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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
FILED BY THE REGISTRANT [X] FILED BY A PARTY OTHER THAN THE REGISTRANT [ ]
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Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
VERMONT PURE HOLDINGS, LTD.
(Name of Registrant as Specified In Its Charter)
Not Applicable
(Name of Person(s) Filing Proxy Statement)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
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VERMONT PURE HOLDINGS, LTD.
ROUTE 66, CATAMOUNT INDUSTRIAL PARK
RANDOLPH, VERMONT 05060
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MARCH 27, 2001
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Vermont Pure Holdings, Ltd. ("Company") will be held at the American Stock
Exchange, 86 Trinity Place, New York, NY 10006 on Tuesday, March 27, 2001 at
1:30 P.M. local time, for the following purposes:
1. To elect ten directors to hold office until the Annual Meeting
of Stockholders in 2002 and until their respective successors
have been duly elected and qualified;
2. To transact such other business as may properly come before
the meeting, and any adjournment(s) thereof.
The record date for the Annual Meeting is February 16, 2001. Only
stockholders of record at the close of business on February 16, 2001 will be
entitled to notice of, and to vote at, the Meeting and any adjournments thereof.
YOU ARE URGED TO READ THE ATTACHED PROXY STATEMENT, WHICH CONTAINS
INFORMATION RELEVANT TO THE ACTIONS TO BE TAKEN AT THE MEETING. IN ORDER TO
ASSURE THE PRESENCE OF A QUORUM, WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING
IN PERSON, PLEASE SIGN AND DATE THE ACCOMPANYING PROXY CARD AND MAIL IT PROMPTLY
IN THE ENCLOSED ADDRESSED, POSTAGE PREPAID ENVELOPE. YOU MAY REVOKE YOUR PROXY
IF YOU SO DESIRE AT ANY TIME BEFORE IT IS VOTED.
By Order of the Board of Directors
Bruce S. MacDonald
Secretary
Randolph, Vermont
February 26, 2001
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VERMONT PURE HOLDINGS, LTD.
PROXY STATEMENT
GENERAL INFORMATION
This Proxy Statement and the enclosed form of proxy are furnished in
connection with solicitation of proxies by the Board of Directors ("Board") of
Vermont Pure Holdings, Ltd. ("Company") to be used at the Annual Meeting of
Stockholders of the Company to be held on Tuesday, March 27, 2001, and any
adjournment or adjournments thereof ("Annual Meeting"). The matters to be
considered at the Annual Meeting are set forth in the attached Notice of
Meeting.
The Company's executive offices are located at Route 66, Catamount
Industrial Park, Randolph, Vermont 05060. The Company's telephone number is
802-728-3600. This Proxy Statement and the enclosed form of proxy are first
being sent to stockholders on or about March 2, 2001.
RECORD DATE AND OUTSTANDING SHARES
The Board has fixed the close of business on February 16, 2001 as the
record date for the determination of stockholders entitled to notice of, and to
vote at, the Annual Meeting. Only stockholders of record at the close of
business on that date will be entitled to vote at the Annual Meeting or any and
all adjournments thereof. As of the record date, the Company had issued and
outstanding 20,244,992 shares of Common Stock, par value $.001 ("Common Stock"),
comprising all of the Company's issued and outstanding voting stock. Each
stockholder of the Company will be entitled to one vote for each share of Common
Stock held of record by that stockholder.
SOLICITATION AND REVOCATION
Proxies in the form enclosed are solicited by and on behalf of the
Board. The persons named in the proxy have been designated as proxies by the
Board. Any proxy given pursuant to such solicitation and received in time for
the Annual Meeting will be voted as specified in such proxy. If no instructions
are given, proxies will be voted
"FOR" the election of the nominees listed below under
"Election of Directors,"
and in the discretion of the proxies named on the proxy card with respect to any
other matters properly brought before the Meeting and any adjournments thereof.
In the event that any other matters are properly presented at the Annual Meeting
for action, the persons named in the proxy will vote the proxies in accordance
with their best judgment. Any proxy given pursuant to this solicitation may be
revoked by the stockholder at any time before it is exercised by written
notification delivered to the Secretary of the Company, by voting in person at
the Annual
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Meeting, or by delivering another proxy bearing a later date. Attendance by a
stockholder at the Annual Meeting does not alone serve to revoke his or her
proxy.
QUORUM
The presence, in person or by proxy, of a majority of the shares of
Common Stock issued and outstanding and entitled to vote at the Annual Meeting
will constitute a quorum at the Annual Meeting. A proxy submitted by a
stockholder may indicate that all or a portion of the shares represented by such
proxy are not being voted with respect to a particular matter. Similarly, a
broker may not be permitted to vote stock ("broker non-vote") held in street
name on a particular matter in the absence of instructions from the beneficial
owner of such stock. The shares subject to a proxy which are not being voted on
a particular matter (because of either stockholder withholding or broker
non-vote) will not be considered shares entitled to vote on such matter. These
shares, however, may be considered present and entitled to vote on other matters
and will count for purposes of determining the presence of a quorum.
VOTING
If a quorum is present at the Meeting, the persons nominated for
election as directors will be elected by a plurality of the shares of Common
Stock voted at the Annual Meeting. "Plurality" means that the nominees who
receive the highest number of votes will be elected as the directors of the
Company for the ensuing year.
PROPOSAL 1 -- ELECTION OF DIRECTORS
The nine current directors of the Company and Carol R. Lintz have been
nominated by the Board as candidates for election as directors to serve until
the next annual meeting of stockholders or until their respective successors
have been elected and qualified. Unless otherwise specified in the form of
proxy, the proxies solicited by the management will be voted "FOR" the election
of these ten candidates. In case any of these nominees become unavailable for
election to the Board, an event which is not anticipated, the persons named as
proxies, or their substitutes, shall have full discretion and authority to vote
or refrain from voting for any other nominee in accordance with their judgment.
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning each
director of the Company continuing in office, the non-incumbent nominee for
election as director, and each current executive officer of the Company:
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NAME AGE POSITION
Timothy G. Fallon 47 Chief Executive Officer and Chairman of the Board
Henry E. Baker 68 Director, Chairman Emeritus
Peter K. Baker 41 President and Director
Phillip Davidowitz 69 Director
Robert C. Getchell 52 Director
Carol R. Lintz 48 Nominee for Director
David R. Preston 60 Director
Ross S. Rapaport 58 Director
Norman E. Rickard 64 Director
Beat Schlagenhauf 49 Director
John B. Baker 46 Executive Vice President
Bruce S. MacDonald 42 Chief Financial Officer,
Treasurer and Secretary
The business experience during at least the last five years of each of
the these individuals is as follows:
Timothy G. Fallon has been the Chief Executive Officer and a director
of the Company since November 1994. Until October 2000, he concurrently served
as President of the Company. In April 1998, he was appointed Chairman of the
Board of Directors. He also chairs the Executive Committee. 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.
Henry E. Baker was employed at Crystal Rock Spring Water Company
("Crystal Rock") from 1947 to 2000. He was appointed President of Crystal Rock
in 1965 and became Chairman of its Board in 1965. Mr. Baker served on the
International Bottled Water Association ("IBWA") Board of Directors for two
decades. He was inducted into the Beverage World Bottled Water Hall of Fame in
1990. He became a director and Chairman Emeritus of the Company in October 2000
in conjunction with the business combination between the Company and Crystal
Rock. Mr. Baker is the father of Peter K. Baker and John B. Baker and the
husband of Joan A. Baker, a subordinated creditor of the Company. See "Certain
Transactions."
Peter K. Baker was employed at Crystal Rock from 1977 to 2000 and was
appointed its Co-President in 1993. After serving on the Board of Directors of
the IBWA, Peter served as its Chairman during the 1998-1999 term. In October
2000, in conjunction with the business combination between the Company and
Crystal Rock, he became a director and President of the Company. He is a member
of the Executive Committee.
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 Company since 1988. TSC Clearing Services is a wholly-owned
subsidiary of Transatlantic Securities Company, and is a
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sales and marketing company for client retention. Transatlantic Securities
Company is a member of the NYSE and executes orders for clients on an agency
basis only and clears its own transactions.
Robert C. Getchell has been a director of the Company since December
1994. He is chair of the Audit Committee and a member of the Compensation
Committee. Mr. Getchell has been a principal of Getchell Professional
Association, a certified public accountant firm 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.
Carol R. Lintz has been nominated by the Board to serve as a director
subject to shareholder approval at the Company's annual meeting. From 1996 to
2000 Ms. Lintz was an analyst at Wellington Management in Boston, Massachusetts.
Prior to that, from 1992 to 1996 she was an analyst for State Street Research
and Management in Boston.
David R. Preston has been a director of the Company since October 1995.
He chairs the Compensation Committee and is a member of the Audit and Executive
Committees. 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.
Ross S. Rapaport is President and a stockholder of Rapaport &
Ellenthal, P.C., a general practice law firm located in Stamford, Connecticut.
He has practiced in the area of corporate and general business law for more than
thirty years. He has provided legal advice to Crystal Rock since 1974 and serves
as trustee of the Baker family trusts. Mr. Rapaport became a director of the
Company in October 2000 in connection with the business combination of the
Company and Crystal Rock.
Norman E. Rickard has been a director of the Company since May 1995. He
is a member of the Executive and Audit Committees. Mr. Rickard, who is retired,
was the President of Xerox Document Services Group of Xerox Corporation and a
Corporate Senior Vice President. Mr. Rickard had been employed by Xerox
Corporation since 1967 in various capacities, including President of Xerox
Business Services, Director of Business Effectiveness, Director of the Worldwide
Strategic Manufacturing Project, Director of Staff Operations and Vice President
of Quality. He is also 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.
John B. Baker was employed at Crystal Rock from 1975 to 2000. He was
appointed Co-President in 1993. In October 2000, in conjunction with the
business combination between the Company and Crystal Rock, he became Executive
Vice President of the Company.
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Bruce S. MacDonald has been Chief Financial Officer and Treasurer of
the Company since May 1993. He has also served as the Company's Secretary since
June 1999. From 1987 to May 1993, Mr. MacDonald was Controller of Cabot
Cooperative Creamery Incorporated.
THE BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
During the fiscal year ended October 31, 2000, the Board of Directors
of the Company met four (4) times and approved other business by unanimous
consent on two separate occasions, and the Audit Committee and Compensation
Committee met three (3) times and two (2) times, respectively. The Executive
Committee met for (4) times during the year. The Board does not have a
Nominating Committee. No incumbent director attended fewer than 75% of the total
number of meetings of the Board and Committees of the Board on which he served.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's officers, directors and persons who beneficially own more
than 10% of a registered class of the Company's equity securities ("ten percent
stockholders") to file reports of ownership and changes in ownership with the
Securities and Exchange Commission ("SEC"). Officers, directors and 10%
stockholders are charged by the SEC regulation to furnish the Company with
copies of all Section 16(a) forms they file.
Based solely upon a review of Forms 3, 4 and 5 and amendments thereto
furnished to the Company during fiscal 2000, and, if applicable, written
representations that Form 5 was not required, the Company believes that all
Section 16(a) filing requirements applicable to its officers, directors and ten
percent stockholders were fulfilled in a timely manner.
REMUNERATION OF EXECUTIVE OFFICERS AND DIRECTORS
EXECUTIVE COMPENSATION
The following tables show (1) the cash compensation paid by the
Company, as well as certain other compensation paid or accrued, to the Chief
Executive Officer and Chief Financial Officer of the Company for the Company's
last three fiscal years, (2) certain information regarding options granted to
the Chief Executive Officer and the Chief Financial Officer during fiscal year
2000, and (3) information regarding the value of all options granted to the
Chief Executive Officer and Chief Financial Officer at the end of fiscal year
2000. No other executive officer of the Company received cash compensation from
the Company equal to or greater than $100,000 during fiscal year 2000.
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SUMMARY COMPENSATION TABLE
NAME AND PRINCIPAL POSITION FISCAL ANNUAL COMPENSATION LONG TERM COMPENSATION
YEAR
SALARY BONUS OPTIONS/ ALL OTHER
($) ($) (# SHARES) COMPENSATION(2) ($)
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Timothy G. Fallon 2000 $205,000 $50,000 500,000(1) $17,866
Chief Executive Officer and President 1999 $186,400 $195,000 -0- $14,740
1998 $186,400 $202,500 -0- $6,859
Bruce S. MacDonald 2000 $94,185 $20,000 100,000(1) $9,359
Chief Financial Officer and Treasurer 1999 $85,000 $75,000 -0- $8,612
1998 $85,000 $55,000 30,000 $3,937
(1) Options to purchase Common Shares with an exercise price per share of
$3.25 issued on October 5, 2000 expiring 10 years later.
(2) The amount under "All Other Compensation" represents car, life 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 $50,000 or 10% of the
compensation reported in the preceding table for such individuals, and that such
information set forth in the preceding table is not rendered materially
misleading by virtue of the omission of the value of such personal benefits.
OPTIONS/SHARES GRANTED IN LAST FISCAL YEAR
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE AT ASSUMED
ANNUAL RATES OF STOCK PRICE APPRECIATION
FOR OPTION TERM
NAME OPTIONS/ % OF TOTAL EXERCISE EXPIRATION 0% ($) 5% ($) 10% ($)
SHARES OPTIONS/ PRICE AND DATE
GRANTED SHARES MARKET PRICE
GRANTED TO ON
EMPLOYEES DATE OF
IN FISCAL GRANT
YEAR ($ SHARE)
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Timothy G. Fallon 500,000 60% $3.25 10/5/10 -0- $1,020,000 $2,590,000
Chief Executive Officer
Bruce S. MacDonald 100,000 12% $3.25 10/5/10 -0- $204,000 $518,000
Chief Financial Officer
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AGGREGATE YEAR-END OPTION VALUES
NUMBER OF UNEXERCISED OPTIONS VALUE OF UNEXERCISED IN-THE-MONEY
AT FISCAL YEAR-END (#) OPTIONS AT FISCAL YEAR-END ($)(1)
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
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Timothy G. Fallon 620,000 600,000 $310,000 $50,000
Chief Executive Officer
Bruce S. MacDonald 101,000 130,000 $70,500 $10,000
Chief Financial Officer
(1) As of October 31, 2000, the closing price per share of Common Stock was
$3.00 on the American Stock Exchange.
EXECUTIVE PARTICIPATION IN COMPENSATION DECISIONS AND COMPENSATION COMMITTEE;
AUDIT COMMITTEE
Compensation decisions during the fiscal year ended October 31, 2000
were made by the Board of Directors upon the recommendation of the Compensation
Committee (except for stock options under the Company's 1998 Stock Option Plan,
which are granted by the Compensation Committee). The Compensation Committee is
empowered to make recommendations to the Board relating to the overall
compensation arrangements for senior management of the Company and any
compensation plans in which officers and directors of the Company are eligible
to participate. The Compensation Committee was comprised of Messrs. Frank G.
McDougall, Preston and Getchell until Mr. McDougall resigned as a director
effective October 5, 2000. He has not been replaced. No person serving on the
Compensation Committee at any time during fiscal year 2000 was an executive
officer of the Company or had any relationship required to be disclosed under
Item 404 of Regulation S-K promulgated by the SEC.
The Company also has an Audit Committee, the members of which are
Messrs. Getchell, Preston and Rickard. The Audit Committee, among other things,
is empowered to recommend to the Board the engagement of the independent
auditors and to review the scope and procedures of the activities of the
independent auditors and the reports on their audits. The Audit Committee meets
periodically with the independent auditors and management to review their work
and confirm that they are properly discharging their responsibilities.
EMPLOYMENT CONTRACTS AND CHANGE-IN-CONTROL ARRANGEMENTS
In connection with the Company's business combination with Crystal
Rock, it entered into new employment agreements with officers of both companies.
The executive officer agreements in effect as of October 31, 2000 were as
follows:
Timothy G. Fallon
The Company's agreement with Mr. Fallon has a term of five years and
provides that he will have the title of Chief Executive Officer. His base salary
is $250,000, subject to annual review by the Board of Directors, and he is
eligible to receive various bonuses. The agreement
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provides that for fiscal years 2000 and 2001, the Company will pay him a bonus
of from $50,000 to $100,000 depending on its ability to achieve stated levels of
target sales, and a further bonus of from $50,000 to $100,000 depending upon its
ability to achieve stated levels of target earnings before interest, taxes,
depreciation, and amortization ("EBITDA"). For fiscal years 2002 through 2004,
the range for the sales and EBITDA bonuses will be from $70,000 to $120,000.
The Company may also pay Mr. Fallon three special bonuses. The first,
payable only once, equals $25,000 if the Company achieves annual sales of over
$40,000,000 during its fiscal year 2001. The second, also payable only once, is
a bonus of $50,000, cumulative with the $25,000 bonus, if the Company achieves
annual sales of over $50,000,000 during the same year. The third, again payable
only once, is a bonus of $50,000 if the closing price of Vermont Pure Holdings,
Ltd. common stock is equal to or in excess of $5.00 per share for 54 trading
days in any period of 60 consecutive trading days.
The Company will reimburse Mr. Fallon for up to $25,000 for buying
disability and other insurance that it does not offer as an employee benefit, if
he elects to obtain it, and leasing and operating an automobile. Subject to the
fiduciary duties of its directors, the Company will use its best efforts to have
Mr. Fallon elected as a member of its Board of Directors and any Executive
Committee of the Board of Directors. The agreement with Mr. Fallon also contains
confidentiality provisions and a non-competition clause that prohibits Mr.
Fallon from competing with it during the term of the agreement and any period in
which he is no longer employed and receives severance payments, or for 12 months
if he is not receiving severance payments.
Also, in accordance with the agreement, Mr. Fallon received 500,000
options on October 5, 2000 to purchase the Company's common stock at $3.25 per
share, the market price on that date. The options vest in equal increments over
five years and have a term of ten years.
If the Company terminates Mr. Fallon's employment before the agreement
expires and without "cause," as defined in the agreement, in fiscal year 2001 it
will be required to pay him monthly severance benefits for the remaining term of
his agreement or 24 months, whichever is less, at an annual rate equal to his
base annual salary plus $150,000, together with fringe benefits as defined in
the agreement, subject to various limits. In fiscal years 2002 through 2004, it
would be required to pay him monthly severance benefits for the remaining term
of his agreement or 24 months, whichever is less, at an annual rate equal to his
base annual salary plus $200,000, together with fringe benefits as described in
the agreement. Mr. Fallon's contract contains no provisions entitling him to
resign and be compensated for "good reason." If there is a "change of control,"
as defined in the agreement, of the Company, followed within 30 days by the
termination of Mr. Fallon's employment for any reason, then it would be required
to pay him monthly severance benefits as if there had been a termination without
cause, together with fringe benefits as described in the agreement.
Peter K. Baker
The agreement with Peter K. Baker has a term of five years and provides
that he will have the title of President. His base salary is $250,000, subject
to annual review by the Board of Directors, and he will be eligible to receive a
bonus of from $25,000 to $75,000 depending on
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the Company's ability to achieve stated levels of EBITDA. Mr. Baker will also be
entitled to a guaranteed bonus equal to the excess of $50,000 over the actual
cost to him, which the Company will reimburse, of buying disability insurance,
if he elects to obtain it, and leasing and operating an automobile.
Subject to the fiduciary duties of its directors, the Company will use
its best efforts to have Mr. Baker elected as a member of its Board of Directors
and any Executive Committee of the Board of Directors, so long as the former
stockholders of Crystal Rock hold in the aggregate at least 40% of the
outstanding shares of Vermont Pure Holdings, Ltd.
The agreement also contains confidentiality provisions and a
non-competition clause that prohibits Mr. Baker from competing with the Company
during the term of the agreement and any period in which he is no longer
employed and receives severance payments, or for 12 months if he is not
receiving severance payments. If it terminates Mr. Baker's employment before the
agreement expires and without "cause," as defined in the agreement, the Company
will be required to pay him monthly severance benefits for the remaining term of
his agreement at an annual rate equal to his base annual salary plus $50,000,
together with fringe benefits as defined in the agreement, subject to various
limits. If Mr. Baker leaves the Company for "good reason," which means if it
requires him to relocate his home a distance of more than 50 miles, if the
Company assigns to him duties materially inconsistent with his position, or if
the Company materially breaches its agreement with him, he will be entitled to
the same payments as if it had terminated his employment without cause. Finally,
if there is a "change of control," as defined in the agreement, of the Company,
followed within 30 days by the termination of Mr. Baker's employment for any
reason, then it would be required to pay him monthly severance benefits for 24
months or the remaining term of his agreement, whichever is less, at the same
annual rate that applies in case of termination.
Henry E. Baker
The Company's agreement with Henry E. Baker has a term of five years
and provides that he will be Chairman Emeritus. Mr. Baker is required to make
himself reasonably available to us for consultation for at least 20 hours per
calendar month. His base annual salary is $25,000, subject to annual review by
the Board of Directors. The Company will provide him with an automobile
allowance of up to $12,000 per year for his actual cost of leasing and operating
an automobile.
Subject to the fiduciary duties of its directors, the Company will use
its best efforts to have Mr. Baker elected as a member of its Board of Directors
so long as the former stockholders of Crystal Rock hold in the aggregate at
least 40% of the outstanding shares of Vermont Pure Holdings, Ltd.
Henry E. Baker's employment agreement is substantially the same as
Peter K. Baker's with respect to confidentiality and non-competition. His
agreement regarding severance following termination is substantially the same as
for Peter Baker in case of termination of employment without cause, termination
for good reason, and termination following a change of
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control. In cases requiring severance payments, the Company will pay Mr. Baker
monthly severance benefits for the remaining term of his agreement, but not more
than 24 months in case of a change of control, at an annual rate equal to his
base annual salary, without any added amount, plus fringe benefits as defined in
the agreement.
John B. Baker
John B. Baker has a five year agreement with the Company that provides
that he will have the title of Executive Vice President. His base salary is
$250,000, subject to annual review by the Board of Directors, and he will be
eligible to receive a bonus of from $25,000 to $75,000 depending on the
Company's ability to achieve stated levels of EBITDA. Mr. Baker will also be
entitled to a guaranteed bonus equal to the excess of $50,000 over the actual
cost to him, which the Company will reimburse, of buying disability insurance,
if he elects to obtain it, and leasing and operating an automobile.
After 18 months, Mr. Baker may elect to reduce his duties and
compensation by giving the Company written notice. In that case, he must make
himself reasonably available to it for consultation for at least 20 hours per
calendar month. While he is employed full time, his base salary and bonus
arrangements are the same as for Peter K. Baker. If he chooses reduced
employment, his base salary will be reduced to $160,000, subject to annual
review by the Board of Directors. He would no longer be eligible for a bonus
based on the Company's EBITDA targets. His guaranteed bonus would be equal to
the excess of $15,000 over the reimbursed insurance and automobile allowance
described above. With respect to confidentiality and non-competition, John B.
Baker's employment agreement is substantially the same as Peter K. Baker's.
Bruce S. MacDonald
The Company's agreement with Mr. MacDonald has a term of five years and
provides that he will have the title of Vice President of Finance, Chief
Financial Officer and Treasurer of the Company. His base salary is $105,000,
subject to annual review by the Board of Directors, and he will be eligible to
receive a bonus of from $25,000 to $75,000 depending on the Company's ability to
achieve stated levels of target EBITDA.
The Company will reimburse Mr. MacDonald for up to $15,000 for buying
disability insurance that it does do not offer as an employee benefit, if he
elects to obtain it, and leasing and operating an automobile. The agreement with
Mr. MacDonald also contains confidentiality provisions and a non-competition
clause substantially the same as for Mr. Fallon and Mssrs. Baker.
Also, in accordance with the agreement, Mr. MacDonald received 100,000
options on October 5, 2000 to purchase the Company's common stock at $3.25 per
share, the market price on that date. The options vest in equal increments over
five years and have a term of ten years.
If the Company terminates Mr. MacDonald's employment before the
agreement expires and without "cause," as defined in the agreement, it will be
required to pay him monthly
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severance benefits for the remaining term of his agreement or 24 months,
whichever is less, at an annual rate equal to his base annual salary plus
$50,000, together with fringe benefits as defined in the agreement, subject to
various limits. Mr. MacDonald's contract contains no provisions entitling him to
resign and be compensated for "good reason." If there is a "change of control,"
as defined in the agreement, of the Company, followed within 30 days by the
termination of Mr. MacDonald's employment for any reason, then it would be
required to pay him monthly severance benefits as if there had been a
termination without cause, together with fringe benefits as described in the
agreement.
COMPENSATION OF DIRECTORS
Directors who are employees of or consultants of the Company do not
receive any fees for attending Board meetings. Directors who are not employees
or consultants of the Company receive $750 for each meeting of the Board
attended and $7,500 each year, subject to reduction by (i) 50% if the director
misses two meetings, and (ii) 100% if the director misses more than two
meetings. Directors serving on a Committee receive $400 for each Committee
meeting attended. In addition, the Board voted in October 2000 to automatically
issue 5,000 Common Stock options to each outside director at the beginning of
each fiscal year through 2002. These options will be issued under the 1998 Stock
Option Plan.
COMMITTEE REPORTS AND RELATED MATTERS
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Board is composed of two directors,
Messrs. Getchell and Preston. The Compensation Committee also administers the
Company's stock option plans and employee stock purchase plan. This Committee is
charged with the responsibility of reviewing and approving executive officers'
compensation and approving all discretionary grants of stock options under the
Company's stock option plan. The following describes the compensation programs
in effect during fiscal 2000.
Compensation Policy
The Company's compensation policies are designed to pay executives an
annual salary that is industry competitive and an annual bonus that is based
both on the performance of the Company and on individual goals established for
each of the executives for the fiscal year. The Company also has longer term
incentives based on stock options. All three components of compensation are
reviewed annually by the Committee to ensure that salaries remain competitive,
that bonuses reward performance and that stock options provide continued
incentives.
Salaries for executive officers are based on the duties and
responsibilities of the position held by the executive compared with executive
officers of other companies in the industry. Salaries are reviewed and
established within the parameters set forth in employment agreements. Various
industry salary surveys are reviewed and provided to the Committee to review in
establishing compensation.
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The officer's performance over the prior year is assessed by comparing
it to objectives and goals that are established by the Board, the Committee and
management in a strategic planning process. Payment of bonuses is currently
determined by reference to specific performance related formulas in the
employment agreements. The Committee approves all such determinations.
The Company periodically grants stock options to some or all of its
executives and key employees as a means of creating a long-term incentive and
benefit. Such stock options are generally granted at the fair market value of
shares of Common Stock on the date of grant. Thus, no benefit will accrue to the
executive or key employee from the stock option grant until the Common Stock
appreciates. This creates a long-term goal for appreciation of the Common Stock
which coincides with the interests of the stockholders.
In connection with the Company's business combination with Crystal Rock
Spring Water Company, the Compensation Committee negotiated, and the Board of
Directors approved, five-year employment agreements effective October 5, 2000
with the chief executive officer, Timothy G. Fallon, and with four other
executive officers or directors, Peter K. Baker, Henry E. Baker, John B. Baker,
and Bruce S. MacDonald. See "Employment Contracts and Change-in-Control
Arrangements" for additional information. These agreements provide for (a) the
payment of salary, (b) the payment of bonuses based principally upon the
achievement of stated goals relating to sales and/or EBITDA, and, (c) in the
case of Messrs. Fallon and MacDonald, the grant of stock options in connection
with the business combination. The Compensation Committee concluded that these
agreements reasonably reflected both prevailing market conditions for executive
compensation and the stated purpose of the Company's compensation policies. The
agreements also provide a measure of stability and predictability with respect
to the compensation of senior management through 2005.
Chief Executive Officer Compensation
As discussed elsewhere in this Proxy Statement, the Company's
employment agreement with Mr. Fallon provides for bonuses based upon, among
other things, the achievement of sales and EBITDA goals approved by the Board,
as well as the achievement of a stated market price per share of the Company's
Common Stock for an extended trading period. The bonus earned by Mr. Fallon in
fiscal 2000 was determined and calculated with reference to those goals. As
required by Mr. Fallon's employment agreement, in connection with the business
combination with Crystal Rock, on October 5, 2000 the Company granted Mr. Fallon
a stock option for 500,000 shares of its Common Stock at an exercise price per
share of $3.25.
COMPENSATION COMMITTEE
Robert C. Getchell
David R. Preston
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal year 2000, Frank G. McDougall, Jr., Robert C. Getchell
and David R. Preston served on the Compensation Committee. Mr. McDougall
resigned on October 5, 2000 and was not replaced. Except for Mr. McDougall, who
acts as a consultant to the Company in
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the areas of management and government relations and regulation, persons serving
on the Compensation Committee had no relationships with the Company other than
their relationship to the Company as directors entitled to the receipt of
standard compensation as directors and members of certain committees of the
Board and their relationship to the Company as stockholders. No person serving
on the Compensation Committee or on the Board of Directors is an executive
officer of another entity for which an executive officer of the Company serves
on the board of directors or on that entity's compensation committee.
AUDIT COMMITTEE REPORT
The information set forth in this report is not "soliciting material"
and is not "filed" with the SEC or subject to Regulation 14A under, or the
liabilities of Section 18 of, the Securities Exchange Act of 1934, except to the
extent the Company specifically requests that the information be treated as
soliciting material or specifically incorporates it by reference into a document
filed under the Securities Act of 1933 or the Securities Exchange Act of 1934.
Membership and Role of the Audit Committee
The Audit Committee of the Board is composed of three members, Messrs.
Getchell, Preston and Rickard. Each of the members of the Audit Committee is
"independent" as defined under Section 121(A) of the American Stock Exchange
listing standards. The Audit Committee operates under a written charter adopted
by the Board of Directors which is included in this Proxy Statement as Appendix
A.
The primary function of the Audit Committee is to provide advice with
respect to the Company's financial matters and to assist the Board of Directors
in fulfilling its oversight responsibilities regarding finance, accounting, tax
and legal compliance. The Audit Committee's primary duties and responsibilities
are to: (1) serve as an independent and objective party to monitor the Company's
financial reporting process and internal control system; (2) review and appraise
the audit efforts of the Company's independent accountants; (3) evaluate the
Company's quarterly financial performance as well as its compliance with laws
and regulations; (4) oversee management's establishment and enforcement of
financial policies and business practices; and (5) provide an open avenue of
communication among the independent accountants, financial and senior
management, counsel and the Board of Directors.
Review of the Company's Audited Financial Statements for the Fiscal Year ended
October 31, 2000
The Audit Committee has reviewed and discussed the audited financial
statements of the Company for the fiscal year ended October 31, 2000 with the
Company's management. The Audit Committee has discussed with Feldman Sherb &
Co., P.C., the Company's independent public accountants, the matters required to
be discussed by SAS 61 (Codification of Statements on Auditing Standards, AU
Section 380).
The Audit Committee has also received the written disclosures and the
letter from Feldman Sherb & Co., P.C. required by Independence Standards Board
Standard No. 1 (Independence Discussion with Audit Committees), and the Audit
Committee has discussed the
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independence of Feldman Sherb with that firm. In evaluating the independence of
Feldman Sherb, the Audit Committee considered the non-audit services provided by
Feldman Sherb as described under "Independent Accountants" below, and concluded
that the provision of those services is compatible with Feldman Sherb's
independence.
Based on the Audit Committee's review and discussions noted above, the
Audit Committee recommended to the Board of Directors that the Company's audited
financial statements be included in the Company's Annual Report on Form 10-K for
the fiscal year ended October 31, 2000 for filing with the SEC.
AUDIT COMMITTEE
Robert C. Getchell
David R. Preston
Norman E. Rickard
PERFORMANCE GRAPH
The following Performance Graph compares the performance of the
Company's cumulative stockholder return with that of a two broad market indices
and a published industry index (the SIC Code Index for Grocery Related Products)
for each of the most recent five fiscal years. In May 1999, the Company changed
its listing from the Nasdaq SmallCap market to the American Stock Exchange. The
Company has historically presented the Nasdaq market index as a broad market
index on the graph. Given the change in listing, the AMEX market index is more
appropriate, and the Company plans to present this index in the future. SEC
regulations require that during such a transition, both market indices be shown.
The cumulative stockholder return for shares of Common Stock and each of the
indices is calculated assuming that $100 was invested on October 31, 1995. The
Company paid no cash dividends during the periods shown. The performance of the
indices is shown on a total return (dividends reinvested) basis. The graph lines
merely connect year-end dates and do not reflect fluctuations between those
dates.
-------------------FISCAL YEAR ENDING-------------------------------------------
10/31/1995 10/31/1996 10/31/1997 10/30/1998 10/29/1999 10/31/2000
Vermont Pure Holdings new 100.00 128.57 235.71 178.57 160.71 171.43
Groceries, Related Prods, NEC 100.00 92.13 126.48 62.93 81.03 57.46
NASDAQ Market Index 100.00 117.43 153.90 174.02 287.23 337.82
AMEX Market Index 100.00 108.13 130.31 122.01 139.17 153.02
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
This table and its accompanying footnotes set forth certain information
as of February 16, 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 and director-nominee of the Company, (iii) the Company's executive
officers individually, and (iv) all directors and executive officers of the
Company as a group (based upon information furnished by such persons). 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.
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AMOUNT AND NATURE OF PERCENTAGE OF
BENEFICIAL OUTSTANDING SHARES
OWNER'S NAME AND ADDRESS OWNERSHIP OWNED
- --------------------------------------------- -------------------- ------------------
Timothy G. Fallon 622,000(1) 2.7%
Henry E. Baker 1,065,219 4.6%
Peter K. Baker 2,871,289 12.3%
Phillip Davidowitz 48,200(2) .2%
Robert C. Getchell 77,000(3) .3%
Carol R. Lintz -- --
David R. Preston 78,000(4) .3%
Ross S. Rapaport, individually and as trustee 3,069,767(5) 13.2%
Norman E. Rickard 74,000(3) .3%
Beat Schlagenhauf 76,049(3) .3%
John B. Baker 2,871,289 12.3%
Bruce S. MacDonald 101,000(6) .4%
All Officers and Directors 10,953,813(7) 47.0%
as a group (12 individuals)
- --------------------------
(1) Includes 620,000 shares of Common Stock issuable pursuant to outstanding
stock options exercisable within 60 days of the date of this table.
(2) Includes 43,200 shares of Common Stock issuable pursuant to outstanding
stock options exercisable within 60 days of the date of this table.
(3) Includes 72,000 shares of Common Stock issuable pursuant to outstanding
stock options exercisable within 60 days of the date of this table.
(4) Includes 76,000 shares of Common Stock issuable pursuant to outstanding
stock options exercisable within 60 days of the date of this table.
-16-
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(5) Includes 3,041,372 shares as trustee for U/T/A dated 12/16/91 F/B/O Joan
Baker et. al.; 11,923 shares each as trustee for Peter K. Baker and John
B. Baker Life Insurance Trusts; and 4,549 individually owned by Mr.
Rapaport
(6) Represents shares of Common Stock issuable pursuant to outstanding stock
options exercisable within 60 days of the date of this table.
(7) Includes 1,056,200 shares of Common Stock issuable pursuant to
outstanding stock options exercisable within 60 days of the date of this
table.
CERTAIN TRANSACTIONS
Business Combination with Crystal Rock
On October 5, 2000, the Company acquired all of the capital stock of
Crystal Rock in a transaction in which the stockholders of Crystal Rock
contributed their stock to the Company. Simultaneously, the Company's wholly
owned subsidiary merged with the Company's publicly held predecessor, then known
as Vermont Pure Holdings, Ltd. (now Platinum Acquisition Corp.), in a
transaction in which the stockholders of Vermont Pure Holdings, Ltd. received
shares of common stock of the Company on a one-for-one basis.
In exchange for their stock, the stockholders of Crystal Rock (members
of the Baker family and related family trusts) received cash in the amount of
$10,241,063 million, the Company's 12% subordinated promissory notes due 2007 in
the original principal amount of $22,600,000 million ("Subordinated Notes") and
9,873,015 shares of the Company's Common Stock valued at $3.15 per share. The
allocation of notes, stock, and cash was as follows:
SUBORDINATED SHARE
RELATED PARTY NOTES VALUE SHARES CASH
- -------------------------------- ----------- ----------- ----------- -----------
Henry E. Baker $ 3,488,889 $ 3,355,441 1,065,219 $ 5,699,622
John B. Baker $ 5,200,000 $ 9,044,561 2,871,289 $ 1,754,606
Peter K. Baker $ 5,200,000 $ 9,044,561 2,871,289 $ 1,754,606
Joan A. Baker $ 3,511,111 $ -0- -0- $ 56,778
Ross S. Rapaport, Trustee
U/T/A dated 12/16/91 F/B/O
Joan Baker et al $ 5,200,000 $ 9,580,323 3,041,372 $ 975,451
Peter K. Baker Life Insurance
Trust, Ross S. Rapaport,
Trustee $ -0- $ 37,557 11,923
John B. Baker Life Insurance
Trust, Ross S. Rapaport,
Trustee $ -0- $ 37,557 11,923
----------- ----------- ----------- -----------
Totals $22,600,000 $31,100,000 9,873,015 $10,241,063
=========== =========== =========== ===========
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Henry Baker and Peter Baker, his son, are directors and officers of the
Company. John Baker, who is also Henry Baker's son, is the Executive Vice
President of the Company. Joan Baker is the wife of Henry and the mother of
Peter and John. Ross Rapaport is a director and President and a stockholder of a
law firm to which the Company incurred approximately $10,000 in legal fees
during fiscal year 2000.
Subordinated Notes
The Subordinated Notes bear interest at 12%, compounded quarterly, with
payments due the 20th of February, May, August and November. In Years 1 through
3, the Company is required to pay interest only, amounting to an aggregate of
$678,000 per quarter. Aggregate principal repayments are as follows: Year 4 --
$2,000,000; Year 5 -- $3,000,000; Year 6 -- $4,000,000; Year 7 -- $7,000,000
with a balloon payment of $6,600,000 at maturity. The Notes become due and
payable in case of the Company's liquidation, dissolution, insolvency, sale of
the business, or acceleration of senior debt. Prepayment penalties are as
follows: Year 1 -- 3% of the amount repaid; Year 2 -- 2%; Year 3 -- 1%; and none
thereafter.
The Subordinated Notes are secured by all of the Company's assets, but
the Notes and security interest are junior and subordinated to the senior debt
owed to and the security interest in favor of Webster Bank and its successors.
Under the related subordination agreement, the Company may pay, and the holders
of the Subordinated Notes may accept, quarterly interest payments so long as
there is no default on the senior debt and payment would not cause a default.
The holders of the Subordinated Notes can accrue unpaid interest, and the
Company may pay those amounts, if such payments would not result in a default on
the senior debt. The holders of the Notes have pledged a continuing security
interest in the Subordinated Note documents to Webster Bank. The Company may pay
principal on the Notes if it is in compliance with all financial covenants on
the senior debt and payment would not result in a breach of any such covenant.
Related Party Leases
The Company leases a 72,000 square foot facility in Watertown,
Connecticut from a Baker family trust and a 22,000 square foot facility in
Stamford, Connecticut from Henry E. Baker. Annual rent payments for the ten year
leases are as follows:
First 5 Yrs. Next 5 Yrs.
------------ -----------
Watertown $360,000 $414,000
Stamford $216,000 $248,400
In connection with the Company's business combination with Crystal
Rock, Crystal Rock sold to Henry E. Baker, as Trustee of the Baker
Grandchildren's Trust, real estate in Watertown, Connecticut containing a water
purification and bottling plant, warehouse space, a truck garage and office
space. The consideration for this sale was the assumption by that Trust of the
mortgage indebtedness on the real estate, which was approximately $3.7 million
as of June 15, 2000. The Company leases this property on a "triple net" basis,
for a ten year term, with an option to extend the lease for a negotiated rent
for an additional five years. The lease payments
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are substantially the same in amount as the payments of debt service that
Crystal Rock had been making on the mortgage loan for the property. The Company
believes that the rent it pays for this facility is at least as favorable as it
could have obtained in an arm's-length transaction.
The Company leases the Stamford property, which includes warehouse
space, a truck garage, and office space, from Henry E. Baker. The Company has an
option to extend this ten year "triple net" lease for a negotiated rent for an
additional five years. Either party may terminate the lease prior to expiration
upon nine months' notice to the other, but if the Company terminates, it must
pay a termination fee equal to six months' rent. The rent paid for this property
by Crystal Rock at the time of its business combination with the Company was
$216,000 annually. The Company believes that the rent it pays for this facility
is at least as favorable as it could have obtained in an arm's-length
transaction.
Related Party Supplier
The Company owns approximately 19% of the common equity of a software
company named Computer Design Systems, Inc. d/b/a Voyageur Software ("CDS").
Peter K. Baker, a director of the Company, is a member of the board of directors
of CDS. The Company uses software designed, sold and serviced by CDS in its home
and office delivery system to manage customer service, deliveries, inventory,
billing and accounts receivable. The Company paid service fees to CDS during
October 2000 totaling $2,031. As of October 31, 2000, the Company holds a note
from CDS entered into August 1, 1998 for the principal amount of $120,000 with
accrued interest of $22,950. The note is scheduled to mature August 15, 2003.
The Company is under contract through September 2001 to pay a monthly
maintenance fee of $4,552. Peter K. Baker is not paid for his services as a
director of CDS.
INDEPENDENT ACCOUNTANTS
The Company will select Feldman Sherb & Co., P.C. (formerly Feldman
Sherb Ehrlich & Co., P.C.) of New York City as its independent accountants for
the fiscal year ending October 31, 2001. A representative of Feldman Sherb is
expected to be present at the meeting with an opportunity to make a statement if
he desires to do so and is expected to be able to respond to appropriate
questions.
Audit Fees
The aggregate fees and related expenses billed by Feldman Sherb for
professional services rendered for the audit of the Company's financial
statements for the fiscal year ended October 31, 2000 and audit of the financial
statements for the Company's retirement plan for the plan year December 31, 1999
and the reviews of the financial statements included in the Company's Forms 10-Q
for that fiscal year were $51,600.
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Financial Information Systems Design and Implementation Fees
Feldman Sherb rendered no services for financial information systems
design and implementation, as described in Rule 2-01(c)(4)(ii) of the SEC's
Regulation S-X, and accordingly billed no fees for such services.
All Other Fees
The aggregate fees billed by Feldman Sherb for other professional
services rendered to the Company for the fiscal year ended October 31, 2000 year
were $67,075. These fees were for Feldman Sherb's services to the Company in the
preparation of federal, state and local tax returns ($10,225) and accounting
services rendered in connection with the Company's business combination with
Crystal Rock ($56,850).
SOLICITATION OF PROXIES
The solicitation of proxies in the enclosed form is made on behalf of
the Company and the cost of this solicitation is being paid by the Company. In
addition to the use of the mails, proxies may be solicited personally or by
telephone or telegraph using the services of directors, officers and regular
employees of the Company at nominal cost. Banks, brokerage firms and other
custodians, nominees and fiduciaries will be reimbursed by the Company for
expenses incurred in sending proxy material to beneficial owners of the
Company's stock.
STOCKHOLDER PROPOSALS FOR THE NEXT ANNUAL MEETING
In order to be eligible for inclusion in the Company's proxy statement
and form of proxy for the annual meeting scheduled to be held in 2002,
stockholder proposals must comply with SEC Rule 14a-8 and any other applicable
rules and must be delivered to the Company's principal executive offices at
least 120 days prior to the anniversary date of mailing of this Proxy Statement.
This Proxy Statement was sent on or about March 2, 2001, so the date by which
proposals are required to be received under Rule 14a-8 will be November 1, 2001.
In addition, Section 3.7 of the Company's by-laws requires that a
stockholder who wishes to bring an item of business before the annual meeting
must provide notice of such item of business to the Company at its principal
executive offices not less than 90 days before the date for such meeting. The
Company currently anticipates that next year's annual meeting will take place at
approximately the same time of the year, or on or about March 27, 2002. In that
case, the deadline for submission of notice will be December 27, 2001. Section
4.5 of the by-laws imposes the same deadline on the nomination by a stockholder
of a candidate for election to the Board of Directors. For a meeting scheduled
March 27, 2002, any proposal or nomination submitted after December 27, 2001
will be untimely. The by-laws contain a number of other substantive and
procedural requirements which should be reviewed by any interested stockholder.
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OTHER BUSINESS
Action may be taken on the business to be transacted at the meeting on
the date provided in the Notice of the Annual Meeting or any date or dates to
which an original or later adjournment of such meeting may be adjourned. As of
the date of this Proxy Statement, the management does not know of any other
matters to be presented at the meeting. If, however, other matters properly come
before the meeting, whether on the original date provided in the Notice of
Annual Meeting or any dates to which any original or later adjournment of such
meeting may be adjourned, it is intended that the holders of the proxy have
discretion to vote in accordance with their best judgment.
AVAILABILITY OF FORM 10-K
The Company is providing without charge to each person solicited by
this Proxy Statement a copy of its Annual Report on Form 10-K for the Fiscal
Year ended October 31, 2000, including the financial statements contained
therein but excluding the exhibits. The Form 10-K includes a list of the
exhibits that were filed with it, and the Company will furnish a copy of any
such exhibit to any person who requests it upon the payment of the Company's
reasonable expenses in providing the requested exhibit. For further information,
contact Bruce S. MacDonald, Chief Financial Officer, Vermont Pure Holdings,
Ltd., Route 66, Catamount Industrial Park, Randolph, Vermont 05060, telephone
802-728-3600. The Company's Annual Report on Form 10-K and other filings of the
Company with the SEC, including the exhibits, are also available for free on the
SEC's Internet site (http://www.sec.gov).
By Order of Board of Directors
Bruce S. MacDonald
Secretary
Randolph, Vermont
February 26, 2001
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Appendix A
VERMONT PURE HOLDINGS, LTD.
Audit Committee Charter
The audit committee is a committee of the board of directors. Its primary
function is to assist the board in fulfilling its oversight responsibilities by
reviewing the financial information which will be provided to the shareholders
and others, the systems of internal controls which management and the board of
directors have established, and the audit process.
In meeting its responsibilities, the audit committee is expected to:
1) Provide an open avenue of communication between the internal auditors,
the independent accountant, and the board of directors.
2) Review and update the committee's charter annually.
3) Recommend to the board of directors the independent accountants to be
nominated, approve the compensation of the independent accountant, and
review and approve the discharge of the independent accountants.
4) Confirm and assure the independence of the CFO, the controller, and the
independent accountant, including a review of management consulting
services and related fees provided by the independent accountant.
5) Inquire of management, the CFO, the controller, and the independent
accountant about significant risks or exposures and assess the steps
management has taken to minimize suck risk to the company.
6) Consider in consultation with the independent accountant and the director
of internal auditing or such other individual as the audit committee may
designate the audit scope and plan of the CFO, the controller, and the
independent accountant.
7) Consider with management and the independent accountant the rationale for
employing audit firms other than the principal independent accountant.
8) Review with the CFO, the controller, and the independent accountant the
coordination of audit effort to assure completeness of coverage,
reduction of redundant efforts, and the effective use of audit resources.
9) Consider and review with the independent accountant and the director of
internal auditing or such other individual as the audit committee may
designate.
a) The adequacy of the company's internal controls including
computerized information system controls and security.
b) Any related significant findings and recommendations of the
independent accountant and internal auditing together with
management's responses thereto.
10) Review with management and the independent accountant at the completion
of the annual examination:
a) The company's annual financial statements and related footnotes.
b) The independent accountant's audit of the financial statements and
his or her report thereon.
c) Any significant changes required in the independent accountant's
audit plan.
d) Any serious difficulties or disputes with management encountered
during the course of the audit.
A-1
25
e) Other matters related to the conduct of the audit, which are to be
communicated to the committee under generally accepted auditing
standards.
11) Consider and review with management, the CFO, and the controller:
a) Significant findings during the year and management's responses
thereto.
b) Any difficulties encountered In the course of their audits,
including any restrictions on the scope of their work or access to
required information.
c) Any changes required in the planned scope of their audit plan.
12) Review filings with the SEC and other published documents containing the
company's financial statements and consider whether the information
contained in these documents is consistent with the information contained
in the financial statements.
13) Review with management, the independent accountant, the CFO, and the
controller the interim financial report before it is filed with SEC or
other regulators.
14) Review policies and procedures with respect to officer's expense accounts
and perquisites, including there use of corporate assets, and consider
the results of any review of these areas by the CFO, the controller or
the independent accountant.
15) Review with the CFO, the controller and the independent accountant the
results of their review of the company's monitoring compliance with the
company's code of conduct.
16) Review legal and regulatory matters that may have a material impact in
the financial statements, related company compliance policies and
programs and reports received from regulators.
17) Meet with the CFO, the controller, and the independent accountant, and
management in separate executive sessions to discuss any matters that the
committee or these believe should be discussed privately with the audit
committee.
18) Report committee actions top the board of directors with such
recommendations, as the committee may deem appropriate.
19) Prepare a letter for inclusion in the annual report that describes the
committee's composition and responsibilities, and how they were
discharged.
20) The audit committee shall have the power to conduct or authorize
investigations into any matters within the committee's scope of
responsibilities. The committee shall be empowered to retain independent
counsel, accountants, or others to assist it in the conduct of any
investigation.
21) The committee shall meet at least four times per year or more frequently
as circumstances require. The committee may ask members of management or
others to attend the meeting and provide pertinent information as
necessary.
22) The committee will perform such other functions as assigned by law, the
company's charter or bylaws, or the board of directors.
The membership of the audit committee shall consist of at least three
independent members of the board of directors who shall serve at the pleasure of
the board of directors.
The duties and responsibilities of a member of the audit committee are in
addition to those duties set out for a member of the board of directors.
* * * * *
A-2
26
Since 1914
crystal rock(R)
BOTTLED WATER
[CRYSTAL ROCK LOGO]
VERMONT PURE HOLDINGS, LTD.
- --------------------------------------------------------------------------------
[VERMONT PURE NATURAL SPRING WATER LOGO] Post Office Box C
Randolph, Vermont 05060
802-728-3600
AMEX: VPS
February 28, 2001
Dear Shareholders:
Based upon the operating results for the Company, fiscal year 2000 can be
characterized as "three steps forward and two steps back." Record sales revenue
of $35,125,000 represented a 12% increase versus the prior year. However, a net
loss of $2,383,000 ($583,000 from continuing operations and $1,800,000 due to
one-time charges) interrupted three consecutive years of profitable growth. The
loss can be attributed to a variety of factors that converged upon the Company
in fiscal 2000:
1. A 9% decline in Retail PET sales due to a rainy, cool selling season
and the slow rebuild in Vermont Pure retail availability after the
distribution change from Coca-Cola(R) Enterprises that occurred in
mid-year 1999.
2. Lower selling prices and rising costs for raw materials, energy and
freight impacted margins significantly.
3. Increased operating expenses due to temporary warehousing and freight
inefficiencies generated during the construction of a 42,000 square
foot addition to the Company's main production facility in Vermont.
4. One-time charges of more than $1,800,000 (included in the $2,383,000
loss) largely related to the merger with Crystal Rock Spring Water
Company, to write off obsolescence in computer systems, buildings,
personnel redundancy and loan origination fees.
Additionally, our business combination with Crystal Rock Spring Water Company
and the related delays at the SEC resulted in closing four months later than
anticipated. This process took a great deal of management's time and focus away
from day-to-day operations.
Although it was a challenging year, the Company made significant progress in
2000, positioning Vermont Pure as the largest independent bottled water company
in the United States. The combination with Crystal Rock completed our strategy
to reduce reliance on the seasonal and highly-competitive Retail PET market
while expanding the Home and Office part of our business. Going forward, Home
and Office deliveries are expected to generate 75% of Vermont Pure's revenue and
80% of total gross profits. Vermont Pure's employees now service more than
80,000 commercial and residential accounts in the Northeastern United States.
With the Crystal Rock transaction, the Company has established itself as the
fourth largest Home and Office provider in the United States. Our distribution
footprint in this area provides a solid operating base on which to continue
building route density through internal growth. We anticipate accelerating this
growth through external acquisitions.
27
Investment in infrastructure will continue to fuel our planned growth in both
the Retail PET and Home and Office bottled water segments. The warehouse
expansion in Randolph, Vermont added valuable storage space, thus reducing our
dependence on costly outside warehousing. Production efficiencies were enhanced
with the closing of our small, outdated original 5-gallon production center, and
subsequent installation of a high-speed automated filling line in the expanded
Randolph facility. The integration of route sales and customer service
automation will further streamline our operations. Category growth in the Home
and Office segment is forecasted to be in the 8% per year range and should
provide a solid base in cash flow and operating income for the Company.
The Retail PET segment continues to be attractive, with a growth trend of 20-25%
per year projected for the next several years. To help fuel this growth, the new
Vermont Pure distributors, now in their second year, have become accustomed to
selling the brand. The Company is well positioned, with solid core brand
recognition on the Vermont Pure and Hidden Spring trademarks. Co-packing
retailer branded products helps defray production overheads and provides
additional volume for purchasing power in raw materials. The Company continues
to upgrade and expand equipment for the PET line and is installing
state-of-the-art shrink bundling packaging equipment during the first quarter of
fiscal 2001.
One of the most important elements in generating future growth is "human
capital." The combination of Crystal Rock and Vermont Pure brought together two
similar cultures and operating philosophies under one roof, creating one of the
most experienced and dedicated management teams in the bottled water industry.
The Company has achieved a depth of management to pursue both its internal and
acquisition growth plans. The integration of route operations by President Peter
Baker, and the upgrade of the manufacturing facilities by Executive Vice
President Jack Baker, have strengthened the Company's commitment to quality and
superior customer service. In addition, Henry Baker's over 50 years of bottled
water experience provides invaluable insight and expertise.
Fiscal year 2000 was clearly a transitional year. We accomplished a great deal
in the face of adversity while managing a variety of challenges...positioning
the company as a significant player in a great industry. A strong foundation was
laid, and the bricks and mortar of a new company has emerged. This, coupled with
the continuing dedication of our employees, will enable us to capitalize on the
dynamic opportunities in the bottled water industry in 2001 and beyond. On
behalf of the Board of Directors, employees, and customers, we thank you for
your continued support.
Sincerely yours,
VERMONT PURE HOLDINGS, LTD.
/s/ Timothy G. Fallon
Timothy G. Fallon
Chairman and Chief Executive Officer
28
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WHEN PROXY IS OKAYED PLEASE SIGN
& DATE IT ABOVE
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VERMONT PURE HOLDINGS, LTD. - PROXY
SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING TO BE HELD ON MARCH 27, 2001
The undersigned Stockholder(s) of VERMONT PURE HOLDINGS, LTD., a Delaware
corporation ("Company"), hereby appoints Timothy G. Fallon and Peter K. Baker,
or either of them, with full power of substitution and to act without the
other, as the agents, attorneys and proxies of the undersigned, to vote the
shares of stock held by the undersigned or which the undersigned may be
entitled to vote at the Annual Meeting of Stockholders of the Company to be
held on March 27, 2001 and at all adjournments thereof. This proxy will be
voted in accordance with the instructions given on the reverse and in the
discretion of the proxies upon all other matters that may properly come before
the Meeting. IF NO INSTRUCTIONS ARE GIVEN, THIS PROXY WILL BE VOTED FOR ALL
THE PROPOSALS ON THE AGENDA.
The undersigned hereby revokes all proxies, if any, hitherto given by him
to others for said Meeting.
(CONTINUED, AND TO BE SIGNED, ON OTHER SIDE.)
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29
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WHEN PROXY IS OKAYED PLEASE SIGN
& DATE IT ABOVE
Please date, sign and mail your
proxy card back as soon as possible!
Annual Meeting of Stockholders
VERMONT PURE HOLDINGS, LTD.
March 27, 2001
Please Detach and Mail in the Envelope Provided
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A [X] Please mark your
vote as in this
example
FOR all nominees WITHHOLD
listed at right except AUTHORITY
as marked to the to vote for all nominees
contrary below listed at right
1. Election of
the following [ ] [ ] NOMINEES:
directors: Timothy Fallon Carol R. Lintz
Henry E. Baker David R. Preston
INSTRUCTIONS: To withhold authority to vote for Peter K. Baker Ross S. Rapaport
any individual nominee, write that nominee's name Phillip Davidowitz Norman E. Richard
in the space below. Robert C. Getchell Beat Schlagenhauf
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2. In their discretion, the proxies are authorized to vote upon
such other business as may come before the meeting or any
adjournment thereof.
I PLAN ON ATTENDING THE ANNUAL MEETING [ ]
Signature Signature if held jointly Dated ,2001
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NOTE: Please sign exactly as name appears above. When shares are held jointly
by joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other
authorized officer. If a partnership, please sign in partnership name by
authorizing person.
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