10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

Annual Report
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

(Mark One)

þ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended October 31, 2007

or

o Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from                      to                     

Commission File Number 000-31797

VERMONT PURE HOLDINGS, LTD.

(Exact name of the registrant as specified in its charter)

Delaware	03-0366218
(State or other jurisdiction of incorporation or organization)	I.R.S. Employer Identification Number

1050 Buckingham St., Watertown, CT 06795

(Address of principal executive offices and zip code)

Registrant’s telephone number, including area code: (860) 945-0661

Securities registered pursuant to Section 12(b) of the Act:	Common Stock, par value $.001 per share	American Stock Exchange
	(Title of Class)	(Exchange registration)

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

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 þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Exchange Act Rule 12b-2).

Large accelerated filer o                    Accelerated filer o                    Non-accelerated filer þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

The aggregate market value of the registrant’s voting and non-voting common equity held by non-affiliates of the registrant, computed by reference to the last sale price per share of common stock on April 30, 2007, the last day of the registrant’s most recently completed second fiscal quarter, as reported on the American Stock Exchange, was $17,868,000.

The number of shares outstanding of the registrant’s Common Stock, $.001 par value, was 21,634,893 on January 16, 2008.

Documents Incorporated by Reference

Portions of the registrant’s definitive proxy statement, to be filed not later than 120 days after the registrant’s fiscal year ended October 31, 2007, and delivered in connection with the registrant’s annual meeting of stockholders, are incorporated by reference into Part III into this Form 10-K.

Table of Contents

		Page
Part I			3
Item 1.	Business		3
Item 1A.	Risk Factors		11
Item 1B.	Unresolved Staff Comments		16
Item 2.	Properties		16
Item 3.	Legal Proceedings		17
Item 4.	Submission of Matters to a Vote of Security Holders		17
Part II			18
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		18
Item 6.	Selected Financial Data		20
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		20
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		32
Item 8.	Financial Statements and Supplementary Data		33
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		33
Item 9A.	Controls and Procedures		33
Item 9B.	Other Information		33
Part III			34
Item 10.	Directors, Executive Officers and Corporate Governance		34
Item 11.	Executive Compensation		34
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		34
Item 13.	Certain Relationships and Related Transactions, and Director Independence		35
Item 14.	Principal Accountant Fees and Services		35
Part IV			36
Item 15.	Exhibits and Financial Statement Schedules		36
	Signatures		39
EX-10.29 Installation Agreement with American Capital Energy, Inc. dated August 29, 2007
EX-10.30 Connecticut Innovations Agreement dated August 20, 2007
EX-21.1 Subsidiary
EX-23.1 Consent of Wolf & Company, P.C.
EX-23.2 Consent of Deloitte & Touche LLP
EX-31.1 Section 302 Certification of CEO
EX-31.2 Section 302 Certification of CFO
EX-32.1 Section 906 Certification of CEO
EX-32.2 Section 906 Certification of CFO

In this annual report on Form 10-K, “Vermont Pure,” the “Company,” “we,” “us” and “our” refer to Vermont Pure Holdings, Ltd. and its subsidiary, taken as a whole, unless the context otherwise requires.

This Annual Report on Form 10-K contains references to trade names, label design, trademarks and registered marks of Vermont Pure Holdings, Ltd. and its subsidiary and other companies, as indicated. Unless otherwise provided in this Annual Report on Form 10-K, trademarks identified by (R) are registered trademarks or trademarks, respectively, of Vermont Pure Holdings, Ltd. or its subsidiary. All other trademarks are the properties of their respective owners.

Except for historical facts, the statements in this annual report are forward-looking statements. Forward-looking statements are merely our current predictions of future events. These statements are inherently uncertain, and actual events could differ materially from our predictions. Important factors that could cause actual events to vary from our predictions include those discussed in this annual report under the heading “Risk Factors.” We assume no obligation to update our forward-looking statements to reflect new information or developments. We urge readers to review carefully the risk factors described in this annual report and in the other documents that we file with the Securities and Exchange Commission. You can read these documents at www.sec.gov.

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PART I

ITEM 1. BUSINESS.

Introduction and Industry Trends

Vermont Pure Holdings, Ltd. is engaged in the production, marketing and distribution of bottled water and the distribution of coffee, ancillary products, and other office refreshment products. Through February 2004, when we divested the retail segments of our business, our products were sold predominantly in the Northeast, as well as in the Mid-Atlantic and Mid-Western United States. Since March 2004, we have operated exclusively as a Home and Office delivery business, using our own trucks for distribution throughout New England, New York, and New Jersey. All of our water products are still, non-sparkling waters as opposed to sparkling waters.

We believe that consumers perceive bottled water to be a healthy and refreshing beverage alternative to beer, liquor, wine, soft drinks, coffee and tea and sales of bottled water will continue to grow as consumers focus on health and fitness, alcohol moderation and the avoidance of both caffeine and sodium. Bottled water has become a mainstream beverage and the centerpiece of many consumers’ healthy living lifestyles. In addition, we believe that the development and continued growth of the bottled water industry reflects growing public awareness of the potential contamination and unreliability of municipal water supplies.

Over the past decade, but to a lesser extent lately, the bottled water industry has experienced periods of significant consolidation and aggressive price competition. Large multi-national companies such as Nestlé, Groupe Danone and Suntory Water Group have been active acquirers of small and medium sized regional bottled water companies. In 2003, Danone and Suntory pooled their respective United States assets in the industry into a joint venture to create the largest Home and Office water delivery company in the country. In 2005, this joint venture was sold to a private equity firm. In general, the primary drivers of this consolidation are the incremental growth realized by acquiring the target company’s customer base, and synergies resulting from integrating existing operations. Moreover, the entrance of major soft drink bottlers, notably Coca-Cola (with Dasani) and Pepsi Cola (with Aquafina), into the bottling and distribution segment of the industry has had a major impact on the bottled water industry.

Company Background

Incorporated in Delaware in 1990, we originally developed Vermont Pure^® Natural Spring Water as our flagship brand in the still, non-carbonated retail consumer category. Over the next decade, we grew aggressively both internally and through acquisitions, primarily in the Home and Office market. In addition to marketing the Vermont Pure^® brand, in 1995 we renewed marketing efforts with respect to our original trademark, Hidden Spring^®. We expanded our product lines to include more sizes and features, such as sports caps on selected bottle sizes for convenient single serve, and multi-packs for the grocery and convenience store channels.

By 1996, we began to pursue a strategy of diversifying our product offerings. Most notably, we began to utilize an acquisition strategy in 1996 to minimize our reliance on the retail consumer side of the business and to increase growth in other categories. Prior to 1996, our retail business represented 90% of our total sales revenues. By way of contrast, in 2003, our last full year in the retail business, our Home and Office delivery category represented 65% of our total sales.

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Additional benefits of increasing the Home and Office channel have included higher gross margins and reduced seasonality of our sales.

In October 2000, we merged with the Crystal Rock Spring Water Company, Inc. of Watertown, Connecticut. Crystal Rock had historically focused its manufacturing resources on the still, non-carbonated segment of the bottled water industry. Although its primary business had been the marketing and distribution of the Crystal Rock^® brand of purified and mineralized drinking water to the Home and Office delivery markets, it also distributed coffee, other refreshment type products, and vending services in Connecticut, New York and Massachusetts.

Since fiscal year 2000, we have continued to make smaller acquisitions in our established Home and Office markets. During that time, we solidified our presence in the western New York region with the acquisition of Mayer Brothers Home and Office division in Buffalo, New York, making us the largest distributor in that market.

In 2004, we sold the retail segments (which we traditionally have referred to separately as “PET” and “Gallon”) of our business, while retaining our Home and Office distribution business. The segments sold included our retail consumer business under our own brands, as well as the private label business that we packed for others. The sale included the springs, manufacturing facility, inventory, and the related machinery and equipment located in Randolph Center, Vermont. We retained the Vermont Pure^® trademark and continue to distribute water under that brand throughout our Home and Office distribution area, while licensing it to the buyer, for a period of 30 years, for use in the bottling and distribution of retail products. The buyer acquired our Hidden Spring^® trademark and licenses it back to us for Home and Office distribution. We continue to distribute both the Vermont Pure^® and Hidden Spring^® brands in retail sizes purchasing this product from the buyer. We relocated our five-gallon Home and Office bottling operations from Randolph to White River Junction, Vermont, and source our spring water from a Vermont location under an existing water supply agreement. Also in conjunction with the sale, we relocated our corporate headquarters to our Williston, Vermont facility. Subsequently, we moved our headquarters to Watertown, Connecticut where most of our administrative operations are now located.

Although we are proud of the business and brands we built in the retail consumer market, the goal of the transaction was to enable us to concentrate on our higher margin, and more profitable, Home and Office business, which distributes the Crystal Rock^® brand of water, as well as our Vermont Pure^® water, coffee and other products. It is the culmination of a strategy that we began pursuing in 1996, when we originally diversified into the Home and Office segment. Over time, the retail segments became unprofitable, as margins had been squeezed by intense competition in this segment of the market. Management’s decision to concentrate the business in the Home and Office market has been driven by, among other things, attractive margins and good cash flows from equipment rentals, as well as by the advantages of product diversification.

Although we have completed several small acquisitions in fiscal years 2006 and 2007, we have not been as active an acquirer as in previous years since opportune larger transactions at right pricing have not been available.

Other Significant Product Lines

Coffee, a product that is counter seasonal to water, is the second leading product in the distribution channel, accounting for 21% of our total sales in fiscal year 2007. We generally buy coffee under contracts that set prices for up to twelve months, in order to maintain price and supply stability. Please refer to “Commodity Price Risks — Coffee” in Item 7A of this report for additional

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information on our coffee supply agreements. Because coffee is a commodity, we cannot ensure that future supplies and pricing will not be subject to volatility in the world commodity markets. Any interruption in supply or dramatic increase in pricing may have an adverse effect on our business.

The increase in coffee sales in recent years has been driven by the market growth of single serve coffee products. This development has revolutionized the marketplace and, while we expect the growth of these products to continue, innovation and changes in distribution will play a significant role in the profitability of the products.

Water Sources, Treatment, and Bottling Operations

Water from the local municipalities is the primary raw source for the Crystal Rock^® brand. The raw water is purified through a number of processes beginning with filtration. Utilizing carbon and ion exchange filtration systems, we remove chlorine and other volatile compounds and dissolved solids. After the filtration process, impurities are removed by reverse osmosis and/or distillation. We ozonate our purified water (by injecting ozone into the water as an agent to prohibit the formation of bacteria) prior to storage. Prior to bottling, we add pharmaceutical grade minerals to the water, including calcium and potassium, for taste. The water is again ozonated and bottled in a fully enclosed clean room with a high efficiency particulate air, or HEPA, filtering system designed to prevent any airborne contaminants from entering the bottling area, in order to create a sanitary filling environment.

If for any reason this municipal source for Crystal Rock^® water were curtailed or eliminated, we could, though probably at greater expense, purchase water from other sources and have it shipped to our manufacturing facilities.

In conjunction with our acquisition of their Home and Office distribution assets, we entered into a contract with Mayer Brothers of Buffalo, New York to bottle our Crystal Rock^® brand in that market.

The primary source of our natural spring water is a spring owned by a third party in Stockbridge, Vermont that is subject to a water supply contract. We also obtain water, under similar agreements with third parties, from springs in Bennington and Tinmouth, Vermont. These three springs are approved by the State of Vermont as sources for natural spring water.

We have for several years bought spring water from a source in Stockbridge, Vermont. Until late 1999, we had no contract with respect to this source. Commencing in November 1999, we obtained a 50-year water supply contract to purchase, on a first priority basis, up to 5,000,000 gallons per month from the spring owner. Because this amount is well in excess of our current needs and within the apparent capacity of the spring, we believe that we can readily meet our bulk water supply needs for the foreseeable future.

In 2002, we signed a 20-year agreement with the Town of Bennington, Vermont to purchase water from a spring owned by the town. Under that agreement, we can use up to 100,000 gallons a day from this site. We are using this water primarily in our Halfmoon, New York bottling facility.

In 2006, we contracted with Aqua-Valley of Edmeston, New York to bottle spring water under the Crystal Rock brand in the western New York market.

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Percolation through the earth’s surface is nature’s best filter of water. We believe that the exceptionally long percolation period of natural spring water assures a high level of purity. Moreover, the long percolation period permits the water to become mineralized and pH balanced.

We believe that the age and extended percolation period of our natural spring water provides the natural spring water with certain distinct attributes: a purer water, noteworthy mineral characteristics (including the fact that the water is sodium free and has a naturally balanced pH), and a light, refreshing taste.

An interruption or contamination of any of our spring sites would materially affect our business. We believe that we could find adequate supplies of bulk spring water from other sources, but that we might suffer inventory shortages or inefficiencies, such as increased purchase or transportation costs, in obtaining such supplies.

We are highly dependent on the integrity of the sources and processes by which we derive our products. Natural occurrences beyond our control, such as drought, earthquake or other geological changes, a change in the chemical or mineral content or purity of the water, or environmental pollution may affect the amount and quality of the water emanating from the springs or municipal sources that we use. There is a possibility that characteristics of the product could be changed either inadvertently or by tampering before consumption. Even if such an event were not attributable to us, the product’s reputation could be irreparably harmed. Consequently, we would experience economic hardship. Occurrence of any of these events could have an adverse impact on our business. We are also dependent on the continued functioning of our bottling processes. An interruption may result in an inability to meet market demand and/or negatively impact the cost to bottle the products.

We use outside trucking companies to transport bulk spring water from the source site to our bottling facilities.

Products

We sell our three major brands in three and five gallon bottles to homes and offices throughout New England, New York, and New Jersey. In general, Crystal Rock^® is distributed in southern New England and upstate and western New York, while Vermont Pure^® is primarily distributed throughout northern New England and upstate New York and secondarily in southern New England. Hidden Spring^® is generally sold to distributors in New England. We rent and sell water coolers to customers to dispense bottled water. Our coolers are available in various consumer preferences such as cold, or hot and cold, dispensing units. In addition, we sell and rent units to commercial accounts that filter water from the existing source on site. We also distribute a variety of coffee, tea and other hot beverage products and related supplies, as well as other consumable products used around the office. We offer vending services in some locations. We rent and sell single coffee brewing equipment to customers. In addition, we supply whole beans and coffee grinders for fresh ground coffee and cappuccino machines to restaurants. We are the exclusive office coffee distributor of Baronet Coffee in New England, New York and New Jersey. In addition to Baronet Coffee, we sell other national brands, most notably, Green Mountain Coffee Roasters.

Marketing and Sales of Branded Products

Our water products are marketed and distributed in three and five gallon bottles as “premium” bottled water. We seek brand differentiation by offering a choice of high quality spring and purified

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water along with a wide range of coffee and office refreshment products, and value-added service. Home and Office sales are generated and serviced using our own facilities, employees and vehicles.

We support this sales effort through promotional giveaways and Yellow Pages advertising, as well as radio, television and billboard advertising campaigns. We also sponsor local area sporting events, participate in trade shows, and endeavor to be highly visible in community and charitable events.

We market our Home and Office delivery service throughout most of New England and New York and parts of New Jersey. Telemarketers and outside/cold-call sales personnel are used to market our Home and Office delivery.

Advertising and Promotion

We advertise our products primarily through Yellow Pages and radio and billboard advertising. Radio and billboard advertising in 2007 was primarily in the southern New England market. We have also actively promoted our products through sponsorship of various local organizations and sporting events to endeavor to be highly visible in the communities that we serve. In recent years, we have sponsored professional minor league baseball and various charitable and cultural organizations, such as Special Olympics and the Multiple Sclerosis Society.

Sales and Distribution

We sell and deliver products directly to our customers using our own employees and route delivery trucks. We make deliveries to customers on a regularly scheduled basis. We bottle our water at our facilities in Watertown, Connecticut, White River Junction, Vermont, and Halfmoon, New York and have water bottled for us in Buffalo and Edmeston, New York. We maintain numerous distribution locations throughout our market area. From these locations we also distribute dispensing equipment, a variety of coffee, tea and other refreshment products, and related supplies. We ship between our production and distribution sites using both our own and contracted carriers.

We use outside distributors in areas primarily where we currently do not have our own distribution system. Distributor sales represented less than 2% of total revenue in fiscal year 2007.

Supplies

We currently source all of our raw materials from outside vendors. As one of the largest Home and Office distributors in the country, we are able to capitalize on volume to continue to reduce costs. We are a member of the Quality Bottlers Cooperative, or QBC, a purchasing cooperative comprised of some of the largest independent Home and Office water companies in the United States. QBC acts as a purchasing and negotiating agent to acquire national pricing for the cooperative on common materials such as bottles, water coolers, cups, and other supplies. QBC believes that due to its size it can effectively purchase equipment and supplies at levels competitive to larger national entities.

We rely on trucking to receive raw materials and transport and deliver our finished products. Consequently, the price of fuel significantly impacts the cost of our products. We purchase our own fuel for our Home and Office delivery and use third parties for transportation of raw materials and finished goods between our warehouses. While volume purchases can help control erratic fuel pricing, market conditions ultimately determine the price. In 2005 we experienced substantial increases in fuel prices as a result of international events and natural disasters. Continued increases in fuel prices would likely affect our profitability if we are not able to adjust our pricing accordingly

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without losing sales volume.

No assurance can be given that we will be able to obtain the supplies we require on a timely basis or that we will be able to obtain them at prices that allow us to maintain the profit margins we have had in the past. We believe that we will be able to either renegotiate contracts with these suppliers when they expire or, alternatively, if we are unable to renegotiate contracts with our key suppliers, we believe that we could replace them. Any raw material disruption or price increase may result in an adverse impact on our financial condition and prospects. For instance, we could incur higher costs in renegotiating contracts with existing suppliers or replacing those suppliers, or we could experience temporary dislocations in our ability to deliver products to our customers, either of which could have a material adverse effect on our results of operations.

Seasonality

Our business is seasonal. The period from June to September, when we have our highest water sales, represents the peak period for sales and revenues due to increased consumption of cold beverages during the summer months in our core Northeastern United States market. Conversely, coffee, which represented 21% of our sales in 2007, has a peak sales period from November to March.

Competition

We believe that bottled water historically has been a regional business in the United States. However, the Home and Office market includes several large regional brands such as Poland Spring, Deer Park, Belmont Springs and Culligan that are all owned by larger companies with national or multinational distribution. Additionally, we compete with smaller, locally-owned, regional bottlers such as Monadnock in the Boston area and Leisure Time in the Hudson Valley of New York.

With our Crystal Rock^® and Vermont Pure^® brands, we compete on the basis of pricing, customer service, quality of our products, attractive packaging, and brand recognition. We consider our trademarks, trade names and brand identities to be very important to our competitive position and defend our brands vigorously.

We feel that installation of filtration units in the home or commercial setting poses a competitive threat to our business. To address this, we have continued to develop our plumbed-in filtration business.

In the past five years, cheaper water coolers from offshore sources have become more prevalent, making customer purchasing a more viable alternative to leasing. Traditionally, the rental of water coolers for offices and homes has been a very profitable business for us. As coolers have become cheaper and more readily available at retail outlets, our cooler rental revenue has declined. Although this rental revenue is very profitable for us, it may continue to decline or become less profitable in the future as a result of this relatively new form of competition.

As discussed above, coffee is another significant component of our overall sales. The growth of this product line has been driven by single serve packages. Since these packages are relatively new, distribution channels are not yet fully developed. Increased competition for sales most likely will develop from other food and beverage distributors, retailers, and the internet. In addition, machines to brew these packages are different from traditional machines and packages ideally need to be brewed in machines that accommodate the specific package. It is conceivable that the popularity of

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a certain machine or brand may dictate what products are successful in the marketplace. Consequently, our success, both from a sales and profitability perspective, may be affected by our access to distribution rights for certain products and machines and our decisions concerning which equipment to invest in.

During the past year, we believe that it has become increasingly important to our competitive advantage to decrease the impact of our business on the environment. We traditionally use five gallon containers that are placed on coolers and are reused many times. In addition, this year we have taken steps to “green” our business including:

• Completed the planning for an extensive solar electricity generation installation in our Watertown facility that is scheduled to be operational in 2008 and to supply a significant amount of the energy for that facility.

• Upgraded the lighting in most of our facilities to high efficiency lighting.

• Instituted no-idling and other driving policies in all of our locations.

• Finalized plans to upgrade many of our older vehicles to new, more energy efficient vehicles.

Trademarks

We own the trade names of the principal water brands that we sell, Vermont Pure Natural Spring Water^® and Crystal Rock^®. We own or have rights to other trade names of brands we sell, including Stoneridge^®, Hidden Spring^®, Pequot Natural Spring Water^®, Excelsior Spring Water^®, Happy Spring Water^®, Manitock Spring Water^®, Vermont Naturals^®, and Cool Beans^®. Our trademarks as well as label designs are registered with the United States Patent and Trademark Office.

Government Regulation

The Federal Food and Drug Administration (FDA) regulates bottled water as a “food.” Accordingly, our bottled water must meet FDA requirements of safety for human consumption, of processing and distribution under sanitary conditions and of production in accordance with the FDA “good manufacturing practices.” To assure the safety of bottled water, the FDA has established quality standards that address the substances that may be present in water which may be harmful to human health as well as substances that affect the smell, color and taste of water. These quality standards also require public notification whenever the microbiological, physical, chemical or radiological quality of bottled water falls below standard. The labels affixed to bottles and other packaging of the water are subject to FDA restrictions on health and nutritional claims for foods under the Fair Packaging and Labeling Act. In addition, all drinking water must meet Environmental Protection Agency standards established under the Safe Drinking Water Act for mineral and chemical concentration and drinking water quality and treatment that are enforced by the FDA.

We are subject to the food labeling regulations required by the Nutritional Labeling and Education Act of 1990. We believe we are in compliance with these regulations.

We are subject to periodic, unannounced inspections by the FDA. Upon inspection, we must be in compliance with all aspects of the quality standards and good manufacturing practices for bottled water, the Fair Packaging and Labeling Act, and all other applicable regulations that are incorporated in the FDA quality standards. We believe that we meet the current regulations of the FDA, including the classification as spring water.

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We also must meet state regulations in a variety of areas to comply with purity, safety, and labeling standards. From time to time, our facilities and sources are inspected by various state departments and authorities. The jurisdiction of such regulation varies from state to state.

Our product labels are subject to state regulation (in addition to the federal requirements) in each state where the water products are sold. These regulations set standards for the information that must be provided and the basis on which any therapeutic claims for water may be made.

The bottled water industry has a comprehensive program of self-regulation. We are a member of the International Bottled Water Association, or IBWA. As a member, our facilities are inspected annually by an independent laboratory, the National Sanitation Foundation, or NSF. By means of unannounced NSF inspections, IBWA members are evaluated on their compliance with the FDA regulations and the association’s performance requirements, which in certain respects are more stringent than those of the federal and various state regulations.

In the past year, there has been an increasing amount of proposed legislative and executive action in state and local governments that would ban the use of bottled water in municipal buildings, enact local taxes on bottled water, and limit the sale by municipalities of water supplies to private companies for resale. To date, none of this action has affected our business but such regulation could adversely affect our business and financial results. For additional information, see “Risk Factors” below.

The laws that regulate our activities and properties are subject to change. As a result, there can be no assurance that additional or more stringent requirements will not be imposed on our operations in the future. Although we believe that our water supply, products and bottling facilities are in substantial compliance with all applicable governmental regulations, failure to comply with such laws and regulations could have a material adverse effect on our business.

Employees

As of January 16, 2008, we had 330 full-time employees and 18 part-time employees. None of the employees belong to a labor union. We believe that our relations with our employees are good.

Additional Available Information

Our principal website is www.vermontpure.com. We make our annual, quarterly and current reports, and amendments to those reports, available free of charge on www.vermontpure.com, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (SEC). Reports of beneficial ownership of our common stock, and changes in that ownership, by directors and officers on Forms 3, 4 and 5 are likewise available free of charge on our website.

The information on our website is not incorporated by reference in this annual report on Form 10-K or in any other report, schedule, notice or registration statement filed with or submitted to the SEC.

The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically at www.sec.gov. You may also read and copy the materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.

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ITEM 1A. RISK FACTORS.

We operate in a competitive business environment that is influenced by conditions that are both controllable and beyond our control. These conditions include, but are not limited to, the regional economy, monetary policy, and the political and regulatory environment. The following summarizes important risks and uncertainties that may materially affect our business in the future.

Over a period of years, we have borrowed substantial amounts of money to finance acquisitions. If we are unable to meet our debt service obligations to our senior and subordinated lenders, we would be in default under those obligations, and that could hurt our business or even result in foreclosure, reorganization or bankruptcy.

The underlying loans are secured by substantially all of our assets. If we do not repay our indebtedness in a timely fashion, our secured creditors could declare a default and foreclose upon our assets, which would likely result in harmful disruption to our business, the sale of assets for less than their fully realizable value, and possible bankruptcy. We must generate enough cash flow to service this indebtedness until maturity.

Fluctuations in interest rates could significantly increase our expenses. We will have significant interest expense for the foreseeable future, which in turn may increase or decrease due to interest rate fluctuations. To partially mitigate this risk, we have established fixed interest rates on 75% of our outstanding senior term debt.

As a result of our large amount of debt, we may be perceived by banks and other lenders to be highly leveraged and close to our borrowing ceiling. Until we repay some of our debt, our ability to access additional capital may be limited. In turn, that may limit our ability to finance transactions and to grow our business. In addition, our senior credit agreement limits our ability to incur incremental debt without our lender’s permission.

Our senior credit agreement contains numerous covenants and restrictions that affect how we conduct our business.

The Baker family currently owns a majority of our voting stock and controls the company. Such control affects our corporate governance, and could also have the effect of delaying or preventing a change of control of the company.

The Baker family group, consisting of four current directors Henry Baker (Chairman Emeritus), Peter Baker (CEO), John Baker (Executive Vice President) and Ross Rapaport (Chairman), as trustee, together own a majority of our common stock. Accordingly, these stockholders, acting together, can exert a controlling influence over the outcome of matters requiring stockholder approval, such as the election of directors, amendments to our certificate of incorporation, mergers and various other matters. The concentration of ownership could also have the effect of delaying or preventing a change of control of the company.

As permitted under the corporate governance rules of the American Stock Exchange (AMEX), we have, at the direction of the Baker family group, elected “controlled company” status under those rules. A controlled company is exempted from these AMEX corporate governance rules: (1) the requirement that a listed company have a majority of independent directors, (2) the requirement that nominations to the company’s board of directors be either selected or recommended by a nominating

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committee consisting solely of independent directors, and (3) the requirement that officers’ compensation be either determined or recommended by a compensation committee consisting solely of independent directors. We do not currently utilize exemption (3) as we have a compensation committee consisting solely of three independent directors.

Our success depends on the continued services of key personnel.

Our continued success will depend in large part upon the expertise of our senior management. Peter Baker, our Chief Executive Officer and President, John Baker, our Executive Vice President, and Bruce MacDonald, our Chief Financial Officer, Treasurer and Secretary, have entered into employment agreements with Vermont Pure Holdings, Ltd. These “at will” employment agreements do not prevent these employees from resigning. The departure or loss of any of these executives individually could have an adverse effect on our business and operations.

The personal interests of our directors and officers create a conflict.

As mentioned above, the Baker family group owns a majority of our common stock. In addition, in connection with the acquisition of Crystal Rock Spring Water Company in 2000, we issued members of the Baker family group (including Joan Baker, the wife of Henry Baker) 12% subordinated promissory notes secured by all of our assets. The current balance on these notes is approximately $14,000,000. We also lease important facilities in Watertown and Stamford, Connecticut from Baker family interests. These interests of the Baker family create various conflicts of interest.

We face competition from companies with far greater resources than we have. In addition, methods of competition in the distribution of home and office refreshment products continue to change and evolve. If we are unable to meet these changes, our business could be harmed.

We operate in highly competitive markets. The principal methods of competition in the markets in which we compete are distribution capabilities, brand recognition, quality, reputation, and price. We have a significant number of competitors, some of which have far greater resources than us. Among our principal competitors are Nestlé Waters North America, large regional brands owned by private groups, and local competitors in the markets that we serve. Price reductions and the introduction of new products by our competitors can adversely affect our revenues, gross margins, and profits.

In addition, the industry has been affected by the increasing availability of water coolers in discount retail outlets. This has negatively impacted our rental revenue stream in recent years as more customers choose to purchase coolers rather than rent them. The reduction of rental revenue has been somewhat offset by the increase in coolers that we sell but not to the extent that rentals have declined. We do not expect retail sales to replace rentals completely because we believe that the purchase option does not provide the quality and service that many customers want. However, third party retail cooler sales may continue to negatively impact our rental revenues in the future.

The bottled water industry is regulated at both the state and federal level. If we are unable to continue to comply with applicable regulations and standards in any jurisdiction, we might not be able to sell our products in that jurisdiction, and our business could be seriously harmed.

The FDA regulates bottled water as a food. Our bottled water must meet FDA requirements of safety for human consumption, labeling, processing and distribution under sanitary conditions and production in accordance with FDA “good manufacturing practices.” In addition, all drinking water must meet Environmental Protection Agency standards established under the Safe Drinking Water

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Act for mineral and chemical concentration and drinking water quality and treatment, which are enforced by the FDA. We also must meet state regulations in a variety of areas. These regulations set standards for approved water sources and the information that must be provided and the basis on which any therapeutic claims for water may be made. We have received approval for our drinking water in Connecticut, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island and Vermont. However, we can give no assurance that we will receive such approvals in the future.

Legislative and executive action in state and local governments banning the use of municipal funds for purchasing bottled water, enacting local taxes on bottled water or water extraction, and restricting water withdrawal and usage rights from public and private sources could adversely affect our business and financial results.

Recent initiatives have taken place in several major cities regarding bottled water, principally the smaller sizes sold in stores to retail consumers. Regulations have been proposed in some localities that would ban the use of public funds to purchase bottled water and enact local taxes on bottled water or water extraction, and restrict the withdrawal of water from public and private sources. These actions are purportedly designed to discourage the use of bottled water due in large part to concerns about the environmental effects of producing and discarding large numbers of plastic bottles. In developing these stories, local and national media have reported on the growth of the bottled water industry and on the pros and cons of consuming bottled water as it relates to solid waste disposal and energy consumption in manufacturing as well as conserving the supply of water available to the public.

We believe that the adverse publicity associated with these reports is generally aimed at the retail, small bottle segment of the industry that is now a minimal part of our business, and that our customers can readily distinguish our products from the retail bottles that are currently the basis for concern in some areas. Our customers typically buy their water in reusable five gallon containers that are placed on coolers and are reused many times and only approximately 4% of our total sales is from water sold in single serve packages.. In addition, we continue to take steps to “green” our business by means of solar electricity generation, high efficiency lighting, no-idling and other driving policies, and the use of biodiesel.

While we believe that to date we have not directly experienced any adverse effects from these concerns, and that our products are sufficiently different from those under scrutiny, there is no assurance that adverse publicity about any element of the bottled water industry will not affect consumer behavior by discouraging buyers from buying bottled water products generally. In that case, our sales and other financial results could be adversely affected.

We depend upon maintaining the integrity of our water resources and manufacturing process. If our water sources or bottling processes were contaminated for any reason, our business would be seriously harmed.

Our ability to retain customers and the goodwill associated with our brands is dependent upon our ability to maintain the integrity of our water resources and to guard against defects in, or tampering with, our manufacturing process. The loss of integrity in our water resources or manufacturing process could lead to product recalls and/or customer illnesses that could significantly reduce our goodwill, market share and revenues. Because we rely upon natural spring sites for sourcing some of our water supply, acts of God, such as earthquakes, could alter the geologic formation of the spring sites, constricting water flow.

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In addition, we do not own any of our water sources. Although we feel the long term rights to our spring and municipal sources are well secured, any dispute over these rights that resulted in prolonged disruption in supply could cause an increase in cost of our product or shortages that would not allow us to meet the market demand for our product.

Fluctuations in the cost of essential raw materials and commodities, including fuel costs, for the manufacture and delivery of our products could significantly impact our business.

We rely upon the raw material of polycarbonate, a commodity that is subject to fluctuations in price and supply, for manufacturing our bottles. Bottle manufacturers also use petroleum-based products. Increases in the cost of petroleum will likely have an impact on our bottle costs.

Our transportation costs increase as the price of fuel rises. Because trucks are used extensively in the delivery of our products, the rising cost of fuel has impacted and can be expected to continue to impact the profitability of our operations unless we are able to pass along those costs to our customers. Further, limitations on the supply or availability of fuel could inhibit our ability to get raw materials and distribute our products, which in turn could have an adverse affect on our business.

A significant portion of our sales, 21% in fiscal year 2007, is derived from coffee. The supply and price of coffee may be limited by climate, by international political and economic conditions, and by access to transportation, combined with consumer demand. An increase in the price of coffee could result in a reduction in our profitability. If our ability to purchase coffee were impaired by a market shortage, our sales might decrease, which would also result in a reduction of profitability.

We have a limited amount of bottling capacity. Significant interruptions of our bottling facilities could adversely affect our business.

We own three bottling facilities, and also contract with third parties, to bottle our water. If any of these facilities were incapacitated for an extended period of time, we would likely have to relocate production to an alternative facility. The relocation and additional transportation could increase the cost of our products or result in product shortages that would reduce sales. Higher costs and lower sales would reduce profitability.

We rely upon a single software vendor that supplies the software for our route accounting system.

Our route accounting system is essential to our overall administrative function and success. An extended interruption in servicing the system could result in the inability to access information. Limited or no access to this information would likely inhibit the distribution of our products and the availability of management information, and could even affect our compliance with public reporting requirements. Our supplier is Computer Design Systems, or CDS, of which we own approximately 24%. CDS has a limited number of staff that has proprietary information pertaining to the operation of the software. Changes in personnel might result in disruption of service. Any of these consequences could have a material adverse impact on our operations and financial condition.

Our customer base is located in New England, New York and New Jersey. If there were to be a material decline in the economy in these regions, our business would likely be adversely affected.

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Essentially all of our sales are derived from New England, New York and New Jersey. A significant negative change in the economy of any of these regions, changes in consumer spending in these regions, or the entry of new competitors into these regional markets, among other factors, could result in a decrease in our sales and, as a result, reduced profitability.

Our business is seasonal, which may cause fluctuations in our stock price.

The period from June to September represents the peak period for sales and revenues due to increased consumption of beverages during the summer months in our core Northeastern United States markets. Warmer weather in our geographic markets tends to increase sales, and cooler weather tends to decrease sales. To the extent that our quarterly results are affected by these patterns, our stock price may fluctuate to reflect them.

Acquisitions may disrupt our operations or adversely affect our results

We regularly evaluate opportunities to acquire other businesses. The expenses we incur evaluating and pursuing acquisitions could have a material adverse effect on our results of operations. If we acquire a business, we may be unable to manage it profitably or successfully integrate its operations with our own. Moreover, we may be unable to realize the financial, operational, and other benefits we anticipate from these acquisitions. Competition for future acquisition opportunities in our markets could increase the price we pay for businesses we acquire and could reduce the number of potential acquisition targets. Further, acquisitions may involve a number of special financial and business risks, such as:

• charges related to any potential acquisition from which we may withdraw;

• diversion of our management’s time, attention, and resources;

• decreased utilization during the integration process;

• loss of key acquired personnel;

• increased costs to improve or coordinate managerial, operational, financial, and administrative systems including compliance with the Sarbanes-Oxley Act of 2002;

• dilutive issuances of equity securities, including convertible debt securities;

• the assumption of legal liabilities;

• amortization of acquired intangible assets;

• potential write-offs related to the impairment of goodwill;

• difficulties in integrating diverse corporate cultures; and

• additional conflicts of interests.

We are required to be in full compliance with Section 404 of the Sarbanes-Oxley Act as of our fiscal year ending October 31, 2009. Under current regulations, the financial cost of compliance with Section 404 is significant. Failure to achieve and maintain effective internal

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control in accordance with Section 404 could have a material adverse effect on our business and our stock price.

We are in the process of implementing the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, which requires management to assess the effectiveness of our internal controls over financial reporting and include an assertion in our annual report as to the effectiveness of its controls. The cost to comply with this law will affect our net income adversely during the compliance period. In addition, management’s effort and cost are no assurance that our independent auditors will attest to the effectiveness of our internal controls in its report required by the law. If that is the case, the resulting report from our auditors may have a negative impact on our stock price.

ITEM 1B. UNRESOLVED STAFF COMMENTS.

None.

ITEM 2. PROPERTIES.

As part of our Home and Office delivery operations, we have entered into or assumed various lease agreements for properties used as distribution points and office space. The following table summarizes these arrangements and includes our bottling facilities:

Location	Lease expiration	Sq. Ft.		Annual Rent
Williston, VT	June 2009		10,000	$	70,936
Waltham, MA	December 2008		11,760	$	147,000
Bow, NH	June 2010		9,600	$	48,360
Rochester, NY	January 2012		15,000	$	60,000
Buffalo, NY	September 2010		10,000	$	62,500
Syracuse, NY	December 2010		10,000	$	38,333
Halfmoon, NY	October 2011		22,500	$	148,500
Plattsburgh, NY	May 2010		5,000	$	24,000
Watertown, CT	October 2016		67,000	$	414,000
Stamford, CT	October 2010		22,000	$	248,400
White River Junction, VT	June 2009		12,000	$	76,647
Waterbury, CT	June 2008		5,000	$	17,240
Groton, CT	June 2009		7,500	$	56,375

All locations are used primarily for warehousing and distribution and have limited office space for location managers and support staff. The exception is the Watertown, Connecticut location, which has a substantial amount of office space for sales, accounting, information systems, customer service, and general administrative staff.

In conjunction with the Crystal Rock merger, we entered into 10-year lease agreements to lease the buildings that are utilized for operations in Watertown and Stamford, Connecticut. Subsequently, on August 29, 2007, we finalized an amendment to our existing lease for the Watertown facility. The lease was scheduled to expire in October, 2010. Annual rent payments for the remainder of the original lease were scheduled to be $414,000 annually.

The amended lease extends the term of the lease six years, to 2016, with an option to extend it an additional five years. Annual lease payments over the extended term of the lease are as follows:

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Years 1-2	$	452,250
Years 3-4	$	461,295
Years 4-5	$	475,521

The rent during the extended option term is to be negotiated by the parties or, in the event there is no agreement, by appraisers selected by them. Otherwise the lease remained substantially unchanged.

The principal reason for seeking to amend the lease was our decision to construct solar panels on the roof of the facility, in order to generate a portion of our electricity needs more cheaply than we currently pay to purchase that electricity. We determined that the economic payback period of the solar panels would exceed the remaining term of the lease unless we sought and obtained an amendment extending the term of the lease.

After finalizing the lease amendment, we entered into agreements for the construction of the solar panels as well as grant agreements from the State of Connecticut to subsidize the project in part. We believe that certain federal and state tax credits will also help to reduce the effective cost of the project.

The landlord for the buildings in Stamford and Watertown, Connecticut is a trust with which Henry, John, and Peter Baker, and Ross Rapaport are affiliated. We believe that the rent charged under these leases is not more than fair market rental value.

We expect that these facilities will meet our needs for the next several years.

ITEM 3. LEGAL PROCEEDINGS.

On May 1, 2006, we filed a lawsuit entitled Vermont Pure Holdings, Ltd. vs. Thomas M. Sobol, et al., in Massachusetts Superior Court CA No. 06-1814, Superior Court Department, County of Suffolk, Massachusetts. The complaint alleges malpractice and other wrongful acts by three law firms (and individuals within those law firms) that had been representing the Company in litigation involving Nestlé Waters North America, Inc. The law firms are Hagens Berman Sobol Shapiro LLP (“Hagens Berman”), Ivey & Ragsdale, and Cozen O’Connor, P.C. In July 2006, defendants Hagens Berman and Thomas M. Sobol filed an answer and counterclaim asserting that we terminated our agreement with Hagens Berman wrongfully and in bad faith and failed to pay monies due and owing to Hagens Berman for its legal services. In August 2007, defendants Cozen O’Connor and Kevin F. Berry filed a counterclaim against the Company that includes an abuse of process count in which it is alleged that our claims against them are frivolous and were not advanced in good faith, as well as a quantum meruit count in which these defendants allege that their services were terminated wrongfully and in bad faith. This case is in the discovery stage.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

No matter was submitted to a vote of security holders during the quarter ended October 31, 2007.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Our Common Stock is traded on the American Stock Exchange, or AMEX, under the symbol VPS. The table below indicates the range of the high and low daily closing prices per share of Common Stock as reported by AMEX.

	High		Low
Fiscal Year Ended October 31, 2007
First Quarter	$	1.75	$	1.38
Second Quarter	$	1.98	$	1.75
Third Quarter	$	1.94	$	1.79
Fourth Quarter	$	1.93	$	1.61
Fiscal Year Ended October 31, 2006
First Quarter	$	2.05	$	1.73
Second Quarter	$	2.04	$	1.69
Third Quarter	$	1.71	$	1.33
Fourth Quarter	$	1.77	$	1.30

The last reported sale price of our Common Stock on AMEX on January 15, 2008 was $1.60 per share.

As of that date, we had 428 record owners and believe that there were approximately 3,200 beneficial holders of our Common Stock.

No dividends have been declared or paid to date on our Common Stock. Our senior credit agreement prohibits us from paying dividends without the prior consent of the lender. It is unlikely that we will pay dividends in the foreseeable future.

Performance Graph

The graph below compares the cumulative 5-year total return to shareholders on Vermont Pure Holdings, Ltd. common stock versus the cumulative total returns of the S&P 500 index, and two customized peer groups, with the first having six companies and the second having twenty companies. The companies in each of these peer groups are listed respectively in footnotes (1) referred to as the old peer group and (2) the new peer group. The company no longer feels that the components that make up the old peer group represent an adequate comparison and will henceforth use the new peer group as a performance measure. The graph tracks the performance of a $100 investment in our common stock, in each of the peer groups, and the index (with the reinvestment of all dividends) from 10/31/2002 to 10/31/2007.

(1) There are six companies included in the company’s first customized peer group which are: Coffee Holding Company Inc, Farmer Brothers Company, Green Mountain Coffee Roasters Inc, Hansen Natural Corp., Jones Soda Company and National Beverage Corp.

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(2) There are twenty companies included in the company’s second customized peer group which are: Continental Beverage & Nutrition Inc, Dominos Pizza Inc, Eldorado Artesian Springs Inc, Nash Finch Company, Nuvim Inc, O2Diesel Corp., Organic Recycling Technologies Inc, Pacific Land & Coffee Corp., Pizza Inn Inc, Pro-FAC Cooperative Inc, S2C Global Systems Inc, S3 Investment Company Inc, Schiff Nutrition International Inc, Supervalu Inc, Sysco Corp., Universal Beverages Holdings Corp., US Wireless Online Inc, Vermont Pure Holdings Limited, Wimm-Bill-Dann Foods ADR 1: 1 -NYSE and Worldwide Biotech & Pharmaceutical.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Vermont Pure Holdings, Ltd., The AMEX Composite Index,
A New Peer Group And An Old Peer Group

	10/02		10/03		10/04		10/05		10/06		10/07
Vermont Pure Holdings, Ltd.		100.00		88.95		47.11		53.68		39.47		43.95
AMEX Composite		100.00		132.26		160.11		203.56		246.95		316.31
New Peer Group		100.00		112.10		134.88		217.75		419.59		799.90
Old Peer Group		100.00		112.27		112.02		116.82		133.80		153.81

* $100 invested on 10/31/02 in stock or index-including reinvestment of dividends.
Fiscal year ending October 31.

The stock price performance included in this graph is not necessarily indicative of future stock price performance.

Issuer Purchase of Equity Securities

The following table summarizes the stock repurchases, by month, that were made during the fourth quarter of the fiscal year ended October 31, 2007.

					Total Number of		Maximum
					Shares		Number of
					Purchased as		Shares that May
	Total Number of				Part of Publicly		Yet be
	Shares		Average Price		Announced		Purchased Under
Period	Purchased		Paid per Share		Program (1)		the Program (1)
August 1-31		15,100	$	1.80		15,100		141,600
September 1-30		9,100	$	1.86		9,100		132,500
October 1-31		5,200	$	1.81		5,200		127,300
Total		29,400	$	1.82		29,400

(1) On June 16, 2006 we announced a program to repurchase up to 250,000 shares of our common stock at the discretion of management. There is no expiration date for the program and the share limit may not be reached.

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ITEM 6. SELECTED FINANCIAL DATA.

The selected consolidated financial data set forth below should be read in conjunction with our financial statements and footnotes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this report. The historical results are not necessarily indicative of the operating results to be expected in the future.

	Fiscal Years Ended
	October 31,		October 31,			October 31,		October 31,		October 31,
(000’s except per share)	2007		2006			2005		2004		2003
Net sales	$	65,231	$	62,774		$	59,835	$	52,473	$	49,854
Income (loss) from continuing operations	$	2,076	$	(20,670	)	$	871	$	500	$	941
Income (loss) per share from continuing operations	$	.10	$	(.96	)	$	.04	$	.02	$	.04
Total assets	$	80,718	$	81,335		$	102,889	$	103,781	$	111,123
Long term debt, less current portion	$	31,442	$	33,875		$	37,975	$	37,854	$	48,274

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following Management’s Discussion and Analysis (MD&A) is intended to help the reader understand our company. The MD&A should be read in conjunction with our consolidated financial statements and the accompanying notes. This overview provides our perspective on the individual sections of the MD&A, as well as a few helpful hints for reading these pages. The MD&A includes the following sections:

• Business Overview — a brief description of fiscal year 2007.

• Results of Operations — an analysis of our consolidated results of operations for the three years presented in our consolidated financial statements.

• Liquidity and Capital Resources — an analysis of cash flows, sources and uses of cash, and contractual obligations and a discussion of factors affecting our future cash flow.

• Critical Accounting Policies — a discussion of accounting policies that require critical judgments and estimates. Our significant accounting policies, including the critical accounting policies discussed in this section, are summarized in the notes to the accompanying consolidated financial statements.

Business Overview

Our financial results were greatly improved in fiscal year 2007. The primary reason for the improvement was that in 2006 we experienced a goodwill impairment (a non-cash charge) in the amount of $22,950,000, which materially reduced our net income. It was a substantial component of the net loss of $20,670,000 compared to net income of $2,076,000 in 2007.

In addition to the goodwill impairment in 2006, we received a one time favorable legal settlement of $750,000, before taxes, that was booked as income during the fiscal year. Without considering the impairment charge and the settlement, our core profitability improved significantly largely reflecting increased sales despite a lower gross profit as a percentage of sales. In 2007, we experienced

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stronger sales growth in our core products compared to prior year. Pricing for water products improved while bottle sales on our routes were stable and placements for rental equipment increased during the year. However, single serve coffee continued to be our fastest growing product line. Gross profit, as a percentage of sales, decreased as a result of the product mix skewing away from non-water related products, as well as product pricing that did not offset higher costs for some products. Operating costs remained relatively stable despite market increases in energy costs and increased legal expenses but, in the longer term, operating costs continue to be adversely affected by outside conditions such as fuel, insurance, and administrative expenses related to regulatory requirements. Over the next three years, we expect to comply with Section 404 of the Sarbanes-Oxley Act. We absorbed some of this compliance cost in fiscal year 2005 and expect that most of the remainder of the anticipated cost to comply will be incurred in fiscal years 2008, 2009, and 2010.

In addition, the potential to grow through acquisitions remains viable. We have ample opportunities to acquire businesses through small acquisitions and will endeavor to take advantage of these opportunities based on price, potential synergies, and access to capital.

Results of Operations

Fiscal Year Ended October 31, 2007 Compared to Fiscal Year Ended October 31, 2006

Sales

Sales for fiscal year 2007 were $65,231,000 compared to $62,774,000 for 2006, an increase of $2,457,000 or 4%. Sales attributable to acquisitions in fiscal year 2007 were $493,000. Net of the acquisitions, sales increased 3%.

The comparative breakdown of sales is as follows:

Product Line	2007		2006		Difference			% Diff.
	(in 000’s $)		(in 000’s $)		(in 000’s $)
Water	$	29,560	$	28,886	$	674			2	%
Coffee and Related		19,341		17,430		1,911			11	%
Equipment Rental		9,143		9,013		130			1	%
Other		7,187		7,445		(258	)		(3	%)
Total	$	65,231	$	62,774	$	2,457			4	%

Water — The aggregate increase in water sales was a result of 3% increase in price and a 1% decrease in volume. The increase in price was attributable to general increases in list prices. The decrease in volume was primarily a result of a decrease in bottles sold to distributors. Sales to distributors, which are 3% of total water sales, decreased 15%. Bottles sold in our route system increased 1%. Volume was favorably impacted by several small acquisitions completed during the year. Sales increased 1% as a result of these acquisitions.

Coffee — The increase in sales was primarily due to the growth of single serve coffee, which grew 17% to $7,328,000 in fiscal year 2007 compared to $6,260,000 in fiscal year 2006. The profit margin on single serve coffee products increased in 2007 compared to 2006 but is lower than that for traditional water and coffee products. Acquisitions had no impact on coffee sales in 2007.

Equipment Rental — Rental equipment placements increased 6% in fiscal year 2007 compared to fiscal year 2006. Average rental charges for equipment decreased 3% in 2007 compared to 2006 and was primarily a result of retail competition and a higher demand for single serve coffee units.

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Coffee brewers generally have lower rental charges than water coolers. The impact of acquisitions on equipment rental was not material.

Other — Other revenue decreased as a result of a change of approximately $201,000 in the estimate of container deposit liability brought about by the loss of a customer as well as higher miscellaneous discounts. Otherwise, sales of other products such as soft drinks, single serve water, cups, and vending items increased 9%.

Gross Profit/Cost of Goods Sold

Gross profit increased $742,000, or 2% in fiscal year 2007 compared to 2006, to $37,042,000 from $36,300,000. As a percentage of sales, gross profit decreased to 56.8% of sales from 57.8% for the respective period. The dollar increase in gross profit was attributable to higher sales. The decrease in gross profit, as a percentage of sales, was attributable to a change in product sales mix as well as a higher container return charge in the second quarter. Product mix was influenced by higher volume growth of single serve coffee which has a lower profit margin than water and traditional coffee products.

Cost of goods sold includes all costs to bottle water, costs of purchasing and receiving products for resale, including freight, as well as costs associated with product quality, warehousing and handling costs, internal transfers, and the repair and service of rental equipment, but does not include the costs of distributing our product to our customers. We include distribution costs in selling, general, and administrative expense, and the amount is reported below. Other companies may include distribution costs in their cost of goods sold, in which case, on a comparative basis, such other companies may have a lower gross margin as a result.

Income from Operations/Operating Expenses

Income from operations was $6,643,000 in 2007 compared to a loss from operations of $16,470,000 in 2006, an improvement of $23,113,000. The most significant component of this improvement was goodwill impairment of $22,950,000 in 2006. There was no such impairment in 2007. Total operating expenses decreased to $30,399,000 for the year, down from $52,771,000 the prior year, a decrease of $22,372,000. Once again, the most significant contributor to the higher operating expenses in 2006 was the impairment charge of $22,950,000. Net of impairment, operating expenses increased slightly. The increase, in general, was a result of additional expenses due to increased sales.

Selling, general and administrative (SG&A) expenses were $27,969,000 in fiscal year 2007 and $27,934,000 in 2006, an increase of $35,000, less than 1%. Of total SG&A expenses, route sales costs increased 1%, or $163,000, to $13,558,000 in fiscal year 2007 from $13,395,000 in fiscal year 2006, primarily related to labor for commission-based sales from increased sales. Included in our SG&A expenses, total direct distribution related costs increased $189,000, or 1%, to $12,930,000 in fiscal year 2007 from $12,741,000 in fiscal year 2006. Selling costs decreased 11%, or $329,000, to $2,732,000 in fiscal year 2007 from $3,061,000 in fiscal year 2006, as a result of a decrease in staffing costs. Administrative costs increased 2%, or $201,000, to $11,679,000 in fiscal year 2007 from $11,478,000 in fiscal year 2006, as a result of higher compensation expense.

Advertising expenses increased to $1,602,000 in fiscal year 2007 from $1,083,000 in 2006, an increase of $519,000, or 48%. The increase in advertising costs was related to higher print advertising, advertising production and an advertising campaign in southern New England comprised of radio, billboards, and distribution of samples to increase brand awareness.

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Amortization decreased to $846,000 in fiscal year 2007 from $878,000 in 2006. This decrease is attributable to some intangible assets acquired in prior years being fully amortized.

We had a gain from the sale of miscellaneous assets in fiscal year 2007 of $18,000. We had a gain on the sale of assets of $74,000 in fiscal year 2006 that was primarily generated by the sale of a small portion of our customer lists.

In fiscal year 2006, we incurred an impairment loss of $22,950,000. The impairment loss was a non-cash charge and was a result of the assessment of our goodwill as of October 31, 2006. Goodwill had been recorded for acquisitions from 1996 through 2006. Our assessment concluded that goodwill on our books exceeded the value as prescribed by SFAS No. 142. The loss was a result of the acquisitions not yielding the anticipated economic benefit. We conducted a similar assessment of goodwill as of October 31, 2007 and concluded that goodwill was not impaired as of that date.

Other Income and Expense, Income Taxes, and Income from Operations

Interest expense was $3,250,000 for fiscal year 2007 compared to $3,268,000 for fiscal year 2006, a decrease of $18,000. Lower interest costs were primarily a result of reduced amounts of senior debt. Lower loan balances were partially offset by higher market interest rates and fixing new senior debt at higher rates.

We recorded $750,000 as other income in fiscal year 2006 related to the settlement of our case against Nestle. In fiscal year 2007 we had no legal settlements.

Income from operations before income taxes in fiscal year 2007 was $3,393,000, compared to a loss from continuing operations before income tax expense in fiscal year 2006 of $18,989,000, an improvement of $22,382,000. As noted above, the most significant component of loss from continuing operations in fiscal 2006 was goodwill impairment of $22,950,000. In addition, there was not a recurrence of the legal settlement in 2007 that occurred in 2006. Aside from those two items, the improvement reflected higher sales in 2007. The tax expense for fiscal year 2007 was $1,317,000 compared to $1,682,000 for fiscal year 2006 and resulted in an effective tax rate of 39% in 2007 and (9%) in 2006. The decrease in income tax expense is primarily a result of lower taxable income. The negative tax rate in 2006 is attributable to the exclusion of the impairment loss from taxable income. Our total effective tax rate is a combination of federal and state rates for the states in which we operate.

Net Income (Loss)

Net income in fiscal year 2007 was $2,076,000 compared to a net loss of $20,670,000 in 2006, an improvement of $22,746,000. As noted above, the most significant component of the net loss in 2006 was goodwill impairment of $22,950,000. Net income (loss) was completely attributable to continuing operations.

Based on the weighted average number of shares of Common Stock outstanding of 21,624,000 (basic and diluted), earnings per share in fiscal year 2007 was $.10 per share. This was an improvement of $1.06 per share over fiscal year 2006, when the weighted average number of shares of Common Stock outstanding in 2006 was 21,631,000 (basic and diluted) and we had a net loss of $(.96) per share.

The fair value of our swaps decreased $244,000 during fiscal year 2007 compared to a decrease of $134,000 in 2006. This resulted in unrealized losses of $144,000 and $92,000, net of taxes, respectively, for the fiscal years ended October 31, 2007 and 2006. The decrease during the year has been recognized as an adjustment to net income (loss) to arrive at comprehensive income (loss) as

23

defined by the applicable accounting standards. Further, the cumulative adjustment over the life of the instrument has been recorded as a current liability and accumulated other comprehensive loss on our consolidated balance sheet.

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Fiscal Year Ended October 31, 2006 Compared to Fiscal Year Ended October 31, 2005

Sales

Sales for fiscal year 2006 were $62,774,000 compared to $59,835,000 for 2005, an increase of $2,939,000, or 5%. Sales attributable to acquisitions in fiscal year 2006 were $742,000. Net of the acquisitions, sales increased 4%.

The comparative breakdown of sales is as follows:

Product Line	2006		2005		Difference			% Diff.
	(in 000’s $)		(in 000’s $)		(in 000’s $)
Water	$	28,886	$	28,869	$	17			—
Coffee and Related		17,430		15,388		2,042			13	%
Equipment Rental		9,013		9,337		(324	)		(3	%)
Other		7,445		6,241		1,204			19	%
Total	$	62,774	$	59,835	$	2,939			5	%

Water — Water sales were essentially unchanged. Volume decreased 2% while price increased 2%. The increase in price was attributable to general increases in list prices. The decrease in volume was a result of a decrease in demand in our core markets. Though volume was favorably impacted by several small acquisitions completed during the year, sales increased less than 1% as a result of acquisitions. Sales to distributors, which account for about 4% of water sales, were up 4%.

Coffee — Sales of coffee and related products increased 2% from sales volume related to acquisitions. Net of acquisitions, sales in this category increased 11%. The increase in sales was attributable to increased volume of all products in this category but primarily to the growth of single serve coffee, which grew 24% to $6,260,000 in fiscal year 2006 compared to $5,045,000 in fiscal year 2005. The margin on single serve coffee products is lower than that for traditional water and coffee products.

Equipment Rental — Rental equipment placements were substantially unchanged in fiscal year 2006 compared to fiscal year 2005. The 3% decrease in average rental charges was primarily related to lower demand for water coolers as a result of retail competition and a higher demand for single serve coffee units. Coffee brewers generally have lower rental charges than water coolers. The impact of acquisitions on equipment rental was not material.

Other — The increase in other revenues was primarily attributable to fuel adjustment charges. These charges are to compensate for high fuel costs, are not allocated to specific products, vary with the market costs of fuel and represented a $1.1 million increase over 2005. Sales from other products, which include cups, vending items, and single serve soft drinks and water, were substantially unchanged from 2005.

Gross Profit/Cost of Goods Sold

Gross profit increased $1,308,000, or 4% in fiscal year 2006 compared to 2005, to $36,300,000 from $34,992,000. As a percentage of sales, gross profit decreased to 57.8% of sales from 58.5% for the respective period. The dollar increase in gross profit was attributable to higher sales. Lower gross profit, as a percentage of sales, was a result of the product sales mix and higher cost of sales. A significant amount of the sales growth from the previous year was generated by coffee which has a lower margin than water related revenue. Higher cost of sales were attributable to higher energy and

25

service costs and production inefficiencies when bringing new bottling equipment on line at our Halfmoon, New York facility.

Cost of goods sold includes all costs to bottle water, costs of purchasing and receiving products for resale, including freight, as well as costs associated with product quality, warehousing and handling costs, internal transfers, and the repair and service of rental equipment, but does not include the costs of distributing our product to our customers. We include distribution costs in selling, general, and administrative expense, and the amount is reported below. Other companies may include distribution costs in their cost of goods sold, in which case, on a comparative basis, such other companies may have a lower gross margin as a result.

Income from Operations/Operating Expenses

Loss from operations was $16,470,000 in 2006 compared to income from operations of $5,236,000 in 2005, a decrease in this line item of $21,706,000. As noted above, the most significant component of this decrease was goodwill impairment of $22,950,000. If there had been no goodwill impairment, fiscal 2006 income from operations would have increased compared to fiscal 2005. Positive components of our fiscal 2006 operating results were attributable to higher sales and stable recurring operating costs. Total operating expenses increased to $52,771,000 for the year, up from $29,756,000 the prior year, an increase of $23,015,000. Once again, the most significant contributor to the increase was the impairment charge of $22,950,000. Without regard to impairment, the increase in our operating expenses was quite modest.

Selling, general and administrative (SG&A) expenses were $27,934,000 in fiscal year 2006 and $27,791,000 in 2005, an increase of $143,000, less than 1%. Of total SG&A expenses, route sales costs, significantly influenced by labor, fuel, vehicle, and insurance costs, increased 2%, or $213,000, to $13,395,000 in fiscal year 2006 from $13,182,000 in fiscal year 2005, primarily related to labor for commission-based sales from increased product volume and fuel due to market prices. Included in our SG&A expenses, total direct distribution related costs increased $178,000, or 1%, to $12,741,000 in fiscal year 2006 from $12,563,000 in fiscal year 2005. In addition, selling costs increased 7%, or $212,000, to $3,061,000 in fiscal year 2006 from $2,849,000 in fiscal year 2005, as a result of an increase in sales staffing. Administrative costs decreased 2%, or $282,000, to $11,478,000 in fiscal year 2006 from $11,760,000 in fiscal year 2005, as a result of lower compensation expense.

Advertising expenses were $1,083,000 in fiscal year 2006 compared to $1,194,000 in 2005, a decrease of $111,000, or 9%. The decrease in advertising costs is primarily related to a reduction of television advertising for the year.

Amortization increased to $878,000 in fiscal year 2006 from $787,000 in 2005. This increase is attributable to intangible assets that were acquired as part of several acquisitions in fiscal year 2006.

We had a gain on the sale of assets of $74,000 in fiscal year 2006 that was primarily generated by the sale of a small portion of our customer lists. This compared to a $15,000 gain on the sale of miscellaneous assets in fiscal year 2005.

In fiscal year 2006, we incurred an impairment loss of $22,950,000. The impairment loss was a non-cash charge and was a result of the assessment of our goodwill as of October 31, 2006. Goodwill had been recorded for acquisitions from 1996 through 2006. Our assessment concluded that goodwill on our books exceeded the value as prescribed by SFAS No. 142. The loss was a result of the acquisitions not yielding the anticipated economic benefit.

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Other Income and Expense, Income Taxes, and Income from Continuing Operations

Interest expense was $3,268,000 for fiscal year 2006 compared to $3,365,000 for fiscal year 2005, a decrease of $97,000. Lower interest costs were primarily a result of reduced amounts of senior and subordinated debt. Lower loan balances were partially offset by higher market interest rates and fixing new senior debt at a higher rate than market rates, after the expiration of a $10 million interest rate swap agreement in June, 2006.

We recorded $750,000 as other income in 2006 related to the settlement of our case against Nestle. In fiscal year 2005, we incurred $250,000 related to the settlement of legal matters with former employees. These expenses comprise most of the $261,000 of total miscellaneous expense in 2005.

Loss from continuing operations before income tax expense was $18,989,000 in fiscal year 2006 compared to income from continuing operations of $1,610,000 in fiscal year 2005, a decrease of $20,599,000. As noted above, the most significant component of loss from continuing operations in fiscal 2006 was goodwill impairment of $22,950,000. The tax expense for fiscal year 2006 was $1,682,000 compared to $740,000 for fiscal year 2005 and resulted in an effective tax rate of (9%) in 2006 and 46% in 2005. The increase in income tax expense is primarily a result of higher taxable income. The significant decrease in the tax rate is attributable to the exclusion of the impairment loss from taxable income. In addition to the impact of the impairment loss to the tax rate, there is a decrease in tax rate as a result of a shift in earnings in states with lower effective rates. Our total effective tax rate is a combination of federal and state rates for the states in which we operate.

Net (Loss) Income

Net loss was $20,670,000 in 2006 compared to a net income of $871,000 in 2005, a decrease of $21,541,000. As noted above, the most significant component of the net loss was goodwill impairment of $22,950,000. Net (loss) income was completely attributable to continuing operations, which includes the impairment charge.

Based on the weighted average number of shares of Common Stock outstanding of 21,631,000 (basic and diluted) during 2006, net loss was $(.96) per share, basic and diluted. This was a $1.00 per share decrease, basic and diluted, over 2005 when the weighted average number of shares of Common Stock outstanding of 21,620,000 (basic) and 21,626,000 (diluted) resulted in net income of $.04 per share, basic and diluted. All (loss) earnings per share were derived from continuing operations.

The fair value of our swaps decreased $134,000 during fiscal year 2006 compared to an increase of $107,000 in 2005. This resulted in an unrealized loss of $92,000 and unrealized gain of $65,000, net of taxes, respectively, for the fiscal years ended October 31, 2006 and 2005. The decrease during the year has been recognized as an adjustment to net loss (income) to arrive at comprehensive income(loss) as defined by the applicable accounting standards. Further, the cumulative adjustment over the life of the instrument has been recorded as a current asset and accumulated other comprehensive income on our consolidated balance sheet.

Liquidity and Capital Resources

As of October 31, 2007, we had working capital of $2,583,000 compared to $2,517,000 as of October 31, 2006, an increase of $66,000. Although working capital increased modestly, some of the components of working capital did change significantly as $830,000 was generated primarily from an increase in inventory and receivables and decrease in the current portion of long term debt. Receivables and inventory increased as a result of increased sales and inventory also increased as a

27

result of more product offerings and favorable buying opportunities at year end. Short tem debt obligations decreased as a result of the amendment of our senior credit facility. Items that offset the increase in working capital were primarily non-cash items, most notably from the decrease in the value of our interest rate swaps and change in our deferred tax asset. Our deferred tax liability at October 31, 2007 represents temporary differences, primarily attributable to depreciation and amortization, between book and tax calculations.

Net cash provided by operating activities decreased $1,456,000, or 17%, to $7,017,000 from $8,473,000. We use cash provided by operations to repay debt and fund capital expenditures. In fiscal year 2007, we used $3,334,000 for scheduled repayments of our term debt and $175,000 of debt incurred from several small acquisitions. We used $4,132,000 for capital expenditures and borrowed $664,000 from our line of credit to finance those acquisitions. Capital expenditures included coolers, brewers, bottles and racks related to home and office distribution as well as bottling equipment and leasehold improvements.

On July 5, 2007 we amended our credit facility with Bank of America dated April 6, 2005. The amendment changed the Acquisition Loan termination date and Revolving Credit Loan maturity date to April 5, 2010 from April 5, 2008 and extended the Term Loan maturity date from May 5, 2012 to January 5, 2014. In conjunction with the extension of the maturity date, the monthly amortization amount on the Term Loan was fixed at $270,833 for the duration of the loan. Prior to the amendment, the Term Loan amortization was scheduled to be monthly amounts, increasing from year to year, ranging from $312,500 to $395,833. In addition, the amendment makes up to $3,000,000 available from the Revolving Credit Loan for repurchase of our stock or for repayment of subordinated debt and $2,200,000 available from the Acquisition Loan for installation of solar electricity generation equipment at our leased property in Watertown, Connecticut. The amendment has provisions for amortization of the additional borrowed amounts over the remaining life of the loans starting approximately two years after disbursement. It also alters some of the financial covenant calculations to provide for the additional borrowing.

As of October 31, 2007, we had an outstanding balance of $650,000 on the Acquisition Loan. There was no balance on the Revolving Credit Loan and $1,385,000 issued in letters of credit on the availability of the loan. As of October 31, 2007, there was $6,850,000 and $4,615,000 available on the Acquisition and Revolving Loans, respectively.

On October 5, 2007, the Company entered into an interest rate hedge agreement in conjunction with the amendment to its Credit Agreement. The intent of the instrument is to fix the interest rate on 75% of the outstanding balance on the Term Loan as required by the credit facility. The swap fixes the interest rate for the swapped amount at 6.62% (4.87% plus the applicable margin, 1.75%). Also on October 5, 2007, the Company terminated interest rate hedge agreements that it had consummated on July 5, 2007 (“the July 2007 swap”) and May 3, 2005 (the May 2005 swap). On that date, the Company paid a net amount of $99,200 to terminate both the swaps.

The July 2007 swap was structured to fix the interest rate on 75% of the Term Loan, as amended on the same date, taking into account the May 2005 swap when the facility was originally executed. The July 2007 swap fixed the interest rate at 7.73% (5.98%, plus the applicable margin, 1.75%) for the term debt. The May 2005 swap fixed the interest rate at 6.41% (4.66%, plus the applicable margin, 1.75%) for the term debt and amortized concurrently with the loan principal to fix the interest rate with respect to 75% of the outstanding principal prior to the July 5, 2007 amendment. As of October 31, 2007, the total notional amount committed to swap agreements was $15 million.

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As of October 31, 2007, we had approximately $5 million of debt subject to variable interest rates. Under the credit facility with Bank of America, interest is paid at a rate of LIBOR plus a margin of 1.75% on term debt and 1.50% on the line of credit resulting in variable interest rates of 6.46% and 6.21%, respectively at October 31, 2007. In addition, as of October 31, 2007 we had $20,042,000 of senior term debt outstanding under the facility.

Our credit facility requires that we be in compliance with certain financial covenants at the end of each fiscal quarter. The covenants include senior debt service coverage as defined of greater than 1.25 to 1, total debt service coverage as defined of greater than 1 to 1, and senior debt to EBITDA as defined of no greater than 2.5 to 1. As of October 31, 2007, we were in compliance with all of the financial covenants of our new credit facility and we expect to be in compliance in the foreseeable future.

As referred to above, we entered into an agreement to install solar electricity generation equipment at our leased property in Watertown, Connecticut. The contracted installation price is $2,090,000. We applied for, and received, a grant for $1,288,000 to offset the installation costs. We expect the project to be complete in fiscal year 2008.

We used $105,000 of cash to purchase shares of our common stock on the open market during fiscal year 2007.

In addition to our senior and subordinated debt commitments, we have significant future cash commitments, primarily in the form of operating leases that are not reported on the balance sheet. The following table sets forth our contractual commitments as of October 31, 2007:

	Payment due by Period
Contractual Obligations	Total		2008		2009-2010		2011-2012		After 2012
Debt	$	34,702,000	$	3,260,000	$	6,695,000	$	6,760,000	$	17,987,000
Interest on Debt (1)		14,724,000		2,678,000		4,750,000		3,901,000		3,395,000
Operating Leases		10,359,000		2,784,000		4,086,000		1,615,000		1,874,000
Coffee Purchase Commitments		247,000		247,000		—		—		—
Total	$	60,032,000	$	8,969,000	$	15,531,000	$	12,276,000	$	23,256,000

(1) Interest based on 75% of outstanding senior debt at the hedged interest rate discussed above, 25% of outstanding senior debt at a variable rate of 6.46%, and subordinated debt at a rate of 12%.

As of the date of this Annual Report on Form 10-K, we have no other material contractual obligations or commitments.

Inflation has had no material impact on our performance.

Factors Affecting Future Cash Flow

In 2007, we amended our credit facility to more accurately align our debt service with future available cash flow. We also committed to additional operating leases to significantly upgrade our delivery fleet to reduce maintenance and fuel costs and reduce emissions and also to install solar generation panels at our Watertown facility. Combined with interest on our debt, we will have considerable cash commitments, as outlined above, in future years. Starting in 2007, we funded our income tax liability with cash. In past years we have primarily used net operating losses to offset this obligation. We expect to continue to be profitable over the next five years. However, being

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profitable, even at an increasing rate, does not guarantee that we will have sufficient cash to fund our obligations

If we continue to generate cash in excess of operating activities, we will explore opportunities to best use it. We will continue to evaluate potential acquisitions in our existing core market areas and may borrow more money to finance such transactions if we close them. However, we have a large amount of debt and would like to pay down debt if we do not find acquisitions that are accretive. If the acquired business does not perform to our expectations, we would have to borrow from our line of credit to fund some expenditures and our debt level would not decrease as much as anticipated or may even increase.

Moreover, interest rates have been increasing and we continue to be exposed to market rates for 25% of our senior term debt balance and any additional line of credit balances. We expect capital spending of approximately $4 million in fiscal year 2008 to include a facility upgrade in Watertown, Connecticut .

Factors Affecting Quarterly Performance

Our business and financial trends vary from quarter to quarter based on, but not limited to, seasonal demands for our products, climate, and economic and geographic trends. Consequently, results for any particular fiscal quarter are not necessarily indicative, through extrapolation, or otherwise, of results for a longer period.

Critical Accounting Policies

Our financial statements are prepared in accordance with generally accepted accounting principles. Preparation of the statements in accordance with these principles requires that we make estimates, using available data and our judgment for such things as valuing assets, accruing liabilities, and estimating expenses. We believe that the estimates, assumptions and judgments involved in the accounting policies described below have the greatest potential impact on our financial statements, so we consider these to be our critical accounting policies and estimates. Because of the uncertainty inherent in these matters, actual results could differ from the estimates we use in applying the critical accounting policies. We base our ongoing estimates on historical experience and other various assumptions that we believe to be reasonable under the circumstances.

Accounts Receivable — Allowance for Doubtful Accounts

We routinely review our accounts receivable, by customer account aging, to determine if the amounts due are collectible based on information we receive from the customer, past history, and economic conditions. In doing so, we adjust our allowance accordingly to reflect the cumulative amount that we feel is uncollectible. This estimate may vary from the proceeds that we actually collect. If the estimate is too low, we may incur higher bad debt expenses in the future resulting in lower net income. If the estimate is too high, we may experience lower bad debt expense in the future resulting in higher net income.

Fixed Assets — Depreciation

We maintain buildings, machinery and equipment, and furniture and fixtures to operate our business. We estimate the life of individual assets to allocate the cost over the expected life. The basis for such estimates is use, technology, required maintenance, and obsolescence. We periodically review these estimates and adjust them if necessary. Nonetheless, if we overestimate the life of an asset or assets, at a point in the future, we would have to incur higher depreciation costs and consequently,

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lower net income. If we underestimate the life of an asset or assets, we would absorb too much depreciation in the early years resulting in higher net income in the later years when the asset is still in service.

Goodwill — Intangible Asset Impairment

We have acquired a significant number of companies. The difference between the value of the assets and liabilities acquired, including transaction costs, and the purchase price is recorded as goodwill. If goodwill is not impaired, it would remain as an asset on our balance sheet at the value acquired. If it is impaired, we would be required to write down the asset to an amount that accurately reflects its estimated value. We have had an independent valuation of the Company performed as of October 31, 2007, and goodwill was not impaired as of that date. As of October 31, 2006, using a similar valuation process, comparing the fair value to the carrying value of the Company, we determined that goodwill was impaired at that time. As a result of this process, the Company recorded an impairment loss on goodwill of $22,950,000 in 2006. In determining these valuations, the independent valuation firm has relied, in part, on projections of the Company’s future cash flows that we provided. If these projections change in the future, there may be a material impact on the valuation of the Company, which may result in an additional impairment of goodwill.

Income Taxes

In accordance with SFAS No. 109 “Accounting for Income Taxes”, we recognize deferred tax assets and liabilities based on temporary differences between the financial statement carrying amount of assets and liabilities and their corresponding tax basis. The valuation of these assets and liabilities is based on estimates that are dependent on rate and time assumptions. If these estimates do not prove to be correct in the future, we may have over or understated income tax expense and, as a result, earnings.

Stock Based Compensation

At the beginning of fiscal year 2006, we adopted SFAS No. 123(R) “Share-based Payments” (revised 2004), which requires us to recognize the cost of equity issued in exchange for services. The cost of equity is determined using interest rate, volatility, and expected life assumptions. This pronouncement did not have a material impact on our financial position in fiscal year 2006 or 2007 since we had an immaterial amount of equity (options) issued or vesting during the period.

In prior years, following the accounting treatment prescribed by APB Opinion No. 25, “Accounting for Stock Issued to Employees,” we have recognized no compensation expense for our stock option awards because the exercise price of our stock options equaled the market price of the underlying stock on the date of option grant. If our compensation committee chose to award options at lower than market prices, we would have been required to recognize compensation expense. The compensation committee issued restricted shares of our stock and we recorded compensation expense over the vesting period as a result of the issuance.

We provide pro forma disclosure in the footnotes to our financial statements to enable the reader to assess the impact on the financial statements if we had used the fair value method using SFAS No. 123 for fiscal years prior to 2006. In doing so, we make certain assumptions related to interest rates and the volatility of our stock price. The accuracy of these assumptions affects the eventual outcome of the amount of stock based compensation reported in the footnote.

We estimate a risk free rate of return based on current (at the time of option issuance) U. S. Treasury bonds and calculate the volatility of its stock price over the past twelve months from the option issuance date. The fluctuations in the volatility assumption used in the calculation over the years

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reported is a direct result of the increases and decrease in the stock price over that time. All other factors being equal, a 10% increase in the volatility percentage results in approximately a 12% increase in the fair value of the options, net of tax.

Off-Balance Sheet Arrangements

We lease various facilities and equipment under cancelable and non-cancelable short and long term operating leases, which are described in Note 16 to our Audited Consolidated Financial Statements contained in this Annual Report on Form 10-K. Information about these leases also appears above under the caption “Liquidity and Capital Resources.”

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Interest Rate Risks

At October 31, 2007, we had approximately $5,660,000 of long-term debt subject to variable interest rates. Under our Credit Agreement with Bank of America, we pay interest at a rate of LIBOR plus a margin of 1.75%, or 6.46%, on our Term Loan and LIBOR plus 1.50%, or 6.21%, on our Acquisition Loan at October 31, 2007. A hypothetical 100 basis point increase in the LIBOR rate would result in an additional $57,000 of interest expense on an annualized basis. Conversely, a decrease would result in a proportionate interest cost savings.

Our Credit Agreement requires that we fix the interest rate on 75% of our Term Loan for the life of the loan. We have accomplished this with a swap agreement that fixes the interest rate at 4.87%, plus the applicable margin, 1.75%, or 6.62% at October 31, 2007, and amortizes concurrently with the loan principal to fix the interest rate with respect to 75% of the outstanding principal. As of October 31, 2007, the total notional amount committed to our swap agreement was $15 million.

As of October 31, 2007, the rates under our swap agreement were not favorable to the market. We will continue to evaluate swap rates as the market dictates. They serve to stabilize our cash flow and expense but ultimately may cost more or less in interest than if we had carried all of our debt at a variable rate over the swap term. To date we have fixed rates as required by our Credit Agreement. Future low rates may compel us to fix a higher portion to further stabilize cash flow and expenses as we monitor short and long term rates and debt balances.

Commodity Price Risks

Coffee

The cost of our coffee purchases are dictated by commodity prices. As of October 31, 2007, we purchased coffee at fixed price contracts with our vendors. We enter into contracts to mitigate market fluctuation of these costs by fixing the price for certain periods. As of October 31, 2007, we had fixed the price of our anticipated supply through December 2007 at a “green” price of $1.21 - -$1.23 per pound. We are not insulated from price fluctuations beyond that date. At our existing sales levels, an increase in pricing of $.10 per pound would increase our total cost for coffee $152,000 annually. In this case, competitors that had fixed pricing might have a competitive advantage.

Diesel Fuel

We own and operate vehicles to deliver product to customers. The cost of fuel to operate these vehicles fluctuates over time. In recent years, prices have fluctuated significantly. We estimate that

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a $0.10 increase per gallon in fuel cost would result in an increase to operating costs of approximately $51,000 on an annual basis. In aggregate, we have spent approximately an additional $209,000 on fuel as a result of higher prices in fiscal year 2007 compared to 2006. We have offset some of this cost by adjusting our price to our customers on a monthly basis while fuel prices are higher.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Our Consolidated Financial statements and their footnotes are set forth on pages F-1 through F-27.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer and our Chief Financial Officer, and other members of our senior management team, have evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures, as of the end of the period covered by this report, were adequate and effective to provide reasonable assurance that information required to be disclosed by us, including our consolidated subsidiary, in reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.

The effectiveness of a system of disclosure controls and procedures is subject to various inherent limitations, including cost limitations, judgments used in decision making, assumptions about the likelihood of future events, the soundness of internal controls, and fraud. Due to such inherent limitations, there can be no assurance that any system of disclosure controls and procedures will be successful in preventing all errors or fraud, or in making all material information known in a timely manner to the appropriate levels of management.

Changes in Internal Control over Financial Reporting

During the fourth quarter of fiscal 2007, there were no changes in our internal control over financial reporting that materially affected or are reasonably likely to materially affect internal control over financial reporting.

ITEM 9B. OTHER INFORMATION.

None.

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

The information required by this Item is incorporated by reference to the sections captioned “Nominees for Election”, “Our Board of Directors”, “Our Executive Officers”, “Section 16(a) Beneficial Ownership Reporting Compliance” and “Corporate Governance” in our 2008 proxy statement to be filed with the SEC within 120 days after the end of our fiscal year ended October 31, 2007.

ITEM 11. EXECUTIVE COMPENSATION.

The information required by this Item is incorporated by reference to the sections captioned “Compensation of Executive Officers”, “Director Compensation”, “Compensation Committee Interlocks and Insider Participation” and “Compensation Committee Report” in our 2008 proxy statement to be filed with the SEC within 120 days after the end of our fiscal year ended October 31, 2007.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

Securities Authorized for Issuance Under Equity Compensation Plans.

The following table sets forth certain information as of October 31, 2007 about shares of our Common Stock that may be issued upon the exercise of options and other rights under our existing equity compensation plans and arrangements, divided between plans approved by our stockholders and plans or arrangements that were not required to be and were not submitted to our stockholders for approval.

	(a)		(b)		(c)
					Number of Securities
					remaining available for
	Number of Securities to be		Weighted-average exercise		future issuance under
	issued upon exercise of		price of outstanding		equity compensation plans
	outstanding options,		options, warrants and		(excluding securities
Plan Category	warrants and rights		rights		reflected in column (a)).
Equity compensation plans approved by security holders		659,500	$	3.01		1,724,185
Equity compensation plans not approved by security holders		-0-		—		-0-
Total		659,500	$	3.01		1,724,185

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Additional information required by this Item is incorporated by reference to the section captioned “Security Ownership of Certain Beneficial Owners and Management” in our 2008 proxy statement to be filed with the SEC within 120 days after the end of our fiscal year ended October 31, 2007.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

The information required by this Item is incorporated by reference to the section captioned “Corporate Governance” in our 2008 proxy statement to be filed with the SEC within 120 days after the end of our fiscal year ended October 31, 2007.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

The information required by this Item is incorporated by reference to the sections captioned “Fees for Professional Services” and “Pre-Approval Policies and Procedures” in our 2008 proxy statement to be filed with the SEC within 120 days after the end of our fiscal year ended October 31, 2007.

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PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

a) The following documents are filed as part of this report:

(1) Financial Statements
Reports of Independent Registered Public Accounting Firms	F-1, F-2
Consolidated Balance Sheets as of October 31, 2007 and 2006	F-3
Consolidated Statements of Operations for the years ended October 31, 2007, 2006 and 2005	F-4
Consolidated Statements of Shareholders’ Equity and Comprehensive income (loss) for the years ended October 31, 2007, 2006 and 2005	F-5
Consolidated Statements of Cash Flows for the years ended October 31, 2007, 2006 and 2005	F-6
Notes to Consolidated Financial Statements	F-7 - F-27
(2) Schedules
None
(3) Exhibits:

		Filed with
Exhibit		this Form	Incorporated by Reference
No.	Description	10-K	Form	Filing Date	Exhibit No.
3.1	Certificate of Incorporation		S-4	September 6, 2000	Exhibit B to Appendix A
3.2	Certificate of Amendment to Certificate of Incorporation		8-K	October 19, 2000		4.2
3.3	By-laws		10-Q	September 14, 2001		3.3
4.1	Registration Rights Agreement with Peter K. Baker, Henry E. Baker, John B. Baker and Ross Rapaport		8-K	October 19, 2000		4.6
10.1*	1998 Incentive and Non-Statutory Stock Option Plan, as amended		14A	March 10, 2003		A
10.2*	1999 Employee Stock Purchase Plan		14A	March 15, 1999		A
10.3*	2004 Stock Incentive Plan		14A	March 9, 2004		B
10.4*	Instrument of Amendment dated September 22, 2005 amending the 1999 Employee Stock Purchase Plan		8-K	September 28, 2005		10.1
10.5*	Employment Agreement dated May 2, 2007 with Peter K. Baker		8-K	May 2, 2007		10.1
10.6*	Employment Agreement dated May 2, 2007 with Bruce S. MacDonald		8-K	May 2, 2007		10.3
10.7*	Employment Agreement dated May 2, 2007 with John B. Baker		8-K	May 2, 2007		10.2
10.8*	Employment Agreement dated January 1, 2005 with Henry E. Baker		8-K	June 29, 2005		10.1
10.9*	Severance Agreement dated December 5, 2005 with Timothy Fallon		10-K	January 30, 2006		10.11

36

		Filed with
Exhibit		this Form	Incorporated by Reference
No.	Description	10-K	Form	Filing Date	Exhibit No.
10.10	Lease of Grounds in Stamford, Connecticut from Henry E. Baker		S-4	September 6, 2000		10.24
10.11	Lease of Buildings and Grounds in Watertown, Connecticut from the Baker’s Grandchildren Trust		S-4	September 6, 2000		10.22
10.12	Lease of Building in Stamford, Connecticut from Henry E. Baker		S-4	September 6, 2000		10.23
10.13	First Amendment to the Lease of Buildings and Grounds in Watertown, Connecticut from the Baker’s Grandchildren Trust		10-Q	September 14, 2007		10.4
10.14	Credit Agreement dated April 5, 2005 with Bank of America and Webster Bank		10-Q	July 8, 2005		10.1
10.15	Form of Term Note dated April 5, 2005 issued to Bank of America and Webster Bank		10-Q	July 8, 2005		10.2
10.16	Form of Subordination and Pledge Agreement dated April 5, 2005 between Henry E. Baker, Joan Baker, John B. Baker, Peter K. Baker and Bank of America		10-Q	July 8, 2005		10.3
10.17	Form of Second Amended and Restated Promissory Note dated April 5, 2005 issued to Henry E. Baker, Joan Baker, John B. Baker and Peter K. Baker		10-Q	July 8, 2005		10.4
10.18	Form of Acquisition Note dated April 5, 2005 issued to Bank of America and Webster Bank		10-Q	July 8, 2005		10.5
10.19	Form of Revolving Credit Note dated April 5, 2005 issued to Bank of America and Webster Bank		10-Q	July 8, 2005		10.6
10.20	First Amendment to the Credit Agreement dated April 5, 2005 with Bank of America		10-Q	September 14, 2007		10.1
10.21	Second Amendment to the Credit Agreement dated April 5, 2005 with Bank of America		10-Q	September 14, 2007		10.2
10.22	Third Amendment to the Credit Agreement dated April 5, 2005 with Bank of America		10-Q	September 14, 2007		10.3
10.23	Form of Indemnification Agreement dated November 2, 2005 with each of Henry E. Baker, John B. Baker, Peter K. Baker, Phillip Davidowitz, Martin A. Dytrych, David Jurasek, John M. Lapides, Bruce S. MacDonald and Ross S. Rapaport		10-K	January 30, 2006		10.21
10.24	Form of Indemnification Agreement dated November 2, 2005 with each of John M. Lapides and Martin A. Dytrych		10-K	January 30, 2006		10.22
10.25	Purchase and Sale Agreement dated March 1, 2004 with MicroPack Corporation		10-Q	March 16, 2004		10.27
10.26	Trademark License Agreement dated March 1, 2004 with MicroPack Corporation		10-Q	March 16, 2004		10.28
10.27	Supply and License Agreement dated March 1, 2004 with MicroPack Corporation		10-Q	March 16, 2004		10.29
10.28	Agreement dated May 5, 2006 with Nestle Waters of North America Inc. to discontinue the Civil Action Vermont Pure Holdings, Ltd. v. Nestle Waters of North America Inc.		10-Q	June 14, 2006		10.1
10.29	Installation Agreement with American Capital Energy, Inc. dated August 29, 2007	X
10.30	Financial Assistance Agreement with	X

37

		Filed with
Exhibit		this Form	Incorporated by Reference
No.	Description	10-K	Form	Filing Date	Exhibit No.
	Connecticut Innovations dated August 20, 2007
21.1	Subsidiary	X
23.1	Consent of Wolf & Company, P.C.	X
23.2	Consent of Deloitte & Touche LLP	X
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	X
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	X
32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	X
32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	X

* Management contract or compensatory plan.

38

SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Vermont Pure Holdings, Ltd. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	VERMONT PURE HOLDINGS, LTD.
	By:	/s/ Peter K. Baker
Dated: January 29, 2008		Peter K. Baker, Chief Executive Officer

     Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Name	Title	Date
/s/ Ross S. Rapaport Ross S. Rapaport	Chairman of the Board of Directors	January 29, 2008
/s/ Henry E. Baker Henry E. Baker	Director, Chairman Emeritus	January 29, 2008
/s/ John B. Baker John B. Baker	Executive Vice President and Director	January 29, 2008
/s/ Peter K. Baker Peter K. Baker	Chief Executive Officer and Director	January 29, 2008
/s/ Phillip Davidowitz Phillip Davidowitz	Director	January 29, 2008
/s/ Martin A. Dytrych Martin A. Dytrych	Director	January 29, 2008
/s/ John M. Lapides John M. Lapides	Director	January 29, 2008
/s/ Bruce S. MacDonald Bruce S. MacDonald	Chief Financial Officer, Chief Accounting Officer and Secretary	January 29, 2008

39

EXHIBITS TO VERMONT PURE HOLDINGS, LTD.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED OCTOBER 31, 2006
Exhibits Filed Herewith

Exhibit
Number	Description
10.29	Installation Agreement with American Capital Energy, Inc. dated August 29, 2007
10.30	Financial Assistance Agreement with Connecticut Innovations dated August 20, 2007
21.1	Subsidiary
23.1	Consent of Wolf & Company, P.C.
23.2	Consent of Deloitte & Touche LLP
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

40

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	PAGE
Report of Independent Registered Public Accounting Firms		F-1, F-2
Financial Statements:
Consolidated Balance Sheets, October 31, 2007 and 2006		F-3
Consolidated Statements of Operations, Fiscal Years Ended October 31, 2007, 2006, and 2005		F-4
Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Loss) Fiscal Years Ended October 31, 2007, 2006, and 2005		F-5
Consolidated Statements of Cash Flows, Fiscal Years Ended October 31, 2007, 2006, and 2005		F-6
Notes to Consolidated Financial Statements		F-7 – F-27

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders,
Vermont Pure Holdings, Ltd.
Watertown, Connecticut

We have audited the consolidated balance sheets of Vermont Pure Holdings, Ltd. and subsidiary as of October 31, 2007 and 2006, and the related consolidated statements of operations, stockholders’ equity and comprehensive income (loss) and cash flows for each of the two years in the period ended October 31, 2007. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, consolidated financial statements referred to above present fairly, in all material respects, the financial position of Vermont Pure Holdings, Ltd. and subsidiary as of October 31, 2007 and 2006, and the results of their operations and their cash flows for each of the two years in the period ended October 31, 2007, in conformity with U.S. generally accepted accounting principles.

/s/ Wolf & Company, P.C.
Boston, Massachusetts
January 22, 2008

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
Vermont Pure Holdings, Ltd.
Watertown, Connecticut

We have audited the accompanying consolidated statements of operations, changes in stockholders’ equity and comprehensive income (loss) and cash flows of Vermont Pure Holdings, Ltd. and subsidiary (the “Company”) for the year ended October 31, 2005. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the results of operations and cash flows of Vermont Pure Holdings, Ltd. and subsidiary for the year ended October 31, 2005, in conformity with accounting principles generally accepted in the United States of America.

/s/ Deloitte & Touche LLP

Hartford, Connecticut
January 26, 2006

F-2

VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

	October 31,			October 31,
	2007			2006
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	1,873,385		$	2,120,111
Accounts receivable, trade — net of reserve of $354,825 and $352,844 for 2007 and 2006, respectively		7,522,831			7,212,054
Inventories		1,711,366			1,192,286
Current portion of deferred tax asset		499,441			683,509
Other current assets		683,212			884,031
Unrealized gain on derivatives		—			134,737
TOTAL CURRENT ASSETS		12,290,235			12,226,728
PROPERTY AND EQUIPMENT — net		10,697,018			10,718,834
OTHER ASSETS:
Goodwill		54,423,997			54,421,662
Other intangible assets — net		2,653,488			3,197,575
Other assets		696,139			770,212
TOTAL OTHER ASSETS		57,773,624			58,389,449
TOTAL ASSETS	$	80,760,877		$	81,335,011
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current portion of long term debt	$	3,260,030		$	3,583,564
Accounts payable		2,101,399			2,005,283
Accrued expenses		3,454,487			3,414,036
Current portion of customer deposits		755,965			706,401
Unrealized loss on derivatives		109,722			—
TOTAL CURRENT LIABILITIES		9,681,603			9,709,284
Long term debt, less current portion		31,441,667			33,875,000
Deferred tax liability		3,123,091			3,233,228
Customer deposits		2,910,875			2,828,208
TOTAL LIABILITIES		47,157,236			49,645,720
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY:
Common stock — $.001 par value, 50,000,000 authorized shares, 21,800,555 issued and 21,606,305 outstanding shares as of October 31, 2007 and 21,747,572 issued and 21,608,922 outstanding as of October 31, 2006		21,800			21,747
Additional paid in capital		58,307,395			58,220,887
Treasury stock, at cost, 194,250 shares as of October 31, 2007 and 138,650 shares as of October 31, 2006		(474,441	)		(369,662	)
Accumulated deficit		(24,183,977	)		(26,260,341	)
Accumulated other comprehensive (loss) income		(67,136	)		76,660
TOTAL STOCKHOLDERS’ EQUITY		33,603,641			31,689,291
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	80,760,877		$	81,335,011

See the accompanying notes to the consolidated financial statements.

F-3

VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

	Fiscal Year Ended October 31
	2007			2006			2005
NET SALES	$	65,230,997		$	62,773,812		$	59,834,575
COST OF GOODS SOLD		28,188,533			26,473,269			24,842,247
GROSS PROFIT		37,042,464			36,300,543			34,992,328
OPERATING EXPENSES:
Selling, general and administrative expenses		27,968,022			27,934,390			27,790,539
Advertising expenses		1,602,327			1,082,725			1,193,905
Amortization		846,160			877,855			787,043
Gain on disposal of property and equipment		(17,511	)		(74,092	)		(15,067	)
Impairment loss — goodwill		—			22,950,018			—
TOTAL OPERATING EXPENSES		30,398,998			52,770,896			29,756,420
INCOME (LOSS) FROM OPERATIONS		6,643,466			(16,470,353	)		5,235,908
OTHER INCOME (EXPENSE):
Interest		(3,249,999	)		(3,268,192	)		(3,364,902	)
Miscellaneous income (expense)		—			750,000			(260,647	)
TOTAL OTHER EXPENSE, NET		(3,249,999	)		(2,518,192	)		(3,625,549	)
INCOME (LOSS) BEFORE INCOME TAXES		3,393,467			(18,988,545	)		1,610,359
INCOME TAX EXPENSE		1,317,103			1,681,573			739,766
NET INCOME (LOSS)	$	2,076,364		$	(20,670,118	)	$	870,593
NET INCOME (LOSS) PER SHARE — BASIC:	$	0.10		$	(0.96	)	$	0.04
NET INCOME (LOSS) PER SHARE — DILUTED:	$	0.10		$	(0.96	)	$	0.04
WEIGHTED AVERAGE SHARES USED IN COMPUTATION — BASIC		21,624,381			21,630,739			21,619,863
WEIGHTED AVERAGE SHARES USED IN COMPUTATION — DILUTED		21,624,381			21,630,739			21,625,683

See the accompanying notes to the consolidated financial statements.

F-4

VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
AND COMPREHENSIVE INCOME (LOSS)

																					Accumulated
	Common						Additional								Treasury						Other
	Shares			Stock			Paid in			Unearned			Treasury		Stock			Accumulated			Comprehensive						Comprehensive
	Issued			Par Value			Capital			Compensation			Shares		Amount			Deficit			Income (Loss)			Total			Income (Loss)
Balance, October 31, 2004		21,569,711			21,569		$	57,869,411		$	—			71,550	$	(264,735	)	$	(6,460,816	)	$	103,100		$	51,268,529		$	798,949
Shares issued under employee stock purchase plan		97,047			97			150,646																	150,743
Restricted stock grants		75,000			76			134,174			(134,250	)													—
Stock compensation		3,059			2			5,747																	5,749
Deferred compensation								47,667																	47,667
Net income																			870,593						870,593		$	870,593
Unrealized gain on derivatives, net of taxes																						65,482			65,482			65,482
Balance, October 31, 2005		21,744,817			21,744			58,207,645			(134,250	)		71,550		(264,735	)		(5,590,223	)		168,582			52,408,763		$	936,075
Shares issued under employee stock purchase plan		82,315			82			124,349																	124,431
Non cash compensation								14,064																	14,064
Restricted stock forfeiture		(75,000	)		(75	)		(134,175	)		134,250														—
Exercise of stock options		5,000			5			8,995																	9,000
Share retirements		(9,560	)		(9	)		9																	—
Shares repurchased														67,100		(104,927	)								(104,927	)
Net loss																			(20,670,118	)					(20,670,118	)	$	(20,670,118	)
Unrealized loss on derivatives, net of taxes																						(91,922	)		(91,922	)		(91,922	)
Balance, October 31, 2006		21,747,572			21,747			58,220,887			—			138,650		(369,662	)		(26,260,341	)		76,660			31,689,291		$	(20,762,040	)
Shares issued under employee stock purchase plan		52,983			53			86,508																	86,561
Shares repurchased														55,600		(104,779	)								(104,779	)
Net income																			2,076,364						2,076,364		$	2,076,364
Unrealized loss on derivatives, net of taxes																						(143,796	)		(143,796	)		(143,796	)
Balance, October 31, 2007		21,800,555		$	21,800		$	58,307,395		$	—			194,250	$	(474,441	)	$	(24,183,977	)	$	(67,136	)	$	33,603,641		$	1,932,568

See the accompanying notes to the consolidated financial statements.

F-5

VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Fiscal Year Ended October 31,
	2007			2006			2005
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	2,076,364		$	(20,670,118	)	$	870,593
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation		4,118,134			4,041,448			4,802,387
Provision for bad debts		326,435			300,811			316,667
Amortization		846,160			877,855			787,043
Impairment loss — goodwill		—			22,950,018			—
Non cash interest expense		105,783			103,881			31,862
Deferred tax expense		174,594			1,323,734			737,768
Gain on asset disposal		(17,511	)		(74,092	)		(15,067	)
Non cash compensation		—			14,064			53,416
Changes in assets and liabilities:
Accounts receivable		(637,212	)		(262,427	)		(500,938	)
Inventories		(519,080	)		(58,971	)		(63,481	)
Other current assets		200,819			211,454			(203,693	)
Other assets		74,073			—			(39,000	)
Accounts payable		96,116			(576,822	)		(246,683	)
Accrued expenses		(30,865	)		423,907			671,643
Customer deposits		132,231			(131,958	)		295,840
NET CASH PROVIDED BY OPERATING ACTIVITIES		6,946,041			8,472,784			7,498,357
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment — net of debt		(3,468,690	)		(4,131,441	)		(3,126,397	)
Proceeds from sale of assets		93,722			190,999			83,433
Cash used for acquisitions		(290,540	)		(409,277	)		(414,440	)
NET CASH USED IN INVESTING ACTIVITIES		(3,665,508	)		(4,349,719	)		(3,457,404	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit borrowings		2,610,970			772,973			2,000,000
Payments on line of credit		(2,610,970	)		(772,973	)		(3,500,000	)
Proceeds from long term debt		—			—			28,513,852
Principal payments on debt		(3,509,041	)		(3,927,268	)		(29,908,183	)
Payments of debt issuance costs		—			—			(185,000	)
Purchase of treasury stock		(104,779	)		(104,927	)		—
Proceeds from issuance of common stock		86,561			133,431			150,743
NET CASH USED IN FINANCING ACTIVITIES		(3,527,259	)		(3,898,764	)		(2,928,588	)
NET (DECREASE) INCREASE  IN CASH		(246,726	)		224,301			1,112,365
CASH AND CASH EQUIVALENTS — beginning of year		2,120,111			1,895,810			783,445
CASH AND CASH EQUIVALENTS — end of year	$	1,873,385		$	2,120,111		$	1,895,810
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION, EXCLUDING NON-CASH FINANCING AND INVESTING ACTIVITIES
Cash paid for interest	$	3,297,499		$	3,239,583		$	2,565,763
Cash paid for taxes	$	895,373		$	182,758		$	246,109
NON-CASH FINANCING AND INVESTING ACTIVITIES:
Reduction in notes payable for acquisition	$	—		$	23,668		$	—
Notes payable issued in acquisitions	$	100,407		$	167,750		$	141,750
Note receivable for sale of assets	$	—		$	195,212		$	—
Equipment purchased by acquisition line	$	663,678		$	—		$	—

See the accompanying notes to the consolidated financial statements.

F-6

VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1.	BUSINESS OF THE COMPANY AND BASIS OF PRESENTATION
	Vermont Pure Holdings, Ltd. and Subsidiary (collectively, the “Company”) is engaged in the production, marketing and distribution of bottled water and distribution of coffee, ancillary products, and other office refreshment products. Through February, 2004, when the Company divested the retail segments of its business, the Company’s products were sold, predominantly in the Northeast, as well as in the Mid-Atlantic and Mid-Western United States. Distribution was accomplished through a network of independent beverage distributors and with the Company’s own trucks and employees. Commencing March 2004, the Company operated exclusively as a home and office delivery business, using its own trucks to distribute throughout New England, New York, and New Jersey.
	The consolidated financial statements of the Company include the accounts of Vermont Pure Holdings, Ltd. and its wholly-owned subsidiary, Crystal Rock, LLC. All inter-company transactions and balances have been eliminated in consolidation.
	The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Such estimates relate primarily to the estimated lives of property and equipment and other intangible assets, the values for the purpose of calculating goodwill impairment and the value of equity instruments issued. Actual results could differ from those estimates.
2.	SIGNIFICANT ACCOUNTING POLICIES
	Cash Equivalents — The Company considers all highly liquid temporary cash investments with an original maturity of three months or less to be cash equivalents.
	Inventories — Inventories primarily consist of products that are purchased for resale and are stated at the lower of cost or market on a first in, first out basis.
	Property and Equipment — Property and equipment are stated at cost net of accumulated depreciation. Depreciation is calculated on the straight-line method over the estimated useful lives of the assets, which range from three to ten years for machinery and equipment, and from seven to thirty years for buildings and improvements, and three to seven years for other fixed assets.
	Goodwill and Other Intangibles — Intangible assets with lives restricted by contractual, legal, or other means are amortized over their useful lives. Based on Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets,” the Company defines an asset’s useful life as the period over which the asset is expected to contribute to the future cash flows of the entity. Goodwill and other

F-7

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. The amount of impairment for goodwill and other intangible assets is measured as the excess of their carrying values over their implied fair values. The Company conducted assessments of the carrying value of its goodwill as required by SFAS No. 142, using an independent third party valuation, and concluded that goodwill was not impaired as of October 31, 2007 and 2005. As of October 31, 2006, we conducted a similar valuation process, and determined that goodwill was impaired. Other than goodwill, intangible assets consist primarily of customer lists and covenants not to compete, with estimated lives ranging from 3 to 10 years.

Stock-Based Compensation — The Company has several stock-based compensation plans under which incentive and non-qualified stock options and restricted shares are granted, and an Employee Stock Purchase Plan (ESPP). Effective November 1, 2005, the Company adopted the provisions of SFAS No. 123, “Share-Based Payments (revised 2004),” (SFAS No. 123R) which requires the Company to measure the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award. That cost is recognized over the period during which an employee is required to provide services in exchange for the award, the requisite service period (usually the vesting period). Under SFAS No. 123R, the Company provides an estimate of forfeitures at initial grant date. The Company elected the modified prospective transition method under SFAS No. 123R and accordingly has not restated periods prior to adoption. The pronouncement had no material impact on the Company’s 2006 or 2007 results of operations since no options were issued or vested during either year.

Prior to the adoption of SFAS No. 123R, the Company followed the accounting treatment prescribed by APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations when accounting for stock-based compensation granted to employees and directors. Accordingly, no compensation expense was recognized for stock option awards because the exercise price of the Company’s stock options equaled or exceeded the market price of the underlying stock on the date of the grant.

The following table illustrates the impact on the Company’s net income and net income per share prior to the adoption of SFAS No. 123R had compensation cost for the Company’s stock option awards and issuances under the stock purchase plan been determined based on the fair value at the grant dates for the awards under those plans, consistent with the provisions of SFAS No. 123R. Forfeitures of employee awards are provided in the following pro forma table as they occurred. Option awards with multiple vesting dates are treated as separate awards, resulting in pro forma expense reported on an accelerated basis.

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	For the Year Ended
	October 31, 2005
Net Income — As Reported	$	870,593
Add: Stock based employee compensation expense included in net income, net of related tax effects		28,123
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(336,444	)
Pro Forma Net Income	$	562,272
Basic — As Reported	$	.04
Basic — Pro Forma	$	.03
Diluted — As Reported	$	.04
Diluted — Pro Forma	$	.03

The weighted average fair values of the options granted for the year, using the Black-Scholes option pricing model, was $.86.

Assumptions used for estimating the fair value of the options on the date of grant under the Black-Scholes option pricing model were as follows for the fiscal year ended October 31, 2005:

	2005
Expected Dividend Yield		0	%
Expected Life	5 Years
Risk free Interest Rate		3.0	%
Volatility		36	%

Net Income (Loss) Per Share — Net income (loss) per share is based on the weighted average number of common shares outstanding during each period. Potential common shares are included in the computation of diluted per share amounts outstanding during each period that income is reported. In periods in which the Company reports a loss, potential common shares are not included in the diluted earnings per share calculation since the inclusion of those shares in the calculation would be anti-dilutive. As required by SFAS No. 128, “Earnings per Share,” 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.

Advertising Expenses — The Company expenses advertising costs at the commencement of an advertising campaign.

Customer Deposits — Customers receiving home or office delivery of water pay the Company a deposit for the water bottle that is refunded when the bottle is returned. Based on historical experience, the Company uses an estimate of the deposits it expects to

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refund over the next twelve months to determine the current portion of the liability, and classifies the remainder of the deposit obligation as a long term liability.

Income Taxes — The Company applies the provisions of SFAS No. 109, “Accounting for Income Taxes,” when calculating its tax expense and the value of tax related assets and liabilities. This requires that the tax impact of future events be considered when determining the value of assets and liabilities in its financial statements and tax returns. The Company accounts for income taxes under the liability method. Under the liability method, a deferred tax asset or liability is determined based upon the tax effect of the differences between the financial statement and tax basis of assets and liabilities as measured by the enacted rates that will be in effect when these differences reverse. A valuation allowance is recorded if realization of the deferred tax assets is not likely.

Fair Value of Financial Instruments — The carrying amounts reported in the consolidated balance sheet for cash equivalents, trade receivables, and accounts payable approximate fair value based on the short-term maturity of these instruments. The carrying value of senior debt approximates its fair value since it provides for variable market interest rates. The Company uses a swap agreement to hedge the interest rates on its long term debt. The swap agreement is carried at its estimated settlement value based on information from the financial institution. Subordinated debt is carried at its approximate market value based on periodic comparisons to similar instruments in the market place.

Impairment for Long-Lived and Intangible Assets — The Company reviews long-lived assets and certain identifiable intangible assets for impairment whenever circumstances and situations change such that there is an indication that the carrying amounts may not be recovered. Recoverability is assessed based on estimated undiscounted future cash flows. As of October 31, 2007 and 2006, the Company believes that there has been no impairment of its long-lived and intangible assets, other than goodwill as described above.

Accounts Receivable — Accounts receivable are carried at original invoice amount less an estimate made for doubtful accounts. Management determines the allowance for doubtful accounts by regularly evaluating past due balances. Individual accounts receivable are written off when deemed uncollectible, with any future recoveries recorded as income when received.

Revenue Recognition — Revenue is recognized when products are delivered to customers. A certain amount of the Company’s revenue is derived from leasing water coolers and coffee brewers. These leases are generally for the first 12 months of service and are accounted for as operating leases. To open an account that includes the rental of equipment, a customer is required to sign a contract that recognizes the receipt of the equipment, outlines the Company’s ownership rights, the customer’s responsibilities concerning the equipment, and the rental charge for twelve months. In general, the customer does not renew the agreement after twelve months and is free to terminate the agreement with the return of the equipment in good condition. The Company recognizes the income ratably over the life of the lease. After the initial lease term expires, revenue is derived on a month to month basis.

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	Shipping and Handling Costs — The Company distributes its home and office products directly to its customers on its own trucks. The delivery costs related to the Company’s route system, which are reported under selling, general, and administrative expenses, were approximately $12,930,000, $12,741,000, and $12,563,000 for fiscal years 2007, 2006, and 2005 respectively.
3.	RECENT ACCOUNTING PRONOUNCEMENTS
	In December 2007, the Financial Accounting Standards Board (FASB) issued Statement No. 141 (revised) (No. 141 R), “Business Combinations.” This Statement replaces FASB Statement No. 141, and applies to all business entities that previously used the pooling-of-interests method of accounting for some business combinations. Under Statement No. 141R, an acquirer is required to recognize, at fair value, the assets acquired, liabilities assumed, and any non-controlling interest in the entity acquired at the acquisition date. Further, it requires that acquisition costs and expected restructuring costs be recognized separately form the acquisition, and that the acquirer, in a business combination executed in stages, recognize the identifiable assets and liabilities as well as the non-controlling interest in the entity acquired, at the full amounts of their fair values. SFAS No. 141R also requires an acquirer to recognize the assets acquired and liabilities assumed arising from contractual contingencies as of the acquisition date. Also under this statement, an acquirer is required to recognize contingent consideration as of the acquisition date and eliminates the concept of negative goodwill and requires gain recognition in instances in which the fair value of the identifiable net assets exceeds the fair value of the consideration plus any non-controlling interest in the entity acquired as of the acquisition date. SFAS No. 141R makes significant amendments to other Statements and other authoritative guidance, and applies prospectively to business combinations on or after the acquiring entities first fiscal year that begins after December 15, 2008, which is fiscal year 2010 for the Company. It may not be applied prior to that date.
	In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities Including an Amendment of FASB Statement No. 115”. SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This statement is expected to expand the use of fair value measurement, which is consistent with the FASB’s long-term measurement objectives for accounting for financial instruments. The fair value option established will permit all entities to choose to measure eligible items at fair value at specified election dates. An entity shall record unrealized gains and losses on items for which the fair value option has been elected through net income in the statement of operations at each subsequent reporting date. SFAS No. 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007, which is fiscal year 2009 for the Company. The Company is currently reviewing the impact, if any, that this new accounting standard will have on their financial statements.

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	In September 2006 the FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. The pronouncement is applicable in cases when assets or liabilities are to be measured at fair value. It does not establish new circumstances in which fair value would be used to measure assets or liabilities. The provisions of SFAS No.157 are effective for the Company’s fiscal year commencing November 1, 2008. The Company is currently evaluating the potential impact, if any, the adoption of SFAS No. 157 will have on its consolidated financial statements.
	In July 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (FIN 48). FIN 48 requires the use of a two-step approach for recognizing and measuring tax benefits taken or expected to be taken in a tax return and disclosures regarding uncertainties in income tax positions. FIN 48 is effective in fiscal years beginning after December 15, 2006. The cumulative effect of initially adopting FIN 48 will be recorded as an adjustment to opening retained earnings in the year of adoption and will be presented separately. Only tax positions that meet the more likely than not recognition threshold at the effective date may be recognized upon adoption of FIN 48. The Company is currently evaluating the potential impact, if any, that the adoption of FIN 48 will have on its consolidated financial statements.
4.	MERGERS AND ACQUISITIONS
	During fiscal years 2007, 2006 and 2005, Vermont Pure Holdings, Ltd. made four acquisitions in each year. The purchase price paid for the acquisitions for the respective years is as follows:

	2007		2006		2005
Cash (including acquisition costs)	$	290,540	$	409,277	$	511,570
Notes Payable		100,407		167,750		141,750
	$	390,947	$	577,027	$	653,320

The allocation of purchase price related to these acquisitions for the respective years is as follows:

	2007		2006		2005
Accounts Receivable	$	—	$	637	$	—
Inventories		—		—		70,532
Equipment		40,161		40,307		—
Identifiable Intangible Assets		343,200		523,206		546,398
Goodwill		7,586		12,877		36,390
Purchase Price	$	390,947	$	577,027	$	653,320

During fiscal year 2007, $5,251 of intangible assets was written off related to price adjustments of previous acquisitions. During fiscal year 2006, $37,317 of intangible

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assets, and $19,723 of accumulated amortization, was written off related to price adjustments of previous acquisitions.

The following table summarizes the pro forma consolidated condensed results of operations (unaudited) of the Company for the fiscal years ended October 31, 2007, 2006, and 2005 as though all the acquisitions had been consummated at the beginning of fiscal year 2005:

	2007		2006			2005
Net Sales	$	65,597,106	$	63,396,121		$	61,250,658
Net Income (Loss)	$	2,108,786	$	(20,621,514	)	$	978,558
Net Income (Loss) Per Share-Diluted	$	.10	$	(.95	)	$	.05
Weighted Average Common Shares Outstanding-Diluted		21,624,381		21,630,739			21,625,683

	The operating results of the acquired entities have been included in the accompanying statements of operations since their respective dates of acquisition.
5.	EQUIPMENT LEASES
	The carrying cost of the equipment rented to customers, which is included in property and equipment in the consolidated balance sheets, is calculated as follows:

Original Cost	$	3,152,378
Accumulated Depreciation		2,072,695
Carrying Cost	$	1,079,683

	We expect to have revenue of $792,000 from the rental of such equipment over the next twelve months.
6.	ACCOUNTS RECEIVABLE
	The activity in the allowance for doubtful accounts for the years ended October 31, 2007, 2006, and 2005 is as follows:

	2007			2006			2005
Balance, beginning of year	$	352,844		$	289,837		$	303,304
Provision		326,435			300,811			316,667
Write-offs		(324,454	)		(237,804	)		(330,134	)
Balance, end of year	$	354,825		$	352,844		$	289,837

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7.	INVENTORIES
	Inventories at October 31 consisted of:

	2007		2006
Finished Goods	$	1,546,168	$	1,057,580
Raw Materials		165,198		134,706
Total Inventories	$	1,711,366	$	1,192,286

	Finished goods inventory consists of products that the Company sells such as, but not limited to, coffee, cups, soft drinks, and snack foods. Raw material inventory consists primarily of bottle caps.
8.	PROPERTY AND EQUIPMENT, NET
	Property and equipment at October 31 consisted of:

	Useful
	Life	2007		2006
Leasehold improvements	3 – 30 yrs.	$	813,486	$	752,907
Machinery and equipment	3 – 10 yrs.		19,518,020		17,984,393
Bottles, racks and vehicles	3 – 7 yrs.		6,913,808		7,600,860
Furniture, fixtures and office equipment	3 – 7 yrs.		2,029,532		1,985,958
Construction in progress			330,296		—
			29,605,142		28,324,118
Less accumulated depreciation			18,908,124		17,605,284
		$	10,697,018	$	10,718,834

	Depreciation expense for the fiscal years ended October 31, 2007, 2006 and 2005 was $4,118,134, $4,041,448, and $4,802,387, respectively.
9.	GOODWILL AND OTHER INTANGIBLE ASSETS
	Components of other intangible assets at October 31 consisted of:

	2007				2006
	Gross Carrying		Accumulated		Gross Carrying		Accumulated
	Amount		Amortization		Amount		Amortization
Amortized Intangible Assets:
Customer Lists and Covenants Not to Compete	$	5,477,663	$	3,227,854	$	5,141,123	$	2,383,443
Other Identifiable Intangibles		598,705		195,026		633,172		193,277
Total	$	6,076,368	$	3,422,880	$	5,774,295	$	2,576,720

Amortization expense for amortizable intangible assets for fiscal years 2007, 2006, and 2005 was $846,160, $877,855, and $787,043, respectively.

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Estimated amortization expense for the next five years is as follows:

Fiscal Year Ending	Amount
October 31, 2008	$	823,000
October 31, 2009		643,000
October 31, 2010		369,000
October 31, 2011		229,000
October 31, 2012		83,000

Goodwill was assessed as of October 31, 2007, 2006, and 2005. In 2007 and 2005 it was determined that goodwill was not impaired. In 2006, based on the analysis, it was determined at that time that goodwill was impaired. In the second phase of the assessment process it was determined that goodwill on the Company’s books was overvalued by $22,950,018 on the assessment date, resulting in a non-cash impairment loss of that amount in 2006.

The changes in the carrying amount of goodwill for the fiscal years ended October 31, 2007 and 2006 are as follows:

	2007			2006
Beginning balance	$	54,421,662		$	74,755,851
Goodwill acquired during the year		7,586			12,877
Goodwill disposed of during the year		(5,251	)		(16,347	)
Adjustment of goodwill related to deferred tax liability		—			2,619,299
Impairment loss		—			(22,950,018	)
Balance as of October 31	$	54,423,997		$	54,421,662

During fiscal year 2006, goodwill was adjusted for an increase in deferred tax liabilities resulting from previous purchases of businesses. The adjustment was based on management’s estimate of the tax basis of the assets acquired and resulted in a corresponding increase to goodwill.

10. OTHER ASSETS

At October 31 the balance of other assets is itemized as follows:

	2007		2006
Note receivable, unsecured, due March 1, 2011, interest 10% per annum	$	475,000	$	500,000
Note receivable, unsecured, due August 8, 2011, interest 0% per annum		179,830		195,212
Ownership interests		39,000		75,000
Accrued interest		2,309		—
Total	$	696,139	$	770,212

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11. ACCRUED EXPENSES

Accrued expenses as of October 31 are as follows:

	2007		2006
Payroll and Vacation	$	1,606,748	$	1,877,689
Interest		516,652		530,446
Income Taxes		557,832		184,102
Severance		—		194,459
Accounting and Legal		160,000		189,335
Miscellaneous		613,255		438,005
Total	$	3,454,487	$	3,414,036

12. DEBT

Senior Debt

On April 6, 2005, the Company refinanced its senior credit facility with Bank of America. The facility refinanced $28 million of existing senior debt in the form of a seven year Term Loan, provided a Revolving Credit Loan of $6 million for working capital and letters of credit for a term of three years, and made available up to $7.5 million in an Acquisition Loan to be used for acquisitions and capital expenditures for a period of three years. The Term Loan may also provide funds for future principal payment of the Company’s subordinated debt if certain financial covenants are met after the first two years of the loan.

With the $28 million of term debt provided by the facility, the Company repaid its borrowings under its former senior credit facility with Webster Bank, including $17.5 million under the old term loan and $5.4 million under the old acquisition line of credit as well as $3.6 million of its subordinated debt. The balance of the new Term Loan as well as $2 million from the new Revolving Line of Credit was used to pay a balance of $3.5 million on the old revolving line of credit with Webster Bank.

On July 5, 2007 the Company and the Bank amended the facility. The amendment extended the working capital and acquisition lines of credit by changing the Acquisition Loan termination date and Revolving Credit Loan maturity date to April 5, 2010 from April 5, 2008 and extended the Term Loan maturity date to January 5, 2014. In conjunction with the extension of the maturity date, the monthly amortization amount on the Term Loan was fixed at $270,833 for the duration of the loan. Prior to the amendment, the Term Loan maturity date was May 5, 2012 and the remaining amortization was scheduled to be monthly amounts, increasing from year to year, ranging from $312,500 to $395,833. In addition, the amendment makes up to $3,000,000 available from the Revolving Credit Loan for repurchase of Company stock or for repayment of subordinated debt and $2,200,000 available from the Acquisition Loan for installation of solar panels for electricity generation at the Company’s leased property in Watertown, Connecticut. The amendment has provisions for amortization of the additional borrowed amounts over the remaining life of the loans starting approximately

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two years after disbursement. It also alters some of the financial covenant calculations to provide for the additional borrowing.

Interest on the loans is based on the 30-day LIBOR plus an applicable margin based on the Company’s financial performance. The applicable margin may vary from 125 to 225 basis points for the Acquisition and Revolving Credit Loans and 150 to 250 basis points for the Term Loan based on the level of senior debt to earnings before interest, taxes, depreciation, and amortization (EBITDA). The applicable margins as of October 31, 2007 were 1.75% for the Term Loan and 1.5% for the Acquisition and Revolving Credit Loans, resulting in total variable interest rates of 6.46% and 6.21%, respectively. The facility is secured by substantially all of the Company’s assets. As of October 31, 2007, there was $20,042,000 outstanding on the Term Loan and $650,000 outstanding on the Acquisition Loan. There were no borrowings outstanding but there were letters of credit totaling $1,385,000 issued against the Revolving Credit Loan availability as of the end of the fiscal year.

The facility with Bank of America requires that the Company be in compliance with certain financial covenants at the end of each fiscal quarter. The covenants include senior debt service coverage as defined of greater than 1.25 to 1, total debt service coverage as defined of greater than 1 to 1, and senior debt to EBITDA as defined of no greater than 2.50 to 1. As of October 31, 2007 and 2006, the Company was in compliance with all of the financial covenants of the facility.

     Subordinated Debt

As part of the acquisition agreement in 2000 with the former shareholders of Crystal Rock Spring Water Company, the Company issued subordinated notes in the amount of $22,600,000. The notes have an effective date of October 5, 2000, were for an original term of seven years (subsequently extended to 2012 as part of the senior refinancing described above) and bear interest at 12% per year. Scheduled repayments are made quarterly and are interest only for the life of the note unless specified financial targets are met. In April 2004, the Company repaid $5,000,000 of the outstanding principal. In April, 2005, the Company repaid an additional $3,600,000 of this principal. As of October 31, 2007, payments of interest only of $420,000 are due quarterly with a principal payment of $14,000,000 due at maturity.

The notes are secured by all of the assets of the Company but specifically subordinated, with a separate agreement between the debt holders, to the senior credit facility described above.

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     Annual Maturities

Annual maturities of debt as of October 31, 2007 are summarized as follows:

	Senior		Credit Lines		Subordinated		Other		Total
Fiscal year ending October 31,
2008	$	3,250,000	$	—	$	—	$	10,000	$	3,260,000
2009		3,250,000		65,000		—		—		3,315,000
2010		3,250,000		130,000		—		—		3,380,000
2011		3,250,000		130,000		—		—		3,380,000
2012 and after		7,042,000		325,000		14,000,000		—		21,367,000
Total Debt	$	20,042,000	$	650,000	$	14,000,000	$	10,000	$	34,702,000

13. INTEREST RATE SWAP AGREEMENTS

The Company uses interest rate swaps to effectively convert variable rate debt to a fixed rate. The swap rates are based on the floating 30-day LIBOR rate and are structured such that if the loan rate for the period exceeds the swap rate, then the bank pays the Company to lower the effective interest rate. Conversely, if the loan rate is lower than the swap rate, the Company pays the bank additional interest.

On October 5, 2007, the Company entered into an interest rate hedge swap agreement in conjunction with an amendment to its facility with Bank of America. The intent of the instrument is to fix the interest rate on 75% of the outstanding balance on the Term Loan with Bank of America as required by the facility. The swap fixes the interest rate for the swapped amount at 6.62% (4.87% plus the applicable margin, 1.75%). Also on October 5, 2007, the Company terminated interest rate hedge agreements that it had consummated on July 5, 2007 (“the July 2007 swap”) and May 3, 2005 (the “May 2005 swap”). On that date, the Company paid a net amount of $99,200 to terminate both swaps.

The July 2007 swap was structured to fix the interest rate on 75% of the outstanding balance on the Term Loan, as amended on the same date, taking into account the May 2005 swap when the facility was originally entered in to. The July 2007 swap fixed the interest rate at 7.73% (5.98%, plus the applicable margin, 1.75%) for the term debt. The May 2005 swap fixed the interest rate at 6.41% (4.66%, plus the applicable margin, 1.75%) and amortized concurrently with the loan principal to fix the interest rate with respect to 75% of the outstanding principal prior to the July 5, 2007 amendment. As of October 31, 2007, the total notional amount committed to the swap agreement was $15 million. On that date, the variable rate on the remaining 25% of the term debt was 6.46%.

Based on the floating rate for respective years ended October 31, 2007 and 2006, the Company paid $100,000 and $199,000 less in interest, respectively, than it would have without the interest rate swap agreements.

These swaps are considered cash flow hedges under SFAS No. 133 because they are intended to hedge, and are effective as a hedge, against variable cash flows. As a result,

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the changes in the fair values of the derivatives, net of tax, are recognized as comprehensive income or loss until the hedged item is recognized in earnings.

14. STOCK BASED COMPENSATION

Stock Option and Incentive Plans

In April 1998, the Company’s shareholders approved the 1998 Incentive and Non Statutory Stock Option Plan (the “1998 Plan”). In April 2003, the Company’s shareholders approved an increase in the authorized number of shares to be issued under the 1998 Plan from 1,500,000 to 2,000,000. This plan provides for issuance of up to 2,000,000 options to purchase the Company’s common stock under the administration of the compensation committee of the Board of Directors. The intent of this plan is to issue options to officers, employees, directors, and other individuals providing services to the Company. Of the total amount of shares authorized under this plan, 510,500 option shares are outstanding and 1,489,500 option shares are available for grant at October 31, 2007.

In April 2004, the Company’s shareholders approved the 2004 Stock Incentive Plan (the “2004 Plan”). This plan provides for issuances of awards of up to 250,000 restricted or unrestricted shares, or incentive or non-statutory stock options, of the Company’s common stock. Of the total amount of shares authorized under this plan, 149,000 option shares are outstanding, 26,000 restricted shares have been granted, and 75,000 shares are available for grant at October 31, 2007.

All incentive and non-qualified stock option grants had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table summarizes the activity related to stock options and outstanding stock option balances during the last three fiscal years:

	Outstanding Options			Weighted Average
	(Shares)			Exercise Price
Balance at October 31, 2004		2,662,790		$	2.96
Granted		414,500			2.28
Expired		(450,800	)		2.50
Balance at October 31, 2005		2,626,490			2.96
Exercised		(5,000	)		1.80
Expired		(1,864,303	)		2.96
Balance at October 31, 2006		757,187			2.96
Expired		(97,687	)		2.61
Balance at October 31, 2007		659,500			3.01

In 2007, the 97,687 options that expired related to the 1993 Performance Equity Plan. Options may no longer be issued under this plan and there are no options outstanding under this plan at October 31, 2007.

The total shares available for grant under all plans are 1,564,500 at October 31, 2007.

The following table summarizes information pertaining to outstanding stock options, all of which are exercisable, as of October 31, 2007:

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			Weighted Average		Weighted
	Outstanding		Remaining		Average
	Options		Contractual		Exercise		Intrinsic
Exercise Price Range	(Shares)		Life		Price		Value
$1.80 — $2.60		234,500		7.24	$	2.32	$	—
$2.81 — $3.38		350,000		2.81		3.25		—
$3.50 — $4.25		70,000		2.71		3.99		—
$4.28 — $4.98		5,000		4.17		4.98		—
		659,500		4.38	$	3.01	$	—

All of the outstanding options as of October 31, 2007 and 2006 were vested.

The intrinsic value of the options exercised during the fiscal year ended October 31, 2006 was $3,230.

Outstanding options were granted with lives of 10 years and provide for vesting over a term of 0-5 years.

     Employee Stock Purchase Plan (ESPP)

The Company maintains an ESPP, under which, as originally approved, 500,000 shares of common stock were reserved for issuance. On March 29, 2007 the Company’s stockholders approved an increase in the number of shares available under the plan from 500,000 to 650,000 shares. Prior to January 1, 2006, the ESPP enabled eligible employees to subscribe, through payroll deductions, to purchase shares of the Company’s common stock at a purchase price equal to 85% of the lower of the fair market value on the commencement date of the offering and the last day of the payroll payment period through December 31, 2005. As of January 1, 2006 the Plan was modified to allow employees to purchase shares of the Company’s common stock at a purchase price equal to 95% of the fair market value on the last day of the payroll payment period. At October 31, 2007, 490,315 shares have issued since the inception of the plan including 52,983 shares issued for proceeds of $86,561 in fiscal year 2007. In fiscal years 2006 and 2005, respectively, 82,315 and 97,047 shares were issued from the plan for proceeds of $124,431 and $150,743, respectively.

     Shares Issued Under the 2004 Stock Incentive Plan

On January 1, 2005, the Company issued 75,000 restricted shares as an award to an employee under the 2004 plan. The total value of the award was $134,250. The Company did not recognize compensation related to this award in fiscal year 2005 since these shares were forfeited in connection with the resignation of the employee on November 2, 2005. Compensation expense of $47,667 was recognized in 2005 relating to a September 2004 issuance of restricted shares.

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15. RETIREMENT PLAN

The Company has a defined contribution plan which meets the requirements of Section 401(k) of the Internal Revenue Code. All employees of the Company who are at least twenty-one years of age are eligible to participate in the plan. The plan allows employees to defer a portion of their salary on a pre-tax basis and the Company contributes 25% of amounts contributed by employees up to 6% of their salary. Company contributions to the plan amounted to $134,000, $123,000, and $116,000, for the fiscal years ended October 31, 2007, 2006, and 2005, respectively.

16. COMMITMENTS AND CONTINGENCIES

     Commitment

On August 29, 2007, the Company finalized an Installation Agreement with American Capital Energy, Inc. to install solar electricity generation equipment at its leased property in Watertown, Connecticut. Installation under this agreement is expected to be complete by July of 2008. The total price for the installation is $2,090,000. In conjunction with the installation agreement, the Company entered into a Financial Assistance Agreement to administer a grant of $1,288,000 for the Connecticut Clean Energy Fund. The grant funds will offset the cost of the installation of the equipment.

     Operating Leases

The Company’s operating leases consist of trucks, office equipment and rental property.

Future minimum rental payments over the terms of various lease contracts are approximately as follows:

Fiscal Year Ending October 31,
2008	$	2,784,438
2009		2,289,926
2010		1,795,589
2011		1,018,764
2012		596,566
Thereafter		1,874,115
Total	$	10,359,398

Rent expense was $3,003,779, $2,897,837, and $2,701,332 for the fiscal years ended October 31, 2007, 2006, and 2005, respectively.

     Contingencies

In fiscal year 2005, the Company accrued $100,000 related to a judgment regarding a claim asserted by a former employee of a business that the Company acquired. The claim was made prior to the acquisition and the amount of the expected settlement was recorded as a miscellaneous expense in the accompanying statement of operations for the fiscal year ended October 31, 2005. The judgment was paid in December 2005.

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17. RELATED PARTY TRANSACTIONS

     Directors and Officers

The Baker family group, consisting of four current directors Henry Baker (Chairman Emeritus), Peter Baker (CEO), John Baker (Executive Vice President) and Ross Rapaport (Chairman), as trustee, together own a majority of our common stock. In addition, in connection with the acquisition of Crystal Rock Spring Water Company in 2000, we issued members of the Baker family group (including Joan Baker, the wife of Henry Baker) 12% subordinated promissory notes secured by all of our assets. The current balance on these notes is $14,000,000.

Henry Baker, has an employment contract with the Company through July 1, 2008. His contract entitles him to annual compensation of $47,000 as well as a leased Company vehicle. John Baker and Peter Baker, have employment contracts with the Company through December 31, 2009. They are also directors. The other two contracts entitle the respective shareholders to annual compensation of $320,000 each and other bonuses and prerequisites.

The Company leases a 67,000 square foot facility in Watertown, Connecticut and a 22,000 square foot facility in Stamford, Connecticut from a Baker family trust. The lease in Stamford expires in October 2010. On August 29, 2007 the Company finalized an amendment to our existing lease in Watertown which extended that lease to 2016.

Future minimum rental payments under these leases are as follows:

Fiscal year ending October 31,	Stamford		Watertown		Total
2008	$	248,400	$	414,000	$	662,400
2009		248,400		414,000		662,400
2010		248,400		414,000		662,400
2011		—		452,250		452,250
2012		—		452,250		452,250
2013		—		461,295		461,295
2014		—		461,295		461,295
2015		—		475,521		475,521
2016		—		475,521		475,521
Totals	$	745,200	$	4,020,132	$	4,765,332

The Company’s Chairman of the Board, Ross S. Rapaport, who also acts as Trustee in various Baker family trusts is employed by Pepe & Hazard LLP a business law firm that the Company uses from time to time. During fiscal 2007, 2006 and 2005, the Company paid $43,956, $80,857, and $117,506 respectively, for services provided by Pepe & Hazard LLP.

     Investment in Voyageur

The Company has an equity position in a software company named Voyageur Software, Inc. (Voyageur) formerly Computer Design Systems, Inc. One of the Company’s directors is a member of the board of directors of Voyageur. The Company uses software designed, sold and serviced by Voyageur in its home and office delivery system to

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manage customer service, deliveries, inventory, billing and accounts receivable. During fiscal years 2007, 2006, and 2005, the Company paid $384,997, $294,649, and $217,871 respectively, for service, software, and hardware.

The Company has an equity investment in Voyageur representing approximately 24% of the outstanding shares of the company. In 2004, the Company determined that it’s investment in Voyageur was impaired and wrote off the carrying value of its investment Since the Company has written off its entire minority interest in Voyageur, it has not recognized its share of Voyageur’s loss amounting to $76,000, $61,000 and $8,000, in fiscal years 2007, 2006 and 2005, respectively.

18. INCOME TAXES

The following is the composition of income tax expense:

	Fiscal Year Ended October 31,
	2007		2006		2005
Current:
Federal	$	960,353	$	147,239	$	208
State		182,156		210,600		1,790
Total current		1,142,509		357,839		1,998
Deferred:
Federal		169,588		1,177,739		667,664
State		5,006		145,995		70,104
Total deferred		174,594		1,323,734		737,768
Total income tax expense	$	1,317,103	$	1,681,573	$	739,766

Deferred tax assets (liabilities) at October 31, 2007 and October 31, 2006, are as follows:

	October 31,
	2007			2006
Deferred tax assets:
Allowance for doubtful accounts	$	134,834		$	134,081
Accrued compensation		304,930			494,222
Net operating losses		—			76,832
Accrued liabilities and reserves		17,091			163,492
Interest rate swap		42,586			—
Total deferred tax assets		499,441			868,627
Deferred tax liabilities:
Depreciation		(1,603,022	)		(2,116,513	)
Amortization		(1,520,069	)		(1,243,756	)
Interest rate swap		—			(58,077	)
Total deferred tax liabilities		(3,123,091	)		(3,418,346	)
Net deferred tax liability	$	(2,623,650	)	$	(2,549,719	)

Income tax expense differs from the amount computed by applying the statutory tax rate to net (loss) income before income tax expense as follows:

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	Fiscal Year Ended October 31,
	2007		2006			2005
Income tax expense (benefit) computed at the statutory rate	$	1,153,778	$	(6,456,105	)	$	547,522
Goodwill impairment		—		7,803,000			—
Other permanent differences		39,799		99,326			120,959
State income taxes		123,526		235,352			71,285
Income tax expense	$	1,317,103	$	1,681,573		$	739,766

In calculating its effective tax rate, the Company has considered the effect of certain contingent factors involving state and local income taxes. Although it believes that the tax returns filed accurately reflect operations and financial results, the Company has an accrued liability as of October 31, 2007 and 2006 of approximately $150,000 and $165,000, respectively, for the purpose of settling disputes in the event that certain jurisdictions viewed particular tax laws differently than the Company did when the returns were filed.

19.	NET INCOME (LOSS) PER SHARE
	The following calculation provides the reconciliation of the denominators used in the calculation of basic and fully diluted earnings per share:

	Fiscal Year Ended October 31,
	2007		2006			2005
Net Income (Loss)	$	2,076,364	$	(20,670,118	)	$	870,593
Denominator:
Basic Weighted Average Shares Outstanding		21,624,381		21,630,739			21,619,863
Effect of Stock Options		—		—			5,820
Diluted Weighted Average Shares Outstanding		21,624,381		21,630,739			21,625,683
Basic Net Income (Loss) Per Share	$	.10	$	(.96	)	$	.04
Diluted Net Income (Loss) Per Share	$	.10	$	(.96	)	$	.04

There were 659,500 options, 757,187 options, and 2,561,490 options outstanding for the years ended October 31, 2007, 2006 and 2005, respectively, that were not included in the dilution calculation because the options’ exercise price exceeded the market price of the underlying common shares.

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20.	UNAUDITED QUARTERLY FINANCIAL DATA
	The Company’s unaudited quarterly financial data for the last two fiscal years is as follows:

Fiscal 2007	For the quarter ended:
	January 31,		April 30,		July 31,		October 31,
($ in 000’s except per share data)	2007		2007		2007		2007
Net Sales	$	15,302	$	15,677	$	17,107	$	17,145
Gross Profit	$	8,569	$	8,668	$	9,938	$	9,867
Net Income	$	291	$	412	$	577	$	796
Earnings per Share:
Net Income — Basic and Diluted	$	.01	$	.02	$	.03	$	.04

Fiscal 2006	For the quarter ended:
	January 31,		April 30,		July 31,		October 31,
($ in 000’s except per share data)	2006		2006		2006		2006
Net Sales	$	14,614	$	15,240	$	16,520	$	16,400
Gross Profit	$	8,214	$	8,765	$	9,854	$	9,468
Net Income (Loss)	$	65	$	475	$	1,252	$	(22,462	)
Earnings per Share:
Net Income (Loss) — Basic and Diluted	$	—	$	.02	$	.06	$	(1.04	)

	The Company’s business is seasonal based on weather. It is typical for sales and net income to be higher in the warmer months than the balance of the year. Given the Company’s fiscal year, the quarter ending July 31 is typically the strongest financial quarter. In fiscal year 2006, the results for this quarter were even stronger as a result of a legal settlement of $750,000 in favor of the Company. The fourth quarter loss in 2006 was a result of the Company’s annual goodwill analysis and impairment. The higher earnings in the fourth quarter of 2007 were a result of a sustained level of higher sales as a result of warmer weather during that period and lower operating expenses.
21.	CONCENTRATION OF CREDIT RISK
	The Company maintains its cash accounts at various financial institutions. The balances at times may exceed federally insured limits. At October 31, 2007, the Company had cash in deposits exceeding the insured limit by approximately $1,513,000.
22.	LITIGATION
	On May 1, 2006, the Company filed a lawsuit in the Superior Court Department, County of Suffolk, Massachusetts, alleging malpractice and other wrongful acts against three law firms that had been representing the Company in litigation involving Nestlé Waters North America, Inc.: Hagens Berman Sobol Shapiro LLP, Ivey & Ragsdale, and Cozen O’Connor. The case is Vermont Pure Holdings, Ltd. vs. Thomas M. Sobol et al., Massachusetts Superior Court CA No. 06-1814.

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Until May 2, 2006, when the Company terminated their engagement, the three defendant law firms represented the Company in litigation in federal district court in Massachusetts known as Vermont Pure Holdings, Ltd. vs. Nestlé Waters North America, Inc. (the Nestlé litigation). The Company filed the Nestlé litigation in early August 2003.

The Company’s lawsuit alleges that the three defendant law firms wrongfully interfered with a proposed June 2003 settlement with Nestlé. The complaint includes counts involving negligence, breach of contract, breach of the implied covenant of good faith and fair dealing, breach of fiduciary duty, tortuous interference with economic relations, civil conspiracy, and other counts, and seeks declaratory relief and compensatory and punitive damages.

In June 2006, certain of the defendants filed motions to dismiss the Company’s complaint based on lack of personal jurisdiction and/or failure to state a claim upon which relief could be granted. Those motions are pending. In July 2006, certain of the defendants filed a counterclaim against the Company seeking recovery of their fees and expenses in the Nestlé litigation. In August 2007, certain of the defendants filed a counterclaim against the Company that includes an abuse of process count in which it is alleged that our claims against them are frivolous and were not advanced in good faith, as well as a quantum meruit count in which these defendants allege that their services were terminated wrongfully and in bad faith. The case is in the discovery stage.

Management intends to pursue its claims, and to the extent of the counterclaims, defend itself vigorously.

On May 15, 2006, the Company entered into an agreement with Nestlé Waters North America Inc. to resolve pending litigation known as Vermont Pure Holdings, Ltd. v Nestlé Waters North America Inc., which was in the United States District Court for the District of Massachusetts. In this lawsuit, filed in August 2003, the Company had made claims under the federal Lanham Act against Nestlé. The parties provided mutual releases and have stipulated to dismissal of the case, with neither side admitting liability or wrongdoing. Nestle paid the Company $750,000 in June 2006 in connection with the agreement. The Company recorded $750,000 as other income in the third quarter of 2006, related to this settlement.

At any point in time there may be various legal proceedings pending against the Company. Unless specifically mentioned, the Company considers all such proceedings to be in the normal course of business. Generally such claims are covered by insurance. The Company believes that the resolution of these types of claims, to the extent not dismissed or covered by insurance, will not individually or in the aggregate have a material adverse effect on its financial position or results of operations. To the extent reasonably estimable, reserves are established regarding pending legal proceedings if there is a probable outcome that would require a payment by the Company.

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23.

REPURCHASE OF COMMON STOCK

In January 2006, the Company’s Board of Directors approved the purchase of up to 250,000 of the Company’s common shares at the discretion of management. Subsequently, the Company purchased, in the open market, 67,100 shares from July through October 2006, for an aggregate purchase price of $104,927. In fiscal year 2007, the Company purchased an additional 55,600 shares for an aggregate purchase price of $104,779. The Company expects to continue to purchase stock in the open market but total purchases may not ultimately reach the limit established. The Company has used internally generated cash to fund these purchases.

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EX-10.29

Exhibit 10.29

PHOTOVOLTAIC SYSTEM SUPPLY AND INSTALLATION AGREEMENT

THIS AGREEMENT is made effective as of August 29, 2007 by and between American Capital Energy, Inc., (“ACE”), referred to as “Installer”, and Crystal Rock, Inc./Vermont Pure Holdings, LTD, (“Purchaser”) with reference to INSTALLER’s performance of engineering and installation of a solar array at 1050 Buckingham Street, Watertown, CT (hereinafter referred to as the “Site”), as specifically set forth and described in Schedule 1 and Schedule 2.

IN CONSIDERATION of the covenants hereinafter set forth, INSTALLER and Purchaser mutually agree as follows:

1. CONTRACT DOCUMENTS

1.1. The Contract Documents consist of the following:

1.1.1.	This Agreement.
1.1.2.	The System Descriptions and Specifications (the “System”) attached as Schedule 1 to this Agreement.
1.1.3.	The Work Description and Specifications (the “Services”) attached as Schedule 2 to this Agreement.
1.1.4.	The Purchaser Assistance Description (the “Purchaser Services”) attached as Schedule 3 to this Agreement.
1.1.5.	The Warranties attached as Schedule 4 to this Agreement.
1.1.6.	The Price Schedule attached as Schedule 5 to this Agreement.
1.1.7.	The Project Schedule attached as Schedule 6 to this Agreement.

1.2. There are no Contract Documents other than those listed in Article 1.1 above.

2. SCOPE OF SERVICES

2.1. INSTALLER’ RESPONSIBILITIES

As required for performance of the Services, INSTALLER shall, subject to the terms and provisions of this Agreement:

2.1.1.	Furnish supervisors, engineers, designers, draftsmen, and other personnel necessary for the preparation of complete drawings and specifications;
2.1.2.	Furnish buyers, inspectors, expediters, and other personnel necessary to procure and or manufacture all materials, supplies, and equipment;
2.1.3.	Installation services to be performed by CT licensed contractors.

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2.1.4.	Furnish only qualified and competent supervisors, foremen, skilled and unskilled labor, and all other personnel; provided that to the extent reasonably available, such personnel shall be individuals with experience in the specific services being performed;
2.1.5.	Procure or supply machinery, equipment, materials, expendable construction items and supplies, related services and subcontracts, and all appropriate proprietary rights, licenses, agreements and permissions for materials, methods, processes and systems incorporated into the System;
2.1.6.	Make adjustment to the Project Schedule as specified therein or elsewhere in the Contract Documents;
2.1.7.	Execute a reasonable Interconnection Agreement and obtain all permits and licenses required to be taken out in the name of Purchaser that are necessary for the performance of the Services and installation and operation of System, except for those permits which shall be Purchaser’s responsibility as set forth in the following Article;
2.1.8.	Facilitate and support Purchaser’s negotiation and procurement of an appropriate interconnection agreement to be executed between Purchaser and the electric distribution utility to which the System will be interconnected (“Interconnection Agreement”), including providing all necessary drawings and technical information;
2.1.9.	Install the System and complete the Services as specified in the Contract Documents. The System is described in Schedule 1. The Services are described on Schedule 2;
2.1.10.	Perform the Services, in accordance with practices generally accepted in the industry, all applicable laws, government approvals and permitting requirements, and quality control and inspections so that the System (i) meets or exceeds all requirements of applicable laws, government approvals and licenses and the System is installed in accordance with manufacturer’s specifications or by methods otherwise approved by the manufacturer; (ii) complies with all requirements of the Interconnection Agreement; (iii) meet or exceeds the warranties and guarantees set forth in Section 7; (iv) are safe and adequate for their intended purpose and conditions; (v) are free from defects; (vi) is comprised of equipment which is new and of good quality when installed, designed and manufactured and of a grade in accordance with generally accepted national standards for the design, manufacture and quality of such equipment; and (vii) meets or exceeds all requirements for the following federal and state rebates and incentives: Federal Investment Tax Credit (ITC) as described in 26 USC § 48 (2005), Modified Accelerated Cost Recovery System (MACRS) as described in 26 USC § 168 (2005), Connecticut Clean Energy Fund Solar Program (the “Rebates”);

2.2.	PURCHASER RESPONSIBILITIES
	Purchaser shall at such times as may be required by INSTALLER for the successful and expeditious completion of the Services:

2.2.1. Make arrangements to make the Site available to INSTALLER according to dates specified in the Project Schedule, and make arrangements to provide the Purchaser Services. Purchaser and INSTALLER will cooperate in a commercially reasonable manner to accomplish the Services in accordance with the specifications and time schedule provided for in the Contract Documents;

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2.2.2.	Conduct any reviews and inspections in a manner that minimizes interference with INSTALLER’ progress of the Services;
2.2.3.	Pay the Price and all other sums, if any, required to be paid by Purchaser to INSTALLER for providing the System and performing the Services pursuant to the terms of this Agreement; and
2.2.4.	Appoint an individual who shall be authorized to act on behalf of Purchaser, with whom INSTALLER may consult at all reasonable times, and whose written instructions, requests, and decisions will be binding upon Purchaser as to all matters pertaining to this Agreement and the performance of the parties hereunder. Purchaser shall advise INSTALLER in writing of the names of the individuals referred to in the preceding sentence.

2.3.	CHANGES
	It is the desire of INSTALLER and Purchaser to keep changes to the System and in the scope of Services at a minimum, but the parties recognize that such changes may become necessary and agree that they shall be handled as follows:

2.3.1.	Purchaser may initiate a change by advising INSTALLER in writing of the change believed to be necessary. As soon thereafter as practicable, INSTALLER shall prepare and forward to Purchaser a cost estimate and a schedule impact of the change, which shall include the adjustment to the Price (as defined below), any other compensation, and any effect on INSTALLER’ ability to comply with any of its obligations under this Agreement, including warranties and guarantees. Purchaser shall advise INSTALLER in writing of its approval or disapproval of the change. If Purchaser approves the change, INSTALLER shall perform the Services as changed.
2.3.2.	INSTALLER may initiate changes by advising Purchaser in writing that in INSTALLER’ opinion a change is necessary and providing the additional cost, if any, for such change. If Purchaser agrees, it shall advise INSTALLER in writing within five (5) business days after receipt and, thereafter, the change shall be handled as if initiated by Purchaser.
2.3.3.	If a party disputes the existence, extent, validity or affect of a change, then a party may notify the other parties in writing that it desires to resolve the dispute. If the dispute cannot be resolved to the mutual satisfaction of the parties within ten (10) business days, then a party can demand binding dispute resolution in accordance with Article 17.4. Such dispute resolution process shall commence immediately and conclude no later than thirty (30) days following the notice of dispute.

2.4. CONDITION PRECEDENT

     Purchaser’s obligations under this Agreement shall be conditioned upon the following events: (1) grant approval by the Connecticut Clean Energy Fund. If this event has not occurred to the satisfaction of Purchaser within 90 days following execution of this Agreement, this Agreement shall be cancelled immediately upon Purchaser’s written notice and Purchaser shall be not be responsible for any costs, liabilities, or obligations hereunder.

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3. CONTRACT PRICE

3.1.	As full compensation and consideration for the full and complete performance of all of the System installation and Services and all of INSTALLER’s other obligations under this Agreement and all costs in connection therewith, Purchaser shall pay to INSTALLER, and INSTALLER shall accept $2,089,832 as the total fixed price of this Contract (the “Price”), inclusive of all sales or use taxes, permits, and utility interconnection fees subject to adjustment as stated elsewhere in the Contract Documents, as well as for work performed under properly approved change orders. Installation prices are detailed in Schedule 5. Except as specifically provided herein, the Price shall not be subject to adjustment for any reason.
3.2.	INSTALLER shall be paid for the System and Services as they are provided and accepted by Purchaser in accordance with Schedule 5.
3.3.	Payments indicated in Article 3.2 shall be due within ten (10) days after INSTALLER’s delivery to Purchaser of an invoice containing such amounts except those items deemed to be COD in accordance with Schedule 5. INSTALLER shall include with each invoice a certification that the System has been supplied and/or the Services has been completed to the extent required for payment at such stage. Any overdue amounts shall bear interest at the rate of twelve percent (12%) per annum. In the event that Purchaser disputes any portion of the amount invoiced, it shall nonetheless pay all undisputed amounts promptly. Any amounts ultimately found to be due shall be paid with 5% interest from the date originally due. In the event that Purchaser fails to make timely payments to INSTALLER of any of the undisputed amounts, INSTALLER shall have the right to place a lien on the System, in order to secure such payment, and Purchaser shall not object to or oppose the imposition of such liens.
3.4.	INSTALLER, for themselves, their successors and assigns, and all subcontractors and other parties acting through or under them, does hereby covenant, promise and agree with Purchaser, its successors and assigns, that no mechanics’ lien or other claim or encumbrance in the nature of a lien shall be maintained against the System or the Site or any part or parts thereof or the appurtenances thereto, by INSTALLER or by any subcontractor, for any Services, the System, tools, equipment, materials, supplies, or supervision or other goods or services furnished under this Agreement or any subcontract or any supplements hereto or thereto, written or oral, or by any other party acting through or under them, or any of them, for which Purchaser has made payment to INSTALLER, and waives and releases any such lien rights. This waiver of liens shall be an independent covenant in favor of Purchaser and its successors and assigns and shall operate and be effective as well with respect to Services, the System, materials, tools, equipment, supplies, goods, and services furnished under any supplemental contract for extra work in connection with the construction of the System and as to any Services and materials furnished under this Agreement for which Purchaser has made payment to INSTALLER. Purchaser will be named on lien wavers and as payments are made to INSTALLER Purchaser will receive lien releases accordingly.

4. CONTRACT TIMES

4.1.	The Services and the System will be completed in accordance with the Project Schedule. This schedule is subject to adjustment as specified in the Project Schedule and elsewhere in the Contract Documents.
4.2	INSTALLER will make all reasonable, diligent efforts to obtain all permits, clearances, Interconnection Agreement, etc. necessary for performance and completion of the

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Services. Any failure to obtain such permits for reasons beyond INSTALLER’ reasonable control will not constitute a default of INSTALLER’ obligations under this Agreement.

5. INSTALLER’ REPRESENTATIONS

In order to induce Purchaser to enter into this Agreement, INSTALLER makes the following representations:

5.1.	INSTALLER has examined the Financial Assistance Agreement (FAA) by and between the CT Clean Energy Fund and Purchaser. INSTALLER certifies that the metering and other solar system requirements in the FAA will be met by INSTALLER as part of this installation agreement.
5.2.	INSTALLER has examined and carefully studied the Contract Documents.
5.3.	INSTALLER has visited the Site and become generally familiar with the general, local and site conditions that may affect the supply of the System and the performance of the Services.
5.4.	INSTALLER has all the required skills and capacity necessary to perform or cause to be performed the Services to be performed in a timely and professional manner, utilizing sound engineering principles, project management procedures and supervisory procedures, all in accordance with practices generally accepted in the industry.
5.5.	INSTALLER is familiar with applicable law, regulations, and interconnection standards relevant to the performance of its obligations under the Contract Documents.
5.6.	INSTALLER has all necessary power and authority to execute, deliver and perform its obligations under this Agreement, and each of the execution, delivery and performance by such INSTALLER of this Agreement has been duly authorized by all necessary action on the part of such INSTALLER, and does not require any approval except as has been heretofore obtained.
5.7.	INSTALLER shall be liable for the performance of the INSTALLER’ obligations under this Agreement.

6. PURCHASER’S REPRESENTATIONS

In order to induce INSTALLER to enter into this Agreement, Purchaser makes the following representations:

6.1.	Purchaser has examined and carefully studied the Contract Documents.
6.2.	Purchaser has informed INSTALLER in writing of all relevant general, local and site conditions known to Purchaser, that INSTALLER should be aware of for the performance of the Services and supply of the System. Purchaser is familiar with applicable law relevant to the performance of its obligations under the Contract Documents.
6.3.	Purchaser has all necessary power and authority to execute, deliver and perform its obligations under this Agreement, and each of the execution, delivery and performance by Purchaser of this Agreement has been duly authorized by all necessary action on the part of Purchaser, does not require any approval except as has been heretofore obtained.

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7. WARRANTIES AND GUARANTEES

7.1. PRODUCT AND SYSTEM WARRANTY

7.1.1	INSTALLER will provide a warranty for the System and the photovoltaic modules in the System as described in Schedule 4.
7.1.2	INSTALLER warrants that all goods, other than System, supplied as part of the Services will conform to the specifications for such goods set forth in the Contract Documents. INSTALLER warrants that it will deliver good title to the System and all other goods it supplies in connection with the Services.

7.2. ENGINEERING AND DESIGN WARRANTY

7.2.1

INSTALLER warrants they will perform the engineering and design services (“Engineering Services”) in accordance with the current standards of care and diligence normally practiced in performing services of a similar nature. If during the five (5) year period following acceptance of the Services pursuant to Article 11.2 it is shown that there is an error in the Engineering Services as a result of INSTALLER’ failure to meet those standards and Purchaser has notified INSTALLER in writing of any such error within the specified period, such INSTALLER shall re-perform within a reasonable timeframe such Engineering Services within the original scope of Services as may be necessary to remedy such error. All costs incurred by INSTALLER in performing such corrective services shall be paid by INSTALLER.

7.2.2

INSTALLER warrants that any system design or installation services provided by INSTALLER, will not infringe any valid U.S. patent and that INSTALLER has obtained and shall provide all appropriate proprietary rights, licenses, agreements and permissions for materials, methods, processes and systems incorporated into the System. INSTALLER makes no warranties as to patent infringement to the extent resulting from goods supplied by third parties or goods specified neither by Purchaser, nor as to designs supplied by parties other than INSTALLER.

7.3. INSTALLATION WARRANTY

INSTALLER shall provide their installation services in a professional, workmanlike and timely manner. INSTALLER warrants that such installation services shall (i) be performed in accordance with Article 2.1.8 and all other conditions and requirements contained herein; (ii) reflect the degree of care, skill, prudence, judgment and diligence, under the circumstances then-prevailing, that a reasonable, qualified and competent provider of similar services would exercise; and (iii) that such installation services shall be free from material defects in workmanship including any roof leaks that result from installation or operation and maintenance services provided by the INSTALLER. All actions taken by INSTALLER in performing installation services hereunder shall comply with all applicable laws, rules, regulations and ordinances.

If during the five (5) year period following acceptance of the Services pursuant to Article 11 it is shown that there is an error in the installation services as a result of INSTALLER’ failure to meet those standards and Purchaser has notified INSTALLER in writing of any such error within the specified period, INSTALLER shall reperform such installation services within thirty (30) days; assuming that full access to the Site is granted to the INSTALLER and that delays in materials/supplies delivery, weather, or any other matter beyond the INSTALLER’ control does not interfere with this work. Within the original scope

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	of Services as may be necessary to remedy such error, INSTALLER shall pay all costs incurred by INSTALLER in performing such corrective services.
7.4.	THIRD PARTY WARRANTY AND GUARANTEE
	INSTALLER shall, for the protection of Purchaser, use commercially reasonable efforts to obtain from all vendors and subcontractors from which INSTALLER procures machinery, equipment or materials or services, warranties and guarantees with respect to such machinery, equipment, materials or services, which shall be made available to Purchaser to the full extent of the terms thereof.
7.5.	NEGLIGENCE
	Nothing contained in paragraph 7 is deemed to waive liability for negligence.

8. DEFAULT; DAMAGES; LIMITATION OF LIABILITY

8.1.

In the event that a party defaults in its obligations hereunder, a non-defaulting party may seek to enforce this Agreement, may recover damages from the defaulting party or may terminate this Agreement, all at the non-defaulting party’s election. In the event a party finds it necessary to bring an action to enforce this Agreement, the prevailing party, in addition to any other relief which may be granted, shall be entitled to recover all reasonable and necessary costs incurred by the prevailing party in such action, including an award of attorneys’ fees.

8.2.

Notwithstanding the foregoing, INSTALLER shall be liable for any INSTALLER default under this Agreement.

9. INSURANCE

9.1.1.	COMMITMENT
9.1.1	Commencing with the performance of the Services hereunder, and continuing until the earlier of acceptance of the Services or termination of this Agreement, INSTALLER shall maintain standard insurance policies as follows:

9.1.1.1.	Workers’ Compensation and/or all other social insurance in accordance with the statutory requirements of the state, province or country having jurisdiction over INSTALLER’ employees who are engaged in the Services, with Employer’s Liability of one million dollars ($1,000,000) per accident;
9.1.1.2.	Commercial General Liability, including automobile (owned, non-owned or hired vehicle) insurance in a combined single limit of two million dollars ($2,000,000) per occurrence for bodily injury to or death of persons and/or loss of or damage to property of parties, which policy shall contain contractual liability coverage;
9.1.1.3.	Errors and Omissions insurance in the amount of $500,000 shall be carried by subcontractors conducting professional engineering & design work related to the project and both INSTALLER and Purchaser shall be named as additional insured.

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9.1.2 All coverage required to be maintained by INSTALLER under this Agreement shall provide that they are primary to any insurance coverage carried by Purchaser, shall contain waivers of subrogation, and shall provide that they may not be amended or terminated without notice to Purchaser.

10. TERM AND COMPLETION

10.1.	TERM.
	The term of this Agreement will continue through INSTALLER’s complete performance of their obligations under this Agreement, unless terminated, cancelled or suspended pursuant to Article 12.
10.2.	COMPLETION
	Completion of the System installation occurs when the System has been completed mechanically, electronically and structurally and all specified tests have been completed including inspection and acceptance of final interconnection by the controlling utility and the overseers of the programs offering the Rebates.
10.3.	SCHEDULED COMPLETION
	INSTALLER shall commence the Services immediately after the date of this Agreement and shall prosecute the Services continuously and with due diligence.

11. TRANSFER AND ACCEPTANCE

11.1	CARE, CUSTODY AND CONTROL
	Upon completion of the System as described in Section 10.2, INSTALLER shall so advise Purchaser in writing. Unless Purchaser shall advise INSTALLER within thirty (30) days thereafter why the System is not complete, completion shall be deemed to have occurred and the care, custody and control of the System shall pass to Purchaser. In any event, the care, custody, and control of the System shall pass to Purchaser no later than the time when Purchaser takes physical possession thereof. Except as otherwise expressly provided in this Agreement, from and after that date of transfer of care, custody, and control of the System or portion thereof, Purchaser shall assume all risks of physical loss or damage thereto and shall, and does hereby, release INSTALLER from and Purchaser will and shall cause its insurers to waive rights of subrogation against INSTALLER and its vendors and subcontractors for loss or damage to the System which may thereafter occur.
11.2	ACCEPTANCE OF SERVICES
	When INSTALLER deems they have completed the Services, they shall so notify Purchaser in writing. Within thirty (30) days thereafter, Purchaser shall advise INSTALLER in writing of any defects in the Services for which INSTALLER is responsible under this Agreement. As soon as any such defects are corrected (or as soon as the thirty (30) day period for such notice has expired if Purchaser does not advise INSTALLER of any such defects within the period), Purchaser shall accept the Services in writing or they shall be deemed accepted. Care, custody, and control shall be transferred to Purchaser after acceptance.

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11.3	ELECTRICITY PRODUCED
	Purchaser will be the owner of all the electricity generated by the System and the related renewable energy credits and other intangible attributes associated with such electricity.
12.	TERMINATION, CANCELLATION AND SUSPENSION
12.1	TERMINATION BY PURCHASER FOR DEFAULT
	Should INSTALLER (i) become insolvent or bankrupt, (ii) should INSTALLER commit a substantial breach or default of any of the covenants or obligations of the Contract Documents, and should such INSTALLER thereafter fail to commence action to remedy such breach within ten (10) business days after written notice thereof from Purchaser and thereafter to proceed diligently in remedying the same, then Purchaser may, at its option, terminate this Agreement and enter upon the premises and take possession thereof and at the same time instruct INSTALLER to remove from the premises all of their tools, equipment, and supplies for the purpose of completing Services. Under any such termination, INSTALLER shall be compensated for all reimbursable costs incurred under the Contract Documents and Services properly rendered by INSTALLER to the date of such termination for the System that are in usable condition, or that are later made usable by Purchaser (or one of its subcontractors) less any reasonable rework costs incurred to such end and In the event that Purchaser uses any of INSTALLER’ equipment or tools, Purchaser shall return the same to INSTALLER in good condition and repair, reasonable wear and tear excepted and shall reimburse INSTALLER for the use thereof.
12.2	TERMINATION BY INSTALLER FOR DEFAULT
	Should Purchaser become insolvent or bankrupt, or commit a substantial breach or default of any of the covenants or obligations of the Contract Documents and (a) fail to remedy the same within ten (10) business days after written notice thereof from INSTALLER if the breach constitutes a failure to pay money, or (b) fail to commence proceedings to remedy the same within fifteen (15) days after written notice thereof from INSTALLER and thereafter to proceed diligently in remedying the same if the breach is other than to pay money, then INSTALLER may, at their option, suspend performance or terminate this Agreement. Should INSTALLER so suspend or terminate this Agreement, then: (i) Purchaser shall reimburse to INSTALLER all reasonable costs incurred and pay for the percentage of Services performed and System installed to the date of suspension/termination in accordance with the provisions of Article 3; (ii) all “retention” monies (if any) withheld by Purchaser pursuant to this Agreement shall be paid to INSTALLER; (iii) Purchaser shall pay to INSTALLER, as liquidated damages and not as a penalty, and (iv) Purchaser shall reimburse INSTALLER’ reasonable demobilization costs.

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13. SAFETY AND ENVIRONMENTAL

13.1. COMPLIANCE WITH LAWS

13.1.1.

INSTALLER shall make every reasonable effort to design the System so they are capable of complying with all applicable safety legislation, including state and federal Occupational Safety and Health Acts (“OSHA”), and with applicable environmental laws, rules and regulations in force during the term of this Agreement. If, during the course of the Services, any questions should arise regarding safety or environmental aspects of the Services, INSTALLER and Purchaser shall mutually agree upon any changes required in the Services and such changes shall be treated as changes in the scope of the Services. Purchaser shall only pay for unforeseen changes.

13.1.2.

INSTALLER shall make every reasonable effort during the course of construction to perform the Services in accordance with applicable laws, rule, regulations, and orders relating to environmental concerns or the safety of INSTALLER’ employees and shall require each subcontractor to have an appropriate safety program covering the subcontractor’s employees.

14. INDEMNIFICATION

14.1.

INSTALLER agrees to indemnify, defend and hold harmless Purchaser, its employees, agents, officers, directors and affiliates, (“Purchaser Indemnified Parties”) from and against any cost, liability, cause of action, suit or judgment (“Loss”) to the extent relating to personal injury or death, or damage to property, and to the extent arising from the negligence or willful misconduct of any INSTALLER, its employees and agents. Such indemnification shall include any claim, demand or liability of any kind arising out of damage to the roof caused by the installation or maintenance of the System by INSTALLER. Such indemnification shall not apply to the extent a Loss arises from the negligence or willful misconduct of a Purchaser Indemnified Party.

14.2.

Purchaser agrees to indemnify, defend and hold harmless INSTALLER, its employees, agents, officers, directors and affiliates, (“INSTALLER Indemnified Parties”) from and against any Loss to the extent relating to personal injury or death, or damage to property, and to the extent arising from the negligence or willful misconduct of Purchaser, its employees and agents. Such indemnification shall not apply to the extent a Loss arises from the negligence or willful misconduct of an INSTALLER Indemnified Party.

15. EQUITABLE ADJUSTMENT TO SCHEDULE

15.1.

INSTALLER shall be entitled to an equitable adjustment of the time permitted for completion of the Services, in the event of any increase in time for completion caused by (1) Force Majeure, (2) the delay or failure of Purchaser to provide Purchaser Services or (3) potential delays specified in the Project Schedule not caused by INSTALLER including acts of nature.

15.2.

If INSTALLER believes that they are entitled to an equitable adjustment, they shall so notify Purchaser, stating in the notice (“Adjustment Notice”) the adjustment to the completion date and specifying in reasonable detail the reasons for the adjustment. Purchaser will respond in writing within twenty (20) business days of receipt, accepting or objecting to the adjustment proposed in the Adjustment Notice. If Purchaser does not object in writing within twenty (20) business days of receipt, the adjustment proposed in the Adjustment Notice shall become final. If Purchaser does object in writing, the dispute shall be resolved by the parties as specified in this Agreement.

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16. TECHNICAL AND ENVIRONMENTAL RIGHTS

16.1.	Nothing in the Contract Documents is intended to grant Purchaser any rights to acquire, own, use or practice any trade secrets, patents, trademarks, confidential information or other proprietary information of INSTALLER.
16.2.	Nothing in the Contract Documents is intended to grant INSTALLER any rights to acquire, own, use or practice any trade secrets, patents, trademarks, confidential information or other proprietary information of Purchaser.
16.3.	INSTALLER may refer to the Services and to Purchaser in its brochures, advertisements or other marketing efforts, after written approval of Purchaser. Such references, if permitted, shall be truthful.

17. GENERAL

17.1.	Terms used in this Agreement, which are defined in the Contract Documents, will have the meanings indicated in the Contract Documents.
17.2.	No party shall assign this Agreement or any of its rights hereunder without the prior written consent of the other parties, which consent shall not be unreasonably withheld or delayed. Notwithstanding the foregoing, a party may upon written notice, without the need for consent from the other parties (and without relieving itself from liability hereunder), (i) transfer, pledge or assign this Agreement as security for any financing or to an affiliated special purpose entity created for the financing or tax credit purposes related to the System; (ii) transfer or assign this Agreement to any person or entity succeeding to all or substantially all of the assets of such party, provided, however, that any such assignee shall agree to be bound by the terms and conditions hereof; or (iii) assign its rights under this Agreement to a successor entity in a merger or acquisition transaction, provided, however, that any such assignee shall agree to be bound by the terms and conditions hereof. An “affiliate” of, or a person “affiliated” with, a specified person, is a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the person specified.
17.3.	If any provision of the Contract Documents is determined by a court or tribunal of competent jurisdiction to be void or unenforceable under applicable law, such provision shall be deemed stricken, and all remaining provisions shall continue to be valid and binding. Purchaser and INSTALLER agree that the Contract Documents shall be reformed to replace such stricken provision with a valid and enforceable provision that comes as close as possible to expressing the intention of the stricken provision.
17.4.	The Contract Documents and the rights and obligations of the parties under the Contract Documents shall be governed by the laws of the State of Connecticut. The parties shall attempt in good faith to resolve any dispute arising under or in connection with the Contract Documents. If the parties are unable to resolve a dispute within thirty (30) days of its first assertion in writing, then a party may refer such dispute to binding arbitration in the State of Connecticut. The arbitrators shall not have the authority to award any relief, which could not be awarded, by the courts of the State of Connecticut. The decision of the arbitrators shall be final, binding and non-appealable except for fraud or lack of jurisdiction. The arbitrators’ fees shall be paid by the party which is not substantially prevailing in the arbitration, or the parties jointly if no party is a substantially prevailing party.

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17.5.

INSTALLER may subcontract any portion of the Services to a subcontractor approved by Purchaser, which approval shall not be unreasonably withheld, conditioned or delayed. (response shall be given within 10 days) In no case shall Purchaser’s approval of any subcontractor or supervision over any (appointed) subcontractor relieve INSTALLER of any of their obligations under this Agreement. Notwithstanding the above, INSTALLER may have portions of the Services performed by affiliated entities or their employees, in which event INSTALLER shall be responsible for such Services and Purchaser will look solely to INSTALLER as if INSTALLER performed the Services.

17.6.

Any notice required or permitted to be given under the Contract Documents shall be given by courier, personal delivery or U.S. mail, prepaid, and delivered to the parties at the addresses set forth below:

INSTALLER:

American Capital Energy, Inc.
Attn: Thomas Hunton
15 Tyngsboro Rd. Suite 4a
North Chelmsford, MA 01863
(603) 795-4586

Purchaser:

Vermont Pure Holdings, LTD.
Attn: Jack Baker
1050 Buckingham Street
Watertown, CT 06795
860-945-0661

17.7.

Neither party shall be liable for any failure to comply with its obligations under the Contract Documents, other than to pay moneys due, to the extent arising from outside such party’s reasonable control, including, without limitation, fire, flood, storm, strike, lockout or other labor trouble, riot, war, rebellion, accident or other acts of God, or from other similar and dissimilar causes beyond the reasonable control of such party and which could not have been reasonably avoided by such party(“Force Majeure”). INSTALLER may be entitled to an equitable adjustment arising from Force Majeure, to the extent specified in Article 15 above. A party claiming Force Majeure shall promptly notify the other parties, specifying in reasonable detail the event of Force Majeure, the expected duration, and the steps such party is taking to remedy it. In the event that Force Majeure lasts or is expected to last more than six (6) months, a party may terminate this Agreement and will not need to pay the other parties the liquidated damages described in Article 12.

17.8.

The Contract Documents express the entire and integrated agreement of the parties with respect to their subject matter, and any prior or contemporaneous negotiations or discussions are superseded. No party has made any promise or inducement, which is not set forth in the Contract Documents.

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18. Confidentiality

18.1	Each party and its employees, agents and subcontractors, agree to keep confidential and not disclose to any third party (including any governmental agency or official), or use for any purpose other than in connection with the performance of the Services specified under the Contract Documents, any Technical Information (as defined in Article 18.3) which is disclosed to it (the “Receiving Party”) by the other party (the “Disclosing Party”) in connection with its performance under the Contract Documents, except such Technical Information (a) as was known by the Receiving Party prior to execution of the Agreement, (b) is disclosed to the Receiving Party by third parties that did not acquire it directly from the Disclosing Party or (c) is then or thereafter becomes published or otherwise generally available to the public; provided, however, that this exception shall not be deemed to grant the Receiving Party a license to any invention of the Disclosing Party. If INSTALLER defaults, Purchaser shall retain all rights to documents and designs for the purpose of completing installation of the sytem.
18.2	Each party agrees to take all reasonable steps including, but not limited to, providing similar signed agreements for employees, agents or subcontractors to prevent unauthorized disclosure and use of Technical Information by its employees, agents and/or subcontractors.
18.3	The term “Technical Information” shall include all technical and engineering data and know-how whether patented or unpatented, on processes, products, and equipment relating to the Services, including operating procedures and instructions, flow diagrams, process and detailed design data, specifications on plants and equipment, specifications for raw materials and intermediate and final products and analytical methods.
18.4	Each party and its employees, agents and subcontractors agree not to make public nor discuss information obtained during the course of negotiating and performing under the Agreement, with any third parties, including any governmental officials or any other consultants without the prior written approval of the other party, other than in connection with the performance of the Services.
18.5	The above confidentiality provisions shall terminate five (5) years following termination of this Agreement.

INTENDING TO BE LEGALLY BOUND, Purchaser and INSTALLER have signed this Agreement through their duly authorized representatives effective as of the date set forth above.

INSTALLER

American Capital Energy, Inc.

By:	/s/ Thomas Hunton
Printed name: Thomas Hunton
Title: President

Crystal Rock Inc./Vermont Pure Holdings, LTD

/s/ John B. Baker

Printed name: John B Baker

Title: Executive Vice President

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Schedule 1: System Descriptions and Specifications

1. System Descriptions

	Scope	Name/size	Description
A	1,764	SCHOTT Solar 170	SCHOTT Solar 170 Watt solar modules
B	1	Satcon PowerGate 225 kW PV inverter	225 kW PV inverter with isolation transformer
C	1	Satcon PowerGate 30 kW PV inverter	30 kW PV inverter with isolation transformer
D	1	SunLink Mounting system for 299.88 kW DC PV system	SunLink Flat-Roof Mounting System for 299.88 kW DC PV system
E	1	Fat Spaniel Remote Data Acquisition System	Revenue Grade Meter, Solar Irradiance, Temperature, Wind Speed, Maximum Power, Total Energy, Expected Performance — typical weather data, Expected Performance — Actual Weather Data, Integration with SatCon MODBUS

2. System Specifications

2.1.	The System designs shall be consistent with a 25-year design life.
2.2.	The System shall be designed to withstand environmental conditions expected for the specified sites, such as winds, temperature, and humidity.
2.3.	The System designs shall consider structural loads, such as seismic, wind, and vibration.
2.4.	PV modules shall be listed by Underwriter’s Laboratories (UL). Module data sheet(s) are attached to this Schedule 1 and incorporated herein.
2.5.	The inverters shall be listed by Underwriter’s Laboratories (UL). Inverter data sheet(s) are attached to this Schedule 1 and incorporated herein.
2.6.	All System components shall meet applicable national and local codes and standards for grid-interconnected photovoltaic systems.
2.7.	All components shall have appropriate finish to prevent corrosion.
2.8.	The System will be designed and installed in a manner that makes the System eligible for the Rebates and the data system shall provide output that is sufficient and accepted by CT regulatory authorities as proof required for the Connecticut Solar Initiative program.

Schedule 1 to
Photovoltaic System Supply and
Installation Agreement

1

Schedule 2: Services Description and Specification

1. Services Description

1.1. INSTALLER will provide the following services.

§	Mechanical layout and electrical design of the system (with necessary engineering stamps)
§	Installation of a 299.88 kW dc solar electric system at 1050 Buckingham Street, Watertown, CT
§	Unpacking and inspection of materials
§	Assembly of Standing Seam Metal Roof Mounting System for 299.88 kW DC PV system
§	Installation of a total of 1,764 (one thousand seven hundred sixty four) SCHOTT Solar 170 Solar modules.
§	Installation of 2 (two) SatCon A/C inverter, A/C and D/C disconnects, one 225 kW and one 30 kW.
§	Conduit and inter panel wiring
§	Wiring of system into buildings primary power center
§	Comprehensive system performance testing
§	Up to 4 (four) hours of onsite system training for facilities personnel
§	Preparation of building and electrical permits as well as interfacing with township personnel
§	Interfacing with CL&P and filing of interconnect paperwork
§	The site will be kept orderly and left with a neat and clean appearance

1.1.1.	Design. INSTALLER will design the System according to Work Specifications in this Schedule 2 and the System Descriptions and Specifications listed in Schedule 1. INSTALLER will provide Purchaser and installation contractor with Plot Plans and System drawings (mechanical, electrical, fabrication, and installation), as needed, to demonstrate the System design and to support Purchaser and installation contractor in permitting and utility interconnection of the System. The System drawings will be stamped by licensed electrical, mechanical, or licensed professional engineers as needed.
1.1.2.	Permits and agreements. INSTALLER will submit for and provide needed documentation to obtain all applicable permits or utility interconnection agreements which are required for the System. Such permits and agreements shall not change the zoning of the Site nor the condition of the use of the Property and the improvements located thereon.
1.1.3.	Fabrication and Integration. INSTALLER will fabricate or purchase all necessary System components and integrate these components to meet the System Description and Specifications listed in Schedule 1.

Schedule 2 to
Photovoltaic System Supply and
Installation Agreement

1

1.1.4.	Installation. To the extent INSTALLER will be providing installation services, INSTALLER will complete or manage through appointed sub-contracts all required trenching, mechanical, and electrical work required for installation of the System, according to specifications in this Schedule 2.
1.1.5.	Installation Management Services. INSTALLER will be prime contractor.
1.1.6.	Commissioning. INSTALLER will develop a System acceptance test protocol and handover documents mutually satisfactory to INSTALLER and Purchaser, conduct the acceptance test and prepare and supply an acceptance test report and handover documents to Purchaser for the System.

2.	Work Specifications
2.1.	To the best of their knowledge and subject to the constraints imposed by site conditions and the Site host, INSTALLER will engineer, locate and install the System to optimize the kWh output of the System over its lifetime.
2.2.	Installation shall meet all applicable local and national codes and standards.
2.3.	Installation shall be performed in accordance with OSHA standards.
2.4.	Workmanship shall be consistent with quality generally accepted in the industry.
2.5.	Services will be conducted in a manner that makes the System eligible for the Rebates according to requirements at the date of contract execution.
2.6.	INSTALLER covenants that they will not violate any of roof warranties at the System location in the installation and maintenance of the System.

Schedule 2 to
Photovoltaic System Supply and
Installation Agreement

2

Schedule 3: Purchaser Assistance Description

To aid in the installation of the System by INSTALLER and their subcontractor(s), Purchaser will make arrangements with the Site tenants to:

1.1.	Provide access to the installation Site during normal work days and weekends for the duration of the project.
1.2.	Provide 20 Ampere, 120 volt AC construction power.
1.3.	Provide suitable work area for fabrication and installation of the System.

Schedule 3 to
Photovoltaic System Supply and
Installation Agreement

1

Schedule 4: Warranties

1.

In addition to any manufacturers’ warranties, INSTALLER warrants the System will be free from defects in workmanship for a period of five (5) years following the date of completion as described in Section 10.2 (the “System Warranty Period”). Except as provided below, if the System fails to perform in accordance with INSTALLER specifications during the System Warranty Period, INSTALLER will, at their own expense and at no cost to Purchaser, have the System repaired within a reasonable timeframe, but no later than thirty (30) days after breach of warranty. If repair is not feasible, INSTALLER will coordinate with material supplier and provide troubleshooting and replacement labor related to material warranties. If INSTALLER can repair the System so that it can provide a portion of the specified dc-stc power rating, INSTALLER may do so, and in such event shall refund a percentage of the purchase price equal to the percentage reduction in actual dc-stc power rating after repair from the specified dc-stc power rating.

2.

The warranties provided herein do not cover damage, malfunctions, service failures, or reduced electricity production caused by:

2.1.	Purchaser’s failure to follow INSTALLER’ operation instructions;
2.2.	Repair, modifications, or movement of the System or components thereof by someone other than a INSTALLER approved service technician;
2.3.	Abuse, misuse or negligent acts; and
2.4.	Damage or system outages caused by electrical surges, electric service outages, lightning, fire, flood, earthquake, wind, hail, pest, accident, actions of third parties and other events outside INSTALLER’s reasonable control or not arising under normal operating conditions.

Schedule 4 to
Photovoltaic System Supply and
Installation Agreement

1

Schedule 5: Price and Payment Schedule.

Payment	Payment Schedule	Estimated Date		Payment		Percent
First Payment	Contract Signing	8/22/07		$	208,983	10%
Second Payment	Design/Engineering Complete	9/22/07		$	104,492	5%
Third Payment	Modules, Inverter, Mounting equipment on site (COD-Payment wired to ACE)	11/22/07	*	$	1,567,374	75%
Fourth Payment	Completion of PV system and commissioning	12/22/07		$	104,492	5%
Final Payment	1st Month of Operation and system performance report	1/22/07		$	104,492	5%
Total		Totals			2,089,832	100.00%

* Third payment shall be paid COD to ACE from Purchaser on day of equipment delivery to Site by wire transfer arranged at least 5 days in advance of delivery. Actual delivery of equipment could occur from 30 to 90 days after closing pending manufacturer inventories & production schedules. Multiple deliveries with multiple COD wire transfer payments from Purchase to ACE are likely to avoid on-site storage of equipment to the extent possible. To the extent possible, equipment deliveries will be scheduled such that $783,687 worth of equipment shall arrive and be paid for one month prior to a second delivery worth $783,687.

Schedule 5 to
Photovoltaic System Supply and
Installation Agreement

1

Schedule 6: Project Schedule

The following are expected project milestones from contract signing.

Milestone	Estimated Date
Design/Engineering Complete	Day 30
Modules/All Equipment on site	Day 30-60
Panels mounted, Wiring complete, Inverter installed, Commissioning completed	Day 120

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EX-10.30

Exhibit 10.30

Contract No.                      PHOTOVOLTAIC Project

MASTER FINANCIAL ASSISTANCE AGREEMENT

     THIS MASTER FINANCIAL ASSISTANCE AGREEMENT (“Agreement”) is entered into as of August 20, 2007 (“Effective Date”), by and between CONNECTICUT INNOVATIONS, INCORPORATED, a specially chartered Connecticut corporation acting solely as the administrator of the CONNECTICUT CLEAN ENERGY FUND (“the CCEF”), a renewable energy investment fund created by Section 44 of Public Act 98-28, “An Act Concerning Electric Restructuring”, codified as Connecticut General Statutes (“CGS”) Section 16-245n, having a place of business at 200 Corporate Place, Rocky Hill, Connecticut 06067, and CRYSTAL ROCK LLC/VERMONT PURE HOLDINGS, LTD (“Owner”) a Connecticut corporation having a place of business at 1050 Buckingham Street, Watertown, CT with each referred to herein as a “Party”, and collectively as the “Parties”.

BACKGROUND

     WHEREAS, in accordance with a comprehensive plan developed by the CCEF to foster the growth, development and commercialization of renewable energy sources and related enterprises, and to stimulate demand for renewable energy and deployment of renewable energy sources that serve end use customers in the State of Connecticut, CI has determined that it is in keeping with CGS Section 16-245n for the CCEF to fund certain commercial activities that support projects involving the use of Photovoltaics for power production;

     WHEREAS, pursuant to a Request for Proposal (“RFP”) dated December 26, 2003, as amended, regarding the CCEF’s photovoltaic initiative program, Owner submitted a proposal for financial assistance for the procurement and installation by Owner of certain photovoltaic power generating Equipment to be installed at Owner’s Facility located at 1050 Buckingham Street, Watertown, Connecticut (“Project”); and

     WHEREAS, after a careful review of Owner’s proposal, CI has agreed to provide a monetary grant to Owner in an amount not-to-exceed $1,287,677 plus the Southwest Connecticut Premium production incentive (“SWCT Premium” — see Section 1.1.4) for the procurement and installation of Photovoltaic power generating equipment (“Equipment’) for the Project under the CCEF’s On-Site Distributed Generation Program;

     NOW, THEREFORE, in consideration of the mutual promises herein contained, the Parties hereby agree as follows:

1. FUNDING.

     1.1 Grant. CI shall provide a grant to Owner in the aggregate amount not-to-exceed $1,287,677 ( “Grant”) subject to the terms and conditions of this Agreement, which will be payable to Owner as follows:

1.1.1 Initial Grant Payment. CI will pay Owner fifty percent (50%) of the Grant after the delivery to Owner site of all equipment identified in Schedule A (“Project Details”) incorporated into this Agreement by this reference. Payment will be

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Contract No.                      PHOTOVOLTAIC Project

	made to Owner within ten (10) business days of delivery to CI of a letter substantially in the form of Appendix I (Equipment Delivery to Site) of this Agreement attesting to the delivery to Owner’s site of all Equipment and including appropriate documentation of delivery of said Equipment.
1.1.2	Interim Grant Payment. CI will pay Owner forty percent (40%) of the Grant on the date on which the Equipment has been installed, tested by Owner, and accepted by Owner (the “Commissioning Date”), but only if all of the following requirements shall have been met at time that CI’s pays forty (40%) of the Grant:

1.1.2.1	The Equipment and its operation shall comply with all of the details and specifications set forth in this Agreement;
1.1.2.2	Owner has provided CI with supporting documentation regarding the Equipment and installation of said Equipment, including but not limited to manufacturer’s warranties and satisfactory inspection and test reports;
1.1.2.3	CI has received an “Inspection Report” from an independent engineer selected by CI stating that the Equipment has been installed at the Project Site in accordance with the manufacturer’s instructions and all applicable code requirements, has been tested, is operational and is capable of power generation in substantially the amounts projected in Schedule A;
1.2.2.4	Owner has provided CI with all other required documentation, including copies of all required licenses, approvals, cost reports and test reports, and
1.2.2.5	CI has received from Owner an executed letter substantially in the form of Appendix II (Equipment Acceptance) attached to this Agreement, certifying completion of the system commissioning and entry into operational service of the generating Equipment, and requesting the interim funding.

1.1.3

Final Grant Payment. Six months after the Commissioning Date, CI shall pay to Owner the remaining ten percent (10%) of the Grant only if Owner has demonstrated to CI’s satisfaction that the Equipment has produced during such six months on an annualized basis at least seventy percent (70%) of the projected Annual AC Production and if Owner has provided CI with an executed funding request substantially in the form of Appendix III (Form of Funding Request) attached to this Agreement.

1.1.4

Southwest Connecticut Premium Payments. Coincident with the Final Grant Payment described in Section 1.1.3, a payment of 50% of the total estimated premium will be paid, subject to the conditions in Section 1.2 below. The estimated premium will be the present value of the estimated annual kilowatt- hours for each year of the system’s expected life multiplied by $0.02, using a discount rate of 10%.

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A second and final payment of the SWCT Premium will be made within one month of the documentation to CI’s satisfaction of the first 12 months of kWh production. This final payment will be the difference between the total estimated premiums, adjusted based on the actual first year of operation, and the initial payment.

     1.2 Conditions to Grant Payments. CI shall have no obligation to provide any portion of the Grant to Owner unless and until all of the following conditions have been satisfied by Owner in CI’s reasonable discretion or have been waived by CI:

1.2.1	The Equipment under this Agreement is installed and tested by Owner’s agent and accepted by Owner;
1.2.2	All of the representations and warranties of Owner set forth in this Agreement are true and correct;
1.2.3	Owner is not in Default; and
1.2.4	Owner has taken proper actions with respect to the Project as CI shall have reasonably requested, including the timely provision of any “deliverables” (see Section 2 of this Agreement) due on or before the payment.

     1.3 Waiver; CI may waive satisfaction of any condition to any payments under this Agreement, but each waiver shall be in writing and no such waiver shall extend to any subsequent Advance.

2. DELIVERABLES

     2.1 Deliverables. Owner agrees to the following deliverables under this Agreement and failure to provide any of the deliverables shall result in an Event of Default under this Agreement:

2.1.1	The Project shall be Commissioned, which means the Equipment for the Project shall be installed, prepared for startup, operationally tested, and fully operating, on or before one year after the Effective Date;
2.1.2	Owner shall provide a final report describing all activity undertaken by Owner during the course of the project, summarizing lessons learned, project costs actually paid by Owner and an evaluation of the overall success and prospects for completion of the project.
2.1.3	Owner, or its assignee(s), shall operate the Project in the State of Connecticut for at least eight (8) years from the Commissioning date of the Project;

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2.1.4	For the commercial life of the Project, Owner shall make available, in real time, limited operating data from the facility via a Fat Spaniel monitoring system, or equivalent, acceptable to CI;
2.1.5	For the commercial life of the Project, Owner shall provide CI with reasonable access to the site for educational purposes, project inspection; public relations or other reasonable purposes;
2.1.6	Owner shall provide proof of any contractor and subcontractor’s insurance policies evidencing a minimum of $1,000,000 liability insurance coverage;
2.1.7	For the commercial life of the Project, Owner shall insure the Project and equipment at replacement cost and list CI as an additional loss payee;
2.1.8	For the commercial life of the Project, Owner shall provide prominent and visible signage at the project site and acknowledgment in all of Owner’s promotional materials recognizing CI’s contribution to the project in a form acceptable to CI.
2.1.9	Owner shall invite a CI or the CCEF representative to a “kickoff” meeting when Owner begins project-specific activity.
2.1.10	If requested by CI, Owner shall conduct periodic project status meetings with meeting minutes and action items written up and sent to CI.
2.1.11	For the commercial life of the Project, Owner shall provide annual reports to CI regarding the economic and technical performance of the project.

     2.2 Failure to Deliver. The failure to deliver any of the deliverables in Section 2.1 of this Agreement shall be an Event of Default and CI will be entitled to all remedies under Section 5.2 of this Agreement.

3. REPRESENTATIONS AND WARRANTIES

3.1

Of Owner. Owner represents and warrants to CI as follows:

3.1.1

Owner is a corporation, duly organized and validly existing under the laws of its jurisdiction of organization and, if not organized under the laws of the State of Connecticut, duly authorized to transact business in the State of Connecticut, with all requisite power and authority to (i) develop the Project, install, own and operate the Equipment; and (ii) enter into and perform this Agreement, and to incur the obligations herein provided. The execution, delivery and performance by Owner of this Agreement have been or will be duly authorized and approved by all necessary governmental authorities or other third parties and do not and will not violate Owner’s organizational documents or any applicable law or any agreement or instrument to which Owner is a party or by which it is bound or by which any of its properties may be affected. This Agreement is the legal, valid

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and binding obligation of Owner, enforceable against it in accordance with its terms. 3.1.2 There are no actions, suits or proceedings pending, or to its knowledge, threatened against Owner that could reasonably be expected to affect the Project before any court or other governmental authority or before any arbitrators.

3.1.2	All information furnished or to be furnished by Owner pursuant to the terms hereof will not, at the time the same is furnished, contain any untrue statement of a material fact and will not omit to state a material fact necessary in order to make the information so furnished, in the light of the circumstances under which such information is furnished, not misleading.
3.1.3	Owner’s Proposal accurately reflects all material costs and expenses expected to be incurred in connection with the Project, and accurately reflect the anticipated time period for the implementation of each material part of the Project;
3.1.4	Owner is making reasonable efforts, to obtain all governmental approvals necessary for the Project , and to the best of Owner’s knowledge and belief, no state of facts exists that would make it impossible or impractical to obtain any governmental approvals necessary for the construction, sponsorship, operation and/or maintenance of the Project, as currently planned;
3.1.5	The Equipment for the Project meets all of the requirements set forth in the RFP resulting in this Agreement;
3.1.6	The Equipment for the Project is of a size, design, capacity and manufacture selected solely by Owner; and
3.1.7	Owner has selected the Equipment based on its own judgment, and expressly disclaims reliance on any statements made by CI or its agents relating thereto.
3.1.8	Regarding certain State contracting matters:

3.1.8.1	Neither Owner nor any Related Party has provided to any employee of CI on or after July 1, 2005, any items of value for which full payment has not been made.
3.1.8.2	In connection with the application for, and solicitation and award of, the financial assistance provided pursuant to this Agreement, neither Owner nor any Related Party committed any violation of the Connecticut Code of Ethics for Public Officials and Lobbyists, Chapter 10 of the General Statutes (the “Code of Ethics”) or intentionally and knowingly violated any applicable requirement of the request for proposals or other applicable law.
3.1.8.3	Neither Owner nor any Related Party has been found to have violated the

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Code of Ethics or Section 4a-100 of the General Statutes, or has been suspended or disqualified from bidding on contracts with the State of Connecticut or any department, agency or quasi-public agency thereof.

3.2	Of CI. CI represents and warrants as follows:
3.2.1	CI represents and warrants to Owner that it has all requisite power and authority to enter into and perform this Agreement and the obligations herein provided. The execution, delivery and performance by CI of this Agreement has been or will be duly authorized by all necessary Federal, State and local agencies and boards and does not and will not violate any Law (including without limitation CGS Section 16-245n) or any agreement, instrument or evidence of indebtedness to which CI is a party or by which it is bound or by which any of its properties may be affected. This Agreement is the legal, valid and binding obligations of CI, enforceable against it in accordance with its terms.
3.2.2	CI neither makes nor shall be deemed to have made any warranty or representation, express or implied, concerning the Project or Equipment, including, without limitation, any warranty or representation as to design, quality, capability, title or condition or as to merchantability or fitness for any particular purpose. Owner understands and acknowledges that CI did not select, manufacture or supply the Equipment. Owner will look solely to the manufacturer for delivery of the Equipment. Owner hereby waive any claim (including any claim based on strict or absolute liability in tort) either might have against CI for any loss, damage (including incidental or consequential damage) or expense caused by the Project or the Equipment.

4. COVENANTS.

     4.1 Covenants of Owner. Until the eighth anniversary of the Commissioning Date, Owner agrees as follows:

4.1.1

Status and Location. Owner shall maintain its legal existence in its jurisdictions of organization with authority to transact business in the State of Connecticut.

4.1.2

Commissioning Date. Owner shall diligently cause the Commissioning Date to occur as shown in Schedule B (Project Schedule), but in any event, no later than one year from the Effective Date, and use its best efforts to acquire, preserve and protect all of the rights, interest and properties necessary for the Project. Owner shall install the Equipment, or cause the Equipment to be installed, in a manner consistent with any installation manual prepared by the manufacturer or supplier of the Equipment. Owner shall notify CI immediately of the occurrence of any event or contemplated action (including the threat and/or commencement of any legal proceedings) which could have a material adverse effect on the Project (including a material deviation from the specifications set forth in Schedule A),

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together with a recommended course of action.

4.1.3

Operation of Project. Owner shall maintain the Equipment at the Project Site and shall use and operate the Equipment solely to meet Owner’s energy needs. Owner shall (a) operate the Equipment in accordance with the supplier’s or manufacturer’s instructions, consistent with warranty and insurance requirements; and (b) maintain the Equipment in good repair, working order and condition and make all needed and proper repairs, renewals, replacements, additions or improvements thereto and immediately notify CI of any event causing loss or depreciation in the value of the Equipment. Without limiting the generality of the foregoing, Owner shall use commercially reasonable efforts to ensure that the Equipment is operated for its intended purpose for at least eight (8) years from the Commissioning Date. Owner shall not take any action to replace, retrofit, upgrade or otherwise materially alter the Equipment without the prior written consent of CI, which shall not be unreasonably withheld.

     4.2 Access to and Public Notice of Information. The following obligations of Owner shall not terminate for the life of the Project:

4.2.1

Except as set forth in the next sentence, CI shall have the right to collect, review, analyze, utilize and disseminate to third parties and the public all information relating to the Project, including data directly related to the Project’s economic, social and operational benefits, as well as Equipment performance, installation costs and operating costs. Owner shall obtain the authorization, in any applicable contract or otherwise, of each such Person furnishing reports with respect to the Project to specifically allow CI to rely on such reports and work product, to use it for other purposes and to disseminate it to third parties; provided, however, the Person supplying such reports and work product (i) may limit its liability with respect to the reuse thereof for purposes unrelated to the Project and (ii) may restrict, subject to applicable law (including the Freedom of Information Act), CI’s public disclosure of any non-public confidential and/or proprietary information or trade secrets by conspicuous written indication of such restriction at the time of disclosure. Without limiting the generality of the foregoing, CI shall be entitled to access to, and the right to obtain and use copies of, all operation, maintenance and similar data relating to the Equipment.

4.2.2

In connection with the terms and conditions of this Agreement, Owner shall describe the Photovoltaic system and make all real-time and historical operating information with respect to the Project available to CI, including operating hours, power output, and any other available operating data reasonably requested by CI, through the installation and continued operation of an energy monitoring system such as Fat Spaniel or an equivalent system acceptable to CI. In addition, Owner shall facilitate a hyperlink between its web site, CI’s web site and any other web sites as CI may reasonably request.

     4.3 Compliance with Laws. Owner shall comply with all applicable laws affecting

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or applicable to the Project. Without limiting the generality of the foregoing, Owner shall timely secure, preserve, renew and maintain all governmental approvals and its material private rights and licenses relating to the Project. Promptly upon the issuance thereof, Owner shall furnish to CI a copy of all governmental approvals issued, and actions taken, by any governmental authority with regard to, or otherwise affecting, the Project.

     4.4 Replacement of Equipment. Owner may replace items of the Equipment that Owner determines are not working properly or operating efficiently if (i) Owner notifies CI of the proposed replacement at least thirty (30) days in advance of such action and CI does not reasonably object to such replacement, and (ii) such replacement occurs in accordance with applicable law.

     4.5 Payment of Obligations. Owner shall pay and discharge all lawful claims and demands whatsoever, including trade obligations, arising in connection with, and/or relating to, the Project; provided, however, that the payment of any obligations may be postponed so long as they are being diligently contested in good faith and by appropriate proceedings, appropriate reserves have been provided therefor by Owner, and no lien is placed on the Equipment in connection with such contest. Owner shall defend the Equipment against all claims and demands of any party at any time claiming any interest therein.

     4.6 Insurance. Owner shall maintain fire, extended coverage and other hazard insurance policies with respect to the Equipment, in amounts not less than the replacement value of the Equipment, and shall maintain liability insurance in form and amount reasonably satisfactory to CI. Each policy of insurance shall (a) include a clause that it cannot lapse or be canceled or modified except upon at least (30) days’ prior written notice to CI; and (b) be issued by a company licensed to provide such insurance in the State of Connecticut and reasonably acceptable to CI.

     4.7 No Corrupt Practices. Owner shall not pay, offer or promise to pay, or give any money or anything of value, directly or indirectly, to any party involved with the Project, any officer or employee of a governmental authority, or to any political party or candidate for political office for the corrupt purpose of inducing any such party, official, political party or candidate to misuse its position or to influence any act or decision of a governmental authority in order to obtain, retain or direct business to or otherwise influence a decision in favor or for the direct or indirect benefit of Owner, in violation of any applicable law.

     4.8 Program Compliance. Owner shall comply with the reasonable requirements of the Program, provided that they shall not be required to take any action or refrain from taking any action that will adversely affect the operation and/or long-term viability of the Project.

     4.9 Financial Management Systems. Owner shall keep a full and complete account of all Project costs. Owner also shall maintain complete books, records, and financial management systems for the Project reasonably acceptable to CI until three years from the Commissioning Date. Such systems shall provide: (a) accurate, current and complete disclosure of the financial activity relating to the Project, (b) separate accounting for Project funds from other activities and accounts of Owner, (c) effective control over and accountability for all

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Contract No.                      PHOTOVOLTAIC Project

Project funds, property and other assets, (d) comparison of actual outlays for Project costs with budgeted amounts, and (e) accounting records supported by source documentation. All of such systems shall be subject to audit by CI, at the election of CI and at its expense.

     4.10 Reports. Periodic reports on the technical and economic performance of the Project shall be provided by Owner to CI as described in this Agreement quarterly. The reports shall include monthly electric bills for the CL&P Electric Meter, which has the Photovoltaic system installed on it.

     4.11 Access to Project Site. Owner shall provide reasonable access to the site for educational purposes, case study development, project inspection; public relations or other reasonable purposes to individuals or ups designated by CI.

     4.12 Class I Renewable Energy Credits. Owner shall be entitled to all Class I Renewable Energy Credits (“RECs”) produced by the Project, but may share ownership as indicated on Schedule A (Project Details) and CI shall be entitled to all other environmental attributes or credits produced or associated with the Project during the life of the Project including but not limited to greenhouse gas credits, emissions credits, tradable carbon credits, and all other types of tradable emission reduction commodities however named that are presently known or designated or created in the future.

     4.13 Interconnection. At least thirty (30) days prior to the delivery of the Equipment to the Project Site, Owner shall ensure the appropriate interconnection of the Equipment to any utility service providers responsible for the provision of electricity, gas and telecommunications services to the Project.

     4.14 Indemnification. Owner agrees to indemnify CI, the CCEF, and their respective officers, directors, employees, agents and affiliates against, and defend and hold each of them harmless, from any and all claims or liabilities related to or arising in any manner from this financing or the Project other than claims or liabilities resulting primarily from the negligence or willful misconduct of CI.

     4.15 Education and Outreach: Owner shall cooperate with CI’s marketing and outreach activities as agreed to in the “Deliverables” terms and as stated below:

4.15.1	Subject to approval as to form by CI, Owner shall acknowledge the CCEF’s financial assistance pursuant to this Agreement in Owner’s promotional materials, signage at the Project Site and on their web sites to the effect of “This clean energy project was made possible by the support of the Connecticut Clean Energy Fund.”
4.15.2	Owner shall issue press releases and seek out periodicals interested in publishing articles mentioning the Project
4.15.3	Owner shall host a “dedication” event to be coordinated with CI to be attended by such persons as CI may reasonably request

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Contract No.                      PHOTOVOLTAIC Project

4.15.4	Owner shall arrange for public access to the Project Site at such times as CI may reasonably request, at least annually, subject to facility availability
4.15.5	Owner shall participate annually if requested by CI in a meeting or workshop promoting photovoltaic technology and imparting information developed from the Project.
4.15.6	CI and Owner agree to discuss collaboration, on a voluntary basis, on other projects or programs that may be reasonably suggested by either party, and which are consistent with the objectives of both organizations, to jointly promote employee or community participation in other clean energy projects or outreach/ educational programs. Examples of such projects or programs include:

4.15.6.1	Encouraging enrollment in the CTCleanEnergyOptions program offered to all customers of CL&P and UI
4.15.6.2	Publicizing practicable renewable energy and energy conservation technologies and encouraging employees and others in the local community to implement them
4.15.6.3	Directly supporting renewable energy generation through the purchase of Renewable Energy Credits, offsetting a percentage of electricity use
4.15.6.4	Publicizing “green” activities (including this project) or programs that may be of interest to each other’s constituencies on each other’s websites, newsletters or other media, as appropriate.

4.15.7	Owner shall add information to the Owner’s Website regarding the economic savings and avoided pollutants resulting from this Project.
4.16	Advertising.
4.16.1	Neither party nor its subcontractors or agents shall use in any advertising or sales promotion, any endorsements, direct or indirect quotes, or pictures that imply endorsement by the other party or any of its employees without such party’s prior approval.
4.16.2	Owner will submit to CI and CI will submit to Owner, for review, prior to publication, all press releases relating to the Project that mention or display one another’s name and/or marks or contain language from which a connection to said name and/or marks may be inferred or implied. Nothing herein, however, shall be construed as preventing either party from publicly stating the fact that it has executed this Agreement with the other party.
4.16.3	Nothing in this Agreement shall grant, suggest, or imply any authority for one

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Contract No.                      PHOTOVOLTAIC Project

party to use the name, trademarks, service marks, logos, or trade names of the other party in any advertising, press releases, publicity matters, marketing and/or promotional materials or for any other commercial purpose without prior approval from such other party.

     4.17 Information and Inspection. Owner shall allow CI on at least one occasion in each fiscal year, and more frequently upon the occurrence of an Event of Default by Owner under this Agreement, upon reasonable notice, to inspect Owner’s financial records, properties and assets comprising the project under this Agreement.

   5. DEFAULT AND REMEDIES

     5.1 Default by Owner. The occurrence of any one or more of the following events shall constitute an event of default by Owner (an “Event of Default”):

5.1.1	Failure to commence construction of the Project within three months from the date of this Agreement and failure to diligently prosecute completion of the Project;
5.1.2	Owner significantly deviates from the scope of work for the Project as set forth in Schedule A, in the reasonable judgment of CI, and fails to correct such deviation within thirty (30) days after written notice from CI;
5.1.3	Any warranty or representation of Owner in this Agreement is incorrect in any material respect;
5.1.4	Owner is in default of any of its Covenants under this Agreement and such default continues unremedied for thirty (30) days after written notice from CI; or
5.1.5	Bankruptcy, reorganization, receivership, insolvency or liquidation proceedings, or other proceedings under similar law for the relief of debtors are instituted by or against Owner, and, if instituted against it, are allowed against it or are consented to by Owner or are not dismissed within sixty (60) days after institution.
5.1.6	Owner and/or Owner fail to provide one or more of the deliverables under Section 2.1 of this Agreement.

     5.2 Remedies upon Event of Default. Upon and after the occurrence of an Event of Default, and Owner does not remedy the default within (90) days, CI may terminate any obligation on its part to provide any further funding to Owner under this Agreement and may seek all other remedies available to it at law and in equity, including, upon and after the occurrence of an Event of Default, repayment by Owner to CI of the total grant amount received from CI plus interest from the date of Grant disbursement.

     5.3 Security Interest.

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Contract No.                      PHOTOVOLTAIC Project

     5.3.1 To secure prompt and complete payment and performance of the Obligations (as defined below), Owner hereby pledges, assigns, transfers and grants to CI, as agent and administrator of CCEF, a continuing security interest, which shall be subordinated to all existing subordinate debt and any existing or future bank debt In connection therewith, Owner hereby represents and warrants that it is a corporation/limited liability company/other legal entity duly organized/incorporated/formed, validly existing and in good standing under the laws of the State of Connecticut, and Owner hereby agrees to take any and all actions that CI may request from time to time by way of obtaining, executing, delivering and filing financing statements, assignments, landlord’s or mortgage’s waivers, and other notices and amendments and renewals thereof, and Owner will take any and all steps and observe such formalities as CI may request in order to create and maintain a valid and enforceable lien upon, and security interest in, the Collateral. CI is authorized to file financing statements without the signature of Owner and to execute and file such financing statements on behalf of Owner as specified by the Uniform Commercial Code of the State of Connecticut (the “UCC”) to perfect or maintain the security interest granted herein. So long as any Obligations remain outstanding, Owner shall (i) not permit to incur or suffer any loss, theft, substantial damage or destruction of any of the Collateral, and (ii) provide written notice to CI of any change of location of the Collateral or any change in the jurisdiction of organization/incorporation/formation of Owner within five (5) business days of the occurrence thereof.

     5.3.2 As used in this Section 5.3, the following terms shall have the following definitions:

          5.3.2.1 “Collateral” means all equipment purchased (at any time) by Owner with proceeds of the Grant, including without limitation the Equipment, and any and all accessions and additions thereto, and any and all replacements and proceeds thereof (including proceeds of insurance policies payable by reason of loss of the foregoing).

          5.3.2.2 “Obligations” means the obligations of Owner (i) to pay to CI any amounts due to CI under this Agreement, including without limitation the repayment to CI and agent of the CCEF of a dollar amount equal to the total amount of the Grant received by Owner plus interest upon and after the occurrence of an Event of Default as set forth in Section 5.2 above, and/or (ii) to reimburse CI, on demand, for all of CI’s expenses and costs, including the reasonable fees and expenses of its legal counsel, in connection with any enforcement of this Agreement, including the security interest granted hereunder, and including, without limitation, any proceeding brought or threatened to enforce payment of any of the obligations referred to in the foregoing.

          5.3.2.3 All undefined terms used in this Section 5.3 shall have the meanings for such terms set forth in the UCC, including without limitation the definitions of “proceeds” and “accessions”.

     5.3.3 Owner hereby irrevocably constitutes and appoints CI, as agent for the CCEF, and any of officer or CI thereof with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of Owner and in the name of Owner or in its own name, from time to time in CI’s discretion, for the purpose of carrying out

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the terms of this Section 5.3, to take any and all appropriate action and to execute any and all documents and instruments which may be necessary or desirable to accomplish the purposes of this Section 5.3. Owner also authorizes CI, at any time and from time to time, to execute, in connection with the sale provided for in Section 5.3.4 hereof, any endorsements, assignments or other instruments of conveyance or transfer with respect to the Collateral. The powers conferred on CI hereunder are solely to protect CI’s interests in the Collateral and shall not impose any duty upon CI to exercise any such powers. CI and the CCEF shall be accountable only for amounts that they actually receives as a result of the exercise of such powers, and neither they nor any of their officers, directors, employees or agents shall be responsible to Owner for any act or failure to act hereunder, except for its own gross negligence or willful misconduct.

     5.3.4 If an Event of Default shall occur, CI may exercise, in addition to all other rights and remedies granted to CI in this Agreement and in any other instrument or agreement securing, evidencing or relating to the Obligations, all rights and remedies of a secured party under the UCC.

     5.3.5 All authorizations and agencies herein contained with respect to the Collateral are irrevocable and powers coupled with an interest.

6. RELATIONSHIP OF PARTIES; LIMITATIONS.

     6.1 No Joint Venture. This Agreement does not create a partnership or joint venture between the Parties. Without limiting the generality of the foregoing, except for the funding contemplated in the Agreement, CI and the CCEF shall not be liable under any circumstances for the obligations and liabilities of Owner and/or any other obligations and liabilities arising out of, or relating to, the activities of Owner, including without limitation, under the Project.

     6.2 Expenses. Whether or not the transactions contemplated by this Agreement are consummated, each Party shall pay the fees and expenses of its counsel, accountants, other experts, and all other expenses incurred by such Party in connection with the transactions contemplated under this Agreement, including all expenses incurred by such Party incident to the negotiation, preparation and execution of this Agreement.

7. ASSIGNMENT.

     7.1 Except as specified below, the rights and obligations of the Parties to this Agreement may not be assigned by Owner, and such assignment shall be void, except upon the express written consent of CI, which consent shall not unreasonably be withheld, conditioned, delayed or denied. As a condition of its consent, any person to whom an assignment is made shall be required to demonstrate, to the reasonable satisfaction of CI, that it is capable of fulfilling Owner’s obligations hereunder.

     7.2 Notwithstanding Section 7.1, Owner shall have the right to assign, without the consent of CI, its rights to any payments received under this Agreement to any bank, insurance company or similar financial institution providing financing to Owner, provided that no such

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Contract No.                      PHOTOVOLTAIC Project

assignment shall relieve Owner of responsibility or liability for the due performance of this Agreement by its assignee. CI agrees, upon receipt of a written request from Owner, to make all payments otherwise payable to Owner under this Agreement to such secured party until Owner or such secured party shall have delivered to CI a written release and termination of such assignment and CI may conclusively rely on such notifications.

8. TRANSFER OF OWNERSHIP

     8.1 Prior to Owner transferring controlling equity ownership interest of its legal ownership structure(s) or the Project or Equipment Owner will provide CI written notice of Owner’s intent to transfer ownership at least one-hundred and twenty days (120) prior to any such transfer. Any person or entity to whom a transfer of ownership is made shall be required to demonstrate that it is capable of fulfilling Owner’s obligations hereunder.

9. TERM; TERMINATION.

     9.1 Term. This Agreement shall remain in effect from the Effective Date until the date that the Project is decommissioned.

     9.2 Termination. Either Party (the “Non-Breaching Party”) may terminate this Agreement upon written notice to the other Party (the “Breaching Party”) given after the occurrence of any one of the following events:

9.2.1	Any warranty or representation by such Breaching Party proves incorrect in any material respect, and if curable, such misrepresentation continues unremedied for thirty (30) days after written notice from such Non-Breaching Party to the Breaching Party; or
9.2.2	Such Breaching Party defaults in the due observance of any of the covenants or agreements of such Breaching Party set forth in this Agreement, and if curable, such default continues unremedied for thirty (30) days after written notice from such Non-Breaching Party to such Breaching Party.

     9.3 Remedies. Except as expressly limited by this Agreement, upon termination of this Agreement, the Non-Breaching Party shall have all rights and remedies available hereunder, at law and in equity. The Non-Breaching Party shall not be required to terminate this Agreement to enforce any rights or remedies that it may have at law or in equity.

10. STATE CONTRACTING OBLIGATIONS

10.1. Owner understands and agrees that because the provisions contained in Section 10 must be provided in the Agreement as they were originally written under state contracting requirements, for the purposes of this Section only, “Owner” shall have

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Contract No.                      PHOTOVOLTAIC Project

the same meaning as “Contractor.” Owner agrees to comply with all of the following state contracting obligations during the Term of Agreement:

10.1.1.

Executive Order No. 3: Nondiscrimination. This Contract is subject to the provisions of Executive Order No. Three of Governor Thomas J. Meskill promulgated June 16, 1971, and, as such, this Contract may be canceled, terminated or suspended by the State Labor Commissioner for violation of or noncompliance with said Executive Order No. 3 or any state or federal law concerning nondiscrimination, notwithstanding that the Labor Commissioner is not a party to this Contract. The parties to this Contract, as part of the consideration hereof, agree that said Executive Order No. 3 is incorporated herein by reference and made a part hereof. The parties agree to abide by said Executive Order and agree that the State Labor Commissioner shall have continuing jurisdiction in respect to Contract performance in regard to nondiscrimination, until the Contract is completed or terminated prior to completion. The Contractor agrees, as part consideration hereof, that this Contract is subject to the Guidelines and Rules issued by the State Labor Commissioner to implement Executive Order No. 3 and that the Contractor will not discriminate in employment practices or policies, will file all reports as required, and will fully cooperate with the State of Connecticut and the State Labor Commissioner.

10.1.2.

Executive Order No. 16: Violence in the Workplace Prevention Policy. This Contract is subject to provisions of Executive Order No. 16 of Governor John J. Rowland promulgated August 4, 1999, and, as such, this Contract may be cancelled, terminated or suspended by the Contracting agency or the State for violation of or noncompliance with said Executive Order No. 16. The parties to this Contract, as part of the consideration hereof, agree that:

(1) Contractor shall prohibit employees from bringing into the state work site, except as may be required as a condition of employment, any weapon/dangerous instrument defined in Section 2 to follow;

(2) weapon means any firearm, including a BB gun, whether loaded or unloaded, any knife (excluding a small pen or pocket knife), including a switchblade or other knife having an automatic spring release device, a stiletto, any police baton or nightstick or any martial arts weapon or electronic defense weapon. Dangerous instrument means any instrument, article or substance that, under the circumstances, is capable of causing death or serious physical injury;

(3) Contractor shall prohibit employees from attempting to use, or threaten to use, any such weapon or dangerous instrument in the state work site and employees shall be prohibited from causing, or threatening to cause, physical injury or death to any individual in the state work site;

15

Contract No.                      PHOTOVOLTAIC Project

(4) Contractor shall adopt the above prohibitions as work rules, violation of which shall subject the employee to disciplinary action up to and including discharge. The Contractor shall require that all employees are aware of such work rules;

(5) Contractor agrees that any subcontract it enters into in the furtherance of the work to be performed hereunder shall contain the provisions 1 through 4, above.

10.1.3. Executive Order No. 17: Connecticut State Employment Service Listings. This Contract is subject to provisions of Executive Order No. 17 of Governor Thomas J. Meskill promulgated February 15, 1973, and, as such, this Contract may be canceled, terminated or suspended by the Contracting agency or the State Labor Commissioner for violation of or noncompliance with said Executive Order Number 17, notwithstanding that the Labor Commissioner may not be a party to this Contract. The parties to this Contract, as part of the consideration hereof, agree that Executive Order No. 17 is incorporated herein by reference and made a part hereof. The parties agree to abide by said Executive Order and agree that the Contracting agency and the State Labor Commissioner shall have joint and several continuing jurisdiction in respect to Contract performance in regard to listing all employment openings with the Connecticut State Employment Service.

10.2.

Campaign Contribution Restrictions. On February 8, 2007, Governor Rell signed into law Public Act 07-1, An Act Concerning the State Contractor Contribution Ban and Gifts to State and Quasi-Public Agencies. For all State contracts as defined in P.A. 07-1 having a value in a calendar year of $50,000 or more or a combination or series of such agreements or contracts having a value of $100,000 or more, the authorized signatory to this Agreement expressly acknowledges receipt of the State Elections Enforcement Commission’s notice advising state contractors of state campaign contribution and solicitation prohibitions, and will inform its principles of the contents of the notice. See SEEC Form 11 attached.

10.3.

Nondiscrimination and Affirmative Action Provisions in Contracts of the State and Political Subdivisions Other Than Municipalities. Owner agrees to comply with provisions of § 4a-60 of the Connecticut General Statutes:

(a) Every Contract to which the state or any political subdivision of the state other that a municipality is a party shall contain the following provisions:

(1) The Contractor agrees and warrants that in the performance of the Contract such Contractor will not discriminate or permit discrimination against any person or group of persons on the grounds of race, color, religious creed, age, marital status, national origin, ancestry, sex, mental retardation or physical disability, including, but not limited to, blindness, unless it is shown by such Contractor that such disability prevents performance of the work involved, in any manner

16

Contract No.                      PHOTOVOLTAIC Project

prohibited by the laws of the United States or of the state of Connecticut. The Contractor further agrees to take affirmative action to insure that applicants with job-related qualifications are employed and that employees are treated when employed without regard to their race, color, religious creed, age, marital status, national origin, ancestry, sex, mental retardation, or physical disability, including, but not limited to, blindness, unless it is shown by such Contractor that such disability prevents performance of the work involved;

(2) the Contractor agrees, in all solicitations or advertisements for employees placed by or on behalf of the Contractor, to state that is an “affirmative action-equal opportunity employer” in accordance with regulations adopted by the commission

(3) the Contractor agrees to provide each labor union or representative of workers with which such Contractor has a collective bargaining agreement or other Contract or understanding and each vendor with which such Contractor has a Contract or understanding, a notice to be provided by the commission advising the labor union or workers’ representative of the Contractor’s commitments under this section, and to post copies of the notice in conspicuous places available to employees and applicants for employment;

(4) the Contractor agrees to comply with each provision of this section and Conn. Gen. Stat. §§ 46a-68e and 46a-68f and with each regulation or relevant order issued by said commission pursuant to Conn. Gen. Stat. §§ 46a-56, 46a-68e and 46a-68f;

(5) the Contractor agrees to provide the commission of human rights and opportunities with such information requested by the commission, and permit access to pertinent books, records and accounts, concerning the employment practices and procedures of the Contractor as relate to the provisions of this section and Conn. Gen. Stat. § 46a-56. If the Contract is a public works Contract, the Contractor agrees and warrants that he will make good faith efforts to employ minority business enterprises as subcontractors and suppliers of materials on such public works project.

(b) For the purposes of this section, “minority business enterprise” means any small Contractor or supplier of materials fifty-one per cent or more of capital stock, if any, or assets of which is owned by a person or persons:

(1) who are active in the daily affairs of the enterprise;

(2) who have the power to direct the management and policies of the enterprise; and

(3) who are members of a minority, as such term is defined in subsection (a) of Conn. Gen. Stat. § 49-60g.

17

Contract No.                      PHOTOVOLTAIC Project

(c) For the purposes of this section, “good faith” means that degree of diligence which a reasonable person would exercise in the performance of legal duties and obligations. “Good faith efforts” shall include, but not be limited to, those reasonable initial efforts necessary to comply with statutory or regulatory requirements and additional or substituted efforts when it is determined that such initial efforts will not be sufficient to comply with such requirements. Determinations of the Contractor’s good faith efforts shall include but shall not be limited to the following factors: The Contractor’s employment and subcontracting policies, patterns and practices; affirmative action advertising; recruitment and training; technical assistance activities and such other reasonable activities or efforts as the commission may prescribe that are designed to ensure the participation of minority business enterprises in public works projects.

(d) The Contractor shall develop and maintain adequate documentation, in a manner prescribed by the commission, of its good faith efforts.

(e) Contractor shall include the provisions of subsection (a) of this section in every subcontract or purchase order entered into in order to fulfill any obligation of a Contract with the state and such provision shall be binding on a subcontractor, vendor or manufacturer unless exempted by regulations or orders of the commission. The Contractor shall take such action with respect to any such subcontract or purchase order as the commission may direct as a means of enforcing such provisions including sanctions for noncompliance in accordance with Conn. Gen. Stat. § 46a-56; provided, if such Contractor becomes involved in, or is threatened with, litigation with a subcontractor or vendor as a result of such direction by the commission, the Contractor may request the state of Connecticut to enter into such litigation or negotiation prior thereto to protect the interests of the state and the state may so enter.

11. MISCELLANEOUS

     11.1 Waivers. Either Party by written notice to the other, may (a) extend the time for the performance of any of the obligations or other actions of the other; (b) waive any inaccuracies in the representations or warranties of the other contained in this Agreement; (c) waive compliance with any of the covenants of the other contained in this Agreement; and (d) waive or modify performance of any of the obligations of the other. Except as provided in the preceding sentence, no action taken pursuant to this Agreement, including any investigation by or on behalf of any Party, shall be deemed to constitute a waiver by the Party taking such action of compliance with any representations, warranties, covenants or agreements contained herein. The waiver by any Party of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach.

     11.2 Notices. All notices, requests, demands and other communications which are required or may be given under this Agreement shall be in writing and shall be deemed to have been duly given if sent by registered or certified mail, return requested, postage prepaid, or

18

Contract No.                      PHOTOVOLTAIC Project

delivered either by hand, overnight commercial courier service or by messenger, or sent via facsimile, computer mail or other electronic means, addressed as follows:

(a) If to CI and the CCEF, to:

200 Corporate Place
Rocky Hill, Connecticut 06067
Attention: Lise Dondy, President — Connecticut Clean Energy Fund
Telephone: (860) 563-5851
Facsimile: (860) 563-4877

(b) If to Owner, to:

Crystal Rock/Vermont Pure Holdings
c/o John Baker, Executive Vice President
1050 Buckingham Street
Watertown, CT 06795
jbaker@crystalrock.com

Or to such other Person or address as a Party shall have specified by notice in writing to the others. Any notice so addressed and delivered shall be deemed to be given when actually received by the addressee.

     11.3 Entire Agreement. This Agreement, together with the Schedules and Appendices hereto, constitute the entire agreement between the Parties with respect to the subject matter hereof and supersedes any proposals and preliminary agreements between the Parties generated in connection with the Project. No prior oral or written understanding shall be of any force or effect with respect to any matter covered hereunder. This Agreement may be amended only by a written instrument signed by the Parties.

     11.4 Binding Effect; Benefits. Owner may not directly or indirectly assign, transfer, or otherwise convey any of their rights or obligations under this Agreement without the prior written consent of CI. Any transfer or assignment in violation of the foregoing shall be null and void. This Agreement shall inure to the benefit of and be binding upon the Parties and their respective successors and permitted assigns.

     11.5 Further Assurances. Each Party will execute and deliver such documents, instruments and agreements and take such action as the other Party may reasonably request and as may be reasonably necessary, proper or advisable, to the extent permitted by applicable Law, to fulfill the purposes and intent of this Agreement.

     11.6 Governing Law. This Agreement shall be governed by, construed, and enforced in accordance with the Laws of the State of Connecticut, without regard to its principles relating to conflicts of law. EACH PARTY HEREBY CONSENTS TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF CONNECTICUT FOR THE PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY

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Contract No.                      PHOTOVOLTAIC Project

HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, (a) ANY OBJECTION TO THE LAYING OF VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT; AND (b) ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

     11.7 Severability. If any court or arbitrator should find any particular provision of this Agreement void, illegal or unenforceable, then that provision shall be regarded as severable and stricken from this Agreement, and the remainder of this Agreement shall remain in full force and effect. If and to the extent that any Laws that govern any aspect of this Agreement shall change, so as to make any aspect of this transaction unlawful, then the Parties shall make such modifications to this Agreement as may be reasonably necessary for this Agreement to accommodate any such legal or regulatory changes.

     11.8 Fair Dealing. The Parties shall deal in good faith and in a fair manner with respect to all matters relating to this Agreement. Without limiting the generality of the foregoing, if this Agreement requires one Party to obtain the consent or approval of the other Party, such other Party shall not unreasonably withhold or delay such consent or approval.

     11.9 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument. Facsimile or PDF signatures shall be deemed original signatures.

     11.10 Construction. Ambiguities or uncertainties in the wording of this Agreement will not be construed for or against any Party, but will be construed in the manner that most accurately reflects the Parties’ intent as of the date hereof. The Parties acknowledge that they have been represented by counsel in connection with the review and execution of this Agreement, and accordingly, there shall be no presumption that this Agreement or any provision hereof be construed against the Party that drafted this Agreement.

     11.11 Certain Fees. Each of CI, Owner shall be responsible for the fees and disbursements of its own legal counsel and other consultants retained by it in connection with the Project or the negotiation, preparation and execution of this Agreement. Owner shall indemnify CI and the CCEF for all reasonable legal fees and expenses incurred by it in enforcing the terms of this Agreement if CI shall prevail thereon.

     11.12 No Recourse. It is expressly understood and agreed that CI is not acting in its individual capacity, and no obligation of the CCEF under this Agreement shall be an obligation of CI individually or of its directors, officers, employees or agents, and there shall be no recourse or claim under this Agreement against CI or any such person individually in any circumstances.

     11.13 Regulatory Out. CI and the CCEF shall not be obligated to provide the Grant or any portion of the Grant under this Agreement if there are insufficient funds for such purpose because of any legislative or regulatory action curtailing, reducing or eliminating CI and/or the CCEF funding.

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Contract No.                      PHOTOVOLTAIC Project

          IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by their respective duly authorized representatives as of the date first above written.

[This section is intentionally blank]

21

Contract No.                      PHOTOVOLTAIC Project

CONNECTICUT INNOVATIONS, INCORPORATED
(Acting solely as the Administrator of the Connecticut Clean Energy Fund)

By:	/s/ George Bellas George Bellas	Date: 1/20/08
	Vice President of Finance & Administration
By:	/s/ Peter Longo Peter Longo	Date: 1/20/08
	Deputy Director
CRYSTAL ROCK LLC/VERMONT PURE HOLDINGS, LTD
By:	/s/ John Baker John Baker,	Date: 1/20/08
	Executive Vice President

SCHEDULE A

22

Contract No.                      PHOTOVOLTAIC Project

Project Site:

Crystal Rock Manufacturing Facility

1050 Buckingham Street,

Watertown, CT, 08795

Equipment:

Photovoltaic Module Manufacturer:
Suntech
Model: Suntech 170W Panels
Quantity: 1764

Estimated Project Costs:

Project Economics	Cost		$/kilowatt
Generating Equipment	$	1,938,750	$7,181/kWPTC
Installation	$	266,250	$   986/kWPTC
TOTAL	$	2,205,000	$    8,167/kW

kW_PTC Capacity:      270kW

Projected Annual AC Production: 321,100 kWh at meter

Ownership of Renewable Energy Credits: Owner

23

Contract No.                      PHOTOVOLTAIC Project

SCHEDULE B

Project Schedule

Per the date of signing the Financial Assistance Agreement

Task	Players	Date
1. Award from the CCEF
2. Project Feasibility & Planning
a. Preliminary layout drawing for presentation to and discussion with Owner including site drawings, single line drawings
b. Submit Interconnection Application to electric utility
c. Schedule additional site visits, collect greater on-site detail
d. completes “Design & Permitting Phase” including:
• System design and system drawings
• Full layout
• Engineering review
• Structural Analysis Report/Structural stamp
• Electrical Engineer Report/Electrical stamp
• Permitting summary
• Estimated Project Installation Schedule
e. Customer Design Approval
f. Submit Permitting Package to Local Authorities
3. Installation Construction Documentation & Technical Review
a. Permits Processed
b. Receive Permits
c. Order Equipment

24

Contract No.                      PHOTOVOLTAIC Project

Task	Players	Date
d. Notice to Proceed — Installation
4. Installation
a. Installation Contract Executed
b. Preconstruction Meeting
c. Schedule Construction Trailer
d. Equipment Starts Arriving on Site/ Installation Begins
e. Structural and Electrical Installation
f. Final Site Refurbishing
g. Site Inspections (Building, Electrical, Interconnection, etc.)
h. Commission System
i. Project Complete

25

Contract No.                      PHOTOVOLTAIC Project

SCHEDULE C

Proposed Project Budget

Generating Equipment	$                          (includes Fat Spaniel monitoring system)
Eng’ng, Design, Permit
Construction, Installation
Overhead & Profit
TOTAL	$                  .00

26

Contract No.                      PHOTOVOLTAIC Project

APPENDIX I

Equipment Delivery to Site

                    , 2007

Connecticut Innovations, Inc.
Connecticut Clean Energy Fund
Attention: Lise Dondy
200 Corporate Place, 3^rd Floor
Rocky Hill, Connecticut 06067
Attn: Chief Operating Officer

     Re: Photovoltaic Project at INSERT ADDRESS

     Delivery Date:                     

Dear Ms. Dondy:

In accordance with the Master Financial Assistance Agreement (“Agreement”) between                                          (“Owner”) and the Connecticut Innovations, Inc. (“CI”) dated                      ___, 2007; Owner represents and warrants to CI that the photovoltaic equipment has been delivered to Owner’s site in good condition.

Owner certifies that it is in full compliance with all of the terms and conditions in the Agreement.

Pursuant to the Agreement, Owner requests a Grant payment for $                    .

Please send payment to:	Payee name
	Payee accounts payable address

Very truly yours,

By:

Its:

Attachments: 1) Equipment packing slips or other documentation of delivery to site

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Contract No.                      PHOTOVOLTAIC Project

APPENDIX II

Equipment Acceptance

                    , 2007

Connecticut Innovations, Inc.
Connecticut Clean Energy Fund
Attention: Lise Dondy
200 Corporate Place, 3^rd Floor
Rocky Hill, Connecticut 06067
Attn: Chief Operating Officer

     Re: Photovoltaic Project at INSERT ADDRESS

     Commissioning Date:                     

Dear Ms. Dondy:

In accordance with the Master Financial Assistance Agreement (the “Agreement”) between                                          (“Owner”) and the Connecticut Innovations, Inc. (“CI”) dated ___, 2007, Owner represents and warrants to CI that it has properly installed and tested the photovoltaic equipment (“Equipment”) and as determined that the Equipment is operable.

Owner certifies that the Equipment has been installed at Owner’s site satisfactorily.

In accordance with the Agreement,                      hereby provides the following warranty to                     :

     [insert Warranty description]

Additional manufacturers’ warranties on equipment only are as follows:

     [insert Warranty description]

Owner certifies that as of the date of this letter, it is in full compliance with all of the terms and conditions in the Agreement.

Pursuant to the Agreement, Owner requests payment from CI in the amount of $                    .

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Contract No.                      PHOTOVOLTAIC Project

Please send payment to:	Payee name
	Payee accounts payable address

Very truly yours,

By:

Its:

Attachments:	1) Cost Report
	2) Municipal Inspector’s Report
	3) Utility Inspection/Test Report and Interconnection Agreement
	4) Electrical Diagram (one-line)
	5) Certificate of Insurance

29

Contract No.                      PHOTOVOLTAIC Project

APPENDIX III

Form of Final Funding Request

                    , 2007

Connecticut Innovations, Inc.
Connecticut Clean Energy Fund
Attention: Lise Dondy
200 Corporate Place, 3^rd Floor
Rocky Hill, Connecticut 06067

     Re: Photovoltaic Project at INSERT ADDRESS

Dear Ms. Dondy:

Pursuant to the Master Financial Assistance Agreement (“Agreement”) between                                          (“Owner”) and the Connecticut Innovations, Inc. (“CI”) dated ___, 2007, Owner requests the final Grant payment for $                    .

Owner certifies that the projected production for the Project for the first six-months was                      kWh. Owner also certifies that AC production for the same period in kWh was                      kWh, which is at least 70% of the projected production.

Owner certifies that it is in full compliance with all of the terms and conditions in the Agreement.

Pursuant to the Agreement, Owner requests the final Grant payment of $                    .

Please send payment to:	Payee name
	Payee accounts payable address

Very truly yours,

By:

Its:

Attachments:                Six-month production report

30

SEEC FORM 11

NOTICE TO EXECUTIVE BRANCH STATE CONTRACTORS AND PROSPECTIVE STATE
CONTRACTORS OF CAMPAIGN CONTRIBUTION AND SOLICITATION BAN

This notice is provided under the authority of Connecticut General Statutes 9-612(g)(2), as amended by P.A. 07 1, and is for the purpose of informing state contractors and prospective state contractors of the following law (italicized words are defined below):

Campaign Contribution and Solicitation Ban

No state contractor, prospective state contractor, principal of a state contractor or principal of a prospective state contractor, with regard to a state contract or state contract solicitation with or from a state agency in the executive branch or a quasi-public agency or a holder, or principal of a holder of a valid prequalification certificate, shall make a contribution to, or solicit contributions on behalf of (i) an exploratory committee or candidate committee established by a candidate for nomination or election to the office of Governor, Lieutenant Governor, Attorney General, State Comptroller, Secretary of the State or State Treasurer, (ii) a political committee authorized to make contributions or expenditures to or for the benefit of such candidates, or (iii) a party committee;

In addition, no holder or principal of a holder of a valid prequalification certificate, shall make a contribution to, or solicit contributions on behalf of (i) an exploratory committee or candidate committee established by a candidate for nomination or election to the office of State senator or State representative, (ii) a political committee authorized to make contributions or expenditures to or for the benefit of such candidates, or (iii) a party committee.

Duty to Inform

State contractors and prospective state contractors are required to inform their principals of the above prohibitions, as applicable, and the possible penalties and other consequences of any violation thereof.

Penalties for Violations

Contributions or solicitations of contributions made in violation of the above prohibitions may result in the following civil and criminal penalties:

Civil penalties—$2000 or twice the amount of the prohibited contribution, whichever is greater, against a principal or a contractor. Any state contractor or prospective state contractor which fails to make reasonable efforts to comply with the provisions requiring notice to its principals of these prohibitions and the possible consequences of their violations may also be subject to civil penalties of $2000 or twice the amount of the prohibited contributions made by their principals.

Criminal penalties—Any knowing and willful violation of the prohibition is a Class D felony, which may subject the violator to imprisonment of not more than 5 years, or $5000 in fines, or both.

Contract Consequences

Contributions made or solicited in violation of the above prohibitions may result, in the case of a state contractor, in the contract being voided.

Contributions made or solicited in violation of the above prohibitions, in the case of a prospective state contractor, shall result in the contract described in the state contract solicitation not being awarded to the prospective state contractor, unless the State Elections Enforcement Commission determines that mitigating circumstances exist concerning such violation.

The State will not award any other state contract to anyone found in violation of the above prohibitions for a period of one year after the election for which such contribution is made or solicited, unless the State Elections Enforcement Commission determines that mitigating circumstances exist concerning such violation.

Additional information and the entire text of P.A. 07-1 may be found on the website of the State Elections
Enforcement Commission, www.ct.gov/seec. Click on the link to “State Contractor Contribution Ban.”

EX-21.1

EXHIBIT 21.1

Subsidiary of the Registrant

Crystal Rock, LLC, organized in the State of Delaware.

EX-23.1

EXHIBIT 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement Nos. 333-95908, 333-64044, 333-100310, 333-109882, 333-118228 and 333-147559 on Form S-8 of our report dated January 22, 2008 relating to our audit of the consolidated financial statements of Vermont Pure Holdings, Ltd. and subsidiary as of October 31, 2007 and for each of the two years in the period then ended appearing in this Annual Report on Form 10-K for the year ended October 31, 2007.

/s/ Wolf & Company, P.C.
Boston, Massachusetts
January 29, 2008

EX-23.2

EXHIBIT 23.2

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement Nos. 333-95908, 333-64044, 333-100310, 333-109882, 333-118228 and 333-147559 on Form S-8 of our report dated January 26, 2006 relating to the consolidated statements of operations, changes in stockholders’ equity and comprehensive income (loss) and cash flows of Vermont Pure Holdings, Ltd. and subsidiary for the year ended October 31, 2005, appearing in this Annual Report on Form 10-K of Vermont Pure Holdings, Ltd. for the year ended October 31, 2007.

/s/ Deloitte & Touche LLP

Hartford, Connecticut
January 29, 2008

EX-31.1

EXHIBIT 31.1

CERTIFICATION
PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002

I, Peter K. Baker, certify that:

1. I have reviewed this annual report on Form 10-K of Vermont Pure Holdings, Ltd.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: January 29, 2008

/s/ Peter K. Baker  

Peter K. Baker 

Chief Executive Officer 

EX-31.2

EXHIBIT 31.2

CERTIFICATION
PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002

I, Bruce S. MacDonald, certify that:

1. I have reviewed this annual report on Form 10-K of Vermont Pure Holdings, Ltd.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: January 29, 2008

/s/ Bruce S. MacDonald  

Bruce S. MacDonald 

Chief Financial Officer 

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. §1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     In connection with the Annual Report on Form 10-K of Vermont Pure Holdings, Ltd. (the “Company”) for the year ended October 31, 2007, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned Chief Executive Officer of the Company, certifies, to the best knowledge and belief of the signatory, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

     (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

     (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Peter K. Baker  

Peter K. Baker 

Chief Executive Officer 

Date: January 29, 2008

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. §1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     In connection with the Annual Report on Form 10-K of Vermont Pure Holdings, Ltd. (the “Company”) for the year ended October 31, 2007, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned Chief Financial Officer of the Company, certifies, to the best knowledge and belief of the signatory, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

     (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

     (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Bruce S. MacDonald  

Bruce S. MacDonald 

Chief Financial Officer 

Date: January 29, 2008