SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended April 30, 2002
Commission File No. 000-31797
VERMONT PURE HOLDINGS, LTD.
(Exact name of registrant as specified in its charter)
Delaware 03-0366218
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Route 66; PO Box C; Randolph, VT 05060
(Address of principal executive offices) (Zip Code)
(802) 728-3600
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (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
--------------- ------------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding at
Class June 11, 2002
----- --------------
Common Stock, $.001 Par Value 21,125,734
VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARIES
INDEX
Page Number
Part I - Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of
April 30, 2002 (unaudited) and October 31, 2001 3
Consolidated Statements of Operations
(unaudited) for the Three Months and Six
Months ended April 30, 2002 and 2001 4
Consolidated Statements of Cash Flows
(unaudited) for the Six Months ended
April 30, 2002 and 2001 5
Notes to Consolidated Financial Statements
(unaudited) 6-11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12-18
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 19-20
Part II - Other Information 21-25
Item 1. Legal Proceedings 21
Item 2. Changes in Securities 21
Item 3. Defaults upon Senior Securities 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 22
Signature 26
VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
April 30, October 31,
2002 2001
------------------- ------------------
(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 195,529 $ 1,099,223
Accounts receivable - net of allowance 9,084,505 7,470,152
Inventories 3,440,211 3,147,985
Current portion of deferred tax asset 2,112,978 2,313,000
Other current assets 1,122,695 2,297,358
------------------- ------------------
TOTAL CURRENT ASSETS 15,955,918 16,327,718
------------------- ------------------
PROPERTY AND EQUIPMENT - net of accumulated depreciation 22,503,061 21,231,954
------------------- ------------------
OTHER ASSETS:
Intangible assets - net of accumulated amortization 71,192,078 66,100,712
Deferred tax asset 2,070,029 2,301,000
Other assets 292,757 255,046
------------------- ------------------
TOTAL OTHER ASSETS 73,554,864 68,656,758
------------------- ------------------
TOTAL ASSETS $ 112,013,843 $ 106,216,430
=================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 3,629,236 $ 4,102,235
Current portion of customer deposits 167,650 155,943
Accrued expenses 3,456,690 3,291,923
Unrealized loss on derivatives 716,269 973,537
Line of credit 1,625,000 -
Current portion of long term debt 4,649,805 3,560,128
------------------- ------------------
TOTAL CURRENT LIABILITIES 14,244,650 12,083,766
Long term debt - net of current portion 48,980,757 47,851,386
Customer deposits 2,626,518 2,443,100
------------------- ------------------
TOTAL LIABILITIES 65,851,925 62,378,252
------------------- ------------------
STOCKHOLDERS' EQUITY:
Preferred stock - $.001 par value, 500,000 authorized shares, none
issued and outstanding Common stock - $.001 par value, 50,000,000
authorized shares, 21,118,235 issued and outstanding
shares at April 30, 2002 and 20,767,670 at October 31, 2001 21,118 20,768
Paid in capital 56,688,934 55,562,599
Accumulated deficit (9,831,865) (10,771,652)
Other comprehensive loss (716,269) (973,537)
------------------- ------------------
TOTAL STOCKHOLDERS' EQUITY 46,161,918 43,838,178
------------------- ------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 112,013,843 $ 106,216,430
=================== ==================
See notes to consolidated financial statememts
3
VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended Six months ended
April 30, April 30,
------------------------------------- ------------------------------------
2002 2001 2002 2001
----------------- ----------------- ---------------- ----------------
(unaudited) (unaudited)
SALES $ 17,530,696 $ 15,063,141 $ 32,222,859 $ 29,025,882
COST OF GOODS SOLD 8,697,656 6,927,765 15,428,271 13,155,030
----------------- ----------------- ---------------- ----------------
GROSS PROFIT 8,833,040 8,135,376 16,794,588 15,870,852
----------------- ----------------- ---------------- ----------------
OPERATING EXPENSES:
Selling, general and administrative 6,156,187 5,847,825 12,223,954 11,262,856
Advertising 371,093 265,008 698,394 587,085
Amortization 58,051 634,868 116,102 1,269,312
----------------- ----------------- ---------------- ----------------
TOTAL OPERATING EXPENSES 6,585,331 6,747,701 13,038,450 13,119,253
----------------- ----------------- ---------------- ----------------
INCOME FROM OPERATIONS 2,247,709 1,387,675 3,756,138 2,751,599
----------------- ----------------- ---------------- ----------------
OTHER INCOME (EXPENSE):
Interest (1,197,437) (1,318,429) (2,382,606) (2,662,036)
Miscellaneous 250 4,716 203,950 8,216
----------------- ----------------- ---------------- ----------------
TOTAL OTHER (1,197,187) (1,313,713) (2,178,656) (2,653,820)
----------------- ----------------- ---------------- ----------------
INCOME BEFORE INCOME TAXES 1,050,522 73,962 1,577,482 97,779
----------------- ----------------- ---------------- ----------------
INCOME TAX EXPENSE (420,775) - (637,696) -
----------------- ----------------- ---------------- ----------------
NET INCOME $ 629,747 $ 73,962 $ 939,786 $ 97,779
----------------- ----------------- ---------------- ----------------
NET INCOME PER SHARE - BASIC $ 0.03 $ 0.00 $ 0.04 $ 0.00
================= ================= ================ ================
NET INCOME PER SHARE - DILUTED $ 0.03 $ 0.00 $ 0.04 $ 0.00
================= ================= ================ ================
Weighted Average Shares Used in Computation
- Basic 21,078,419 20,280,204 21,074,639 20,223,989
================= ================= ================ ================
Weighted Average Shares Used in Computation
- Diluted 22,174,053 20,329,934 22,167,145 20,290,250
================= ================= ================ ================
See notes to consolidated financial statememts
4
VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended
April 30,
-------------------------------
2002 2001
-------------- ---------------
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 939,786 $ 97,779
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation 2,103,936 1,731,841
Amortization 116,102 1,269,312
Gain on disposal of property and equipment (19,475) (8,216)
Non cash compensation 52,400 -
Changes in assets and liabilities (net of effect of acquisitions):
Accounts receivable (1,614,353) (471,759)
Inventory (292,226) (388,699)
Other current assets 1,404,791 (75,853)
Other assets 193,260 60,498
Accounts payable (472,999) (2,206,236)
Customer deposits (248) 170,995
Accrued expenses 164,766 (311,443)
-------------- ---------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 2,575,740 (131,781)
-------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (2,726,068) (1,843,502)
Proceeds from sale of money market investment - 3,301,064
Proceeds from sale of fixed assets 20,000 13,000
Cash used for acquisitions - net of cash acquired (4,987,073) (120,000)
-------------- ---------------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (7,693,141) 1,350,562
-------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit 3,865,706 3,040,000
Proceeds from debt 4,200,000 -
Principal payments of debt (4,221,658) (5,078,518)
Exercise of stock options 272,613 -
Sale of common stock 97,046 -
-------------- ---------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 4,213,707 (2,038,518)
-------------- ---------------
NET DECREASE IN CASH (903,694) (819,737)
CASH AND CASH EQUIVALENTS - Beginning of year 1,099,223 1,408,158
-------------- ---------------
CASH AND CASH EQUIVALENTS - End of period $ 195,529 $ 588,420
============== ===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 2,305,171 $ 2,213,544
============== ===============
Cash paid for taxes $ 719,556 $ 115,452
============== ===============
NON-CASH FINANCING AND INVESTING ACTIVITIES:
Common stock issued in connection with acquisition $ 704,627 $ -
============== ===============
See notes to consolidated financial statememts
5
VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with Form 10-Q instructions and in the opinion
of management contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the financial
position, results of operations, and cash flows for the periods
presented. The results have been determined on the basis of generally
accepted accounting principles and practices applied consistently with
the Annual Report on Form 10-K of Vermont Pure Holdings, Ltd. (the
"Company") for the year ended October 31, 2001.
Certain information and footnote disclosures normally included in
financial statements presented in accordance with generally accepted
accounting principles have been condensed or omitted. The accompanying
consolidated financial statements should be read in conjunction with
the financial statements and notes thereto incorporated by reference
from the Company's Annual Report on Form 10-K for the year ended
October 31, 2001.
2. GOODWILL AND AMORTIZATION
In July 2001, the Financial Accounting Standards Board issued,
Statement of Financial Accounting Standards ("SFAS") No. 141,
"Business Combinations" and SFAS No. 142, "Goodwill and Other
Intangible Assets." SFAS 141 is effective for all business
combinations completed after June 30, 2001. SFAS 142 is effective for
fiscal years beginning after December 15, 2001. Effective November 1,
2001, the Company elected early adoption of SFAS No. 142. SFAS No. 142
eliminates the amortization for goodwill and other intangible assets
with indefinite lives. Intangible assets with lives restricted by
contractual, legal, or other means will continue to be amortized over
their useful lives. Goodwill and other intangible assets not subject
to amortization are tested for impairment annually or more frequently
if events or changes in circumstances indicate that the asset might be
impaired. SFAS No. 142 requires a two-step process for testing
impairment. First, the fair value of each reporting unit is compared
to its carrying value to determine whether an indication of impairment
exists. If impairment is indicated, then the implied fair value of the
reporting unit's goodwill is determined by allocating the unit's fair
value to its assets and liabilities (including any unrecognized
intangible assets) as if the reporting unit had been acquired in a
business combination. The amount of impairment for goodwill and other
intangible assets is measured as the excess of its carrying value over
its implied fair value. The Company hired an independent authority to
conduct the initial test of the carrying value of its goodwill during
the second quarter of fiscal 2002, and it was concluded that there was
no current impairment of goodwill. In subsequent fiscal years, the
Company will conduct an annual assessment of the carrying value of its
goodwill, as required by SFAS No. 142.
6
In accordance with SFAS No. 142, the Company discontinued amortization
of goodwill effective November 1, 2001. The pro forma effects of the
adoption of SFAS No. 142 on net income and basic and diluted earnings
per share are as follows:
Three Months Ended April 30, Six Months Ended April 30,
----------------------------- ------------------------------
2002 2001 2002 2001
-------------- -------------- -------------- ---------------
Net income, as reported $629,747 $ 73,962 $939,786 $ 97,779
Intangible amortization net of $0 tax - 634,758 - 1,269,312
------------- -------------- -------------- ---------------
Net income, pro forma $629,747 $708,720 $939,786 $1,367,295
======== ======== ======== ==========
Basic earnings per share:
Net income per share, as reported $.03 $.00 $.04 $.00
Intangible amortization net of $0 tax - .03 - .07
-------- ------- --------- ----------
Net income per share, pro forma $.03 $.03 $.04 $.07
======== ======== ======== ==========
Diluted earnings per share:
Net income per share, as reported $.03 $.00 $.04 $.00
Intangible amortization net of $0 tax - .03 - .07
======== ======== ======== ==========
Net income per share, pro forma $.03 $.03 $.04 $.07
======== ======== ======== ==========
3. PROMOTIONAL ALLOWANCES
Effective February 1, 2001, the Company adopted the provisions of
Emerging Issues Task Force ("EITF") Issue No. 01-09, "Accounting for
Consideration Given by a Vendor to a Customer or a Reseller of the
Vendor's Products". EITF 01-09 codifies and reconciles EITF Issue No.
00-14, "Accounting for Certain Sales Incentives", Issue 3 of Issue No.
00-22, "Accounting for `Points' and Certain Other Time-Based or
Volume-Based Sales Incentive Offers, and Offers for Free Products or
Services to Be Delivered in the Future" and EITF No. 00-25, "Vendor
Income Statement Characterization of Consideration Paid to a Reseller
of the Vendor's Products".
The effect of the adoption of EITF Issue No. 01-09 is as follows:
Three Months Ended April 30, Six Months Ended April 30,
--------------------------------------- --------------------------------------
2002 2001 2002 2001
---- ---- ---- ----
Gross Sales $18,188,202 $15,546,433 $33,375,367 $29,765,157
Promotion ( 657,506) ( 483,292) ( 1,152,508) ( 739,275)
----------- ----------- ------------- -----------
Net Sales $17,530,696 $15,063,141 $32,222,859 $29,025,882
=========== =========== =========== ===========
7
In addition to reducing sales, the adoption of the EITF also resulted
in reducing selling, administrative and general expenses by
approximately $1,152,508 for the six months ended April 30, 2002 and
$739,275 for the six months ended April 30, 2001. Accordingly, these
reclassifications have no net impact on operating income.
4. OPERATING LEASES
During the six month period ended April 30, 2002, the Company entered
into operating leases, primarily related to vehicles it uses to
operate its business. The total lease payments of these commitments
over the next five years total approximately $500,000.
5. SEGMENTS
During the first quarter of fiscal 2002, the Company started
accounting for its business in two separate segments, "retail" and
"home and office." Reorganization and integration of operations in
fiscal year 2001 has resulted in management's preparation of more
detailed information to evaluate these businesses.
The segments are identifiable based on the types of products and their
distribution channels.
Home and Office - characterized by the sale of five gallon bottles of
water and water coolers delivered by the Company's trucks and
employees, and other products that are sold through this distribution
channel which are ancillary to the primary product, such as office
refreshments.
Retail - characterized by the sale of water in small, portable
containers that are constructed from clear PET plastic. Bottle sizes
range from 8 oz. to 1.5 L. These products are sold to wholesale
beverage distributors, supermarkets and convenience stores.
The Company allocates costs directly when possible and uses various
applicable allocation methods to allocate shared costs such as
insurance. Costs incurred by the holding company have not been
allocated and are accounted for as "Corporate" for the purposes of
reconciling to net income before taxes. There are no inter-segment
revenues for the periods reported.
For the three months ended April 30, 2002 and 2001:
Home & Office Retail Corporate Total
--------------- -------------- ---------------- ----------------
(000's $) 2002 2001 2002 2001 2002 2001 2002 2001
---- ---- ---- ---- ---- ---- ---- ----
Sales 11,927 11,317 5,604 3,746 17,531 15,063
Cost of Goods Sold 4,515 4,442 4,183 2,486 8,698 6,928
---------- ---------- --------- --------- ----------- ----------- ----------- -----------
Gross Profit 7,412 6,875 1,421 1,260 8,833 8,135
Operating Expenses 4,660 5,009 1,112 1,016 813 722 6,585 6,747
---------- ---------- --------- --------- ----------- ----------- ----------- -----------
Operating Income 2,752 1,866 309 244 (813) (722) 2,248 1,388
Interest (Expense) (1,197) (1,318) (1,197) (1,318)
Other Income 4 4
---------- ---------- --------- --------- ----------- ----------- ----------- -----------
Income Before Taxes 2,752 1,870 309 244 (2,010) (2,040) 1,051 74
========== ========== ========= ========= =========== =========== =========== ===========
8
For the six months ended April 30, 2002 and 2001:
Home & Office Retail Corporate Total
(000's $) 2002 2001 2002 2001 2002 2001 2002 2001
---- ---- ---- ---- ---- ---- ---- ----
Sales 23,482 22,549 8,741 6,477 32,223 29,026
Cost of Goods Sold 8,980 8,903 6,448 4,252 15,428 13,155
---------- ---------- --------- --------- ----------- ----------- ----------- -----------
Gross Profit 14,502 13,646 2,293 2,225 16,795 15,871
Operating Expenses 9,544 10,029 1,998 1,827 1,496 1,263 13,038 13,119
---------- ---------- --------- --------- ----------- ----------- ----------- -----------
Operating Income 4,958 3,617 295 398 (1,496) (1,263) 3,757 2,752
Interest (Expense) (2,383) (2,662) (2,383) (2,662)
Other Income 8 204 204 8
---------- ---------- --------- --------- ----------- ----------- ----------- -----------
Income Before Taxes 4,958 3,625 499 398 (3,879) (3,925) 1,578 98
========== ========== ========= ========= =========== =========== =========== ===========
6. MERGERS AND ACQUISITIONS
On November 1, 2001, the Company acquired substantially all the assets
of Iceberg Springs Water, Inc. The acquired assets were merged into the
Company's Home & Office operations in Connecticut.
The purchase price paid for Iceberg Springs Water, Inc. is as follows:
Cash $ 4,833,856
Issuance of Common Stock 704,627
-------------
Total $ 5,538,483
=============
Goodwill from the acquisition has been calculated as follows:
Purchase Price $ 5,538,483
Fair Value of Assets Acquired (1,314,481)
Fair Value of Liabilities Assumed 195,373
Acquisition Costs 158,374
-------------
Goodwill $ 4,577,749
=============
The stock price of Vermont Pure for purposes of the acquisition was
$3.294 per share. As a result, the number of Vermont Pure Holdings
common shares issued was 213,912.
The following table summarizes the pro forma consolidated results of
operations (unaudited) of the Company for the three and six months
ended April 30, 2002 and April 30, 2001 as though the acquisition had
been consummated at the beginning of the periods presented:
9
Three Months Ended Six Months Ended
------------------ ----------------
April 30, 2002 April 30, 2001 April 30, 2002 April 30, 2001
-------------- -------------- -------------- --------------
Total Revenue $17,530,696 $15,764,936 $32,222,859 $30,425,386
Net Income $ 629,747 $ 85,261 $ 939,786 $ 135,894
Net Income Per Share - Diluted $ .03 $ .00 $ 0.04 $ .01
Weighted Average Common Shares
Outstanding - Diluted 22,174,053 20,329,934 22,167,145 20,290,250
========== ========== ========== ==========
7. DEBT
During the six months ended April 30, 2002 the Company borrowed
$3,866,000 from its working capital line of credit with Webster Bank.
As of April 30, 2002 the total obligation outstanding under this
facility was $1,625,000. The line of credit has a limit of $5,000,000
and matures on October 5, 2002. In addition, letters of credit
totaling $636,264 secured by the line were issued on the Company's
behalf, reducing the availability of the line by that amount. Webster
Bank also agreed to modify its lending agreement with the Company in
order to provide $4,200,000 of additional debt to facilitate the
acquisition of Iceberg Springs Water, Inc. (see note 6).
Based on the Company's 2001 year end results, its applicable margin on
the outstanding facilities from Webster decreased 25 basis points
effective March 1, 2002. On March 15, 2002, the Bank approved an
amendment to the Loan and Security Agreement to allow $1,800,000 of
capital expenditures to be excluded from capital expenditures under
the debt service covenant effective January 30, 2002.
8. COMPREHENSIVE INCOME
The following table summarizes the computations reconciling net income
to comprehensive income for the three months and six months ended
April 30, 2002:
Three Months Ended Six Months Ended
------------------------------------ -------------------------------------
April 30, 2002 April 30, 2001 April 30, 2002 April 30, 2001
-------------- -------------- -------------- --------------
Net Income $629,747 $73,962 $ 939,786 $ 97,779
Other Comprehensive Income
Unrealized gains on derivatives
designated as cash flow hedges. 95,523 -- 257,268 --
-------------- ------------- ------------- ---------------
Comprehensive Income $ 725,270 $73,962 $ 1,197,054 $ 97,779
============== ============= ============= ===============
9. EMPLOYEE STOCK PURCHASE PLAN
On June 15, 1999 the Company's shareholders approved the "Vermont Pure
Holdings, Ltd. 1999 Employee Stock Purchase Plan." On January 1, 2001,
employees commenced participation in the plan. The total number of
shares issued under this plan during the six months ended April 30,
2002 was 28,048.
10
10. EARNINGS PER SHARE AND WEIGHTED AVERAGE SHARES
The Company considers outstanding in-the-money stock options as
potential common stock in its calculation of diluted earnings per
share and uses the treasury stock method to calculate the applicable
number of shares. The following calculation provides the
reconciliation of the denominators used in the calculation of basic
and fully diluted earnings per share:
Three Months Ended Six Months Ended
----------------------------------------- -------------------------------------------
April 30, 2002 April 30, 2001 April 30, 2002 April 30, 2001
-------------- -------------- -------------- --------------
Net Income $ 629,747 $ 73,962 $ 939,786 $ 97,779
-------------- -------------- -------------- --------------
Denominator:
Basic Weighted Average Shares
Outstanding 21,078,419 20,280,204 21,074,639 20,223,989
Effect of Stock Options 1,095,634 49,730 1,092,506 66,261
-------------- -------------- -------------- --------------
Diluted Weighted Average Shares
Outstanding 22,174,053 20,329,934 22,167,145 20,290,250
-------------- -------------- -------------- --------------
Basic Earnings Per Share $.03 $.00 $.04 $.00
Diluted Earnings Per Share $.03 $.00 $.04 $.00
11
PART I - Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
financial statements and notes thereto as filed in the Annual Report on Form
10-K of Vermont Pure Holdings, Ltd. (the "Company") for the year ended October
31, 2001.
Forward-Looking Statements
When used in the Form 10-Q and in future filings by the Company with the
Securities and Exchange Commission, the words or phrases "will likely result,"
"the Company expects," "will continue," "is anticipated," "estimated,"
"project," "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
speaks 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. Among these
risks are water supply and bottling capacity constraints in the face of
significant growth, dependence on outside distributors, and reliance on
commodity price fluctuations as they influence raw material pricing. 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
During 2001, the Company integrated and consolidated operations following the
merger with Crystal Rock in October 2000. This process effectively created
operating segments that are defined by the kind of product and its distribution
channel, specifically a home and office segment and a retail segment.
Accordingly, over that time, management has developed reporting that evaluates
the Company by these segments. Starting with the first quarter of 2002, the
Company has incorporated this segmental reporting into its financial statements
as a means for readers to evaluate the Company more closely. For the purposes of
segmental reporting, management has allocated all costs for which there is a
justifiable basis of allocation but has maintained administrative and interest
charges incurred by the holding company in a "corporate" classification.
During its second fiscal quarter of 2002 the Company adopted several recent
accounting pronouncements that significantly affect the way it accounts for
sales and promotional expenses but has no effect on the reported earnings.
Traditionally, the Company has accounted for certain promotional programs,
defined in the pronouncements, as expenses. As of April 30, 2002 the Company has
excluded these allowances from both sales and operating expenses in its
Consolidated Statements of operations for the periods presented herein in 2002
and 2001.
12
For the Three Months Ended April 30, 2002 (Second Quarter)
Sales - Sales for the second quarter of fiscal year 2002 were $17,531,000
compared to $15,063,000 for the same period of fiscal year 2001, an increase of
$2,468,000, or 16%. Adoption of recent accounting pronouncements required that
$658,000 and $483,000 of what were traditionally promotional costs be
reclassified to reduce sales in 2002 and 2001, respectively.
Sales for the home and office segment for the second quarter of fiscal 2002 were
$11,927,000 compared to $11,317,000 for the corresponding period of fiscal year
2001, an increase of $610,000 or 5%. The increase is primarily the result of
consistent market demand for water and coolers and higher average selling
prices. Sales also increased as a result of an acquisition completed on November
1, 2001 in the Company's core Connecticut market. Of the total home and office
segment sales for the quarter, water sales totaled $5,946,000, an increase of
11% from the same period a year ago and equipment rental was $2,165,000, an
increase of 10% over the combined total for the same period a year ago.
Additional potential sales growth in this segment was reduced by a significant
decrease in demand for certain other products sold in the home and office
distribution system including coffee and the ancillary products associated with
it. Sales of coffee and other products were $3,816,000 for the second quarter of
fiscal 2002, a decrease of 4% compared to the same period a year ago. Management
believes that the decrease in this line of products is due to the general
slowdown in economic conditions in the Northeastern United States. The
percentage decrease is less than that of the first quarter of 2002 because there
was less of a seasonal effect related to coffee and ancillary products in the
second quarter.
Sales for the retail segment for the second quarter of fiscal 2002 were
$5,604,000 compared to $3,746,000 for the corresponding period of fiscal year
2001, an increase of $1,858,000 or 50%. For the second quarter of the fiscal
year, sales of private label brands increased 136% compared to the second
quarter a year ago. Growth of private label brands reflects both new account
acquisitions and market share gain in the established customer base during the
period. In light of increasing competition in established markets for regional
and national brands, the Company has accelerated its strategy to become a
premier private label spring water provider. Sales of the Vermont Pure and
Hidden Spring brands decreased 14% and 5%, respectively, compared to the second
quarter a year ago. Average selling prices of retail-size products for the three
months ended April 30, 2002 decreased 6% compared to the corresponding period in
fiscal year 2001. The decrease in average selling price was primarily
attributable to the addition of a one-gallon size product to accommodate a
private label customer. This is a lower priced product by volume compared to
other products and the Company pays a packing fee to a supplier to produce the
product.
Cost of Goods Sold/Gross Profit - For the three months ended April 30, 2002,
cost of goods sold was $8,698,000 compared to $6,928,000 for the same period in
fiscal 2001, or an increase of 26%. Gross profit for the second quarter was
$8,833,000 compared to $8,135,000 for the corresponding period a year ago, an
increase of $698,000, or 9%. The increase in gross profit is primarily the
result of higher sales volume. As a percentage of sales, gross profit for the
second quarter was 50% in 2002 and 54% in 2001. The decrease in the percentage
is a result of a higher sales mix of retail-size products and a lower gross
profit rate on those products. Gross profit for the home and office segment was
$7,412,000, or 62% of sales, in the second quarter of fiscal 2002 compared to
13
$6,875,000, or 61% of sales, for the comparable period in 2001. The increase in
gross profit for the home and office segment was primarily due to generally
higher sales volume. Gross profit for the retail segment was $1,421,000, or 25%
of sales, in the second quarter of fiscal 2002 compared to $1,260,000, or 34% of
sales, for the comparable period in 2001. The increase in gross profit for the
retail segment, in absolute terms, was the result of higher sales volume, while
gross profit, as a percentage of sales, decreased as the result of lower average
selling prices primarily influenced by the introduction of a one-gallon size
product mentioned above. The margin on this product is significantly lower than
the other products the Company sells in this segment. The Company continued to
experience production inefficiencies during the installation of additional
bottling equipment during the period which increased costs per case.
Installation and startup of this equipment was completed in the second quarter
of 2002 and management expects production efficiency to improve in the third
quarter.
Operating Expenses - For the three months ended April 30, 2002, compared to the
corresponding period in fiscal year 2001, total operating expenses were
$6,585,000 and $6,748,000, respectively, a decrease of $163,000. Selling,
general and administrative expenses ("SG&A") increased by $308,000, or 5%, for
the second quarter compared to the corresponding period a year ago. The increase
in SG&A expenses was primarily due to increased sales for the period and
increases to administrative infrastructure required to support future sales in
the home and office segment and corporate public entity operations. Advertising
and promotional expense increased $108,000, or 40%, during the first quarter of
2002 compared to the corresponding period a year earlier. The increase was
primarily due to an increase in advertising in the home and office segment in an
effort to offset the effect of an economic slowdown. Advertising costs in the
home and office segment totaled $221,000 in the period compared to $107,000 a
year ago. As mentioned above, certain promotional activity associated with the
retail segment reported as expenses in previous periods have been reclassified
with the effect of reducing sales. Promotion and advertising for the retail
segment totaled $150,000 in the period compared to $158,000 a year ago. The
decrease is consistent with the decrease in sales of the Company's branded
retail products. Corporate expenses increased in the second quarter in
conjunction with higher legal and audit costs. For the second quarter of fiscal
year 2002, amortization decreased $577,000 to $58,000 from $635,000 for the same
period a year ago. Amortization decreased because the Company implemented
Statement of Financial Accounting Standards No. 142 in the first quarter of 2002
which stipulates that goodwill will not be amortized. The pronouncement also
stipulates that goodwill will be assessed periodically for impairment. The
Company completed a valuation of its goodwill in the second quarter and
determined that there is no impairment to the goodwill presently on the balance
sheet. Other intangible assets continue to be amortized. All amortization is
accounted for in the home and office segment.
Income from Operations - Income from operations for the second quarter of fiscal
2002 was $2,248,000 as compared to $1,388,000 for the corresponding period last
year, an improvement of $860,000, or 62%. The increased income is primarily the
result of higher sales and lower operating expenses. The reduction of operating
expenses is due to the substantial decrease in amortization discussed above.
Income from operations in the home and office segment increased to $2,752,000 in
the second quarter of 2002 from $1,866,000 in the second quarter of 2001
primarily because of an increase in sales and decrease in operating expenses.
Income from operations in the retail segment increased to $309,000 in the second
quarter of 2002 compared to income of $244,000 in the second quarter of 2001.
The increase in this segment is attributable to higher sales for the period.
14
Other Income/Expense - Interest expense decreased $121,000 to $1,197,000 in the
second quarter of fiscal 2002 from $1,318,000 in the second quarter of fiscal
year 2001. The decrease in interest expense was a result of significantly lower
interest rates on the Company's senior debt.
Income Before Income Taxes - The Company's net income before taxes for the three
months ended April 30, 2002 was $1,051,000 compared to net income before taxes
of $74,000 for the corresponding period last year. The improvement of $977,000
is attributable to higher sales and decreased amortization and interest charges
that more than offset increases in other operating expenses.
Income Tax/Net Income - The Company accrued income tax expense at an effective
rate of 40% for the quarter ended April 30, 2002. Based on the availability of
tax loss carryforwards, the Company accrued no income taxes for the quarter
ended April 30, 2001. Net income for the quarter was $630,000 in 2002 compared
to $74,000 in 2001, an improvement of $556,000.
For the Six Months Ended April 30, 2002 (First Half)
Sales - Sales for the first half of fiscal year 2002 were $32,223,000 compared
to $29,026,000 for fiscal year 2001, an increase of $3,197,000, or 11%.
Promotional allowances of $1,153,000 and $739,000 for 2002 and 2001,
respectively, were excluded from gross sales in each of the respective years.
Sales for the home and office segment for the first half of fiscal 2002 were
$23,482,000 compared to $22,549,000 for the corresponding period of fiscal year
2001, an increase of $933,000 or 4%. The increase is primarily the result of
consistent market demand for water and coolers and higher average selling
prices. Sales also increased as a result of an acquisition completed November 1,
2001 in the Company's core Connecticut market. Of the total home and office
segment sales for the six month period, water sales totaled $11,444,000, an
increase of 10% from the same period a year ago and equipment rental was
$4,373,000, an increase of 11% over the same period a year ago. Additional
potential sales growth in this segment was reduced by a significant decrease in
demand for certain other products sold in the home and office distribution
system including coffee and the ancillary products associated with it. Sales of
coffee and other products were $7,665,000, a decrease of 6% compared to the same
period a year ago. This decrease is attributable to unseasonably warm weather
during the first fiscal quarter and the general slowdown in economic conditions
in the Northeastern United States.
Sales for the retail segment for the six months ended April 30, 2002 were
$8,741,000 compared to $6,477,000 for the corresponding period of fiscal year
2001, an increase of $2,264,000 or 35%. For the first half of the fiscal year,
sales of private label brands increased 123% compared to the same period a year
ago. Growth of private label brands reflects both new account acquisitions and
market share gain in the established customer base during the period. Sales of
the Vermont Pure and Hidden Spring brands decreased 11% and 12%, respectively,
compared to the first half a year ago. Average selling prices of retail-size
products for the three months ended April 30, 2002 decreased 6% compared to the
15
corresponding period in fiscal year 2001. The decrease in average selling price
was primarily attributable to the addition of a one-gallon size product to
accommodate a private label customer. This is a lower priced product by volume
compared to other products, and the Company pays a packing fee to a supplier to
produce the product.
Cost of Goods Sold/Gross Profit - For the six months ended April 30, 2002, cost
of goods sold was $15,428,000 compared to $13,155,000 for the same period in
fiscal 2001, or an increase of 17%. Gross profit for the first half was
$16,795,000 compared to $15,871,000 for the corresponding period a year ago, an
increase of $924,000, or 6%. The increase in gross profit is primarily the
result of higher sales volume. As a percentage of sales, gross profit for the
six month period was 52% in 2002 and 55% in 2001. The decrease in the percentage
is a result of a higher sales mix of retail-size products and a lower gross
profit rate on those products. Gross profit for the home and office segment was
$14,502,000, or 62% of sales, in the first half of fiscal 2002 compared to
$13,646,000, or 61% of sales, for the comparable period in 2001. The increase in
gross profit was primarily due to generally higher sales volume and increased
average selling prices. Gross profit for the retail segment was $2,293,000, or
26% of sales, in the first half of fiscal 2002 compared to $2,225,000, or 34% of
sales, for the comparable period in 2001. The increase in gross profit, in
absolute terms, was the result of higher sales volume, while gross profit, as a
percentage of sales, decreased as the result of lower average selling prices
primarily influenced by the introduction of a one-gallon size product. The
margin on this product is significantly lower than the other products the
Company sells in this segment. Throughout the period, the Company experienced
production inefficiencies during the installation of additional bottling
equipment which increased costs per case. Installation and startup of this
equipment was completed in the second quarter of 2002 and management expects
production efficiency to improve over the balance of the fiscal year.
Operating Expenses - For the six months ended April 30, 2002 compared to the
corresponding period in fiscal year 2001, total operating expenses were
$13,038,000 and $13,119,000, respectively, a decrease of $81,000. Selling,
general and administrative expenses ("SG&A") increased by $961,000, or 9%, for
the first half compared to the corresponding period a year ago. The increase in
SG&A expenses was primarily due to increased sales for the period and increases
to administrative infrastructure required to support future sales in the home
and office segment and corporate public entity operations. Corporate expenses
increased during the six month period over the same period a year ago because of
ongoing legal matters. Advertising and promotional expense increased $111,000,
or 19%, during the first half of 2002 compared to the corresponding period a
year earlier. The increase was primarily due to sales, slotting fees expensed in
the first quarter of 2002, and an increase in the home and office segment in an
effort to offset the effect of an economic slowdown. Advertising costs in the
home and office segment totaled $414,000 in the period compared to $349,000 to a
year ago, an increase of 19%. As mentioned above, certain promotional activity
associated with the retail segment reported as expenses in the previous periods
have been reclassified with the effect of reducing sales. Promotion and
advertising for the retail segment totaled $284,000 in the period compared to
$238,000 a year ago, also a 19% increase. For the first half of fiscal year
2002, amortization decreased $1,153,000 to $116,000 from $1,269,000 for the same
period a year ago. Amortization decreased because the Company implemented
Statement of Financial Accounting Standards No. 142 in the first quarter of 2002
which stipulates that goodwill will not be amortized. All amortization is
accounted for in the home and office segment.
16
Income from Operations - Income from operations for the six months ended April
30, 2002 was $3,757,000 as compared to $2,752,000 for the corresponding period
last year, an improvement of $1,005,000, or 37%. The increased income is
primarily the result of higher sales and lower operating expenses. The reduction
of operating expenses is due to the substantial decrease in amortization
discussed above. Income from operations in the home and office segment increased
to $4,958,000 in the first half of 2002 from $3,617,000 in the first half of
2001 primarily because of an increase in sales and decrease in operating
expenses due to lower amortization. Income from operations in the retail segment
decreased to $295,000 in the first half of 2002 compared to income of $398,000
in the first half of 2001. The decrease in this segment is due to lower prices
and higher bottling and promotional costs.
Other Income/Expense - Interest expense decreased $279,000 to $2,383,000 during
the first half of fiscal 2002 from $2,662,000 in the first half of fiscal year
2001. The decrease in interest expense was a result of significantly lower
interest rates on the Company's senior debt and operating line of credit. As of
April 30, 2002, the Company had $14,740,000 outstanding under its senior
facility at a variable rate. The variable rate is determined by adding 1.5% to
the 30 day LIBOR rate. The 30 day LIBOR rate was 1.84% and 4.44% at the end of
April, 2002 and 2001, respectively. The lower variable rate more than offset
increased interest (at 30 day LIBOR plus 2.75%) on $4,200,000 borrowed for the
purchase of Iceberg Springs Water, Inc., a Connecticut based home and office
products distributor, during the first quarter. The Company also recognized
$204,000 from the sale of a trademark, net of legal expenses incurred for the
transaction.
Income Before Income Taxes - The Company's net income before taxes for the six
months ended April 30, 2002 was $1,577,000 compared to net income before taxes
of $98,000 for the corresponding period last year. The increase of $1,479,000 is
attributable to higher sales and decreased amortization and interest charges
that more than offset increases in other operating expenses.
Income Tax/Net Income - The Company accrued income tax expense at an effective
rate of 40% for the six month period ended April 30, 2002. Based on the
availability of tax loss carryforwards, the Company accrued no income taxes for
the six month period ended April 30, 2001. Net income for the first half of
fiscal 2002 was $940,000 compared to $98,000 in the first half of 2001, an
increase of $842,000.
Liquidity and Capital Resources
As of April 30, 2002 the Company had working capital of $1,711,000 compared to
$4,244,000 on October 31, 2001, a decrease of $2,533,000. The decrease in
working capital was a result of seasonal cash needs and capital expenditures
associated with installation of a second bottling line for retail products in
its Randolph facility.
Increases in accounts receivable and inventory are reflective of the seasonal
upturn in the retail segment of the business in the second quarter. The Company
reduced its deferred tax asset by $431,000 to reflect tax liability that would
not be paid in cash for the period. Current liabilities increased as a result of
the escalation of the Company's debt repayment schedule over the next twelve
months.
17
The Company used $2,726,000 for equipment purchases. Approximately $1,400,000 of
this amount was used for the installation of the second bottling line. This
project was completed and the line was started up during the second quarter. The
balance of capital spending was for equipment used in the normal course of
business. The most significant of these items are bottles, coolers and brewers.
The Company borrowed balances of up to $3,866,000 from its operating line of
credit as a source of cash during the six month period for its operating and
capital cash requirements. The Company's line of credit with Webster Bank has a
limit of $5,000,000 and matures October 5, 2002. As of April 30, 2002, there was
an outstanding balance of $1,625,000 as well as $636,000 committed for letters
of credit. The Company expects that its cash on hand and the cash generated from
its future operations combined with the operating line of credit with Webster
Bank will provide sufficient capital for the current fiscal year. However, no
assurance can be given that this will be the case and that adequate financing at
reasonable interest rates will be secured if more cash is needed either prior to
or subsequent to the maturity of the line of credit.
Regularly scheduled principal payments continue to be made on senior debt.
During the first six months of 2002, the Company paid $1,960,000 to make
scheduled debt repayments to Webster Bank. In addition, it has repaid $2,241,000
that was borrowed from its operating line in the last six months. To complete
the $5,538,000 acquisition of Iceberg Springs Water, Inc., the Company borrowed
$4,200,000 from Webster Bank during the first quarter of the fiscal year by
amending its Loan and Security Agreement with the bank. The term of the loan is
for five years and is to be repaid in equal monthly installments over that time.
The additional borrowings are at an interest rate 100 basis points higher than
the original term debt specified in the agreement. The Company also funded the
acquisition with $634,000 of cash, stock valued at $705,000, and assumed
liabilities of $195,000.
Effective January 30, 2002, the bank approved an amendment to the Loan and
Security Agreement to allow $1,800,000 of non-recurring capital expenditures
made during the last four fiscal quarters to expand bottling capacity to be
excluded from capital expenditures under the debt service covenant defined in
the agreement. The covenant is intended to measure the Company's capability to
generate cash to cover repayment of debt and routine capital expenditures. If
the agreement had not been amended, the Company would not have been in
compliance with that covenant at the end of the first two quarters of fiscal
2002.
18
PART I - Item 3
QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risks relating to the Company's operations result primarily from changes
in interest rates and commodity prices.
Interest Rate Risks
At April 30, 2002, the Company had approximately $14,900,000 of long term
debt subject to variable interest rates. Under the loan and security agreement
with Webster Bank, the Company paid interest at a rate of LIBOR plus a margin of
1.75% through February 28, 2002. The margin was adjusted to 1.5% on March 1,
2002 based on the Company's performance as outlined in the agreement with
Webster Bank. A hypothetical 100 basis increase in the LIBOR rate would result
in an additional $150,000 of interest expense on an annualized basis.
Conversely, a decrease would result in a proportionate interest cost savings.
The Company uses interest rate "swap" agreements to curtail interest rate
risk. On November 3, 2000, the Company entered into a swap agreement with
Webster Bank to fix $8,000,000 of its long term debt at 8.32% interest for three
years. On April 2, 2001, the Company entered into a swap agreement with Webster
Bank to fix an additional $4,000,000 of its long term debt at 7.03% interest for
three years. On July 24, 2001, the Company entered into a swap agreement with
Webster Bank to fix an additional $4,000,000 of its long term debt at 6.75%
interest for three years.
In aggregate, the Company has fixed the interest rate on this $16,000,000
of debt at 7.5% over the next two to three years. Currently, management believes
that this is above market rates though the agreements are based on three year
rate projections. They serve to stabilize the Company's cash flow and expense
but ultimately may cost more or less in interest than if the Company had carried
all of its debt at a variable rate over the swap term. Since significantly
increasing its debt in October 2001, management's strategy has been to keep the
fixed and variable portions of its senior debt approximately equal to offset and
minimize the risks of rising and falling interest rates. Future low rates may
compel management to fix the interest rate on a higher portion of the Company's
debt in order to further stabilize cash flow and expenses.
Commodity Price Risks
Plastic - PET
Although the Company has a three-year contract 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,
an essential component of PET. A hypothetical resin price increase of $.05 per
pound would result in an approximate price increase per bottle of $.005 or, at
current volume levels, $350,000 a year.
19
Coffee
The cost of the Company's coffee purchases are dictated by commodity
prices. The Company enters into contracts to mitigate market fluctuation of
these costs by fixing the price for certain periods. Currently it has fixed the
price of its anticipated supply through December 31, 2002 at "green" prices
ranging from $.46 - $.63 per pound. The Company is not insulated from price
fluctuations beyond that date. At existing sales levels, an increase in pricing
of $.10 per pound would result in approximately $100,000 of additional cost
annually to the Company. In this case, competitors that had fixed pricing might
have a competitive advantage.
20
PART II - Other Information
Item 1 - Legal Proceedings
None.
Item 2 - Changes in Securities
(a) None.
(b) None.
(c) None.
Item 3 - Defaults upon Senior Securities
None.
Item 4 - Submission of Matters to a Vote of Security Holders
- ------
On April 9, 2002, the Company held its annual shareholders meeting at
1:30 p.m. at the Sheraton Conference Center in South Burlington,
Vermont. There was one matter of business requiring a shareholder
vote, election of directors.
A total of 19,571,399 votes were cast and the following directors were
elected to one year terms with the corresponding vote tally:
Withhold
For Authority
Timothy G. Fallon 19,499,622 71,777
Henry E. Baker 19,495,922 75,477
Peter K. Baker 19,499,722 71,677
Phillip Davidowitz 19,543,958 27,441
Robert C. Getchell 19,547,758 23,641
Carol R. Lintz 19,547,758 23,641
David R. Preston 19,545,258 26,141
Ross S. Rapaport 19,543,758 27,641
Norman E. Rickard 19,544,058 27,341
Beat Schlagenhauf 19,547,758 23,641
Item 5 - Other Information
None.
21
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number
Description
2.1 Agreement and Plan of Merger and Contribution by and among Vermont
Pure Holdings, Ltd., Crystal Rock Spring Water Company, VP Merger
Parent, Inc., VP Acquisition Corp., and the stockholders named
therein, dated as of May 5, 2000. (Incorporated by reference to
Appendix A to the Form S-4 Registration Statement filed by Vermont
Pure Holdings, Ltd., f/k/a VP Merger Parent, Inc., File No. 333-45226,
on September 6, 2000 (the "S-4 Registration Statement").)
2.2 Amendment to Agreement and Plan of Merger and Contribution by and
among Vermont Pure Holdings, Ltd., Crystal Rock Spring Water Company,
VP Merger Parent, Inc., VP Acquisition Corp., and the stockholders
named therein, dated as of August 28, 2000. (Incorporated by reference
to Exhibit 2.1 of the S-4 Registration Statement.)
2.3 Amendment to Agreement and Plan of Merger and Contribution by and
among Vermont Pure Holdings, Ltd., Crystal Rock Spring Water Company,
VP Merger Parent, Inc., VP Acquisition Corp. and the stockholders
named therein, dated as of September 20, 2000. (Incorporated by
reference to Exhibit 2.2 of the Report on Form 8-K filed by the
Company on October 19, 2000 (the "Merger 8-K").)
3.1 Certificate of Incorporation of the Company. (Incorporated by
reference to Exhibit B to Appendix A to the Proxy Statement included
in the S-4 Registration Statement.)
3.2 Certificate of Amendment of Certificate of Incorporation of the
Company filed October 5, 2000. (Incorporated by reference to Exhibit
4.2 of the Merger 8-K.)
3.3 By-laws of the Company. (Incorporated by reference from Exhibit 3.3 to
Form 10-Q for the Quarter ended July 31, 2001.)
4.1 Form of Lockup Agreement among the Company, Peter K. Baker, Henry E.
Baker and John B. Baker. (Incorporated by reference to Exhibit N to
Appendix A to the Proxy Statement included in the S-4 Registration
Statement.)
4.2 Registration Rights Agreement among the Company, Peter K. Baker, Henry
E. Baker, John B. Baker and Ross Rapaport. (Incorporated by reference
to Exhibit 4.6 of the Merger 8-K.)
22
Exhibit
Number
Description
10.1* 1993 Performance Equity Plan. (Incorporated by reference from Exhibit
10.9 of Registration Statement 33-72940.)
10.2* 1998 Incentive and Non-Statutory Stock Option Plan, as amended.
(Incorporated by reference to Appendix C to the Proxy Statement
included in the S-4 Registration statement.)
10.3* 1999 Employee Stock Purchase Plan. (Incorporated by reference to
Exhibit A of the 1999 Proxy Statement of Vermont Pure Holdings, Ltd.)
10.5 Convertible Debenture Agreement dated September 30, 1999 between
Vermont Pure Holdings, Ltd. and Middlebury Venture Partners, Inc.
(f/k/a Marcon Capital Corporation) in the amount of $975,000.
(Incorporated by reference from Exhibit 10.27 of Form 10-K for the
Year Ended October 30, 1999.)
10.6* Employment Agreement between the Company and Timothy G. Fallon.
(Incorporated by reference to Exhibit 10.13 of the S-4 Registration
Statement.)
10.7* Employment Agreement between the Company and Bruce S. MacDonald.
(Incorporated by reference to Exhibit 10.14 of the S-4 Registration
Statement.)
10.8* Employment Agreement between the Company and Peter K. Baker.
(Incorporated by reference to Exhibit 10.15 of the S-4 Registration
Statement.)
10.9* Employment Agreement between the Company and John B. Baker.
(Incorporated by reference to Exhibit 10.16 of the S-4 Registration
Statement.)
10.10* Employment Agreement between the Company and Henry E. Baker.
(Incorporated by reference to Exhibit 10.17 of the S-4 Registration
Statement.)
10.11 Lease of Buildings and Grounds in Watertown, Connecticut from the
Baker's Grandchildren Trust. (Incorporated by reference to Exhibit
10.22 of the S-4 Registration Statement.)
10.12 Lease of Grounds in Stamford, Connecticut from Henry E. Baker.
(Incorporated by reference to Exhibit 10.24 of the S-4 Registration
Statement.)
10.13 Lease of Building in Stamford, Connecticut from Henry E. Baker.
(Incorporated by reference to Exhibit 10.23 of the S-4 Registration
Statement.)
23
Exhibit
Number Description
10.14 Amended and Restated Loan and Security Agreement between the company
and Webster Bank dated November 1, 2001. (Incorporated by reference
from Exhibit 10.14 to Form 10-K for the year ended October 31, 2001.)
10.15 Term Note from the Company to Webster Bank dated October 5, 2000.
(Incorporated by reference from Exhibit 10.15 to Form 10-K for the
year ended October 31, 2001)
10.16 Subordinated Note from the Company to Henry E. Baker dated October 5,
2000. (Incorporated by reference to Exhibit 10.16 of Form 10-K for the
year ending October 31, 2000.)
10.17 Subordinated Note from the Company to Joan Baker dated October 5,
2000. (Incorporated by reference to Exhibit 10.17 of Form 10-K for the
year ending October 31, 2000.)
10.18 Subordinated Note from the Company to John B. Baker dated October 5,
2000. (Incorporated by reference to Exhibit 10.18 of Form 10-K for the
year ending October 31, 2000.)
10.19 Subordinated Note from the Company to Peter K. Baker dated October 5,
2000. (Incorporated by reference to Exhibit 10.19 of Form 10-K for the
year ending October 31, 2000.)
10.20 Subordinated Note from the Company to Ross S. Rapaport, Trustee, dated
October 5, 2000. (Incorporated by reference to Exhibit 10.20 of Form
10-K for the year ending October 31, 2000.)
10.21 Reaffirmation of Subordination and Pledge Agreement from Henry E.
Baker to Webster Bank Dated November 1, 2001. (Incorporated by
reference to Exhibit 10.21 of Form 10-K for the year ending October
31, 2001.)
10.22 Reaffirmation of Subordination and Pledge Agreement from Joan Baker to
Webster Bank Dated November 1, 2001. (Incorporated by reference to
Exhibit 10.22 of Form 10-K for the year ending October 31, 2001.)
10.23 Reaffirmation of Subordination and Pledge Agreement from John B. Baker
to Webster Bank Dated November 1, 2001. (Incorporated by reference to
Exhibit 10.23 of Form 10-K for the year ending October 31, 2001.)
24
Exhibit
Number Description
10.24 Reaffirmation of Subordination and Pledge Agreement from Peter K.
Baker to Webster Bank Dated November 1, 2001. (Incorporated by
reference to Exhibit 10.23 of Form 10-K for the year ending October
31, 2001.)
10.25 Reaffirmation of Subordination and Pledge Agreement from Ross S.
Rapaport, Trustee, to Webster Bank Dated November 1, 2001.
(Incorporated by reference to Exhibit 10.25 of Form 10-K for the year
ended October 31, 2001.)
10.26 Agreement between Vermont Pure Springs, Inc. and Zuckerman-Honickman
Inc. dated October 15, 1998. (Incorporated by reference to the S-4
Registration Statement.)
10.27 Term Note from the Company to Webster Bank dated November 1, 2001.
(Incorporated by reference to Exhibit 10.27 of Form 10-K for the year
ended October 31, 2001.)
10.28 Amended and Restated Revolving Line of Credit Note between the Company
and Webster Bank. (Incorporated by reference to Exhibit 10.28 of Form
10-K for the year ended October 31, 2001.)
* Relates to compensation
(b) Reports on Form 8-K
None.
25
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: June 14, 2002
Randolph, Vermont
VERMONT PURE HOLDINGS, LTD.
By: /s/ Bruce S. MacDonald
-------------------------
Bruce S. MacDonald
Vice President, Chief Financial Officer
(Principal Accounting Officer and Principal
Financial Officer)
26