UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
( Mark One)
 
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 2013
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ­­­­­_____ to _________

Commission File Number: 000-31797
 
CRYSTAL ROCK HOLDINGS, INC.
(Exact name of registrant as specified in Its charter)
 

 
 Delaware    03-0366218
 (State or other jurisdiction of     (I.R.S. Employer
 incorporation or organization)     Identification No.)
 
 

 
 1050 Buckingham St., Watertown, CT    06795
 (Address of principal executive offices)     (Zip Code)
     
(860) 945-0661
( Registrant's telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes   X                                                       No ___

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  
Yes    X                                                       No ___

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer ____                                                                                     Accelerated filer ___
Non-accelerated filer ___                                                                           Smaller reporting company   X_
(Do not check if smaller reporting company)

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

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
    
 
     Shares outstanding at
Class     March 5, 2013
Common Stock, $.001 Par Value    21,374,011
 
 
 
 
 

 
CRYSTAL ROCK HOLDINGS, INC. AND SUBSIDIARY

 
PART I - FINANCIAL INFORMATION
Page
     
      Item 1.
Financial Statements.
 
     
 
Condensed Consolidated Balance Sheets as of January 31, 2013 and October 31, 2012
3
     
 
Condensed Consolidated Statements of Operations for the Three Months Ended January 31, 2013 and 2012
4
     
 
Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended January 31, 2013 and 2012
5
     
 
Condensed Consolidated Statements of Cash Flows for the Three Months Ended January 31, 2013 and 2012
6
     
 
Notes to Condensed Consolidated Financial Statements
7-17
     
      Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations.
18-23
     
      Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
23
     
      Item 4.
Controls and Procedures.
24
   
PART II - OTHER INFORMATION
 
     
      Item 1.
Legal Proceedings.
25
     
      Item 1A.
Risk Factors.
25
     
      Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
25
     
      Item 3.
Defaults Upon Senior Securities.
25
     
      Item 4.
Mine Safety Disclosures.
25
     
      Item 5.
Other Information.
25-26
     
      Item 6.
Exhibits.
27-28
     
SIGNATURE
 
29
 
 
2

 
CRYSTAL ROCK HOLDINGS, INC. AND SUBSIDIARY
 
             
CONDENSED CONSOLIDATED BALANCE SHEETS
 
             
   
January 31,
   
October 31,
 
   
2013
   
2012
 
 
(Unaudited)
 
             
ASSETS
 
             
CURRENT ASSETS:
           
Cash and cash equivalents
  $ 647,346     $ 3,071,277  
Accounts receivable - net
    7,983,812       7,950,067  
Inventories
    2,686,975       2,629,665  
Current portion of deferred tax asset
    421,679       421,679  
Other current assets
    1,766,631       1,387,288  
                 
TOTAL CURRENT ASSETS
    13,506,443       15,459,976  
                 
PROPERTY AND EQUIPMENT - net
    7,743,256       8,127,582  
                 
OTHER ASSETS:
               
Goodwill
    12,156,790       12,156,790  
Other intangible assets - net
    2,054,995       2,312,433  
Other assets
    39,000       39,000  
                 
TOTAL OTHER ASSETS
    14,250,785       14,508,223  
                 
TOTAL ASSETS
  $ 35,500,484     $ 38,095,781  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
                 
CURRENT LIABILITIES:
               
Current portion of long term debt
  $ 3,815,103     $ 3,815,103  
Accounts payable
    1,940,587       1,709,506  
Accrued expenses
    1,987,876       2,254,994  
Current portion of customer deposits
    635,191       650,540  
Unrealized loss on derivatives
    69,265       127,180  
TOTAL CURRENT LIABILITIES
    8,448,022       8,557,323  
                 
Long term debt, less current portion
    6,697,500       7,251,000  
Deferred tax liability
    4,506,148       4,506,148  
Subordinated debt
    10,000,000       11,500,000  
Customer deposits
    2,430,735       2,487,123  
                 
TOTAL LIABILITIES
    32,082,405       34,301,594  
                 
COMMITMENTS AND CONTINGENCIES
               
                 
STOCKHOLDERS' EQUITY:
               
Common stock - $.001 par value, 50,000,000 authorized shares.
               
21,960,229 issued and 21,380,611 outstanding shares as of
               
January 31, 2013 and 21,960,229 issued and 21,380,731
               
outstanding shares as of October 31, 2012
    21,960       21,960  
Additional paid in capital
    58,462,497       58,462,497  
Treasury stock, at cost, 579,618 shares as of January 31, 2013
               
    and 579,498 shares as of October 31, 2012
    (878,695 )     (878,560 )
Accumulated deficit
    (54,141,859 )     (53,735,401 )
Accumulated other comprehensive loss, net of tax
    (45,824 )     (76,309 )
TOTAL STOCKHOLDERS' EQUITY
    3,418,079       3,794,187  
                 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
  $ 35,500,484     $ 38,095,781  
                 
See the notes to the condensed consolidated financial statements.
 

 
3

 
 
CRYSTAL ROCK HOLDINGS, INC. AND SUBSIDIARY
 
             
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
             
   
Three months ended January 31,
 
   
2013
   
2012
 
   
(Unaudited)
 
             
NET SALES
  $ 17,042,865     $ 17,234,064  
                 
COST OF GOODS SOLD
    8,406,722       8,626,834  
                 
GROSS PROFIT
    8,636,143       8,607,230  
                 
OPERATING EXPENSES:
               
Selling, general and administrative expenses
    8,355,674       7,648,482  
Advertising expenses
    222,444       323,323  
Amortization
    245,438       236,153  
Gain on disposal of property and equipment
    (24,208 )     (27,749 )
                 
TOTAL OPERATING EXPENSES
    8,799,348       8,180,209  
                 
(LOSS) INCOME FROM OPERATIONS
    (163,205 )     427,021  
                 
OTHER EXPENSE:
               
    Interest expense
    511,979       537,601  
    Gain on derivatives
    (7,107 )     (6,941 )
TOTAL OTHER EXPENSE, NET
    504,872       530,660  
                 
LOSS BEFORE INCOME TAX EXPENSE
    (668,077 )     (103,639 )
                 
INCOME TAX BENEFIT
    (261,619 )     (49,339 )
                 
NET LOSS
  $ (406,458 )   $ (54,300 )
                 
NET LOSS PER SHARE - BASIC
  $ (0.02 )   $ (0.00 )
                 
NET LOSS PER SHARE - DILUTED
  $ (0.02 )   $ (0.00 )
                 
WEIGHTED AVERAGE SHARES USED IN COMPUTATION - BASIC
    21,380,719       21,388,681  
WEIGHTED AVERAGE SHARES USED IN COMPUTATION - DILUTED
    21,380,719       21,388,681  
 
 
See the notes to the condensed consolidated financial statements.

 
 
4

 
CRYSTAL ROCK HOLDINGS, INC. AND SUBSIDIARY
 
             
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
 
             
   
Three months ended January 31,
 
             
   
2013
   
2012
 
   
(Unaudited)
 
             
             
NET LOSS
  $ (406,458 )   $ (54,300 )
OTHER COMPREHENSIVE INCOME, NET OF TAX:
               
  Cash Flow Hedges:
               
  Amortization of loss on derivative undesignated as cash flow hedge
    10,044       22,732  
  Unrealized gain on derivatives designated as cash flow hedges
    20,441       18,668  
  Other Comprehensive Income, net of tax
    30,485       41,400  
TOTAL COMPREHENSIVE LOSS
  $ (375,973 )   $ (12,900 )

 
See the notes to the condensed consolidated financial statements.
 
 
 
5

 
 
 
CRYSTAL ROCK HOLDINGS, INC. AND SUBSIDIARY
 
             
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
             
   
Three months ended January 31,
 
   
2013
   
2012
 
   
(Unaudited)
 
             
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net loss
  $ (406,458 )   $ (54,300 )
Adjustments to reconcile net loss to net cash provided by operating activities:
               
Depreciation
    837,630       892,898  
Provision for bad debts on accounts receivable
    50,747       68,306  
Amortization
    245,438       236,153  
Non cash interest expense
    12,000       12,000  
Gain on derivatives
    (7,107 )     (6,941 )
Gain on disposal of property and equipment
    (24,208 )     (27,749 )
Changes in assets and liabilities:
               
Accounts receivable
    (84,492 )     114,482  
Inventories
    (57,310 )     (20,398 )
Other current assets
    (404,966 )     213,656  
Accounts payable
    231,081       (369,369 )
Accrued expenses
    (261,818 )     (496,885 )
Customer deposits
    (71,737 )     (108,989 )
NET CASH PROVIDED BY OPERATING ACTIVITIES
    58,800       452,864  
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Purchase of property and equipment
    (453,304 )     (806,909 )
Proceeds from sale of property and equipment
    24,208       52,251  
Cash used for acquisitions
    -       (7,000 )
NET CASH USED IN INVESTING ACTIVITIES
    (429,096 )     (761,658 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Principal payments on long term debt
    (2,053,500 )     (553,500 )
Purchase of treasury stock
    (135 )     -  
NET CASH USED IN FINANCING ACTIVITIES
    (2,053,635 )     (553,500 )
                 
NET DECREASE IN CASH AND CASH EQUIVALENTS
    (2,423,931 )     (862,294 )
                 
CASH AND CASH EQUIVALENTS - beginning of period
    3,071,277       5,378,575  
                 
CASH AND CASH EQUIVALENTS  - end of period
  $ 647,346     $ 4,516,281  
                 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
               
                 
Cash paid for interest
  $ 520,031     $ 529,256  
                 
Cash paid (received) for income taxes
  $ 5,300     $ (212,730 )

See the notes to the condensed consolidated financial statements.
 
 
 
 
6

 
CRYSTAL ROCK HOLDINGS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.
BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with Form 10-Q instructions and in the opinion of management contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the condensed consolidated financial position, results of operations, and cash flows for the periods presented.  The results have been determined on the basis of generally accepted accounting principles and practices of the United States of America (“GAAP”), applied consistently with the Annual Report on Form 10-K of Crystal Rock Holdings, Inc. (the “Company”) for the year ended October 31, 2012.

Certain information and footnote disclosures normally included in audited consolidated financial statements presented in accordance with GAAP have been condensed or omitted. The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended October 31, 2012.  The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year.

The financial statements herewith reflect the consolidated operations and financial condition of Crystal Rock Holdings, Inc. and its wholly owned subsidiary Crystal Rock LLC.

2.            GOODWILL AND OTHER INTANGIBLE ASSETS

Major components of intangible assets consisted of:
   
January 31, 2013
   
October 31, 2012
       
   
Gross Carrying  Amount
   
Accumulated Amortization
   
Wgt. Avg. Amort. Years
   
Gross Carrying  Amount
   
Accumulated Amortization
   
Wgt. Avg. Amort. Years
 
Amortized Intangible Assets:
                                   
Covenants Not to Compete
  $ 2,386,488     $ 2,026,821       2.85     $ 2,386,488     $ 1,986,405       3.04  
Customer Lists
    7,821,186       6,541,819       2.25       7,821,186       6,339,881       2.41  
Other Identifiable Intangibles
    644,913       228,952       26.66       656,913       225,868       26.90  
Total
  $ 10,852,587     $ 8,797,592             $ 10,864,587     $ 8,552,154          


 
Amortization expense for the three month periods ending January 31, 2013 and 2012 was $245,438 and $236,153, respectively.  There were no changes in the carrying amount of goodwill for the three month periods ending January 31, 2013 and 2012.
 
 
 
7

 
 
3.            DEBT
 
 
The Company and its subsidiary have a Credit Agreement (the “Agreement”) with Bank of America to provide a senior financing facility consisting of term debt and a revolving line of credit.  Under the Agreement, Bank of America is the Company’s sole senior lender.

 
The Agreement has a total loan capacity of $20,500,000 and obligates the Company to a $15,500,000 term note and access to a $5,000,000 revolving line of credit. The revolving line of credit can be used for the purchase of fixed assets, to fund acquisitions, to collateralize letters of credit, and for operating capital.  There was no balance on the line of credit but it collateralized a letter of credit of $1,504,000 as of January 31, 2013.  Consequently, as of that date, there was $3,496,000 available to borrow from the revolving line of credit. There was $8,911,500 outstanding on the term note as of January 31, 2013.

The Agreement amortizes the term note over a five year period with 59 equal monthly principal installments of $184,500, commencing May 5, 2010, and a final payment of $4,114,500 due at the end of five years. The revolving line of credit matures in three years.   The Company is subject to various restrictive covenants under the agreement, and is prohibited from entering into other debt agreements without the bank’s consent. The Agreement also prohibits the Company from paying dividends without the prior consent of the bank.
 
 
Under the Agreement, interest is paid at a rate of one-month LIBOR plus a margin based on the achievement of a specified leverage ratio.  As of January 31, 2013, the margin was 2.75% for the term note and 2.50% for the revolving line of credit. The Company is required to fix the interest rate on 75% of the outstanding balance of the term note and accomplishes this by entering into interest rate swap agreements.  As of January 31, 2013, the Company had $1,853,000 of the term debt subject to variable interest rates.  The one-month LIBOR was .21% on the last business day of January 2013 resulting in total variable interest rates of 2.96% and 2.71%, for the term note and the revolving line of credit, respectively, as of January 31, 2013.
 
The Agreement requires the Company to 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 of less than 2.50 to 1.  As of January 31, 2013, the Company was in compliance with these covenants and terms of the Agreement.  Also under the Agreement, the Company is obligated to calculate Consolidated Excess Cash Flow based on its financial results for each fiscal year to determine if additional principal is due on the term note. On May 14, 2012, the Agreement was amended to change the definition of Consolidated   Adjusted Operating Cash Flow to add $965,000 to the calculation of Cash Flow for the reference periods under the Agreement that end April 30, 2012, July 31, 2012 and October 31, 2012 and to allow for the use of up to $500,000 for the purchase of the Company’s stock.   This revision is intended to reflect the expenditures for upgrades to the Company’s IT infrastructure, which are expected to provide a long-term benefit but do not qualify as capital expenditures under the Agreement. Subsequently, the modification of the cash flow formula was extended to the quarter ending January 31, 2013.

 
8

 
Also under the Agreement, the Company is obligated to calculate Consolidated Excess Cash Flow based on its financial results for the fiscal year to determine if additional principal is due on the term note which would be due in February 2013. Bank of America has waived this requirement for the fiscal year ending October 31, 2012.

In addition to the senior debt, as of January 31, 2013, the Company has subordinated debt owed to Henry, Peter and John Baker in the aggregate principal amount of $11,500,000 that is due October 5, 2015.  The interest rate on each of these notes is 12% per annum.  On December 21, 2012, the Company made a discretionary payment of $1,500,000 to the subordinated debt holders.

In 2012, the Company made an acquisition that resulted in the issuance of a note for $101,000 to the seller. The note is due on March 20, 2013.

4.            INVENTORIES
 
Inventories consisted of the following at:
 
 
    January 31,     October 31,  
    2013     2012  
Finished Goods
  $ 2,529,360     $ 2,447,605  
Raw Materials
    157,615       182,060  
Total Inventories
  $ 2,686,975     $ 2,629,665  
 
 
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.  The amount of raw and bottled water on hand does not represent a material amount of inventory.  The Company estimates that value as of January 31, 2013 and October 31, 2012 to be $39,000 and $31,000, respectively.  This value includes the cost of allocated overhead.  Bottles are accounted for as fixed assets.
 
5.          ON-BALANCE SHEET DERIVATIVE INSTRUMENTS AND HEDGING
  ACTIVITIES

Derivative Financial Instruments
The Company has stand-alone derivative financial instruments in the form of interest rate swap agreements, which derive their value from underlying interest rates. These transactions involve both credit and market risk.  The notional amount is an amount on which calculations, payments, and the value of the derivative are based.  The notional amount does not represent direct credit exposure.  Direct credit exposure is limited to the net difference between the calculated amount to be received and paid, if any. Such difference, which represents the fair value of the derivative instrument, is reflected on the Company’s consolidated balance sheet as an unrealized gain or loss on derivatives.
 

 
9

 
The Company is exposed to credit-related losses in the event of nonperformance by the counterparties to these agreements.  The Company controls the credit risk of its financial contracts through credit approvals, limits and monitoring procedures, and currently has no reason to believe that any counterparties will fail to fulfill their obligations.
 
Risk Management Policies - Hedging Instruments
The Company uses long-term variable rate debt as a source of funds for use in the Company’s general business purposes.  These debt obligations expose the Company to variability in interest payments due to changes in interest rates.  If interest rates increase, interest expense increases.  Conversely, if interest rates decrease, interest expense decreases.  Management believes it is prudent to limit the variability of a portion of its interest payments and, therefore, generally hedges a portion of its variable-rate interest obligations.  To meet this objective, management enters into interest rate swap agreements whereby the Company receives variable interest rate payments and makes fixed interest rate payments on a portion of its debt.
 
On October 5, 2007, the Company entered into an interest rate swap agreement (old swap) in conjunction with an amendment to its credit facility with Bank of America.  The intent of the instrument was to fix the interest rate on at least 75% of the outstanding balance on the term loan (the swapped amount) with Bank of America as required by the facility.  The old swap fixed the interest rate for the swapped amount related to the previous facility at 4.87% and matures in January 2014.

In conjunction with its Credit Agreement with Bank of America, on April 5, 2010, the Company entered into an interest rate swap agreement (offsetting swap) to offset the old swap for which it receives 1.40% of the scheduled balance of the old term loan. The offsetting swap effectively removed any exposure to change in the fair value of the old swap and set a fixed net payment schedule based on the scheduled balance of the old term loan until January 2014 when both swaps mature.   In addition, the Company entered into a swap agreement (new swap) to fix the interest rate of up to75% of the outstanding balance of the term note at 4.76% (2.01% plus the applicable margin, 2.75%).  The term note matures in May 2015 and swap matures in April 2013.
 
As of January 31, 2013, the total notional amount of the new swap agreement was $7,059,000.  On that date, the variable rate on the remaining of the term note ($1,853,000) was 2.96%.  This agreement provided for a monthly settlement in which the Company would make or receive payments at a variable rate determined by a specified index (one-month LIBOR) in exchange for making payments at a fixed rate of 4.76%.
 
 
10

 
At January 31, 2013 and October 31, 2012, the net unrealized loss relating to interest rate swaps was recorded in current and long term liabilities.  The current portion is the valuation of the hedged instrument over the next twelve months while the balance of the unrealized loss makes up the long term portion.  For the effective portion of the hedges, which is the new swap, changes in the fair value of interest rate swaps designated as hedging instruments to mitigate the variability of cash flows associated with long-term debt are reported in other comprehensive income or loss net of tax effects. The amounts relating to the old swap previously reflected in accumulated other comprehensive income are amortized to earnings over the remaining term of the undesignated cash flow hedge.  Payments on the old swap, and receipt of income on the offsetting swap, are reported as gain or loss on derivatives and an adjustment to other comprehensive income or loss net of tax effects.

The table below details the adjustments to other comprehensive income (loss), on a before-tax and net-of tax basis, for the fiscal quarters ended January 31, 2013 and 2012.
 
   
Before-Tax
   
Tax Benefit
   
Net-of-Tax
 
Three Months Ended January 31, 2012
                 
Loss on interest rate swap
  $ (50,450 )   $ 20,180     $ (30,270 )
Amortization of loss on derivative undesignated as cash flow hedge
    37,885       (15,153 )     22,732  
Reclassification adjustment for loss in income
    81,564       (32,626 )     48,938  
Net unrealized gain
  $ 68,999     $ (27,599 )   $ 41,400  
Three Months Ended January 31, 2013
                       
Loss on interest rate swap
  $ (20,660 )   $ 8,264     $ (12,396 )
Amortization of loss on derivative undesignated as cash flow hedge
    16,740       (6,696 )     10,044  
Reclassification adjustment for loss in income
    54,728       (21,891 )     32,837  
Net unrealized gain
  $ 50,808     $ (20,323 )   $ 30,485  
 
The reclassification adjustments of $54,728 and $81,564 represent interest the Company paid in excess of the amount that would have been paid without the interest rate swap agreement during the quarters ended January 31, 2013 and 2012, respectively. These amounts were reclassified from accumulated other comprehensive loss and recorded in consolidated statements of operations as interest expense.  No other material amounts were reclassified during the quarters ended January 31, 2013 and 2012.

In the quarter ended January 31, 2013 the fair value of the swaps changed from an unrealized loss on derivative liability at the beginning of the period of $127,180 to $69,265. Also, as of that date, the estimated net amount of the existing loss that is reported in accumulated other comprehensive income that is expected to be reclassified into earnings within the next twelve months is $45,815.

Derivatives designated as hedging instruments include interest rate swaps classified as liabilities on the Company’s balance sheet with a fair value of $30,535 at January 31, 2013 and $64,603 at October 31, 2012. Derivatives not designated as hedging instruments include interest rate swaps classified as liabilities on the Company’s balance sheet with a fair value of $38,730 at January 31, 2013 and $62,577 at October 31, 2012. During the first quarter of fiscal years 2013 and 2012, cash flow hedges are deemed 100% effective.  The net gain on interest rate swaps not designated as cash flow hedges, classified as a gain on derivatives on the Company’s statements of operations, amounted to $7,107 and $6,941 for the quarters ended January 31, 2013 and 2012, respectively.
 
 
 
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6.            FAIR VALUES OF ASSETS AND LIABILITIES

 
Fair Value Hierarchy
 
The Company’s assets and liabilities measured at fair value on a recurring basis are as follows:

   
Level 1
   
Level 2
   
Level 3
 
Liabilities:
                 
January 31, 2013
                 
Unrealized loss on derivatives
  $ -     $ 69,265     $ -  
       
October 31, 2012
     
Unrealized loss on derivatives
  $ -     $ 127,180     $ -  

 

 

 


In determining the fair value, the Company uses a model that calculates a present value of the payments as they amortize through the life of the loan (float) based on the variable rate and compares them to the calculated value of the payment based on the fixed rate (fixed) defined in the swap.  In calculating the present value, in addition to the term, the model relies on other data – the “rate” and the “discount factor.”

§  
In the “float” model, the rate reflects where the market expects LIBOR to be in for the respective period and is based on the Eurodollar futures market.
§  
The discount factor is a function of the volatility of LIBOR.

Payments are calculated by applying the rate to the notional amount and adjusting for the term. Then the present value is calculated by using the discount factor.

The Company’s assets and liabilities measured at fair value on a nonrecurring basis are as follows:

   
Level 1
   
Level 2
   
Level 3
 
Assets:
                 
October 31, 2012
                 
Goodwill (a)
  $ -     $ -     $ 12,156,790  
       

(a)  
In accordance with FASB Accounting Standards Codification Subtopic 350-20, goodwill with a carrying amount of $32,123,294 was written down to its implied fair value of $12,156,790, resulting in an impairment charge of $19,966,504, which was included in earnings for the period.
 
 
 
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There were no assets or liabilities measured at fair value on a nonrecurring basis at January 31, 2013.

The fair value of a financial instrument is the current amount that would be exchanged between willing parties, other than in a forced liquidation. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company's various 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. Subordinated debt is carried at its approximate market value based on periodic comparisons to similar instruments in the market place.

7.            INCOME (LOSS) PER SHARE AND WEIGHTED AVERAGE SHARES

The Company considers outstanding in-the-money stock options as potential common stock in its calculation of diluted earnings per share, unless the effect would be anti-dilutive, and uses the treasury stock method to calculate the applicable number of shares.  The following calculation provides the reconciliation of the denominators used in the calculation of basic and fully diluted earnings per share:

   
Three Months Ended
January 31,
 
   
2013
   
2012
 
Net Loss
  $ (406,458 )   $ (54,300 )
Denominator:
               
Basic Weighted Average Shares Outstanding
    21,380,719       21,388,681  
Dilutive effect of Stock Options
    -       -  
Diluted Weighted Average Shares Outstanding
    21,380,719       21,388,681  
Basic Loss Per Share
  $ (.02 )   $ .00  
Diluted Loss Per Share
  $ (.02 )   $ .00  

There were 211,500 and 269,500 options outstanding as of January 31, 2013 and 2012, respectively.  For the three month period ended January 31, 2013 and 2012 there were no options used to calculate the effect of dilution because all of the outstanding options’ exercise prices exceeded the market price of the underlying common shares and were therefore considered anti-dilutive and the Company had a net loss for both periods.

8.            COMPENSATION PLANS

The Company measures 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).  The Company provides an estimate of forfeitures at the initial date of grant.
 
 
 
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The Company has stock-based compensation plans under which incentive and non-qualified stock options and restricted shares are granted.  In April 1998, the Company’s stockholders approved the 1998 Incentive and Non-Statutory Stock Option Plan.  In April 2003, the Company’s stockholders approved an increase in the authorized number of shares to be issued under its 1998 Incentive and Non-Statutory Stock Option Plan from 1,500,000 to 2,000,000. This plan provides for issuances of options to purchase the Company’s common stock under the administration of the compensation committee of the Board of Directors.  The intent of the plan is to reward options to officers, employees, directors, and other individuals providing services to the Company.  As of January 31, 2013, there were 1,914,500 shares available for grant and 85,500 options outstanding under this plan.

In April 2004, the Company’s stockholders approved the 2004 Stock Incentive Plan.  The plan provides for issuances of awards of up to 250,000 restricted or unrestricted shares of the Company’s common stock, or incentive or non-statutory stock options to purchase such common stock. Of the total amount of shares authorized under this plan, 126,000 options are outstanding, 26,000 restricted shares have been granted, and 98,000 shares are available for grant at January 31, 2013.
 
The options issued under the plans generally vest in periods up to five years based on the continuous service of the recipient and have 10 year contractual terms.  Share awards generally vest over one year.  Option and share awards provide for accelerated vesting if there is a change in control of the Company (as defined in the plans).
 
There were three options, for a total of 58,000 shares that expired in the first three months of 2013 and three options, for a total of 15,000 shares that expired in the first three months of fiscal year of 2012.  Other than the expirations, there was no activity related to stock options and outstanding stock option balances or other equity based compensation during the three month period ended January 31, 2013 and 2012.  The Company did not grant any equity based compensation during the three months ended January 31, 2013 and 2012.
 
The following table summarizes information pertaining to outstanding stock options, all of which are exercisable, as of January 31, 2013:
 
Exercise
Price
Range
   
Outstanding
Options
(Shares)
   
Weighted Average Remaining
Contractual
Life
   
Weighted
Average
Exercise 
Price
   
Intrinsic
Value
as of
January 31, 2013
 
$ 1.80 - $2.36       201,500       2.4     $ 2.32     $ -  
$ 3.18 - $3.38       10,000       .8       3.28       -  
          211,500       2.3     $ 2.38     $ -  

Outstanding options were granted with lives of 10 years and provide for vesting over a term of 0-5 years.  Since all outstanding stock options were fully vested as of January 31, 2013 there was no unrecognized share based compensation related to unvested options as of that date.  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.

 
 
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9.  
RECENT ACCOUNTING PRONOUNCEMENTS
 
In July 2012, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment , which gives companies the option to perform a qualitative assessment to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired. If a company determines that it is more likely than not that the fair value of such an asset exceeds its carrying amount, it would not need to calculate the fair value of the asset in that year. However, if a company concludes otherwise, it must calculate the fair value of the asset, compare that value with its carrying amount and record an impairment charge, if any. The amendments in the ASU are effective for annual and interim indefinite-lived intangible asset impairment tests performed for fiscal years beginning after September 15, 2012, which is fiscal 2013 for the Company.  This is effective for the Company starting in fiscal year2013. It does not anticipate that adoption will have a material impact on its operations or financial statements.
 
In December 2011, the FASB issued ASU 2011-11, Disclosures about Offsetting Assets and Liabilities (Topic 210), that provides amendments for disclosures about offsetting assets and liabilities. The amendments require an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. Entities are required to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. On January 31, 2013, the FASB issued ASU 2013-01, Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities , which clarified that the scope of the disclosures is limited to include derivatives, sale and repurchase agreements and reverse sale and repurchase agreements, and securities borrowing and securities lending arrangements.  The amendments are effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods.  Disclosures required by the amendments should be provided retrospectively for all comparative periods presented.  For the Company, the amendments are effective for fiscal year 2014.  The Company is currently evaluating the impact these amendments may have on its disclosures.
 
In September 2011, the FASB issued ASU 2011-08, Intangibles – Goodwill and Other (Topic 350), Testing Goodwill for Impairment .  This ASU is intended to reduce the complexity and cost of performing an evaluation of impairment of goodwill.  Under the new guidance,  an entity will have the option of first assessing qualitative factors (events and circumstances) to determine whether it is more likely than not (meaning a likelihood of more than 50 percent) that the fair value of a reporting unit is less than its carrying amount.  If, after considering all relevant events and circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test will be unnecessary.  The amendment will be effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, which will be fiscal 2013 for the Company.  The Company does not anticipate that adoption will have a material impact on its operations or financial statements.

 
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In June 2011, the FASB issued ASU 2011-05, Comprehensive Income (Topic 220), Presentation of Comprehensive Income .  This ASU amends the disclosure requirements for the presentation of comprehensive income. The amended guidance eliminates the option to present components of other comprehensive income (OCI) as part of the statement of changes in stockholder’s equity.  Under the amended guidance, all changes in OCI are to be presented either in a single continuous statement of comprehensive income or in two separate but consecutive financial statements. The Company adopted this ASU in the first quarter of fiscal 2013 by reporting a separate statement of comprehensive income (loss).   In February 2013, the FASB issued ASU 2013-02 to improve the reporting of reclassifications out of accumulated other comprehensive income. The ASU provides amendments to the Comprehensive Income subtopic of the FASB ASC, such that companies must report the effect of significant reclassifications out of accumulated comprehensive income on the respective line items in net income. For other amounts that are not required to be reclassified in their entirety to net income, an entity may cross-reference to the relevant note disclosure. ASU 2013-02 will be effective for the second quarter of fiscal 2013. The adoption of this guidance will have no impact on our financial condition or results of operations but will impact the presentation of the financial statements. We are currently evaluating our presentation options.
 
10.  
SIGNIFICANT ACCOUNTING POLICIES
 
Uncollectible Trade Accounts Receivable - Individual accounts receivable are written off when deemed uncollectible, with any future recoveries recorded as income when received.
 
 
11.  
SUBSEQUENT EVENTS
 

On March 13, 2013, the Company amended its Credit Agreement (“the New Agreement”) with Bank of America to provide a senior financing facility consisting of term debt and a revolving line of credit.  Under the New Agreement, the Company became obligated on $11,000,000 of debt in the form of a term note to refinance the previous senior term debt and to fund repayment of a portion of its outstanding subordinated debt. Additionally, the New Agreement includes a $5,000,000 revolving line of credit that can be used for the purchase of fixed assets, to fund acquisitions, to collateralize letters of credit, and for operating capital.

 
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The New Agreement amortizes the term debt over a five year period with 59 equal monthly installments of $130,952 and a final payment of $3,273,832 due in March 2018. The line of credit matures in March 2016.  There are various restrictive covenants under the New Agreement, and the Company is prohibited from entering into other debt agreements without the bank’s consent.

Under the New Agreement, interest is paid at a rate of one-month LIBOR plus a margin determined by certain leverage ratios specified in the New Agreement.  Based on leverage ratios at the time of the amendment, the margin is decreased by 25 basis points in the New Agreement.
 
With a portion of the proceeds from the term debt the Company paid down the amount of subordinated debt owed to Henry, Peter and John Baker by $1,500,000 in total leaving an aggregate remaining principal outstanding of $10,000,000 due on the amended maturity date of October 5, 2018.

In conjunction with the senior debt refinancing, the Company paid off the interest rate swap agreements that were in place as of January 31, 2013 (see Note 5). The total settlement of these instruments was estimated to be $65,000 at the time of closing.  In addition the Company entered into a new swap agreement to fix the interest rate of at 75% of the outstanding balance of the term note at 3.18% (0.68% plus the applicable margin, 2.50%).  The swap matures in March 2016.
 
 
 
 
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Item 2.                          Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto as filed in our Annual Report on Form 10-K for the year ended October 31, 2012 as well as the condensed consolidated financial statements and notes contained herein.

Forward-Looking Statements

The “Management’s Discussion and Analysis” (MD&A) portion of this Form 10-Q contains forward-looking statements about these topics:
 
 
(1) the lower gross profits of products that we are offering in connection with our brand expansion and response to competition in our marketplace,
(2) the cost pressures related to commodities affecting our business,
(3) the possibility that the costs to upgrade our information technology infrastructure and increase our sales staff may not result in a financial pay back in the future, and
(4) the potential adverse effect of weather on our sales and costs.

The following factors could cause actual results to differ materially from statements in MD&A about topic (1):  The volume of and revenues from products that we sell may be greater or less than we anticipate.  If greater, the effect will likely reduce our gross margin overall as a result of lower prices in response to competition; if less, the effect on our gross margin should be less significant, although in that case our results of operations could be adversely affected due to lower revenues.  In addition, to the extent we hire more sales staff to increase sales revenue, there is no assurance we can succeed in doing so.  We also incorporate by reference into this paragraph the full Risk Factor on page 13 of our Annual Report on Form 10-K for the Fiscal Year Ended October 31, 2012 (our 2012 Form 10-K) concerning risks of competition , and the full Risk Factor on page 17 of our 2012 Form 10-K concerning risks in connection with acquisitions .
 
The following factors could cause actual results to differ materially from statements in MD&A about topic (2):  We incorporate by reference into this paragraph the full Risk Factor on pages 15-16 of our 2012 Form 10-K concerning risks of fluctuation in the costs of essential raw materials and commodities .
 
The following factors could cause actual results to differ materially from statements in MD&A about topic (3):  We incorporate by reference into this paragraph the full Risk Factor on page 15 of our 2012 Form 10-K concerning risks of our expansion strategy .

The following factors could cause actual results to differ materially from statements in MD&A about topic (4):  We incorporate by reference into this paragraph the full Risk Factor on page 16 of our 2012 Form 10-K concerning risks of extremes of weather .

 
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Results of Operations

Overview and Trends

Sales in the first quarter of 2013 were slightly lower than for the same period in 2012.  Gross profit increased slightly compared to the first quarter a year ago as a result of a slightly more profitable sales mix.  However, our loss was more than the first quarter a year ago because our operating costs, which have been trending higher the past two years, increased substantially in the first quarter compared to a year ago.

We paid down $1.5 million of subordinated debt during the first quarter of fiscal year 2013. Subsequent to the end of the first quarter, we re-financed our senior term and line of credit. In that process we paid down an additional $1.5 million of subordinated debt.

Results of Operations for the Three Months Ended January 31, 2013 (First Quarter) Compared to the Three Months Ended January 31, 2012

Sales
Sales for the three months ended January 31, 2013 were $17,043,000 compared to $17,234,000 for the corresponding period in 2012, a decrease of $191,000 or 1%.  There was no effect on sales as a result of acquisition activity. Net of acquisitions that were closed in 2012, sales decreased 2% in the first quarter of 2013 compared to the same quarter a year ago.
 
The comparative breakdown of sales of the product lines for the respective three-month periods ended January 31, 2013 and 2012 is as follows:

Product Line
2013
2012
Difference
% Diff.
(000’s $)
       
Water
$6,656
$6,582
$ 74
1%
Coffee
4,209
4,470
(261)
(6%)
Refreshment
2,784
2,836
(52)
(2%)
Equipment Rental
2,075
2,113
(38)
(2%)
Other
   1,319
   1,233
   86
7%
Total
$17,043
$17,234
$191
(1%)

Water – Sales of water increased slightly compared to the same period in the prior year because of a 3% increase in the total bottles sold offset by a 2% decrease in average selling price per bottle. Acquisitions accounted for 1% of the increase in water sales for the first quarter of 2013 compared the same quarter a year ago.

Coffee – The decrease in sales was consistent across all brands and was attributable to lower volume as a result of competition and lower prices dictated by lower commodity costs compared to a year ago.
 
 
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Refreshment – Sales, which include single serve drinks, cups, single serve water sales, and vending items, decreased because of a decrease in all of those products which more than offset a small increase in the sales of complementary coffee products.

Equipment Rental – The decrease in sales was a result of a 5% decrease in average rental price which more than offset a 3% increase in rental price.

Other – The increase is attributable to a 41% increase in the sales of office products and stamps which were $683,000 for the quarter. The fees that are charged to offset energy costs for delivery and freight, raw materials, and bottling operations decreased 15%.  These charges decreased to $636,000 in the first quarter of 2013 from $750,000 in the same period in 2012.

Gross Profit/Cost of Goods Sold – For the three months ended January 31, 2013, gross profit increased to $8,636,000 from $8,607,000 for the comparable period in 2012.  As a percentage of sales, gross profit increased to 51% in the first quarter of 2013 from 50% in the first quarter of 2012. The increase in gross profit of $29,000 was primarily due to higher water and office products sales despite the decrease in coffee and refreshment sales and equipment rental. The increase in gross profit, as a percentage of sales, was primarily due to a decrease in coffee and service costs as well as an increase in margin for office 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.  The reader should be aware that 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.

Operating Expenses and Income (Loss) from Operations
Total operating expenses increased to $8,799,000 in the first quarter of 2013 from $8,180,000 in the comparable period in 2012, an increase of $619,000.

Selling, general and administrative (SG&A) expenses of $8,356,000 in the first quarter of 2013 increased $708,000, or 9%, from $7,648,000 in the comparable period in 2012.  Of total SG&A expenses, route distribution costs increased $224,000, or 6%, as a result of higher labor and vehicle costs; selling costs decreased $27,000, or 2% primarily because of computer related service costs to support the infrastructure improvement of e-commerce and customer relationship management software expended in the first quarter 2012. An increase in labor costs essentially offset those costs in the first quarter of 2013; and administration costs increased $511,000, or 18%, as a result of higher labor costs as well as software maintenance costs to support the new information systems installation referred to above.
 
Advertising expenses were $222,000 in the first quarter of 2013 compared to $323,000 in the first quarter of 2012, a decrease of $101,000, or 31%. The decrease in advertising costs is primarily related to a reduction in agency costs.
 
 
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Amortization increased to $245,000 in the first quarter of 2013 from $236,000 in the comparable quarter in 2012, an increase of $9,000, or 4%.  Amortization is attributable to intangible assets that were acquired as part of acquisitions. The higher amortization in 2013 is attributable to acquisition activity in recent years.  In addition, we had a gain of $24,000, from the sale of assets in the first quarter of 2013 which was a decrease from the $28,000 gain from similar sales in the first quarter of 2012. We routinely sell assets used in the normal course of business as they are replaced with newer assets.

The loss from operations for the three months ended January 31, 2013 was $163,000 compared to income from operations of $427,000 in the comparable period in 2012, a decrease of $590,000.  The decrease was a result of higher operating expenses.

Interest, Taxes, and Other Expenses
Interest expense was $512,000 for the three months ended January 31, 2013 compared to $538,000 in the three months ended January 31, 2012, a decrease of $26,000.  The decrease is attributable to lower outstanding debt during the first quarter of 2013 compared to the first quarter of 2012.
 
The loss before income taxes was $668,000 for the three months ended January 31, 2013 compared to $104,000 in the corresponding period in 2012, an increase of $564,000. The tax benefit, as a result of loss from operations, for the first quarter of fiscal year 2013 was $262,000 compared to $49,000 in the first quarter of fiscal year 2012.  The higher tax benefit was a result of an increased loss from operations.
 
Net Loss
The net loss for the three months ended January 31, 2013 was $406,000 compared to $54,000 in the corresponding period in 2012.  The increase is attributable to higher operating expenses in the first quarter of 2013 as compared to the same period in fiscal year 2012.

Liquidity and Capital Resources

As of January 31, 2013, we had working capital of $5,058,000 compared to $6,903,000 as of October 31, 2012, a decrease of $1,845,000.  The decrease in working capital is primarily attributable to a decrease in cash of $924,000, net of the repayment of subordinated debt of $1,500,000 during the quarter and an additional repayment of $1,500,000 of subordinated debt in March 2013. As a result of a larger net loss, cash provided from operations decreased to $58,000 from $453,000 for the same period a year ago. In addition to the repayment of the subordinated debt, we used $453,000 for capital expenditures and $553,000 for scheduled repayment of senior debt in the first quarter of 2013.
Our Credit Agreement with Bank of America (“the Bank”) provides a senior financing facility consisting of term debt and a revolving line of credit.  As of January 31, 2013 we had $8,911,500 outstanding on our term loan and an outstanding letter of credit of $1,504,000 on our line of credit resulting in $3,496,000 available to borrow on the line of credit as of that date.
 
 
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Subsequent to January 31, 2013, we amended our Agreement to renew the line of credit and restructure our term loan.  As of March 13, 2013, our new Credit Agreement (“New Agreement) with the Bank obligated us to $11,000,000 of debt in the form of a term note to refinance the previous senior term debt, line of credit, and to fund re-payment of a portion of our outstanding subordinated debt. A reconciliation of the funds used from the restructure of the term loan is as follows:

Existing term loan                                                                $  8,542,500
Repayment of subordinated debt                                         1,500,000
Administrative and termination fees                                       132,500
Repayment of line of credit/operating cash                            825,000
Total term loan obligation                                                  $11,000,000

Additionally, the New Agreement includes a $5,000,000 revolving line of credit that can be used for the purchase of fixed assets, to fund acquisitions, to collateralize letters of credit, and for operating capital.

The New Agreement amortizes the term debt over a five year period with 59 equal monthly installments of $130,952 and a final payment of $3,273,832 due in March 2018. The line of credit matures in March 2016.  There various restrictive covenants under the agreement, and the Company is prohibited from entering into other debt agreements without the bank’s consent.

Under the New Agreement, interest is paid at a rate of one-month LIBOR plus a margin determined by certain leverage ratios specified in the agreement.  Based on leverage ratios at the time of the amendment, the margin is decreased by 25 basis points in the New Agreement.
 
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 less than 2.50 to 1.  As of January 31, 2013, we were in compliance with all of the financial covenants of our credit facility. The Agreement prohibits us from paying dividends without prior consent of the lender.   Also under the Agreement, the Company is obligated to calculate Consolidated Excess Cash Flow based on its financial results for each fiscal year to determine if additional principal is due on the term note. On May 14, 2012, the Agreement was amended to change the definition of Consolidated   Adjusted Operating Cash Flow to add $965,000 to the calculation of Cash Flow for the reference periods under the Agreement that end April 30, 2012, July 31, 2012 and October 31, 2012 and to allow for the use of up to $500,000 for the purchase of the Company’s stock. This revision is intended to reflect the expenditures for upgrades to the Company’s IT infrastructure, which are expected to provide a long-term benefit but do not qualify as capital expenditures under the Agreement. Subsequently, the modification of the cash flow formula was extended to the quarter ending January 31, 2013.

In addition, under the Agreement, the Company is obligated to calculate Consolidated Excess Cash Flow based on its financial results for the fiscal year to determine if additional principal is due on the term note which would be due in February 2013. Bank of America waived this requirement for the fiscal year ending October 31, 2012.
 
 
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As of January 31, 2013, we had three interest rate swap agreements with Bank of America in effect.  The intent of one swap, entered into on April 5, 2010, 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 4.76% (2.01% plus the applicable margin, 2.75%).  An additional swap entered into on the same date offsets the swap that fixed the interest on a portion of the term loan and became ineffective when we entered into the Agreement.

Under the New Agreement, interest is paid at a rate of one-month LIBOR plus a margin determined by certain leverage ratios specified in the agreement.  Based on leverage ratios at the time of the amendment, the margin is 2.50% in the New Agreement.   In conjunction with the amendment, we paid off our liability under previous swap agreements associated with past term notes and enter into a new agreement to fix the interest rate on at least 75% of the outstanding term debt, on an amortizing basis, at 0.68% plus the applicable margin in the Agreement. To terminate our previous swap agreements we paid approximately $65,000.

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 consolidated balance sheet. The following table sets forth our contractual commitments in future fiscal years as of January 31, 2013:

   
Payment due by Period
 
 
Contractual Obligations (2)
 
Total
   
Remainder
of 2013
      2014-2015       2016-2017    
After 2017
 
Debt (3)
  $ 20,513,000     $ 1,762,000     $ 18,751,000     $ -     $ -  
Interest on Debt (1)
    4,990,000       1,788,000       3,202,000       -       -  
Operating Leases
    14,150,000       2,966,000       6,177,000       3,579,000       1,428,000  
Licensing Fees
    875,000       264,000       611,000       -       -  
Total
  $ 40,528,000     $ 6,780,000     $ 28,741,000     $ 3,579,000     $ 1,428,000  

(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 2.96%, and subordinated debt at a rate of 12%.
 
(2)  
Customer deposits have been excluded from the table.  Deposit balances vary from period to period with water sales but future increases and decreases in the balances are not accurately predictable.  Deposits are excluded because, net of periodic additions and reductions, it is probable that a customer deposit balance will always be outstanding as long as the business operates.
 
(3)  
Does not include the Third Amendment to the Amended and Restated Credit Agreement and the $1,500,000 discretionary repayment of subordinated debt made in March 2013.
 
We have no other material contractual obligations or commitments.

Inflation had no material impact on our performance in the quarter ending January 31, 2013.

Item 3.    Quantitative and Qualitative Disclosures about Market Risks.

Pursuant to Regulation S-K, Item 305(e), smaller reporting companies are not required to provide this information.
 
 
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Item 4.  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, and that information we are required to disclose in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive and Chief Financial officers, as appropriate to allow timely decisions regarding required disclosure.

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.
 
No change in our internal control over financial reporting occurred during the fiscal quarter ended January 31, 2013 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 
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PART II – OTHER INFORMATION
 
Item 1.                              Legal Proceedings.

None.

Item 1A.                           Risk Factors.
 
There was no change in the three months ended January 31, 2013 from the Risk Factors reported in our Annual Report on Form 10-K for the year ended October 31, 2012.

Item 2.                              Unregistered Sales of Equity Securities and Use of Proceeds.
 
The following table summarizes the stock repurchases, by month, that were made during the first quarter ended January 31, 2013.

Issuer Purchases of Equity Securities
 
   
 
 
 
Total Number of Shares Purchased
   
 
 
 
 
Average Price Paid per Share (1)
   
 
Total Number of Shares as Part of a Publicly Announced Program (2)
   
Maximum Expenditure that May Yet be used for Purchases Under the Program (2)
 
November 1-30
    -       -       -     $ 491,831  
December 1-31
    -       -       -       491,831  
January 1-31
    120     $ 1.12       120       491,696  
Total
    120     $ 1.12       120          
(1)  
Includes transaction costs.
(2)  
On May 14, 2012 we announced a program to repurchase up to $500,000 of our common stock.  There is no expiration date for the plan to repurchase additional shares and the dollar limit may not be reached.

Item 3.                                Defaults Upon Senior Securities.
 
None.
 
Item 4.                                Mine Safety Disclosures.
 
None.
 
Item 5.                                Other Information.
 
Pursuant to General Instruction B.3. of Form 8-K, we hereby provide, within four business days of its occurrence, the information required by Items 1.01 and 2.03 of Form 8-K regarding our amended credit agreement.

On March 13, 2013, Crystal Rock Holdings, Inc. and our subsidiaries entered into a Third Amendment to our Credit Agreement with Bank of America (“the New Agreement”) to provide a senior financing facility consisting of term debt and a revolving line of credit.  Bank of America is our sole lender under the New Agreement.
 
 
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Under the New Agreement, we became obligated on $11,000,000 of debt in the form of a term note to refinance our previous senior term debt and acquisition line of credit. Additionally, the New Agreement includes a $5,000,000 revolving line of credit that can be used for the purchase of fixed assets, to fund acquisitions, to collateralize letters of credit, and for operating capital.  The proceeds from the term debt were used to refinance existing senior debt, fund repayment of $1,500,000 of our outstanding subordinated debt, pay administration and termination fees associated with the transaction and to reduce our existing line of credit.

The New Agreement amortizes the term debt over a five year period with 59 equal monthly installments of $130,952 and a final payment of $3,273,832 due at the end of five years. The line of credit matures in three years.  We are subject to various restrictive covenants under the agreement, and we are prohibited from entering into other debt agreements without the bank’s consent.

Under the New Agreement, interest is paid at a rate of one-month LIBOR plus a margin determined by certain leverage ratios specified in the agreement.  Based on leverage ratios at the time of the amendment, the margin is 2.50% in the New Agreement.   In conjunction with the amendment, we paid off our liability under previous swap agreements associated with past term notes and entered into a new agreement to fix the interest rate on 75% of the outstanding term debt, on an amortizing basis, at 0.68% plus the applicable margin in the New Agreement. To terminate our previous swap agreements we paid $65,000. For more information about our swap agreements see footnote 5 of the financial statement included herein.
 
In conjunction with the New Agreement, we repaid $1,500,000 of subordinated debt to Henry, Peter and John Baker reducing the total amount of outstanding subordinated debt to $10,000,000. In addition, the maturity date of each of the subordinated notes held by the three note holders was extended to October 5, 2018. All other terms of the subordinated debt agreements remained the same. The repayment of the subordinated debt and amendment of the associated notes was reviewed and approved by the Company's Audit Committee as required by its charter.  For more information about the Company’s subordinated debt, see the section entitled “Related Party Transactions - Subordinated Notes Held by Significant Stockholders ” on pages 12 and 13 of our definitive proxy statement dated February 28, 2013, which section is incorporated herein by this reference.

 
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Item 6.                                Exhibits.

Exhibit
Number                    Description

 
3.1
Certificate of Incorporation (Incorporated by reference to Exhibit B to Appendix A to our registration statement on Form S-4, File No. 333-45226, filed with the SEC on September 6, 2000)

 
3.2
Certificate of Amendment of Certificate of Incorporation (Incorporated by reference to Exhibit 4.2 of our current report on Form 8-K, filed with the SEC on October 19, 2000)

 
3.3
Certificate of Ownership and Merger of Crystal Rock Holdings, Inc. with and into Vermont Pure Holdings, Ltd. (Incorporated by reference to Exhibit 3.1 to our current report on Form 8-K, filed with the SEC on May 6, 2010)

 
3.4
By-laws, as amended (Incorporated by reference to Exhibit 3.2 to our report on Form 8-K, filed with the SEC on April 2, 2010)

                10.1
Third Amendment to the Credit Agreement with Bank of America dated March 13, 2013.

 
Amendment of Second Amended and Restated Subordinated Note and Subordinated Note to Henry Baker dated March 13, 2013

 
Amendment of Subordinated Note to Peter Baker and John Baker dated March 13, 2013

 
Second Amended and Restated Term Note to Bank of America dated March 13, 2013

 
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 
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
 
 
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                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

 
101
Interactive Data Files regarding (a) our Condensed Consolidated Balance Sheets as of January 31, 2013 and October 31, 2012, (b) our Condensed Consolidated Statements of Operations for the Three Months Ended January 31, 2013 and 2012, (c) our Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended January 31, 2013 and 2012, (d) our Condensed Consolidated Statements of Cash Flows for the Three Months Ended January 31, 2013 and 2012, and (e) the Notes to such Condensed Consolidated Financial Statements.

 
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SIGNATURE



Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


Dated:           March 18, 2013





CRYSTAL ROCK HOLDINGS, INC.


By: /s/ Bruce S. MacDonald
Bruce S. MacDonald
Vice President, Chief Financial Officer
(Principal Accounting Officer and Principal Financial Officer)
 
 
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Exhibits Filed Herewith

Exhibit
Number                        Description

                 10.1
Third Amendment to the Credit Agreement with Bank of America dated March 13, 2013.

 
Amendment of Second Amended and Restated Subordinated Note and Subordinated Note to Henry Baker dated March 13, 2013

 
Amendment of Subordinated Note to Peter Baker and John Baker dated March 13, 2013

 
Second Amended and Restated Term Note to Bank of America dated March 13, 2013

 
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley act of 2002.

 
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley act of 2002.

 
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.

 
101
Interactive Data Files regarding (a) our Condensed Consolidated Balance Sheets as of January 31, 2013 and October 31, 2012, (b) our Condensed Consolidated Statements of Operations for the Three Months Ended January 31, 2013 and 2012, (c) our Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended January 31, 2013 and 2012, (d) our Condensed Consolidated Statements of Cash Flows for the Three Months Ended January 31, 2013 and 2012, and (e) the Notes to such Condensed Consolidated Financial Statements.
 
 
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Exhibit 10.1

THIRD AMENDMENT AGREEMENT
 
THIRD AMENDMENT AGREEMENT (this “ Agreement ”), dated as of March 13, 2013, by and among Crystal Rock Holdings, Inc., formerly known as Vermont Pure Holdings, Ltd. (“ Holdings ”), individually and as successor by merger to its former Subsidiary, Crystal Rock Holdings, Inc., Crystal Rock LLC (“ Crystal Rock ”, and together with Holdings, collectively, the “ Borrowers ”), Bank of America, N.A. (“ Bank of America ”) and the other lending institutions party to that certain Credit Agreement (as defined below) as lenders (together with Bank of America, collectively, the “ Lenders ”), and Bank of America, as administrative agent (the “ Administrative Agent ”) for itself and the other Lenders with respect to a certain Amended and Restated Credit Agreement dated as of April 5, 2010, as amended by that certain First Amendment Agreement dated as of September 1, 2005 and that certain Second Amendment Agreement dated as of March 23, 2006 (as amended the “ Credit Agreement ”).
 
 
W I T N E S S E T H:
 
WHEREAS , the Borrowers have requested Bank of America, as sole Lender under the Credit Agreement as of the date hereof, and Bank of America has agreed, to: (a) extend to the Borrowers an additional term loan in the principal amount of $11,000,000 (the “ 2013 Term Loan ”), the proceeds of which are being used by the Borrower to refinance its existing Obligations under the Term Loan and to prepay up to $1,500,000 in the aggregate of the Seller Subordinated Debt, and (b) amend certain terms of the Credit Agreement on the terms and conditions set forth herein; and
 
WHEREAS , the parties hereto have agreed to amend the Credit Agreement as set forth herein.
 
NOW, THEREFORE , for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
 
§1.   Definitions.   Capitalized terms that are used herein and are not defined herein  have the meanings given to such terms in the Credit Agreement (after giving effect to the amendments thereof set forth herein).
 
§2.   Ratification of Existing Agreements.   All of the Borrowers’ obligations and liabilities to the Lenders as evidenced by or otherwise arising under the Credit Agreement, the Notes and the other Loan Documents are, by the Borrowers’ execution of this Agreement, hereby ratified and confirmed in all respects.  In addition, by the Borrowers’ execution of this Agreement, each Borrower represents and warrants that it does not have any defense, counterclaim, or right of set-off or recoupment of any kind with respect to such obligations and liabilities.
 
§3.   Representations and Warranties.   Each Borrower hereby represents and warrants to the Lenders that all of the representations and warranties made by the Borrowers in the Credit Agreement, the Notes and the other Loan Documents are true in all material respects on the date hereof as if made on and as of the date hereof, except to the extent that such representations and warranties relate expressly to an earlier date.
 
 
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§4.   Conditions Precedent.   The effectiveness of this Agreement is subject to the prior satisfaction, on or before March 13, 2013, of each of the following conditions precedent (the date of such satisfaction herein referred to as the “ Amendment Effective Date ”):
 
(a)   Representations and Warranties .  All of the representations and warranties made by the Borrowers herein, whether directly or incorporated by reference, shall be true and correct on the date hereof except to the extent that such representations and warranties relate expressly to an earlier date.
 
(b)   Performance; No Event of Default .  Each Borrower shall have performed and complied in all respects with all terms and conditions herein required to be performed or complied with by it prior to or at the time hereof, and there shall exist no Default or Event of Default.
 
(c)   Corporate or Limited Liability Company Action .  All requisite corporate or limited liability company, as applicable, action necessary for the valid execution, delivery and performance by each Borrower of this Agreement and all other instruments and documents delivered by each Borrower in connection therewith shall have been duly and effectively taken.
 
(d)   Delivery of Agreement .  The parties hereto shall have executed this Agreement and delivered this Agreement to the Administrative Agent.
 
(e)   Delivery of Term Note .  The Borrowers shall have executed and delivered to the Administrative Agent a Term Note in the form attached hereto as Exhibit C in favor of Bank of America to evidence the 2013 Term Loan.
 
(f)   Delivery of Ratification Agreements . Each of the Borrowers, the Seller Subordinated Debt Holders and other Persons party thereto shall have acknowledged in writing, in form and substance satisfactory to the Administrative Agent, its acceptance of this Agreement and its ratification of the continuing effectiveness of the Loan Documents to which it is a party (it being understood that each such Loan Document to which any such Person is a party shall continue in full force and effect in accordance with its terms even if such acceptance and ratification is not executed by such Person).
 
(g)   UCC Search Results; Perfection Certificates .  The Administrative Agent shall have received (i) updated UCC search results with respect to each of the Borrowers, which shall be acceptable to the Administrative Agent, and (ii) completed and fully executed amended and restated perfection certificates from each of the Borrowers  in form and substance satisfactory to Administrative Agent.
 
(h)   Opinions of Counsel .  Each of the Lenders and the Administrative Agent shall have received a favorable legal opinion addressed to the Lenders and the Administrative Agent, dated as of the Amendment Effective  Date, in form and substance satisfactory to the Lenders and the Administrative Agent, from McElroy, Deutsch, Mulvaney & Carpenter, LLP, counsel to the Borrowers.
 
 
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(i)   Payment of Expenses .  The Borrowers shall have paid to the Administrative Agent in immediately available funds all expenses, including reasonable legal fees, incurred by the Administrative Agent in connection with this Agreement, the Credit Agreement or the other Loan Documents on or prior to the date hereof.
 
(j)   Payment of Third Amendment Fee .  The Borrowers shall have paid to the Administrative Agent for the account of Bank of America in accordance with Section 7 hereof the Third Amendment Fee.
 
(k)   Supporting Documents .  The Borrowers shall have delivered or caused to be delivered to the Administrative Agent such other supporting documents and certificates as the Administrative Agent may have reasonably requested.
 
§5.   Amendments to the Credit Agreement .
 
(a)   The definitions of Consolidated Excess Cash Flow, Employee Benefit Plan, ERISA Reportable Event, Guaranteed Pension Plan and Minimum One Month LIBOR Amount appearing in Section 1.1 of the Credit Agreement are hereby deleted in their entirety.
 
(b)   The definitions of Applicable Margin, Consolidated Adjusted Operating Cash Flow, Consolidated Senior Debt Service, Consolidated Total Debt Service, ERISA Affiliate, Fees, Interest Period, LIBOR Rate, Multiemployer Plan, Revolving Credit Loan Maturity Date, Term Loan and Term Loan Maturity Date appearing in Section 1.1 of the Credit Agreement are hereby amended and restated in its entirety to read as follows:
 
 
Applicable Margin .  For each period commencing on an Adjustment Date through the date immediately preceding the next Adjustment Date (each a “ Rate Adjustment Period ”), the Applicable Margin shall be the applicable margin set forth below with respect to the Total Leverage Ratio, as determined for the Reference Period of Holdings and its Subsidiaries ending on the fiscal quarter ended immediately prior to the applicable Rate Adjustment Period.
 
 
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Level
Total Leverage
Ratio
Base Rate Loans
Revolving Credit LIBOR Rate Loans
Letter of
Credit
Fees
Term Loan LIBOR Rate Loan
I
Less than 2.00:1.00
0.00%
1.25%
1.25%
1.50%
II
Greater than or equal to 2.00:1.00 but less than 2.50:1.00
0.25%
1.75%
1.75%
2.00%
III
Greater than or equal to 2.50:1.00 but less than 3.25:1.00
0.75%
2.25%
2.25%
2.50%
IV
Greater than or equal to 3.25:1.00
1.25%
2.75%
2.75%
3.00%
 
Notwithstanding the foregoing, (a) for the Loans outstanding and the Letter of Credit Fees payable during the period commencing on the Third Amendment Date through the date immediately preceding the first Adjustment Date to occur after the fiscal quarter ending April 30, 2013, the Applicable Margin shall be the Applicable Margin set forth in Level III above, and (b) if the Borrowers fail to deliver any Compliance Certificate pursuant to §9.4(c) hereof then, for the period commencing on the next Adjustment Date to occur subsequent to such failure through the date immediately following the date on which such Compliance Certificate is delivered, the Applicable Margin shall be the highest Applicable Margin set forth above.
 
 
Consolidated Adjusted Operating Cash Flow .  For any period, an amount equal to the sum of (a) Consolidated EBITDA of Holdings and its Subsidiaries for such period (excluding the Consolidated EBITDA of any Subsidiary (or with respect to an asset acquisition, the acquired assets) for the period prior to the acquisition of such Subsidiary (or assets) by Holdings or any of its Subsidiaries), plus (b) an amount equal to seventy-five percent (75%) of Acquired Company EBITDA for such period, plus (c) for the Reference Period ended January 31, 2013, $965,000.
 
 
Consolidated Senior Debt Service .  With respect to Holdings and its Subsidiaries and for any period, the sum, without duplication, of (a) Consolidated Senior Interest Expense for such period plus (b) any and all scheduled repayments of principal during such period in respect of Indebtedness (other than Subordinated Debt) that become due and payable during such period pursuant to any agreement or instrument to which Holdings or any of its Subsidiaries is a party; provided , however , that for the Reference Periods ending on April 30, 2013, July 31, 2013 and October 31, 2013, Consolidated Senior Debt Service shall be determined on a pro forma basis equal to the sum of (i) Consolidated Senior Interest Expense for such period plus (ii) $1,571,424. Demand obligations shall be deemed to be due and payable during any fiscal period during which such obligations are outstanding.
 
 
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Consolidated Total Debt Service .  With respect to Holdings and its Subsidiaries and for any period, the sum, without duplication, of (a) Consolidated Total Interest Expense of Holdings and its Subsidiaries for such period plus (b) any and all scheduled repayments of principal during such period in respect of Indebtedness that become due and payable during such period pursuant to any agreement or instrument to which Holdings or any of its Subsidiaries is a party; provided , however , that for the Reference Periods ending on April 30, 2013, July 31, 2013 and October 31, 2013, Consolidated Total Debt Service shall be determined on a pro forma basis equal to the sum of (i) Consolidated Senior Interest Expense for such period plus (ii) $2,771,424. Demand obligations shall be deemed to be due and payable during any fiscal period during which such obligations are outstanding
 
 
ERISA Affiliate . Any trade or business (whether or not incorporated) under common control with any Borrower within the meaning of Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for purposes of provisions relating to Section 412 of the Code).
 
 
Fees .  Collectively, the Revolving Credit Commitment Fee, the Letter of Credit Fees, the Closing Fees and the Third Amendment Fee.
 
 
Interest Period .  With respect to
 
 
(a)           each Revolving Credit Loan, (i) initially, the period commencing on the Drawdown Date of such Loan and ending on the last day of one of the periods set forth below, as selected by the Borrowers in a Loan Request or as otherwise required by the terms of this Credit Agreement: (x) for any Base Rate Loan, the last day of the calendar month; and (y) for any LIBOR Rate Loan, 1, 2 or 3 months; and (ii) thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such Revolving Credit Loan and ending on the last day of one of the periods set forth above, as selected by the Borrowers in a Conversion Request; and
 
 
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(b)           for all or any relevant portion of the Term Loan, (i) initially, the period commencing on the Drawdown Date of such Loan and ending on the last day of one of the periods set forth below, as selected by the Borrowers in a Loan Request or as otherwise required by the terms of this Credit Agreement: (x) for any Base Rate Loan, the last day of the calendar month; and (y) for any LIBOR Rate Loan, 1 month; and (ii) thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such Revolving Credit Loan and ending on the last day of one of the periods set forth above, as selected by the Borrowers in a Conversion Request;
 
 
provided that all of the foregoing provisions relating to Interest Periods are subject to the following:
 
 
( A)           if any Interest Period with respect to a LIBOR Rate Loan would otherwise end on a day that is not a LIBOR Business Day, that Interest Period shall be extended to the next succeeding LIBOR Business Day unless the result of such extension would be to carry such Interest Period into another calendar month, in which event such Interest Period shall end on the immediately preceding LIBOR Business Day;’
 
 
(B)           if any Interest Period with respect to a Base Rate Loan would end on a day that is not a Business Day, that Interest Period shall end on the next succeeding Business Day;
 
 
(C)           if the Borrowers shall fail to give notice as provided in §2.7 or §4.5.2, the Borrowers shall be deemed to have requested a conversion of the affected LIBOR Rate Loan to a Base Rate Loan and the continuance of all Base Rate Loans as Base Rate Loans on the last day of the then current Interest Period with respect thereto;
 
 
(D)           any Interest Period relating to any LIBOR Rate Loan that begins on the last LIBOR Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last LIBOR Business Day of a calendar month;
 
 
(E)           with respect to each Revolving Credit Loan, no Interest Period shall end after the Revolving Credit Loan Maturity Date; and
 
 
(F)           with respect to the Term Loan, no Interest Period shall end after (1) the next regularly-scheduled principal repayment date, and (2) the Term Loan Maturity Date.
 
 
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LIBOR Rate .  For any Interest Period with respect to a LIBOR Rate Loan, the rate per annum equal to (i) the British Bankers Association LIBOR Rate or any successor thereto as approved by the Administrative Agent if the British Bankers Association is no longer making a LIBOR rate available (“ LIBOR ”), as published by Reuters (or such other commercially available source providing quotations of LIBOR as may be designated by the Administrative Agent from time to time) at approximately 11:00 a.m., London time, two (2) LIBOR Business Days prior to the commencement of such Interest Period, for Dollar deposits (for delivery on the first day of such Interest Period) with a term equivalent to such Interest Period or, (ii) if such rate is not available at such time for any reason, the rate per annum determined by the Administrative Agent to be the rate at which deposits in Dollars for delivery on the first day of such Interest Period in same day funds in the approximate amount of the LIBOR Rate Loan being made, continued or converted and with a term equivalent to such Interest Period would be offered by Bank of America’s London Branch to major banks in the London interbank eurodollar market at their request at approximately 11:00 a.m. (London time) two (2) LIBOR Business Days prior to the commencement of such Interest Period.
 
 
Multiemployer Plan . Any employee benefit plan of the type described in Section 4001(a)(3) of ERISA, to which any Borrower or any ERISA Affiliate makes or is obligated to make contributions, or during the preceding five (5) plan years, has made or been obligated to make contributions.
 
 
Revolving Credit Loan Maturity Date .  March 11, 2016.
 
 
Term Loan .  The term loan to be made by the Lenders to the Borrowers on the Third Amendment Date in the aggregate principal amount of $11,000,000 pursuant to §4.1.
 
 
Term Loan Maturity Date .  March 13, 2018.
 
(c)   Clause (a) of the definition of Permitted Acquisition is hereby amended and restated in its entirety to read as follow:
 
 
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(a)           immediately prior to and after giving effect to such acquisition, no Default or Event of Default shall then exist, and the Borrowers shall have delivered to the Administrative Agent a statement certified by the principal financial or accounting officer of the Borrowers to the effect that immediately prior to and after giving effect to such acquisition, no Default or Event of Default exists and attaching, in reasonable detail, computations evidencing on a Pro Forma Basis compliance (on a consolidated basis) with the covenants contained in §11 (x) as of the end of the most recently completed fiscal quarter, immediately prior to and after giving effect to such acquisition, and (y) for the twelve (12) month period immediately following such acquisition, each of which shall be acceptable to the Administrative Agent in its sole but reasonable discretion;
 
(d)   The following new definitions are added in alphabetical order to Section 1.1 of the Credit Agreement to read as follows:
 
 
Change in Law . The occurrence, after the Effective Date, of any of the following: (a) the adoption or taking effect of any law, rule, regulation or treaty, (b) any change in any law, rule, regulation or treaty or in the administration, interpretation, implementation or application thereof by any Governmental Authority or (c) the making or issuance of any request, rule, guideline or directive (whether or not having the force of law) by any Governmental Authority; provided that notwithstanding anything herein to the contrary, (i) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives thereunder or issued in connection therewith and (ii) all requests, rules, guidelines or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities, in each case pursuant to Basel III, shall in each case be deemed to be a “Change in Law”, regardless of the date enacted, adopted or issued
 
 
Effective Date Term Loan .  The term loan made by the Lenders to the Borrowers on the Effective Date in the aggregate principal amount of $15,500,000.
 
 
ERISA Event . (a) A Reportable Event with respect to a Pension Plan; (b) the withdrawal of any Borrower or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which such entity was a “substantial employer” as defined in Section 4001(a)(2) of ERISA or a cessation of operations that is treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial withdrawal by any Borrower or any ERISA Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is in reorganization; (d) the filing of a notice of intent to terminate, the treatment of a Pension Plan amendment as a termination under Section 4041 or 4041A of ERISA; (e) the institution by the PBGC of proceedings to terminate a Pension Plan; (f) any event or condition which constitutes grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan; (g) the determination that any Pension Plan is considered an at-risk plan or a plan in endangered or critical status within the meaning of Sections 430, 431 and 432 of the Code or Sections 303, 304 and 305 of ERISA; or (h) the imposition of any liability under Title IV of ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of ERISA, upon any Borrower or any ERISA Affiliate.
 
 
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IRS .  The United States Internal Revenue Service.
 
 
Multiple Employer Plan . A Plan which has two or more contributing sponsors (including any Borrower or any ERISA Affiliate) at least two of whom are not under common control, as such a plan is described in Section 4064 of ERISA.
 
 
Pension Act . The Pension Protection Act of 2006.
 
 
Pension Funding Rules . The rules of the Code and ERISA regarding minimum required contributions (including any installment payment thereof) to Pension Plans and set forth in, with respect to plan years ending prior to the effective date of the Pension Act, Section 412 of the Code and Section 302 of ERISA, each as in effect prior to the Pension Act and, thereafter, Section 412, 430, 431, 432 and 436 of the Code and Sections 302, 303, 304 and 305 of ERISA.
 
 
Pension Plan . Any employee pension benefit plan (including a Multiple Employer Plan or a Multiemployer Plan) that is maintained or is contributed to by any Borrower and any ERISA Affiliate and is either covered by Title IV of ERISA or is subject to the minimum funding standards under Section 412 of the Code.
 
 
Plan . Any employee benefit plan within the meaning of Section 3(3) of ERISA (including a Pension Plan), maintained for employees of any Borrower or any ERISA Affiliate or any such Plan to which any Borrower or any ERISA Affiliate is required to contribute on behalf of any of its employees.
 
 
Reportable Event .  Any of the events set forth in Section 4043(c) of ERISA, other than events for which the thirty (30) day notice period has been waived.
 
 
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Third Amendment Agreement . The Third Amendment Agreement dated as of March 13, 2013 among the Borrowers, the Lenders and the Administrative Agent with respect to this Credit Agreement.
 
 
Third Amendment Date . The date on which all of the conditions precedent set forth in Section 4 of the Third Amendment Agreement have been satisfied (or waived by the Administrative Agent).
 
 
Third Amendment Fee . As defined in the Third Amendment Agreement.
 
(e)   Sections 4.1 and 4.2 of the Credit Agreement are hereby amended and restated in its entirety to read as follows:
 
 
4.1             Commitment to Lend .  Subject to the terms and conditions set forth in this Credit Agreement, each Lender agrees to lend to the Borrowers on the Third Amendment Date the amount of its Commitment Percentage of the principal amount of $11,000,000.
 
 
4.2             The Term Notes .  The Term Loan shall be evidenced by separate promissory notes of the Borrowers in substantially the form of Exhibit C hereto (each a “ Term Note ”), dated the Third Amendment Date (or such other date on which a Lender may become a party hereto in accordance with §16 hereof) and completed with appropriate insertions.  One Term Note shall be payable to the order of each Lender in a principal amount equal to such Lender’s Commitment Percentage of the Term Loan and representing the joint and several obligations of the Borrowers to pay to such Lender such principal amount or, if less, the then outstanding amount of such Lender’s Commitment Percentage of the Term Loan, plus interest accrued thereon, as set forth below.  The Borrowers irrevocably authorize each Lender to make or cause to be made a notation on such Lender’s Term Note Record reflecting the original principal amount of such Lender’s Commitment Percentage of the Term Loan and, at or about the time of such Lender’s receipt of any principal payment on such Lender’s Term Note, an appropriate notation on such Lender’s Term Note Record reflecting such payment.  The aggregate unpaid amount set forth on such Lender’s Term Note Record shall be prima facie evidence of the principal amount thereof owing and unpaid to such Lender, but the failure to record, or any error in so recording, any such amount on such Lender’s Term Note Record shall not affect the obligations of the Borrowers hereunder or under any Term Note to make payments of principal of and interest on any Term Note when due.
 
 
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(f)   Sections 4.3.1 of the Credit Agreement are hereby amended and restated in its entirety to read as follows:
 
4.3.1.             Schedule of Installment Payments of Principal of Term Loan .  On April 5, 2005, the lenders party to the Original Credit Agreement made a Term Loan (as defined in the Original Credit Agreement) to Holdings and Crystal Rock LLC in the principal amount of $28,000,000.00.  After such date, Holdings and Crystal Rock LLC made principal payments in the aggregate amount of $15,812,499.85.  As a result, on the Effective Date, the outstanding principal amount of such Term Loan (as defined in the Original Credit Agreement) was $12,187,500.15.  Pursuant to the terms hereof, the Lenders made the Effective Date Term Loan to the Borrowers on the Effective Date in the principal amount of $15,500,000. Pursuant to the terms hereof, the Lenders have agreed to make the Term Loan to the Borrowers on the Third Amendment Date in the principal amount of $11,000,000 to be used in accordance with §8.17. The Borrowers jointly and severally promise to pay to the Administrative Agent for the account of the Lenders the principal amount of the Term Loan in fifty-nine (59) consecutive monthly payments in the amount of $130,952, such payments to be due and payable on the 13th day of each month commencing on April 13, 2013, with a final payment on the Term Loan Maturity Date in an amount equal to the unpaid balance of the Term Loan.
 
(g)   Section 4.3.2 of the Credit Agreement is hereby amended and restated as follows.
 
 
4.3.2.             Reserved .
 
(h)   Section 4.5.2 of the Credit Agreement is hereby amended and restated as follows.
 
 
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4.5.2.             Notification by Borrowers .  The Borrowers shall notify the Administrative Agent, such notice to be irrevocable, at least four (4) LIBOR Business Days prior to the Drawdown Date of the Term Loan if all or any portion of the Term Loan   is to bear interest with reference to the LIBOR Rate.  After the Term Loan has been made, the provisions of §2.7 shall apply mutatis mutandis with respect to all or any portion of the Term Loan so that the Borrowers may have the same interest rate options (but not the same Interest Period options) with respect to all or any portion of the Term Loan as it would be entitled to with respect to the Revolving Credit Loans (with the understanding that the interest rate with respect to the Term Loan shall be as set forth in §4.5.1).
 
(i)   Section 6.6 of the Credit Agreement is hereby amended and restated as follows.
 
 
6.6.             Additional Cost, etc .  If any Change of Law shall:
 
 
(a)           subject any Lender or the Administrative Agent to any tax, levy, impost, duty, charge, fee, deduction or withholding of any nature with respect to this Credit Agreement, the other Loan Documents, any Letters of Credit, such Lender’s Commitment or the Loans (other than taxes based upon or measured by the income or profits of such Lender or the Administrative Agent), or
 
 
(b)           materially change the basis of taxation (except for changes in taxes on income or profits) of payments to any Lender of the principal of or the interest on any Loans or any other amounts payable to any Lender or the Administrative Agent under this Credit Agreement or any of the other Loan Documents, or
 
 
(c)           impose or increase or render applicable (other than to the extent specifically provided for elsewhere in this Credit Agreement) any special deposit, reserve, assessment, liquidity, capital adequacy or other similar requirements (whether or not having the force of law) against assets held by, or deposits in or for the account of, or loans by, or letters of credit issued by, or commitments of an office of any Lender, or
 
 
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(d)           impose on any Lender or the Administrative Agent any other conditions or requirements with respect to this Credit Agreement, the other Loan Documents, any Letters of Credit, the Loans, such Lender’s Commitment, or any class of loans, letters of credit or commitments of which any of the Loans or such Lender’s Commitment forms a part, and the result of any of the foregoing is
 
 
(i)           to increase the cost to any Lender of making, funding, issuing, renewing, extending or maintaining any of the Loans or such Lender’s Commitment or any Letter of Credit, or
 
 
(ii)           to reduce the amount of principal, interest, Reimbursement Obligation or other amount payable to such Lender or the Administrative Agent hereunder on account of such Lender’s Commitment, any Letter of Credit or any of the Loans, or
 
 
(iii)           to require such Lender or the Administrative Agent to make any payment or to forego any interest or Reimbursement Obligation or other sum payable hereunder, the amount of which payment or foregone interest or Reimbursement Obligation or other sum is calculated by reference to the gross amount of any sum receivable or deemed received by such Lender or the Administrative Agent from the Borrowers hereunder,
 
 
then, and in each such case, the Borrowers will, upon demand made by such Lender or (as the case may be) the Administrative Agent at any time and from time to time and as often as the occasion therefor may arise, pay to such Lender or the Administrative Agent such additional amounts as will be sufficient to compensate such Lender or the Administrative Agent for such additional cost, reduction, payment or foregone interest or Reimbursement Obligation or other sum.
 
(j)   Section 6.7 of the Credit Agreement is hereby amended and restated as follows:
 
 
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6.7.             Capital Adequacy .  If any Lender or the Administrative Agent determines that any Change in Law or compliance by such Lender or the Administrative Agent or any corporation controlling such Lender or the Administrative Agent with any Change In Law regarding capital adequacy has or would have the effect of reducing the return on such Lender’s or the Administrative Agent’s commitment with respect to any Loans to a level below that which such Lender or the Administrative Agent could have achieved but for such Change in Law or compliance therewith (taking into consideration such Lender’s or the Administrative Agent’s then existing policies with respect to capital adequacy and assuming full utilization of such entity’s capital) by any amount deemed by such Lender or (as the case may be) the Administrative Agent to be material, then such Lender or the Administrative Agent may notify the Borrowers of such fact.  To the extent that the amount of such reduction in the return on capital is not reflected in the Base Rate, the Borrowers and such Lender shall thereafter attempt to negotiate in good faith, within thirty (30) days of the day on which the Borrowers receive such notice, an adjustment payable hereunder that will adequately compensate such Lender in light of these circumstances.  If the Borrowers and such Lender are unable to agree to such adjustment within thirty (30) days of the date on which the Borrowers receive such notice, then commencing on the date of such notice (but not earlier than the effective date of any such increased capital requirement), the fees payable hereunder shall increase by an amount that will, in such Lender’s reasonable determination, provide adequate compensation.  Each Lender shall allocate such cost increases among its customers in good faith and on an equitable basis.
 
(k)   Section 8.16 of the Credit Agreement is hereby amended and restated in its entirety to read as follows:
 
 
8.16.             ERISA Compliance .
 
 
8.16.1. In General .  Each Plan is in compliance in all material respects with the applicable provisions of ERISA, the Code and other federal or state laws.  Each Pension Plan that is intended to be a qualified plan under Section 401(a) of the Code has received a favorable determination letter or is subject to a favorable opinion letter from the IRS to the effect that the form of such Plan is qualified under Section 401(a) of the Code and the trust related thereto has been determined by the IRS to be exempt from federal income tax under Section 501(a) of the Code, or an application for such a letter is currently being processed by the IRS.  To the best knowledge of the Borrowers, nothing has occurred that would prevent or cause the loss of such tax-qualified status.
 
 
8.16.2. Claims, Etc. .  There are no pending or, to the best knowledge of the Borrowers, threatened claims, actions or lawsuits, or action by any Governmental Authority, with respect to any Plan that could reasonably be expected to have a Material Adverse Effect.  There has been no prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan that has resulted or could reasonably be expected to result in a Material Adverse Effect.
 
 
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8.16.3. ERISA Events, Etc.   (i) No ERISA Event has occurred, and no Borrower nor any ERISA Affiliate is aware of any fact, event or circumstance that could reasonably be expected to constitute or result in an ERISA Event with respect to any Pension Plan; (ii) each Borrower and each ERISA Affiliate has met all applicable requirements under the Pension Funding Rules in respect of each Pension Plan, and no waiver of the minimum funding standards under the Pension Funding Rules has been applied for or obtained; (iii) as of the most recent valuation date for any Pension Plan, the funding target attainment percentage (as defined in Section 430(d)(2) of the Code) is 60% or higher and no Borrower nor any ERISA Affiliate knows of any facts or circumstances that could reasonably be expected to cause the funding target attainment percentage for any such plan to drop below 60% as of the most recent valuation date; (iv) no Borrower nor any ERISA Affiliate has incurred any liability to the PBGC other than for the payment of premiums, and there are no premium payments which have become due that are unpaid; (v) neither any Borrower nor any ERISA Affiliate has engaged in a transaction that could be subject to Section 4069 or Section 4212(c) of ERISA; and (vi) no Pension Plan has been terminated by the plan administrator thereof nor by the PBGC, and no event or circumstance has occurred or exists that could reasonably be expected to cause the PBGC to institute proceedings under Title IV of ERISA to terminate any Pension Plan.
 
(l)   Sections 8.17.1 of the Credit Agreement are hereby amended and restated in its entirety to read as follows:
 
8.17.1.                        General .  The proceeds of (a) the Revolving Credit Loans shall be used solely (i) to finance Capital Expenditures, (ii) to finance Permitted Acquisitions and (ii) for working capital and general corporate purposes, and (b) the Term Loan shall be used solely to (i) refinance the Borrowers’ outstanding Indebtedness owing under the Effective Date Term Loan, and (ii) to make payments on any Subordinated Debt not to exceed $1,500,000 in the aggregate. For the avoidance of doubt, no proceeds of the Revolving Credit Loans or the Term Loan shall be used to (x) finance the purchase, redemption, defeasance, retirement or other acquisition of any shares of any class of Capital Stock of Holdings or (y) make payments on any Subordinated Debt other than permitted in clause (b)(ii) above. The Borrowers will obtain Letters of Credit solely for general corporate purposes.
 
 
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(m)   Section 9.5.2 of the Credit Agreement is hereby amended and restated in its entirety to read as follows:
 
 
9.5.2. ERISA Event; Defaults .  Each of the Borrowers will promptly notify the Administrative Agent and each of the Lenders in writing of the occurrence of any ERISA Event or the occurrence of any Default or Event of Default, together with a reasonably detailed description thereof, and the actions the Borrowers propose to take with respect thereto.  If any Person shall give any written notice or take any other action in respect of a claimed default (whether or not constituting an Event of Default) under this Credit Agreement or any other note, evidence of indebtedness, indenture or other obligation to which or with respect to which any Borrower or any of its Subsidiaries is a party or obligor, whether as principal, guarantor, surety or otherwise, the Borrowers shall forthwith give written notice thereof to the Administrative Agent and each of the Lenders, describing the notice or action and the nature of the claimed default.
 
(n)   Section 9.11 of the Credit Agreement is hereby amended and restated in its entirety to read as follows:
 
 
9.11. Pension Plans .  Each of the Borrowers will (a) promptly upon filing the same with the Department of Labor or IRS upon request of the Administrative Agent, furnish to the Administrative Agent a copy of the most recent actuarial statement required to be submitted under ERISA and Annual Report, Form 5500, with all required attachments, in respect of each applicable Pension Plan and (b) promptly upon receipt or dispatch, furnish to the Administrative Agent any notice, report or demand sent or received in respect of a Pension Plan under ERISA.
 
(o)   Section 9.15 of the Credit Agreement is hereby amended and restated as follows.
 
 
9.15.             Reserved .
 
(p)   Clause (iii) of Section 10.2.1 of the Credit Agreement is hereby amended and restated in its entirety to read as follows:
 
 
(iii)           deposits or pledges made in connection with, or to secure payment of, workmen’s compensation, unemployment insurance, old age pensions or other social security obligations (other than any Lien imposed by ERISA) or to secure the performance of bids, trade contracts and leases (other than Indebtedness), statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred, in each case, in the ordinary course of business;
 
 
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(q)   Section 10.8 of the Credit Agreement is hereby amended and restated in its entirety to read as follows:
 
 
10.8             Subordinated Debt .  No Borrower will, nor will it permit any of its Subsidiaries to, amend, supplement or otherwise modify the terms of any of the Subordinated Debt or prepay, redeem or repurchase any of the Subordinated Debt, except that the Borrowers may prepay (a) $500,000 in the aggregate of the Seller Subordinated Debt on or before October 1, 2010, and (b) $1,500,000 in the aggregate of the Seller Subordinated Debt on or about March 13, 2013.
 
(r)   Section 10.9 of the Credit Agreement is hereby amended and restated in its entirety to read as follows:
 
 
10.9             Reserved .
 
(s)   Section 14.1(l) of the Credit Agreement is hereby amended and restated in its entirety to read as follows:
 
 
(l)           (i) An ERISA Event occurs with respect to a Pension Plan or Multiemployer Plan which has resulted or could reasonably be expected to result in liability of any Borrower under Title IV of ERISA to the Pension Plan, Multiemployer Plan or the PBGC in an aggregate amount in excess of the $175,000, or (ii) any Borrower or any ERISA Affiliate fails to pay when due, after the expiration of any applicable grace period, any installment payment with respect to its withdrawal liability under Section 4201 of ERISA under a Multiemployer Plan in an aggregate amount in excess of $50,000; or
 
(t)   Sections 11.1 and 11.2 of the Credit Agreement are hereby amended and restated in its entirety to read as follows:
 
 
11.1             Consolidated Adjusted Operating Cash Flow to Senior Debt Service .  The Borrowers will not permit the ratio of Consolidated Adjusted Operating Cash Flow (determined on a Pro Forma Basis, if applicable) for any Reference Period of the Borrowers ending on or after the Effective Date, to Consolidated Senior Debt Service (as determined on a Pro Forma Basis and/or annualized basis, if applicable) for such Reference Period, to be less than 1.25 to 1.00, determined as of the end of each fiscal quarter.
 
 
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11.2             Consolidated Adjusted Operating Cash Flow to Total Debt Service .  The Borrowers will not permit the ratio of Consolidated Adjusted Operating Cash Flow (determined on a Pro Forma Basis, if applicable) for any Reference Period of the Borrowers ending on or after the Effective Date, to Consolidated Total Debt Service (determined on a Pro Forma Basis and/or annualized basis, if applicable) for such Reference Period, to be less than 1.00 to 1.00, determined as of the end of each fiscal quarter.
 
(u)   The Credit Agreement is hereby further amended by (i) deleting Exhibit C in its entirety and by substituting therefor Exhibit C attached hereto, and (ii) deleting each of Schedule 8.3, Schedule 8.7, Schedule 8.15, Schedule 8.18, Schedule 8.19, Schedule 8.20, Schedule 10.1, Schedule 10.2 and Schedule 10.3 in their entirety and by substituting therefor the schedules attached hereto as Schedule 8.3, Schedule 8.7, Schedule 8.15, Schedule 8.18, Schedule 8.19, Schedule 8.20, Schedule 10.1, Schedule 10.2 and Schedule 10.3.
 
§6.   Expenses, Etc.   The Borrowers agree to pay to the Administrative Agent upon demand an amount equal to any and all out-of-pocket costs or expenses (including reasonable legal fees and disbursements) incurred or sustained by the Administrative Agent in connection with the preparation of this Agreement and related matters.
 
§7.   Third Amendment Fee.   In consideration of the agreement by Bank of America to enter into this Agreement and make the 2013 Term Loan, the Borrowers shall pay to the Administrative Agent for the account of Bank of America an upfront fee of $67,500 (the “ Third Amendment Fee ”). The Third Amendment Fee shall be deemed fully earned as of the Amendment Effective Date and shall be nonrefundable for any reason whatsoever.
 
§8.   Change of Address for Notices, Etc.   Notice is hereby given under Section 17.6 of the Credit Agreement changing the address of the Administrative Agent for notice purposes to Bank of America, N.A., CityPlace I, 185 Asylum Street, Mail Code: CT2-500-35-10, Hartford, Connecticut 06103, Attn: Matthew E. Hummel, Senior Vice President, Telephone No: (860) 952-7483, Telecopier No.: (212) 378-8568, with copy to: Robinson & Cole LLP, 280 Trumbull Street, Hartford, Connecticut 06103-3597, Attn: Michael F. Maglio, Esq., Telephone No.: (860) 275-8274, Telecopier No.: (860) 275-8299.
 
§9.   Miscellaneous Provisions .
 
(a)   This Agreement shall become effective among the parties hereto as of the Amendment Effective Date.  Until the Amendment Effective Date, the terms of the Credit Agreement prior to its amendment hereby shall remain in full force and effect.
 
(b)   Except as otherwise expressly provided by this Agreement, all of the respective terms, conditions and provisions of the Credit Agreement, the Notes and the other Loan Documents shall remain the same.  The Credit Agreement, as amended hereby, the Notes and the other Loan Documents shall continue in full force and effect, and this Agreement and the Credit Agreement shall be read and construed as one instrument.
 
 
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(c)   This Agreement is intended to take effect under, and shall be construed according to and governed by, the laws of the State of New York (excluding the laws applicable to conflicts or choice of law).
 
(d)   This Agreement may be executed in any number of counterparts, but all such counterparts shall together constitute but one instrument.  In making proof of this Agreement it shall not be necessary to produce or account for more than one counterpart signed by each party hereto by and against which enforcement hereof is sought.  A facsimile of an executed counterpart shall have the same effect as the original executed counterpart.
 
[Remainder of page intentionally blank; Signature Pages follow]
 
 
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IN WITNESS WHEREOF, each of the parties hereto have caused this Agreement to be executed in its name and behalf by its duly authorized officer as of the date first written above.
 
CRYSTAL ROCK HOLDINGS, INC.
 
  By:     /s/ Peter K. Baker
 
Name:
Peter K. Baker
 
Title:
Chief Executive Officer

 
CRYSTAL ROCK LLC
 
  By:     /s/ Peter K. Baker
 
Name:
Peter K. Baker
 
Title:
Manager and Chief Executive Officer
 

 
BANK OF AMERICA, N.A. , as Administrative Agent and Lender
 
   By:    /s/ Matthew E. Hummel
 
Name:
Matthew E. Hummel
                                                                                                            Title:       Senior Vice President
 
 


 


Exhibit 10.2

March 13, 2013


Bank of America, N.A.
777 Main Street
Hartford, Connecticut 06115

Henry E. Baker
1050 Buckingham Street
Waterbury, CT 06795
 
           Re:   Amendment of Subordinated Note

Ladies and Gentlemen:

Reference is made to (a) the [Second Amended and Restated] Subordinated Promissory Note dated April 5, 2010 in the original principal amount of [$3,088,889] $1,511,111 (the “ Subordinated Note ”) made by Crystal Rock Holdings, Inc., formerly known as Vermont Pure Holdings, Ltd. (“ Holdings ”) payable to the order of Henry E. Baker (the “ Payee ”), which Subordinated Note was collaterally assigned by the Payee to Bank of America, N.A. (the “ Bank ”) by the Allonge Endorsement to [Second Amended and Restated] Subordinated Promissory Note dated as of April 5, [2005] 2010, and (b) the Amended and Restated Subordination and Pledge Agreement dated as of April 5, 2010 (the “ Subordination Agreement ”) that is referred to in the Subordinated Note.  Capitalized terms used herein that are not defined herein have the meanings given to such terms in the Subordinated Note or the Subordination Agreement, as applicable.

In connection with the Third Amendment to the Credit Agreement, Holdings, the Payee, and the Bank have agreed, and do hereby agree, that by this agreement the Subordinated Note is hereby amended by deleting “October 5, 2015” from clause (iii) of the third paragraph of the Subordinated Notes and by substituting therefor the words “October 5, 2018”.

Except as otherwise expressly provided by this agreement, all of the respective terms and provisions of the Subordinated Note and the Subordination Agreement shall remain the same.  The Subordinated Note, as amended hereby, and the Subordination Agreement shall continue in full force and effect. This agreement and the Subordinated Note shall be read and construed as one instrument
 
This agreement is intended to take effect under, and shall be construed according to and governed by, the internal laws of the State of Connecticut (without reference to principles of conflicts or choice of law).
 
 
 

 
 
This agreement may be executed in any number of counterparts, but all such counterparts shall together constitute but one instrument.  A facsimile or other electronic transmission of an executed counterpart shall have the same effect as the original executed counterpart.


Very truly yours,

Crystal Rock Holdings, Inc.
(formerly known as Vermont Pure Holdings, Ltd.).


By /s/ Peter K. Baker
Name:  Peter K. Baker
Title:    Chief Executive Officer


Agreed to:


/s/ Henry E. Baker
Henry E. Baker


Bank of America, N.A.


By /s/ Matthew E. Hummel
Name: Matthew E. Hummel
Title: Senior Vice President
 
 


 


Exhibit 10.3

March 13, 2013


Bank of America, N.A.
777 Main Street
Hartford, Connecticut 06115

John B. [Peter K.] Baker
1050 Buckingham Street
Waterbury, CT 06795
 
           Re:   Amendment of Subordinated Note

Ladies and Gentlemen:

Reference is made to (a) the Second Amended and Restated Subordinated Promissory Note dated April 5, 2005 in the original principal amount of $4,700,000 (the “ Subordinated Note ”) made by Crystal Rock Holdings, Inc., formerly known as Vermont Pure Holdings, Ltd. (“ Holdings ”), payable to the order of John B. [Peter K.] Baker (the “ Payee ”), which Subordinated Note was collaterally assigned by the Payee to Bank of America, N.A. (the “ Bank ”) by the Allonge Endorsement to Second Amended and Restated Subordinated Promissory Note executed by the Payee, which Allonge Endorsement was dated April 5, 2005, and (b) the Subordination and Pledge Agreement dated as of April 5, 2005 (the “ Subordination Agreement ”) that is referred to in the Subordinated Note.  Capitalized terms used herein that are not defined herein have the meanings given to such terms in the Subordinated Note or the Subordination Agreement, as applicable.

In connection with the Third Amendment to the Credit Agreement, Holdings, the Payee, and the Bank have agreed, and do hereby agree, that by this agreement the Subordinated Note is hereby amended by deleting “October 5, 2015” from clause (iii) of the third paragraph of the Subordinated Note and by substituting therefor the words “October 5, 2018”.

Except as otherwise expressly provided by this agreement, all of the respective terms and provisions of the Subordinated Note and the Subordination Agreement shall remain the same.  The Subordinated Note, as amended hereby, and the Subordination Agreement shall continue in full force and effect. This agreement and the Subordinated Note shall be read and construed as one instrument.
 
This agreement is intended to take effect under, and shall be construed according to and governed by, the internal laws of the State of Connecticut (without reference to principles of conflicts or choice of law).  This agreement may be executed in any number of counterparts, but all such counterparts shall together constitute but one instrument.  A facsimile or other electronic transmission of an executed counterpart shall have the same effect as the original executed counterpart.
 
 
 

 

Very truly yours,

Crystal Rock Holdings, Inc. (formerly known as Vermont Pure Holdings, Ltd.)


By   /s/ Peter K. Baker
Name:  Peter K. Baker
Title:    Chief Executive Officer


Agreed to:


/s/ John B. [Peter K.] Baker
John B. [Peter K.] Baker


Bank of America, N.A.


By /s/ Matthew E. Hummel
Name: Matthew E. Hummel
Title: Senior Vice President
 
 


 


Exhibit 10. 4

SECOND AMENDED AND RESTATED TERM NOTE
 
 
$11,000,000.00                                                                                  March 13, 2013
 
FOR VALUE RECEIVED , the undersigned CRYSTAL ROCK HOLDINGS, INC., a Delaware corporation, formerly known as Vermont Pure Holdings, Ltd. (“ Holdings ”), individually and as successor by merger to its former Subsidiary, Crystal Rock Holdings, Inc., a Delaware corporation (“ CRH ”), and CRYSTAL ROCK LLC, a Delaware limited liability company (“ Crystal Rock LLC ”, and together with Holdings collectively, the “ Borrowers ”), hereby jointly and severally promise to pay to the order of BANK OF AMERICA, N.A. (the “ Lender ”) at the Administrative Agent’s Office (as such term is defined in the Credit Agreement referred to below):
 
(a)           prior to or on the Term Loan Maturity Date the principal amount of ELEVEN MILLION and 00/100 Dollars ($11,000,000.00) or, if less, the aggregate unpaid principal amount of the Term Loan advanced by the Lender to the Borrowers pursuant to the Amended and Restated Credit Agreement, dated as of April 5, 2010 (as amended and in effect from time to time, the “ Credit Agreement ”), by and among the Borrowers, CRH, the Administrative Agent, the Lender and the other parties thereto, which amends and restates that certain Credit Agreement, dated as of April 5, 2005, as amended, by and among Holdings, Crystal Rock LLC, the Administrative Agent and the lenders party thereto;
 
(b)           the principal outstanding hereunder from time to time at the times provided in the Credit Agreement; and
 
(c)           interest on the principal balance hereof from time to time outstanding from the date hereof through and including the Term Loan Maturity Date at the rates and terms and in all cases in accordance with the terms of the Credit Agreement.
 
This Note evidences borrowings under and has been issued by the Borrowers in accordance with the terms of the Credit Agreement.  The Lender and any holder hereof is entitled to the benefits of the Credit Agreement, the Security Documents and the other Loan Documents, and may enforce the agreements of the Borrowers contained therein, and any holder hereof may exercise the respective remedies provided for thereby or otherwise available in respect thereof, all in accordance with the respective terms thereof.  All capitalized terms used in this Note and not otherwise defined herein shall have the same meanings herein as in the Credit Agreement.
 
This Note amends and restates that certain Amended and Restated Term Note dated April 5, 2010 in the original principal amount of $15,500,000.00 executed and delivered by Borrowers and CRH to the Lender (the “ Prior Note ”).  This Note is executed and delivered in substitution for, but not in satisfaction of, the Prior Note.
 
The Borrowers irrevocably authorize the Lender to make or cause to be made, at or about the time of the Drawdown Date of the Term Loan or at the time of receipt of any payment of principal of this Note, an appropriate notation on the grid attached to this Note, or the continuation of such grid, or any other similar record, including computer records, reflecting the making of the Term Loan or (as the case may be) the receipt of such payment.  The outstanding amount of the Term Loan set forth on the grid attached to this Note, or the continuation of such grid, or any other similar record, including computer records, maintained by the Lender with respect to the Term Loan shall be prima facie evidence of the principal amount thereof owing and unpaid to the Lender, but the failure to record, or any error in so recording, any such amount on any such grid, continuation or other record shall not limit or otherwise affect the obligation of the Borrowers hereunder or under the Credit Agreement to make payments of principal of and interest on this Note when due.
 
 
 

 
 
The Borrowers have the right in certain circumstances and the obligation under certain other circumstances to prepay the whole or part of the principal of this Note on the terms and conditions specified in the Credit Agreement.
 
If any one or more of the Events of Default shall occur, the entire unpaid principal amount of this Note and all of the unpaid interest accrued thereon may become or be declared due and payable in the manner and with the effect provided in the Credit Agreement.
 
No delay or omission on the part of the Lender or any holder hereof in exercising any right hereunder shall operate as a waiver of such right or of any other rights of the Lender or such holder, nor shall any delay, omission or waiver on any one occasion be deemed a bar or waiver of the same or any other right on any future occasion.
 
The Borrowers and every endorser and guarantor of this Note or the obligation represented hereby waives presentment, demand, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note, and assents to any extension or postponement of the time of payment or any other indulgence, to any substitution, exchange or release of collateral and to the addition or release of any other party or person primarily or secondarily liable.
 
THIS NOTE AND THE OBLIGATIONS OF THE BORROWERS HEREUNDER SHALL FOR ALL PURPOSES BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OF LAW).  EACH OF THE BORROWERS AND THE LENDER AGREES THAT ANY SUIT FOR THE ENFORCEMENT OF THIS NOTE MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR ANY FEDERAL COURT SITTING THEREIN AND CONSENTS TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURT AND THE SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON THE BORROWERS AND THE LENDER BY MAIL AT THE ADDRESS SPECIFIED IN §17.6 OF THE CREDIT AGREEMENT.  EACH OF THE BORROWERS AND THE LENDER HEREBY WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN INCONVENIENT COURT.
 
 
 

 
 
EACH OF THE BORROWERS HEREBY REPRESENTS, COVENANTS AND AGREES THAT THE PROCEEDS OF THE TERM LOAN SHALL BE USED FOR GENERAL COMMERCIAL PURPOSES AND THAT THIS NOTE IS PART OF A “COMMERCIAL TRANSACTION” AS DEFINED BY THE STATUTES OF THE STATE OF CONNECTICUT.  EACH OF THE BORROWERS HEREBY WAIVES ALL RIGHTS TO NOTICE AND PRIOR COURT HEARING OR COURT ORDER UNDER CONNECTICUT GENERAL STATUTES SECTIONS 52-278a ET. SEQ. AS AMENDED OR UNDER ANY OTHER STATE OR FEDERAL LAW WITH RESPECT TO ANY AND ALL PREJUDGMENT REMEDIES THE ADMINISTRATIVE AGENT OR THE LENDER MAY EMPLOY TO ENFORCE THEIR RIGHTS AND REMEDIES HEREUNDER AND UNDER THE OTHER LOAN DOCUMENTS.  MORE SPECIFICALLY, EACH OF THE BORROWERS ACKNOWLEDGES THAT THE ADMINISTRATIVE AGENT’S ATTORNEY AND/OR THE LENDER’S ATTORNEY MAY, PURSUANT TO CONNECTICUT GENERAL STATUES, SECTION 52-278f, ISSUE A WRIT FOR A PREJUDGMENT REMEDY WITHOUT SECURING A COURT ORDER.  EACH OF THE BORROWERS ACKNOWLEDGES AND RESERVES ITS RIGHT TO NOTICE AND A HEARING SUBSEQUENT TO THE ISSUANCE OF A WRIT FOR PREJUDGMENT REMEDY AS AFORESAID AND THE LENDER ACKNOWLEDGES THE BORROWERS’ RIGHT TO SAID HEARING SUBSEQUENT TO THE ISSUANCE OF SAID WRIT.  EACH OF THE BORROWERS FURTHER WAIVES ITS RIGHTS TO REQUEST THAT THE ADMINISTRATIVE AGENT OR THE LENDER POST A BOND, WITH OR WITHOUT SURETY, TO PROTECT BORROWERS AGAINST DAMAGES THAT MAY BE CAUSED BY ANY PREJUDGMENT REMEDY SOUGHT OR OBTAINED BY THE ADMINISTRATIVE AGENT OR THE LENDER.
 

[Remainder of page intentionally left blank; next page is signature page.]
 
 
 

 

 
IN WITNESS WHEREOF , each of the undersigned has caused this Note to be signed by its duly authorized officer as of the day and year first above written.
 
CRYSTAL ROCK HOLDINGS, INC.
 
By:     /s/ Peter K. Baker
Name: Peter K. Baker
Title: Chief Executive Officer

 
CRYSTAL ROCK LLC
 
By: /s/ Peter K. Baker
Name: Peter K. Baker
Title: Chief Executive Officer
 
 


 


  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 quarterly report on Form 10-Q of Crystal Rock Holdings, Inc.;
 
 
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 officer 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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) Designed such internal control over financial reporting, or cause such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
 
 
c) 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
 
 
 
d) 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 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 the 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: March 18, 2013                                                            /s/ Peter K. Baker
                                                                Peter K. Baker, Chief Executive Officer
 
 


 


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 quarterly report on Form 10-Q of Crystal Rock Holdings, Inc.;
 
 
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 officer 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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) Designed such internal control over financial reporting, or cause such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
 
 
c) 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
 
 
 
d) 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 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 the 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: March 18, 2013                                                                            /s/ Bruce S. MacDonald
Bruce S. MacDonald, Chief Financial Officer
 
 


 


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 Quarterly Report on Form 10-Q of Crystal Rock Holdings, Inc. (the “Company”) for the quarter ended January 31, 2013, 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: March 18, 2013
 
 


 


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 Quarterly Report on Form 10-Q of Crystal Rock Holdings, Inc. (the “Company”) for the quarter ended January 31, 2013, 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: March 18, 2013