<PAGE>
As filed with the Securities and Exchange Commission on December 8, 1998
SEC Registration No. 33-________
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U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
ELDORADO ARTESIAN SPRINGS, INC.
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(Name of small business issuer in its charter)
Colorado 2086 84-0907853
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(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
P.O. Box 445, Eldorado Springs, Colorado 80025 (303)499-1316
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(Address and telephone number of principal executive
offices and principal place of business)
Douglas A. Larson
Eldorado Artesian Springs, Inc.
P.O. Box 445
Eldorado Springs, Colorado 80025
(303) 499-1316
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(Name, address and telephone number of agent for service)
Copies to:
----------
Laurie P. Glasscock, Esq. Peter B. Shaeffer
Chrisman, Bynum & Johnson, P.C. Suite 1424
1900 Fifteenth Street 135 South LaSalle Street
Boulder, CO 80302 Chicago, IL 60603
(303) 546-1300 (312) 782-5306
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Approximate date of proposed sale to the public:
As soon as practicable after the Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] _______
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ] ----------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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<S> <C> <C> <C> <C>
Title of each class of Amount to be Proposed maximum Proposed maximum Amount of
securities to be registered offering price aggregate registration fee
registered per share offering price
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Common Stock, 805,000 shares /1/ $6.00 /2/ $4,830,000 $1,342.74
$0.001 par value
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</TABLE>
/1/ Includes 105,000 shares issuable upon exercise of the Underwriter's
over-allotment option.
/2/ The proposed maximum offering price per share and the proposed maximum
aggregate offering price are calculated solely for the purpose of
determining the registration fee pursuant to Rule 457 under the Securities
Act of 1933. These amounts are determined using a price of $6.00 per share
which represents the low end of the range of prices to be determined by the
Company and the underwriter prior to the offering. The trading market for
the Company's common stock is very sporadic.
<PAGE>
ELDORADO ARTESIAN SPRINGS, INC.
700,000 SHARES OF COMMON STOCK
Expected Offering Price.....$6.00 to $7.00 per share
Proposed Trading Symbol NASDAQ
SmallCap Market............................. "ELDO"
<TABLE>
<CAPTION>
THE OFFERING Per Share Total/(3)/
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<S> <C> <C>
Public Price $6.00 $4,200,000
Underwriting discounts/(1)/ $0.60 $420,000
Proceeds to Eldorado/(2)/ $5.40 $3,780,000
(before expenses)
</TABLE>
(1) In addition, the Underwriter will receive: (a) a non-accountable expense
allowance of 3% of the gross proceeds from this offering of the shares; (2) an
Underwriter's Warrant to purchase 70,000 shares based upon 10% of the shares
sold in the public offering at a price of 120% of the public offering price of
the shares and (c) certain other compensation, all as more particularly
described in "Underwriting".
(2) Before deducting expenses payable by Eldorado, estimated at $194,000,
excluding the Underwriter's non-accountable expense allowance.
(3) Eldorado has granted to the Underwriter an option, exercisable within 30
days after the date hereof, to purchase up to 105,000 additional shares of
common stock solely to cover over-allotment, if any. If such option is
exercised in full, the Public Price, Underwriting Discount and Proceeds to
Eldorado at the offering price of $6.00 per share would be $4,830,000, $483,000
and $4,008,100, respectively. See "Underwriting".
Eldorado bottles and markets natural artesian spring water from a natural spring
located in the foothills of the Colorado Rocky Mountains. Prior to this
offering, Eldorado common stock has traded on a very limited basis on the NASDAQ
Bulletin Board. Upon completion of this offering, we anticipate that the
securities will trade on the NASDAQ SmallCap Market.
See "Underwriting" for more information relating to the determination of the
offering price.
--------------------------
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK AND POSSIBILITY OF
SUBSTANTIAL DILUTION. WE STRONGLY URGE YOU TO READ THE ENTIRE PROSPECTUS
AND TO CONSIDER"RISK FACTORS" BEGINNING ON PAGE 7 AND "DILUTION" BEGINNING
ON PAGE 14, BEFORE MAKING ANY INVESTMENT DECISIONS.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary
is a criminal offense.
--------------------------
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. ELDORADO
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE
THE OFFER OR SOLICITATION IS NOT PERMITTED.
--------------------------
Mills Financial Services, Inc.
Mills Financial Services, Inc. will underwrite the securities on a "firm
commitment" basis, subject to its acceptance of the common stock and certain
other conditions and legal matters. We expect that delivery of the common stock
will be made against payment in ______________________, on or about ______,
1999. The underwriter will receive an option, exercisable within 30 days after
the date of this prospectus, to purchase up to 105,000 additional shares of
common stock solely to cover an over-allotment.
--------------------------
The date of this prospectus is ________, 1999
<PAGE>
TABLE OF CONTENTS
PAGE
----
Prospectus Summary.................................................... 5
Eldorado Artesian Springs........................................ 5
The Offering..................................................... 5
Summary Financial and Operating
Information................................................. 6
Risk Factors.......................................................... 7
Use of Proceeds....................................................... 13
Dividend Policy....................................................... 13
Determination of the Offering Price................................... 14
Dilution.............................................................. 14
Capitalization........................................................ 15
Management Discussion and Analysis of
Results of Operations and Financial
Condition........................................................ 16
Eldorado and its Business............................................. 19
Management............................................................ 26
Principal Stockholders................................................ 29
Certain Transactions and Related
Transactions..................................................... 29
Legal Proceedings..................................................... 29
History of Securities Placements...................................... 29
Description of Securities............................................. 30
Shares Eligible for Future Sale....................................... 31
Underwriting.......................................................... 33
Commission Position on Indemnification for
Securities Act Liabilities....................................... 35
Legal Matters......................................................... 35
Experts............................................................... 35
Additional Information................................................ 36
Index to Financial Statements......................................... F-1
2
<PAGE>
PROSPECTUS SUMMARY
This summary highlights some of the information in this prospectus. We
strongly urge you to read the entire prospectus which contains more detailed
information and financial statements. All information in this prospectus, unless
otherwise indicated, assumes no exercise of any outstanding options or warrants.
All references to shares of common stock described in this prospectus have been
adjusted to give effect to a twelve (12) for one (1) reverse stock split that
was effective April 1, 1998.
ELDORADO ARTESIAN SPRINGS
Eldorado Artesian Springs, Inc. ("Eldorado") is a Colorado based-company
primarily engaged in the bottling and marketing of "natural" artesian spring
water. Over 90 years ago, the artesian springs were the center of the Eldorado
Springs Resort where prominent people of the day traveled to "take the waters".
Today, the springs, located in the foothills of the Colorado Rocky Mountains,
are surrounded by thousands of acres of state and city park land, assuring a
well protected source.
Eldorado Springs meets the definition of an "extraordinary springs" as
described in H2O - The Guide to Quality Bottled Water because they emanate from
one of the most unique geological sources in the world. The water is naturally
purified as it rises through layers of sandstone under its own artesian
pressure. The water is bottled at the source in its natural state and is not
chemically treated water in any way. Currently, Eldorado's operations consist of
a home/commercial delivery business and a polyethylene terephtalate, a premium
clear plastic ("PET") consumer business sold to retail grocers.
Beverage industry analysts reveal that bottled water is the fastest growing
major category in the entire industry. The bottled water industry as a whole is
a $3.9 billion business and is currently growing at a rate of 9% to 10% per
year. This growth is attributable to healthier lifestyles and questionable
municipal water services. The PET segment of the bottled water industry is
currently a $930 million business and is growing at a much faster rate-an
estimated 20% to 30% per year-than the industry as a whole. Analysts expect just
the PET segment of the industry to reach $3 billion in wholesale sales over the
next ten years, which is an indicated rate of growth of 17% annually.
Eldorado has been successful in packaging its water in consumer PET sizes
for sale through retail grocery stores in the Denver metropolitan area. The
Company's growth strategy consists of four phases targeted to expand the
distribution of the retail PET products to regional and national markets: (1)
acquisition of additional water rights, (2) increasing sales to existing
customers, (3) broadening the current customer base and (4) establishing
distribution alliances with other companies in order to take advantage of their
established distribution networks.
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Securities Offered.................. 700,000 shares of common stock to be issued and sold by Eldorado
Common Stock Outstanding
Before Offering.............. 2,995,495/1/
Common Stock To Be Outstanding
After Offering............... 3,695,495/1/
Use of Proceeds..................... Acquisition of water rights, expansion of facilities, marketing
programs and general working capital purposes
</TABLE>
3
<PAGE>
Proposed NASDAQ symbol/2/.............. ELDO
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/1/ Unless otherwise indicated, references in this prospectus to Common Stock
Outstanding Before and After this offering do not include (i) issuance of
up to 70,000 shares of common stock issuable upon exercise of the
Underwriter's Warrant (80,500 shares if the over allotment option is
exercised); (ii) 875,000 shares reserved for issuance under Eldorado's 1997
Stock Option Plan; and (iii) up to 280,000 shares of common stock issuable
upon exercise of certain Private Placement Warrants as described below. See
"Description of Securities" for a description of securities issued in
connection with certain prior financings.
/2/ Symbols do not imply that a meaningful or sustained trading market for the
securities will develop.
SUMMARY FINANCIAL AND OPERATING INFORMATION
The following table highlights some of the financial and operating
information of Eldorado. More detailed financial and operating information can
be found in the financial statements included as part of this prospectus. See
"Financial Statements."
<TABLE>
<CAPTION>
AS OF AND FOR THE AS OF AND FOR
YEAR ENDED SIX MONTHS ENDED
MARCH 31 SEPTEMBER 30/1//2/
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1996 1997 1998 1997 1998
----------------------------------------- -----------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Statement of earnings data:
Total revenues.............. $2,140,629 $2,644,521 $3,329,444 $1,687,171 $2,019,802
Total expenses.............. 1,923,849 2,346,999 3,069,859 1,458,437 1,876,412
Earnings before taxes....... 96,481 187,214 117,631 160,920 79,389
Net income.................. 73,327 124,152 83,228 128,372 61,543
Earnings per share............. .03 .05 .03 .05 .02
Number of shares outstanding /2/ 2,695,412 2,695,412 2,695,495 2,695,495 2,995,495
Balance Sheet Data:
Total assets................ 1,781,763 2,024,414 2,456,721 2,424,157 3,190,270
Total liabilities........... 1,438,223 1,556,722 1,905,801 1,828,094 1,887,726
Stockholder's equity........ 343,540 467,692 550,920 596,063 1,302,544
</TABLE>
- ----------------------------
/1/ This prospectus contains unaudited financial statements for the six months
ended September 30, 1997 and 1998 (See "Financial Statements").
/2/ Adjusted to give effect to a twelve (12) for one (1) reverse stock split
that was effective April 1, 1998.
4
<PAGE>
RISK FACTORS
This investment involves a high degree of risk. You should carefully
consider, among other things, the following risk factors before making an
investment decision.
GENERAL BUSINESS RISKS
WATER SUPPLY
The District Court, Water Division No. 1 originally decreed Eldorado's
existing water rights on July 11, 1973. Eldorado has the right to beneficially
use all of the water emanating from its points of diversion in accordance with
its decree unless a more senior call occurs on the water. Of the approximate 105
million gallon total physical flow of the springs, Eldorado's current legal
augmented supply of water is 7,820,424 gallons per year while its current
annualized use is 3,209,700 gallons per year. Eldorado's water rights priority
dates, ranging from December 1960 to December 1901, are relatively junior to
other water rights in the South Boulder Creek and South Platte Basins. A senior
call might occur in the winter or when runoff is insufficient to meet the water
needs of more senior water users below Eldorado Springs.
For many years Eldorado has enrolled its water rights in a substitute
supply plan approved by the State Engineer each year. This substitute supply
plan effectively insulates Eldorado's water rights from calls of senior water
rights owners. Although the State Engineer has approved the substitute supply
plan during every year that Eldorado has owned the water rights, the State
Engineer may not continue to do so in the future. Accordingly, management has
taken steps to acquire a water source to replace out-of-priority depletions
attributable to Eldorado's water rights. After sufficient augmentation water has
been acquired, Eldorado will then seek judicial approval of a permanent plan for
augmentation that will also insulate Eldorado's water rights from the calls of
senior water rights owners.
This plan for augmentation will be permanent and will not be subject to the
uncertainties of year-to-year approval as are substitute supply plans approved
by the State Engineer. Management is currently in negotiations to acquire
augmentation water. Based on the progress of current negotiations it appears
likely that management will soon acquire a source of augmentation water and
operational agreements that will allow it to obtain court approval of a
permanent augmentation plan. If Eldorado fails to obtain approval of a permanent
plan for augmentation it will continue to need to seek approval from the State
Engineer for the substitute supply. If the State Engineer denies approval, it
could harm our financial condition and results of operations and hinder our
ability to implement our business plan.
COMPETITION
The bottled water industry is highly competitive. There are numerous
competitors in most major markets, and differentiation among them can be
difficult since the product is often perceived as generic by consumers. Barriers
to entry may be low at certain local levels but increase significantly at the
national and international level because of large marketing and distribution
costs associated with obtaining and maintaining a presence at such distribution
levels.
At the current level of distribution, Eldorado competes on the basis of
customer service, product quality and price. Management believes that our
products have a superior taste, competitive pricing and attractive packaging
which are significant factors in maintaining Eldorado's current competitive
position. However, these factors may not permit Eldorado to be competitive as it
seeks to expand its domestic distribution area and to initiate foreign
distribution of its bottled water. Our competitors domestically and
internationally include more diversified corporations having substantially
greater assets and larger sales organizations than Eldorado, as well as other
small firms.
5
<PAGE>
CHANGES IN CONSUMER PREFERENCES
Eldorado believes that the most important factor in the growth of natural
spring water products has been a change in consumer preferences. Consumer
preferences may be influenced, however, by the availability and appeal of
alternative beverages or packaging as well as general economic conditions, among
other things. Consumer demand for natural spring water may not continue to grow
or may diminish in the future.
SEASONALITY OF BUSINESS
Eldorado's business is mildly seasonal, with increased sales during summer
months. An average of 30% of Eldorado's net revenues occur during June, July and
August. Inclement weather may negatively impact Eldorado's business,
particularly summers which are unusually cool or rainy. However, Eldorado
expects concurrent sales into different geographic markets with varying seasons
will moderate the seasonality of the business.
ADDITIONAL CAPITAL REQUIREMENTS; UNCERTAINTY OF ADDITIONAL FUNDING
Based on management's current operating plan, Eldorado anticipates that our
existing capital resources together with the proceeds of this offering will be
adequate to satisfy our capital requirements for at least 12 months from the
date of this offering. Eldorado may subsequently require further capital in
order to expand our business. Historically, Eldorado has utilized debt
financing. Additional financing, if any, may be either equity, debt or a
combination of debt and equity. Any equity financing could dilute Eldorado's net
tangible book value per share of common stock. Eldorado cannot assure that we
will be able to secure additional debt or equity financing on favorable terms.
If we are unable to obtain additional needed financing, we may be unable to meet
our obligations and to maintain or expand our operations as desired. See
"Business" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
GOVERNMENTAL REGULATION
Eldorado's bottling operations are subject to several new regulations
designed to protect the environment and the quality of Eldorado's bottled water,
including the identity, quality, packaging and labeling of its bottled water.
Various state and federal regulations, designed to ensure the quality of the
water and the truthfulness of our marketing claims, require Eldorado to monitor
each aspect of our production process, including our water source, bottling
operations and packaging and labeling practices. Government regulations in
foreign jurisdictions are generally similar to, and in certain respects more
stringent than U.S. regulations. These laws and regulations and their
interpretation and enforcement are subject to change.
Eldorado cannot guarantee that our operations will not be subject to
additional or more stringent requirements in the future. If Eldorado fails to
comply with applicable laws and regulations, we could face fines, a temporary
shutdown of production, product recalls, loss of certification to market our
products or, even in the absence of governmental action, loss of revenue as a
result of adverse market reaction to negative publicity. Any of these
consequences could significantly and negatively impact our results of operations
and financial condition.
SUCCESS DEPENDENT ON OFFICERS AND KEY EMPLOYEES
The success of Eldorado depends on the services and active participation of
our officers and key employees. The loss of such services could adversely affect
Eldorado's business and the likelihood of profitable operations. Eldorado has
$250,000 of key man life insurance on Messrs. Larson and Sipple and $180,000 of
key man life insurance on Mr. Martin.
6
<PAGE>
Eldorado cannot assure that we will be able to attract and retain
additional qualified personnel that may be needed.
DEPENDENCE ON KEY SUPPLIERS
The majority of Eldorado's natural spring water products are offered in
premium PET bottles. PET bottles are manufactured by a limited number of
suppliers. While Eldorado believes that its relationships with its suppliers are
good, we cannot assure that we will be able to obtain PET bottles from suppliers
on commercially reasonable terms, particularly at periods of peak demand.
Failure to obtain the necessary packaging materials for our products could have
a material adverse effect on our results of operations and financial position.
LIMITED ABILITY TO RAISE PRICES
Due to the wide range of beverages available to consumers, including
bottled water products, Eldorado has limited ability to raise prices for our
products. From time to time, Eldorado has been affected by higher prices for raw
materials, including PET resin and corrugated boxes. In the past, Eldorado
generally has not passed such higher costs on to our customers and we generally
would be unlikely to do so in connection with any future price increases. As a
result, Eldorado's future profitability may be adversely affected by future
increases in raw material prices.
POTENTIAL FOR PRODUCT LIABILITY
The bottling and distribution of bottled water products entails a risk of
product liability, including liability due to the presence of harmful
contaminants in products. Eldorado maintains insurance coverage against the risk
of products liability and product recall. However, the amount of the insurance
we carry is limited and the policies are subject to certain exclusions and may
or may not be adequate. In addition to direct losses, Eldorado may suffer
adverse publicity and damage to our reputation in the event of contamination
which could damage sales and profitability.
LACK OF INVENTORY
Eldorado maintains a limited amount of finished product inventory. If an
event caused our facilities to shut down, even for a short period, we would be
unable to fill customer orders which could substantially reduce revenues and
damage customer relations.
DISASTER PLAN
In the event of a disaster, fire, flood, or other disaster, Eldorado has
made arrangements to have bulk artesian spring water delivered to Denver area
bottled water companies in order to continue production of all sizes currently
produced at our facility. We cannot guarantee that these companies will be able
to meet the requirements of production.
RISKS RELATING TO REGISTRATION RIGHTS OF CERTAIN SHAREHOLDERS AND WARRANT
HOLDERS
During fiscal 1998, Eldorado issued 300,000 shares of restricted common
stock and warrants to purchase 30,000 shares at $3.30 and 250,000 shares at
$11.00 per share. The subsequent sales of these shares could have a depressive
effect upon the public market price for the securities in this offering. The
shares underlying the warrants have certain registration rights that allow the
holders to require Eldorado to register the shares one time and to "piggy-back"
the shares in another public offering by Eldorado. See "Description of
Securities" and "Shares Eligible for Future Sale."
7
<PAGE>
DILUTION
At September 30, 1998, after giving effect to a 12 for 1 reverse stock
split, Eldorado had net tangible book value of $1,277,045 or $0.43 per share
based upon 2,995,495 shares of common stock outstanding. Net tangible book value
per share is determined by dividing the number of outstanding shares of common
stock into net tangible book value (total assets less total liabilities and
intangible assets). After giving effect to the receipt of the net proceeds from
this offering, the adjusted net tangible book value at September 30, 1998, would
have been $4,737,045 or $1.28 per share. This represents an immediate increase
of $0.85 per share to current shareholders and an immediate dilution of $4.72
per share or 78.7% to the investors in this offering.
FORWARD-LOOKING INFORMATION AND ASSOCIATED RISKS
This prospectus contains forward-looking statements, including statements
regarding, among other things, our growth strategy, anticipated trends in the
industry in which we operate, water availability, and our ability to enter into
contracts with distributors. These forward-looking statements are based largely
on Eldorado's expectations and are subject to a number of risks and
uncertainties, many of which are beyond our control. Actual results could differ
materially from these forward-looking statements as a result of the factors
described in this prospectus, including, among others, regulatory or economic
influences. In light of these risks and uncertainties, we cannot assure that the
forward-looking statements in this prospectus will in fact transpire or prove to
be accurate.
DIVIDEND POLICY
Eldorado does not contemplate or anticipate paying any dividends upon
shares of common stock in the foreseeable future. We anticipate that earnings,
if any, will be used to finance business expansion.
NATURE OF EXISTING MARKET FOR PUBLIC SHARES OF ELDORADO
There is an extremely limited and very sporadic public market for
Eldorado's common stock available for sale without registration or exempt from
registration. Although Eldorado is and intends to remain current in our required
filings with the Securities and Exchange Commission, we cannot assure that a
public market of depth and liquidity will develop or, if developed, will be
maintained.
POTENTIAL EXPENSES ARISING FROM INDEMNIFICATION OF OFFICERS AND DIRECTORS
Eldorado's Articles of Incorporation and Bylaws provide for indemnification
of current or former directors and officers, or of any person who may serve at
our request as a director or officer of another corporation in which we own
securities or are a creditor. These provisions eliminate, with certain
exceptions, the personal liability of these individuals to Eldorado and our
stockholders for monetary damages as a result of a breach of fiduciary duty.
This makes it more difficult to assert a claim and obtain damages arising out of
a breach of fiduciary duty. Eldorado will indemnify these persons against
reasonable costs and expenses incurred in connection with any action, suit or
proceeding to which they were made a party by reason of their position as a
director or officer. Eldorado will not be required to indemnify, however, any
officers or directors found liable for negligence or misconduct in his or her
corporate duties. As of the date of this prospectus, Eldorado is not aware of
any existing or pending litigation involving a director or officer requiring
indemnification by Eldorado. To the extent Eldorado is required to expend funds
to indemnify officers and directors, it could negatively impact our financial
condition.
8
<PAGE>
Notwithstanding these indemnification provisions, in the opinion of the
Securities and Exchange Commission, indemnification for liabilities arising
under the Securities Act is against public policy and is therefore
unenforceable. See "Commission Position on Indemnification for Securities Act
Liabilities."
ARBITRARY DETERMINATION OF OFFERING PRICE
The public offering price of the securities has been arbitrarily determined
by negotiations between Eldorado and the underwriter and was not based on the
price of transactions in the limited and sporadic public market for Eldorado's
common stock. In particular, Eldorado believes the offering price is higher than
the price of the last public transaction of which Eldorado is aware. Among the
factors considered in determining the offering price were Eldorado's financial
condition and prospects, market prices of similar securities of comparable
publicly traded companies, certain financial and operating information of
similar businesses and the general condition of the securities market. The
offering price does not necessarily bear any relationship to Eldorado's assets,
book value, earnings, or any other established criterion of value. See
"Underwriting."
STOCK OPTION PLAN
Eldorado has reserved and has filed a registration statement on Form S-8 to
register 875,000 shares of our common stock for issuance upon exercise of stock
options pursuant to our Stock Option Plan. As of September 30, 1998, we have
granted 345,500 options under the Plan at $2.75 per share. Of that amount,
113,500 vested immediately. Exercise of outstanding stock options will reduce
the percentage of common stock held by the public stockholders and thus dilute
the market value for those shares. Furthermore, Eldorado may find it more
difficult to obtain additional capital during the life of the stock options on
favorable terms because the holders of the stock options would likely exercise
their options if Eldorado were able to obtain equity capital on terms more
favorable than those in the stock options. See "Management-Stock Option Plan."
POSSIBLE RESALES UNDER RULE 144
After the consummation of the offering, 2,707,404 shares of common stock
held by our present stockholders will not have been registered under the Act,
but may, under certain circumstances, be available for public sale by means of
ordinary brokerage transactions in the open market if sold according to Rule
144, promulgated under the Act. In general, under Rule 144, a person (or persons
whose shares are aggregated) who has satisfied a one-year holding period may,
under certain circumstances, sell within any three-month period a number of
securities which cannot exceed the greater of: (1) 1% of the then outstanding
shares of common stock, or (2) the average weekly trading volume of the class
during the four calendar weeks prior to the sale. Rule 144 also permits, under
certain circumstances, the sale of securities, without any limitation, by a
person who is not an affiliate of Eldorado and who has held his or her shares
for at least two years.
9
<PAGE>
The possibility of a sale under Rule 144 may reduce the market price of
Eldorado's securities. In addition, warrant holders, the holders of shares
issuable upon exercise of stock options granted pursuant to the Stock Option
Plan and shares issued with respect to a private placement completed in 1998,
have certain registration rights under the Act, which would permit the future
public sale of the underlying shares of common stock. See "Shares Eligible for
Future Sale."
LACK OF UNDERWRITING HISTORY
Mills Financial Services, Inc., the underwriter of the securities, has
previously participated as an underwriter on a firm commitment basis in one
initial public offering completed in 1998. Investors should consider the limited
experience of Mills Financial Services, Inc. in evaluating an investment in the
common stock. See "Underwriting."
YEAR 2000 COMPLIANCE
Many existing computer systems and applications, and other control devices,
use only two digits to identify a year in the date code field, and were not
designed to account for the upcoming change in the century. As a result, such
systems and applications could fail or create erroneous results unless corrected
so that they can process data related to the year 2000. Eldorado relies on
computer systems, applications and devices in operating and monitoring major
aspects of our business, including financial systems (such as general ledger,
accounts payable and accounts receivable modules), inventory, customer services,
infrastructure, embedded computer chips, networks and telecommunications
equipment and end products. We also rely, directly and indirectly, on systems of
external business enterprises such as distributors, suppliers, creditors,
financial organizations, and of governmental entities, for accurate exchange of
data.
Eldorado is aware of the issues associated with the programming code in
existing computer systems as the millennium approaches and is the process of
developing and finalizing plans to address the Year 2000 issue. Eldorado
presently believes that the Year 2000 problem will not pose significant
operational problems for us after we upgrade existing software and possibly
replace some software. However, if the upgrades and replacement software are not
completed timely or effectively, the Year 2000 problem could have a material
impact on our operations. Eldorado could also be affected through disruptions in
sales or business operations due to the inability of our customers and suppliers
to timely address the Year 2000 problem. Management expects to incur internal
staff and external consulting costs in addition to the costs of software
upgrades and replacement. However, until our plans for Year 2000 compliance are
finalized, we are unable to reasonably estimate the total cost of Year 2000
compliance or of the related potential effect on Eldorado's operations or on our
suppliers and customers.
10
<PAGE>
USE OF PROCEEDS
The net proceeds to Eldorado from the sale of the shares offered in this
prospectus will be $3,460,000, assuming a per share offering price of $6.00 and
deducting underwriting discounts, the underwriter's non-accountable expense
allowance and other expenses of the offering estimated at $740,000. If the
underwriter exercises its overallotment option in full, the expenses of the
offering will be approximately $822,000 and Eldorado's net proceeds from this
offering will be $4,008,000. Management anticipates that the net proceeds of
this offering will be applied with the following priority during the next twelve
month period:
<TABLE>
<CAPTION>
APPROXIMATE DOLLAR
DESCRIPTION AMOUNT
- -------------------------------------------------------- ----------------------
<S> <C>
Water Rights/1/........................................ $ 680,000
Plastics Molding Facility/2/........................... 600,000
Molds/2/.............................................. 150,000
Additional Facilities & Improvements/3/................. 600,000
Marketing/4/.......................................... 1,250,000
Additional Working Capital/5/.......................... 180,000
----------------------
TOTAL $3,460,000
</TABLE>
- -------------------------------
/1/ The principal goal of Eldorado's water rights augmentation program is
to acquire additional water rights in order to provide for anticipated
growth in water sales. Water rights in Colorado are generally a
valuable asset that historically have appreciated in value over time.
Eldorado believes that it is important to purchase additional water
rights upon completion of the proposed financing. Doing so, would
provide sufficient additional water rights to increase revenues even
under low flow conditions when a senior call on water is likely to
occur. See "Business".
/2/ Eldorado intends to enter in an agreement with a plastics facility to
manufacture the PET bottles through construction of a plastics
facility in the Denver area or a joint venture with an existing
manufacturer of the PET bottles. This would permit Eldorado to produce
the bottles at a much lower cost and potentially avoid problems with
supplies of the bottles in the future. No such agreements are in place
at this time.
/3/ Eldorado intends to lease or construct a warehouse/distribution
facility in the Denver, Colorado area. The proposed facility would be
approximately 30,000 square feet and have the capacity for expansion.
All of Eldorado's distribution will be based out of this facility. The
water will still continue to be bottled at the source. In addition,
improvements to the existing bottling plant will be made to fully and
efficiently utilize the current bottling facilities.
/4/ In order to meet expansion objectives, Eldorado intends to pursue
distribution agreements with distributors of bottled water. Management
believes that Eldorado may be required to pay a distribution fee to a
distributor in order to obtain such a relationship. However, no
assurance can be made that such a distribution agreement can be
obtained by Eldorado at a reasonable cost. The proceeds will be
utilized to pursue such a relationship, or in the event that such a
distribution agreement is unobtainable, to expand Eldorado's internal
sales and distribution capabilities.
/5/ The balance of the net proceeds, if any, will be used for working
capital and general corporate purposes.
While the foregoing represents Eldorado's present intention with respect to
the use of the offering proceeds, capital requirements or business
opportunities, none of which are currently anticipated, could cause Management
to elect to use proceeds for other general corporate purposes and for other
purposes not contemplated at this time. Pending the use of the net proceeds,
Eldorado will invest them in money market accounts and short-term certificates
of deposit. Management believes that cash flow from operations, together with
the net proceeds of this offering, will meet Eldorado's cash requirements for at
least the next twelve (12) months.
DIVIDEND POLICY
Eldorado has never declared or paid a dividend on its common stock, and
management expects that a substantial portion of Eldorado's earnings, if any,
for the foreseeable future will be used to expand Eldorado's business. The
decision to pay dividends, if any, in the future is within the discretion of the
Board of Directors and
11
<PAGE>
will depend upon Eldorado's earnings, its capital requirements, financial
condition and other relevant factors such as loan covenants or other contractual
obligations. See "Risk Factors - Dividend Policy."
DETERMINATION OF THE OFFERING PRICE
The public offering price of the shares has been determined by negotiations
between Eldorado and the underwriter. Among the factors Eldorado and
representatives of the underwriter considered in determining the secondary
public offering price of the shares, in addition to prevailing market
conditions, were Eldorado's historical performance, estimates of the business
potential and earnings prospects of Eldorado, an assessment of Eldorado's
management and the consideration of the above factors in relation to market
valuations of companies in related businesses.
DILUTION
At September 30, 1998, Eldorado had outstanding an aggregate of 2,995,495
shares of common stock having an aggregate net tangible book value of $1,277,045
or approximately $0.43 per share. Net tangible book value per share consists of
total assets less intangible assets and liabilities, divided by the total number
of shares of common stock outstanding.
After giving effect to the sale of 700,000 shares of common stock at an
assumed public offering price of $6.00 per share and receipt of the net proceeds
therefrom, the pro forma net tangible book value of the common stock at
September 30, 1998 would be $4,737,045, or approximately $1.28 per share. This
represents an immediate increase in pro forma net tangible book value of $0.85
per share to the present shareholders and an immediate dilution of $4.72 per
share to the public purchasers. The following table illustrates the dilution
which investors participating in this offering will incur and the benefit to
current shareholders as a result of this offering:
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed public offering price per share/1/...................................... $6.00
Net tangible book value per share before Offering/2/....................... $0.43
Increase per share attributable to shares offered hereby................... 0.85
-------
Pro forma net tangible book value per share after offering...................... 1.28
-------
Dilution of net tangible book value per share to purchasers in this offering.... $4.72
=======
</TABLE>
- ------------------------------
/1/ Represents the public offering price per share of common stock before
deductions of underwriting discounts and commissions and estimated expenses
of the offering.
/2/ Assumes no exercise of warrants or the underwriter's overallotment option.
See "Description of Securities" and "Underwriting."
<PAGE>
The foregoing table gives effect to the sale of the Shares offered hereby
and does not give effect to the exercise of the underwriter's over-allotment
option or any outstanding warrants.
CAPITALIZATION
The following table sets forth the capitalization of Eldorado as of
September 30, 1998 to give effect to the receipt and anticipated use of the net
proceeds of this offering based upon the assumed public offering price of $6.00
per share.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
------------------------------
ACTUAL AS ADJUSTED
------------ --------------
<S> <C> <C>
Long Term Debt (including current maturities) $1,602,663 $1,602,663
------------ --------------
Stockholders' Equity
Common Stock, $0.001 par value; authorized-50,000,000 shares; issued 2,995 3,695
and outstanding- 2,995,495 actual; and 3,695,495 as adjusted...........
Additional Paid-In Capital 984,656 4,443,956
Retained Earnings......................................................... 314,893 314,893
Total Stockholders' Equity............................................. $1,302,544 $4,762,544
------------ --------------
Total Capitalization................................................... $2,905,207 $6,365,207
============ ==============
</TABLE>
13
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
This filing contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934 and the Company intends that such forward-looking
statements be subject to the safe harbors created thereby. These forward-
looking statements include the plans and objectives of management for future
operations, including plans and objectives relating to services offered by and
future economic performance of the Company.
The forward-looking statements included herein are based on current expectations
that involve a number of risks and uncertainties that might adversely affect the
Company's operating results in the future in a material way. Such risks and
uncertainties include but are not limited to the following: availability of debt
and equity financing, interest rate fluctuations, effects of regional economic
and market conditions, ability to obtain additional water rights, labor and
marketing costs, operating costs, packaging costs, intensity of competition,
legal claims and the contingencies associated with year 2000 compliance.
OVERVIEW
Eldorado Artesian Springs, Inc. is a Colorado based company that is
primarily involved in the bottling and marketing of "natural" artesian spring
water. The springs are located in the foothills of the Colorado Rocky Mountains
and are surrounded by thousands of acres of state and city park land, assuring a
well protected source. The artesian springs located on Eldorado's property,
emanate from one of the most unique geologic sources in the world. The water is
naturally purified as it rises up through layers of sandstone under its own
artesian pressure. Eldorado Artesian Spring water is bottled at the source in
its natural state and is not chemically treated in any way. Currently,
Eldorado's operations consist of its home/commercial delivery business (3 and 5
gallon bottles) and the PET (polyethylene terephtalate, a premium clear plastic)
consumer business.
Beverage industry analysts reveal that bottled water is the fastest growing
major category in the entire industry. The bottled water industry as whole is a
$3.9 billion business and is currently growing at a rate of 9% to 10% per year.
The PET segment of the bottled water industry is currently a $930 million
business and is growing at a much faster rate (at an estimated 20% to 30% per
year) than the industry as a whole. Analysts expect just the PET segment of the
industry to reach $3 billion in wholesale sales over the next ten years, which
is an indicated rate of growth of 17% annually.
RESULTS OF OPERATIONS
Comparison of Six Months Ended September 30, 1998 and 1997
- ----------------------------------------------------------
Revenues. Revenues for the six months ended September 30, 1998 increased
19.7% to $2,019,802 versus $1,687,171 for the same period in 1997. A substantial
portion of the increase in sales is due to increased volume to existing
customers as well as from sales to new customers. Sales of five gallon products
increased by 17%, one gallon products increased by 24% and sales of the smaller
PET packages increased by 48%. Five gallon products generated the majority of
the increase in overall revenues. Revenues for the five gallon products
increased $224,790 to $1,524,377 for the period ending September 30, 1998 versus
$1,299,587 for the period ending September 30, 1997.
Gross Profit. For the first six months of fiscal 1998, cost of goods sold
was $285,044 compared to $259,391 in fiscal year 1997 resulting in gross profits
of $1,734,758, or 85.9% of sales, and $1,427,780, or 84.6% of sales,
respectively. For the three months ended September 1998, cost of goods sold was
$161,207 in 1998 compared to $140,525 in 1997 resulting in gross profits of
$945,903, or 85.4% of sales, and $777,792, or 84.7% of sales, respectively. This
percentage increase in gross profit for the respective six and three month
periods was due to an increase in sales volume of five gallon product which has
a higher profit margin.
Operating Expenses. For the first six months of fiscal year 1998 compared
to the corresponding period in fiscal year 1997, total operating expenses were
$1,591,368 and $1,199,046, respectively, an increase of $392,322 or 32.7%.
Salaries and related expense were $788,242 for the period ending September 30,
1998, an increase of 19.7% over the same period of fiscal 1997 which was
primarily attributable to the increase in sales. Selling, general and
administrative expenses increased by $216,314 or 50.7%. Advertising and
promotional expenses increased by 46% for the six month period in 1998 compared
to the corresponding period of fiscal 1997. Advertising and promotional expenses
are associated with both the home and office delivery as well as the retail-size
category. The increase in advertising and promotional expenses was due to the
increased expenses associated with increased market penetration and brand
awareness. The Company plans to continue to spend significant
14
<PAGE>
amounts in the future for advertising and promotions to develop brand
recognition and higher sales. Deprecation and amortization increased 69.0% and
40.7% for the three month and six months ended September 30, 1998, which was
attributable to recent machinery and equipment purchases.
Other Income (Expenses). Interest expense increased $3,214 for the first
six months of 1998. The increase in interest expense was a result of increased
borrowing to finance additional machinery and equipment.
Net Income and Comprehensive Income. The Company's net and comprehensive
income for the first six months of 1998 was $61,543 compared to net income of
$83,228 for the year ended March 31, 1998. Net income for the three months ended
September 30, 1998 was $44,258.
Comparison of Fiscal Years Ended March 31, 1998 and 1997
- --------------------------------------------------------
Revenues. Revenues increased 25.9% to $3,329,444 for the year ended
March 31, 1998 from $2,644,521 for the same period in fiscal 1997. This increase
is primarily due to the increased volume of the five gallon products to existing
customers as well as sales to new customers. Industry averages in the bottled
water market were up between 10% and 11% in 1997 by trade analysts.
Gross Profit. Costs of goods sold increased 20.7% from $415,263 in fiscal
1997 to $501,288 in fiscal 1998. This resulted in gross profits of $2,828,156
for fiscal 1998 versus $2,229,258 for fiscal 1997. As a percent of sales, gross
profit increased to 84.9% in fiscal 1998 from 84.3% in fiscal 1997. This
increase is primarily due to the increased sales of the five gallon product with
higher profit margins and the addition of more efficient bottling equipment.
Operating Expenses. For the fiscal year ended March 31, 1998 and 1997 total
operating expenses were $2,568,571 and $1,931,736, respectively, an increase of
$636,835 or 33.0%. As a percent of sales, operating expenses increased to 77.2%
in fiscal 1998 from 73.1% in 1997. This is primarily due to the increase in
advertising and promotional expenses for obtaining additional accounts as well
as establishing brand name awareness in the highly competitive industry.
Increases in wages and salaries were 32.7% for the year ended March 31, 1998.
This increase is due in part to the additional commissions for the new revenues
generated. Part of the increase is also due to an across the board pay increase
for all employees that became effective January 1998.
Other Income (Expenses). Interest expense increased $31,495 for the year
ended March 31, 1998. The increase in interest expense was a result of increased
levels of debt acquired to finance additional machinery and equipment.
Net Income and Comprehensive Income. The Company's net and comprehensive
income decreased from $124,152 in fiscal 1997 to $83,228 in fiscal 1998.
LIQUIDITY AND CAPITAL RESOURCES
Eldorado has traditionally financed operations with debt. With the
restructuring of debt in June 1997, the new debt structure provided a $1,200,000
loan secured by the Company's property, a $300,000 loan for new equipment and a
plant reconstruction, and a $100,000 working capital revolving line of credit.
Accounts receivable increased 18.7% to $597,830 for the six months ended
September 30,1998. This represents a total of 53.5 days sales in receivables.
This increase in accounts receivable is a concern for management and more
assertive efforts have been made to bring this back to the Company's goal or
target number of 38 days sales in receivables.
15
<PAGE>
On April 22, 1998, the Company completed a private placement of 300,000
shares of common stock at $2.75 per share. The Company received proceeds net of
offering costs of $688,750 from the private placement of which $150,000 was
placed in a joint account with Mills Financial Services, Inc. for a potential
additional secondary stock offering. The intention for the use of proceeds of
the private placement included replacing a five gallon bottling line to increase
capacity from 160 bottles to 600 bottles per hour. By the end of September 1998,
100% of the bottling equipment was installed and being utilized. In addition,
the Company is actively looking to lease or construct a warehouse/distribution
facility in the Denver, Colorado area in order to add additional warehouse
space.
On May 19, 1998, Eldorado registered 875,000 shares of common stock of
Eldorado pursuant to the 1997 Stock Option Plan (the "Plan"). The Plan provides
for the grant of stock options to employees, directors and consultants of
Eldorado.
Management has implemented a water rights augmentation program to acquire
additional water rights in order to provide for a forecasted increase in water
sales. Management is currently in negotiations to acquire additional water
rights. The acquisition of these water rights will be at a significant cost to
Eldorado and there can be no assurance that such water rights can be obtained.
The failure to augment Eldorado's water rights could have an adverse effect on
Eldorado's financial condition and results of operations.
Eldorado also plans to lease or purchase a plastics molding facility and
the necessary molds to produce their own supply of PET bottles and to sell the
bottles to other companies. In order to handle the increase in business,
Eldorado will need to acquire additional off-site warehouse space. Eldorado is
looking to either lease or construct space in order to store raw materials and
finished goods. In addition, Eldorado will be improving the existing bottling
and office facilities.
Eldorado is poised to achieve significant growth via the expansion of its
retail PET business into new geographic markets. The PET segment of the bottled
water business is the fastest growing segment of the bottled water market. In
order to accomplish broader distribution of the PET products, Eldorado will need
additional working capital for marketing investments for such things as slotting
fees and marketing promotions. As Eldorado grows and expands its retail
distribution there will be a need to add an additional brand marketing
executive.
YEAR 2000 COMPLIANCE
Eldorado is in the process of developing and finalizing plans to address
the Year 2000 computer problem and to begin converting its computer systems to
be Year 2000 compliant. The Year 2000 problem is the result of computer programs
being written using two digits rather than four to define the applicable year.
Eldorado presently believes that with upgrades to existing software and possibly
some replacement, the Year 2000 problem will not pose significant operational
problems for their computer systems. However, if such upgrades and replacements
are not completed timely or effectively implemented, the Year 2000 problem could
have a material impact on Eldorado's operations. Eldorado expects to incur
internal staff and external consulting costs, as well as the cost of the
software upgrades and replacement as a part of this effort. Eldorado does not
expect the amount of such costs to be material to its business, operating
results and financial condition. However, there can be no assurance that the
systems or networks of its key suppliers and customers will not be affected by
Year 2000 issues, which could have a material adverse effect on Eldorado's
business, operating results and financial condition. Until Eldorado's plans are
finalized, management is not able to reasonably estimate the costs of achieving
Year 2000 compliance.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
During the year ended March 31, 1998, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 128, Earnings Per Share (SFAS
No. 128). SFAS 128 established new definitions for calculating and disclosing
basic and diluted earnings per share. Basic earnings per share is based upon
the weighted average number of shares outstanding as defined in SFAS 128. No
diluted earnings per share is presented as there are no potential dilutive
common shares. As required by SFAS 128, disclosure of subsequent events which
would have had an effect on the number of shares outstanding is reflected in
this prospectus.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" (SFAS 130), which establishes standards
for reporting and display of comprehensive income, its components and
accumulated balances. Comprehensive income is defined to include all changes in
equity except those resulting from investments by owners and distributions to
owners. Among other disclosures, SFAS 130 requires that all items that are
required to be recognized under current accounting standards as components of
comprehensive income, be reported in a financial statement that is displayed
with the same prominence as other financial statements. Currently the Company's
only component, which would comprise comprehensive income, is its results of
operations. SFAS 130 is effective for financial statements for periods
beginning after December 15, 1997, and requires comparative information for
earlier periods to be restated. SFAS No. 130 is required to be adopted for the
Company's 1999 fiscal year end financial statements and, as a reporting
standard, SFAS No. 130 will have no impact on the Company's financial position
or results of operations.
In June 1997, FASB issued Statement of Financial Accounting Standards, No. 131,
"Disclosures About Segments of an Enterprise and Related Information" (SFAS No.
131), effective for years beginning after December 15, 1997. Statement No. 131
establishes standards for reporting information about operating segments and the
methods by which such segments were determined. Currently, the Company only has
one significant operating segment. Therefore, this pronouncement poses no
significant changes in the Company's reporting methods.
16
<PAGE>
ELDORADO AND ITS BUSINESS
Eldorado Artesian Springs, Inc. bottles, markets and distributes non-
sparkling "natural" spring water to regional and national customers. Eldorado
(and the spring) are located at the base of a six hundred foot deep canyon in
Eldorado Springs, Colorado. The history of Eldorado Springs dates back
generations. The property was initially developed over 90 years ago (in 1905) as
a Colorado resort that attracted famous guests from across the country.
The artesian springs which are located on Eldorado's property emanate from
one of the most unique geologic sources in the world. The source of Eldorado's
water is rain and snow which has fallen on the Continental Divide in the Rocky
Mountains and which then passes through multiple geologic formations and
aquifers before finally reaching the surface at Eldorado. Due to this
circulation process, the resulting spring water is renowned as being from one of
the purest natural artesian springs in the world.
Eldorado was formed in 1983 when the current senior management team
purchased the Eldorado Springs property from the founders of the resort.
Eldorado has focused on developing and expanding the business of bottling
Eldorado Spring water. Eldorado bottles the water at the source in polyethylene
therephthalate ("PET") plastic bottles and 3 and 5 gallon polycarbonate bottles.
Since inception, Eldorado has expanded the business by focusing its marketing
efforts on the five gallon delivery business. As this business has grown and
gained in profitability, management has had the opportunity to introduce the PET
products to the grocery retailers and these products have gained significant
market shares among the large retail grocery chains. Current retail market
shares for Eldorado's PET products range from 6% to 34%.
Eldorado has met all Food and Drug Administration ("FDA") requirements for
the labeling of its water as "bottled at the source" and "natural". "Bottled at
the source" signifies that the water is pumped directly from the source to the
bottling facility, thereby eliminating handling and transportation procedures
which might lead to contamination. "Natural" signifies that the chemical
composition and mineral content of the bottled water are the same as those at
the source. This contrasts with "purified" water from which certain chemicals
and minerals are removed by means of filtration.
Eldorado's objective is to become a leading provider of premium quality
bottled water on a national level. Eldorado's strategy includes increasing sales
to existing customers, broadening its current customer base, expanding its
product line and establishing distributor relationships as well as strategic
distribution alliances with other national beverage companies in order to take
advantage of their established distribution networks.
Industry Overview
- -----------------
The bottled water industry is considered by many analysts to be the fastest
growing major category in the beverage industry. The bottled water industry has
exhibited consistent annual growth over the last twenty years and grew at a rate
of 9% for 1997. According to Beverage Marketing Corp. bottled water sales
increased to a $3.9 billion dollar business. Along with sales and volume, per
capita consumption has increased to nearly 13 gallons, up from 11.7 in 1996.
Driving the category's growth is the premium retail PET segment which was up 30%
in 1997, accounting for two-thirds of the category's overall growth. Industry
analysts predict that premium retail PET will drive growth by 6 to 8 percent in
1998. In 1981, bottled water consumption represented 1.8% of the U.S.
consumption of total beverage sales. In 1997, that percentage had increased to
6.9%. Non-sparkling water comprises over 87% of the U.S. bottled water market
and generated $3.4 billion of wholesale sales in 1997. PET bottled water sales
in 1997 reached $930 million and the segment is expected to double in 3 years.
The bottled water industry is generally broken down into two segments:
sparkling and non-sparkling waters. Non-sparkling waters dominate the industry
with an estimated 87% share of total category volume. Non-sparkling water
gallonage has in fact realized uninterrupted growth every year since statistics
have been kept
17
<PAGE>
on the bottled water industry (dating back to 1976 when Beverage Marketing
Corporations began following this market).
Strategy
- --------
The Company's objective is to expand its operations based on the continued
success of its PET bottled water products. The Company's plan consists of
multiple phases that ultimately are targeted to expand distribution of the
Company's retail PET products to regional and national markets. Aspects of the
Company's strategy include the following:
Water Rights Augmentation. When the Company purchased the resort property
in 1983, included in the purchase price were certain water rights for Eldorado.
The Company realized substantial growth in its water bottling business since
that date and the Company is on the verge of its sales volume exceeding its
water rights capacity. Of the approximate 105 million gallon total physical flow
of the springs, Eldorado's current legal augmented supply of water is 7,820,424
gallons per year while its current annualized use is 3,209,700 gallons per year.
The principal goal of the Company's water rights augmentation program is to
acquire additional water rights in order to provide for the forecast increase in
water sales resulting from the implementation of the Company's strategy.
The Company believes that it is important to purchase additional water
rights upon completion of the proposed financing. Doing so would provide
sufficient access to water to implement the Company's business plan even under
low flow conditions when a senior call on water is likely to occur. Management
currently estimates the cost of these rights to be approximately $680,000.
Additional Facilities and Improvements. The Company has plans to improve
its production facilities and increase its production capacity in order to
facilitate expansion into new geographic markets. The Company's plans initially
call for remodeling the warehouse and adding additional office space. Additional
improvements would include the area surrounding the warehouse to remodel and
modernize current facilities and services.
Warehouse and Distribution Facility. The Company will require additional
off-site warehouse facilities in order to store raw materials and finished goods
awaiting delivery to the regional warehouses of its customers. The Company plans
to purchase or construct a warehouse in the Denver, Colorado area and relocate
the distribution operations to that facility. The water would continue to be
bottled at the source. This would provide the Company with the additional
warehouse space to accommodate the future growth of the delivery and retail
business.
Plastics Molding Facility-Molds. The second phase of the warehouse facility
would be to operate a plastics facility for the smaller PET bottles. This would
include the equipment and the molds for the Eldorado brand. This facility can be
incorporated into the warehouse/distribution facility or into the existing
warehouse facility. This would provide Eldorado with a more stable supply of the
PET products and insure availability of the products in the future.
Marketing. The Company believes that building the Eldorado brand and
consumer loyalty will allow the Company to expand distribution. The Company's
success to date has been driven by several factors. The pure quality of Eldorado
water is one reason why the Company's PET bottled water has achieved significant
market share in a short period of time in the retail stores where it has already
been introduced. The Company also believes its attractive label and unique
source of the water is a key factor in building brand awareness. In addition,
Eldorado has positioned its bottled products in the retail market as a premium
water because it is bottled at the source, it is not chemically treated and is
naturally low in total dissolved solids.
18
<PAGE>
Enter New Distribution Channels. Eldorado believes that the opportunity for
growth lies in the ability of the Company to expand into additional distribution
channels. This would involve agreements with additional distributors in the
Colorado area. In addition, the Company is planning a strategy to acquire other
companies currently involved in the 5 gallon distribution business. This will
allow the Company to build brand awareness and consumer loyalty by incorporating
current operating procedures and sales strategies into the acquired companies.
Any acquisitions will require additional debt or equity financing.
Consumer Trends
- ---------------
Much of the demand for bottled water is driven by consumer demand for pure
quality bottled water. The growth in consumption of non-sparkling water is
attributed to consumer trends including increased health and fitness awareness,
concerns for municipal tap water quality and demand for convenience and
innovative packaging. Generally, bottled water is perceived as being a natural,
caffeine and sodium free beverage at a time when more and more consumers are
health conscious. These attributes and the increased availability of convenient
packaging for natural spring water have contributed to the increase in bottled
water consumption. The perception of bottled water has driven the demand for
this product among many consumers. The bottled water industry is considered by
many analysts to be the fastest growing major category in the beverage industry.
The introduction of bottled water in convenience packaging has recently
driven the explosive growth of the PET segment of the bottled water market. This
market has been driven by manufacturers who have begun bottling their water in
smaller, more portable sizes, which are sold at retail and which are intended to
fit the active lifestyles of bottled water consumers. In doing so, manufacturers
have created a new subsegment of the bottled water market that is now growing at
a 30% rate for water in sizes of 1.5 liters and under.
Distribution Channels
- ---------------------
The traditional channels of distribution for bottled water are home
delivery, commercial delivery, grocery outlets, restaurants and vending
machines. The delivery market generally has consisted of the delivery of five
gallon bottles of water to residential and commercial customers. This segment of
the bottled water industry provided the greatest amount of growth for the
industry throughout the 1970's and the 1980's.
Sales of bottled water through retail outlets (grocery outlets) has become
an increasingly important channel of distribution for bottled water. Retail
outlets have historically sold bottled water in one and two gallon containers.
Increasingly though, the retail segment of the bottled water market is defined
by the new, convenient PET products which are sold in portable 1.5 liter, 1.0
liter and 0.5 liter sizes.
While the delivery segment of the bottled water market was the principal
driver of bottled water growth in the 1980's, the 1990's is the decade of the
PET products sold at retail. Industry analysts forecast that in ten years, water
bottled in PET products and sold at retail will, on its own, be a $3 billion
revenue segment of the bottled water market. This represents an annual
compounded growth rate of 17% for the PET segment of the bottled water market
over the course of the next ten years. Since 1992, the retail PET segment of the
bottled water category continues to grow at a healthy double-digit pace.
Consolidation
- -------------
The bottled water industry as a whole remains highly fragmented with over
780 companies in the industry. Recent consolidation in the industry has however
created six large bottled water companies that when combined account for roughly
50% of industry sales. These six companies are composed of over 25 different
brands of water with no single brand accounting for more that 7.5% of total
bottled water sales. The top 10 companies in the industry range in sales from
$780 million for Perrier Group to $75 million for Sammons.
19
<PAGE>
Products
- --------
Sales of Eldorado's water have historically been made by selling five
gallon bottles of water directly to home and business customers. More recently,
Eldorado began selling its water at wholesale to retail food stores (grocery
chains) with Eldorado's water packaged in smaller, more convenient sizes which
are suitable for retail distribution. The products offered by Eldorado and their
respective target markets are listed below:
Product Target Market
------- -------------
Five Gallon Bottles and Three Gallon Bottles Home/Commercial Delivery
One Gallon Bottles Retail Food Stores
PET Consumer Packaging Retail Food Stores
(1.5 liter, 1.0 liter,
and 0.5 liter)
Home/Commercial Delivery Business
- ---------------------------------
Direct delivery of bottled water to homes and businesses has historically
been the focus of Eldorado's business. Eldorado's bottled water delivery
business primarily consists of the sale of five gallon containers of water to
customers who lease water dispensers from Eldorado. Eldorado delivers these five
gallon bottles directly to customers using its own fleet of trucks. Delivery
sales are made primarily in the Denver/Boulder metropolitan area, but also
include selected other cities along the front range in Colorado. Currently,
Eldorado has approximately ten thousand (10,000) active delivery accounts and
the delivery business currently accounts for approximately 79.5% of Eldorado's
revenues.
PET Packaging/Retail Distribution Business
- ------------------------------------------
In 1994, Eldorado introduced its water packaged in convenient
consumer-sized bottles made of polyethylene teratheylate ("PET"). The first PET
product introduced was the 1.5 liter bottle. This product was followed in 1995
with 1.0 liter and 0.5 liter bottles.
The sale of Eldorado's artesian spring water in PET bottles consists
principally of the wholesale distribution of PET products to grocery store
chains for retail sales in grocery stores located primarily in the State of
Colorado. Eldorado uses its own trucks to deliver its PET water products to
grocery chain warehouses in the Denver metropolitan area. From there, Eldorado's
water is shipped to grocery stores throughout Colorado. In addition, because
some of the grocery chains distribution extends beyond the State of Colorado,
some of Eldorado's product is sold in grocery stores which are located in New
Mexico, Wyoming, Kansas, Oklahoma and Texas.
The key retail customers for Eldorado's PET products include the largest
grocery chain in Colorado (Krogers) and one of the largest wholesale food
distributors (Rainbow Natural Foods) in the state. Eldorado's product is also
sold to retail customers at Safeway and Albertsons stores.
Bottling
- --------
Eldorado's artesian spring water is bottled naturally at Eldorado's
bottling facilities located at the source. Eldorado does not chemically treat
the water and no chlorine, fluoride, calcium or other minerals or chemicals are
added to, and nothing is removed from, the water during the bottling process.
20
<PAGE>
Eldorado's bottling facilities are located on a portion of approximately 26
acres of land owned by Eldorado in Eldorado Springs, Colorado. Eldorado's
bottling process utilizes a tightly controlled closed system with several
quality control precautions built in to preserve product integrity. The spring
water flows from an artesian well(s), located just a few feet from the spring.
Through an entirely closed system, it travels 70 feet to the bottling plant. The
source spring water is bacteria free as it emanates from the earth due to the
fact that the water is naturally lightly carbonated. Once at the plant, the
water passes through a protective filter and an ultra-violet light which is
required by local government regulations to safeguard against any contamination.
The water is then ozonated for further protection.
The bottling process is conducted in a separate, sanitized fill room, where
the water is poured into the bottles utilizing a closed system. While still in
the fill room, the bottles travel a few inches to the capper where they are
sealed with a tamper evident plastic closure. The sealed bottles then exit the
fill room where they are labeled and date coded. They are then packaged in
reshipper cases that are also date/run coded to assist in disaster recall
planning. At no time in the bottling process is anything added to or removed
from the water so that Eldorado's product is "bottled naturally at the source".
With regard to the bottling process and Eldorado's facilities, it should
also be noted that Eldorado recently added significant pieces of new equipment
that will increase Eldorado's production efficiencies. Specifically, Eldorado
added new filler/capper, case packer, bottle rinser, 3 and 5 gallon and bottle
stacker/racker, and bottle sorter equipment to its production line. By adding
this equipment, Eldorado anticipates that it will realize significant labor
savings over its previous production cost structure.
Water Rights
- ------------
Eldorado's existing water rights were originally decreed by the District
Court, Water Division No. 1, on July 11, 1973. Eldorado's water rights have
decreed priority dates ranging from December 1960 to December 1901. These
priority dates are relatively junior to other water rights in the South Boulder
Creek and South Platte Basins. Eldorado has the right to beneficially use all of
the water which emanates from its points of diversion in accordance with its
decree unless there is as more senior call on the water. A senior call might
occur in the winter or when runoff is low and insufficient to meet the water
needs of more senior water users below Eldorado Springs. For many years Eldorado
has enrolled its water rights in a substitute supply plan approved by the State
Engineer. This substitute supply plan effectively insulates Eldorado's water
rights from calls of senior water rights owners. Although the State Engineer has
approved the substitute supply plan during every year that Eldorado has owned
the water rights, there is no assurance that the State Engineer will continue to
do so in the future. Accordingly, management has taken steps to acquire a source
of water to replace out-of-priority depletions attributable to Eldorado's water
rights. After sufficient augmentation water has been acquired, Eldorado will
then seek judicial approval of a permanent plan for augmentation that will also
insulate Eldorado's water rights from the calls of senior water rights owners.
This plan for augmentation will be permanent and will not be subject to the
uncertainties of year-to-year approval as are substitute supply plans approved
by the State Engineer. Management is currently in negotiations to acquire
augmentation water. Based on the progress of current negotiations, it appears
likely that management will soon acquire a source of augmentation water and
operational agreements that will allow it to obtain court approval of a
permanent augmentation plan. The failure to augment Eldorado's water rights
could have an adverse affect on Eldorado's financial condition and results of
operations and its ability to implement its business plan in the event that the
State Engineer fails to approve the substitute supply plan in any year.
21
<PAGE>
Marketing
- ---------
Eldorado focuses on three major areas in marketing its products: three and
five gallon sales, small package product sales, and brand name recognition.
The five gallon products are primarily sold through the acquisition of new
accounts attracted by personal sales representatives strategically located
throughout the area at local events. The efforts of this staff are augmented by
yellow pages, radio, and occasional television advertisements.
The smaller packages that are sold principally through retail chain stores
are effectively marketed by using point of purchase inducements to gain new
trial, usually in the form of discounts in price in conjunction with signage.
Eldorado attempts to build brand name awareness by sponsoring or
participating in many local events. Eldorado Artesian Springs has sponsored the
Boulder, Colorado July 4th Fireworks celebration, the Eldorado Springs Cancer
Research Run, and participates in part in many other local events.
According to industry sources, the bottled water industry is a $3.9 billion
business which is currently growing at a rate of 9-10% per year. The PET segment
of the bottled water industry is currently a $930 million business which is
growing at a much faster rate (at an estimate 20% to 30% per year). According to
industry analysts, the PET segment of this industry is expected to reach $3
billion in wholesale sales over the next ten years, which is an indicated growth
rate of 17% annually. Management believes that Eldorado is poised to
significantly expand its operations based on the continued success of its PET
bottled water products. Expansion plans include expanding distribution of
Eldorado's PET products into new markets that are geographically contiguous to
its Colorado operations. Management expects to grow Eldorado's market share of
the retail grocery distribution channel in the southwestern United States over
the next few years. Once Eldorado has achieved this market share objective,
management plans to further expand distribution into other regions of the
country. Ultimately, management plans to distribute Eldorado's PET waters on a
national basis.
Supplies
- --------
Water bottled by Eldorado comes from springs located on Eldorado's property
which have been flowing for many years. Eldorado does not foresee any disruption
of its operations as a result of supply problems. Suppliers of the bottles do
experience seasonal shortages resulting from resin shortages which may increase
prices. These shortages must be anticipated by management and inventory safety
stocks must be sufficient so as not to interrupt production. See also "Risk
Factors - Water Supply."
Seasonality of Business
- -----------------------
Sales tend to be mildly seasonal in the bottled water business. A ten to
fifteen percent differential in sales is normally experienced between the peak
summer months and the low winter months.
Competition
- -----------
There is active competition in the bottled water market. Eldorado's
competitors include more diversified corporations having substantially greater
assets and larger sales organizations than Eldorado, as well as other small
firms. Eldorado competes on the basis of customer service, product quality and
price. Management believes that the products' superior taste, competitive
pricing and unique packaging are significant factors in maintaining Eldorado's
competitive position.
22
<PAGE>
Environment
- -----------
Eldorado's bottling operations are subject to regulation by the Food and
Drug Administration of the federal government. These regulations are
administered by the Colorado Department of Public Health and Environment
Consumer Protection Division. Weekly product and source bacteriological tests
are required and annual inspections are performed.
Eldorado is also subject to regulation under the Colorado Primary Drinking
Water Regulations and the United States Safe Drinking Water Act. These
regulations pertain to the operation of the water utility system owned by
Eldorado that services the town of Eldorado Springs. These regulations are also
administered by the State of Colorado Health Department Drinking Water Division.
Regular periodic testing is also required for this operation.
Additionally, Eldorado operates the springs swimming pool which is also
subject to regulation by the State of Colorado. These regulations are
administered by the Boulder County Health Department and require periodic daily
testing and agency inspections.
Other Businesses
- ----------------
Eldorado's principal business is bottling and selling Artesian Spring
Water. Eldorado also owns and operates a resort/spa on its property during the
summer months. This portion of the business accounts for approximately 2-3% of
total revenues. Eldorado also owns rental units on the property and supplies
water to some of the residential homes in Eldorado Springs. This portion of the
business accounts for approximately 2% of revenues. Neither of these businesses
represent a significant portion of Eldorado's results of operations.
Employees
- ---------
Eldorado employs 47 full-time employees and 14 seasonal employees during
the summer resort months.
Properties
- ----------
Eldorado owns approximately 26 acres of land in Eldorado Springs,
Colorado. In addition to real property and the wells and springs thereon, and
water rights, Eldorado owns a bottling plant (including building and bottling
equipment), delivery trucks, associated containers and equipment, resort
buildings, a mobile home park, and an outdoor swimming pool which are located on
the property. Total production and warehousing space is approximately 12,000
square feet.
23
<PAGE>
MANAGEMENT
The following table sets forth information with respect to directors and
executive officers of Eldorado. Directors serve for one year terms. Each
director is also a nominee for election to the Board of Directors.
<TABLE>
<CAPTION>
Tenure as Officer
Name Age Position(s) or Director
---- --- ----------- -----------------
<S> <C> <C> <C>
Douglas A. Larson 43 President, Treasurer and Director 1983 to present
Kevin M. Sipple 43 Vice President, Secretary and 1983 to present
Director
Jeremy S. Martin 43 Vice President and Director 1983 to present
Robert E. Weidler 53 Vice President 1998 to present
Cathleen M. Collins 30 Chief Financial Officer 1998 to present
George J. Schmitt Director 1998 to present
Don P. Van Winkle 42 Director 1998 to present
</TABLE>
Douglas A. Larson was a co-founder of Eldorado Artesian Springs, Inc. in
1983 and has been President of Eldorado since 1991. Mr. Larson's
responsibilities include corporate strategy and administration of all operating
activities at Eldorado. Prior to his association with Eldorado, Mr. Larson was
employed as a stock broker with Richey-Frankel and Co. from 1981 to 1983 and
with B.J. Leonard, Inc. from 1980 to 1981. Mr. Larson holds a Bachelor of
Science Degree in Business Finance from the University of Colorado.
Kevin M. Sipple was a co-founder of Eldorado Artesian Springs, Inc. in
1983 and has served as Vice President and Secretary of Eldorado since 1991. Mr.
Sipple's responsibilities include management of the wholesale products division.
In addition, he is also responsible for quality control, testing, source
protection and is a licensed Water Plant operator and manages the utility
productions. Prior to his association with Eldorado, Mr. Sipple was employed by
King Soopers, Inc. from 1972 to 1983, serving in a variety of positions
including inventory ordering and control. Mr. Sipple attended the University of
Colorado from 1973 to 1977.
Jeremy S. Martin was a co-founder of Eldorado Artesian Springs, Inc. in
1983 and has served as Vice President since 1985. Mr. Martin's responsibilities
include management of the five gallon sales and service business. In addition,
he is also responsible for special event promotions and public relations. Prior
to his association with Eldorado, Mr. Martin was an independent distributor for
Sunasu International, a nutritional products manufacturer. Mr. Martin holds a
Bachelor of Science Degree in Business from the University of Colorado.
Robert E. Weidler joined Eldorado in 1990 and has served as Production
Manager from 1991 to 1998. Currently, Mr. Weidler is Vice President and his
responsibilities include inventory management, daily operations for finished
goods and conforming to safety standards, health department standards and other
governmental requirements. Mr. Weidler holds a Bachelor of Science Degree in
Sociology from Michigan State University.
Cathleen M. Collins joined Eldorado in 1990 and has served as Assistant
Treasurer from 1991 to 1998. Currently, Ms. Collins is Chief Financial Officer
and her responsibilities include the procurement of financing for growth of
operations of the Company as well as overseeing the accounting functions for
Eldorado including the annual audit and corporate reporting. Ms. Collins holds a
Bachelor of Science Degree in Economics and a Masters of Business Administration
from the University of Colorado.
George J. Schmitt has been a director of the Company since 1998. Mr.
Schmitt has over forty years of experience in the bottled water business. From
1968 to 1996, Mr. Schmitt was CEO and President of Hinckley & Schmitt Bottled
Water Group. He built an old family business from a small local company in
Chicago, Illinois with revenues of less than one million dollar to a two hundred
million dollar highly profitable industry leader. Mr. Schmitt was a founding
member of the American Bottled Water Association (now called the International
Bottled Water Association) in 1959 and was inducted into the Industry Hall of
Fame in 1991. Mr. Schmitt is a director of Eureka Bottled Water Co. and National
Fuel Corporation. Mr. Schmitt hold a Bachelor of Arts Degree from Dartmouth
College.
Don P. Van Winkle has been a director of the Company since 1998. From
1996 to the present, Mr. Van Winkle has served as President and CEO of Van
Winkle's IGA, a family owned six store retail supermarket chain in New Mexico.
From 1991 to 1996, he resided in Colorado where he provided Contract Chief
Financial Officer and Advisory Services to a wide range of industries which
included the Company. From 1980 to 1996, Mr. Van Winkle was a corporate banker
with the two largest Colorado based bank holding companies (formerly United
Banks and First National Bancorporation). Mr. Van Winkle is a director of The
Great Divide Brewing Company (Denver, CO) and Fresh Produce Sportswear, Inc.
(Boulder, CO). He holds a Bachelor of Science Degree in Finance from New Mexico
State University.
24
<PAGE>
Directors are elected at each annual meeting of stockholders and serve until
the next annual meeting. Executive officers are elected at each annual meeting
of the Board of Directors.
Committee of the Board of Directors
The Board of Directors will elect an Audit Committee at each annual meeting.
Among other functions, the Audit Committee will make recommendations to the
Board of Directors regarding the selection of independent auditors, review the
results and scope of the audit and other services provided by the Company's
independent auditors, review the Company's financial statements and review and
evaluate the Company's internal control functions.
Compensation of Outside Directors
Each outside director receives compensation in the amount of one thousand
dollars ($1,000) for each annual or special meeting of the Board he attends in
person or by qualified electronic means. In addition, each outside director
will receive compensation in the amount of five hundred dollars ($500) for each
committee meeting he attends in person or by electronic means. The Company
also grants each outside director, on his term commencement date, a ten year
non-qualified stock option with the right and option to purchase 50,000 shares
of common stock of the Company which is exercisable at $2.75 per share.
Assuming the outside director remains a director of the Company, the options
vest at the rate of 25% each year beginning one year after the date of grant.
In addition, if the Company engages an outside director as an independent
consultant, for such duties and responsibilities as the President determines
("Consulting Services"), the outside director will be compensated at the rate of
one hundred fifty dollars ($150) per hour, plus nominal travel expenses as
agreed upon when necessary. The outside director has the option, at the
beginning of each year, of electing to receive all of the compensation for
Consulting Services in the form of non-qualified options for shares of the
Company's common stock, at the rate of 50 shares per hour, such options vesting
quarterly, or in cash to be paid monthly.
There are no family relationships between any directors or executive officers
of Eldorado.
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation of Eldorado's President,
Douglas A. Larson, for the fiscal years ended March 31, 1996, 1997 and 1998. No
other executive officer receives annual compensation in excess of $100,000 per
year.
ANNUAL COMPENSATION
<TABLE>
<CAPTION>
Other Annual
------------
Name and Principal Position Year Salary Bonus Compensation/1/
--------------------------- ---- ------ ----- ---------------
<S> <C> <C> <C> <C>
Douglas A. Larson 1998 $ 66,832.00 -- $11,440
1997/2/ 71,524.00 -- 6,282
1996/2/ 102,618.00 -- 6,282
</TABLE>
- ---------------------------
/1/ Includes $4,690 annual health care premiums; a 3% Company match for all
contributions to the 401(k) plan, the annual premium cost for key man life
insurance of $1,592, and a car allowance of $5,158 per year.
/2/ In 1992, Eldorado went through a restructuring of Company debt. The lender
offering the debt would not assume all corporate debt outstanding. A portion
of Eldorado's debt was replaced by Mr. Larson, who assumed this obligation
personally and his salary was increased to cover the cost of the note.
STOCK OPTION PLAN
On September 10, 1997 Eldorado adopted a Stock Option Plan which reserves
875,000 shares for the grant of non-qualified stock options ("Non-Qualified
Options"), and incentive stock options ("Incentive Options"). The Plan is
administered by the Board of Directors.
All salaried officers and key employees of Eldorado and any subsidiaries are
eligible to receive options under the Plan. The Plan will terminate by its terms
on September 10, 2007, and also may be terminated at any time by the exercise of
all outstanding options.
Options granted may be exercisable for up to ten years. If any options
granted under the Plan expire, terminate or are canceled for any reason without
having been exercised in full, the corresponding number of unpurchased shares
reserved for issuance upon exercise thereof will again be available for the
purposes of the Plan. The purchase price of the Common Stock under each option
shall not be less than the fair market value of the Common Stock on the date on
which the option is granted. The option price is payable either in cash, by the
delivery of shares of Eldorado's common stock, or a combination of cash and
shares.
Options will be exercisable immediately, after a period of time or in
installments. Options will terminate not later than the expiration of ten years
from the date of grant, subject to earlier termination due to termination of
service. Except under certain circumstances where termination of service is due
to retirement or death, in which event options may be exercised for an
additional period of time following such termination of service, the option may
be exercised only while the optionee remains in the employ of Eldorado or one of
its subsidiaries.
25
<PAGE>
As of September 30, 1998, there were options to purchase an aggregate of
345,500 shares of common stock outstanding of which 113,500 immediately vested.
None of these options were granted to executive officers of Eldorado. All of the
options were granted at $2.75 per share, representing 100% of fair market value
on the date of grant.
26
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to Eldorado
regarding beneficial ownership of Eldorado's Common Stock at the date of this
Prospectus, as adjusted to reflect the sale of the Common Stock offered hereby,
by (i) each person known by Eldorado to beneficially own more than 5% of
Eldorado's Common Stock, (ii) Eldorado's directors, and (iii) the officers and
directors of Eldorado beneficially owning such Common Stock.
<TABLE>
<CAPTION>
Percent Owned
-----------------------------------------------
Number of Before After
Name and Address of Beneficial Owners Shares Offering Offering
- --------------------------------------------- -------------- -------------- -------------
<S> <C> <C> <C>
Kevin M. Sipple............................. 763,674 24.9% 20.3%
43 Fowler Lane
Eldorado Springs, CO 80025
Douglas A. Larson............................ 770,673/1/ 25.1% 20.5%
12 Baldwin Circle
Eldorado Springs, CO 80025
Jeremy S. Martin............................. 771,060 25.1% 20.5%
2707 - 4th Street
Boulder, CO 80302
George J. Schmitt............................ 0 - -
11 Castle Pines N.
Castle Rock, CO 80104
John P. VanWinkle............................ 0 - -
1600 Indian Wells
Alamogordo, NM 88310
All Officers and Directors as a Group (seven
persons)..................................... 2,375,407/1/ 77.4% 63.0%
- -------------------------------
</TABLE>
/1/ Includes options to purchase 7,000 shares held by Mr. Larson's spouse which
are currently exercise and options to purchase 35,000 shares each held by
Ms. Collins and Mr. Weidler which are currently vested.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the three years ended March 31, 1998, there were no transactions in
which the amount involved exceeded $60,000 between Eldorado and any director or
executive officer or any security holder known to own more than five percent of
Eldorado's stock, or any immediate family member of any of the foregoing persons
except as follows:
During the fiscal year ended March 31, 1996, proceeds from a bank loan were
used to pay off the note payable of $158,000 to a relative of a shareholder. The
relative of the shareholder used the payment received on the note to gift
$90,485 back to the shareholder to pay off notes due to Eldorado. Additionally,
the relative purchased 15,000 shares of Eldorado's common stock.
No other related transactions are currently proposed.
LEGAL PROCEEDINGS
Eldorado is not involved in any material legal proceedings.
HISTORY OF SECURITY PLACEMENTS
12 FOR 1 REVERSE STOCK SPLIT
In February 1998, Eldorado's Board of Directors approved a 12 for 1 reverse
stock split. This reverse stock split was submitted to shareholder vote in March
1998, and was effective on April 1, 1998.
27
<PAGE>
HISTORICAL STOCK ISSUANCES
Eldorado was formed under the laws of the State of Colorado on April 15,
1986, under the name Lexington Funding, Inc. ("Lexington"). Lexington was
organized for the primary purpose of seeking selected mergers or acquisitions
with a small number of business entities expected to be private companies,
partnerships, or sole proprietorships. Prior to April 1987, the primary activity
of Eldorado was directed to organizational efforts and obtaining initial
financing. Eldorado sold 208,333 shares of its $.001 par value common stock at
$1.20 per share for total proceeds of $250,000 in a public offering which closed
on December 17, 1986.
Effective April 10, 1987, Eldorado acquired all of the shares of Eldorado
Artesian Springs, Inc. ("Eldorado") of Eldorado Springs, Colorado. Eldorado, a
Colorado corporation, was formed in 1983. The acquisition was accomplished by
the exchange of Company stock for all of the outstanding shares of Eldorado from
its shareholders. Pursuant to the acquisition of Eldorado, Eldorado shareholders
received an aggregate of 2,340,000 shares of Eldorado's Common Stock,
representing 90% of outstanding shares of Eldorado after the acquisition. The
number of Company shares of stock exchanged in the acquisition was determined
through arms-length negotiations. In June 1988, Eldorado was merged into
Lexington pursuant to a statutory merger, and Lexington changed its name to
Eldorado Artesian Springs, Inc.
1997 PRIVATE PLACEMENT
In April 1998, Eldorado closed on a private placement of 300,000 shares of
its Common Stock at $2.75 per share to accredited investors through Mills
Financial Services, Inc. under Regulation D of the Securities Act of 1933. Gross
proceeds from the Private Placement were $825,000. The net proceeds of that
offering of $662,000 were applied to (i) purchase of machinery and equipment
($250,000); (ii) PET distribution expenses ($150,000); (iii) working capital
($112,000) and (iv) an escrow for public offering expenses ($150,000).
DESCRIPTION OF SECURITIES
GENERAL
Eldorado is authorized to issue 50,000,000 shares of Common stock, $0.001
par value. As of the date hereof, and before consummation of this offering,
2,995,495 shares of Common Stock were issued and outstanding. The outstanding
Common Stock is fully paid and non-assessable.
COMMON STOCK
The holders of Common Stock are entitled to one vote per share. No
cumulative voting is required or permitted. Therefore, the holders of a majority
of shares voting for the election of directors can elect all directors, and the
remaining holders will not be able to elect any directors.
Holders of Common Stock are entitled to receive such dividends, if any, as
the Board of Directors may from time to time declare out of funds Eldorado has
legally available for the payment of dividends. Holders of the Common Stock are
entitled to share pro rata in any dividends declared. It is not anticipated that
dividends will be paid in the near future. Future dividend policy will depend
upon conditions existing at that time, including Eldorado's earnings and
financial condition.
Upon liquidation, dissolution or winding-up of Eldorado, Common Stock
stockholders are entitled to receive pro rata all of the assets of Eldorado
available for distribution to stockholders. Stockholders of
28
<PAGE>
Eldorado do not have preemptive rights or other rights to subscribe for or
purchase any stock, options, warrants or other securities offered by Eldorado.
The 300,000 shares issued in the private placement in 1997 have certain
registration rights which provide for a single demand right of registration for
the shares and additional "piggyback" rights on registration statements filed by
Eldorado, including the registration statement of which this is a part.
WARRANTS
1997 Warrants
In connection with the 1997 Private Placement, Eldorado issued to Mills
Financial Services, Inc. for a price of $100.00, a warrant to purchase 250,000
shares of Common Stock at an exercise price of $11.00. The warrant will be
exercisable at any time after April 22, 1999, but no later than April 22, 2003.
The Warrant provides for a single demand right of registration for the shares
underlying the warrant and provides for additional rights to "piggyback" the
underlying shares on registration statements filed by Eldorado, including the
registration statement of which this Prospectus is a part.
In connection with the 1997 Private Placement, Eldorado issued to Mills
Financial Services, Inc. for a price of $100.00, a warrant to purchase 30,000
shares of Common Stock at an exercise price of $3.30 per share. The warrant will
be exercisable at any time after April 22, 1999, but no later than April 22,
2003. The Warrant provides for a single demand right of registration for the
shares underlying the warrant and provides for additional rights to "piggyback"
the underlying shares on registration statements filed by Eldorado, including
the registration statement of which this Prospectus is a part.
Underwriter's Warrant
Eldorado has agreed to issue for $700 an Underwriter's Warrant entitling
the Underwriter to purchase Shares of Eldorado's common stock in an amount equal
to ten percent (10%) of the Shares sold in this offering (not including any
Shares sold pursuant to the over-allotment option), at an exercise price of one
hundred twenty percent (120%) of the Public Offering price exercisable any time,
in whole or in part, between the first and fifth anniversary dates of the
effective date of this offering. At any time during the exercise term, the
holders of a majority of these securities shall have the right to require
Eldorado to prepare and file one (1) post-effective amendment to the
registration statement relating to this offering, or a separate registration
statement, if then required under applicable law, covering all or any portion of
the securities. In addition, for a period of five (5) years after the effective
date of the registration statement relating to this offering, the holders of
these securities shall have unlimited "piggyback" registration rights.
TRANSFER AGENT AND WARRANT AGENT
Corporate Stock Transfer, Inc. has been appointed registrar and transfer
agent for the Common Stock and the warrant agent for the Warrants.
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the offering, Eldorado will have 3,695,495 shares of
Common Stock outstanding (3,800,495 if the over-allotment option is exercised in
full). Of these shares, 988,091 (1,093,091 if the over-allotment option is
exercised in full) will be freely tradeable without restriction or registration
under the Securities Act of 1933, as amended (the "Securities Act"), unless held
by affiliates of Eldorado. All of the remaining 2,707,404 shares will be
"restricted securities" as that term is defined in Rule 144 promulgated under
the Securities Act and may only be sold in the public market if such shares are
registered under the Securities Act or sold in accordance with Rule 144
promulgated thereunder.
29
<PAGE>
In general, under Rule 144 a person (or persons whose shares are
aggregated) including an affiliate, who has beneficially owned his shares for
one year, may sell in the open market within any three-month period a number of
shares that does not exceed the greater of (i) 1% of the outstanding shares of
Eldorado's Common Stock (approximately 36,955 shares or approximately 38,005
shares if the over-allotment option is exercised in full), or (ii) the average
weekly trading volume in the Common Stock during the four calendar weeks
preceding such sale. Sales under Rule 144 are also subject to certain
limitations on the manner of sale, notice requirements and availability of
current public information about Eldorado. A person (or persons whose shares are
aggregated) who is deemed not to be an "affiliate" or a recent "affiliate" of
Eldorado and who has beneficially owned his shares for at least two (2) years,
may sell such shares in the public market under Rule 144(k) without regard to
the volume limitations, manner of sale provisions, notice requirements or
availability of current information provisions referred to above. Restricted
shares properly sold in reliance upon Rule 144 are thereafter freely tradeable
without restrictions or registration under the Act, unless thereafter held by an
"affiliate" of Eldorado.
Of the 2,707,404 restricted shares currently outstanding, a total of
2,298,407 shares are held by Douglas A. Larson, Kevin M. Sipple, and Jeremy S.
Martin, officers and directors of Eldorado or their affiliates. Messrs. Larson,
Sipple and Martin have entered into agreements not to sell any shares for a
period of six months following the date of this Prospectus (except pursuant to
privately negotiated transactions or by exercise of stock options). As
affiliates of Eldorado, Messrs. Larson, Sipple and Martin will be further
subject to the volume limitations of Rule 144(e)(1) with respect to any such
sales. Of the restricted shares outstanding, 108,997 shares were acquired from
Eldorado by non-affiliates more than two (2) years prior to the date of this
Prospectus. The balance of 300,000 of the restricted shares were acquired from
Eldorado by non-affiliates in April 1998, and are therefore eligible for sale
under Rule 144(e)(2) subject to certain volume restrictions commencing April
1999. The Underwriter has no plans, proposals, arrangements or understanding
regarding waiver of the lock up agreements. Additionally, 875,000 shares of
Eldorado's common stock are reserved for issuance under Eldorado's Stock Option
Plan, of which 345,500 have been granted. Of the 345,500 options granted,
113,500 options are immediately exerciseable and saleable.
Future sales of substantial amounts of Common Stock in the public market,
or the availability of such shares for future sale, could impair Eldorado's
ability to raise capital through an offering of securities and may adversely
affect the then-prevailing market prices for Eldorado's stock.
30
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions of the Underwriting
Agreement, the Underwriters named below, for whom Mills Financial Services, Inc.
is acting as the Representative, have severally agreed to purchase from
Eldorado, and Eldorado has agreed to sell to the Underwriters named below, the
aggregate number of shares of common stock set forth opposite their respective
names in the table below at the initial offering price less the underwriting
discount set forth on the cover page to this Prospectus. The shares of common
stock are being sold on a firm commitment basis. The Underwriting Agreement
provides, however, that the obligations of the Underwriters to pay for and
accept delivery of the shares of common stock are subject to certain conditions
precedent, and that the Underwriters are committed to purchase all of the shares
of common stock, if any are purchased.
NUMBER
UNDERWRITERS OF SHARES
Mills Financial Services, Inc.
........................................................ ________
Total .....................................................
________
The Representative has advised Eldorado that the Underwriters initially
propose to offer the shares of common stock to the public on the terms set forth
on the cover page of this Prospectus. The Underwriters may allow to selected
dealers a concession of not more than $0.35 per share. After, but not prior to,
the completion of this offering, the offering price and the concession to
selected dealers may be changed by the Representative. The shares of common
stock are offered subject to receipt and acceptance by the Underwriters and to
certain conditions, including the right to reject orders in whole or in part.
Eldorado has granted an option to the Underwriters, exercisable during the
30-day period after the date of this Prospectus, to purchase up to a maximum of
105,000 additional shares of common stock to cover over-allotments, if any, at
the same price per share as the initial 700,000 shares to be purchased by the
Underwriters. To the extent that the Underwriters exercise this option, each
of the Underwriters will be committed, subject to certain conditions, to
purchase such additional shares in approximately the same proportion as set
forth in the above table. The Underwriters may purchase such shares only to
cover over-allotments made in connection with this offering.
Eldorado has agreed to pay the Representative a non-accountable expense
allowance of 3% of the gross proceeds received by Eldorado from the sale of the
shares of common stock, of which $ 25,000 has been paid as of the date of this
Prospectus. In addition to the underwriting discount and the non-accountable
expense allowance, Eldorado is required to pay the costs of qualifying the
shares of common stock under federal and state securities laws, together with
legal and accounting fees, printing and other costs incurred by Eldorado in
connection with this offering. Eldorado estimates that the total offering
expenses, other than the underwriting discount and the non-accountable expense
allowance, will be $194,000.
At the closing of this offering, and subject to the terms and conditions of
the Underwriting Agreement between Eldorado and the Representative, Eldorado has
agreed to sell to the Representative, the Representatives Warrant for an
aggregate purchase price of $700 as additional compensation in connection with
this offering. The Representatives Warrant grants to the Representative the
right to purchase up to 70,000 shares of common stock at a price equal to
120% of the initial public offering price. Eldorado may not redeem the
Representatives Warrant under any circumstances.
The Representatives Warrant may be exercised for a four-year period
beginning one year from the date of this Prospectus. For a period of one year
from the date of this Prospectus, the Representatives Warrant will be restricted
from sale, transfer, assignment or hypothecation, except to officers of the
Representative, other Underwriters or their officers. The Representatives
Warrant will also contain anti-dilution provisions providing for appropriate
adjustment of the exercise price and number of shares which may be purchased
upon exercise, upon the occurrence of certain events. The Representatives
Warrant also provides for a one-time demand registration right (at the expense
of Eldorado), and piggy-back registration rights, each of which rights will be
exercisable during the four-year period commencing one year from the date of
this Prospectus and terminating five years from the date of this Prospectus.
Eldorado has also agreed that the Representative shall have the right of
first refusal for three years from the date of this Prospectus to manage,
underwrite or purchase for its own account any securities sold by Eldorado or
its subsidiaries or successors or, subject to certain exceptions, sold by
shareholders owning more than ten percent (10%) of the outstanding common stock.
<PAGE>
Eldorado and each shareholder owning in excess of ten percent (10%) of the
outstanding common stock, have agreed that, without the prior written consent of
the Representative, they will not, with certain limited exceptions, directly or
indirectly, offer, sell, contract to sell, grant any option to purchase or
otherwise dispose of any shares of common stock or any option to purchase or
otherwise dispose of any shares of common stock or any securities convertible
into or exercisable or exchangeable for shares of common stock or, in any manner
transfer all or a portion of the economic consequences associated with ownership
of the common stock, for a period of 180 days after the effective date of the
registration statement of which this Prospectus is a part, other than the shares
of common stock offered hereby by Eldorado.
The Representative has previously participated in one initial public
offering on a firm commitment basis. This initial public offering was completed
in May 1998. Prospective purchasers should consider this limited experience in
evaluating the shares of common stock offered hereby.
In April 1998, the Representative acted as placement agent in connection
with the offer and sale by Eldorado of 300,000 shares of common stock. As
compensation for its service as placement agent, the Representative received (i)
$82,500 in commissions, (ii) a non-accountable expense allowance of $24,750; and
(iii) an Agent Warrant to purchase 30,000 shares of Eldorado common stock at
$3.30 per share, subject to adjustment under certain circumstances. In addition,
on April 22, 1998, the Representative purchased from Eldorado for $100.00, a
warrant to purchase 250,000 shares of common stock at $11.00 per share, subject
to adjustment under certain circumstances. This warrant is exercisable at any
time during the four-year period commencing on April 22, 1999 and contains
certain rights of registration. Also, in connection with a Consulting Agreement
dated September 10, 1997, the Representative received $25,000 on April 22, 1998
as compensation for the provision of investment banking services to Eldorado.
Eldorado has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act, and to contribute
to payments the Underwriters may be required to make in connection with those
liabilities. It is the opinion of the Securities and Exchange Commission that
such indemnification is contrary to public policy and unenforceable.
The foregoing is not a complete statement of the terms and conditions of
the Underwriting Agreement, the Representatives Warrant or related documents.
Copies of these documents are on file at the office of the Representative,
Eldorado and forms of which were filed as exhibits to the Registration Statement
of which this Prospectus forms a part.
Prior to this offering, there has been only a sporadic public market for
Eldorado's common stock. Consequently, the offering price will be determined by
negotiation between Eldorado and the Representative and will not necessarily
bear any relationship to a price in the public market for the stock, Eldorados
book value, assets, past operating results, financial condition, or other
established criteria of value. Factors to be considered in determining the
public offering price, which will also be used as the basis for the exercise
price for the Representatives Warrant, include the nature of Eldorados business,
its history and present state of development, an assessment of Eldorados recent
financial results and current financial condition, Eldorados future prospects,
the qualifications of the management of Eldorado, market valuations of companies
engaged in the same or similar business as Eldorado, the current condition of
the bottled water industry and the general condition of the securities markets
and the general economy at the time of the offering.
In connection with this offering, certain Underwriters and selected dealers
may engage in transactions that stabilize, maintain or otherwise affect the
market price for the common stock. Such transactions may include stabilization
transactions effected in accordance with Rule 104 of Regulation M under the
Securities Exchange Act of 1934, pursuant to which such persons may bid for or
purchase shares of common stock for the purpose of pegging, fixing or
maintaining the price of the common shares. The Underwriters also may create a
short position for the account of the Underwriters by selling more shares of
common stock in connection with this offering than they are committed to
purchase from Eldorado. The Underwriters may elect to cover any such short
position by purchasing shares of common stock in the open market or by
exercising the over-allotment option granted to the Representative. In addition,
the Representative, on behalf of the Underwriters, may impose "penalty bids"
under contractual arrangements with the other Underwriters whereby it may
reclaim from an Underwriter (or selected dealer) for the account of the other
Underwriters, the selling concession with respect to shares of common stock that
are distributed in this offering but subsequently purchased for the account of
the Underwriters in the open market. Any of the transactions described in this
paragraph may result in the maintenance of the price of the common stock at a
level above that which might otherwise prevail in the open market. None of the
transactions described in this paragraph is required, and, if they are
undertaken, may be discontinued at any time.
The Representative has advised Eldorado that the Underwriters (and any
selected dealers) do not expect to sell any common stock to any accounts over
which they have discretionary authority.
The Representative does not intend to make a market in the common stock
after the conclusion of this offering. There can be no assurance that a public
market of depth and liquidity will develop after the conclusion of this offering
or, if developed, will be maintained.
<PAGE>
Shareholders owning in excess of 10% of Eldorado common stock have entered
into Lock-up Agreements in which they agreed not to sell or grant any option for
sale or otherwise dispose of, directly or indirectly, any shares of common stock
for a period of six months after the date this offering consummates, without the
prior written consent of the underwriter. This Lock-up Agreement does not apply
to the shares of common stock Eldorado will sell to the underwriter in this
offering or to the grant of options to purchase shares of common stock under
Eldorado's Stock Option Plan, or the issuance of shares under these options.
The foregoing does not purport to be a complete statement of the terms and
conditions of the Underwriting Agreement and related documents, copies of which
are on file at the offices of the underwriter, Eldorado and the Securities and
Exchange Commission.
Prior to this offering, there has been a sporadic public market for
Eldorado's common stock. Consequently, the offering price has been determined
through negotiation between Eldorado and the underwriter. The price was based on
a number of factors, including, but not limited to: estimates of the business
potential and earnings prospects of Eldorado, the present state of Eldorado's
development, an assessment of Eldorado's management, the consideration of these
factors in relation to market valuations of companies engaged in the same or
similar business, and the current condition of the bottled water industry and
the economy as a whole.
The underwriter has advised Eldorado that the underwriter does not intend
to confirm sales to any account over which it exercises discretionary authority
without the prior, specific written approval of the customer.
COMMISSION POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to its bylaws, or otherwise, the Company has been advised that in the
opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Company of expenses incurred or paid by a director, officer or controlling
person of the Company in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Company will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
LEGAL MATTERS
The legality of the shares offered hereby will be passed upon for Eldorado
by Chrisman, Bynum & Johnson, P.C. Certain legal matters will be passed upon for
the Underwriter by Peter B. Shaeffer, Esq.
EXPERTS
The financial statements of Eldorado as of March 31, 1998 and the years
ended March 31, 1998 and 1997 have been included herein in reliance upon the
report of Ehrhardt Keefe Steiner & Hottman, P.C., independent certified public
accountants, and are included herein in reliance upon the authority of said firm
as experts in accounting and auditing. With respect to the unaudited interim
financial information for the six months ended September 30, 1998 and 1997, the
independent certified public accountants, have not reviewed or audited such
financial information and have not expressed an opinion or any other form of
assurance with respect to such financial information.
33
<PAGE>
ADDITIONAL INFORMATION
Eldorado is subject to the reporting requirements of the Securities
Exchange Act of 1934 and files quarterly and annual reports, proxy statements
and other information with the Securities and Exchange Commission (the
"Commission"). Eldorado intends to furnish its shareholders with annual reports
containing audited financial statements and such other periodic reports as
Eldorado deems appropriate or as may be required by law. You may read and copy
any materials Eldorado files with the Commission at the Commissions Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain
information on the operation of the Public Reference Room by calling the
Commission at 1-800-SEC-0330. The Commission maintains an Internet site that
contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the Commission. The address of
the site is http://www.sec.gov. Eldorado maintains an Internet site at
http://www.eldoradosprings.com.
Eldorado has filed a Registration Statement on Form SB-2 with the Office of
the Commission in accordance with the provisions of the Securities Act with
respect to the offered securities. This prospectus does not contain all of the
information set forth in the Registration Statement, certain portions of which
have been omitted as permitted by the rules and regulations of the Commission.
For further information with respect to Eldorado and the offered securities,
refer to the Registration Statement and the accompanying exhibits. Statements in
this prospectus concerning the provisions of any document are not necessarily
complete and, in each instance, you should refer to the copy of the document
filed as an exhibit to the Registration Statement. The Registration Statement
and the exhibits may be inspected, without charge at, or copies thereof obtained
at prescribed rates from, the Public Reference Section of the Commission at Room
1024 at its principal office, Judiciary Plaza, 450 Fifth Street, NW, Washington,
DC 20549; or the Public Reference Section of the Midwest Regional Office at Room
1400, 500 West Madison Avenue, Chicago, Illinois 60661-251 1.
34
<PAGE>
ELDORADO ARTESIAN SPRINGS, INC.
INDEX TO FINANCIAL STATEMENTS
-----------------------------
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Independent Auditors' Report.............. F - 2
Financial Statements
Balance Sheets..................... F - 3
Statements of Operations........... F - 4
Statement of Stockholders' Equity.. F - 5
Statements of Cash Flows........... F - 6
Notes to Financial Statements............. F - 8
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Eldorado Artesian Springs, Inc.
Eldorado Springs, Colorado
We have audited the accompanying balance sheet of Eldorado Artesian Springs,
Inc. as of March 31, 1998, and the related statements of operations,
stockholders' equity and cash flows for the years ended March 31, 1998 and 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Eldorado Artesian Springs, Inc.
at March 31, 1998, and the results of its operations and its cash flows for the
years ended March 31, 1998 and 1997 in conformity with generally accepted
accounting principles.
Ehrhardt Keefe Steiner & Hottman PC
May 8, 1998 (except for Note 7
as to which the date is May 19, 1998)
Denver, Colorado
F-2
<PAGE>
ELDORADO ARTESIAN SPRINGS, INC.
Balance Sheets
<TABLE>
<CAPTION>
March 31, September 30,
1998 1998
---------------------- -----------------------
<S> <C> <C>
(Unaudited)
ASSETS
Current assets (Notes 3 and 4)
Cash $ 70,166 $ 322,611
Accounts receivable (Note 2)
Trade - net 498,320 590,469
Other 5,506 7,361
Inventories 122,701 128,992
Prepaid expenses and other 48,313 16,080
Deferred income taxes (Note 5) 16,829 4,633
---------- ----------
Total current assets 761,835 1,070,146
---------- ----------
Property, plant and equipment - net (Notes 2, 3 and 4) 1,525,370 1,802,353
---------- ----------
Other assets (Notes 3 and 4)
Water rights net (Note 2) 114,618 112,374
Restricted cash - 125,000
Deferred offering costs - 25,499
Other 54,898 54,898
---------- ----------
Total other assets 169,516 317,771
---------- ----------
$2,456,721 $3,190,270
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 129,747 $ 124,885
Accrued expenses (Note 2) 79,130 67,760
Line-of-credit (Note 4) 40,000 -
Deposits 49,178 45,407
Current maturities of long-term debt (Note 3) 123,005 162,755
---------- ----------
Total current liabilities 421,060 400,807
Long-term liabilities
Long-term debt (Note 3) 1,431,820 1,439,908
Deferred income taxes (Note 5) 52,921 47,011
---------- ----------
Total liabilities 1,905,801 1,887,726
---------- ----------
Commitments (Notes 3, 4 and 6)
Stockholders' equity (Note 7)
Common stock, par value $.001 per share; 50,000,000 shares
authorized; 2,695,495 (March 31, 1998) and 2,995,495 (September 30,
1998) issued and outstanding 2,695 2,995
Additional paid-in capital 294,875 984,656
Retained earnings 253,350 314,893
---------- ----------
550,920 1,302,544
---------- ----------
$2,456,721 $3,190,270
========== ==========
</TABLE>
See notes to financial statements.
F-3
<PAGE>
ELDORADO ARTESIAN SPRINGS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended For the Six Months Ended
March 31, September 30,
------------------------------------ --------------------------------------
1998 1997 1998 1997
----------------- ----------------- ----------------- -------------------
(Unaudited)
<S> <C> <C> <C> <C>
Revenue
Water and related $3,211,807 $2,521,642 $1,913,422 $1,587,893
Rentals 49,288 47,460 83,030 68,388
Pool 68,349 75,419 23,350 30,890
---------- ---------- ---------- ----------
Net revenue 3,329,444 2,644,521 2,019,802 1,687,171
Cost of goods sold exclusive of
depreciation and amortization 501,288 415,263 285,044 259,391
---------- ---------- ---------- ----------
Gross profit 2,828,156 2,229,258 1,734,758 1,427,780
---------- ---------- ---------- ----------
Operating expenses
Salaries and related 1,310,303 987,703 788,242 658,655
Administrative and general 557,892 437,375 365,706 229,806
Selling and delivery 422,462 288,681 277,043 196,629
Depreciation and amortization 277,914 217,977 160,377 113,956
---------- ---------- ---------- ----------
2,568,571 1,931,736 1,591,368 1,199,046
---------- ---------- ---------- ----------
Operating income 259,585 297,522 143,390 228,734
---------- ---------- ---------- ----------
Other income (expense)
Interest income 3,720 1,000 9,994 2,967
Interest expense (142,803) (111,308) (73,995) (70,781)
Loss on sale of assets (2,871) - - -
---------- ---------- ---------- ----------
(141,954) (110,308) (64,001) (67,814)
---------- ---------- ---------- ----------
Income before income taxes 117,631 187,214 79,389 160,920
---------- ---------- ---------- ----------
Provision for income taxes (Note 5) 34,403 63,062 17,846 32,548
---------- ---------- ---------- ----------
Net income and comprehensive income $ 83,228 $ 124,152 $ 61,543 $ 128,372
========== ========== ========== ==========
Basic and diluted earnings per share $0.03 $0.05 $0.02 $0.05
========== ========== ========== ==========
Weighted average number of shares
outstanding 2,695,495 2,695,495 2,961,069 2,695,495
========== ========== ========== ==========
</TABLE>
See notes to financial statements.
F-4
<PAGE>
ELDORADO ARTESIAN SPRINGS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
Common Stock Additional
-------------------------------- Paid-in Retained
Shares Amount Capital Earnings Total
--------------- --------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
Balance - March 31, 1997 2,695,495 2,695 294,875 170,122 467,692
Net income for the year - - - 83,228 83,228
--------- ------ -------- -------- ----------
Balance - March 31, 1998 2,695,495 2,695 294,875 253,350 550,920
--------- ------ -------- -------- ----------
Sale of common stock (Note
7) 300,000 300 689,781 - 690,081
Net income for the period
April 1, 1998 to
September 30, 1998
(unaudited) - - - 61,543 61,543
--------- ------ -------- -------- ----------
Balance - September 30,
1998 (unaudited) 2,995,495 $2,995 $984,656 $314,893 $1,302,544
========= ====== ======== ======== ==========
</TABLE>
See notes to financial statements.
F-5
<PAGE>
ELDORADO ARTESIAN SPRINGS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended For the Six Months Ended
March 31, September 30,
------------------------------------ ------------------------------------
1998 1997 1998 1997
------------------ ---------------- ----------------- -----------------
<S> <C> <C> <C> <C>
(Unaudited)
Cash flows from operating activities
Net income $ 83,228 $ 124,152 $ 61,543 $ 128,372
----------- --------- --------- -----------
Adjustments to reconcile net income to net
cash provided by operating activities -
Depreciation and amortization 277,914 217,977 160,377 113,956
Loss on sale of asset 2,871 - - -
Deferred income taxes 14,720 16,929 6,286 -
Changes in certain assets and liabilities -
Accounts receivable (221,480) (42,994) (94,004) (165,356)
Inventories (30,153) 3,662 (6,291) (31,058)
Prepaid expenses and other (37,420) 5,890 32,233 1,126
Accounts payable 31,944 44,205 (4,862) 34,073
Accrued expenses (10,765) 8,942 (11,370) (27,347)
Deposits 15,620 9,695 (3,771) (2,524)
----------- --------- --------- -----------
43,251 264,306 78,598 (77,130)
----------- --------- --------- -----------
Net cash provided by operating
activities 126,479 388,458 140,141 51,242
----------- --------- --------- -----------
Cash flows from investing activities
Purchase of property, plant and equipment (535,578) (176,207) (330,041) (236,327)
Proceeds from sale of asset 2,750 - - -
----------- --------- --------- -----------
Net cash flows used in investing
activities (532,828) (176,207) (330,041) (236,327)
----------- --------- --------- -----------
Cash flows from financing activities
Net proceeds from line-of-credit 40,000 - - -
Proceeds from additions to long-term debt 1,500,000 - - 1,500,000
Loan fees and origination cost (19,776) - - (18,196)
Payments on line-of-credit - - (40,000) -
Payments on long-term debt (1,288,474) (56,775) (57,237) (1,232,830)
Proceeds from sale of common stock - - 825,000 -
Costs related to issuance of common stock - - (134,919) -
Deferred offering cost - - (25,499) -
Restricted cash - - (125,000) -
----------- --------- --------- -----------
Net cash flows provided by (used in)
financing activities ----------- --------- --------- -----------
231,750 (56,775) 442,345 248,974
----------- --------- --------- -----------
Net (decrease) increase in cash (174,599) 155,476 252,445 63,889
Cash - beginning of year 244,765 89,289 70,166 244,765
----------- --------- --------- -----------
Cash - end of year $ 70,166 $ 244,765 $ 322,611 $ 308,654
=========== ========= ========= ===========
</TABLE>
Continued on next page.
See notes to financial statements.
F-6
<PAGE>
ELDORADO ARTESIAN SPRINGS, INC.
STATEMENTS OF CASH FLOWS
Continued from previous page.
Supplemental disclosures of cash flow information:
Cash paid during the year for interest was $142,803 and $111,308 (March 31,
1998 and 1997, respectively) and $73,995 and $70,781 (September 30, 1998
and 1997, respectively).
Cash paid during the year for income taxes was $33,844 and $44,445 (March
31, 1998 and 1997, respectively) and $14,011 and $10,132 (September 30,
1998 and 1997, respectively).
Supplemental disclosure of noncash investing activity:
During the year ended March 31, 1998 and six months ended September 30,
1998, equipment was acquired through a capital lease for $41,050 and
$105,075, respectively.
See notes to financial statements.
F-7
<PAGE>
ELDORADO ARTESIAN SPRINGS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------
Organization
- ------------
Eldorado Artesian Springs Inc. (the "Company") is a Colorado corporation which
primarily sells bottled artesian spring water and rents water dispensers. The
Company also rents housing, and during the summer months, it operates a natural
artesian spring pool. The Company grants credit to its customers, substantially
all of whom are located in Colorado.
Interim Financial Statements
- ----------------------------
In the opinion of the Company's management, the accompanying unaudited financial
statements contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position of the Company at
September 30, 1998 and the results of its operations and changes in cash flows
for the six months ended September 30, 1997 and 1998. The results of operations
for the six months ended September 30, 1998 are not necessarily indicative of
the results to be expected for the full year.
Inventories
- -----------
Inventories consist primarily of water bottles and packaging and are stated at
the lower of cost or market, on a first-in, first-out basis.
Property, Plant and Equipment
- -----------------------------
Property, plant and equipment are stated at cost. Machinery, equipment,
furniture and fixtures are depreciated using various methods over their
estimated useful lives which range from three to seven years. Buildings and
improvements are depreciated using the straight-line method over their estimated
useful lives which range from fifteen to thirty-nine years.
Other Assets
- ------------
Other assets consisting of water rights, customer list, loan fees, slotting fees
and plate costs are carried at cost and are being amortized on the straight-line
basis over five to forty years.
Deposits
- --------
Deposits consist primarily of deposits on bottles.
Deferred Offering Costs
- -----------------------
Deferred offering costs represent amounts paid in connection with a future stock
offering. Such amounts are capitalized upon a successful offering or expensed
if the offer is never consummated.
F-8
<PAGE>
ELDORADO ARTESIAN SPRINGS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- --------------------------------------------------------------------------------
Revenue and Expense
- -------------------
Revenue is recognized on the sale of its products as customer shipments are
made. Returns are recognized when the product is received. Rental revenue is
recognized on a monthly basis upon commencement of the lease agreement.
Basic Earnings Per Share
- ------------------------
During the year ended March 31, 1998, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 128, Earnings Per Share (SFAS
No. 128). SFAS 128 established new definitions for calculating and disclosing
basic and diluted earnings per share. Basic earnings per share is based upon
the weighted average number of shares outstanding as defined in SFAS 128. No
diluted earnings per share is presented as no there are no potential dilutive
common shares.
Reclassifications
- -----------------
Certain amounts for the year ended March 31, 1997 and six months ended September
30, 1997, have been reclassified to conform with the 1998 presentation.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Fair Value of Financial Instruments
- -----------------------------------
The carrying amounts of financial instruments including cash, accounts
receivable, line-of-credit, accounts payable, deposits and accrued expenses
approximated fair value as of March 31, 1998 and September 30, 1998 because of
the relatively short maturity of these instruments.
Due to rates currently available to the Company for debt which are similar to
terms on the remaining maturities, the fair value of existing debt approximates
carrying value.
Advertising Costs
- -----------------
Advertising costs are expensed as incurred.
F-9
<PAGE>
ELDORADO ARTESIAN SPRINGS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SELECTED BALANCE SHEET INFORMATION
- -------------------------------------------
<TABLE>
<CAPTION>
March 31, September 30,
1998 1998
-------------------- ----------------------
<S> <C> <C>
(Unaudited)
Accounts receivable
Trade $ 508,320 $ 600,469
Less allowance for doubtful accounts (10,000) (10,000)
----------- -----------
$ 498,320 $ 590,469
=========== ===========
Property, plant and equipment
Land $ 225,194 $ 225,194
Buildings and improvements 1,101,748 1,140,020
Machinery and equipment 1,706,460 2,042,658
Vehicles 19,831 19,831
Office furniture and fixtures 84,250 141,995
----------- -----------
3,137,483 3,569,698
Less accumulated depreciation (1,612,113) (1,767,345)
----------- -----------
$ 1,525,370 $ 1,802,353
=========== ===========
Other assets
Water rights $ 179,500 $ 179,500
Less accumulated amortization (64,882) (67,126)
----------- -----------
$ 114,618 $ 112,374
=========== ===========
Accrued expenses
Property taxes $ 20,973 $ 8,978
Sales tax 9,408 10,380
Income taxes 16,597 2,586
Payroll and payroll taxes 32,152 45,816
----------- -----------
$ 79,130 $ 67,760
=========== ===========
</TABLE>
F-10
<PAGE>
ELDORADO ARTESIAN SPRINGS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 3 - LONG-TERM DEBT
- -----------------------
<TABLE>
<CAPTION>
Note Payable to Bank March 31, September 30,
- -------------------- 1998 1998
------------------- --------------------
<S> <C> <C>
(Unaudited)
Note payable to bank due June 20, 2012, interest at bank
prime plus .5% (9% at March 31, 1998 and September 30,
1998). Monthly principal and interest payments of $12,244
with all unpaid principal and interest due at maturity.
Collateralized by substantially all assets of the Company
and assignment of rents. $1,167,692 $1,150,838
Note payable to bank due June 20, 2002, interest at 9.75%,
monthly principal and interest payments of $6,346 with all
unpaid principal and interest due at maturity.
Collateralized by substantially all assets of the Company
and assignment of rents. 263,797 238,109
Capital Lease
- -------------
Capital lease for equipment. Monthly minimum lease payments
of $3,159, due April 1, 2002. 82,286 119,275
Capital lease for equipment. Monthly minimum lease payments
of $3,274, due April 25, 2001. 41,050 94,440
---------- ----------
$1,554,825 $1,602,662
========== ==========
</TABLE>
The cost of equipment under capital lease at March 31, 1998 and September 30,
1998 was $143,305 and $190,060 with accumulated depreciation of $25,404 and
$35,443, respectively.
F-11
<PAGE>
ELDORADO ARTESIAN SPRINGS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 3 - LONG-TERM DEBT (CONTINUED)
- -----------------------------------
Future maturities of long-term debt:
<TABLE>
<CAPTION>
Capital
Notes
Year Ending March 31, 1998 Payable Leases Total
- -------------------------- ------------------ ------------------ ------------------
<S> <C> <C> <C>
1999 $96,448 $38,803 $135,251
2000 103,756 40,157 143,913
2001 114,122 40,157 154,279
2002 125,525 25,263 150,788
2003 79,087 15,286 94,373
Thereafter 912,551 - 912,551
------- ------- -------
1,431,489 159,666 1,591,155
Less amount representing interest
- (36,330) (36,330)
------- ------- -------
Total principal 1,431,489 123,336 1,554,825
Less current portion (96,448) (26,557) (123,005)
------- ------- --------
$1,335,041 $96,779 $1,431,820
========== ======= ==========
</TABLE>
NOTE 4 - LINE-OF-CREDIT
- -----------------------
The Company entered into an agreement with a bank for a line-of-credit of
$100,000 due June 20, 1998. The interest rate is calculated at prime plus 1%
which was 9.5% at March 31, 1998. Interest is payable monthly and the line is
collateralized by substantially all of the assets of the Company. The
outstanding balance at March 31, 1998 and September 30, 1998 was $40,000 and $0,
respectively.
NOTE 5 - INCOME TAXES
- ---------------------
The Company recognizes deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Deferred tax liabilities and assets are determined
based on the difference between the financial statement and tax basis of assets
and liabilities using the enacted tax rates in effect for the year in which the
differences are expected to reverse. The measurement of deferred tax assets is
reduced, if necessary, by the amount of any tax benefits that, based on
available evidence, are not expected to be realized.
F-12
<PAGE>
ELDORADO ARTESIAN SPRINGS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 5 - INCOME TAXES (CONTINUED)
- ---------------------------------
The net current and long-term deferred tax in the accompanying balance sheet
includes the following deferred tax assets and liabilities.
<TABLE>
<CAPTION>
March 31, September 30,
1998 1998
--------------------- ---------------------
(Unaudited)
<S> <C> <C>
Current deferred tax asset
$ 16,829 $ 4,633
Current deferred tax liability - -
--------------------- ---------------------
Net current deferred tax asset $ 16,829 $ 4,633
===================== =====================
Long-term deferred tax asset $ - $ -
Long-term deferred tax liability 52,921 47,011
--------------------- ---------------------
Net long-term deferred tax liability $ 52,921 $ 47,011
===================== =====================
</TABLE>
The provision for income taxes is summarized as follows:
<TABLE>
<CAPTION>
For the Years Ended For the Six Months Ended
March 31, September 30,
-------------------------------- --------------------------------
1998 1997 1998 1997
--------------- --------------- --------------- ---------------
(Unaudited)
<S> <C> <C> <C> <C>
Current
$19,683 $46,133 $11,559 $22,784
Deferred
14,720 16,929 6,287 9,764
------ ------ ----- -----
Total
$34,403 $63,062 $17,846 $32,548
======= ======= ======= =======
</TABLE>
F-13
<PAGE>
ELDORADO ARTESIAN SPRINGS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 5 - INCOME TAXES (CONTINUED)
- ---------------------------------
The following is a reconciliation of income taxes at the Federal Statutory rate
with income taxes recorded by the Company.
<TABLE>
<CAPTION>
For the Years Ended For the Six Months Ended
March 31, September 30,
-------------------------------- --------------------------------
1998 1997 1998 1997
--------------- --------------- --------------- ---------------
(Unaudited)
<S> <C> <C> <C> <C>
Computed income taxes at statutory rate
- net of surtax
$31,503 $57,862 $15,246 $27,248
State income taxes, net of Federal
income tax benefit and other 2,900 5,200 2,600 5,300
----- ----- ----- -----
$34,403 $63,062 $17,846 $32,548
======= ======= ======= =======
</TABLE>
Income tax amounts for unaudited periods are calculated using estimates based on
projected year end income.
Deferred taxes are recorded based upon differences between the financial
statement and tax basis of assets and liabilities and available tax credit
carryforwards. Temporary differences and carryforwards which give rise to a
significant portion of deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
March 31, September 30,
1998 1998
------------------- -------------------
(Unaudited)
<S> <C> <C>
Differences related to fixed assets
$(43,366) $(50,891)
Differences related to other assets
(9,555) (8,316)
Allowance for doubtful accounts
3,633 3,633
Alternative minimum tax and ITC credit carryforward
13,196 13,196
------ ------
$(36,092) $(42,378)
======== ========
</TABLE>
F-14
<PAGE>
ELDORADO ARTESIAN SPRINGS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 6 - COMMITMENTS
- --------------------
The Company has various long-term leases for delivery trucks and equipment. The
following is a schedule by year of future minimum lease payments as of March 31,
1998.
<TABLE>
<CAPTION>
March 31
Year Ending March 31, 1998
- --------------------- ---------------------
<S> <C>
1999 $131,739
2000 112,314
2001 63,668
2002 38,086
2003 8,268
Thereafter -
---------------------
$354,075
=====================
</TABLE>
Total rental expense for the years ended March 31, 1998 and 1997 was $133,948
and $96,800, respectively. Total rent expense for the six months ended
September 30, 1998 and 1997 was $81,984 and $60,987, respectively.
NOTE 7 STOCKHOLDERS' EQUITY
- ----------------------------
Reverse Stock Split
- -------------------
On April 1, 1998, the Company filed with the state to amend its articles of
incorporation to reflect a 12 to 1 reverse stock split that was previously
approved by a vote of the shareholders. Accordingly, all weighted average share
and per share information throughout the financial statements has been restated
for periods prior to the reverse split.
Private Placement
- -----------------
On April 22, 1998, the Company completed a private placement of 300,000 shares
of common stock at $2.75 per share. The Company received proceeds net of
offering costs of approximately $690,000 from the private placement of which
$150,000 was placed in a joint account with the placement agent for a potential
secondary public offering.
In connection with the private placement, the Company issued a warrant to
purchase 30,000 and 250,000 shares of common stock at $3.30 and $11.00 per
share, respectively. The warrants will be exercisable at any time after
April 22, 1999, but no later than April 22, 2003.
F-15
<PAGE>
ELDORADO ARTESIAN SPRINGS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 7 STOCKHOLDERS' EQUITY (CONTINUED)
- ----------------------------------------
Stock Option Plan
- -----------------
On May 19, 1998, the Company registered 875,000 shares of common stock of the
Company pursuant to the 1997 stock option plan (the Plan). The Plan provides
for the grant of stock options to employees, directors and consultants of the
Company. From time to time, the board may grant options to advance the interest
of the Company.
As of September 30, 1998, 345,500 options were issued to employees. 113,500 of
these shares were granted to employees that vest immediately. Such options
expire on September 10, 2007. Of the remaining 232,000 shares, 31,200 vest in
1999, 34,400 in 2000, 37,600 in 2001, 41,800 in 2002, 45,000 in 2003, 13,000 in
2004, 14,000 in 2005 and 15,000 in 2006. All of the options were issued with an
option price of $2.75 per share, fair market value at the date of grant. Options
will terminate no later than the expiration of ten years from the date of the
grant, subject to earlier termination due to termination of service. The Plan
will terminate by its terms on September 10, 2007, and also may be terminated at
any time by the exercise of all outstanding options.
F-16
<PAGE>
================================================================================
NO DEALER, SALES PERSON OR ANY OTHER PERSON IS AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THIS OFFERING. YOU MAY NOT RELY ON SUCH
INFORMATION OR REPRESENTATIONS AS HAVING BEEN GIVEN OR MADE BY ELDORADO OR ANY
UNDERWRITER. THIS PROSPECTUS IS NOT AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY THE SECURITIES IN ANY STATE WHERE SUCH OFFER OR SOLICITATION IS NOT
PERMITTED. DELIVERY OF THIS PROSPECTUS OR ANY SALE OF THE SECURITIES IS NOT AN
INDICATION THAT ELDORADO'S BUSINESS HAS NOT CHANGED SINCE THE DATE OF THIS
PROSPECTUS OR THAT INFORMATION IN THE PROSPECTUS IS CORRECT AS OF ANY TIME AFTER
THE DATE OF THIS PROSPECTUS.
---------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary............................................................ 5
Eldorado Artesian Springs................................................... 5
The Offering................................................................ 5
Summary Financial and Operating
Information................................................................ 6
Risk Factors.................................................................. 7
Use of Proceeds...............................................................13
Dividend Policy...............................................................13
Determination of the Offering Price...........................................14
Dilution......................................................................14
Capitalization................................................................15
Management Discussion and Analysis of
Results of Operations and Financial
Condition...................................................................16
Eldorado and its Business.....................................................19
Management....................................................................26
Principal Stockholders........................................................29
Certain Transactions and Related
Transactions................................................................29
Legal Proceedings.............................................................29
History of Securities Placements..............................................29
Description of Securities.....................................................30
Shares Eligible for Future Sale...............................................31
Underwriting..................................................................33
Commission Position on Indemnification for
Securities Act Liabilities..................................................35
Legal Matters.................................................................35
Experts.......................................................................35
Additional Information........................................................36
Index to Financial Statements................................................F-1
---------------
DEALER PROSPECTUS DELIVERY OBLIGATION UNTIL ______, 1998, ALL DEALERS EFFECTING
TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING,
MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION
OF DEALERS TO DELIVER A PROSPECTUS AS WHEN ACTING AS UNDERWRITERS AND WITH
RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
================================================================================
================================================================================
700,000 SHARES
OF
COMMON STOCK
ELDORADO ARTESIAN
SPRINGS, INC.
----------------
PROSPECTUS
----------------
MILLS FINANCIAL SERVICES, INC.
_______, 1998
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Articles of Incorporation and Bylaws of Eldorado provide that Eldorado
shall indemnify to the fullest extent permitted by Colorado law any person who
was or is a party, or is threatened to be made a party, to any threatened,
pending or completed action, suit or proceeding, by reason of the fact that he
or she is or was a director or officer of Eldorado or is or was serving at the
request of Eldorado in any capacity and in any other corporation, partnership,
joint venture, trust or other enterprise. The Colorado Business Corporation Act
(the "Colorado Act") permits Eldorado to indemnify an officer or director who
was or is a party or is threatened to be made a party to any proceeding because
of his or her position, if the officer or director acted in good faith and in a
manner he or she reasonably believed to be in the best interests of Eldorado or,
if such officer or director was not acting in an official capacity for Eldorado,
he or she reasonably believed the conduct was not opposed to the best interests
of Eldorado. Indemnification is mandatory if the officer or director was wholly
successful, on the merits or otherwise, in defending such proceeding. Such
indemnification (other than as ordered by a court) shall be made by Eldorado
only upon a determination that indemnification is proper in the circumstances
because the individual met the applicable standard of conduct. Advances for such
indemnification may be made pending such determination. Such determination shall
be made by a majority vote of a quorum consisting of disinterested directors or
of a committee of at least two disinterested directors, or by independent legal
counsel or by the shareholders.
In addition, the Articles of Incorporation provide for the elimination, to
the extent permitted by Colorado law, of personal liability of directors to
Eldorado and its shareholders for monetary damages for breach of fiduciary duty
as directors. The Colorado Act provides for the elimination of personal
liability of directors for damages occasioned by breach of fiduciary duty,
except for liability based on the director's duty of loyalty to Eldorado,
liability for acts or omissions not made in good faith, liability for acts or
omissions involving intentional misconduct, liability based on payments of
improper dividends, liability based on violations of state securities laws, and
liability for acts occurring prior to the date such provision was added.
Eldorado is currently obtaining quotes on directors and officers liability
insurance.
See the second and third paragraphs of Item 28 below for information
regarding the position of the Securities and Exchange Commission with respect to
the effect of any indemnification for liabilities arising under the Securities
Act.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated costs and expenses to be borne
by Eldorado in connection with the offering described in the Registration
Statement, other than underwriting Commissions and discounts.
Registration Fee........................................... $ 1,342
National Association of Securities Dealers, Inc. Fee....... 750
Non-Accountable Expense Allowance.......................... 126,000
Legal Fees and Expenses.................................... 75,000
Accounting Fees and Expenses............................... 40,000
Printing and Engraving Expenses............................ 50,000
Blue Sky Fees and Expenses................................. 15,000
Transfer Agent's and Registrar' s Fees..................... 1,000
Market Listing Fees........................................ 10,000
Miscellaneous 908
-------
Total..................................................... 320,000
=======
II-1
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
The Registrant sold the following unregistered securities during the past
three years.
(1) On April 22, 1998, Eldorado sold 300,000 shares of its Common Stock to
accredited investors through Mills Financial Services, Inc. for the
aggregate offering price of $825,000. Eldorado believes such transaction was
private in nature and was exempt from the registration requirements of
Section 5 of the Securities Act of 1933 (the "Securities Act") by virtue of
the exemption contained in Section 4(2) of the Securities Act and Rules 505
and 506 of Regulation D.
ITEM 27. EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
----------------------
1.1 Form of Underwriting Agreement between Eldorado and the Underwriter.
1.2 Form of warrant to be issued to the Underwriter.*
3.1 Articles of Incorporation, as amended, incorporated by reference to
Exhibit 3.1 filed with Eldorado's Form 10-KSB for the fiscal year ended
March 31, 1998
3.2 Bylaws of Eldorado, incorporated by reference to Exhibit No. 3 to the
Registration Statement (No. 33-6738-D)
4.1 Form of certificate for shares of Common Stock.*
5.1 Opinion of Chrisman, Bynum & Johnson, P.C.
10.1 Eldorado Artesian Springs, Inc. 1997 Stock Option Plan
10.2 Promissory Note with First National Bank of Boulder County dated June 27,
1997
10.3 Deed of Trust to secure a loan from First National Bank of Boulder County
dated June 27, 1997
23.1 Consent of Ehrhart Keefe Steiner & Hottman PC
23.2 Consent of Chrisman, Bynum & Johnson, P.C. (included in its opinion filed
as Exhibit 5.1)
24.1 Power of Attorney (included in signature page of original filing)
_________________________
*To be filed by amendment
II-2
<PAGE>
ITEM 28. UNDERTAKINGS.
The undersigned small business issuer will provide to the Underwriter at the
closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the small business issuer pursuant to the foregoing
provisions, or otherwise, the small business issuer has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the small business issuer of expenses incurred or paid by a
director, officer or controlling person of the small business issuer in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The undersigned small business issuer will:
(1) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the small business issuer pursuant to Rule 424(b)(1), or
(4) or 497(h) under the Securities Act as part of this registration statement
as of the time the Commission declared it effective.
(2) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration
statement, and that offering of the securities at that time as the initial
bona fide offering of those securities.
II-3
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and has caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Boulder State of Colorado, on the 1st day of
December, 1998.
ELDORADO ARTESIAN SPRINGS, INC.
By: /s/ Douglas A. Larson
-------------------------------------------
Douglas A. Larson, Chief Executive Officer
(Principal Executive Officer)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Douglas A. Larson his true and lawful
attorney-in-fact and agent, with full powers of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments to this Registration Statement, including post-effective
amendments, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, and hereby ratifies and confirms all his said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
Name Title Date
- ---- ----- ----
/s/ Douglas A. Larson President, Chief Executive Officer, December 1, 1998
- ----------------------- Director
Douglas A. Larson
/s/ Kevin M. Sipple Vice President and Secretary December 1, 1998
- ----------------------- Director
Kevin M. Sipple
/s/ Jeremy S. Martin Vice President, Director December 1, 1998
- -----------------------
Jeremy S. Martin
/s/ Cathleen M. Collins Chief Financial Officer (Principal
- ----------------------- Financial Officer) December 1, 1998
Cathleen M. Collins
Director December _, 1998
- -----------------------
George V. Schmitt
Director December _, 1998
- -----------------------
Don P. VanWinkle
II-4
<PAGE>
EXHIBIT 1.1
700,000 Shares
ELDORADO ARTESIAN SPRINGS, INC.
Common Stock
UNDERWRITING AGREEMENT
_______________, 1999
MILLS FINANCIAL SERVICES, INC.
20 N. Clark Street, Ste. 2411
Chicago, Illinois 60602
Dear Sirs:
Section 1. Introductory.
------------
ELDORADO ARTESIAN SPRINGS, INC., a Colorado corporation (the "Company"),
proposes to issue and sell 700,000 shares of its authorized but unissued common
stock, $.001 par value (the "Firm Common Shares") to you, or if there be any so
named, to the several underwriters named in Schedule A annexed hereto (the
"Underwriters"), for whom you are acting as Representative. In addition, the
Company proposes to grant to you or to the Underwriters, as the case may be, an
option to purchase up to an aggregate of 105,000 additional shares of common
stock (the "Optional Common Shares"), as provided in Section 5 hereof. The Firm
Common Shares and, to the extent such option is exercised, the Optional Common
Shares are hereinafter collectively referred to as the "Common Shares."
In addition, the Company proposes to sell to Mills Financial Services, Inc.
warrants ("Representative's Warrants") to purchase 70,000 shares of common stock
in accordance with the terms and conditions provided for herein.
You have advised the Company that you or the Underwriters, as the case may be,
propose to make a public offering of their respective portions of the Common
Shares on the effective date of the registration statement hereinafter referred
to, or as soon thereafter as in your judgment is advisable.
The Company hereby confirms its agreements with respect to the purchase of the
Common Shares by you or the Underwriters, as the case may be, as follows.
Section 2. Representations and Warranties of the Company.
---------------------------------------------
The Company represents and warrants to the several Underwriters that:
<PAGE>
(a) A registration statement on Form SB-2 (File No. ________) with respect to
the Common Shares has been prepared by the Company in conformity with the
requirements of the Securities Act of 1933, as amended (the "Act"), and the
rules and regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder, and has been filed with the
Commission. If the Company prepares and files prior to the effective date of
such registration statement an amendment or amendments to such registration
statement, such amendment or amendments will have been similarly prepared. There
have been delivered to you two signed copies of such registration statement and
all amendments, if any, together with two copies of each exhibit filed
therewith. Conformed copies of such registration statement and amendments, if
any, (but without exhibits) and of any related preliminary prospectus have been
delivered to you in such reasonable quantities as you have requested for you and
for each of the Underwriters, as the case may be. The Company will next file
with the Commission one of the following: (i) prior to effectiveness of such
registration statement, a further amendment thereto, including the form of final
prospectus, or (ii) a final prospectus in accordance with Rules 430A and 424(b)
of the Rules and Regulations. As filed, such amendment and form of final
prospectus, or such final prospectus, shall include all Rule 430A Information
and, except to the extent that you shall agree in writing to a modification,
shall be in all substantive respects in the form furnished to you prior to the
date and time that this Agreement was executed and delivered by the parties
hereto, or, to the extent not completed at such date and time, shall contain
only such specific substantive changes (beyond that contained in the latest
Preliminary Prospectus) as the Company shall have previously advised you in
writing would be included or made therein.
The term "Registration Statement" as used in this Agreement shall mean such
registration statement at the time such registration statement becomes effective
and, in the event any post-effective amendment thereto becomes effective prior
to the First Closing Date (as hereinafter defined), shall also mean such
registration statement as so amended; provided, however, that such term shall
also include all Rule 430A Information deemed to be included in such
registration statement at the time such registration statement becomes effective
as provided by Rule 430A of the Rules and Regulations. The term "Preliminary
Prospectus" shall mean any preliminary prospectus referred to in the preceding
paragraph and any preliminary prospectus included in the Registration Statement
at the time it becomes effective that omits Rule 430A Information. The term
"Prospectus" as used in this Agreement shall mean the prospectus relating to the
Common Shares in the form in which it is first filed with the Commission
pursuant to Rule 424(b) of the Rules and Regulations or, if no filing pursuant
to Rule 424(b) of the Rules and Regulations is required, shall mean the form of
final prospectus included in the Registration Statement at the time such
registration statement becomes effective. The term "Rule 430(A) Information"
means information with respect to the Common Shares and the offering thereof
permitted to be omitted from the Registration Statement when it becomes
effective pursuant to Rule 430(A) of the Rules and Regulations. Any reference
herein to any Preliminary Prospectus or the Prospectus shall be deemed to refer
to and include the documents incorporated by reference therein pursuant to Form
SB-2 under the Act, as of the date of such Preliminary Prospectus or Prospectus,
as the case may be.
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<PAGE>
(b) The Commission has not issued any order preventing or suspending the use
of any Preliminary Prospectus, and at the time the Registration Statement
becomes effective, and at all times subsequent thereto up to and including each
Closing Date hereinafter mentioned, the Registration Statement and the
Prospectus, and any amendments or supplements thereto, will contain all material
statements and information required to be included therein by the Act and the
Rules and Regulations and will in all material respects conform to the
requirements of the Act and the Rules and Regulations, and neither the
Registration Statement nor the Prospectus, nor any amendment or supplement
thereto, will include any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading; provided, however, no representation or warranty
contained in this subsection 2(b) shall be applicable to information contained
in or omitted from the Registration Statement, the Prospectus or any such
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by you or by or on behalf of any
Underwriter, directly or through the Representative, specifically for use in the
preparation thereof.
(c) The Company does not own or control, directly or indirectly, any
corporation, association or other entity. The Company has been duly incorporated
and is validly existing as a corporation in good standing under the laws of its
jurisdiction of incorporation, with full power and authority (corporate and
other) to own and lease its properties and conduct its business as described in
the Prospectus; the Company is in possession of and operating in compliance with
all authorizations, licenses, permits, consents, certificates and orders
material to the conduct of its business, all of which are valid and in full
force and effect; the Company is duly qualified to do business and in good
standing as a foreign corporation in each jurisdiction in which the ownership or
leasing of properties or the conduct of its business requires such qualification
except for jurisdictions in which the Company has no place of business and in
which the failure to so qualify would not have a material adverse effect upon
the Company; and no proceeding has been instituted in any such jurisdiction,
revoking, limiting or curtailing, or seeking to revoke, limit or curtail, such
power and authority or qualification.
(d) The Company has an authorized and outstanding capital stock as set forth
under the heading "Capitalization" in the Prospectus and has outstanding
____________ shares of common stock; the issued and outstanding shares of common
stock have been duly authorized and validly issued, are fully paid and
nonassessable, have been issued in compliance with all federal and state
securities laws, were not issued in violation of or subject to any preemptive
rights or other rights to subscribe for or purchase securities, and conform to
the description thereof contained in the Prospectus. Except as disclosed in or
contemplated by the Prospectus and the financial statements of the Company, and
the related notes thereto, included in the Prospectus, the Company does not have
outstanding any options to purchase, or any preemptive rights or other rights to
subscribe for or to purchase, any securities or obligations convertible into, or
any contracts or commitments to issue or sell, shares of its capital stock or
any such options, rights, convertible securities or obligations. The description
of the Company's stock option, stock purchase and other stock plans or
arrangements, and the options or other rights granted and exercised thereunder,
set forth under the heading "Stock
3
<PAGE>
Option Plan" in Prospectus accurately and fairly presents the information
required to be shown with respect to such plans, arrangements, options and
rights.
(e) The Common Shares to be sold by the Company have been duly authorized and,
when issued, delivered and paid for in the manner set forth in this Agreement,
will be duly authorized, validly issued, fully paid and nonassessable, and will
conform to the description thereof contained in the Prospectus. No preemptive
rights or other rights to subscribe for or purchase exist with respect to the
issuance and sale of the Common Shares by the Company pursuant to this
Agreement. No stockholder of the Company has any right which has not been waived
to require the Company to register the sale of any shares owned by such
stockholder under the Act in the public offering contemplated by this Agreement.
No further approval or authority of the stockholders or the Board of Directors
of the Company will be required for the transfer and sale of the Common Shares
to be sold by the Company as contemplated herein.
(f) The Company has full legal right, power and authority to enter into this
Agreement and perform the transactions contemplated hereby. This Agreement has
been duly authorized, executed and delivered by the Company and constitutes a
valid and binding obligation of the Company in accordance with its terms. The
making and performance of this Agreement by the Company and the consummation of
the transactions herein contemplated will not violate any provisions of the
Company's Articles of Incorporation or Bylaws and will not conflict with, result
in the breach or violation of, or constitute, either by itself or upon notice or
the passage of time or both, a default under any agreement, mortgage, deed of
trust, lease, franchise, license, indenture, permit or other instrument to which
the Company is a party or by which the Company or any of its properties may be
bound or affected, any statute or any authorization, judgment, decree, order,
rule or regulation of any court or any regulatory body, administrative agency or
other governmental body applicable to the Company or any of its properties. No
consent, approval, authorization or other order of any court, regulatory body,
administrative agency or other governmental body is required for the execution
and delivery of this Agreement or the consummation of the transactions
contemplated by this Agreement, except for compliance with the Act, the Blue Sky
laws applicable to the public offering of the Common Shares by you or the
several Underwriters, as the case may be, the inclusion of the Common Shares in
the NASDAQ SmallCap Market and the clearance of such offering with the National
Association of Securities Dealers, Inc. (the "NASD").
(g) The financial statements and schedules of the Company, and the related
notes thereto, included in the Registration Statement and the Prospectus present
fairly the financial position of the Company as of the respective dates of such
financial statements and schedules, and the results of operations and changes in
financial position of the Company for the respective periods covered thereby.
Such statements, schedules and related notes have been prepared in accordance
with generally accepted accounting principles applied on a consistent basis as
certified by Ehrhardt Keefe Steiner & Hottman.
(h) There are no legal or governmental actions, suits or proceedings pending
or, to the best of the Company's knowledge, threatened to which the Company is
or may be a party
4
<PAGE>
or of which property owned or leased by the Company is or may be the subject, or
related to environmental or discrimination matters, which actions, suits or
proceedings might, individually or in the aggregate, prevent or adversely affect
the transactions contemplated by this Agreement or result in a material adverse
change in the condition (financial or otherwise), properties, business, results
of operations or prospects of the Company; and no labor disturbance by the
employees of the Company exists or is imminent which might be expected to affect
adversely such condition, properties, business, results of operations or
prospects. The Company is not a party or subject to the provisions of any
material injunction, judgment, decree or order of any court, regulatory body,
administrative agency or other governmental body.
(i) Since the respective dates as of which information is given in the
Registration Statement and Prospectus, and except as described in or
specifically contemplated by the Prospectus: (1) the Company has not incurred
any material liabilities or obligations, indirect, direct or contingent, or
entered into any material agreement or other transaction which is not in the
ordinary course of business; (2) the Company has not sustained any material loss
or interference with its business or properties from fire, flood, windstorm,
accident or other calamity, whether or not covered by insurance; (3) the Company
has not paid or declared any dividends or other distributions with respect to
its capital stock and the Company is not in default in the payment of principal
or interest on any outstanding debt obligations; (4) there has not been any
change in the capital stock (other than upon the sale of the Common Shares
hereunder and upon the exercise of options or pursuant to other employee benefit
plans described in the Registration Statement) or indebtedness material to the
Company (other than in the ordinary course of business); and (5) there has not
been any material adverse change in the condition (financial or otherwise),
business, properties, results of operations or prospects of the Company.
(j) The Company has timely filed all necessary federal, state and foreign
income and franchise tax returns and has paid all taxes shown as due thereon;
and the Company has no knowledge of any tax deficiency which has been or might
be asserted or threatened against the Company which could materially and
adversely affect the business, operations or properties of the Company.
(k) The Company maintains insurance with insurers of recognized financial
responsibility of the types and in the amounts generally deemed adequate for its
businesses and consistent with insurance coverage maintained by similar
companies in similar businesses, including, but not limited to, insurance
covering product liability and insurance covering real and personal property
owned or leased by the Company against theft, damage, destruction, acts of
vandalism and all other risks customarily insured against, all of which
insurance is in full force and effect; the Company has not been refused any
insurance coverage sought or applied for; and the Company does not have any
reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or obtain similar coverage from
similar insurers as may be necessary to continue its business at a cost that
would not materially and adversely affect the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company.
5
<PAGE>
(l) To the best of the Company's knowledge, after reasonable investigation,
no labor disturbance by the employees of the Company exists or is imminent; and
the Company is not aware of any existing or imminent labor disturbance by the
employees of any of its principal suppliers or customers, that might be expected
to result in a material adverse change in the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company.
No collective bargaining agreement exists with any of the Company's employees
and, to the best of the Company's knowledge, after reasonable investigation, no
such agreement is imminent.
(m) The Company owns or possesses adequate rights to use all patents, patent
rights, inventions, trade secrets, know-how, trademarks, service marks, trade
names and copyrights which are necessary to conduct its businesses as described
in the Registration Statement and the Prospectus, the expiration of any patents,
patent rights, trade secrets, trademarks, licenses, service marks, trade names
or copyrights would not have a material adverse affect on the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company; the Company has not received notice of, and has no knowledge of,
any infringement of or conflict with asserted rights of the Company by others
with respect to any patent, patent right, invention, trade secret, know-how,
trademark, license, service mark or trade name.
(n) The Company has not distributed and will not distribute prior to the
later of (i) the Closing Date, or any date on which Optional Common Shares are
to be purchased, as the case may be, and (ii) completion of the distribution of
the Common Shares, any offering material in connection with the offering and
sale of the Common Shares other than any Preliminary Prospectus, the Prospectus,
the Registration Statement and other materials, if any, permitted by the
Securities Act of 1933.
(o) The Company has not at any time during the last five (5) years (i) made
any unlawful contribution to any candidate for foreign or domestic office or
failed to disclose fully any contribution in violation of law, or (ii) made any
payment to any federal or state governmental officer or official, or other
person charged with similar public or quasi-public duties, other than payments
required or permitted by the laws of the United States or any jurisdiction
thereof.
(p) The Company had not taken and will not take, directly or indirectly, any
action designed to or that might reasonably be expected to cause or result in
stabilization or manipulation of the price of the common stock of the Company in
order to facilitate the sale or resale of the Common Shares.
(q) Each owner of more than ten percent (10%) of the issued and outstanding
common stock of the Company has agreed in writing that such person will not,
without the prior written consent of Mills Financial Services, Inc. as
Representative on behalf of the Underwriters (which consent may be withheld in
its sole discretion) and subject to certain limited exception, offer, pledge,
sell, contract to sell, sell any option or contract to purchase,
6
<PAGE>
sell short, purchase any option or contract to sell, grant any option, right or
warrant to a purchaser, lend or otherwise transfer or dispose of, directly or
indirectly, any shares of common stock of the Company or any securities
convertible into or exercisable or exchangeable for shares of common stock of
the Company, or enter into any swap or similar agreement that transfers, in
whole or in part, any of the economic consequences of ownership of the common
stock , for a period of 180 days commencing on the effective date of the
Registration Statement (the "Lock-up Period"); provided that such restriction s
do not apply to the Common Shares sold or purchased pursuant to this Agreement
or to shares of the common stock of the Company purchased in the open market
following the offering. Mills Financial Services, Inc., on behalf of the
Underwriters, may, in its sole discretion and at any time without notice,
release all or any portion of the securities subject to these lock-up
agreements. In addition, the Company agrees hereby that, for a period of 180
days after the effective date of the Registration Statement, it will not,
without the consent of Mills Financial Services, Inc. as Representative of the
Underwriters, make any offering, sale or other disposition of any shares of
common stock or other securities convertible into or exchangeable or exercisable
for shares of common stock (or agreement for such) except for the grant of
options to purchase common stock pursuant to the Stock Option Plan described in
the Prospectus and shares of common stock issued pursuant to the exercise of
options granted under such plan provided that such options shall not vest, or
the Company shall obtain the written consent of the holder of shares issued
pursuant to exercise not to transfer such shares, until the end of such 180 day
period. Furthermore, such person will also agree and consent to the entry of
stop transfer instructions with the Company's transfer agent against the
transfer of such shares except in compliance with this restriction. The Company
has provided to counsel for the Underwriters, true, accurate and complete copies
of all of the agreements pursuant to which each covered stockholder has agreed
to such or similar restrictions (the "Lock-up Agreements") presently in effect
or effected hereby. The Company hereby represents and warrants that it will not
release any person from a Lock-up Agreement without the prior written consent of
Mills Financial Services, Inc.
(r) Except as set forth in the Registration Statement and Prospectus, (i) the
Company is in compliance with all rules, laws and regulations relating to the
use, treatment, storage and disposal of toxic substances and protection of
health or the environment ("Environmental Laws") which are applicable to its
businesses, (ii) the Company has received no notice from any governmental
authority or third party of an asserted claim under Environmental Laws, which
claim is required to be disclosed in the Registration Statement and the
Prospectus, (iii) the Company will not be required to make future material
capital expenditures to comply with Environmental Laws and (iv) no property
which is owned, leased or occupied by the Company has been designated as a
Superfund site pursuant to the Comprehensive Response, Compensation, and
Liability Act of 1980, as amended (42 U.S.C. ss. 9601, et seq.), or otherwise
designated as a contaminated site under applicable state or local law.
(s) The Company maintains a system of internal accounting controls sufficient
to provide reasonable assurances that (i) transactions are executed in
accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting
7
<PAGE>
principles and to maintain accountability for assets, (iii) access to assets is
permitted only in accordance with management's general or specific
authorization, and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(t) There are no outstanding loans, advances (except normal advances for
business expenses in the ordinary course of business) or guarantees of
indebtedness by the Company to or for the benefit of any of the officers or
directors of the Company or any of the members of the families of any of them,
except as disclosed in the Registration Statement and the Prospectus.
(u) The Representative's Warrants have been duly and validly authorized by
the Company and upon delivery will be duly issued and legal, valid and binding
obligations of the Company.
(v) To the Company's knowledge, after reasonable investigation, there are no
affiliations or associations between any member of the NASD and any of the
Company's officers, directors or 5% or greater securityholders, except as set
forth in the Registration Statement.
Section 4. Representations and Warranties of the Underwriters.
--------------------------------------------------
Mills Financial Services, Inc., for itself or as the Representative, on behalf
of the several Underwriters, as the case may be, represents and warrants to the
Company that the information set forth (i) on the cover page of the Prospectus
with respect to price, underwriting discounts and commissions and terms of
offering and (ii) under "Underwriting" in the Prospectus was the only
information furnished to the Company by it or on behalf of the Underwriters, as
the case may be, for use in connection with the preparation of the Registration
Statement and the Prospectus and is correct in all material respects. If
applicable, the Representative represents and warrants that it has been
authorized by each of the other Underwriters as the Representative to enter into
this Agreement on its behalf and to act for it in the manner herein provided.
Section 5. Purchase, Sale and Delivery of Underwritten Shares and
------------------------------------------------------
Representative's Warrants
- -------------------------
(a) Firm Common Shares. On the basis of the representations, warranties and
------------------
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company agrees to issue and sell to you or to the Underwriters, as
the case may be, the Firm Common Shares which are in the amount of 700,000
shares. You or, if applicable, you on behalf of the Underwriters agree,
severally and not jointly, as the case may be, to purchase from the Company the
number of Firm Common Shares described below which are in the aggregate equal to
700,000 shares. The purchase price per share to be paid by you or the several
Underwriters, as the case may be, to the Company shall be $ ____ per share.
8
<PAGE>
The obligation of you or, if applicable, each Underwriter to the Company shall
be to purchase from the Company that number of Firm Common Shares which is equal
to the number of shares set forth opposite the name of you or such Underwriter,
as the case may be, in Schedule A hereto.
Delivery of definitive certificates for the Firm Common Shares to be purchased
by the Underwriters pursuant to this Section 5 shall be made against payment of
the purchase price therefor by the several Underwriters by certified or official
bank check or checks drawn in next-day funds, payable to the order of the
Company (and the Company agrees not to deposit any such check in the bank on
which it is drawn until the day following the date of its delivery to the
Company) at the offices of Mills Financial Services, Inc., 20 N. Clark Street,
Suite 2411, Chicago, Illinois, or such other place as may be agreed upon between
the Company and Mills Financial Services, Inc. as Representative of the
Underwriters, at 9:00 a.m., Chicago time, on the third (3rd) full business day
following the first day that Common Shares are traded or at such other time and
date not later than seven (7) full business days following the first day that
Common Shares are traded as the Representative and the Company may determine,
such time and date of payment and delivery being herein called the "First
Closing Date." The certificates for the Firm Common Shares to be so delivered
will be made available to the Representative at such office or such other
location as you may reasonably request for checking at least one (1) full
business day prior to the First Closing Date and will be in such names and
denominations as requested by the Representative, such request to be made at
least two (2) full business days prior to the First Closing Date. If the
Representative so elects, delivery of the Firm Common Shares may be made by
credit through full fast transfer to the account at the Depository Trust Company
designated by the Representative.
(b) Optional Common Shares. In addition, on the basis of the
----------------------
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company hereby grants an option to
you or to the several Underwriters, as the case may be, to purchase, in the
case of the several Underwriters severally and not jointly, up to 105,000
Optional Common Shares at the purchase price per share to be paid for the Firm
Common Shares, for use solely in covering any over-allotments made by you for
your account or for the account of the Underwriters, as the case may be, in the
sale and distribution of the Firm Common Shares. The option granted hereunder
may be exercised at any time (but not more than once) within 30 days after the
first date that any of the Common Shares are released by you for sale to the
public, upon notice by you to the Company setting forth the aggregate number of
Optional Common Shares as to which you or the Underwriters, as the case may be,
are exercising the option, the names and denominations in which the certificates
for such shares are to be registered and the time and place at which such
certificates are to be delivered. Such time of delivery (which may not be
earlier than the First Closing Date), being herein referred to as the "Second
Closing Date," shall be determined by you, but if at any time other than the
First Closing Date shall not be earlier than three nor later than five full
business days after delivery of such notice of exercise. If applicable, the
number of Optional Common Shares to be purchased by each Underwriter shall be
the same percentage of the total number of Optional Common Shares to be sold by
the Company as such Underwriter is purchasing of the Firm Common Shares (subject
to such adjustments to eliminate any fractional share
9
<PAGE>
purchases as you in your discretion may make). Certificates for the Optional
Common Shares will be made available for checking and packaging on the business
day preceding the Second Closing Date at a location in Chicago, Illinois as may
be designated by you. The manner of payment for and delivery of the Optional
Common Shares shall be the same as for the Firm Common Shares purchased from the
Company. At any time before lapse of the option, you may cancel such option by
giving written notice of such cancellation to the Company. If the option is
canceled or expires unexercised in whole or in part, the Company will deregister
under the Act the number of Optional Common Shares as to which the option has
not been exercised.
(c) Acceptance of Delivery and Payment. If applicable, you have advised the
----------------------------------
Company that each Underwriter has authorized you to accept delivery of its
Common Shares, to make payment and to receipt therefor. If applicable, you,
individually and not as the Representative of the Underwriters, may (but shall
not be obligated to) make payment for any Common Shares to be purchased by any
Underwriter whose funds shall not have been received by you by the First Closing
Date or the Second Closing Date, as the case may be, for the account of such
Underwriter, but any such payment shall not relieve such Underwriter from any of
its obligations under this Agreement.
(d) Public Offering. Subject to the terms and conditions hereof, you or the
---------------
Underwriters, as the case may be, propose to make a public offering of your or
their respective portions of the Common Shares as soon after the effective date
of the Registration Statement as in your judgment is advisable and at the public
offering price set forth on the cover page of and on the terms set forth in the
Prospectus.
(e) Representative's Warrants. On the basis of the representations,
-------------------------
warranties and agreements herein contained, but subject to the terms and
conditions herein set forth, the Company agrees to sell to Mills Financial
Services, Inc., and Mills Financial Services, Inc. agrees to purchase, the
Representative's Warrant at a purchase price of $.01 per share underlying the
Representative's Warrant. The Representative's Warrant shall be substantially in
the form filed as Exhibit ___ to the Registration Statement, with such changes
therein, if any, as may be agreed upon by the Company and Mills Financial
Services, Inc., shall be dated the Closing Date, and shall evidence the right of
Mills Financial Services, Inc. to purchase from the Company up to 70,000 shares
of common stock (subject to adjustment as provided in the Representative's
Warrants) at a price of 120% of the public offering price per share and upon the
terms and conditions provided in the Representative's Warrants.
Section 6. Covenants of the Company.
------------------------
The Company covenants and agrees that:
(a) The Company will use its reasonable best efforts to cause the
Registration Statement to become effective and will advise you immediately, and
confirm the advice in writing, (i) of the receipt of any comments of the
Commission, (ii) of any request of the Commission for amendment of or supplement
to the Registration Statement (either before or
10
<PAGE>
after it becomes effective), any Preliminary Prospectus or the Prospectus or for
additional information, (iii) when the Registration Statement shall have become
effective and (iv) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or of the institution
of any proceedings for that purpose. If the Commission shall enter any such stop
order at any time, the Company will use its reasonable best efforts to obtain
the lifting of such order at the earliest possible moment. The Company will not
file any amendment or supplement to the Registration Statement (either before or
after it becomes effective), any Preliminary Prospectus or the Prospectus of
which you have not been furnished with a copy a reasonable time prior to such
filing or to which you reasonably object or which is not in compliance in all
material respects with the Act and the Rules and Regulations.
(b) If at any time within nine months of the effectiveness of the Registration
Statement when a prospectus relating to the Common Shares is required to be
delivered under the Act any event occurs, as a result of which the Prospectus,
including any amendments or supplements, would include an untrue statement of a
material fact, or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, or if it is
necessary at any time to amend the Prospectus, including any amendments or
supplements, to comply with the Act or the Rules and Regulations, the Company
will promptly advise you thereof and will promptly prepare and file with the
Commission, at its own expense, an amendment or supplement which will correct
such statement or omission or an amendment or supplement which will effect such
compliance and will use its best efforts to cause the same to become effective
as soon as possible; and, in case you or any Underwriter, as the case may be, is
required to deliver a prospectus nine months or more after the effective date of
the Registration Statement, the Company upon request, but at your expense or the
expense of such Underwriter, will promptly prepare such amendment or amendments
to the Registration Statement and such Prospectus or Prospectuses as may be
necessary to permit compliance with the requirements of Section 10(a)(3) of the
Act.
(c) The Company will furnish to you, as soon as available, copies of the
Registration Statement (four of which final Registration Statement will be
signed and which will include all exhibits), each Preliminary Prospectus, the
Prospectus and any amendments or supplements to such documents, including any
prospectus prepared to permit compliance with Section 10(a)(3) of the Securities
Act of 1933 (four of which will include all exhibits) all in such quantities as
you may from time to time reasonably request.
(d) Prior to the Second Closing Date, the Company will not repurchase or
otherwise acquire any of the Company's common stock or declare or pay any
dividend or make any other distribution upon its common stock.
(e) As soon as practicable, but not later than 45 days after the end of the
first quarter ending after one year following the effective date of the
Registration Statement, the Company will make generally available to its
security holders an earnings statement (which need not be audited) covering a
period of 12 consecutive months beginning after the effective date of the
Registration Statement which will satisfy the provisions of the last paragraph
of Section 11(a) of the Act.
11
<PAGE>
(f) During such period as a prospectus is required by law to be delivered in
connection with sales by an Underwriter or dealer, the Company, at its expense,
but only for the first nine months after the effective date of the Registration
Statement, will furnish to you or mail to your order copies of the Registration
Statement, the Prospectus, the Preliminary Prospectus and all amendments and
supplements to any such documents in each case as soon as available and in such
quantities as you may request, for the purposes contemplated by the Act.
(g) The Company will use its best efforts to qualify the Common Shares for
offering and sale under the securities laws of such jurisdictions as you may
designate and continue such qualifications in effect for so long as may be
required for purposes of the distribution of the Common Shares, except that the
Company shall not be required to qualify as a foreign corporation or to file a
general consent to service of process in any such jurisdiction where it is not
presently qualified or where it would be subject to taxation as a foreign
corporation. In each jurisdiction in which the Common Shares shall have been
qualified as above provided, the Company will make and file such statements and
reports in each year as are or may be reasonably required by the laws of such
jurisdictions.
(h) The Company will advise you promptly of the suspension of the
qualification or registration of (or any such exemption relating to) the Common
Shares for offering, sale or trading in any jurisdiction or any initiation or
threat of any proceeding for any such purpose, and in the event of the issuance
of any order suspending such qualification, registration or exemption, the
Company, with your cooperation, will use its reasonable best efforts to obtain
the withdrawal thereof.
(i) During the period of five years hereafter, the Company will furnish to its
stockholders as soon as practicable after the end of each respective period,
annual reports (including financial statements audited by independent certified
public accountants) and unaudited quarterly reports of operations for each of
the first three quarters of the fiscal year, and will furnish to you or upon
your request as Representative of the Underwriters, to each of the other
Underwriters, as the case may be: (i) as soon as practicable after the end of
each fiscal year, copies of the Annual Report of the Company containing the
balance sheet of the Company as of the close of such fiscal year and statements
of income, stockholders' equity and changes in financial position for the year
then ended and the opinion thereon of the Company's independent public
accountants; (ii) as soon as practicable after the filing thereof, copies of
each proxy statement, Annual Report on Form 10-KSB, Quarterly Report on Form 10-
QSB, Report on Form 8-K or other report filed by the Company with the
Commission, the NASD or any securities exchange; (iii) as soon as available,
copies of any report or communication of the Company mailed generally to holders
of its common stock; (iv) every material press release and every material news
item or article in respect of the Company or its affairs which was generally
released to stockholders or prepared by or on behalf of the Company; and (v) any
additional information of a public nature concerning the Company, or its
business which you may reasonably request. During such five (5) year period, if
the Company shall have active subsidiaries, the foregoing financial statements
shall be on a consolidated basis to the extent that the accounts of the Company
and its subsidiaries are
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consolidated, and shall be accompanied by similar financial statements for any
significant subsidiary which is not so consolidated.
(j) During the period of 180 days after the date hereof, without your prior
written consent, individually or as Representative of the Underwriters, the
Company will not other than pursuant to outstanding stock options and the terms
of other employee benefit plans disclosed in the Prospectus issue, offer, sell,
grant options to purchase or otherwise dispose of any of the Company's equity
securities or any other securities convertible into or exchangeable for its
common stock or other equity security under circumstances where such securities
may be sold into the public market during such period.
(k) The Company has caused each owner of 10% or more of the outstanding
common stock of the Company to furnish to you, on or prior to the date of this
agreement, a letter or letters, in form and substance satisfactory to the
Underwriters, pursuant to which each such person shall agree not to offer, sell,
sell short, or otherwise dispose of any shares of common stock of the Company or
other capital stock of the Company, or any other securities convertible,
exchangeable or exercisable for common stock or derivative of common stock owned
by such person (or as to which such person has the right to direct the
disposition of) for a period of 180 days after the date of this agreement,
directly or indirectly, except with the prior written consent of Mills Financial
Services, Inc.
(l) Subject to notice of inclusion, the Company will cause the Common Shares
to be included in the NASDAQ SmallCap Market.
(m) The Company will apply the net proceeds from the sale of the Common
Shares being sold by it in the manner set forth under the caption "Use of
Proceeds" in the Prospectus.
(n) The Company will maintain a transfer agent and, if necessary under the
jurisdiction of incorporation of the Company, a registrar (which may be the same
entity as the transfer agent) for its common stock.
(o) If the transactions contemplated hereby are not consummated for any
reason, the Company will pay the several Underwriters for all out-of-pocket
expenses (including fees and disbursement of counsel) incurred by the
Underwriters in investigating and preparing to market or marketing the Common
Shares, up to a maximum of $ ____________.
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Section 7. Expenses.
--------
(a) Expenses of the Company. The Company agrees with each Underwriter that
-----------------------
the Company will pay and bear all costs in connection with the preparation,
printing and filing of the Registration Statement (including financial
statements, schedules and exhibits), Preliminary Prospectuses and the Prospectus
and any amendments or supplements thereto; the printing of this Agreement, the
Agreement Among Underwriters, the Selected Dealer Agreement, the Preliminary
Blue Sky Survey and any supplemental Blue Sky Survey, the Underwriters'
Questionnaire and Power of Attorney, and any instruments related to any of the
foregoing; the issuance and delivery of the Common Shares hereunder to the
several Underwriters, including transfer taxes, if any, the cost of all
certificates representing the Common Shares and transfer agents' and registrars'
fees; the fees and disbursements of counsel for the Company; all fees and other
charges of the Company's independent certified public accountants; the cost of
furnishing the several Underwriters copies of the Registration Statement
(including appropriate exhibits), Preliminary Prospectus and the Prospectus, and
any amendments or supplements to any of the foregoing; NASDAQ application fees
and the cost of qualifying the Common Shares under the laws of such
jurisdictions as you may designate; the costs and expenses of two Due Diligence
presentations (one in Chicago and one in Denver); and all other expenses
directly incurred by the Company in connection with the performance of its
obligations hereunder; provided, however, that the Company shall not be obligate
to pay the fees and disbursements of counsel for the Underwriters.
(b) Non-Accountable Allowance. Upon the consummation of the transactions
-------------------------
contemplated hereunder and, in any event, not later than the date of the First
Closing and, if applicable, again on the date of the Second Closing, the Company
shall reimburse Mills Financial Services, Inc. for its expenses on a non-
accountable basis in the amount of three percent (3%) of the gross proceeds to
the Company from the transactions contemplated herein, of which amount a total
of $ ___________ has been advanced at the date of this Agreement.
Section 8. Conditions of the Obligations of the Underwriters.
-------------------------------------------------
The obligations of the several Underwriters to purchase and pay for the Firm
Common Shares on the First Closing Date and the Optional Common Shares on the
Second Closing Date shall be subject to the accuracy of the representations and
warranties on the part of the Company herein set forth as of the date hereof and
as of the First Closing Date or the Second Closing Date, as the case may be, to
the accuracy of the statements of Company officers made pursuant to the
provisions hereof, to the performance by the Company of its obligations
hereunder, and to the following additional conditions:
(a) The Registration Statement shall have become effective not later than
4:00 P.M., Colorado time, on the date following the date of this Agreement, or
at such later time as shall have been consented to in writing by you; and no
stop order suspending the effectiveness thereof shall have been issued and no
proceedings for that purpose shall have been initiated or,
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to the knowledge of the Company or any Underwriter, threatened by the
Commission, and any request of the Commission for additional information (to be
included in the Registration Statement or the Prospectus or otherwise) shall
have been complied with to the satisfaction of Underwriters' counsel.
(b) All corporate proceedings by the Company and other legal matters in
connection with this Agreement, the form of the Registration Statement and the
Prospectus, and the registration, qualification, authorization, issue, sale and
delivery of the Common Shares shall have been reasonably satisfactory to
Underwriters' counsel, and such counsel shall have been furnished with such
papers and information as counsel may reasonably have requested to enable
counsel to pass upon the matters referred to in this Section.
(c) Subsequent to the execution and delivery of this Agreement and prior to
the First Closing Date and the Second Closing Date, if applicable, there shall
not have been any change in the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company from that set forth in
the Registration Statement or Prospectus, which, in your sole judgment, is
material and adverse and that makes it, in your sole judgment, impracticable or
inadvisable to proceed with the public offering of the Common Shares as
contemplated by the Prospectus.
(d) You shall have received on the First Closing Date and on any later date
on which Common Shares are purchased, as the case may be, the following opinion
of Chrisman, Bynum & Johnson, counsel for the Company, dated the First Closing
Date or such later date on which Optional Common Shares are purchased, addressed
to the Representative, on behalf of the Underwriters (and stating that it may be
relied upon by counsel for the Underwriters), to the effect that:
(i) The Company is a corporation in good standing under the laws of the
jurisdiction of its incorporation;
(ii) The Company has the corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectus;
(iii) The Company is duly qualified to do business as a foreign corporation
and is in good standing in each jurisdiction, if any, in which the ownership
or leasing of its properties or the conduct of its business requires such
qualification, except where failure to be so qualified or be in good standing
would not have a material adverse effect on the condition (financial or
otherwise), earnings, operations or business of the Company;
(iv) To such counsel's knowledge, the Company does not own or control,
directly or indirectly, any corporation, association or other entity;
(v) The authorized, issued and outstanding capital stock of the Company is
as set forth in the Prospectus under the caption "Capitalization" as of the
dates stated
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therein, the issued and outstanding shares of capital stock of the Company have
been duly and validly issued and are fully paid and nonassessable, and, to such
counsel's knowledge, will not have been issued in violation of or subject to any
preemptive right, co-sale right, registration right, right of first refusal or
other similar right of stockholders;
(vi) The Firm Common Shares and the Optional Common Shares, as the case may
be, to be issued by the Company pursuant to the terms of this Agreement each
have been duly authorized and, upon issuance and delivery against payment
therefor in accordance with the terms hereof, will be duly and validly issued
and fully paid and nonassessable, and will not have been issued in violation of
or subject to any preemptive right, co-sale right, registration right, right of
first refusal or other similar right of stockholders;
(vii) The Company has the corporate power and authority to enter into this
Agreement and to issue, sell and deliver to the Underwriters the Common Shares
to issued and sold by it hereunder;
(viii) The Company has the corporate power and authority to issue, sell and
deliver to the Representative the Representative's Warrants to be issued and
sold by it hereunder;
(ix) Each of this Agreement and the Representative's Warrant has been duly
authorized by all necessary corporate action on the part of the Company and has
been duly executed and delivered by the Company and, assuming due authorization,
execution and delivery by you, is a valid and binding agreement of the Company,
enforceable in accordance with its terms, except insofar as indemnification
provisions may be limited by applicable law and except as enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
relating to or affecting creditors' rights generally or by equitable principles;
(x) The Registration Statement has become effective under the Act and, to
such counsel's knowledge, no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceeding for that purpose have
been instituted or are pending or threatened under the Act;
(xi) The Registration Statement and the Prospectus, and each amendment or
supplement thereto (other than the financial statements (including supporting
schedules) and financial data derived therefrom as to which such counsel need
express no opinion), as of the effective date of the Registration Statement,
complied as to form in all material respects with the requirements of the
Securities Act of 1933 and the applicable Rules and Regulations thereunder;
(xii) The information in the Prospectus under the captions "Management,"
"Certain Transactions," "Description of Capital Stock," and "Shares Eligible for
Future Sale,"
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<PAGE>
and in the Registration Statement in Items 24 and 26 and insofar as such
information constitutes matters of law or legal conclusions, has been reviewed
by such counsel and is a fair summary of such matters and conclusions;
(xiii) The form of certificate evidencing the Common Shares filed as an exhibit
to the Registration Statement complies with Colorado law;
(xiv) The description in the Registration Statement and the Prospectus of the
charter and bylaws of the Company and of statutes are accurate and fairly
present the information required to be presented by the Securities Act of 1933
and the applicable Rules and Regulations thereunder;
(xv) To such counsel's knowledge, there are no agreements, contracts, leases
or documents to which the Company is a party of a character required to be
described or referred to in the Registration Statement or Prospectus or to be
filed as an exhibit to the Registration Statement which are not described or
referred to therein or filed as required;
(xvi) The execution and delivery of this Agreement and the Representative's
Warrant and the performance of and the consummation of the transactions herein
and therein contemplated (other than performance of the Company's
indemnification obligations concerning which no opinion need be expressed) will
not (a) result in any violation of the Company's charter or bylaws or (b) result
in any material breach or violation of any of the terms and provisions of, or
constitute a default under, any bond, debenture, note or other evidence of
indebtedness, or under any lease, contract, indenture, mortgage, deed of trust,
loan agreement, joint venture or other agreement or instrument known to such
counsel to which the Company is a party or by which its properties are bound, or
any applicable statute, rule or regulation or any order, writ or decree of any
court, government or governmental agency of body having jurisdiction over the
Company or over any of its properties or operations;
(xvii) No consent, approval, authorization or order of or qualification with
any court, government or governmental agency or body having jurisdiction over
the Company or over any of its properties or operations is necessary in
connection with the consummation by the Company of the transactions contemplated
in this Agreement and the Representative's Warrant, except as such have been
obtained under the Securities Act or such as may be required under the state or
other securities or Blue Sky laws in connection with the purchase and the
distribution of the Common Shares by the Underwriters;
(xviii) To such counsel's knowledge, there are no legal or governmental
proceedings pending or threatened against the Company of a character required to
be disclosed in the Registration Statement or the Prospectus by the Securities
Act or the Rules and Regulations thereunder or by the Securities Exchange Act of
1934 or the applicable
17
<PAGE>
Rules and Regulations thereunder, other than those, if any, described in the
Registration Statement or Prospectus;
(xix) The Company is not presently (a) in material violation of its charter
or bylaws, or (b) to such counsel's knowledge, in material breach of any
applicable statute, rule or regulation, order, writ or decree of any court or
governmental agency or body having jurisdiction over the Company or over any
of its properties or operations;
(xx) The Representative's Warrant Stock to be issued by the Company
pursuant to the terms of the Representative's Warrant has been duly authorized
and, upon issuance and delivery against payment therefor in accordance with
the terms of the Representative's Warrant will be duly and validly issued and
fully paid and nonassessable, and to such counsel's knowledge, will not have
been issued in violation of or subject to any preemptive right, co-sale right,
registration right, right of first refusal or other similar right of
stockholders;
(xxi) To such counsel's knowledge, except as set forth in the Registration
Statement and Prospectus, no holders of the common stock of the Company or
other securities of the Company have any registration rights with respect to
securities of the Company, and, except as set forth in the Registration
Statement and Prospectus, all holders of securities of the Company having
rights known to such counsel to require registration of common stock or other
securities, because of the filing of the Registration Statement by the Company
have, with respect to the offering contemplated thereby, waived such rights or
such rights have expired by reason of lapse of time following notification of
the Company's intent to file the Registration Statement or have included
securities in the Registration Statement pursuant to the exercise of and in
full satisfaction of such rights;
(xxii) The offer and sale of all securities of the Company made within the
last three years as set forth in Item 26 of the Registration Statement were
exempt from the registration requirements of the Securities Act, pursuant to
the provisions set forth in such Item, and from the registration or
qualification requirements of all relevant state securities laws; and
(xxiii) The Common Shares have been duly authorized for inclusion in the
NASDAQ SmallCap Market upon official notice of issuance.
In addition, such counsel shall state that such counsel has participated in
conferences with the officials and other representatives of the Company, the
Representative, counsel to the Underwriters and the independent certified public
accountants of the Company, at which such conferences the contents of the
Registration Statement and Prospectus and related matters were discussed, and
although (except as specifically set forth in paragraphs (xiii) and (xiv) above)
they have not verified the accuracy or completeness of the statements contained
in the
18
<PAGE>
Registration Statement or the Prospectus, nothing has come to the attention of
such counsel which leads them to believe that, at the time the Registration
Statement became effective and at all times subsequent thereto up to and on the
First Closing Date and on any later date on which Optional Common Shares are to
be purchased, the Registration Statement and any amendment or supplement, when
such documents became effective or were filed with the Commission (other than
the financial statements including supporting schedules and other financial and
statistical information derived therefrom, as to which such counsel need express
no comment) contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statement therein not misleading, or at the First Closing Date or any later date
on which the Optional Common Shares are to purchased, as the case may be, the
Registration Statement, the Prospectus and any amendment or supplement thereto,
contained any untrue statement of a material fact or omitted to state a material
fact necessary to make the statement therein, in the light of the circumstances
under which they were made, not misleading.
Counsel rendering the foregoing opinion may rely as to questions of law not
involving the laws of the United States or the State of Colorado upon opinions
of local counsel, and as to questions of fact upon representations or
certificates of officers of the Company, and of government officials, in which
case the opinion of counsel is to state that they are so relying and that they
have no knowledge of any material misstatement or inaccuracy in any such
opinion, representation or certificate. Copies of any opinion, representation
or certificate so relied upon shall be delivered to you, as Representative of
the Underwriters and to counsel for the Underwriters.
(e) You shall have received on the First Closing Date and on any later date
on which Optional Common Shares are to be purchased, as the case may be, an
opinion of Chrisman, Bynum & Johnson, in form and substance satisfactory to you,
with respect to the sufficiency of all such corporate proceedings and other
legal matters relating to this Agreement and the transactions contemplated
hereby as you may reasonably require, and the Company shall have furnished to
such counsel such documents as they may have requested for the purpose of
enabling them to pass upon such matters.
(f) You shall have received on the First Closing Date and on any later date
on which Optional Common Shares are to be purchased, as the case may be, a
letter from Ehrhardt Keefe Steiner & Hottman, addressed to the Company and the
Representative, on behalf of the several Underwriters, dated the First Closing
Date or such later date on which Optional Common Shares are to be purchased, as
the case may be, confirming that they are independent certified public
accountants with respect to the Company within the meaning of the Securities Act
of 1933 and the applicable published Rules and Regulations thereunder and based
upon procedures described in such letter delivered to you concurrently with the
execution of this Agreement (herein called the "Original Letter"), but carried
out to a date no more than five (5) business days prior to the First Closing
Date or such later date on which Optional Common Shares are to be purchased, as
the case may be, (i) confirming, to the extent true, that the statements and
conclusions set forth in the Original Letter are accurate as of the First
Closing Date or such late date on which Optional Common Shares are to be
purchased, as the
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<PAGE>
case may be, and (ii) setting forth any revisions and additions to the
statements and conclusions set forth in the Original Letter which are necessary
to reflect any changes in the facts described in the Original Letter since the
date of such letter, or to reflect the availability of more recent financial
statements, data or information. The letter shall not disclose any change in the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company from that set forth in the Registration Statement or
Prospectus, which, in your sole judgment is material and adverse and that makes
it, in your sole judgment, impracticable or inadvisable to proceed with the
public offering of the Common Shares as contemplated by the Prospectus. The
Original Letter from Ehrhardt Keefe Steiner & Hottman shall be addressed to or
for the use of the Underwriters in form and substance satisfactory to the
Underwriters and shall (i) represent, to the extent true, that they are
independent certified public accountants with respect to the Company within the
meaning of the Securities Act of 1933 and the applicable published Rules and
Regulations, (ii) set forth its opinion with respect to its examination of the
financial statements of the Company as of and for the periods ending March 31,
1998 and 1997 and (iii) address other matters agreed by Ehrhardt Keefe Steiner &
Hottman and you. In addition, you shall have received from Ehrhardt Keefe
Steiner & Hottman a letter addressed to the Company and ;made available to you
for the use of the Underwriters stating that its review of the Company's system
of internal accounting controls, to the extent they deemed necessary in
establishing the scope of its examination of the Company's financial statements
as of March 31, 1998, did not disclose any weaknesses in internal controls that
they considered to be material weaknesses.
(g) You shall have received on the First Closing Date and on any later date
on which Optional Common Shares are to be purchased, as the case may be, a
certificate of the Company, dated the First Closing Date or such later date on
which Optional Common Shares are to be purchased, as the case may be, signed by
the President and Chief Financial Officer of the Company, to the effect that,
and you shall be satisfied that:
(i) The representations and warranties of the Company in this Agreement are
true and correct, as if made on and as of the First Closing Date or any later
date on which Optional Common Shares are to be purchased, as the case may be,
and the Company has complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at or prior to the First
Closing Date or any later date on which Optional Common Shares are to be
purchased, as the case may be;
(ii) No stop order suspending the effectiveness of the Registration Statement
has been issued and no proceedings for that purpose have been instituted or
are pending or threatened under the Securities Act of 1933 or otherwise;
(iii) When the Registration Statement became effective and at all times
subsequent thereto up to the delivery of each certificate, (a) the
Registration Statement and the Prospectus, and any amendments or supplements
thereto, contained all material information required to be included therein by
the Securities Act of 1933 and the Rules and Regulations thereunder or the
Securities Exchange Act of 1934 and the applicable Rules and Regulations
thereunder, as the case may be, and in all material
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<PAGE>
respects conformed to the requirements of such statutes and rules and
regulations, (b) the Registration Statement, and any amendment or supplement
thereto, did not and does not include any untrue statement of material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, (c) the Prospectus, and any
amendments or supplements thereto, did not and does not include any untrue
statement of material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, (c)
the Prospectus, and any amendments or supplements thereto did not and does not
include any untrue statement of material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading; and since the effective date of the Registration Statement, there
has occurred no event required to be set forth in an amended or supplemented
Prospectus which has not been so set forth; and
(iv) Subsequent to the respective dates as of which information is given in
the Registration Statement and Prospectus, there has not been (a) any material
adverse change in the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company, (b) any transaction
that is material to the Company, except transactions entered into in the
ordinary course of business, (c) any obligation, direct or contingent, that is
material to the Company, incurred by the Company, except obligations incurred
in the ordinary course of business, (d) change in the capital stock or
outstanding indebtedness of the Company that is material to the Company, (e)
any dividend or distribution of any kind declared, paid or made on the capital
stock of the Company, or (f) any loss or damage (whether or not insured) to
the property of the Company which has been sustained or will have been
sustained which has a material adverse affect on the condition (financial or
otherwise), earnings, operations, business or business prospects of the
Company.
(h) The Company shall have obtained and delivered to you an agreement from
each person owning ten percent (10%) of the common stock of the Company in
writing prior to the date hereof that such person will not, during the Lock-up
Period, effect the disposition of any securities now owned or hereafter acquired
directly by such person or with respect to which such person has or hereafter
acquires the power of disposition, otherwise than (i) as a bona fide gift or
gifts, provided the donee or donees thereof agree in writing to be bound by this
restriction, or (ii) with the prior written consent of Mills Financial Services,
Inc. The foregoing restriction is expressly agreed to preclude the holder of the
securities from engaging in any hedging or other transaction which is designed
to or reasonably expected to lead to or result in a disposition of securities
during the Lock-up Period, even if such securities would be disposed of by
someone other than such holder. Such prohibited hedging or other transactions
would include, without limitation, any short sale (whether or not against the
box) or any purchase, sale or grant of any right (including without limitation,
any put or call option) with respect to any securities of the Company.
Furthermore, such person will have also agreed and consented to the entry of
stop transfer instructions with the Company's transfer agent against the
transfer of the securities held by such person except in compliance with this
restriction.
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(i) The Company shall have furnished to you such further certificates and
documents as you shall reasonably request, including certificates of officers of
the Company as to the accuracy of the representations and warranties of the
Company, as to the performance by the Company of its obligations hereunder and
as to the other conditions concurrent and precedent to the obligations of the
Underwriters hereunder.
(j) The Representative's Warrant shall have been issued and sold to you.
(k) Prior to the First Closing Date, the Common Shares shall have been
authorized for inclusion in the NASDAQ SmallCap Market upon official notice of
issuance.
All such opinions, certifications, letters and documents provided for in this
Section 8 will be compliance with the provisions hereof only if they are
reasonably satisfactory to counsel for the Underwriters. The Company will
furnish you with such number of conformed copies of such opinions, certificates,
letters and documents as you shall reasonably request.
Section 9. Substitution of Underwriters
----------------------------
If any Underwriter or Underwriters shall fail to take up and pay for the
number of Firm Common Shares agreed by such Underwriter or Underwriters to be
purchased hereunder upon tender of such Firm Common Shares in accordance with
the terms hereof, and if the aggregate number of Firm Common Shares which such
defaulting Underwriter or Underwriters so agreed but failed to purchase does not
exceed 10% of the Firm Common Shares, the remaining Underwriters shall be
obligated, severally in proportion to their respective commitments hereunder, to
take up and pay for the Firm Common Shares of such defaulting Underwriter or
Underwriters.
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Section 10. Indemnification.
---------------
(a) The Company agrees to indemnify and hold harmless you or each Underwriter
and each person, if any, who controls you or any such Underwriter, as the case
may be, within the meaning of the Act against any losses, claims, damages,
liabilities or expenses, joint or several, to which you or such Underwriter, as
the case may be, or such controlling person may become subject, under the Act,
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or other
federal or state statutory law or regulation, or at common law or otherwise
(including in settlement of any litigation, if such settlement is effected with
the written consent of the Company), insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement, the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state in any of them a material fact required to be stated therein
or necessary to make the statements in any of them not misleading; and will
reimburse you or each Underwriter, as the case may be, and each such controlling
person for any legal and other expenses reasonably incurred by you or such
Underwriter or such controlling person in connection with investigating,
defending, settling, compromising or paying any such loss, claim, damage,
liability, expense or action; provided, however, that the Company will not be
23
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liable in any such case to the extent that any such loss, claim, damage,
liability or expense arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in the
Registration Statement, the Prospectus or any amendment or supplement thereto in
reliance upon and in conformity with written information furnished to the
Company by you or by or on behalf of any Underwriter through the Representative,
as the case may be, specifically for use therein; and provided further, that
with respect to any untrue statement or omission or alleged untrue statement or
omission made in any Preliminary Prospectus, the indemnity agreement contained
in this paragraph shall not inure to the benefit of you or any Underwriter, as
the case may be, from whom the person asserting any such losses, claims,
damages, liabilities or expenses purchased the Common Shares concerned (or to
the benefit of any person controlling you or such Underwriter, as the case may
be) to the extent that any such loss, claim, damage, liability or expense of you
or such Underwriter, as the case may be, or controlling person results from the
fact that a copy of the Prospectus was not sent or given to such person at or
prior to the written confirmation of sale of such Common Shares to such person
as required by the Act, and if the untrue statement or omission has been
corrected in the Prospectus unless such failure to deliver the Prospectus was a
result of noncompliance by the Company with its obligations under Section 6(e)
hereof; and provided further, that with respect to any untrue statement or
omission or alleged untrue statement or omission made in the Registration
Statement, the Prospectus, or any amendment or supplement thereto.
(b) You or each Underwriter severally, as the case may be, will indemnify and
hold harmless the Company, each of its directors, each of its officers who
signed the Registration Statement and each person, if any, who controls the
Company within the meaning of the Act, against any losses, claims, damages,
liabilities or expenses to which the Company, or any such director, officer or
controlling person may become subject, under the Act, the Exchange Act, or other
federal or state statutory law or regulation, or at common law or otherwise
(including in settlement of any litigation, if such settlement is effected with
the written consent of such Underwriter), insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) arise out of or
are based upon any untrue or alleged untrue statement of any material fact
contained in the Registration Statement, the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in the Registration
Statement, the Prospectus, or any amendment or supplement thereto, in reliance
upon and in conformity with Section 4 of this Agreement or any other written
information furnished to the Company by you or such Underwriter through the
Representative, as the case may be, specifically for use in the preparation
thereof; and will reimburse the Company, or any such director, officer or
controlling person for any legal and other expense reasonably incurred by the
Company, or any such director, officer or controlling person in connection with
investigating, defending, settling, compromising or paying any such loss, claim,
damage, liability, expense or action. This indemnity agreement will be in
addition to any liability which you or such Underwriter, as the case may be, may
otherwise have.
24
<PAGE>
(c) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party under this
Section, notify the indemnifying party in writing of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party for contribution or
otherwise than under the indemnity agreement contained in this Section or to the
extent it is not prejudiced as a proximate result of such failure. In case any
such action is brought against any indemnified party and such indemnified party
seeks or intends to seek indemnity from an indemnifying party, the indemnifying
party will be entitled to participate in, and, to the extent that it may wish,
jointly with all other indemnifying parties similarly notified, to assume the
defense thereof with counsel reasonably satisfactory to such indemnified party;
provided, however, if the defendants in any such action include both the
indemnified party and the indemnifying party and counsel for the indemnified
party shall have reasonably concluded that there may be a conflict between the
positions of the indemnifying party and the indemnified party in conducting the
defense of any such action or that there may be legal defenses available to it
and/or other indemnified parties which are different from or additional to those
available to the indemnifying party, the indemnified party or parties shall have
the right to select separate counsel to assume such legal defenses and to
otherwise participate in the defense of such action on behalf of such
indemnified party or parties. Upon receipt of notice from the indemnifying party
to such indemnified party of its election so to assume the defense of such
action and approval by the indemnified party of counsel, the indemnifying party
will not be liable to such indemnified party under this Section for any legal or
other expenses subsequently incurred by such indemnified party in connection
with the defense thereof unless (i) the indemnified party shall have employed
such counsel in connection with the assumption of legal defenses in accordance
with the proviso to the next preceding sentence or (ii) the indemnifying party
shall not have employed counsel reasonably satisfactory to the indemnified party
to represent the indemnified party within a reasonable time after notice of
commencement of the action, in each of which cases the fees and expenses of
counsel shall be at the expense of the indemnifying party.
(d) If the indemnification provided for in this Section 10 is required by its
terms but is for any reason held to be unavailable to or otherwise insufficient
to hold harmless an indemnified party under paragraphs (a), (b) or (c) in
respect of any losses, claims, damages, liabilities or expenses referred to
herein, then such applicable indemnifying party shall contribute to the amount
paid or payable by such indemnified party as a result of any losses, claims,
damages, liabilities or expenses referred to herein (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company and you or
the Underwriters, as the case may be, from the offering of the Common Shares or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company and you or the Underwriters, as the case may be, in connection with
the statements or omissions which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable considerations.
The respective relative benefits received by the Company and you or the
Underwriters shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material
25
<PAGE>
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company or you or the Underwriters, as the case may
be, and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The amount paid or
payable by a party as a result of the losses, claims, damages, liabilities and
expenses referred to above shall be deemed to include, subject to the
limitations set forth in subparagraph (c) of this Section 10, any legal or other
fees or expenses reasonably incurred by such party in connection with
investigating or defending any action or claim. The provisions set forth in
subparagraph (c) of this Section 10 with respect to notice of commencement of
any action shall apply if a claim for contribution is to be made under this
subparagraph (d); provided, however, that no additional notice shall be required
with respect to any action for which notice has been given under subparagraph
(c) for purposes of indemnification. The Company and you or the Underwriters, as
the case may be, agree that it would not be just and equitable if contribution
pursuant to this Section 10 were determined solely by pro rata allocation or by
any other method of allocation which does not take account of the equitable
considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 10, neither you nor any
Underwriter, as the case may be, shall be required to contribute any amount in
excess of the amount by which the total underwriting discount received by you or
such Underwriter, as the case may be, in connection with the Common Shares
underwritten by it and distributed to the public exceeds the amount of any
damages which you or such Underwriter has otherwise been required to pay by
reason of such untrue alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. If applicable, the Underwriters'
obligations to contribute pursuant to this Section 10 are several in proportion
to their respective underwriting commitments and not joint.
(e) In addition to and without in any way limiting the other obligations of
the parties under this Section 10, the Company hereby further agrees to
reimburse you or each Underwriter, as the case may be, and each person who
controls you or any such Underwriter within the meaning of Section 15 of the Act
on a quarterly basis for one-half of all reasonable legal and other expenses
incurred in connection with investigating or defending any claim, action,
investigation, inquiry or other proceeding arising out of or based upon any
statement or omission, or any alleged statement or omission, described in
paragraph (a) of this Section 10, notwithstanding the possibility that such
payments might later be held to be improper, but only under circumstances where
you or such Underwriter has selected separate counsel or elected to participate
in the defense of the action as permitted by the proviso of the second sentence
of Section 10(c) hereof. To the extent that any payment is ultimately held to be
improper, you or each Underwriter, as the case may be, shall promptly refund
such payment.
Section 11. Effectiveness of Registration Statement.
----------------------------------------
The Company will use its best efforts to cause the Registration Statement to
become effective, to prevent the issuance of any stop order suspending the
effectiveness of the
26
<PAGE>
Registration Statement and, if such stop order be issued, to obtain as soon as
possible the lifting thereof.
Section 12. Effective Date of this Agreement and Termination.
------------------------------------------------
(a) After execution of the parties, this Agreement shall become effective at
the earlier of (i) 7:30 a.m., Colorado time, on the second full business day
following the effective date of the Registration Statement, or (ii) the time of
the first public offering of any of the Common Shares by the Underwriters after
the Registration Statement becomes effective. The time of the first public
offering shall mean the time of the release by you, for publication, of the
first newspaper advertisement relating to the Common Shares, or the time at
which the Common Shares are first generally offered by the Underwriters to the
public by letter, telephone, telegram or telecopy, which shall first occur. By
giving notice as set forth in this Section 12 before the time this Agreement
becomes effective, you, as Representative of the several Underwriters, or the
Company, may prevent this Agreement from becoming effective without liability to
any other party, except as provided in Section 10 hereof.
(b) You, as Representative of the several Underwriters, shall have the right
to terminate this Agreement by giving notice as hereinafter specified at any
time at or prior to the First Closing Date or on or prior to any later date on
which Optional Common Shares are to be purchased, as the case may be, (i) if the
Company shall have failed, refused or been unable to perform any agreement on
its part to be performed, or because any other condition of the Underwriters'
obligations hereunder required to be fulfilled is not fulfilled, including,
without limitation, any change in the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company from that
set forth in the Registration Statement or Prospectus, which, in your sole
judgment, is material and adverse, or (ii) if additional material governmental
restrictions not in force and effect on the date hereof, shall have been imposed
upon trading in securities generally or minimum or maximum prices shall have
been generally established on the New York Stock Exchange or the American Stock
Exchange or in the over-the-counter market by the NASD, or trading in securities
generally shall have been suspended on either such exchange or in the over-the-
counter market by the NASD, or if a banking moratorium shall have been declared
by federal, New York, Illinois or Colorado authorities, or (iii) if the Company
shall have sustained a loss by strike, fire, flood, earthquake, accident or
other calamity of such character as to interfere materially with the conduct of
the business and operations of the Company regardless of whether or not such
loss or interference shall have been insured, or (iv) if there shall have been a
material adverse change in the general political or economic conditions or
financial markets as in your reasonable judgment makes it inadvisable or
impracticable to proceed with the offering, sale and delivery of the Common
Shares, or (v) if there shall have been an outbreak or escalation of hostilities
or of any other insurrection or armed conflict or the declaration of the United
States of a national emergency which, in the reasonable opinion of the
Representative, makes it impracticable or inadvisable to proceed with the public
offering of the Common Shares as contemplated by this Prospectus. Any
termination pursuant to this paragraph 12(b) shall be without liability of any
party to any other party except as provided in Section 10 hereof.
27
<PAGE>
If you elect to prevent this Agreement from becoming effective or to terminate
this Agreement as provided in this Section 12, you shall promptly notify the
Company by telephone, telecopy or telegram, in each case, confirmed by letter.
If the Company shall elect to prevent this Agreement from becoming effective,
the Company shall promptly notify you by telephone, telecopy or telegram, in
each case, confirmed by letter.
Section 13. Right of First Refusal
----------------------
For a period of three (3) years from the date of this Agreement, the Company
will not enter into an agreement for a public or private offering for cash
(other than to employees) of any securities of the Company or any affiliate of
the Company or any securities offered by the Company or any affiliate for cash
to or through any person, firm or corporation other than Mills Financial
Services, Inc. unless and until the Company shall have first negotiated for the
sale of such securities with or through or offered to sell such securities to
Mills Financial Securities, Inc. The Company shall notify Mills Financial
Services, Inc. in writing of the Company's intention to offer such securities in
an offering covered by this right of first refusal and the terms (including the
price or other method of determining the underwriting or placement discount or
fee) and the conditions of the proposed offering. Mills Financial Services,
Inc. shall then have 10 days from the date of receipt of such written notice to
decide whether to participate in such proposed offering. If Mills Financial
Services, Inc. determines that it does not wish to participate in the proposed
offering, then it shall so notify the Company of its intention in writing not
later than 30 days from the receipt of notice from the Company of such proposed
offering. If Mills Financial Services, Inc. determines not to participate in
such offering, then the Company may, within a period of 90 days from the date of
receipt of notice from Mills Financial Services, Inc. of its intention not to
participate, enter into a letter of intent for the public sale or, as
appropriate, a contract for the private sale, of any of such securities through
any other person, firm or corporation on the same general terms and conditions
as those which were tendered by the Company to Mills Financial Services, Inc.
Provided, however, as to a public offering, it a definitive underwriting
agreement with a firm commitment is not executed by the Company with such third
party within 180 days thereafter, all the rights of Mills Financial Services,
Inc. hereunder with respect to such offering shall be reinstated. Nothing in
this Agreement shall be construed as granting the continuation of such
preferential right on the part of Mills Financial Services, Inc. beyond such
three-year period.
Section 14. Representations and Indemnities to Survive Delivery.
---------------------------------------------------
The respective indemnities, agreements, representations, warranties and other
statements of the Company, of its officers or key employees and of you or the
Underwriters, as the case may be, set forth in or made pursuant to this
Agreement will remain in full force and effect, regardless of any investigation
made by you individually or on behalf of any Underwriter, as the case may be, or
the Company or any of its or their partners, officers or directors or any
controlling person, and will survive delivery of and payment for the Common
Shares sold hereunder and any termination of this Agreement.
28
<PAGE>
Section 15. Notices.
-------
All communications hereunder shall be in writing and, if sent to you
individually or on behalf of the several Underwriters, shall be mailed,
delivered, telefaxed or telegraphed and confirmed to you at 20 N. Clark Street,
Suite 2411, Chicago, Illinois 60602, Attention: Joseph Kurczodyna; and if sent
to the Company shall be mailed, delivered, telefaxed or telegraphed and
confirmed to the Company at P.O. Box 445, Eldorado Springs, Colorado 80025,
Attention: Douglas A. Larson. The Company, or you may change the address for
receipt of communications hereunder by giving notice to the other.
Section 16. Successors.
----------
This Agreement shall inure to the benefit of and be binding upon the parties
hereto, including any substitute Underwriters pursuant to Section 9 hereof, and
to the benefit of the officers and directors and controlling persons referred to
in Section 10, and in each case their respective successors, personal
representatives and assigns, and no other person will have any right or
obligation hereunder. No such assignment shall relieve any party of its
obligations hereunder. The term "successors" shall not include any purchaser of
the Common Shares as such from you or any of the Underwriters merely by reason
of such purchase.
Section 17. Representative of Underwriters.
------------------------------
If applicable, you will act as Representative for the several Underwriters in
connection with all dealings hereunder, and any action under or in respect of
this Agreement taken by the Underwriters jointly or by Mills Financial Services,
Inc., as Representative, will be binding upon all the Underwriters.
Section 18. Partial Unenforceability.
------------------------
The invalidity or unenforceability of any Section, paragraph or provision of
this Agreement shall not affect the validity or enforceability of any other
Section, paragraph or provision hereof. If any Section, paragraph or provision
of this Agreement is for any reason determined to be invalid or unenforceable,
there shall be deemed to be made such minor changes (and only such minor
changes) as are necessary to make it valid and enforceable.
Section 19. Applicable Law.
--------------
This Agreement shall be governed by and construed in accordance with the
internal laws (and not the laws pertaining to conflicts of laws) of the State of
Illinois.
Section 20. General.
-------
This Agreement constitutes the entire agreement of the parties to this
Agreement and supersedes all prior written or oral and all contemporaneous oral
agreements, understandings and negotiations with respect to the subject matter
hereof. This Agreement may be executed
29
<PAGE>
in several counterparts, each one of which shall be an original, and all of
which shall constitute one and the same document.
In this Agreement, the masculine, feminine and neuter genders and the singular
and the plural include one another. The section headings in this Agreement are
for the convenience of the parties only and will not affect the construction or
interpretation of this Agreement. This Agreement may be amended or modified, and
the observance of any term of this Agreement may be waived, only by a writing
signed by the Company and you, individually or on behalf of the several
Underwriters, as the case may be.
(Balance of Page Left Blank, Intentionally)
30
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return to us the enclosed copies hereof, whereupon it will
become a binding agreement among the Company and Mills Financial Services, Inc.
or the several Underwriters including you, as the case may be, all in accordance
with its terms.
Very truly yours,
ELDORADO ARTESIAN SPRINGS, INC.
By:____________________________
Douglas A. Larson, President
The foregoing Underwriting Agreement is hereby confirmed and accepted by us in
Chicago, Illinois as of the date first above written.
MILLS FINANCIAL SERVICES, INC.
If applicable, acting as Representative of the several Underwriters named in the
attached Schedule A.
By MILLS FINANCIAL SERVICES, INC.
By: ____________________________
Joseph Kurczodyna, President
31
<PAGE>
SCHEDULE A
Number of Firm Common
Name of Underwriter Shares to be Purchased
- ------------------- ----------------------
Mill Financial Services, Inc.
32
<PAGE>
EXHIBIT 5.1
Eldorado Artesian Springs, Inc.
294 Artesian Drive
Eldorado Springs, Colorado 80225
Re: Registration Statement on Form SB-2
Gentlemen:
We have acted as counsel to Eldorado Artesian Springs, Inc. (the "Company") in
connection with the preparation and filing of a Registration Statement on Form
SB-2 (the "Registration Statement") registering under the Securities Act of
1933, as amended, an aggregate of 805,000 shares (the "Shares") of common stock
of the Company ("Common Stock"). As such, we have examined the Registration
Statement, the Company's Articles of Incorporation and Bylaws (as amended), and
minutes of meetings of the Company's Board of Directors.
Based upon the foregoing, and assuming that the Shares will be sold in
accordance with the Registration Statement at a time when effective, we are of
the opinion that, the shares of Common Stock will be validly issued, fully paid
and non-assessable securities of the Company.
We consent to the use of this opinion as an exhibit to the Registration
Statement and to the references to our firm in the Prospectus which is made a
part of the Registration Statement.
Sincerely,
CHRISMAN, BYNUM & JOHNSON, P.C.
<PAGE>
EXHIBIT 10.1
ELDORADO ARTESIAN SPRINGS, INC.
1997 STOCK OPTION PLAN
(Amended to reflect 12-1 reverse stock split effected 4/1/98)
I. PURPOSE
The ELDORADO ARTESIAN SPRINGS, INC. STOCK OPTION PLAN ("PLAN") provides
for the grant of Stock Options to employees, directors and consultants of
Eldorado Artesian Springs, Inc. (the "COMPANY"), and such of its subsidiaries
(as defined in Section 424(f) of the Internal Revenue Code of 1986, as amended
(the "CODE")), as the Board of Directors of the Company (the "BOARD") shall from
time to time designate ("PARTICIPATING SUBSIDIARIES") in order to advance the
interests of the Company and its Participating Subsidiaries through the
motivation, attraction and retention of key personnel.
II. INCENTIVE STOCK OPTIONS AND NON-INCENTIVE STOCK OPTIONS
The Stock Options granted under the Plan may be either:
a) Incentive Stock Options ("ISOS") which are intended to be
"Incentive Stock Options" as that term is defined in Section 422 of the
Code; or
b) Nonstatutory Stock Options ("NSOS") which are intended to be
options that do not qualify as "Incentive Stock Options" under Section 422
of the Code.
All Stock Options shall be ISOs only to the extent specified in the Option
Agreement. Subject to the other provisions of the Plan, a Participant may
receive ISOs and NSOs at the same time, provided that the ISOs and NSOs are
clearly designated as such, and the exercise of one does not affect the exercise
of the other.
Except as otherwise expressly provided herein, all of the provisions and
requirements of the Plan relating to Stock Options shall apply to ISOs and NSOs.
III. ADMINISTRATION
The Plan shall be administered by the Board, or by a committee composed
solely of two or more directors ("COMMITTEE") each of whom is a Non-Employee
Director. The Committee or the Board, as the case may be, shall have full
authority to administer the Plan, including authority to interpret and construe
any provision of the Plan and any Stock Options granted thereunder, and to adopt
such rules and regulations for administering the Plan as it may deem necessary
in order to
<PAGE>
comply with the requirements of the Code or in order that Stock Options that are
intended to be ISOs will be classified as incentive stock options under the
Code, or in order to conform to any regulation or to any change in any law or
regulation applicable thereto. The Board shall have the power to reprice and
accelerate the vesting of Stock Options. The Board may reserve to itself any of
the authority granted to the Committee as set forth herein, and it may perform
and discharge all of the functions and responsibilities of the Committee at any
time that a duly constituted Committee is not appointed and serving. All
references in this Plan to the "Committee" shall be deemed to refer to the Board
whenever the Board is discharging the powers and responsibilities of the
Committee, and to any special committee appointed by the Board to administer
particular aspects of this Plan.
All actions taken and all interpretations and determinations made by the
Committee in good faith (including determinations of Fair Market Value) shall be
final and binding upon all Participants, the Company and all other interested
persons. No member of the Committee shall be personally liable for any action,
determination or interpretation made in good faith with respect to this Plan,
and all members of the Committee shall, in addition to their rights as
directors, be fully protected by the Company with respect to any such action,
determination or interpretation. Rule 16b-3 under the Securities Exchange Act
of 1934 (the "EXCHANGE ACT") provides that the grant of a stock option to a
director or officer of a company will be exempt from the provisions of Section
16(b) of the Exchange Act if the conditions set forth in that Rule are
satisfied. Unless otherwise specified by the Committee, grants of Stock Options
hereunder to individuals who are officers or directors of the Company shall be
made in a manner that satisfies the conditions of that Rule.
IV. DEFINITIONS
4.1. "STOCK OPTION." A Stock Option is the right granted under the Plan
------------
to an Employee, director, or consultant to purchase, at such time or times and
at such price or prices ("OPTION PRICE") as are determined by the Committee, the
number of shares of Common Stock determined by the Committee.
4.2. "COMMON STOCK." A share of Common Stock means a share of authorized
------------
common stock of the Company.
4.3. "FAIR MARKET VALUE." If the Common Stock is traded publicly, the
-----------------
Fair Market Value of a share of Common Stock on any date shall be the average of
the representative closing bid and asked prices, as quoted by the National
Association of Securities Dealers, Inc. through NASDAQ (its automated system for
reporting quotes), for the date in question, or, if the Common Stock is listed
on the NASDAQ National System or is listed on a national stock exchange, the
officially quoted closing price on NASDAQ or such exchange, as the case may be,
on the date in question. If there is no market for the Common Stock, the Fair
Market Value of a share of Common Stock on any date shall be determined in good
faith by the Committee after such consultations with outside legal, accounting
and other experts as the Committee may deem advisable, and the Committee may
maintain a written record of its method of determining such value.
4.4. "EMPLOYEE." An Employee is an employee of the Company or any
--------
Participating Subsidiary.
<PAGE>
4.5. "PARTICIPANT." A Participant is an Employee, director or consultant
-----------
to whom a Stock Option is granted.
4.6. "NON-EMPLOYEE DIRECTOR." A Non-Employee Director is a person who
---------------------
satisfies the definition of a "non-employee director" set forth in Rule 16b-3
under the Exchange Act or any successor rule or regulation, as it may be amended
from time to time.
4.7 "CORPORATE TRANSACTION." A Corporate Transaction shall mean one or
---------------------
more of the following transactions unless persons who were holders of
outstanding voting capital stock of the Company which was outstanding
immediately prior to such transaction are immediately after such transaction
holders of 51% or more of the outstanding voting capital stock of the surviving
or acquiring entity (or equivalent equity interest if the entity is not a
corporation): (i) a merger, consolidation or acquisition (ii) a share exchange
(with or without a stockholder vote) in which 95% or more of the outstanding
capital stock of the Company is exchanged for capital stock of another
corporation; or (iii) the sale, transfer or other disposition of all or
substantially all of the Company's assets.
4.8 "SECURITIES ACT." Securities Act shall mean the Securities Act of
--------------
1933, as amended.
4.9 "CHANGE IN CONTROL." Change in Control shall mean any of the following
-----------------
events occurring after October 27, 1997.
A. If any one Person (as defined below), in a single transaction or in
a series of transactions shall purchase or otherwise acquire or become the
beneficial owner of securities of the Company representing sixty percent (60%)
or more of the combined voting power of the Company's then outstanding voting
securities (including any voting securities issuable upon conversion of
convertible securities of the Company held by such Person).
B. If at any annual or special meeting of Company stockholders
following a contested election the Board of Directors of the Company shall cease
to be an Authorized Board. For purposes of this paragraph, a "CONTESTED
ELECTION" shall mean (i) an election contest subject to Rule 14a-11 under the
Exchange Act or (ii) an election which would have been subject to Rule 14a-11 if
at the time of such election the Company had securities registered pursuant to
Section 12 of the Exchange Act.
C. If a change of control of the Company (i) required to be reported
in accordance with Item 6 of Schedule 14A under the Exchange Act, or (ii) which
would be required to be reported in accordance with Item 6 of Schedule 14A if at
the time of such election the Company had securities registered pursuant to
Section 12 of the Exchange Act, has otherwise occurred, unless a Constitutional
Majority of an Authorized Board approves the change of control and specifically
waives the application of this section.
D. A dissolution or liquidation of the Company.
<PAGE>
E. A sale of all or substantially all the Company's assets.
F. A determination by the Board or the Committee (as applicable), in
its sole discretion, that there has been a change in control of the Company.
For purposes of this Section 4.9 "PERSON" shall have the meaning
set forth in Sections 13(d) and 14(d)(2) of the Exchange Act, as in effect on
the date thereof, and shall include, without limitation, any "AFFILIATE" or
"ASSOCIATE" of such Person (as those terms are used in Rule 12b-2 under the
Exchange Act); provided, however, that the term "Person" shall not include the
Company or any trustee or other fiduciary holding securities under any employee
benefit plan of the Company. For purposes of this Section 4.9, (i) beneficial
ownership shall be computed in accordance with Rule 13d-3 under the Exchange
Act; and (ii) "AUTHORIZED BOARD" shall mean a Board of Directors of the Company
of which a number of directors equal to a majority of the authorized number of
directors constituting the entire Board, including vacancies (a "CONSTITUTIONAL
MAJORITY"), were either members of the Board of Directors on October 27, 1997 or
were nominated or elected a director by a Constitutional Majority at the date of
nomination or election of an Authorized Board.
4.10 "INITIAL PUBLIC OFFERING". "Initial Public Offering" shall mean the
-------------------------
Company's first offering of securities to the public which is registered
pursuant to the Securities Act.
V. ELIGIBILITY AND PARTICIPATION
Grants of ISOs may be made to Employees of the Company or any Participating
Subsidiary. Grants of NSOs may be made to Employees or directors of, or
consultants to, the Company or any Participating Subsidiary. Any director of
the Company or of a Participating Subsidiary who is also an Employee shall also
be eligible to receive ISOs. The Committee shall from time to time determine
the Participants to whom Stock Options shall be granted, the number of shares of
Common Stock subject to each Stock Option to be granted to each such
Participant, and the Option Price of such Stock Options, all as provided in this
Plan. The Option Price of any ISO shall be not less than the Fair Market Value
of a share of Common Stock on the date on which the Stock Option is granted, and
the Option Price of an NSO shall be not less than eighty percent (80%) of the
Fair Market Value on the date the NSO is granted. If an ISO is granted to an
Employee who then owns stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company or any parent or subsidiary
corporation of the Company, the Option Price of such ISO shall be at least 110%
of the Fair Market Value of the Common Stock subject to the ISO at the time such
ISOs are granted, and such ISO shall not be exercisable after five years after
the date on which it was granted. Each Stock Option shall be evidenced by a
written agreement ("OPTION AGREEMENT") containing such terms and provisions as
the Committee may determine, subject to the provisions of this Plan.
<PAGE>
VI. SHARES OF COMMON STOCK SUBJECT TO THE PLAN
6.1. Maximum Number. The maximum aggregate number of shares of Common
--------------
Stock that may be made subject to Stock Options shall be 875,000 authorized
shares. To the extent the aggregate Fair Market Value (determined as of the
time the ISO is granted) of the stock with respect to which ISOs are exercisable
for the first time by an individual in a particular calendar year exceeds
$100,000, such excess Stock Options shall be treated as NSOs. If any shares of
Common Stock subject to Stock Options are not purchased or otherwise paid for
before such Stock Options expire, such shares may again be made subject to Stock
Options.
6.2. Capital Changes. In the event any changes are made to the shares of
---------------
Common Stock (whether by reason of reorganization, recapitalization, stock
dividend, stock split, combination of shares, exchange of shares, change in
corporate structure or otherwise), appropriate adjustments shall be made in:
(i) the number of shares of Common Stock theretofore made subject to Stock
Options, and in the Option Price of said shares; and (ii) the aggregate number
of shares which may be made subject to Stock Options in the future. If any of
the foregoing adjustments shall result in a fractional share, the fraction shall
be disregarded, and the Company shall have no obligation to make any cash or
other payment with respect to such a fractional share.
VII. EXERCISE OF STOCK OPTIONS
7.1 Time of Exercise. Subject to the provisions of the Plan, the
----------------
Committee, in its discretion, shall determine the time when a Stock Option, or a
portion of a Stock Option, shall become exercisable, and the time when a Stock
Option, or a portion of a Stock Option, shall expire. Such time or times shall
be set forth in the Option Agreement evidencing such Stock Option. Unless
otherwise specified in an Option Agreement, a Stock Option shall become
exercisable (i) with respect to 20% of the shares subject thereto on the
anniversary of the date of grant, and (ii) with respect to 1/48th of the shares
subject thereto at the end of each month after the first anniversary of the date
of grant, (so that all Stock Options are fully vested five (5) years after the
date of grant) subject to continued employment with the Company or a
Participating Subsidiary and Section 7.4 hereof. A Stock Option shall expire,
to the extent not exercised, no later than the tenth anniversary of the date on
which it was granted. The Committee may accelerate the vesting of any
Participant's Stock Option by giving written notice to the Participant. Upon
receipt of such notice, the Participant and the Company shall amend the Option
Agreement to reflect the new vesting schedule. The acceleration of the exercise
period of a Stock Option shall not affect the expiration date of that Stock
Option.
7.2 Exchange of Outstanding Stock. The Committee, in its sole discretion,
-----------------------------
may permit a Participant to (i) surrender to the Company whole shares of Common
Stock previously acquired by the Participant and/or (ii) request that the
Company withhold whole shares of Common Stock issuable upon exercise of the
Stock Option, as part or full payment for the exercise of a Stock Option. Such
surrendered or withheld shares shall be valued at their Fair Market Value on the
date of exercise. Shares credited to a Participant shall again be available for
grant under the Plan.
<PAGE>
7.3. Use of Promissory Note; Exercise Loans. The Committee may, in its
--------------------------------------
sole discretion, impose terms and conditions, including conditions relating to
the manner and timing of payments, on the exercise of Stock Options. Such terms
and conditions may include, but are not limited to, permitting a Participant to
deliver to the Company his promissory note as full or partial payment for the
exercise of a Stock Option. The Committee, in its sole discretion, may
authorize the Company to make a loan to a Participant in connection with the
exercise of Stock Options, or authorize the Company to arrange or guarantee
loans to a Participant by a third party. Any loan by the Company or acceptance
of a promissory note shall be made in accordance with the corporate law of the
Company's state of incorporation.
7.4. Termination of Employment before Exercise. If the employment of a
-----------------------------------------
Participant who was an employee of the Company or a Participating Subsidiary
when the Stock Option was granted shall terminate for any reason other than the
Participant's death or disability, any Stock Option granted to the Participant,
to the extent then exercisable under the applicable Option Agreement(s), shall
remain exercisable after the termination of the Participant's employment for a
period of three (3) months (but not later than the specified expiration date).
If the Participant's employment is terminated because the Participant is
disabled within the meaning of Section 22(e)(3) of the Code, any Stock Option
granted to the Participant, to the extent then exercisable under the applicable
Option Agreement(s), shall remain exercisable after the termination of his
employment for a period of twelve (12) months (but not later than the specified
expiration date). If the Participant dies while employed by the Company or a
Participating Subsidiary, or during the three-month or twelve-month periods
referred to above, his Stock Options may be exercised by the Participant's
estate, duly appointed representative or beneficiary who acquires the Stock
Options by will or by the laws of descent and distribution, to the extent that
they were exercisable on the date of cessation of his employment, but no further
installments of the Participant's Stock Options will become exercisable and each
of the Participant's Stock Options shall terminate on the first anniversary of
the date of the Participant's death (but not later than the specified expiration
dates). If a Stock Option is not exercised during the applicable period, it
shall be deemed to have been forfeited and of no further force or effect.
Notwithstanding the foregoing provisions of this Section 7.4, but subject
to the other provisions of this Plan, the Option Agreement may specify longer
periods for exercise of a NSO or ISO (unless to do so in the case of an ISO
would cause the ISO not to qualify as an incentive stock option pursuant to
Section 422 of the Code) after any such an event.
Upon action of the Committee in its sole discretion, except as provided in
a written employment or consulting agreement of the Company or a Participating
Subsidiary with the Participant, which is referenced in the Option Agreement,
any Stock Option shall terminate immediately, and may not be exercised, (i) if
prior to the date of exercise Participant is terminated for cause as an Employee
of the Company or its Participating Subsidiary, or if not an Employee, for cause
as a director or consultant for the Company or its Participating Subsidiary; or
(ii) if subsequent to a Participant's termination and prior to the expiration of
the term of the Stock Option conditions arise or are discovered with respect to
a Participant that would have constituted cause for termination. "CAUSE" shall
have the meaning given to it in the Participant's written employment, consultant
or director agreement with the Company or Participating Subsidiary. If no such
written
<PAGE>
agreement exists, "cause" shall mean (i) dishonesty which is not the result of
an inadvertent or innocent mistake with respect to the Company or any of its
subsidiaries; (ii) willful misfeasance or nonfeasance of duty intended to injure
or having the effect of injuring in some material fashion the reputation,
business or business relationships of the Company or any of its subsidiaries or
any of their respective officers, directors or employees; (iii) conviction upon
a charge of any crime involving moral turpitude or a crime other than a vehicle
offense which could reflect in some material fashion unfavorably upon the
Company or any of its subsidiaries; or (iv) willful or prolonged absence from
work by the Participant (other than by reason of disability due to physical or
mental illness) or failure, neglect or refusal by the Participant to perform his
duties and responsibilities without the same being corrected upon twenty (20)
days prior written notice. In addition, unless specifically provided otherwise
in reference to this Plan in a written employment, consultant or director
agreement with the Company or Participating Subsidiary, "cause" for purposes of
this Section 7.4 shall exist (and termination of the Stock Option may occur even
if not so provided in the written employment, consultant or director agreement
with the Company or Participating Subsidiary) if the Participant materially
breaches any provision of an agreement with the Company or any of its
subsidiaries with respect to obligations regarding non-competition,
confidentiality, non-solicitation of customers, and non-hire of customers and
employees of the Company or a Subsidiary.
7.5. Disposition of Forfeited Stock Options. Any shares of Common Stock
--------------------------------------
subject to Stock Options forfeited by a Participant shall not thereafter be
eligible for purchase by the Participant, but may be made subject to Stock
Options granted to other Participants.
7.6. Conditions of Exercise. Notice of exercise shall be in the form
----------------------
attached to the Option Agreement and shall, in the discretion of the Company,
contain a representation, in the form provided by the Company, that the shares
are being purchased for investment only and not for resale or distribution, and
such other representations and agreements as the Company may reasonably require,
and may in addition require as a condition of exercise that the Participant
execute any stockholders agreement which is to be applicable to either: (i)
holders of 70% or more of the capital stock of the Company or (ii) holders of
70% or more of the Stock Options granted under this Plan. The Company may also
require as a condition of exercise that the Participant will agree, if requested
by the Company in connection with a public offering of the Company's securities,
to adhere to lock-up arrangements between the Company and an underwriter
involved in such public offering.
VIII. NO CONTRACT OF EMPLOYMENT
Nothing in this Plan shall confer upon the Participant the right to
continue as an employee, consultant or director of the Company or any
Participating Subsidiary, nor shall it interfere in any way with the right of
the Company, or any Participating Subsidiary, to discharge the Participant at
any time for any reason whatsoever, with or without cause. Nothing in this
Article VIII shall affect any rights or obligations of the Company or any
Participant under any written contract of employment.
IX. NO RIGHTS AS A STOCKHOLDER
<PAGE>
A Participant shall have no rights as a stockholder with respect to any
shares of Common Stock subject to a Stock Option. Except as provided in Section
6.2, no adjustment shall be made in the number of shares of Common Stock issued
to a Participant, or in any other rights of the Participant upon exercise of a
Stock Option by reason of any dividend, distribution or other right granted to
stockholders for which the record date is prior to the date of exercise of the
Participant's Stock Option. The Committee, the Board and the Company have no
continuing duty to provide a Participant with information concerning the
Company.
X. ASSIGNABILITY
No Stock Option granted under this Plan, nor any other rights acquired by
Participant under this Plan, shall be assignable or transferable by a
Participant, other than by will or the laws of descent and distribution.
Notwithstanding the preceding sentence, the Committee, in its sole discretion,
may permit the assignment or transfer of an NSO and the exercise thereof by a
person other than a Participant, on such terms and conditions as the Committee
in its sole discretion may determine. Any such terms shall be set forth in the
Option Agreement. In the event of a Participant's death, the Stock Option may
be exercised by the personal representative of the Participant's estate or by
the successor or successors in interest determined under the Participant's will
or under the applicable laws of descent and distribution. The terms of any
rights under this Plan in the hands of a transferee or assignee shall be
determined as if held by the Participant and shall be of no greater extent or
term than if the transfer or assignment had not taken place.
XI. CORPORATE TRANSACTIONS AND CHANGES IN CONTROL
11.1. At least ten (10) days prior to the consummation of a Corporate
Transaction, the Company shall give Participants written notice of the proposed
Corporate Transaction. The vesting schedules of all Stock Options shall
automatically be accelerated so that the Stock Options shall become exercisable
as to those shares which could be purchased under those vesting schedules 12
months after the date of consummation of the Corporation Transaction. In
addition, at the sole discretion of the Committee, the vesting schedule of some
or all other Stock Options may be accelerated so that all or any portion of
Stock Options outstanding under the Plan immediately prior to the consummation
of the Corporate Transaction shall, for all purposes under this Plan, become
exercisable as of such time. If a Corporate Transaction is to occur, in lieu of
allowing a Participant to exercise the Participant's Stock Options, the Board
may, in its sole discretion, require some or all Participants to accept a cash
payment in consideration for the termination of the Participant's Stock Options.
The termination shall occur immediately prior to the consummation of the
Corporate Transaction and the cash payment shall be equal to the difference
between the price per share of Common Stock in the Corporate Transaction as
determined by the Board and the exercise price of a Participant's Stock Options.
All Stock Options, to the extent not previously exercised, shall terminate upon
the consummation of such Corporate Transaction and cease to be exercisable
unless expressly assumed by the successor corporation or parent thereof.
Provided, however, that if the Corporate Transaction is to be accounted for as a
"pooling-of-interest," then unexercised stock options shall be exchanged for
similar options of the acquiror or surviving entity or voting common stock of
the acquiror or surviving entity based on the value of the options, as and to
the extent required by APB No. 16, accounting pronouncements of the Securities
and Exchange Commission,
<PAGE>
and other authoritative principles and pronouncements concerning pooling-of-
interest accounting. Notwithstanding the foregoing, the vesting of a
Participant's Stock Options shall not be accelerated (if and to the extent
requested in writing by the Participant) upon a Corporate Transaction if the
participant is a "disqualified individual" as that term is defined in Section
280G of the Internal Revenue Code.
11.2. The vesting schedules of all Stock Options shall be automatically
accelerated so that the Stock Options shall become exercisable as to all shares
subject to the Stock Options if the Participant's employment is terminated
without cause by the Company within one (1) year following a Change in Control.
"Without cause" means that "cause" did not exist as defined in Section 7.4.
11.3 The employment, consulting or directorship agreement, or the Option
Agreement of a Participant may contain terms which vary from Sections 11.1 and
11.2 upon approval of the Board and the Committee.
XII. AMENDMENT
The Board of Directors may from time to time alter, amend, suspend or
discontinue the Plan, including, where applicable, any modifications or
amendments as it shall deem advisable in order that ISOs will be classified as
incentive stock options under the Code, or in order to conform to any regulation
or to any change in any law or regulation applicable thereto; provided, however,
that no such action shall adversely affect the rights and obligations with
respect to Stock Options at any time outstanding under the Plan; and provided
further that no such action shall, without the approval of the stockholders of
the Company, (i) increase the maximum number of shares of Common Stock that may
be made subject to Stock Options (unless necessary to effect the adjustments
required by Section 6.2), (ii) materially modify the requirements as to
eligibility for participation in the Plan, or (iii) materially increase the
benefits accruing to Participants under the Plan.
XIII. REGISTRATION OF OPTIONED SHARES
The Stock Options shall not be exercisable unless the purchase of such
optioned shares is pursuant to an applicable effective registration statement
under the Securities Act and applicable state securities laws or unless, in the
opinion of counsel to the Company, the proposed purchase of such optioned shares
would be exempt from the registration requirements of the Securities Act and
from the registration or qualification requirements of applicable state
securities laws. Any certificates for such shares shall bear such legends as
deemed appropriate by the Committee.
XIV. WITHHOLDING TAXES
14.1 Satisfaction of Withholding Obligations. The Company or
----------------------------------------
Participating Subsidiary may take such steps as it may deem necessary or
appropriate for the withholding of any taxes or funds which the Company or the
Participating Subsidiary is required by any law or regulation of any
governmental authority, whether federal, state or local, domestic or foreign, to
withhold in connection with any Stock Options (collectively, "WITHHOLDING
OBLIGATIONS"). Such steps may include, by way of example only and not
limitation, (i) requiring a Participant to remit to the Company in
<PAGE>
cash an amount sufficient to satisfy such Withholding Obligations; (ii) allowing
the Participant to tender to the Company shares of Common Stock, the Fair Market
Value of which at the tender date the Committee determines to be sufficient to
satisfy such Withholding Obligations; (iii) withholding shares of Common Stock
otherwise issuable upon the exercise of a Stock Option and which have a Fair
Market Value at the exercise date sufficient to satisfy such Withholding
Obligations; or (iv) any combination of the foregoing.
14.2 Securities Law Restrictions on Satisfaction of Withholding
----------------------------------------------------------
Obligations. Notwithstanding any other provisions of the Plan, a Participant who
- -----------
is subject to Section 16(b) of the Exchange Act shall not be permitted to
satisfy Withholding Obligations in the manner set forth in clauses (ii) or (iii)
of Section 14.1 hereof prior to the expiration of six months after the date on
which the applicable Stock Option was granted, except in the event of the death
or Disability of the Participant, unless the Company is advised by its counsel
that such elections may be permitted pursuant to Section 16 of the Exchange Act
or any rule or interpretation of the U.S. Securities and Exchange Commission
thereunder. Except with the consent of the Committee, a Participant who is
subject to Section 16(b) of the Exchange Act may not satisfy Withholding
Obligations in the manner set forth in clauses (ii) or (iii) of Section 14.1
other than (i) during the 10-day window period beginning on the third business
day following the date of release for publication of the Company's quarterly and
annual summary statements of sales and earnings and ending on the twelfth
business day following such date or (ii) at least six months prior to the date
as of which the income attributable to the exercise of such Stock Option is
recognized under the Code.
14.3 Notification of Inquiries and Agreements. Each Participant shall
----------------------------------------
notify the Company in writing within 10 days after the date such Participant (i)
first obtains knowledge of any Internal Revenue Service inquiry, audit,
assertion, determination, investigation, or question relating in any manner to
the value of any shares of Common Stock or Stock Options granted or received
hereunder; (ii) includes or agrees (including, without limitation, in any
settlement, closing or other similar agreement) to include in gross income with
respect to any shares of Common Stock or Stock Options received or granted
hereunder (A) any amount in excess of the amount reported on Form 1099 or Form
W-2 to such Participant by the Company, or (B) if no such Form was received, any
amount; (iii) exercises, sells, disposes of, or otherwise transfers (other than
to such Person's successors, heirs, executors or administrators, as the case may
be) a Stock Option acquired pursuant to this Plan; or (iv) sells, disposes of,
or otherwise transfers (other than to such Person's successors, heirs, executors
or administrators, as the case may be) shares of Common Stock acquired pursuant
to the exercise of an Incentive Stock Option within the Disqualified Period.
Upon request, a Participant shall provide to the Company any information or
document relating to any event described in the preceding sentence which the
Company (in its sole discretion) requires in order to calculate and substantiate
any change in the Company's tax liability as a result of such event.
"DISQUALIFIED PERIOD" means, in the case of any Incentive Stock Option, the
period beginning on the date such Stock Option is granted and ending on the
later of the date (i) two years after the date such Stock Option is granted, or
(ii) one year after the transfer of any Common Stock to a Participant pursuant
to the exercise of such Stock Option.
XV. BROKERAGE ARRANGEMENTS
The Committee, in its discretion, may enter into arrangements with one or
more banks, brokers or other financial institutions to facilitate the
disposition of shares acquired upon the exercise of Stock Options including,
without limitation, arrangements for the simultaneous exercise of Stock Options
and the sale of shares acquired upon exercise.
<PAGE>
XVI. NONEXCLUSIVITY OF THE PLAN
Neither the adoption of the Plan by the Board nor the submission of the
Plan to stockholders of the Company for approval shall be construed as creating
any limitations on the power or authority of the Board to adopt such other or
additional incentive or other compensation arrangements of whatever nature as
the Board of Directors may deem necessary or desirable or preclude or limit the
continuation of any other plan, practice or arrangement for the payment of
compensation or fringe benefits to employees generally, or to any class or group
of employees, which the Company or any Participating Subsidiary now has lawfully
put into effect, including, without limitation, any retirement, pension, savings
and stock purchase plan, insurance, death and disability benefits and executive
short-term or long-term incentive plans.
XVII. EFFECTIVE DATE
This Plan was adopted by the Board of Directors on September 10, 1997 and
became effective on that date subject to the approval of the Company's
stockholders within twelve (12) months thereafter. However, if such approval is
not obtained all provisions of this Plan, and all grants hereunder, shall
nevertheless be effective except that all ISOs shall be NSOs. No Stock Options
shall be granted subsequent to ten years after the effective date of the Plan.
Stock Options outstanding subsequent to ten years after the effective date of
the Plan shall continue to be governed by the provisions of the Plan.
<PAGE>
EXHIBIT 10-2
<TABLE>
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
LOAN NO. LOAN NAME ACCOUNT NO. NOTE DATE RATE NOTE AMOUNT MATURITY INITIALS
ELDORADO ARTESIAN 3 06/27/97 PRIME+.5 $1,200,000 06/20/12 IDJ
- --------------------------------------------------------------------------------------------------
(For Bank Purposes Only-AC)
</TABLE>
PROMISSORY NOTE
(BUSINESS PURPOSE)
FIRST NATIONAL BANK OF BOULDER COUNTY
1. DATE AND PARTIES. The date of this Promissory Note (Note) is June 27,
1997. This Note evidences a loan which includes all extensions, renewals,
modifications and substitutions (Loan). The parties to this Note and Loan
are:
BORROWER:
ELDORADO ARTESIAN SPRINGS, INC.
a COLORADO corporation
35 ELDORADO SPRINGS DRIVE
P.O. Box 445
ELDORADO SPRINGS, COLORADO 80025
Tax I.D. # 84-0907853
DOUGLAS A. LARSON
31 FOWLER LANE
P.O. Box 234
ELDORADO SPRINGS, CO 80025
Social Security # ###-##-####
KEVIN M. SIPPLE
12 BALDWIN CIRCLE
P.O. Box 244
ELDORADO SPRINGS, CO 80025
Social Security # ###-##-####
JEREMY S. MARTIN
2707 4TH STREET
BOULDER, CO 80304
Social Security # ###-##-####
BANK:
FIRST NATIONAL BANK OF BOULDER COUNTY
a national banking association
2835 Pearl St.
Boulder, Colorado 80301
Tax I.D. # 84-1149584
2. PROMISE TO PAY. For value received, Borrower promises to pay to Bank's order
at its office at the above address, or such other place as Bank may
designate, the sum of $1,200,000.00 (Principal) plus interest from June 27,
1997, on the unpaid principal balance at an annual rate equal to .5
percentage point above Bank's Prime Rate, as adjusted and announced from time
to time until this Note matures or the obligation is accelerated. The Prime
Rate, plus .5 percentage points, may also be referred to hereafter as the
"Contract Rate".
The First National Bank of Boulder County's Prime Rate which is the same as
The Wall Street Journal's Prime Money Rate, but may change sooner than Wall
Street Journal's Prime Money Rate or may change later than Wall Street
Journal's Prime Money Rate, at the Bank's discretion. The Contract Rate is
the sum of Bank's Prime Rate (8.5%) plus .5 percentage point. The effective
Contract Rate today is 9%. Bank's Prime Rate today is not necessarily the
lowest rate at which Bank lends its funds. The Prime Rate is only an index
rate from which interest rates actually charged to customers may be measured.
The use of the prime rate is for convenience only and does not constitute a
commitment by Bank to lend money at a preferred rate of interest. The Prime
Rate Is a benchmark for pricing certain types of loans. Depending on the
circumstances, such as the amount and term of the loan, the creditworthiness
of the borrower or any guarantor, the presence and nature of collateral and
other relationships between a borrower and Bank, loans may be priced at,
above or below the Prime Rate.
The first adjustment to the Contract Rate will be made on JUNE 27, 1999, and
all subsequent adjustments will be made once every two years thereafter,
assuming that the Prime Rate changes between the last preceding adjustment
date and the scheduled adjustment date. Any change in the Contract Rate will
take the form of different payment amounts. After maturity or acceleration,
the unpaid balance shall bear interest at the rate specified in the paragraph
in this Note entitled "DEFAULT RATE OF INTEREST" until paid in full. The Loan
and this Note are limited to the maximum lawful amount of interest (Maximum
Lawful Interest) permitted under federal and state laws. If the interest
accrued and collected exceeds the Maximum Lawful Interest as of the time of
collection, such excess shall be applied to reduce the principal amount
outstanding, unless otherwise required by law. If or when no principal amount
is outstanding, any excess interest shall be refunded to Borrower according
to the actuarial method. Interest shall be computed on the basis of a 360-day
year and the actual number of days elapsed.
Principal and accrued interest are due and payable in 180 equal monthly
payments of $12,244.05 on the 20th day of each month, beginning July 20,
1997, or the day following if the payment day is a holiday or is a non-
business day for Bank. Unless paid prior
<PAGE>
to maturity, all other unpaid principal, accrued Interest, costs and
expenses are due and payable on June 20, 2012, which is the date of
maturity. These payment amounts are based upon timely payment of each
installment and no change in the contract rate. If the contract rate
changes, any remaining payments may be a different amount. All amounts
shall be paid in legal U.S. currency. any payment made with a check will
constitute payment only when collected.
3. EFFECT OF PREPAYMENT. Borrower may prepay this Loan in full, subject to
any prepayment penalty or minimum charge as agreed to below. However, no
partial prepayment shall excuse or defer Borrower's subsequent payments or
entitle Borrower to a release of any collateral. Interest will cease to
accrue on the amounts prepaid on the day actually credited by Bank.
4. MINIMUM INTEREST CHARGE. If Borrower pays this Note in full before the
maturity date or otherwise, Borrower agrees to pay Bank a minimum interest
charge of $25.00 or the earned interest charge, whichever amount is
greater.
5. EVENTS OF DEFAULT. Borrower shall be in default upon the occurrence of any
of the following events, circumstances or conditions (Events of Default):
A. Failure by any party obligated on this Note or any other obligations
Borrower has with Bank to make payment when due; or
B. A default or breach by Borrower or any co-signer, endorser, surety, or
guarantor under any of the terms of this Note, any construction loan
agreement or other loan agreement, any security agreement, mortgage, deed
to secure debt, deed of trust, trust deed, or any other document or
instrument evidencing, guarantying, securing or otherwise relating to this
Note or any other obligations Borrower has with Bank; or
C. The making or furnishing of any verbal or written representation, statement
or warranty to Bank which is or becomes false or incorrect in any material
respect by or on behalf of Borrower, or any one of them, or any co-signer,
endorser, surety or guarantor of this Note or any other obligations
Borrower has with Bank; or
<PAGE>
D. Failure to obtain or maintain the insurance coverages required by Bank, or
insurance as is customary and proper for any collateral (as herein
defined); or
E. The death, dissolution or insolvency of, the appointment of a receiver by
or on behalf of, the assignment for the benefit of creditors by or on
behalf of, the voluntary or involuntary termination of existence by, or the
commencement of any proceeding under any present or future federal or state
insolvency, bankruptcy, reorganization, composition or debtor relief law by
or against Borrower, or any one of them, or any co-signer, endorser, surety
or guarantor of this Note or any other obligations Borrower has with Bank;
or
F. A good faith belief by Bank at any time that Bank is insecure with respect
to Borrower, or any co-signer, endorser, surety or guarantor, that the
prospect of any payment is impaired or that any collateral (as herein
defined) is impaired; or
G. Failure to pay or provide proof of payment of any tax, assessment, rent,
insurance premium, escrow or escrow deficiency on or before its due date;
or
H. A material adverse change in Borrower's business, including ownership,
management, and financial conditions, which in Bank's opinion, impairs any
collateral or repayment of the Obligations; or
I. A transfer of a substantial part of Borrower's money or properly.
6. LOAN FEE. Borrower has agreed to pay Bank a non-refundable loan fee of
$9,000.00, which will either be paid in cash upon execution of this Note,
be financed as a portion of the Principal.
7. DEFAULT RATE OF INTEREST. It there is a default in this Note, the rate of
interest, at Bank's option, shall immediately be increased to 21% per annum
(fixed rate) whether or not Bank accelerates tire maturity, and interest
shall accrue thereafter at the resulting rate until all obligations under
this Note are paid in full. Unless Bank has accelerated the maturity, Bank
shall, within 10 days following the effective date of such interest rate
increase, notify Borrower of the fact that the interest rate has been
increased pursuant to this provision.
8. REMEDIES ON DEFAULT. On or after the occurrence of an Event of Default, at
the option of Bank, all or any part of the Principal and accrued interest
on this Note, the Loan and all other obligations which Borrower owes Bank
shall become immediately due and payable without notice or demand. Bank
may exercise all rights and remedies provided by law, equity, this Note,
any mortgage, deed of trust or similar Instrument and any other security,
loan, guaranty or surety agreements pertaining to this Note and all other
obligations of Borrower to Bank. Bank is entitled to all rights and
remedies provided at law or equity whether or not expressly stated in this
Note. By choosing any remedy, Bank does not waive its right to an
immediate use of any other remedy if the event of default continues or
occurs again.
9. SET-OFF. Borrower agrees that Bank may exercise Bank's right of set-off to
pay any or all of the outstanding Principal and accrued interest, costs and
expenses, attorneys' fees, and advances due and owing on this Note against
any obligation Bank may have, now or hereafter, to pay money, securities or
other property to Borrower. This includes, without limitation:
A. any deposit account balance, securities account balance or
certificate of deposit balance Borrower has with Bank whether
general, special, time, savings or checking;
B. any money owing to Borrower on an item presented to Bank or in
Bank's possession for collection or exchange; and
C. any repurchase agreement or any other non-deposit obligation or
credit in Borrower's favor.
If any such money, securities or other property is also owned by some other
person who has not agreed to pay this Note (such as another depositor on a
joint account) Bank's right of set-off will extend to the amount which could
be withdrawn or paid directly to Borrower on Borrower's request, endorsement
or instruction alone. In addition, where Borrower may obtain payment from
Bank only with the endorsement or consent of someone who has not agreed to
pay this Note, Bank's right of set-off will extend to Borrower's interest in
the obligation. Bank's right of set-off will not apply to an account or other
obligation it clearly appears that Borrower's rights in the obligation are
solely as a fiduciary for another, or to an account, which by its nature and
applicable law (for example an IRA or other tax-deferred retirement account),
must be exempt from the claims of creditors. Borrower hereby appoints Bank as
Borrower's attorney-in-fact and authorizes Bank to redeem or obtain payment
on any certificate of deposit In which Borrower has art interest in order to
exercise Bank's right of set-off. Such authorization applies to any
certificate of deposit even if not matured. Borrower further authorizes Bank
to withhold any early withdrawal penalty without liability in the event such
<PAGE>
penalty is applicable as a result of Bank's set-off against a certificate of
deposit prior to its maturity.
Bank's right of set-off may be exercised:
A. without prior demand or notice;
B. without regard to the existence or value of any Collateral securing
this Note; and
C. without regard to the number or creditworthiness of any other
persons who have agreed to pay this Note.
Bank will not be liable for dishonor of a check or other request for payment
where there are insufficient funds in the account (or other obligation) to
pay such request because of Bank's exercise of Bank's right of set-off.
Borrower agrees to indemnify and hold Bank harmless from any person's claims
and the costs and expenses, including without limitation, attorneys' fees
and paralegal fees, incurred as a result of such claims or arising as the
result of Bank's exercise of Bank's right of set-off.
10. COLLECTION EXPENSES. On or after an Event of Default, Bank may recover from
Borrower all fees and expenses in collecting, enforcing and protecting
liabilities and reasonable expenses in realizing on any security incurred by
Bank, plus expenses of collecting and enforcing this Note. Such fees and
expenses shall include, but are not limited to, filing fees, publication
expenses, deposition fees, stenographer fees, witness fees and any other
court costs. Any such fees and expenses shall be added to the Principal of
this Note and shall accrue interest at the same rate as provided for in this
Note.
11. ATTORNEYS' FEES. Upon default of this Note, Bank may recover from Borrower
reasonable attorneys' fees incurred by Bank. Such reasonable attorneys'
fees shall include, without limitation, paralegal fees. Any such reasonable
attorneys' fees shall be added to the principal amount of this Note and
shall accrue interest at the same rate as this Note. Such recovery will be
to the extent not prohibited by law.
12. NO DUTY BY BANK. Bank is under no duty to preserve or protect any
Collateral until Bank is in actual, or constructive, possession of the
Collateral. For purposes of this paragraph, Bank shall only be considered
to be in "actual" possession of the Collateral when Bank has physical,
immediate and exclusive control over the Collateral and has affirmatively
accepted such control. Bank shall only be considered to be in
"constructive" possession of the Collateral when Bank has both the power and
the intent to exercise control over the Collateral.
13. WAIVER AND CONSENT BY BORROWER AND OTHER SIGNERS. Regarding this Note, to
the extent not prohibited by law, Borrower and any other signers:
A. waive protest, presentment for payment, demand, notice of
acceleration, notice of intent to accelerate and notice of dishonor.
B. consent to any renewals and extensions for payment on this Note,
regardless of the number of such renewals or extensions.
C. consent to Bank's release of any borrower, endorser, guarantor,
surety, accommodation maker or any other co-signer.
D. consent to the release, substitution or Impairment of any
collateral.
E. consent that Borrower, or any Borrower herein, is authorized to
modify the terms of this Note or any instrument securing,
guarantying or relating to this Note.
F. consent to Bank's right of set-off as well as any right of set-off
of any bank participating in the Loan.
G. consent to any and all sales, repurchases and participations of this
Note to any person in any amounts arid waive notice of such sales,
repurchases or participations of this Note.
14. SECURITY. This Note is secured by the following type(s) (or items) of
property (Collateral):
Accounts
Equipment
General Intangibles
Fixtures
Inventory
Real Estate
which includes (but is not limited to) the following described property: ALL
ACCOUNTS RECEIVABLE, GENERAL INTANGIBLES, INVENTORY, EQUIPMENT, FURNITURE
AND FIXTURES
The term "Collateral" further includes, but is not limited to, the following
property, whether now owned or hereafter acquired, and whether or not held
by a bailee for the benefit of the Owner or owners, all: accessions,
accessories, additions, fittings, increases, insurance benefits and
proceeds, parts, products, profits, renewals, rents, replacements, special
tools and substitutions, together with all books and records pertaining to
the Collateral and access to fire equipment containing such books and
records including computer stored information and all software relating
thereto, plus all cash and non-cash proceeds and all proceeds of proceeds
arising from the type(s) (items) of property listed above.
This Note is secured by the following described real estate documents: A
DEED OF TRUST DATED JUNE 27, 1997 TO ELDORADO ARTESIAN SPRINGS, INC. IN THE
AMOUNT OF $1,200,000.00.
Additionally, a security interest is granted in the Collateral by the
following described security agreements: A SECURITY AGREEMENT DATED JUNE
27,1997 BY ELDORADO ARTESIAN SPRINGS, INC. SECURING FIRST NATIONAL BANK OF
BOULDER COUNTY.
15. PAYMENTS APPLIED. All payments, including but not limited to regular
payments or prepayments, received by Bank shall be applied first to costs,
then to accrued interest and the balance, if any, to Principal except as
otherwise required by law.
16. LOAN PURPOSE. Borrower represents and warrants that the proceeds of this
Note shall only be used for business purposes.
17. JOINT AND SEVERAL. Borrower, and any one of them, or any other signers
shall be jointly and severally liable under this Note.
<PAGE>
18. FINANCIAL STATEMENTS. Until this Note is paid in full, Borrower shall
furnish Bank upon Bank's request and in the event of no request, at least
annually a current financial statement which is certified by Borrower and
Borrower's accountant to be true, complete and accurate.
19. GENERAL PROVISIONS.
A. TIME IS OF THE ESSENCE. Time is of the essence in Borrower's
performance of all duties and obligations imposed by this Note.
B. NO WAIVER BY BANK. Bank's course of dealing, or Bank's forbearance
from, or delay in, the exercise of any of Bank's rights, remedies,
privileges or right to insist upon Borrower's strict performance of
any provisions contained in this Note, or other loan documents,
shall not be construed as a waiver by Bank, unless any such waiver
is in writing and is signed by Bank.
C. AMENDMENT. The provisions contained in this Note may not be amended,
except through a written amendment which is signed by Borrower and
Bank.
D. INTEGRATION CLAUSE. This written Note and all documents executed
concurrently herewith, represent the entire understanding between
the parties as to the Obligations and may not be contradicted by
evidence of prior, contemporaneous, or subsequent oral agreements of
the parties.
E. FURTHER ASSURANCES. Borrower agrees, upon request of Bank and within
the time Bank specifies, to provide any information, and to execute,
acknowledge, deliver and record or file such further instruments or
documents as may be required by Bank to secure this Note or confirm
any lien.
F. GOVERNING LAW. This Note shall be governed by the laws of the State
of COLORADO, provided that such laws are not otherwise preempted by
federal laws and regulations.
G. FORUM AND VENUE. In the event of litigation pertaining to this Note,
the exclusive forum, venue and place of jurisdiction shall be in the
State of COLORADO, unless otherwise designated in writing by Bank or
otherwise required by law.
H. SUCCESSORS. This Note shall inure to the benefit of and bind the
heirs, personal representatives, successors and assigns of the
parties; provided however, that Borrower may not assign, transfer or
delegate any of the rights or obligations under this Note.
I. NUMBER AND GENDER. Whenever used, the singular shall include the
plural, the plural the singular, and the use of any gender shall be
applicable to all genders.
J. DEFINITIONS. The terms used in this Note, it not defined herein,
shall have their meanings as defined in the other documents executed
contemporaneously, or in conjunction, with this Note.
K. PARAGRAPH HEADINGS. The headings at the beginning of any paragraph,
or any subparagraph, in this Note are for convenience only and shall
not be dispositive in interpreting or construing this Note.
L. IF HELD UNENFORCEABLE. If any provision of this Note shall be held
unenforceable or void, then such provision to the extent not
otherwise limited by law shall be severable from the remaining
provisions and shall in no way affect the enforceability of the
remaining provisions nor the validity of this Note.
M. CHANGE IN APPLICATION. Borrower will notify Bank in writing prior to
any change in Borrower's name, address, or other application
information.
N. NOTICE. All notices under this Note must be in writing. Any notice
given by Bank to Borrower hereunder will be effective upon personal
delivery or 24 hours after mailing by first class United States
mail, postage prepaid, addressed to Borrower at the address
indicated below Borrower's name on page one of this Note. Any notice
given by Borrower to Bank hereunder will be effective upon receipt
by Bank at the address indicated below Bank's name on page one of
this Note. Such addresses may be changed by written notice to the
other party.
0. HOLDER. The term "Bank" shall include any transferee and assignee
Bank or other holder of this Note.
P. BORROWER DEFINED. The term "Borrower" includes each and every person
signing this Note as a Borrower and any co-signers.
20. RECEIPT OF COPY. By signing below, Borrower acknowledges that Borrower has
read and received a copy of this Note.
BORROWER:
ELDORADO ARTESIAN SPRINGS, INC.
a COLORADO corporation [Corporate Seal*]
By._____________________________________________________________________
DOUGLAS A. LARSON, PRESIDENT
_____________________________________________________________________
KEVIN M. SIPPLE, VICE PRESIDENT
_____________________________________________________________________
JEREMY S. MARTIN, VICE PRESIDENT
(*Corporate seal may be affixed, but failure to affix shall not affect validity
or reliance.)
_____________________________________________________________________
DOUGLAS A. LARSON,
individually
_____________________________________________________________________
KEVIN M. SIPPLE,
individually
_____________________________________________________________________
JEREMY S. MARTIN,
individually
<PAGE>
BANK:
FIRST NATIONAL BANK OF BOULDER COUNTY
a national banking association
[Corporate Seal*]
By:_____________________________________________________________________
IAN D. JAMES, VICE PRESIDENT
(*Corporate seal may be affixed, but failure to affix shall not affect validity
or reliance.)
THIS IS THE LAST PAGE OF A 3 PAGE DOCUMENT. EXHIBITS AND/OR ADDENDA MAY FOLLOW.
<PAGE>
Exhibit 10.3
- --------------------------------------------------------------------------------
(Space above this line is for recording purposes)
DEED OF TRUST AND SECURITY AGREEMENT
TO SECURE A LOAN
FIRST NATIONAL BANK OF BOULDER COUNTY
- --------------------------------------------------------------------------------
1. DATE AND PARTIES. The date of this Deed of Trust (Deed of Trust) and
Security Agreement is June 27, 1997, and the parties and their mailing
addresses are the following:
GRANTOR:
ELDORADO ARTESIAN SPRINGS, INC.
a COLORADO corporation
35 ELDORADO SPRINGS DRIVE
P.O. Box 445
ELDORADO SPRINGS, COLORADO 80025
Tax I.D. # 84-0907853
TRUSTEE:
THE PUBLIC TRUSTEE FOR
BOULDER COUNTY, COLORADO
BANK:
FIRST NATIONAL BANK OF BOULDER COUNTY
a national banking association
2835 Pearl St.
Boulder, Colorado 80301
Tax I.D. # 84-1149584
2. MAXIMUM OBLIGATION LIMIT. THE TOTAL PRINCIPAL AMOUNT OF THE OBLIGATIONS
SECURED BY THIS DEED OF TRUST AT ANY ONE TIME SHALL NOT EXCEED
$1,200,000.00. THIS LIMITATION OF AMOUNT DOES NOT INCLUDE INTEREST AND
OTHER FEES AND CHARGES VALIDLY MADE PURSUANT TO THIS DEED OF TRUST. ALSO,
THIS LIMITATION DOES NOT APPLY TO ADVANCES MADE UNDER THE TERMS OF THIS
DEED OF TRUST TO PROTECT BANK'S SECURITY AND TO PERFORM ANY OF THE
COVENANTS CONTAINED IN THIS DEED OF TRUST.
3. OBLIGATIONS DEFINED. The term "Obligations" is defined as and includes the
following:
A. A promissory note, No.__________________________ , (Note) dated June 27,
1997, with a maturity date of June 20, 2012, and executed by ELDORADO
ARTESIAN SPRINGS, INC. , DOUGLAS A. LARSON, KEVIN M. SIPPLE and JEREMY S.
MARTIN (Borrower) payable in monthly payments to the order of Bank, which
evidences a loan (Loan) to Borrower in the amount of $1,200,000.00, plus
Interest, and all extensions, renewals, modifications or substitutions
thereof.
B. All future advances by Bank to Borrower, to Grantor, to any one of them or
to any one of them and others (and all other obligations referred to in the
subparagraph(s) below, whether or not this Deed of Trust is specifically
referred to in the evidence of indebtedness with regard to such future and
additional indebtedness).
C. All additional sums advanced, and expenses incurred, by Bank for the
purpose of insuring, preserving or otherwise protecting the Property (as
herein defined) and its value, and any other sums advanced, and expenses
incurred by Bank pursuant to this Deed of Trust, plus interest at the same
rate provided for in the Note computed on a simple interest method.
D. All other obligations, now existing or hereafter arising, of Borrower to
the extent the taking of the Property (as herein defined) as security
therefor is not prohibited by law, including but not limited to liabilities
for overdrafts, all advances made by Bank on Borrower's, and/or Grantor's,
behalf as authorized by this Deed of Trust and liabilities as guarantor,
endorser or surety, of Borrower to Bank, due or to become due, direct or
indirect, absolute or contingent, primary or secondary, liquidated or
unliquidated, or joint, several, or joint and several.
E. Borrower's performance of the terms in the Note or Loan, Grantor's
performance of any terms in this Deed of Trust, and Borrower's and
Grantor's performance of any terms in any other deed of trust, any trust
deed, any trust indenture, any mortgage, any deed to secure debt, any
security agreement, any assignment, any construction loan agreement, any
loan agreement, any assignment of beneficial interest, any guaranty
agreement or any other agreement which secures, guarantees or otherwise
relates to the Note or Loan.
However, this Deed of Trust will not secure another debt:
A. if this Deed of Trust is in Borrower's principal dwelling and Bank
fails to provide (to all persons entitled) any notice of right of
rescission required by law for such other debt; or
B. to the extent that this Deed of Trust is in "household goods" and
the other debt to be secured is a "consumer" loan (as those terms
are defined in applicable federal regulations governing unfair and
deceptive credit practices ); or
C. if Bank fails to make any disclosure of the existence of this Deed
of Trust required by law for such other debt.
<PAGE>
4. CONVEYANCE. To secure the Obligations according to their specific terms
and the obligations in this Deed of Trust, Grantor grants, bargains, sells
and conveys to Trustee in trust with power of sale the following described
property (Property), situated in BOULDER County, COLORADO, to-wit:
SEE EXHIBIT "A" ATTACHED HERETO AND MADE A PART HEREOF.
such Property not constituting the homestead of Borrower, together with all
buildings, improvements, all easements, rights, appurtenances, rents, royalties,
oil and gas rights, privileges, profits, other minerals, water, water rights,
and water stock, crops, grass and timber at any time growing upon said land,
including replacements and additions thereto, all of which shall be deemed to be
and remain a part of the Property. The term "Property" further includes, but is
not limited to, any and all wells, water, water rights, ditches, laterals,
reservoirs, reservoir sites and dams, used, appurtenant, connected with, or
attached to the Property, whether or not evidenced by stock or shares in a
corporation, association or other entity howsoever evidenced. To further secure
the Obligations and in consideration of the Loan, Grantor hereby grants, conveys
and transfers to Bank a continuing security interest to secure the Obligations
in the fixtures and equipment now or hereafter attached to the Property,
including, but not limited to, all heating, air conditioning, ventilation,
plumbing, cooling, electrical and lighting fixtures and equipment; all
landscaping; all exterior and interior improvements; all crops, growing or to be
grown on the Property; and together with any property of a like type or nature,
all whether now owned or hereafter acquired.
5. LIENS AND ENCUMBRANCES. Grantor warrants the title to the Property and
warrants that the Property is free and clear of all liens and encumbrances
whatsoever.
6. WARRANTY OF TITLE. Grantor agrees to forever warrant and defend the title
to the Property and represents and warrants that Grantor;
A. owns the Property in fee simple,
B. is authorized to convey the Property, and
C. will defend Grantor's title against all claims.
7. CORPORATE WARRANTIES AND REPRESENTATIONS. If Grantor is a corporation,
Grantor makes to Bank the following warranties and representations which
shall be continuing so long as the Obligations remain outstanding:
A. Grantor is a corporation which is duly organized and validly existing
in Grantor's state of incorporation as represented in the DATE AND
PARTIES paragraph above; Grantor is in good standing under the laws of
all states in which Grantor transacts business; Grantor has the
corporate power and authority to own the Property and to carry on its
business as now being conducted. Grantor is qualified to do business
in every jurisdiction in which the nature of its business or its
property makes such qualification necessary; and Grantor Is in
compliance with all laws, regulations, ordinances and orders of public
authorities applicable to it.
B. The execution, delivery and performance of this Deed of Trust by
Grantor and the borrowing evidenced by the Note: (1) are within the
corporate powers of Grantor; (2) have been duly authorized by all
requisite corporate action; (3) have received all necessary
governmental approval; (4) will not violate any provision of law, any
order of any court or other agency of government or Grantor's Articles
of Incorporation or Bylaws; and (5) will not violate any provision of
any indenture, agreement or other instrument to which Grantor is a
party or to which Grantor is or any of Grantor's Property is subject,
including but not limited to any provision prohibiting the creation or
imposition of any lien, charge or encumbrance of any nature whatsoever
upon any of Grantor's Property or assets. The Note and this Dead of
Trust when executed and delivered by Grantor will constitute the
legal, valid and binding obligations of Grantor, and of the other
obligors named therein, if any, in accordance with their respective
terms.
C. All other information, reports, papers and data given to Bank with
respect to Grantor or to others obligated Under the terms of this Deed
of Trust are accurate and correct in all material respects and
complete insofar as completeness may be necessary to give Bank a true
and accurate knowledge of the subject matter.
D. Grantor has not changed its name within the last six years, unless
otherwise disclosed in writing; other than the trade names or
fictitious names actually disclosed to Bank prior to execution of this
Dead of Trust, Grantor uses no other names; and until the Obligations
shall have been paid in full, Grantor hereby covenants and agrees to
preserve and keep in full force and effect its existing name,
corporate existence, rights, franchises and trade names, and to
continue the operation of its business in the ordinary course.
8. EVENTS OF DEFAULT. Grantor shall be in default upon the Occurrence of any
of the following events, circumstances or conditions (Events of Default):
A. Failure by any party obligated on the Obligations to make payment when
due; or
B. A default or breach by Borrower, Grantor or any co-signer, endorser,
surety, or guarantor under any of the terms of this Deed of Trust, the
Note, any construction loan agreement or other loan agreement, any
security agreement, mortgage, deed to secure debt, deed of trust,
trust deed, or any other document or instrument evidencing,
guarantying, securing or otherwise leading to the Obligations; or
C. The making or furnishing of any verbal or written representation,
statement or warranty to Bank which is or becomes false or incorrect
in any material respect by or on behalf of Grantor, Borrower, or any
one of them, or any co-signer, endorser, surety or guarantor of the
Obligations; or
D. Failure to obtain or maintain the insurance coverages required by
Bank, or insurance as is customary and proper for the Property (as
herein defined); or
E. The death, dissolution or insolvency of, the appointment of a receiver
by or on behalf of, the assignment for the benefit of creditors by or
on behalf of, the voluntary or involuntary termination of existence
by, or the commencement of any proceeding under any
<PAGE>
present or future federal or state insolvency, bankruptcy,
reorganization, composition or debtor relief law by or against
Grantor, Borrower, or any one of them, or any co-signer, endorser,
surety or guarantor of the Obligations; or
F. A good faith belief by Bank at any time that Bank is insecure with
respect to Borrower, or any co-signer, endorser, surety or guarantor,
that the prospect of any payment is impaired or that the Property (as
herein defined) Is impaired; or
G. Failure to pay or provide proof of payment of any tax, assessment,
tort, insurance premium, escrow or escrow deficiency on or before its
due date; or
H. A material adverse change in Grantor's business, including ownership,
management, and financial conditions, which in Bank's opinion, impairs
the Property or repayment of the Obligations; or
l. A transfer of a substantial part of Grantor's money or Property; or
J. If all or any part of the Property or any interest therein is sold,
leased or transferred by Grantor except as permitted in the paragraph
below entitled "DUE ON SALE OR ENCUMBRANCE".
9. REMEDIES ON DEFAULT. At the option of Bank, all or any part of the
principal and accrued interest on the Obligations shall become immediately
due and payable without notice or demand upon the occurrence of an Event of
Default or at any time thereafter. In addition, upon the Occurrence of any
Event of Default, Bank and Trustee shall be entitled to all of the rights
and remedies provided by law, the Note, this Deed of Trust, and any related
loan documents, including without limitation, the power to sell the
Property, and/or the power to foreclose on the Property as a deed of trust
through the public trustee or through the courts, and to exercise any
remedies permitted under COLORADO's Uniform Commercial Code. If Bank
exercises such option to accelerate, Bank shall mail Grantor, by certified
mail or otherwise, notice of acceleration to the address of Grantor shown
on Bank's records as may be required by law. If Grantor fails to pay all
sums that are due and payable within the time period provided by law or as
provided in the notice (if any), Bank may, without further notice or demand
on Grantor, invoke any remedies permitted on Default. In addition, if
there is a Default and Bank files with Trustee a notice of election and
demand for sale of the Property, Trustee shall advertise and sell the
Property (to convey title as a whole or in separate parcels as Bank may
deem best) free and clear of all right, title and interest of Grantor at
public auction of the Property or at such place as Trustee designates in
the notice for the best price the Property with bring In cash. Trustee
shall give notice of sale in accordance with and as prescribed by
applicable COLORADO law. Public advertisement of such notice shall take
the form of weekly publication in some newspaper of general circulation in
Trustee's county for at least four consecutive weeks prior to the sale,
except where the applicable state law requires or permits notice in another
form(s) or in another manner. Upon sale of the Property and to the extent
not prohibited by law, Trustee shall make and deliver to the purchaser or
purchasers a dead or deeds to the Property sold to convey title, and after
first paying and retaining all fees, charges and costs, shall pay to Bank
all amounts advanced for repairs, taxes, insurance, liens, assessments and
prior encumbrances and interest thereon, and the principal and interest on
the Note paying the surplus, if any, to the person or persons legally
entitled thereto. The holder of the Note may purchase the Property. The
recitals in any deed or deeds of conveyance shall be taken as prima facie
true. Bank and Trustee are entitled to all rights and remedies provided at
law or equity whether or not expressly stated in this Deed of Trust. By
choosing any remedy, Bank and Trustee do not waive their right to an
immediate use of any other remedy it the event of default continues or
occurs again.
10. DUE ON SALE OR ENCUMBRANCE. Bank may, at Bank's option, declare the entire
balance with all accrued interest on the Obligations to be immediately due
and payable upon the contract for, or creation of, any lien, encumbrance,
transfer or sale of the Property, or any portion thereof, by Grantor,
except as stated below. The following events shall not cause the
Obligations to be immediately due and payable:
A. the creation of a lien or other encumbrance Subordinate to Bank's
Security interest which does not relate to a transfer of rights of
occupancy in the Property;
B. the creation of a purchase money security interest for household
appliances;
C. a transfer by devise, descent, or operation of law on the death of a
joint tenant or tenant by the entirety;
D. the granting of a leasehold interest of three years or less not
containing an option to purchase;
E. a transfer to a relative resulting from the death of Grantor;
F. a transfer where the spouse or children of Grantor become owners of
the Property;
G. a transfer resulting from a decree of dissolution of marriage, legal
separation agreement, or from an incidental property settlement
agreement, by which the spouse of Grantor becomes an owner of the
Property;
H. a transfer into an inter vivos trust in which Grantor is and remains a
beneficiary and which does not violate a transfer of rights of
occupancy in the Property; or
I. any other transfer or disposition described in regulations prescribed
by the Office of Thrift Supervision (12 CFR 591 et seq.).
In the preceding paragraph, the phrase "transfer or sale" includes the
conveyance of any right, title or interest in the Property, whether
voluntary or involuntary, by outright sale, deed, Installment contract
sale, land contract, contract for deed, leasehold Interest with a term
greater than three years, lease-option contract or any other method of
conveyance of Property interests; the term "interest" includes, whether
legal or equitable, any right, title, interest, lien, claim, encumbrance or
proprietary right, choate or inchoate, any of which is superior to the lien
created by this Deed of Trust. This covenant shall run with the Property
and shall remain in effect until the Obligations and this Deed of Trust are
fully paid. Bank may impose conditions on such consent to transfer, sale or
encumbrance, including, but not limited to, a fee therefor, an adjustment
in the interest rate, a modification in any term of the Note or the payment
plan, and, if not prohibited by law, an alteration in the prepayment
privilege. Lapse of time or the acceptance of payments by Bank after any
such transfer shall not be deemed a waiver or estoppel of Bank's right to
accelerate the Note.
11. POSSESSION ON DEFAULT. To the extent not prohibited by law, if there is an
Event of Default, Bank or the holder of the Note (unless a Certificate of
Purchase has been properly issued in which case the holder of the
Certificate of Purchase) shall at once become entitled to the possession,
use and enjoyment of the Property and to the rents, issues and profits from
the Property, and shall be entitled thereto as a matter of right without
regard to the solvency or insolvency of Grantor or the then owner of the
Property and without regard to the value of the Property or the adequacy of
any security for the Obligations.
12. APPOINTMENT OF RECEIVER. To the extent not prohibited by law, if there is
a Default, Bank or the holder of the Note shall at once become entitled to
appointment of a receiver for the Property and the rents, issues and
profits from the Property, and shall be entitled thereto as a matter of
riight without regard
<PAGE>
to the solvency or insolvency of Grantor or the then owner of the Property
and without regard to the value of the Property or the adequacy of any
security for the Obligations. Such receiver may be appointed by a court of
competent jurisdiction upon ex parte application, and without notice
(notice being expressly waived) and all rents, issues and profits, income
and revenue from the Property shall be applied by the receiver, subject to
the court's order, to the payment of the Obligations under this Deed of
Trust and the Note.
13. PROPERTY OBLIGATIONS. Grantor shall promptly pay all taxes, assessments,
levies, water rents, other rents, insurance premiums, and all amounts due
on any encumbrances, if any, as they become due. Grantor shall provide
written proof to Bank of such payment(s).
14. INSURANCE. Grantor shall insure and keep insured the Property against loss
by fire, and other hazards casualty and loss, with extended coverage
including but not limited to the replacement value of all improvements,
with an Insurance company acceptable to Bank and in an amount acceptable lo
Bank. Such Insurance shall contain the standard "Mortgagee Clause" and
where applicable, "Loss Payee Clause", which shall name and endorse Bank as
mortgagee and loss payee. Such insurance shall also contain a provision
under which the insurer shall give Bank at least 30 days notice before the
cancellation, termination or material change in coverage,
If an insurer elects to pay a fire or other hazard loss or damage claim
rather than to repair, rebuild or replace the Property lost or damaged,
Bank shall have the option to apply such insurance proceeds upon the
Obligations secured by this Deed of Trust whether or not then due or to
have said Property repaired or rebuilt. Grantor hereby appoints Bank as
Grantor's attorney-in-fact, coupled with an interest to collect, settle,
and compromise any matters with insurer. Grantor shall deliver, or cause to
be delivered, evidence of such coverage and copies of all notices and
renewals relating thereto. Bank shall be entitled to pursue any claim under
the insurance If Grantor fails to promptly do so. The Bank shall be
entitled to endorse the Grantor's name on any insurance check or draft.
Grantor shall pay the premiums required to maintain such insurance in
effect until such time as the requirement for such insurance terminates.
Notwithstanding anything to the contrary, if the Property is acquired by
Bank under the terms of this Deed of Trust, all right, title and interest
of Grantor in and to any insurance policies (including proceeds thereof
resulting from damage to the Property prior to the sale or acquisition)
shall pass to Bank to the extent of the sums secured by this Deed of Trust
immediately prior to such sale or acquisition.
15. WASTE. Grantor shall not alienate or encumber the Property to the
prejudice of Bank, or commit, permit or suffer any waste, impairment or
deterioration of the Property, and regardless of natural depreciation,
shall keep the Property and all its improvements at all times in good
condition and repair. Grantor shall comply with and not violate any and
all laws and regulations regarding the use, ownership and occupancy of the
Property. Grantor shall perform and abide by all obligations under any
declarations, covenants and other documents governing the use, ownership
and occupancy of the Property.
16. ENVIRONMENTAL LAWS AND HAZARDOUS SUBSTANCES.
A. As used in this paragraph:
(1) "Environmental Law" means, without limitation, the Comprehensive
Environmental Response, Compensation, and Liability Act
("CERCLA", 42 U.S,C. 9601 et seg.), all federal, state and local
laws, regulations, ordinances, court orders, attorney general
opinions or interpretive letters concerning the public health,
safety. welfare, environment or a Hazardous Substance (as defined
herein).
(2) "Hazardous Substance" means any toxic, radioactive or hazardous
material, waste, pollutant or contaminant which has
characteristics which tender The substance dangerous or
potentially dangerous to the public health, safety, welfare or
the environment. The term includes, without limitation, any
substances defined as "hazardous material," "toxic substances",
"hazardous waste" at "hazardous substance" under any
Environmental Law,
B. Grantor represents, warrants and agrees that:
(1) Except as previously disclosed and acknowledged in writing to
Bank, no hazardous substance has been, is or will be located,
transported, manufactured, treated, refined, or handled by any
person on, under or about the Property except in the ordinary
course of business and in strict compliance with all applicable
Environmental Law.
(2) Except as previously disclosed and acknowledged in writing to
Bank, Grantor has not and shall not cause, contribute to or
permit the release of any Hazardous Substance on the Property.
(3) Grantor shall immediately notify Bank if: (a) a release or
threatened release of Hazardous Substance occurs on, under or
about the Property or migrates or threatens to migrate from
nearby property; or (b) there is a violation of any Environmental
Law concerning the Property. In such event, Grantor shall take
all necessary remedial action in accordance with any
Environmental Law.
(4) Except as previously disclosed and acknowledged in writing to
Bank, Grantor has no knowledge of or reason to believe there is
any pending or threatened investigation, claim, or proceeding of
any kind relating to (a) any hazardous substances located on,
under or about the Property or (b) any violation by Grantor or
any tenant of any Environmental Law. Grantor shall immediately
notify Bank in writing as soon as Grantor has reason to believe
there is any such pending or threatened investigation, claim or
proceedings. In such event, Bank has the right, but not the
obligation, to participate in any such proceeding, including the
right to receive copies of any documents relating to such
proceedings.
(5) Except as previously disclosed and acknowledged in writing to
Bank, Grantor and every tenant have been, are and shall remain in
full compliance with any applicable Environmental Law.
(6) Except as previously disclosed and acknowledged in writing lo
Bank, there are no underground storage tanks, private dumps or
open wells located on or under the Property and no such tank,
dump or well shall be added unless Bank first agrees in writing.
(7) Grantor will regularly inspect the Property, monitor the
activities and operations on the Property, and confirm that all
partners, licenses or approvals required by any applicable
Environmental Law are obtained and complied with.
(8) Grantor with permit, or cause any tenant to permit, Bank or
Bank's agent to enter and inspect the Property and review all
records at any reasonable time to determine: (a) the existence,
location and nature of any Hazardous Substance on, under or about
the Property, (b) the existence. location, nature, and magnitude
of any Hazardous Substance that has been released on, under or
about the Property; (c) whether or not Grantor and any tenant are
in compliance with any applicable Environmental Law,
<PAGE>
(9) Upon Bank's request, Grantor agrees, at Grantor's expense, to
engage a qualified environmental engineer to prepare an
environmental audit of the Property and to submit the results of
such audit to Bank. The choice of the environmental engineer who
will perform such audit is subject to the approval of Bank.
(10) Bank has the right, but not the obligation, to perform any of
Grantor's obligations under this paragraph at Grantor's expense.
(11) As a consequence of any breach of any representation, warranty or
promise made in this paragraph, (a) Grantor will indemnify and
hold Bank and Bank's successors or assigns harmless from and
against all losses, claims, demands, liabilities, damages,
cleanup, response and remediation costs, penalties and expenses,
Including without limitation all costs of litigation and
reasonable attorneys' fees, which Bank and Bank's successors or
assigns may sustain; and (b) at Bank's discretion, Bank may
release this Deed of Trust and in return Grantor will provide
Bank with collateral of at least equal value to the Property
secured by this Deed of Trust without prejudice to any of Bank's
rights under this Deed of Trust.
(12) Notwithstanding any of the language contained in this Deed of
Trust to the contrary, the terms of this paragraph shall survive
any foreclosure or satisfaction of any deed of trust, mortgage or
any obligation regardless of any passage of title to Bank or any
disposition by Bank of any or all of the Property. Any claims and
defenses to the contrary are hereby waived.
17. CONDITION OF PROPERTY. As to the Property, Grantor shall:
A. keep all buildings occupied and keep all buildings, structures and
improvements in good repair,
B. refrain from the commission or allowance of any acts of waste or
impairment of the value of the Property or improvements thereon.
C. not cut or remove, or permit to be cut or removed, any wood or timber
from the Property, which cutting or removal would adversely affect
the value of the Property.
D. prevent the spread of noxious or damaging weeds, preserve and prevent
the erosion of the soil and continuously practice approved methods of
farming on the Property if used for agricultural purposes.
18. INSPECTION BY BANK. Bank or its agents may make or cause to be made
reasonable entries upon the Property and inspect the Property provided that
Bank shall make reasonable efforts to give Grantor prior notice of any such
inspection.
19. PROTECTION OF BANK'S SECURITY. If Grantor fails to perform any covenant,
obligation or agreement contained in the Note, this Deed of Trust or any
loan documents or if any action or proceeding is commenced which materially
affects Bank's interest in the Property, including, but not limited to,
foreclosure, eminent domain, insolvency, housing or Environmental Law or law
enforcement, or arrangements or proceedings involving a bankrupt or
decedent, then Bank, at Bank's sole option, may make such appearances,
disburse such sums, and take such action as is necessary to protect Bank's
interest. Grantor hereby assigns to Bank any right Grantor may have by
reason of any prior encumbrance on the Property or by law or otherwise to
cure any default under said prior encumbrance. Grantor agrees to indemnify
and hold Bank harmless for all liability, costs, expenses, attorneys' fees
and paralegal fees incurred by Bank in its protection of the Property or its
lien. Without Bank's prior written consent, Grantor will not partition or
subdivide the Property.
20. EXPENSES OF BANK. If Grantor fails to:
A. procure the required insurance for the Property,
B. keep the Property in good repair or prevent waste of the Property,
C. promptly pay all of the obligations relating to the Property,
D. perform any other obligation of this Deed of Trust, the Note, or any
other instrument securing or relating to the Note, or
E. prevent the Property from becoming subject to any other lien or
encumbrance,
Bank may pay or procure such things at Grantor's cost and Bank may make any
reasonable expenditure incidental thereto. Bank shall have the right to file
and defend suits at the expense of Grantor and in Grantor's name for the
recovery of damages or to uphold the lien of this encumbrance and preserve
the rights of Bank. All costs expended by Bank in accordance with this
section, including reasonable attorneys' and paralegal fees, shall be repaid
by Grantor upon demand, and such sums, with interest thereon at the rates
provided in the Note, shall be added to the indebtedness secured by this
Deed of Trust, and shall become a part of the Obligations as defined above,
and shall be paid out of the proceeds of the sale of the Property, if not
otherwise paid by Grantor.
21. COLLECTION EXPENSES. In the event of default, Grantor agrees to pay all
costs of collection incurred by Bank. Such costs shall include, but are not
limited to, filing fees, costs of publication, deposition fees, stenographer
fees, witness fees and any other court costs, plus costs of collecting,
enforcing and protecting the Property and Obligations. Any such collection
costs shall be added to the principal amount of the Obligations, shall
accrue interest at the same rate as the Obligations and shall be secured by
this Deed of Trust.
22. ATTORNEYS' FEES. In the event of default, Grantor agrees to pay reasonable
attorneys' fees incurred by Bank. Such reasonable attorneys' fees shall
include, without limitation, paralegal fees. Any such reasonable attorneys'
fees shall be added to the principal amount of the Obligations, shall accrue
interest at the same rate as the Obligations and shall be secured by this
Deed of Trust.
23. CONDEMNATION. In the event all or any part of the Property (including but
not limited to any easement therein) is sought to be taken by private taking
or by virtue of the law of eminent domain, Grantor will promptly give
written notice to Bank of the institution of such proceedings. Grantor
further agrees to notify Bank of any attempt to purchase or appropriate the
Property or any easement therein, by any public authority or by any other
person or corporation claiming or having the right of eminent domain or
appropriation. Grantor further agrees and directs that all condemnation
proceeds or purchase money which may be agreed upon or which may be found to
be due shall be paid to Bank as a prepayment under the Note. Grantor also
agrees to notify Bank of any proceedings instituted for the establishment of
any sewer, water, conservation, ditch, drainage, or other district relating
to or binding upon the Property or any part thereof. All awards payable for
the taking of title to, or possession of, or damage to all or any portion of
the Property by reason of any private taking, condemnation, eminent domain,
change of grade, or other proceeding shall, at the option of Bank, be paid
to Bank. Such awards or compensation are hereby assigned to Bank, and
judgment therefor shall be entered in favor of Bank.
<PAGE>
When paid, such awards shall be used, at Bank's option, toward the payment
of the Obligations or payment of taxes, assessments, repairs or other items
provided for in this Deed of Trust, whether due or not, all in such order
and manner as Bank may determine. Any amount not so used shall be applied to
the Obligations. Such application or release shall not cure or waive any
default. In the event Bank deems it necessary to appear or answer in any
condemnation action, hearing or proceeding, Grantor shall hold Bank harmless
from and pay all legal expenses, including but not limited to attorneys'
fees, paralegal fees, court costs and other expenses.
24. OTHER PROCEEDINGS. It any action or proceeding is commenced to which Bank is
made or chooses to become a party by reason of the execution of the Note,
this Deed of Trust, any loan documents, the existence of any Obligations, or
in which Bank deems it necessary to appear or answer in order to protect its
interests, Grantor agrees to pay and to hold Bank harmless for all
liabilities, costs and expenses paid or incurred by Bank in such action or
proceedings, including but not limited to attorneys' fees, paralegal fees,
court costs and all other damages and expenses.
25. WAIVER BY GRANTOR. To the extent not specifically prohibited by law, Grantor
hereby waives and releases any and all rights and remedies Grantor may now
have or acquire in the future relating to: A. homestead; B. exemptions as to
the Property; C. appraisement; D. marshaling of liens and assets; and E.
statutes of limitations.
26. OTHER WAIVERS, No waiver, express or implied, of the performance of any
obligation of this Deed of Trust, the Note or Obligations, shall be deemed
to be a waiver of any other or succeeding obligation. No payment or
advancement by Bank on behalf of Grantor shall be deemed a waiver of the
breach occurring, or of the right to elect to foreclose this Deed of Trust;
and, the indulgence of Bank to Grantor in not exercising its option to
declare the entire indebtedness to be due and payable upon the happening of
any one of the events or conditions herein described, shall not, even though
such indulgence be repeated and extended, be construed as a waiver of the
right of Bank to exercise such option at any time thereafter for any cause
and without notice to Grantor.
27. PARTIAL RELEASE, Bank, at Bank's discretion, may release any part of the
Property from the lien of this Deed of Trust and such release shall in no
way affect the lien of this Deed of Trust on the remaining portion of the
Property or any of the rights or remedies herein provided. Trustee shall,
only upon proper written authorization of Bank, perform all acts necessary
to execute such release. It Is agreed that Grantor will pay the expenses of
obtaining and recording all releases, if any, from this Deed of Trust.
28. GENERAL PROVISIONS.
A. TIME IS OF THE ESSENCE. Time is of the essence in Grantor's performance
of all duties and obligations imposed by this Deed of Trust.
B. NO WAIVER BY BANK. Bank's course of dealing, or Bank's forbearance from,
or delay in, the exercise of any of Bank's rights, remedies, privileges
or right to insist upon Grantor's strict performance of any provisions
contained in this Deed of Trust, or other loan documents, shall not be
construed as a waiver by Bank, unless any such waiver is in writing and
is signed by Bank.
C. AMENDMENT. The provisions contained in this Deed of Trust may not be
amended, except through a written amendment which is signed by Grantor
and Bank.
D. INTEGRATION CLAUSE. This written Deed of Trust and all documents executed
concurrently herewith, represent the entire understanding between the
parties as to the Obligations and may not be contradicted by evidence of
prior, contemporaneous, or subsequent oral agreements of the parties.
E. FURTHER ASSURANCES. Grantor agrees, upon request of Bank and within the
time Bank specifies, to provide any information, and to execute,
acknowledge, deliver and record such further instruments or documents as
may be required by Bank to secure the Note or confirm any lien.
F. GOVERNING LAW. This Deed of Trust shall be governed by the laws of the
State of COLORADO, provided that such laws are not otherwise preempted by
federal laws and regulations.
G. FORUM AND VENUE. In the event of litigation pertaining to this Deed of
Trust, the exclusive forum, venue and place of jurisdiction shall be in
the State of COLORADO, unless otherwise designated in writing by Bank or
otherwise required by law.
H. SUCCESSORS. This Deed of Trust shall inure to the benefit of and bind the
heirs, personal representatives, successors and assigns of the parties;
provided however, that Grantor may not assign, transfer or delegate any
of the rights or obligations under this Deed of Trust.
I. NUMBER AND GENDER. Whenever used, the singular shall include the plural,
the plural the singular, and the use of any gender shall be applicable to
all genders.
J. DEFINITIONS. The terms used in this Deed of Trust. if not defined herein,
shall have their meanings as defined in the other documents executed
contemporaneously, or in conjunction, with this Deed of Trust.
K. PARAGRAPH HEADINGS. The headings at the beginning of any paragraph, or
any subparagraph, in this Deed of Trust are for convenience only and
shall not be dispositive in interpreting or construing this Deed of
Trust.
L. IF HELD UNENFORCEABLE. If any provision of this Deed of Trust shall be
held unenforceable or void, then such provision to the extent not
otherwise limited by law shall be severable from the remaining provisions
and shall in no way affect the enforceability of the remaining provisions
nor the validity of this Deed of Trust.
M. CHANGE IN APPLICATION. Grantor will notify Bank in writing prior to any
change in Grantor's name, address, or other application information.
N. NOTICE. All notices under this Deed of Trust must be in writing. Any
notice given by Bank to Grantor hereunder will be effective upon personal
delivery or 24 hours after mailing by first class United States mail,
postage prepaid, addressed to Grantor at the address indicated below
Grantor's name on page one of this Deed of Trust. Any notice given by
Grantor to Bank hereunder will be effective upon receipt by Bank at the
address indicated below Bank's name on page one of this Deed of Trust.
Such addresses may be changed by written notice to the other party.
<PAGE>
O. GRANTOR DEFINED. The term "Grantor" includes each and every person
signing this Dead of Trust as a Grantor and any co-signers.
P. SEPARATE AND DISTINCT. Each privilege, option or remedy provided in this
Deed of Trust is distinct from every other privilege, option or remedy
contained herein or afforded by law or equity, and may be exercised, to
the extent not prohibited by law, independently, concurrently, and
successively by the Bank or by any other owner or holder of the
Obligations.
Q. FILING AS FINANCING STATEMENT. Grantor agrees and acknowledges that this
Deed of Trust also suffices as a financing statement and as such, may be
filed of record as a financing statement for purposes of Article 9 of the
COLORADO Uniform Commercial Code. A carbon, photographic or other
reproduction of this deed of trust may be filed in the real estate
records as a fixture filing.
29. ACKNOWLEDGMENT. By their signatures below, the undersigned
acknowledge they have read and received a copy of this Deed of
Trust.
GRANTOR:
ELDORADO ARTESIAN SPRINGS, INC. [Corporate Seal*]
a COLORADO corporation
By:______________________________________
DOUGLAS A. LARSON, PRESIDENT
______________________________________
KEVIN M. SIPPLE, VICE PRESIDENT
______________________________________
JEREMY S. MARTIN, VICE PRESIDENT
(*Corporate seal may be affixed but failure to do so shall not affect validity
or reliance.)
STATE OF ________________________
ss:
COUNTY OF ______________________
The foregoing instrument was acknowledged before me on __________________,
19___ by DOUGLAS A. LARSON, PRESIDENT, KEVIN M. SIPPLE, VICE PRESIDENT and
JEREMY S. MARTIN, VICE PRESIDENT of ELDORADO ARTESIAN SPRINGS, INC., a COLORADO
corporation, on behalf of said corporation.
My commission expires:
_________________________________________________
NOTARY PUBLIC
PLEASE RETURN THIS DOCUMENT AFTER RECORDING TO FIRST NATIONAL BANK OF BOULDER
COUNTY, 2835 PEARL ST., BOULDER, COLORADO 80301.
THIS IS THE LAST PAGE OF A 5 PAGE DOCUMENT. EXHIBITS AND/OR ADDENDA MAY FOLLOW.
<PAGE>
EXHIBIT "A"
THIS EXHIBIT "A" IS REFERRED TO IN AND MADE A PART OF THAT CERTAIN DEED OF
TRUST (DEED OF TRUST) AND SECURITY AGREEMENT DATED JUNE 27, 1997, BY AND BETWEEN
THE FOLLOWING PARTIES:
GRANTOR:
ELDORADO ARTESIAN SPRINGS, INC.
a COLORADO corporation
35 ELDORADO SPRINGS DRIVE
P.O. Box 445
ELDORADO SPRINGS, COLORADO 80025
Tax I.D. # 84-0907853
TRUSTEE:
THE PUBLIC TRUSTEE FOR
BOULDER COUNTY, COLORADO
BANK:
FIRST NATIONAL BANK OF BOULDER COUNTY
a national banking association
2835 Pearl St.
Boulder, Colorado 80301
Tax I.D. # 84-1149584
The properties hereinafter described are those properties referred to in this
Deed of Trust as being described in "Exhibit "A":
Lot H, Eldorado Springs; Lot D, Second Addition to Moffat Lakes, also an
unplatted parcel East of said Lot D, South of Lots 4, 5 and 6, Block 2, Moffat
Lakes, and North of South Boulder Creek; an unplatted parcel more particularly
described as follows:
Beginning at the Northwest corner of Lot H, Eldorado Springs, 308.87 feet
Southeasterly to a pin on the Northeast corner of the office; thence 108.24 feet
to the Southeast corner of Lot 5, Block 14, Eldorado Springs; thence 202 feet to
the Southeast corner of Lot 3, Block 1, Second Addition to Moffat Lakes; thence
100 feet to the southeast corner of Lot K, Eldorado Springs; thence 72 feet to
the Northwest corner of said Lot H, Eldorado Springs to the point of beginning.
The area platted as "Lake" South of Lot D, Second Addition to Moffat Lakes.
Lots 21, 22, 23 and 24, Block 1, Moffat Lakes.
Parcel I:
Commencing at the Northeast corner of Lot 7, Block 2, Second Addition to Moffat
Lakes; thence South 31 degrees 24' East 88.1 feet; thence South 68 degrees 12'
West 215.14 feet; thence North 22 degrees 33'30" West 84.06 feet; thence North
67 degrees 24' East 201.58 feet to the point of beginning.
Parcel II:
Commencing at the Northeast corner of Lot 7, Block 2, Second Addition to Moffat
Lakes; thence South 67 degrees 24' West 201.58 feet to the True Point of
Beginning; thence South 30 degrees 30' East 84.06 feet; thence South 65 degrees
47'40" West 69.97 feet; thence South 77 degrees 15'30" West 49.42 feet; thence
North 39 degrees 50'20" West 65.34 feet; thence North 53 degrees 53'30" West
98.55 feet; thence North 03 degrees 45'40" East 36.73 feet; thence North 79
degrees 24'20" East 91.44 feet; thence South 63 degrees 26' East 88.50 feet;
thence South 80 degrees 39' East 30.20 feet to the True Point of Beginning.
Parcel III:
Commencing at the Northeast corner of Lot 7, Block 2, Second Addition to Moffat
Lakes; thence South 67 degrees 34' West 201.58 feet to the True Point of
Beginning; thence North 29 degrees 51' West 33.53 feet; thence North 29 degrees
51' West 263.74 feet; thence South 70 degrees 59' West 303.01 feet; thence South
18 degrees 03'30" East 100.73 feet; thence South 87 degrees 59'50" East 187.79
feet; thence North 79 degrees 24'20" East 91.44 feet; thence South 63 degrees
26' East 88.50 feet; thence South 80 degrees 39' East 30.20 feet to the True
Point of Beginning. An area described as a road as set out in instrument
recorded March 14, 1977 on Film 956 as Reception No. 214203 more particularly
described as follows:
<PAGE>
Beginning at the Northeast corner of Lot 19, Block 1, First Addition to Moffat
Lakes; thence North 2 degrees 48'26" West 30.00 feet; thence south 87 degrees
11'34" West 199.07 feet to that property described in Book 532 at Page 62,
Boulder County records; thence along the Southerly line of said property the
following courses and distances: South 4 degrees 44'50" East 1.09 feet; thence
South 85 degrees 20'30" West 51.64 feet; thence south 77 degrees 38'50"
<PAGE>
EXHIBIT "A" CONT.
PAGE 2
THIS EXHIBIT "A" IS REFERRED TO IN AND MADE A PART OF THAT CERTAIN DEED OF TRUST
(DEED OF TRUST) AND SECURITY AGREEMENT DATED JUNE 27, 1997, BY AND BETWEEN THE
FOLLOWING PARTIES:
GRANTOR:
ELDORADO ARTESIAN SPRINGS, INC.
a COLORADO corporation
35 ELDORADO SPRINGS DRIVE
P.O. Box 445
ELDORADO SPRINGS, COLORADO 80025
Tax I.D. # 84-0907853
TRUSTEE:
THE PUBLIC TRUSTEE FOR
BOULDER COUNTY, COLORADO
BANK:
FIRST NATIONAL BANK OF BOULDER COUNTY
a national banking association
2835 Pearl St.
Boulder, Colorado 80301
Tax I.D. # 84-1149584
The properties hereinafter described are those properties referred to in this
Deed of Trust as being described in "Exhibit "A":
West 115.67 feet; thence South 87 degrees 20 '40 " West 34 .36 feet; thence
South 74 degrees 17'00" West 91.64 feet; thence South 57 degrees 47'20" West
50.34 feet to the West line of Section 30, Township 1 South, Range 70 West of
the 6/th/ P.M.; thence South 0 degrees 35'34" West 32.51 feet to a point from
which the Southwest corner of said Section 30 bears South 0 degrees 35'34" West
1661.89 feet; thence Northeasterly 51.21 feet along a curve to the right having
a central angle of 8 degrees 55'21", a radius of 328.89 feet, and the chord of
which bears North 61 degrees 28'34" East 51.16 feet to the Northwesterly line of
said Block 1, First Addition to Moffat Lakes; thence along the northerly line of
said Block 1, the following courses and distances: North 43 degrees 29'45" East
16.21 feet; thence north 75 degrees 37'34" East 180.01 feet; thence North 87
degrees 11'34" East 300 feet to the point of beginning. That certain street or
driveway known as Canyon Avenue and lying between Blocks 1 and 2 as shown on the
recorded Plat of Barber's Addition to Moffat Lakes conveyed by instrument
recorded February 10, 1939 in Book 663 at page 478, more particularly described
as follows:
Street or driveway known as Canyon Avenue to extend from the East section line
of Section 25, Township 1 South, Range 71 West across a portion of the North
1/2 of the Southwest 1/4 of Section 30, Township 1 South, Range 70 West to the
lower or East bridge site. Lot 1, except the West 30 feet thereof and all of
Lot 2, Block 1, Barber's Addition to Moffat Lakes. Lots 1 through 5,
inclusive, Lot 9 and Lots 13 through 25, inclusive, Block 3, First Addition to
Moffat Lakes. All that portion of the Northwest 1/4 of the Southwest 1/4 of
Section 30, township 1 South, Range 70 West of the 6/th/ P.M., as conveyed in
deed recorded July 22, 1953 in Book 931 at Page 594, more particularly described
as follows:
All that portion of the North 1/4 of the Southwest 1/4 of said Section 30 lying
South of the Community Ditch right of way; also all right, title and interest in
and to the reserved private road or street as shown on the Plat of Town of
Eldorado Springs, said private road extending from the entrance gate of Eldorado
Springs and running in a Southwesterly direction to the West line of said
Section 30, except that part described in Book 790 at Page 234, Book 846 at Page
189, Book 623 at Page 273 and in Book 797 at Page 221. The East 1/2 of Lot 4,
Block 1, Kneals Subdivision, Lot 2, Block 13, Second Addition to Moffat Lakes. A
tract beginning at a point ll70 feet North of the South line of Section 25,
Township 1 South, Range 71West of the 6th P.M., same being on the West line of
the southeast 1/4 of the Southeast 1/4 of Section 25; thence North 300 feet to a
stone; thence East 300 feet to a stone; thence South 300 feet to a stone; thence
West 300 feet to the point of beginning. The platted portions of the South 1/2
of Section 25, Township 1 South, Range 71 West of the 6th P.M., but excepting
from such platted portions the following Lots, Parcels and Tracts, more
particularly described as follows, to-wit:
<PAGE>
Lots "A", 1 to 9, inclusive and Lots 13 to 20, inclusive, all in Block 1, Moffat
Lakes; excepting a strip of land lying South of Lots 17 and 18, Block 1, Moffat
Lakes, more particularly described as:
<PAGE>
EXHIBIT "A" CONT.
PAGE 4
THIS EXHIBIT "A" IS REFERRED TO IN AND MADE A PART OF THAT CERTAIN DEED OF TRUST
(DEED OF TRUST) AND SECURITY AGREEMENT DATED JUNE 27, 1997, BY AND BETWEEN THE
FOLLOWING PARTIES:
GRANTOR:
ELDORADO ARTESIAN SPRINGS, INC.
a COLORADO corporation
35 ELDORADO SPRINGS DRIVE
P.O. Box 445
ELDORADO SPRINGS, COLORADO 80025
Tax I.D. # 84-0907853
TRUSTEE:
THE PUBLIC TRUSTEE FOR
BOULDER COUNTY, COLORADO
BANK:
FIRST NATIONAL BANK OF BOULDER COUNTY
a national banking association
2835 Pearl St.
Boulder, Colorado 80301
Tax I.D. # 84-1149584
The properties hereinafter described are those properties referred to in this
Deed of Trust as being described in "Exhibit "A":
Beginning at a point 5 feet South of the Community Ditch and extending South to
the North line of the Coal Creek Ditch; thence along said North line 80 feet,
more or less, in a Westerly direction to an iron pin; thence North to the
Southwest corner of said Lot 18; thence along the South line of said Lots to the
Southeast corner of said Lot, 17; thence to the point of beginning.
Except a tract of land including a part of Lot B, Second Addition to Moffat
Lakes, more particularly described as follows:
Beginning at the Northeast corner of said Lot B; thence Westerly 242 feet, more
or less, to an iron pin; thence 77 feet, more or less, in a Southeasterly
direction to an iron pin in a rock; thence 66 feet Easterly to an iron pin in a
rock; thence 115 feet Northeasterly to the Southeast corner of said Lot B;
thence along the East line of said Lot B, 45 feet to the Northeast corner of
said Lot B, the point of beginning.
Excepting Lot "A", Block 2, Moffat Lakes; Lots 1 to 25 inclusive, Block 2,
Moffat Lakes; Lots 9 to 18 inclusive, Block 2, Second Addition to Moffat Lakes;
Lots 1, 2, and 3, Block 3, Second Addition to Moffat Lakes; Lots 4, 5 and the
South 50 feet of Lot 6, Block 3, Second Addition to Moffat Lakes; Lot 14, Block
3, Second Addition to Moffat Lakes; the South 60 feet of Lot 4, Block 4, Second
Addition to Moffat Lakes; Lot 5, except 10 feet for road, Block 4, Second
Addition to Moffat Lakes; Lots 4 and 6, Block 5, Second Addition to Moffat
Lakes; Lot 3, Block 6, Second Addition to Moffat Lakes; Lots "E" and "G", Block
8, Second Addition to Moffat Lake, Lots 1, 2, 5, 6, 9, 10, 11, 12, 13, 14, 18,
19, 21 and 22 all in Block 8, Second Addition to Moffat Lakes; Lot "A", Block
13, Second Addition to Moffat Lakes; Lot 5, Block 13, Second Addition to Moffat
Lakes; Lot 3, Lots 5 to 8, inclusive, and Lot 16, all in Block 14, Second
Addition to Moffat Lakes; the Southerly 34 feet of Lot 3, Block 1, Eldorado
Springs; Lots 1, 2 and 3, Block 9, Eldorado Springs; a tract lying West of Lot
1, Block 9, Eldorado Springs, more particularly described in Book 352 at Page 30
of the records of the Clerk and Recorder of Boulder County; Lot 4, Block 11,
Eldorado Springs; Lots "Q" and "R", Eldorado Springs; Lots 1, 2, 3, 4, 5, Block
14, Eldorado Springs No. Two.
Excepting Lot 1, Block 2, Moffat Lakes, together with an unplatted portion of
land in Section 25, Township 1 South, Range 71 West, beginning at the Northeast
corner of said Lot 1; thence Easterly a distance of 83 feet along a line
parallel to the Southerly line of Block 2 of Moffat Lakes and 30 feet from said
Southerly line of Block 2 at every point; thence Southerly on a line parallel to
the East line of Lot 1, Block 2, Moffat
<PAGE>
EXHIBIT "A" CONT.
PAGE 5
THIS EXHIBIT "A" IS REFERRED TO IN AND MADE A PART OF THAT CERTAIN DEED OF TRUST
(DEED OF TRUST) AND SECURITY AGREEMENT DATED JUNE 27, 1997, BY AND BETWEEN THE
FOLLOWING PARTIES:
GRANTOR:
ELDORADO ARTESIAN SPRINGS, INC.
a COLORADO corporation
35 ELDORADO SPRINGS DRIVE
P.O. Box 445
ELDORADO SPRINGS, COLORADO 80025
Tax I.D. # 84-0907853
TRUSTEE:
THE PUBLIC TRUSTEE FOR
BOULDER COUNTY, COLORADO
BANK:
FIRST NATIONAL BANK OF BOULDER COUNTY
a national banking association
2835 Pearl St.
Boulder, Colorado 80301
Tax I.D. # 84-1149584
The properties hereinafter described are those properties referred to in this
Deed of Trust as being described in "Exhibit "A":
Lakes, to the point of intersection with the North bank of South Boulder Creek;
thence Westerly along the North bank of South Boulder Creek to a point which
intersects the West line of Lot 1, Block 2, Moffat Lakes, extended Southerly;
thence Northerly along the West line of said Lot 1 extended Southerly to the
Southwest corner of said Lot 1; thence Easterly along the South line of Lot 1 to
the Southeast corner of said Lot 1; thence Northerly along the East line of said
Lot 1 to the point of beginning, as described in deed recorded August 19, 1966
on Film 579 as Reception No. 824543.
<PAGE>
EXHIBIT "A" CONT.
PAGE 6
THIS EXHIBIT "A" IS REFERRED TO IN AND MADE A PART OF THAT CERTAIN DEED OF TRUST
(DEED OF TRUST) AND SECURITY AGREEMENT DATED JUNE 27, 1997, BY AND BETWEEN THE
FOLLOWING PARTIES:
GRANTOR:
ELDORADO ARTESIAN SPRINGS, INC.
a COLORADO corporation
35 ELDORADO SPRINGS DRIVE
P.O. Box 445
ELDORADO SPRINGS, COLORADO 80025
Tax I.D. # 84-0907853
TRUSTEE:
THE PUBLIC TRUSTEE FOR
BOULDER COUNTY, COLORADO
BANK:
FIRST NATIONAL BANK OF BOULDER COUNTY
a national banking association
2835 Pearl St.
Boulder, Colorado 80301
Tax I.D. # 84-1149584
The properties hereinafter described are those properties referred to in this
Deed of Trust as being described in "Exhibit "A":
Except Lot 2 , Block 2, Moffat Lakes, and an unplatted portion of Section 25,
Township 1 South, Range 71 West, beginning at the Southwest corner of said Lot
2; thence Easterly along the South line of said Lot 2 to the Southeast corner of
said Lot 2; thence Southerly along a line extended Southerly from the East line
of said Lot 2 to the point of intersection with the North bank of South Boulder
Creek; thence Westerly along the North bank of South Boulder Creek to a point
which intersects a line extended Southerly from the West line of said Lot 2;
thence Northerly along a line extended Southerly from the West line of said Lot
2 to the point of beginning, as described on deed recorded June 20, 1960 in Book
1147 at Page 535.
Except a tract of land being part of Lots 5 and 6, Block 2, Moffat Lakes, and
that portion of the Northeast 1/4 of the Southeast 1/4 of Section 25, Township 1
South, Range 71 West of the 6/th/ P.M., described as follows:
Beginning at the Northeast corner of Lot 6, Block 2, Moffat Lakes; thence South
88 degrees 32"12" West 35.24 feet along the North line of Lot 6; thence South 00
degrees 17'30" West 49.93 feet; thence South 16 degrees 20" East 37.00 feet;
thence North 74 degrees 15' East 45.62 feet; thence North 07 degrees 30' West
74.84 feet to the north line of Lot 5, Block 2, Moffat Lakes; thence South 88
degrees 32'12" West 9.57 feet to the point of beginning, as conveyed in deed
recorded December 20, 1979 on Film 1097 as Reception No. 375845.
Except a tract of land conveyed to Lawrence W. Reisdorff and Deborah A.
Reisdorff by instrument recorded October 12, 1983 on Film 1274 as Reception No.
581251, described as follows:
Beginning at the Northwest corner of Lot 1, Block 6, Second Addition to Moffat
Lakes; thence South 58 degrees 19'19" West 76.97 feet to the Northwest corner of
Lot 1, Block 8, Eldorado Springs; thence North 0 degrees 36' East 50.00 feet;
thence Easterly 53 feet to the Southwest corner of Lot 1, Block 7, Second
Addition to Moffat Lakes; thence Southerly 30 feet to the point of beginning.
Except Lots 1 through 9 inclusive, Block 8, Eldorado Springs; Lots 1, 2 and 3,
Block 6, Second Addition to Moffat Lakes, and Lots 1, 2, 3 and 4, Block 5,
Second Addition to Moffat Lakes and a right of way for ingress and egress
conveyed by instrument recorded August 12, 1980 on Film 1128 as Reception No.
407418, re-recorded November 7, 1980 on Film 1141 as Reception No. 421427,
described as follows:
A tract of land in the Northeast 1/4 of the Southeast 1/4 of Section 25,
Township 1 South, Range 71 West of the 6th P.M., described as follows:
<PAGE>
EXHIBIT "A" CONT.
PAGE 7
THIS EXHIBIT "A" IS REFERRED TO IN AND MADE A PART OF THAT CERTAIN DEED OF TRUST
(DEED OF TRUST) AND SECURITY AGREEMENT DATED JUNE 27, 1997, BY AND BETWEEN THE
FOLLOWING PARTIES:
GRANTOR:
ELDORADO ARTESIAN SPRINGS, INC.
a COLORADO corporation
35 ELDORADO SPRINGS DRIVE
P.O. Box 445
ELDORADO SPRINGS, COLORADO 80025
Tax I.D. # 84-0907853
TRUSTEE:
THE PUBLIC TRUSTEE FOR
BOULDER COUNTY, COLORADO
BANK:
FIRST NATIONAL BANK OF BOULDER COUNTY
a national banking association
2835 Pearl St.
Boulder, Colorado 80301
Tax I.D. # 84-1149584
The properties hereinafter described are those properties referred to in this
Deed of Trust as being described in "Exhibit "A":
Beginning at a point, the Northwesterly corner of Lot 1, Block 5, Second
Addition to Moffat Lakes, being 2331.04 feet North 27 degrees 21'44" West from
the Southeast corner of Section 25, Township 1 South, Range 71 West of the 6th
P.M.; thence South 01 degrees 42'16" West 146.35 feet; thence North 42 degrees
14'07" East 80.49 feet to the Southwesterly corner of Lot 1, Block 5; thence
North 70 degrees 59' East 90.00 feet; thence North 29 degrees 51' West 99.95
feet; thence South 70 degrees 59' West 90.00 feet to the point of beginning.
<PAGE>
EXHIBIT "A" CONT.
PAGE 8
THIS EXHIBIT "A" IS REFERRED TO IN AND MADE A PART OF THAT CERTAIN DEED OF TRUST
(DEED OF TRUST) AND SECURITY AGREEMENT DATED JUNE 27, 1997, BY AND BETWEEN THE
FOLLOWING PARTIES:
GRANTOR:
ELDORADO ARTESIAN SPRINGS, INC.
a COLORADO corporation
35 ELDORADO SPRINGS DRIVE
P.O. Box 445
ELDORADO SPRINGS, COLORADO 80025
Tax I.D. # 84-0907853
TRUSTEE:
THE PUBLIC TRUSTEE FOR
BOULDER COUNTY, COLORADO
BANK:
FIRST NATIONAL BANK OF BOULDER COUNTY
a national banking association
2835 Pearl St.
Boulder, Colorado 80301
Tax I.D. # 84-1149584
The properties hereinafter described are those properties referred to in this
Deed of Trust as being described in "Exhibit "A":
Except Lots 1, 2 and 3, Block 12, Eldorado Springs. Excepting unplatted tract
South of Lots 8 through 12, inclusive, Block 1, Moffat Lakes, between Community
Ditch and Coal Creek Ditch. Excepting a tract of land situated in the Southeast
1/4 of Section 25, Township 1 South, Range 71 west of the 6/th/ P.M., described
as follows:
Beginning at a point 1170 feet North of the South line of Section 25, Township 1
South, Range 71 West, same being on the West line of the Southeast 1/4 of the
Southeast 1/4 of said Section; thence North 300 feet to a stone; thence East 300
feet to a stone; thence South 300 feet to a stone; thence West 300 feet to the
point of beginning.
Excepting Lot C, Moffat Lakes Second Addition. Excepting a triangular tract of
land bounded on the South and East by the Northwesterly lot line and the
extension thereof of Lot 1, Block 6, Eldorado Springs, on the South and West by
a line extended Northwesterly from the most Westerly corner of said Lot 1, Block
6, to the most Westerly corner of Lot J, Eldorado Springs, and on the North by
the Flume extending Easterly from the head gate of the Community Ditch on South
Boulder Creek.
Excepting Lots 11, 12, 13, Block 1, Moffat Lakes, County of Boulder, State of
Colorado. Excepting Lot 10, Block 1, Moffat Lakes, County of Boulder, State of
Colorado.
Excepting an unplatted tract lying South of Lots 8 through 12, inclusive, Block
1, Moffat Lakes, between Community Ditch and Coal Creek Ditch, more particularly
described as follows:
Beginning at the Southeast corner of said Lot 8; thence South 0 degrees 0' East
130.48 feet to a point on the approximate centerline of the abandoned Coal Creek
Ditch; thence Westerly along said approximate centerline as follows: North 88
degrees 04'35" West 27.52 feet; South 73 degrees 53'26" West 20.85 feet; thence
south 25 degrees 08'18" West 81.99 feet; South 87 degrees 53'39" West 22.55
feet; North 17 degrees 24'28" West 49.09 feet; North 33 degrees 48'38" West
39.51 feet; North 60 degrees 26'47" West 16.58 feet, and North 83 degrees 02'11"
West 23.86 feet; thence North 0 degrees 0' East 46.38 feet to the Southwest
corner of said Lot 12; thence Easterly along the South line of said Lots 12
through 8, the North line of said Community Ditch, as follows: South 82 degrees
24'50" East 17.97 feet; North 85 degrees 49'13" East 26.44 feet; North 78
degrees 50'12" East 52.98 feet; North 71 degrees 45'57" East 28.15 feet; North
59 degrees 48'07" East 19.61 feet; North 44 degrees 26'43" East 19.94 feet and
North 40 degrees 14'29" East 40.05 feet to the True Point of Beginning.
<PAGE>
EXHIBIT "A" CONT.
PAGE 9
THIS EXHIBIT "A" IS REFERRED TO IN AND MADE A PART OF THAT CERTAIN DEED OF TRUST
(DEED OF TRUST) AND SECURITY AGREEMENT DATED JUNE 27, 1997, BY AND BETWEEN THE
FOLLOWING PARTIES:
GRANTOR:
ELDORADO ARTESIAN SPRINGS, INC.
a COLORADO corporation
35 ELDORADO SPRINGS DRIVE
P.O. Box 445
ELDORADO SPRINGS, COLORADO 80025
Tax I.D. # 84-0907853
TRUSTEE:
THE PUBLIC TRUSTEE FOR
BOULDER COUNTY, COLORADO
BANK:
FIRST NATIONAL BANK OF BOULDER COUNTY
a national banking association
2835 Pearl St.
Boulder, Colorado 80301
Tax I.D. # 84-1149584
The properties hereinafter described are those properties referred to in this
Deed of Trust as being described in "Exhibit "A":
Excepting Lot 7, Block 5, Second Addition to Moffat Lakes, excepting Lot N,
Eldorado Springs,
Lots 7 and 8, Block 14, Second Addition to Moffat Lakes,
<PAGE>
EXHIBIT "A" CONT.
PAGE 10
THIS EXHIBIT "A" IS REFERRED TO IN AND MADE A PART OF THAT CERTAIN DEED OF TRUST
(DEED OF TRUST) AND SECURITY AGREEMENT DATED JUNE 27, 1997, BY AND BETWEEN THE
FOLLOWING PARTIES:
GRANTOR:
ELDORADO ARTESIAN SPRINGS, INC.
a COLORADO corporation
35 ELDORADO SPRINGS DRIVE
P.O. Box 445
ELDORADO SPRINGS, COLORADO 80025
Tax I.D. # 84-0907853
TRUSTEE:
THE PUBLIC TRUSTEE FOR
BOULDER COUNTY, COLORADO
BANK:
FIRST NATIONAL BANK OF BOULDER COUNTY
a national banking association
2835 Pearl St.
Boulder, Colorado 80301
Tax I.D. # 84-1149584
The properties hereinafter described are those properties referred to in this
Deed of Trust as being described in "Exhibit "A":
TOGETHER WITH ALL WATERS RIGHTS DESCRIBED AS FOLLOWS:
Fowler Well No. A-RF956
Fowler Well No. B-RF1000
Fowler Well No. C
Fowler Well No. D-5329F
Fowler Well No. E
Fowler Well No. F
Fowler Well No. G
Fowler Well No. H-14237F
Fowler Well No. I-RF734
Fowler Well No. J
Fowler Well No. K
Eldorado Springs Resort Well No. 1
All being in the County of Boulder, State of Colorado
Lots 1, 2, E and G, Block 8, Second Addition to Moffat Lakes,
County of Boulder,
State of Colorado.
<PAGE>
EXHIBIT "A" CONT.
PAGE 11
THIS EXHIBIT "A" IS REFERRED TO IN AND MADE A PART OF THAT CERTAIN DEED OF TRUST
(DEED OF TRUST) AND SECURITY AGREEMENT DATED JUNE 27, 1997, BY AND BETWEEN THE
FOLLOWING PARTIES:
GRANTOR:
ELDORADO ARTESIAN SPRINGS, INC.
a COLORADO corporation
35 ELDORADO SPRINGS DRIVE
P.O. Box 445
ELDORADO SPRINGS, COLORADO 80025
Tax I.D. # 84-0907853
TRUSTEE:
THE PUBLIC TRUSTEE FOR
BOULDER COUNTY, COLORADO
BANK:
FIRST NATIONAL BANK OF BOULDER COUNTY
a national banking association
2835 Pearl St.
Boulder, Colorado 80301
Tax I.D. # 84-1149584
The properties hereinafter described are those properties referred to in this
Deed of Trust as being described in "Exhibit "A":
LOAN AMOUNT REQUESTED $300,000.00
RETAINED BY BANK:
Loan Fee/Points $ 500.00
LESS: Amount Prepaid By You $ 500.00
-----------
NOTE AMOUNT $300,000.00
-----------
BALANCE GIVEN TO YOU DIRECTLY $300,000.00
BORROWER ACKNOWLEDGES THAT BORROWER READ AND UNDERSTOOD THIS ITEMIZATION AND
THAT BORROWER RECEIVED A COPY ON JUNE 27,1997, PRIOR TO THE CONSUMMATION OF THIS
LOAN.
BORROWER:
ELDORADO ARTESIAN SPRINGS, INC.
a COLORADO corporation
[Corporate Seal*]
By:___________________________________________________________________
DOUGLAS A. LARSON, PRESIDENT
-------------------------------------------------------------------
KEVIN M. SIPPLE, VICE PRESIDENT
-------------------------------------------------------------------
JEREMY S. MARTIN, VICE PRESIDENT
(*Corporate seal may be affixed, but failure to affix shall not affect validity
or reliance.)
- --------------------------------------------------
DOUGLAS A. LARSON, PRESIDENT,
Individually
- --------------------------------------------------
KEVIN M. SIPPLE, VICE PRESIDENT,
Individually
<PAGE>
EXHIBIT "A" CONT.
PAGE 12
THIS EXHIBIT "A" IS REFERRED TO IN AND MADE A PART OF THAT CERTAIN DEED OF TRUST
(DEED OF TRUST) AND SECURITY AGREEMENT DATED JUNE 27, 1997, BY AND BETWEEN THE
FOLLOWING PARTIES:
GRANTOR:
ELDORADO ARTESIAN SPRINGS, INC.
a COLORADO corporation
35 ELDORADO SPRINGS DRIVE
P.O. Box 445
ELDORADO SPRINGS, COLORADO 80025
Tax I.D. # 84-0907853
TRUSTEE:
THE PUBLIC TRUSTEE FOR
BOULDER COUNTY, COLORADO
BANK:
FIRST NATIONAL BANK OF BOULDER COUNTY
a national banking association
2835 Pearl St.
Boulder, Colorado 80301
Tax I.D. # 84-1149584
The properties hereinafter described are those properties referred to in this
Deed of Trust as being described in "Exhibit "A":
- --------------------------------------------------
JEREMY S. MARTIN, VICE PRESIDENT,
Individually
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the inclusion, in this Registration Statement on Form SB-2, of our
report dated May 8, 1998 (except for Note 7 as to which the date is May 19,
1998), on our audit of the financial statements of Eldorado Artesian Springs,
Inc. We also consent to the reference to our firm under the caption "Experts".
Ehrhardt Keefe Steiner & Hottman PC
December 1, 1998
Denver, Colorado
