any Participant resorts to
suit or other legal proceedings to enforce any right or remedy hereunder, the
non-prevailing party agrees to pay the prevailing party's costs of suit and
enforcement, including reasonable attorneys' fees.
SECTION 13. GOVERning Law. This Agreement shall be construed in accordance
with and governed by laws of the State of Connecticut, excepting- its principles
of the law of conflict of la%vs.
SECTION 14- COUNTERPART. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
<PAGE>
SECTION 15. SUCCESSOR AND ASSIGNS. This Agreement shall be binding. upon
and inure to the benefit of the parties, their respective successors, le-al
representatives, and assigns. VP may not encumber, pledge or sell or assign the
Loan (in fee, as collateral or otherwise), except to an entity owned or
controlled by it, without the prior written consent of Marcon.
Section 16. Arbitration
(a) Subject to the provisions of Section 16(b)
below, the parties agree that any dispute under
this Agreement shall be resolved by final and binding
arbitration in Burlington, Vermont under the then-existing and
applicable Rules of the American Arbitration Association (the
"Rules'). Notwithstanding any contrary provisions of the Rules,
the parties reserve,,the right to designate an arbitrator by
written agreement prior to the inception of any such
proceeding-. Without intending to limit the power or authority
of the arbitrator(s) in any such proceeding, the parties hereby
consent and agree that such arbitrator(s) shall be vested with
the full power and authority to order such equitable relief as
die arbitrator(s) may deem proper- The parties consent to the
jurisdiction of any court of competent jurisdiction for all
purposes with respect to such arbitration, including enforcement
of this Agreement to arbitrate and the entry of a judgment on
any arbitration award, and further consent that any process,
notice or motion may be served either personally or by certified
mail, return receipt requested, provided a reasonable time for
appearance is allowed. The prevailing
7 -
7
party in any such arbitration proceeding shall be entitled to an
award of reasonable attorneys' fees, as determined by the
arbitrator(s). The fees and expenses of the arbitrator(s) shall
be done equally by the parties. The parties shall use all
reasonable efforts to ensure that the arbitration is completed
as promptly as reasonably possible, and IN ANY EVENT within not
more than ninety (90) days after either party's request for
arbitration hereunder.
(b) Notwithstanding the provisions of Section 16(a)
above, either of the parties may, at its
option, bring an action in any court of competent jurisdiction '
with respect to exigent facts and circumstances which may
warrant immediate injunctive or other equitable relief. Upon the
completion of the adjudication of any request for immediate
injunctive or other equitable relief any @er proceedings in
respect thereof shall be referred for arbitration in ACCORDANCE
WITH Section 16(a) above.
SECTION 17. GENDER, Whenever the context so requires, the singular and
plural shall be interpreted TO INCLUDE THE OTHER, AND THE neutral and male
genders shall be interpreted to reflect the applicable genders.
<PAGE>
SECTION 18. ENTIRE AGREEMENT. This Agreement embodies the entire agreement
and understanding BETWEEN THE PARTIES AND SUPERSEDES ALL prior agreements and
understandings relating to the subject matter hereof.
SECTION 19. AUTHORIZATION. Each of the parties warrants and represents that
it is duly authorized to execute this Agreement and comply with its obligations
hereunder.
ACKNOWLEDGMENT OE ARBITRATION. THIS AGREEMENT CONTAINS AN AGREEMENT TO
ARBITRATE. AFTER SIGNING THIS DOCUMENT, I UNDERSTAND THAT I WILL NOT BE
ABLE TO BRING A LAWSUIT CONCERNING ANY DISPUTE THAT MAY ARISE WHICH IS
COVERED BY THE ARBITRATION AGREEMENT, UNLESS IT INVOLVES A QUESTION OF
CONSTITUTIONAL OR CIVIL RIGHTS. INSTEAD, I AGREE TO SUBMIT ANY SUCH
DISPUTE TO AN IMPARTIAL ARBITRATOR.
IN WITNESS WHEREOF, each of the parties have executed this Agreement by
their duly authorized agents, as of the 30th day of September, 1999.
IN PRESENCE OF: VERMONT PURE HOLDINGS, LTD.
By:
Witness Duly Authorized Agent
Marcon CAPITAL CORPORATION
Witness Todd M. Enright
Vice President and Duly Authorized Agent
STATE OF VERMONT
Ss:
COUNTY OF CHITTENDEN )
At Burlington, in said County and State, this ___ day of October 1999
personally appearing the Duty Authorized Agent of VERMONT PURE HOLDINGS, LTD,
and he acknowledged this instrument, by him signed, to be his free act and deed
and the free act and deed of VERMONT PURE HOLDINGS, LTD.
Before me,
Notary Public
Notary commission issued in
<PAGE>
My commission expires:
STATE OF VERMONT
Ss:
COUNTY OF CHITTENDEN
At Burlington, in said County and State, this ___ day of ___, 1999
personally appeared ____ and Duly Authorized Agent of MARCON CAPITAL
CORPORATION, and he acknowledged this instrument, by him signed, to be his free
act and deed and the free act and deed of MARCON CAPITAL CORPORATION.
Before me,.
Notary
Notary commission issued in County
My commission expires:
9 -
SCHEDULE "A"
ASSIGNMENT OF LOAN
KNOW ALL PERSONS BY THESE PRESENTS, that MARCON CAPITAL CORPORATION, a
Connecticut corporation with a business address at 1401 Barnum Ave., Suite 3 0
1, Bridgeport Connecticut 066 10 (the Sellee inconsideration of Ten and More
Dollars paid to its full satisfaction by (the 'Buyee), does hereby sell, grant,
assign, convey and transfer to VERMONT PURER HOLDINGS, LTD. with an address of
70 West Red Oak Lane, White Plains, -New York- 10604-3602 all. of its right,
tile and interest in and to a certain loan transaction with Amsource, LLC (the
"Borrower") effected as of December 29, 1998 (the "Loan), together with its
right, title and interest in and to all various documents, agreements,
certificate rights, and instruments and executed or to be executed in connection
with the Loan, all as more completely set forth Schedule "A-1" attached hereto
(the "Loan Documents).
TO HAVE AND TO HOLD the same unto the Buyer and its heirs, successors
and assigns forever.
IN WITNESS WHEREOF, the Scller has executed this Assignment of Loan as of the
'30th day of September, 1999.
IN PRESENCE OF: MARCON CAPITAL CORPORATION
<PAGE>
By:
Duly Authorized Agent
STATE OF
COUNTY OF Ss.
At Burlington in said County and State, this
1st day of October, 1999, personally
APPEARED Duly Authorized Agent of MARCON CAPITAL
CORPORATION,
to me known, and he acknowledged this instrument, by him
signed, to be her free act and deed and die free
act and deed of MARCON CAPITAL CORPORATION.
Before me,
Notary Public
Notary commission issued in
My commission expires:
SCHEDULE "B"
AMSOURCE LOAN DOCUMENTS
1. Debenture Purchase Agreement by and among Marcon, the
Borrower, Pristine Mountain Springs
of Vermont, Inc. ("PMSV"), Lincoln Craighead, Ronald Colton and
Barton Lord dated as of December 29, 1998.
2. Debenture made by the ]Borrower and payable to the order
of Marcon in the original principal
amount of $650,000 dated December 29, 1998.
3. Guaranty of PMSV dated as of December 29, 1998.
4. Guaranty of Ronald Colton dated as of December 29, 1998.
5. Guaranty of Barton Lord dated December 29, 1998.
6. Guaranty of Lincoln -Craighead dated December 29, 1998.
7. Security Agreement by and between the Borrower and Marco
and all UCC- I financing statements FILED in any jurisdiction to
secure the security interest created thereby,
8. Mortgage Deed made by PMSV in favor of Marcon dated as o
December 29, 1998 with respect to certain real property located on Route
100 in Stockbridge, Vermont more completely described therein, together
with any title insurance and certificates of title issued or obtained by
Marcon in connection therewith.
9. Mortgage Deed made by the Borrower in favor of Marcon
dated December 29, 1998 with respect to certain real property located on
Maple Avenue in Claremont, New Hampshire and more completely described
therein, together with any title insurance and certificates of title
issued or
<PAGE>
obtained by Marcon in connection therewith.
10. Member Subordination Agreement by and between Ronald
Colton and Marcon dated as of December 29, 1998.
11. Member Subordination Agreement by and between Lincoln
Craighead and @con dated as of December 29, 1998.
12. Member Subordination Agreement by and between Barton Lor
and Marcon dated December 29, 1998.
13. Legal opinion of Salmon and Nostrand dated as of December 29, 1998.
14. Legal opinion of Melvin B. Neisner, Jr. dated as of
December 31, 1998.
15. Collateral Assignment of Spring Water Licensed Supply Agreement.
16. Legal opinion of Buckley and Zopf dated as of April 27, 1999.
17. Life Insurance Assignments dated March 12, 1999.
18. Option Purchase Agreement dated March 31, 1999.
19. Promissory Note dated March 31, 1999.
20. Forbearance and Standstill Agreement dated March 31, 1999.
21. Pledge and Security Agreement by Ronald Colton, Baron
Lord and Lincoln Craighead dated December 29, 1998.
22. Employment Agreement of Barton Lord.
23. Employment Agreement of Lincoln Craighead.
24. Monitoring Agreement dated December 29, 19998.
25. Debenture Draw Requests.
26. Amended and Restated Water Supply Agreement dated March 31, 1999.
27. Membership Interest Purchase Option dated December 29,1998.
28. Affidavit of Borrower dated December 29, 1998.
29. Pristine Mountain Springs of Vermont, Inc- Security
Agreement dated December 29, 1998 together with all UCC-1 Financing
Statements.
<PAGE>
SCHEDULE "C"
BORROWER: AMSOURCE, LLC
PAYOFF DATE: 9/30/99
PRINCIPAL BALANCE: $700,000.00
ACCRUED INTEREST BALANCE:
Debenture (through 9130/99): $74,110.04
Note (through 9120/99) S3,519.43
LATE PAYMENT FEES: 45-900 11
PREPAYMENT PENALTY: 32,500.00
FORBEARANCE FEES: 2,500.00
OTHER ADVANCES AND REIMBURSEMENTS:
-Monitoring & Consulting $9,500.00
Audit Fee (incl. Travel) $3,08.24
FedEx charges & Wire Fees $104.50
Travel expenses .$4,151.46 17,594.20
LEGAL FEES:
AMOUNT DUE $904,979433
PER DIEM: $389.58
ASSIGNMENT OF LOAN
KNOW ALL PERSONS By THESE PRESENTS, that MARCON CAPITAL
CORPORATION, a Connecticut corporation with a business address at 1401 Barnum
Ave., Suite 301, Bridgeport, Connecticut 06610 (the "Seller), in consideration
of Ten and More Dollars paid to its full satisfaction by (the "Buyer), does
hereby sell, grant assign, convey and transfer to VERMONT PURE HOLDINGS LTD with
an address of 70 West Red Oak Lane, White Plains, New York 10604-3602 all of its
right, tile and interest in and to a certain loan transaction with AMSOURCE, LLC
(the "Borrower") effected as of December 29, 1998 (the 'Loan"), together with
its right, title and interest in and to all various documents, agreements,
certificate rights, and instruments and executed or to be executed in connection
with the Loan, all as more completely set forth Schedule 'A-1" attached hereto
(the "Loan Documents').
<PAGE>
TO HAVE AND TO HOLD the same unto the Buyer and its heirs, successors
and assigns forever.
IN WITNESS WHEREOF, the Seller has executed this Assignment of Loan as
of the 30th day of September, 1999.
IN PRESENCE OF: MARCON CAPITAL CORPORATION
Witness Duly Authorized Agent
STATE OF VERMONT
COUNTY OF SS.
At in said County and State, this l day of October, 1999,
personally appeared Authorized Agent of MARCON CAPITAL
- 0
CORPORATION, to me known, and he acknowledged this instrument, by him signed, to
be her free act and deed and the free act and deed of MACON CAPITAL CORPORATION.
Before me,
Notary Public
Notary commission issued in County
My commission expires:
SCHEDULE "A-1"
AMSOURCE LOAN DOCUMENTS
1. Debenture Purchase Agreement by and among Marcon the
Borrower, Pristine Mountain Springs of
Vermont, Inc. ("PMSV"), Lincoln Craighead, Ronald Colton and
Barton Lord dated as of December 29, 1998.
2. Debenture made by the Borrower and payable to the order
of Marcon in the original principal .-amount of
$650,000 dated December 29, 1998.
3. Guaranty of PMSV dated as of December 29, 1998,
4. Guaranty of Ronald Colton dated as of December 29, 1998.
S. Guaranty of Barton Lord dated December 29, 1998.
6. Guaranty of Lincoln Craihead dated December 29, 1998.
7. Security Agreement by and between the Borrower and Marco
and all UCC- I financing statements filed in any jurisdiction to secure
the security interest created thereby.
<PAGE>
8. Mortgage Deed made by PMSV in favor of Marcon dated as o
December 29, 1998 with respect to certain real property located on Route
100 in Stockbridge, Vermont. more completely described therein, together
with any title insurance and certificates of title issued or obtained by
Marcon in connection therewith.
9. Mortgage Deed made by the Borrower in favor of Marcon
dated December 29, 1998 with respect to certain real property located
on Maple Avenue in Claremont, New Hampshire and more completely
described therein, together with any title insurance and certificates
of title issued or obtained by Marcon in connection therewith.
10. Member Subordination Agreement b and between Ronald
Colton and Marcon dated as of December 29, 1998.
11. Member Subordination Agreement by and between Lincoln
Craighead and Marcon dated as of December 29, 1998.
12. Member Subordination Agreement by and between Barton Lor
and Marcon dated December 29, 1998.
13. Legal opinion of Salmon and Nostrand dated as of December
29, 1998.
14. Legal opinion of Melvin B. Neisner, Jr. dated as of
December 31, 1998.
15. Collateral Assignment of Spring Water Licensed Supply
Agreement.
16. Legal opinion of Buckley and Zopf dated as of April 27, 1999.
17. Life Insurance Assignments dated March 12, 1999.
18. Option Purchase Agreement Dated March 31, 1999.
19. Promissory Note Dated March 31, 1999.
20. Forbearance and Standstill Agreement Dated March 31, 1999.
21. Collateral Assignment of Spring Water License and Supply
Agreement Dated April 13, 1999.
Employment Agreement of Barton Lord.
23. Employment Agreement of Lincoln Craighead.
24. Monitoring Agreement dated December 29, 19998.
25. Debenture Draw Requests.
26. Amended and Restated Water Supply Agreement dated March 31, 1999.
27. Membership Interest Purchase Option dated December 29, 1998.
28. Affidavit of Borrower dated December 29, 1998.
29. Pristine Mountain Springs of Vermont, Inc. Security
Agreement dated December 29, 1998 together with all UCC-1 Financing
Statements.
VERMONT PURE HOLDINGS, LTD.
Convertible Debenture Due 2001
$975,000.00 As of September 30, 1999
VERMONT PURE HOLDINGS, LTD., a corporation duly organized and existing
under the laws of the State of Delaware ( herin called the "Company") for value
recived herby promises to pay to the order of MARCOM CAPITAL CORPORATION or any
other holder of this Debenture ( the "Holder"), in lawful money of the United
States of America, the principal sum of Nine Hundred Seventy Five Thousand
Dollars ($975,0.00). The principal sum hereof shall be due and payable on
September 30, 2001 (the "Maturity Date").
This Debenture is issued pursuant to and in accordance with the terms of a
Loan Purchase Ageement between the Compamy and the Holder, dated as of even date
herwith (the "Purchase Agreement"). In the event of the failure of the Borrower
to maintain the listing of the shares of common stock into which this Debenture
is convertible on the American Stock Exchange, the New York Stock Exchange, of
on the National Association of Securities Dealers Automatic Quotation System or
another nationally recoginized stock exchange reasonabaly stisfactory to the
Holder, this Debenture shall be deemed to be in default and shall be in default
and shall be immediately due and payable in full.
This Debenture may not be prepaid, redeemed or repurchassed whithout the
prior writen consent of the Holder which may be withheld in its sole discretion.
All payments on this Debenture shall be made in immediately available funds
at 1470 Barnum Avenue, Suite 301, in Bridgeport, Connecticut 06610 or at such
other address as the Holder may provide by written notice to the Company.
The Compamy and all endorsers of this Debenture hereby waive presentment,
demand, notice protest and all other demands and notices in connection with the
delivery, acceptance, permormance or enforcement of this Debenture.
This Debenture shall be convertible in accordance with the provisions of
Exhibit "A" attached and by this reference made a part hereof.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal as of the date first above written.
VERMONT PURE HOLDINGS,LTD.
By
<PAGE>
Exhibit "A"
Conversion of Debenture
Section 1. CONVERSION PRIVILEGE. The Holder of this Debenture shall have
the right at its option at any time to conver, subject to the terms and
provisions hereof, the principal and any accured buy unpaid interest of such
Debenture or any portion of the principal amount thereof into shares of the
Company's common stock, $.001 per value, as listed for trading on one or more
nationally recognized securities exchanges (the "Common Stock") at a conversion
price equal to eighty five percent (85%) of the Average Closing Prices as
defined below. For purposes of this Debenture, the Average Closing Price shall
mean the average closing price of shares of the Company's Common Stock on the
American Stock Exchange during the twenty (20) busivess days immediately
preceding the Conversion Date, as defined below or if such stock is no longer
listed for trading thereon, the primary nationally recognized stock exchange on
which such shares of Common Stock are regularly traded, provided however, that
if such successor bid prices at the close of trading on each such business day.
The price, determined in accordance with the foregoing provisions of this
Section is hereinafter referred to as the "Conversion Price".
Section 2 EXERCISE OF CONVERSION PRIVILEGE. The Conversion Privilege shall
be exercised, if at all, by surrender of the Debenture to the Company at its
principal office, together with written notice of election executed by the
holder of such Debenture, which may be in the form which is included with this
Debenture (hereinafter referred to as the "Conversion Notice") to convert such
Deenture or a specified portion thereof. Each Conversion Notice shall require
the conversion of a minimum amount of principal and interest due under the
Debenture of Fifty Thousand Dollars ($50,000) into Common Stock. The Conversion
Notice shall specify the name or names in which the shares of Common Stock
deliverable upon such conversion shall be registered, with the addresses of the
persons (and taxpayer indentification numbers, if applicable) so named, and, if
so required by the Company, accompanied by a written tnstrument or instruments
of transfer in form satisfactory to the Company duly executed by the holder or
his attorney duly authorized in writing. Execise of the Conversion Privilege may
be made effective as of a later date, subject to the occurrence of one or more
conditions precedent, which shall be stated in the Conversion Notice. In the
event that one or more of such conditions precedent do no occur, the holder
shall not be deemed to have exercised the Conversion Privilege.
As promptly as practicable after surrender as herein provided of any
Debenture for conversion and the recipt of the Conversion Notice relating
thereto, subject to the occurrence of any conditions precedent as described in
the Conversion Notice, the Company shall deliver or cause to be delivered to or
upon the written order of the Holder, a certificate or certificates representing
the number of fully paid and nonassessable shares of Common Stock into which
such Debenture is to be converted in accordance with the provisions hereof,
registered in such name or names as are specified in the Conversion Notice,
together with any cash payable in respect of a fractional share, and a cash
payment in the amount of the accused and umpaid interest on the Debenture, of
such portion thereof as has been converted, to the conversion date. In case any
Debenture shall be surrendered for partial conversion, the Company shall execute
and deliver to or upon the written order of the Holder, without charg to such
holder, a new Debenture or Debentures in authorized denominations inan aggregate
principal amount equal to the unconverted portion of the surrendered Debenture.
Except as otherwise provided in the immediately following sentence, such
conversions shall be deemed to have been effected at the close of business on
the date when such Debenture shall have been surrendered for conversion together
with the Conversion Notice, so that the rights of the recieve the shares of
Common Stock upon conversion of such Debenture shall be treated for all purposes
as having become the record holder or holders of such shares of Common Stock at
such time, and such Conversion shall be at the Conversion Price in effect at
such time. The Holder shall have the right to condition any surrender of
Debentures for conversion during the 60-day period between the date of notice of
a call for redemption from the Company based on a proposed acquisition
transaction, upon the successful completion of such transaction, such that if
the transaction is not completed, the Conversion Notice shall be disregarded and
the Company shall execute and deliver to the holder thereof a new Debenture or
Debentures in the same aggregate amount as those surrendered for conversion.
Section 3. FRACTIONAL SHARES. No fractional shares or scrip representing
fractional shares shall be issued upon the conversion of any Debenture. If any
fractional interest in a share of Common Stock would, execpt for the provision
of this Section be delivered upon the conversion of any Debenture, the Company
shall, in lieu of delivering a fractinal share therefor pay the holder of
surrendered Debenture an amount in cash determined by multiplying such
fractional interest by the per share Conversion Price.
Section 4. REORGANIZATION, RECLASSIFICATION, CONSOLIATION, MERGER OR SALE.
If any capital reorganization or reclassification of the capital stock of the
Company or any consolidation or merger of the Company with another corporation,
or the sale of all or substantially all its assets to another corporation shall
be effected in such a way that holders of Common Stock shall be entitled to
receive stock, securities or assets with respect to or in exchange for Commn
Stock, then as a condition of such reorganization, reclassification,
consolidation, merger or sale, lawful and adequate provisions shall be made
whereby each holder of the Debentures shall thereafter have the right to recieve
upon the basis and upon the terms and conditions specified herein and in lieu of
the shares of Common Stock of the Company immediately theretofore receivable
upon the conversion of the Debenture, such shares of stock, securities or asets
(including cash) as may be issued or payable with respect to or in exchange for
a number of outstanding shares of Common Stock equal to the number of shares of
such stock immediately theretofor so recievable had such reorganization,
reclassification, consolidation, merger or sale not taken place, and in any such
case appropriate provision shall be made with respect to the rights and
interests of such holder to athe end that the provisions hereof (including,
without limitation, provisions for adjustments of the Conversion Price) shall
thereafter be applicable, as nearly as may be, in relation to any shares of
stock, securities or assets thereafter deliverable upon the conversion of such
Debentures )including and immediate adjustment, by reason of such consolidation
or merger, of the Conversion Price to the value for the Common Stock reflected
by the terms of such consolidation or merger if the value so reflected is less
than the Conversion Price in effect immediately prior to such consolidation or
merger). In the event of a merger or consolidation of the Company as a result of
which a greater or lesser number of shares of common stock of the surviving
corporation are issuable to holders of CommonStock of the Company outstanding
immediately prior to such merger or consolidation, the Conversion Price in
effect immediately prior to such merger or consolidation shall be adjusted in
the same manner as though there were a subdivision or combination of the
outstanding Common Stock into which the outstanding shares of Common Stock shall
have been subdivided or combined. The Company will not effect any such
consolidation, merger or sale, unless prior to the consummation thereof the
successor corporation (if other than the Company) resulting from such
consolidation or merger or the corporation purchasing such assets shall assume,
by written instrument executed and mailed or delivered to the Holder, the
obligation to deliver to the Holder such shares of stock securities or assets
as, in accordance with the foregoing provisions, the Holder may be entitled to
receive upon conversion of the Debenture.
Section 5. NOTICE OF ADJUSTMENTS. Whenever the Conversion Price is adjusted
as herin provided, the Company shall forthwith cause to be mailed to the Holder
a notice stating that the Conversion Price has been adjusted and setting forth
the adjusted Conversion Price.
Section 6. COMPANY TO RESERVE COMMON STOCK: LISTING. The Company convenants
that it will at all times reserve and keep available, free from preemptive
rights, out og the aggregate of its authorized but unissued Common Stock or its
issued Common Stock held in its treasury, or both, for the purpose of effecting
conversions of the Debenture, the full number of shares of Common Stock then
deliverable upon the conversion of the Debenture not theretofore converted; and
if at any time the number of authorized but unissued shares of Common Stock
shall not be sufficient to effect the conversion of the Debenture, the Company
will take such corporate action as may in the opinion of its counsel be
necessary to increase its authorized but unissued Common Stock to such number of
shares as shall be sufficient for that purpose.
Section 7. TAXES ON CONVERSION. The Company will pay any and all
documentary, stamp or similar issue or transfer taxes payable in respect of the
issue or delivery of shares of Common Stock on conversion of the Debenture
pursuant hereto; provided, however, that the Company shall not be required to
pay any tax which may be payable in respect of any registration of transfer
involved in the issue or delivery of Common Stock in a name other than that of
the holder of the Debenture to be converted, and nosuch issue or delivery shall
be made unless and until the person requesting such issue has paid to the
Company the amount of any such tax or has established to the stisfaction of
theCompany that such tax has been paid.
Section 8. CLOSING OF BOOKS. The Company will at no time close its transfer
books against the transfer of the shares of Common Stock issued or issuable upon
the conversion of the Debenture in any manner which interferes with the timly
conversion of the Debenture.
Section 9. MANDATORY CONVERSION. Provided that the Common Stock shall be
then listed for trading on the American Stock Exchange, the New York Stock
Exchange, the National Association of Securities Dealers Automatic Quotation
System, or another nationally recognized stock exchange resonably satisfactory
to the Holder, and the Common Stock shall be regularly traded tereon, the
Debenture shall be automatically converted into shares of the Common Stock on
the Maturity Date, in the same manner and on the same terms as if the Holder
shall have delivered a Conversion Notice to the Company in accordance swith
Section 2 hereof on such date. Upon such conversion, the Company shall have no
further obligations to the Holder under the Debenture.
CONVERSION NOTICE
To: Vermont Pure Holdings, Inc.
The undersigned owner of this Debenture hereby exercises the option to
convert this debenture or portion hereof below designated into shares of Common
Stock of Vermont Pure Holdings, Inc. all in accordance with, and subject to, the
terms of the Debenture, and directs that the shares issuable and deliverable
upon the conversion, together with any check in payment for fractional shares,
be issued in the name of and delivered to the undersigned or, if so specified,
to the person or entity named below. If shares are to be issued in the name of a
person other than the undersigned, the undersigned will pay any transfer taxes
payable with respect thereto.
Dated:____________________-
If shares are to be issued other than the holder:
_____________________
_____________________ __________________________
Name Signature
_____________________
Address
_____________________
Please Furnish Taxpayer Identification Number:_____________________
Portion to be converted: $________________
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
To the Board of Directors and Stockholders
of Vermont Pure Holdings, Ltd.
Randolph, Vermont
We consent to the incorporation by reference in Registration Statement No.
33-95908 on Form S-8 of Vermont Pure Holdings, Ltd. of our report, dated
December 22, 1999, appearing in the Annual Report on Form 10-K of Vermont Pure
Holdings, Ltd. for the year ended October 30, 1999.
FELDMAN SHERB HOROWITZ & CO. P.C
New York, New York
December 22, 1999
<PAGE>
<TABLE>
<CAPTION>
ITEM 9. FINANCIAL STATEMENTS
Index to Financial Statements.
Financial Statements: Page
<S> <C>
Independent Auditors Report F-2
Consolidated Balance Sheet F-3
Consolidated Statement of Operations F-4
Consolidated Statement of Changes in Stockholders Equity F-5
Consolidated Statement of Cash Flows F-6
Notes to Consolidated Financial Statements F-7
F-1
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Vermont Pure Holdings, Ltd.
Randolph, VT 05060
We have audited the accompanying consolidated balance sheets of Vermont
Pure Holdings, Ltd. and Subsidiaries as of October 30, 1999 and October 31,
1998, and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for the years ended October 30, 1999,
October 31, 1998 and October 25, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Vermont
Pure Holdings, Ltd. and Subsidiaries as of October 30, 1999 and October 31,
1998, and the results of their operations and their cash flows for the years
ended October 30, 1999, October 31, 1998 and October 25, 1997 in conformity with
generally accepted accounting principles.
/s/ Feldman Sherb Horowitz & Co., P.C.
Feldman Sherb Horowitz & Co., P.C.
Certified Public Accountants
New York, New York
December 22, 1999
F-2
<PAGE>
<TABLE>
<CAPTION>
VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
October 30, October 31,
1999 1998
------------ ------------
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash ............................................................ $ 367,018 $ 161,271
Accounts receivable ............................................. 3,525,238 3,069,699
Notes receivable ................................................ 975,000 --
Inventory ....................................................... 2,711,709 1,843,927
Current portion of deferred tax asset ........................... 601,922 330,000
Other current assets ............................................ 781,968 222,970
------------ ------------
TOTAL CURRENT ASSETS .......................................... 8,962,855 5,627,867
------------ ------------
PROPERTY AND EQUIPMENT - net of accumulated depreciation ....................... 11,122,258 9,174,063
------------ ------------
OTHER ASSETS:
Intangible assets - net of accumulated amortization ............. 10,443,207 9,595,915
Deferred tax asset .............................................. 3,182,914 1,661,000
Other assets .................................................... 122,996 114,658
------------ ------------
TOTAL OTHER ASSETS ............................................ 13,749,117 11,371,573
------------ ------------
TOTAL ASSETS ................................................................... $ 33,834,230 $ 26,173,503
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ................................................ $ 3,443,208 $ 3,007,630
Current portion of customer deposits ............................ 45,033 58,360
Accrued expenses ................................................ 851,371 1,104,871
Current portion of long term debt ............................... 1,414,930 601,570
Current portion of obligations under capital leases ............. 180,589 119,995
------------ ------------
TOTAL CURRENT LIABILITIES ..................................... 5,935,131 4,892,426
Long term debt .................................................. 1,663,893 1,428,807
Long term obligations under capital leases ...................... 379,583 210,203
Line of credit .................................................. 11,689,792 8,783,793
Long term portion of customer deposits .......................... 684,334 893,145
------------ ------------
TOTAL LIABILITIES ............................................. 20,352,733 16,208,374
------------ ------------
STOCKHOLDERS' EQUITY:
Preferred stock - $.001 par value, 500,000 ...................... -- --
authorized shares, none issued and outstanding
shares at October 30, 1999
Common stock - $.001 par value, 50,000,000 ...................... 10,340 10,288
authorized shares, 10,339,758 issued and outstanding
shares at October 30, 1999 and 10,287,187 at
October 31, 1998
Paid in capital ................................................. 23,197,724 23,080,049
Accumulated deficit ............................................. (9,557,817) (12,956,458)
Treasury stock, at cost, 50,000 shares .......................... (168,750) (168,750)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY .................................... 13,481,497 9,965,129
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ..................................... $ 33,834,230 $ 26,173,503
============ ============
</TABLE>
F-3
<PAGE>
VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended
--------------------------------------------
October 30, October 31, October 25,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
SALES .................................................... $ 31,396,375 $ 29,169,185 $ 17,685,442
COST OF GOODS SOLD ....................................... 11,742,003 11,549,871 7,643,908
------------ ------------ ------------
GROSS PROFIT ............................................. 19,654,372 17,619,314 10,041,534
------------ ------------ ------------
OPERATING EXPENSES:
Selling, general and administrative expenses 13,149,023 10,235,168 5,897,735
Advertising expenses ....................... 3,257,918 4,702,498 3,077,145
Amortization ............................... 612,057 616,854 228,808
------------ ------------ ------------
TOTAL OPERATING EXPENSES ................................. 17,018,998 15,554,520 9,203,688
------------ ------------ ------------
INCOME FROM OPERATIONS ................................... 2,635,374 2,064,794 837,846
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest - net ............................. (1,030,151) (755,326) (368,224)
Miscellaneous .............................. -- 102,282 53,773
------------ ------------ ------------
TOTAL OTHER EXPENSE ...................................... (1,030,151) (653,044) (314,451)
------------ ------------ ------------
INCOME BEFORE INCOME TAXES ............................... 1,605,223 1,411,750 523,395
INCOME TAX BENEFIT ....................................... 1,793,418 1,447,000 544,000
------------ ------------ ------------
NET INCOME ............................................... $ 3,398,641 $ 2,858,750 $ 1,067,395
------------ ------------ ------------
NET INCOME PER SHARE - BASIC ............................. $ 0.33 $ 0.28 $ 0.11
NET INCOME PER SHARE - DILUTED ........................... $ 0.31 $ 0.26 $ 0.11
============ ============ ============
Weighted Average Shares Used in Computation - Basic ...... 10,279,377 10,248,389 9,771,347
Weighted Average Shares Used in Computation - Diluted .... 10,790,722 10,927,025 9,805,800
============ ============ ============
</TABLE>
F-4
<PAGE>
VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Paid in Treasury Stock Accumulated
-------------------------- --------------------
Shares Par Value Capital Shares Amount Deficit Total
----------- ---------- ------------- --------- --------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, October 26,1996 .... 9,678,268 $ 9,678 $ 21,399,420 -- $ -- $ (16,882,603)$ 4,526,495
Issuance of Common Stock .... 453,712 454 1,047,672 1,048,126
Net Income .................. 1,067,395 1,067,395
----------- ---------- ------------- --------- --------- ------------- ------------
Balance, October 25, 1997 ... 10,131,980 10,132 22,447,092 -- -- (15,815,208) 6,642,016
Issuance of Common Stock .... 155,207 156 632,957 633,113
Acquisition of Treasury Stock 50,000 (168,750) (168,750)
Net Income .................. 2,858,750 2,858,750
----------- ---------- ------------- --------- --------- ------------- ------------
Balance, October 31,1998 .... 10,287,187 10,288 23,080,049 50,000 (168,750) (12,956,458) 9,965,129
Issuance of Common Stock .... 52,571 52 117,675 117,727
Net Income .................. 3,398,641 3,398,641
----------- ---------- ------------- --------- --------- ------------ ------------
Balance, October 30,1999 .... 10,339,758 $ 10,340 $ 23,197,724 50,000 $(168,750)$ (9,557,817) $ 13,481,497
=========== ========== ============= ========= ========= ============ ============
</TABLE>
F-5
<PAGE>
<TABLE>
<CAPTION>
VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended
--------------------------------------------
October 30, October 31, October 25,
1999 1998 1997
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income ...................................................................... $ 3,398,641 $ 2,858,750 $ 1,067,395
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation .................................................................... 1,489,384 1,150,000 876,553
Amortization .................................................................... 612,057 616,854 228,808
(Increase) in deferred tax asset ................................................ (1,793,418) (1,447,000) (544,000)
(Gain) loss on disposal of property and equipment ............................... 72,315 93,808 (38,948)
Changes in assets and liabilities (net of effect of acquisitions):
(Increase) in accounts receivable ........................................... (250,476) (985,349) (433,636)
(Increase) in inventory ...................................................... (720,525) (783,421) (65,185)
(Increase) Decrease in other current assets .................................. (558,998) 65,657 (87,311)
(Increase) Decrease in other assets ......................................... (1,466,273) (567,567) 95,057
(Decrease) Increase in accounts payable ...................................... 435,578 1,768,238 (165,552)
(Decrease) Increase in customer deposits ..................................... (225,038) (81,525) 58,127
(Decrease) Increase in accrued expenses ...................................... (253,500) 117,910 439,215
------------ ------------ ------------
CASH PROVIDED BY OPERATING ACTIVITIES .............................................. 739,746 2,806,355 1,430,523
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment .................................... (2,115,945) (2,983,313) (1,079,569)
Proceeds from sale of fixed assets ........................................... 113,752 67,000 103,531
Cash used for acquistions .................................................... (2,023,610) (4,458,889) (2,774,946)
------------ ------------ ------------
NET CASH USED IN INVESTING ACTIVITIES .............................................. (4,025,803) (7,375,202) (3,750,984)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds (paydown) of line of credit ......................................... 2,905,999 843,979 (203,790)
Proceeds from debt ........................................................... 1,278,420 11,233,158 2,531,978
Principal payment of debt .................................................... (780,355) (7,451,777) (697,000)
Exercise of stock options .................................................... 87,740 -- --
Sale of common stock ......................................................... -- 10,950 --
------------ ------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES .......................................... 3,491,804 4,636,310 1,631,188
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH .................................................... 205,747 67,463 (689,273)
CASH - Beginning of year ........................................................... 161,271 93,808 783,081
------------ ------------ ------------
CASH - End of year ................................................................ $ 367,018 $ 161,271 $ 93,808
============ ============ ============
Cash paid for interest ............................................................. $ 852,638 $ 755,326 $ 422,026
============ ============ ============
NON-CASH FINANCING AND INVESTING ACTIVITIES:
Equipment acquired under capital leases .............................. $ 212,315 $ 89,273 $ 81,392
============ ============ ============
</TABLE>
F-6
<PAGE>
VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS OF THE COMPANY
Vermont Pure Holdings, Ltd. (the "Company") is engaged in the bottling,
marketing and distribution of natural spring water. The Company's
products are sold predominately in the New England, New York and New
Jersey as well as Mid-Atlantic and Mid-Western states. Distribution is
accomplished through a network of independent beverage distributors and
with the Company's own trucks and employees.
2. SIGNIFICANT ACCOUNTING POLICIES
A. BASIS OF PRESENTATION - The consolidated financial statements
include the accounts of the Company and its subsidiaries, Vermont
Pure Springs, Inc., A.M Friday's, Inc., Excelsior Springs Water
Co., Inc and Adirondack Coffee Services, Inc. The Company's
subsidiaries are wholly-owned. All material intercompany profits,
transactions, and balances have been eliminated. There are no
material intercompany transactions.
B. FISCAL YEAR - The Company operates on a "52-53 week" reporting
year. Fiscal year ended October 30, 1999 had 52 weeks in it while
fiscal year ended October 31, 1998 had 53 weeks.
C. CASH EQUIVALENTS - The Company considers all highly liquid
temporary cash investments, with an original maturity of three
months or less when purchased, to be cash equivalents.
D. ACCOUNTS RECEIVABLE - Accounts receivable are presented net of
allowance for doubtful accounts. The allowance was $348,167 and
$307,020 at October 30, 1999 and October 31, 1998, respectively.
Amounts charged to expense were $187,113, $192,527 and $57,809
respectively, during the years ended October 30, 1999, October 31,
1998 and October 25, 1997.
E. INVENTORIES - Inventories consist primarily of the packaging
material, labor and overhead content of the Company's products.
Such inventories are stated at the lower of cost or market using
average costing.
F. PROPERTY AND EQUIPMENT - Property and equipment are stated at
cost. Depreciation is calculated on the straight-line method over
the estimated useful lives of the assets, which range from three
to ten years for equipment, and from ten to forty years for
buildings and improvements.
F-7
<PAGE>
G. INTANGIBLE ASSETS - The Company records goodwill in connection
with its acquisitions. Goodwill is amortized over 30 years. The
value of customer lists acquired is amortized over 3 years and the
value of covenant agreements not to compete are amortized over the
term of the agreements.
H. SECURITIES ISSUED FOR SERVICES - The Company accounts for stock
and options issued for services by reference to the fair market
value of the Company's stock on the date of stock issuance or
option grant. Compensation expense is recorded for the fair market
value of the stock issued, or in the case of options, for the
difference between the stock's fair market value on the date of
grant and the option exercise price. In the event that recipients
are required to render future services to obtain the full rights
in the securities received, the compensation expense so recorded
is deferred and amortized as a charge to income over the period
that such rights vest to the recipient.
In 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 ("SFAS No.123"),
"Accounting for Stock Based Compensation". SFAS No.123 permits
companies to choose to follow the accounting prescribed by SFAS
No. 123 for securities issued to employees, or to continue to
follow the accounting treatment prescribed by Accounting
Principles Board Opinion No.25 ("APB No.25") along with the
additional disclosure required under SFAS NO.123 if the Company
elects to continue to follow APB No.25. The Company has adopted
the disclosure only option of SFAS 123.
I. NET INCOME PER SHARE - Net Income Per Share is based on the
weighted average number of common shares outstanding during each
period. Potential common shares are included in the computation of
diluted per share amounts outstanding during each period.
J. ADVERTISING EXPENSES - The Company expenses advertising costs at
the time that the advertising begins to run.
K. SLOTTING FEES - Slotting fees are paid to individual supermarkets
and supermarket chains to obtain initial shelf space for new
products. Fees vary from store to store. The payment of slotting
fees does not guarantee that a company's product will be carried
for any definite period of time. The Company pays for such fees in
cash, providing free goods or issuing credits for previously sold
goods. The cost of the slotting fees is valued at the amount of
cash paid, or the cost to the Company of the goods provided in
exchange. The Company expenses slotting fees when the obligation
is incurred.
L. CUSTOMER DEPOSITS - Customers receiving home or office delivery of
water pay a deposit for the water bottle on receipt that is
refunded when it is returned. The Company uses an estimate (based
on historical experience) of the deposits it expects to return
over the next 12 months to determine the current portion of the
liability and classifies the balance as long term.
F-8
<PAGE>
M. INCOME TAXES - The Company accounts for income taxes under
Statement of Financial Accounting Standards No.109, "Accounting
for Income Taxes" (SFAS 109). Pursuant to SFAS 109, the Company
accounts for income taxes under the liability method. Under the
liability method, a deferred tax asset or liability is determined
based upon the tax effect of the differences between the financial
statement and tax basis of assets and liabilities as measured by
the enacted rates which will be in effect when these differences
reverse.
N. USE OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principals requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
O. FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying amounts
reported in the balance sheet for cash, trade receivables,
accounts payable and accrued expenses approximate fair value based
on the short-term maturity of these instruments. The carrying
amount of the Company's borrowings approximate fair value.
P. ACCOUNTING FOR LONG-LIVED ASSETS - The Company reviews long-lived
assets, certain identifiable assets and any goodwill related to
those assets for impairment whenever circumstances and situations
change such that there is an indication that the carrying amounts
may not be recovered. At October 30, 1999, the Company believes
that there has been no impairment of its long-lived assets.
3. PROPERTY AND EQUIPMENT
October 30, October 31,
Life 1999 1998
Land, buildings, and improvements.......10 - 40 yrs. $ 3,624,258 $ 3,458,986
Machinery and equipment.... .............3 - 10 yrs. 11,741,545 7,519,572
Equipment held under capital leases .....3 - 10 yrs. 786,776 1,812,116
---------- ---------
16,152,579 12,790,674
Less accumulated depreciation............ 5,030,321 3,616,611
---------- ---------
$11,122,258 $9,174,063
========== =========
F-9
<PAGE>
4. INTANGIBLE ASSETS
October 30, October 31,
Life 1999 1998
------ ----------- -----------
Goodwill 30 yrs. $ 10,933,826 $ 9,585,384
Covenants not to compete 5 yrs. 498,412 498,412
Customer lists 3 yrs. 946,535 772,566
Other Various 103,717 166,780
----------- -----------
$ 12,482,490 $11,023,142
Less accumulated amortization 2,039,283 1,427,227
----------- -----------
$ 10,443,207 $ 9,595,915
=========== ===========
5. ACQUISITIONS
The Company completed the following acquisitions in fiscal year 1999:
Russell Distributing in November 1998, Roblee Water Works in January
1999, L&C Spring Water in March 1999, Waters of Sand Springs in April
1999, Ravenwood Spring Water Co. in June 1999, Adirondack Coffee
Service, Inc. in July 1999, Dunbar Coffee Service in July 1999, Coratti
Water Group, Ltd.'s Connecticut home and office customer base in August
1999 and Absolute Coffee Break in August 1999.
The following table gives an aggregate summary of the acquisitions:
1999 1998
------------ ------------
Purchase Price .......................... $ 2,446,282 $ 5,143,935
Acquisition Costs ....................... 26,062 323,418
Fair Value of Assets Acquired ........... (1,195,022) (1,540,495)
Fair Value of Liabilities Assumed ....... 49,623 498,821
------------ ------------
Goodwill ................................ $ 1,326,945 $ 4,425,679
============ ============
The detailed components consist of the following:
1999 1998
------------ ------------
Purchase Price
Cash to Sellers .................................. $ 1,997,548 $ 4,114,822
Notes to Sellers ................................. 418,734 396,000
Common Stock to Sellers (8,571 shares in 1999
and 155,207 in 1998) ........................ 30,000 633,113
------------ ------------
$ 2,446,282 $ 5,143,935
============ ============
F-10
<PAGE>
1999 1998
------------ ------------
FAIR VALUE OF ASSETS ACQUIRED
Accounts Receivable .............................. $ 205,063 $ 109,584
Inventory ..................................... 147,257 82,033
Property, Plant and Equipment .................... 662,448 699,128
Intangible Assets ................................ 178,840 541,590
Other ............................................ 1,414 108,160
------------ ------------
$ 1,195,022 $ 1,540,495
============ ============
LIABILITIES ASSUMED
Accounts Payable ................................. $ 0 $ 140,298
Customer Deposits ................................ 2,900 222,937
Assumed Notes .................................... 37,910 135,586
Other ............................................ 8,813 0
------------ ------------
$ 49,623 $ 498,821
============ ============
During fiscal year 1999, the Company issued 8,571 shares of its common
stock as follows:
- 8,571 shares were issued in November 1998 at the price of $3.50 per
share in conjunction with the purchase of assets from Russell
Distributing.
During fiscal year 1998, the Company issued 155,207 shares of its
common stock as follows: 45,391 shares were issued in January 1998 at
the price of $4.00 in conjunction with the purchase of assets from
Vermont Coffee Time; 7,647 shares were issued at the price of $4.50 in
conjunction with the purchase of Vermont Naturals in May 1998; 30,000
shares were issued in exchange for distribution rights obtained from
AKVA at a value of $4.28; 72,169 shares were issued in April 1998 at
the price of $4.00 per share to AM Fridays in conjunction with the
sales performance portion of the original stock purchase agreement.
The following table summarizes pro forma consolidated results of
operations (unaudited) of the Company and the 1999 and 1998
acquisitions as though the acquisitions had been consummated at October
25, 1997. The pro forma amounts give effect to the appropriate
adjustments for the fair value of assets acquired and amortization of
goodwill, depreciation and the debt incurred and resulting interest
expense.
F-11
<PAGE>
Years Ended
October 30, October 31,
1999 1998
------------ ------------
Total Revenue ............................ $32,594,417 $32,813,514
Net Income ............................... $ 3,843,705 $ 3,478,362
Net Income Per Share .................... $ 0.37 $ 0.34
Weighted Average Number Of Shares ........ 10,279,377 10,248,389
============ ============
6 ACCRUED EXPENSES
October 30, October 31,
1999 1998
------------ ------------
Advertising and promotion ................ $ 130,000 $ 310,558
Payroll and vacation ..................... 206,018 380,844
Miscellaneous ............................ 515,353 413,469
------------ ------------
$ 851,371 $ 1,104,871
============ ============
7. LINE OF CREDIT - ACQUISITIONS AND WORKING CAPITAL - The Company
entered into a five year revolving line with CoreStates Banks N.A.,
now First Union National Bank, on April 18, 1998. The purpose of the
loan is for permitted acquisitions and capital expenditures, working
capital and to refinance existing term debt. The Company is entitled
to borrow up to $15 million under the terms and conditions of the
agreement. Of this amount, $3 million is allowed for working capital
with the balance available for acquisitions. The Company has signed a
letter of intent with First Union National Bank to increase this
credit line up to $25 million. Of the $25 million, $4.3 million will
be allocated for a letter of credit to underwrite a new bond issue for
the Randolph, Vermont building expansion as well as new production
equipment purchases. As of October 30, 1999 $11,689,792 had been
borrowed against this facility. The proceeds were used for working
capital and acquisition debt. Under the agreement the Company is
required to pay interest monthly at a rate of LIBOR plus 2.5%,
currently approximately 8.4%. The interest rate can decrease during
the term based on certain performance parameters as defined in the
agreement. The Company is required to continue to meet loan covenants
as defined in the agreement in order to have access to the line of
credit. The loan is secured by receivables, inventory, equipment and
intangible assets.
8. OBLIGATIONS UNDER CAPITAL LEASES
The Company leases equipment under capital lease arrangements. Assets
held under capital leases are included with property and equipment.
F-12
<PAGE>
The following is a schedule of future minimum lease payments under the
capital leases and the present value of net minimum lease payments as
of October 30,1999:
2000 .................................. $215,925
2001 .................................. 172,923
2002 .................................. 135,253
2003 .................................. 57,949
2004 AND BEYOND ....................... 77,174
--------
Total minimum lease payments .......... 659,224
LESS AMOUNT REPRESENTING INTEREST ..... 99,052
--------
Present value of minimum lease payments $560,172
========
9. LONG TERM DEBT - The Company's long term debt is as follows:
<TABLE>
<CAPTION>
October 30, October 31,
1999 1998
------------ ------------
<S> <C> <C>
Mortgage on property purchased in June 1999, interest
at .5% over prime, currently 8.25% to be revised
annually, principal and interest payable monthly
through 2014, secured by property........................ $ 198,182 -
Building loans, principal and interest at 5.5% payable
monthly through 1999 secured by the assets............... - 291,807
Mortgage on property acquired in October 1993,
interest at 4.5%, with interest only due through
July 1996, then principal and interest due through
2000 secured by the property............................. 318,341 348,066
Promissory note, principal and interest at 8.5% payable
monthly through May 2002 with a final payment of
$140,099 due June 2002. Note is unsecured............... 235,011 265,429
Promissory note, principal and interest at 8.5% payable
monthly through August 2002, with a final payment of
$308,474 due September 2002. Note is unsecured.......... 430,782 464,469
Promissory note, principal and interest at 8% payable
monthly through August 2004. Note is unsecured.......... 295,439 -
Various secured/unsecured notes ranging in amounts of
$14,000 to $975,000 with interest rates of 8.5% to
10%. These notes are for the most part unsecured........ 1,601,068 660,606
------------ ------------
3,078,823 2,030,377
Less current portion....................................... 1,414,930 601,570
------------ ------------
$ 1,663,893 $ 1,428,807
============ ============
F-13
</TABLE>
<PAGE>
Annual maturities of long term debt are as follows:
Year ending October 28, 2000 .............. $1,414,930
Year ending October 27, 2001 .............. 259,039
Year ending October 26, 2002 .............. 687,786
Year ending October 25, 2003 .............. 136,692
YEAR ENDING OCTOBER 24, 2004 AND THEREAFTER 580,376
----------
$3,078,823
==========
10. PERFORMANCE EQUITY PLANS
In November 1993, the Company's Board of Directors adopted the 1993
Performance Equity Plan (the "1993 Plan"). The plan authorizes the
granting of awards for up to 1,000,000 shares of common stock to key
employees, officers, directors and consultants. Grants can take the
form of stock options (both qualified and non-qualified), restricted
stock awards, deferred stock awards, stock appreciation rights and
other stock based awards. During fiscal 1999, there were no options
issued under this plan.
On April 2, 1998 the Company's shareholders approved the 1998 Incentive
and Non Statutory Stock Option Plan. This plan provides for issuance of
up to 500,000 options to purchase the Company's common stock under the
administration of the Board of Directors. The intent of the plan is to
reward options to officers, employees, directors, and other individuals
providing services to the Company. During fiscal 1999, 48,200 options
were issued under this plan.
F-14
<PAGE>
11. STOCK OPTIONS
The following table illustrates the Company's stock option issuances
and balances during the last three fiscal years:
Exercise
Price Per
OPTIONS SHARE
---------- -----------
Outstanding at October 26, 1996 ........... 1,755,000 $2.25-3.13
Options granted ...................... 392,187 $2.50-2.81
Options regranted .................... 647,000 $ 2.50
Options retired ...................... (32,000) $1.81-2.25
Options surrendered .................. (580,000) $1.75-3.25
---------- -----------
Outstanding at October 25, 1997 ........... 2,182,187 $1.75-6.00
Options granted ...................... 202,000 $3.38-4.81
Options retired ...................... (10,000) $ 2.50
Options exercised .................... (5,000) $ 2.50
---------- -----------
Outstanding options at October 31, 1998 ... 2,369,187 $1.81-6.00
Options Granted .................... 48,200 $ 3.13
Options Retired .................... (540,000) $2.50-6.00
OPTIONS EXERCISED .................. (36,000) $2.25-2.50
---------- -----------
Outstanding Options at October 30, 1999 .............. 1,841,387 $1.81-4.81
========== ===========
There were 1,485,000, 1,742,000 and 1,612,000 options exercisable for
fiscal years ending October 30, 1999, October 31, 1998 and October 25,
1997, respectively.
12. OPERATING LEASES
The Company currently leases office space on a month-to-month basis and
is obligated under several building, equipment and vehicle leases
expiring variously through May 2008. Future minimum rental payments
over the terms of these leases are approximately as follows:
2000 $801,745
2001 705,357
2002 631,882
2003 550,388
Thereafter 755,705
Rent expense under all operating leases was $413,217, $321,116 and
$128,247 for fiscal years ending October 30, 1999, October 31,
1998 and October 25, 1997.
F-15
<PAGE>
.
13. RELATED PARTY TRANSACTIONS
The Company paid consulting fees to related parties aggregating $22,000
in 1999, $78,334 in 1998 and $136,000 in 1997.
One of the consultants also received options to purchase 125,000 shares
of the Company's common stock for $2.25 per share. The options are
fully vested and are exercisable through October 2003.
14. INCOME TAXES
The Company has approximated $13.1 million of available loss
carryforwards at October 30, 1999 expiring from 2005 through 2011. Due
to previous ownership changes or equity structure shifts as defined in
the Internal Revenue Code, approximately $3.5 million of the net
operating losses are limited as to annual utilization
The major deferred tax asset (liability) items at October 30, 1999 are
as follows:
Accounts receivable allowance .. $ 139,000
Amortization ................... 225,000
Depreciation ................... (919,000)
Slotting fees .................. 10,000
Other .......................... 95,000
Net operating loss carryforwards 5,067,000
-----------
4,617,000
Valuation allowance 832,000
-----------
Deferred tax asset recorded .... $ 3,785,000
===========
The benefit for income taxes differs from the amount computed by
applying the statutory tax rate to net income before income tax benefit
as follows:
<TABLE>
<CAPTION>
Year Ended
-----------------------------------------
October 30, October 31, October 25,
1999 1998 1997
Income tax expense computed at ------------ ------------ ------------
<S> <C> <C> <C>
statutory rate..................................$ (546,000) $ (480,000) $ (178,000)
Effect of permanent differences ................. (7,000) (74,000) (18,000)
Effect of temporary differences ................. 115,000 (101,000) 40,000
Tax benefit of net operating loss carry forward . 438,000 655,000 156,000
Change in valuation allowance ................... 1,793,000 1,447,000 544,000
------------ ------------ ------------
Income tax benefit..............................$ 1,793,000 $ 1,447,000 544,000
============ ============ ============
</TABLE>
F-16
<PAGE>
15. MAJOR CUSTOMER
The Company's sales to a single customer were 16%, 30% and 31% of the
total sales for 1999, 1998 and 1997, respectively. However, the Company
terminated its distribution agreement with this customer effective
April, 1999. The Company has entered into contracts with distributors
to market Vermont Pure spring water in the territory previously
serviced by the former customer.
16. ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees". Accordingly, no
compensation expense related to stock option grants was recorded in
1999, 1998 and 1997 as the exercise price of such options was equal to
or greater than the underlying stock on the date of grant.
Pro-forma information regarding net income and net income per share is
presented below as if the Company had accounted for its employee stock
options under the fair value method; such pro-forma information is not
necessarily representative of the effects on reported net income for
future years due primarily to the options vesting periods and to the
fair value of additional options in future years.
Had compensation cost for the option plans been determined using the
methodology prescribed under the Black-Scholes option pricing model,
the Company's income (loss) would have been $3,307,489 and $.32 per
share in 1999; $2,509,134 and $.24 per share in 1998 and $324,302 and
$.03 per share in 1997. The weighted average fair value of the options
granted were $2.11, $3.42 and $1.89 in 1999, 1998 and 1997,
respectively. Assumptions used for 1999 were: expected dividend yield
of 0%; expected volatility of 79%; risk free interest of 5.7% and
expected life of 5 years. Assumptions used for 1998 were: expected
dividend yield of 0%; expected volatility of 50%; risk free interest
of 5.7% and expected life of 5 years. Assumptions for 1997 were:
expected dividend yield 0%; expected volatility of 92%; risk-free
interest of 7% and expected life of five years.
17. SUBSEQUENT EVENT
On October 1, 1999, the Company acquired various security interests
held by Marcon Capital Corporation associated with Pristine Mountain
Springs, Inc., ("Pristine") and Amsource Limited Liability Company
("Amsource"). The Company has historically purchased spring water from
Pristine.
F-17
<PAGE>
Following notice of the assignment, Amsource and Pristine contended
that the Company did not have to right to purchase water from Pristine.
The Company filed litigation through three separate actions to
foreclose its security interests against Pristine and Amsource,
exercise control over Amsource, and specifically enforce its rights to
purchase water from Pristine.
The parties have reached a settlement that resulted in the dismissal of
all pending litigation. Under the settlement, the Company received a
cash settlement of $1,270,000 and retained the right to purchase water
from Pristine's spring in Stockbridge, and the right of first refusal
to purchase the spring itself. By virtue of the settlement, the Company
has secured a legal right to a water supply from the Pristine spring.
The settlement has concluded all litigation among the parties.
F-18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000885040
<NAME> VERMONT PURE. INC.
<MULTIPLIER> 1
<CURRENCY> U.S.DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> OCT-31-1999
<EXCHANGE-RATE> 1
<CASH> 367,108
<SECURITIES> 0
<RECEIVABLES> 3,873,405
<ALLOWANCES> (348,167)
<INVENTORY> 2,711,709
<CURRENT-ASSETS> 8,962,855
<PP&E> 16,152,579
<DEPRECIATION> (5,030,321)
<TOTAL-ASSETS> 33,834,230
<CURRENT-LIABILITIES> 5,935,131
<BONDS> 0
0
0
<COMMON> 10,340
<OTHER-SE> 13,471,157
<TOTAL-LIABILITY-AND-EQUITY> 33,834,230
<SALES> 31,396,375
<TOTAL-REVENUES> 31,396,375
<CGS> 11,742,003
<TOTAL-COSTS> 11,742,003
<OTHER-EXPENSES> 17,018,998
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,030,151
<INCOME-PRETAX> 1,605,223
<INCOME-TAX> (1,793,418)
<INCOME-CONTINUING> 3,398,641
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,398,641
<EPS-BASIC> 0.33
<EPS-DILUTED> 0.31
</TABLE>
