SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
December 30, 2004
Vermont Pure Holdings, Ltd.
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(Exact Name of Registrant as Specified in its Charter)
Delaware 000-31797 03-0366218
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(State of incorporation) (SEC File No.) (IRS Employer ID No.)
45 Krupp Drive, Williston, Vermont 05495
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(802) 860-1126
n/a
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(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Exchange
Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[ ] Pre commencement communications pursuant to Rule 14d-2(b) under the Exchange
Act (17 CFR 240.14d-2(b))
[ ] Pre commencement communications pursuant to Rule 13e-4(c) under the Exchange
Act (17 CFR 240.13e-4(c))
ITEM 1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT
Executive Employment Agreements
On January 1, 2005 the Company finalized new employment agreements with three of
its officers, Timothy G. Fallon, Peter K. Baker, and John B. Baker. The
agreements are effective January 1, 2005 and run through December 31, 2007.
These agreements replace current agreements would have expired in 2005.
The agreements provide for annual salaries of $250,000 for Mr. Fallon and
$200,000 each for Peter and John Baker. In addition, the Bakers each will
receive guaranteed annual bonuses of $50,000 following each fiscal each fiscal
year. Mr. Fallon has the opportunity to earn up to $232,000 in bonus
compensation on an annual basis for achievement of financial and business
performance criteria defined in the agreement. Peter and John Baker have the
opportunity to earn up to $116,000 in bonus compensation on an annual basis for
achievement of financial and business performance criteria defined in the
agreement.
Other compensation under the agreements with the executives include the use of a
company a vehicle and reimbursement for disability and other insurance during
the term of the agreement. As of the effective date, Mr. Fallon will be issued
75,000 restricted shares of Company's common stock. The shares vest over the
term of the agreement based on financial performance criteria outlined in the
agreement.
Mr. Fallon has been our Chief Executive Officer and a director since November,
1994. From April 1998 to April 2004, he served as chairman of the Board of
Directors. He serves on the Executive Committee of the Board.
Peter Baker has been our President since October, 2000. He was employed at
Crystal Rock from 1977 to 2000, and was Co-President of Crystal Rock from 1993
to 2000.
John Baker has been our Executive Vice President since October 2000. He was
appointed a director in September, 2004. He was employed at Crystal Rock from
1975 to 2000, and was Co-President of Crystal Rock from 1993 to 2000.
In connection with our business combination with Crystal Rock Spring Water
Company in 2000, in addition to other consideration, we issued the stockholders
of Crystal Rock (members of the Baker family and related family trusts)
subordinated promissory notes originally due 2007 in the original principal
amount of $22,600,000. Subsequently, in April 2004, we paid down the aggregate
principal on the notes to $17,600,000. The table shows the holders of the notes,
the principal amount, and the annualized interest payments to each such holder
in fiscal 2003. All amounts paid relating to these subordinated notes in 2003
were interest payments.
Note Holder Principal Amount Annualized Interest
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Henry Baker $3,488,889 $418,667
John Baker $5,200,000 $624,000
Peter Baker $5,200,000 $624,000
Joan Baker $1,511,111 $181,333
Ross Rapaport,
Trustee u/t/a dated
12/16/91 f/b/o
Joan Baker et al. $2,200,000 $264,000
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Total $17,600,000 $2,112,000
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Henry Baker and his sons John and Peter Baker are directors. Henry Baker is
Chairman Emeritus, John Baker is Executive Vice President and Peter Baker is
President of the Company. Joan Baker is the wife of Henry and the mother of
Peter and John.
The Subordinated Notes are due in 2008 with a balloon payment of the full
principal amount of $17,600,000 at maturity. The Subordinated Notes become due
and payable in case of liquidation, dissolution, insolvency, sale of the
business, or acceleration of senior debt.
The Subordinated Notes are secured by all of our assets, but the Subordinated
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, we 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 we may pay those
amounts, if such payments would not result in a default on the senior debt.
As of the date of this report, Peter, John, and the Trust have deferred a total
of $266,000 of interest, which represents the accrued interest due August 20,
2004, until October 31, 2004. The holders of the Subordinated Notes have pledged
a continuing security interest in the Subordinated Note documents to Webster
Bank. We may pay principal on the Subordinated Notes with the approval of
Webster Bank.
We lease 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, both of which leases expire in 2010. Annual rent payments for
the ten year leases are as follows:
First 5 Yrs. Next 5 Yrs.
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Watertown $360,000 $414,000
Stamford $216,000 $248,400
We lease real estate in Watertown, Connecticut containing a water purification
and bottling plant, warehouse space, a truck garage and office space from Henry
Baker, as trustee of the Baker Grandchildren's Trust. We lease this property on
a "triple net" basis, for a ten year term which began in October of 2000, with
an option to extend the lease for a negotiated rent for an additional five
years. The lease payments 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. We believe that the rent we pay for this facility is at least as
favorable as we could have obtained in an arm's-length transaction. During
fiscal year 2003, we paid $360,000 relating to this lease.
We lease the Stamford property, which includes warehouse space, a truck garage,
and office space, from Henry Baker. We entered into this lease in October of
2000 and have 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 we
terminate, we 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 us was $216,000 annually. We believe that the rent we pay for this facility
is at least as favorable as we could have obtained in an arm's-length
transaction. During fiscal year 2003, we paid $216,000
relating to this lease.
Loan and Security Agreement with Webster Bank
On December 30, 2004 we signed a new Loan and Security Agreement with Webster
Bank. The term and the financial terms of the agreement are substantially
unchanged from the agreement with Webster Bank dated March 5, 2003.
The significant change was to modify the entities named in the agreement. We
have merged our wholly owned subsidiaries; Crystal Rock Spring Water Company,
Vermont Pure Springs, Inc., Excelsior Spring Water Company, Adirondack Coffee
Services, and Crystal-Waterville, Inc., into Vermont Pure Holdings, Ltd. In
conjunction with this merger, we created a new wholly owned subsidiary, Crystal
Rock, LLC.
The new agreement with Webster Bank recognizes the merger of the subsidiaries,
whose stock was pledged to the bank, and the creation of the new subsidiary. We
have assigned material operating assets, leases, and other contracts to Crystal
Rock, LLC and pledged the stock to Webster Bank.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VERMONT PURE HOLDINGS, LTD.
/s/ Bruce S. MacDonald
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By: Bruce S. MacDonald
Chief Financial Officer
Date: January 3, 2005