<PAGE>
As filed with the Securities and Exchange Commission on October 18, 1999
SEC Registration No. 333-68553
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
U.S. Securities and Exchange Commission
Washington, D.C. 20549
---------------
AMENDMENT NO.5
To
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
ELDORADO ARTESIAN SPRINGS, INC.
(Name of small business issuer in its charter)
<TABLE>
<S> <C> <C>
Colorado 2086 84-0907853
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
P.O. Box 445, Eldorado Springs, Colorado 80025 (303)499-1316
(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
(Name, address and telephone number of agent for service)
Copies to:
Laurie P. Glasscock, Esq.
Chrisman, Bynum & Johnson, P.C.
1900 Fifteenth Street
Boulder, CO 80302
(303) 546-1300
---------------
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
according 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 according 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 according to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
<CAPTION>
Proposed Proposed
Title of each class of maximum maximum Amount of
securities to be Amount to offering price aggregate registration
registered be registered per share offering price fee
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.001 par
value................. 805,000 shares(1) $6.00(2) $4,830,000 $1,342.74
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
</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 computed solely for the purpose of
determining the registration fee according 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 Eldorado and the underwriter before the offering. The
trading market for Eldorado's common stock is sporadic.
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 according to said Section
8(a), may decide.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+Information contained herein is subject to completion or amendment. A +
+registration statement relating to these securities has been filed with the +
+Securities and Exchange Commission. These securities may not be sold nor may +
+offers to buy be accepted prior to the time the registration statement +
+becomes effective. This prospectus shall not constitute an offer to sell or +
+the solicitation of an offer to buy nor shall there be any sale of these +
+securities in any state in which such offer, solicitation or sale would be +
+unlawful prior to registration or qualification under the securities laws of +
+any such state. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED OCTOBER 18, 1999
700,000 shares of Common Stock
Expected
Offering $5.00 to
Price........ $7.00 per Eldorado bottles and markets natural artesian spring
share water from a natural spring located in the foothills
Proposed of the Colorado Rocky Mountains. Before this
Trading offering, Eldorado common stock has traded on the
Symbol ELDO OTC Bulletin Board. Upon completion of this
Nasdaq Small offering, Eldorado expects that the securities will
Cap Market... trade on the Nasdaq Small Cap MarketSM.
The Offering
<TABLE>
<CAPTION>
Per
Share Total
----- ----------
<S> <C> <C>
Public Price............ $6.00 $4,200,000
Underwriting discounts.. $0.60 $ 420,000
Proceeds to Eldorado
(before expenses
payable
by Eldorado)........... $5.40 $3,780,000
</TABLE>
The offering price information in this table assumes
that the option granted to the underwriter of this
offering has not been exercised.
----------
This investment involves a high degree of risk and the possibility of
substantial dilution. We strongly urge you to read the entire prospectus. You
should review the section titled Risk Factors, for a description of the risks
involved in Eldorado's business, beginning on page 3 and Dilution, for a
description of the dilution to new investors, on page 9, before making any
investment decisions.
----------
The information in this prospectus may be changed. Eldorado may not sell these
securities until the registration statement filed with the SEC is effective.
This prospectus is not an offer to sell or a solicitation of an offer to buy
these securities in any state in which the offer or solicitation is not
permitted.
Neither the SEC or 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.
----------
Mills Financial Services, Inc.
We expect that delivery of the common stock will be made in
, on or about , 1999. The underwriter will receive
an option, exercisable within 30 days after the date of this prospectus, to buy
up to 105,000 additional shares of common stock. See the section Underwriting,
beginning on page 27, for a more detailed description of the underwriting
agreement.
<PAGE>
[COLOR PHOTO]
<PAGE>
PROSPECTUS SUMMARY
This summary highlights some of the information in this prospectus and may
not contain all the information that is important to you. We strongly urge you
to read the entire prospectus which contains more detailed information about
Eldorado, its finances, products and financial statements. All information in
this prospectus, unless otherwise shown, 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 for one reverse stock
split that occurred April 1, 1998. We have not authorized anyone to provide you
with information that is different from what is contained in this prospectus.
ELDORADO ARTESIAN SPRINGS
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, which are the source for Eldorado's water, were the center of 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, providing a
well protected source. 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 in any way.
Eldorado has focused on developing and expanding the business of bottling
Eldorado Spring water. Currently, Eldorado's operations consist of its home and
commercial delivery business of five and three gallon bottles. In addition,
Eldorado also bottles and delivers smaller bottles in sizes of .5 liter, 1.0
liter and 1.5 liter. Bottles used for the smaller packaging are made of
polyethylene terephtalate, a premium clear plastic. These bottles are commonly
referred to in the beverage industry as PET bottles. Eldorado's PET products
have been well received by grocery retailers and these products have earned
retail market shares ranging from 3% to 29%, depending on the size of the
bottle.
The demand for bottled water has increased due to concerns with the quality
of municipal tap waters, consumer demands for a natural, healthy beverage, and
the convenience of the PET segment of the bottled water market. In 1997, the
bottled water industry achieved solid growth with wholesale revenues topping
$3.9 billion and bottled water consumption reaching nearly 13 gallons a year
for an individual consumer. Through 1998, bottled water sales were up nearly 10
percent, providing further evidence of the significant growth remaining in the
bottled water market.
Eldorado's goal is to expand its operations based on the continued success
of its PET bottled water products. Eldorado's strategy initially calls for
expanding the distribution of its PET products into new markets that are
geographically near its Colorado operations. By penetrating new markets for its
PET bottled waters, Eldorado expects to solidly increase revenues and earnings.
Once Eldorado has achieved its market share goals, it plans to further expand
distribution in other regions.
Our principal business address is 294 Artesian Drive, Eldorado Springs, CO
80025 and our phone number is (303) 499-1316. We began our business in April
1983 as a privately-held Colorado company and merged with Lexington Funding,
Inc., a publicly-traded company, in April 1987.
1
<PAGE>
KEY FACTS
<TABLE>
<S> <C>
Shares to be sold to the public by 700,000 shares
Eldorado..................................
Common stock outstanding before offering... 2,995,495 shares
Common stock outstanding after offering.... 3,695,495 shares
Use of proceeds............................ Acquisition of additional water rights,
expansion of facilities, marketing programs
and general working capital purposes
Proposed Nasdaq symbol..................... ELDO
</TABLE>
The reference to common stock outstanding before and after this offering in
the table does not include a total of 875,000 shares that are reserved for
options under Eldorado's 1997 stock option plan or a total of 280,000 shares
that are reserved for outstanding warrants. Refer to the section Management--
Stock Option Plan, on page 23, for a more detailed description of Eldorado's
stock option plan. Also, the section Description of Securities, beginning on
page 26, contains a more complete description of certain warrants that were
issued by Eldorado.
SUMMARY OF FINANCIAL INFORMATION
The following table highlights some of the financial and operating
information of Eldorado derived from audited financial statements for the
fiscal years ended March 31, 1997, 1998 and 1999 and unaudited statements as of
and for the three months ended June 30, 1998 and 1999. For more detailed
financial and operating information, including the related notes, see the
Financial Statements, beginning on page F-1, and Management's Discussion and
Analysis of Financial Condition and Results of Operations, beginning on
page 10.
<TABLE>
<CAPTION>
As of and for the Year Ended As of and for Three
March 31 Months Ended June 30
-------------------------------- -----------------------
1997 1998 1999 1998 1999
---------- ---------- ---------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Statement of operations
data:
Total revenues........ $2,644,521 $3,329,444 $4,036,822 $ 912,692 $1,254,781
Total operating
expenses............. 2,346,999 3,069,859 3,687,682 854,772 1,178,411
Earnings before
taxes................ 187,214 117,631 217,850 24,428 51,196
Net income............ 124,152 83,228 138,114 17,284 32,766
Earnings per share...... .05 .03 .05 .01 .01
Weighted average of
number of shares
outstanding............ 2,695,495 2,695,495 2,995,495 2,923,756 2,995,495
Balance sheet data:
Total assets.......... 2,024,414 2,456,721 3,386,374 3,159,220 3,358,504
Total liabilities..... 1,556,722 1,905,801 2,007,259 1,900,935 1,946,623
Stockholders' equity.. 467,692 550,920 1,379,115 1,258,285 1,411,881
</TABLE>
2
<PAGE>
RISK FACTORS
This investment involves a high degree of risk. You should carefully
consider the following risk factors as well as all the information in this
prospectus before buying shares of Eldorado's common stock.
Because Water Available for Production May be Limited, We May Be Unable to
Acquire Enough Water to Satisfy Demand for Our Products and to Meet Our
Expansion Goals.
We do not have the right to use all the water which flows from our springs.
Persons downstream from us have water rights which must be satisfied in full
before we can use all the water from our springs. If there is not enough water
flow from the stream to satisfy the downstream water rights, we would have to
stop taking water from our springs. Under Colorado law, we can only avoid a
restriction on our use of the water flowing from our springs by acquiring
additional sources of water to meet the demands of downstream users. These
sources would replace the water we use from our springs and would be used to
satisfy the requirements of downstream users. Therefore, unless we are able to
obtain replacement water sources to satisfy downstream water rights, our water
supply from our springs will be limited. Because we would always only bottle
water from our springs and would not use any additional water for our product,
we may not have enough water to meet demand for our products or to support our
plans to expand our business.
Our Ability to Expand our Business is Restricted Because We Do Not Have a
Permanent Source of Replacement Water
We do not have a permanent source of additional water to replace the water
we use from our springs in the event additional water is required to satisfy
the water rights of persons downstream from us. We lease rights to additional
water on a year-to-year basis. We believe that the lack of a permanent source
of replacement water will restrict our ability to implement our plans for
increasing our business.
For more details about our permanent replacement plan, see Use of Proceeds
on page 7 and Eldorado and its Business--Strategy on page 16.
Because We Are Significantly Smaller than Our National Competitors, We May
Not Have the Financial Resources and Name Recognition to Capture Additional
Market Share.
We face significant competition in the bottled water industry from national
brands which can compete on a lower price basis and often are given premium
shelf space from the retailers. The trend in recent years in the bottled water
industry has been toward the development of national brands of natural spring
water. Barriers to entry increase significantly at the national level because
of large marketing and distribution costs associated with getting and
maintaining a presence at such distribution levels. In addition, many
companies are now bottling water exclusively for retailers. As a result, we
face significant hurdles to increasing our market share in the bottled water
industry. For more detailed information about our competitors and our
competitive strategy, see Eldorado and Its Business--Competition on page 20.
Our Inventory Levels May Not be Sufficient to Fill Customer Orders Which
Could Reduce Revenues and Impair Customer Relations
We maintain a limited amount of finished product inventory. If an event
caused our facilities to shut down, even for a short period, we might be
unable to fill customer orders, which could reduce revenues and damage
customer relations. For more detailed information, see Eldorado and Its
Business--Strategy--Warehouse and Distribution Facility on page 16.
3
<PAGE>
Because Eldorado's Current Officers and Directors will Continue to Have
Majority Control of Eldorado after this Offering, They Will Control Matters
Submitted for Shareholder Approval if They Act Together.
Our officers and directors currently own a total of about 80% of the
outstanding shares and after this offering will continue to own 65% of the
outstanding shares. These shareholders, individually and as a group, will be
able to influence the outcome of shareholder votes, including votes concerning
the election of directors and the approval of mergers and other significant
corporate transactions. If they act together, our officers and directors will
be in a position to control all matters requiring shareholder approval after
the offering.
The Sale of Other Shares of Our Stock May Reduce the Market Price of Your
Shares
Sales of substantial amounts of common stock in the public market following
this offering could lower the market price of the shares you are purchasing. It
is likely that market sales of large amounts of our shares or other shares
after this offering, or the potential for those sales even if they do not
actually occur, will depress the market price of our shares. We cannot predict
the effect that any such sales would have on the then prevailing market price
of our shares. See Shares Eligible for Future Sale, on page 27, for a more
detailed description of the shares that may be sold into the market in the
future.
After this offering, we will have 988,091 shares of common stock outstanding
that will be freely tradable into the public market. The remaining 2,707,404
shares are restricted securities under Rule 144 promulgated under the
Securities Act and will become available for resale into the public market as
shown on the chart below.
<TABLE>
<CAPTION>
Percent of
Total
Number of Shares
Shares Outstanding Date Available for Resale Into the Public Market
--------- ----------- ----------------------------------------------------
<C> <C> <S>
77,000 2% 6 months from the date of this prospectus
2,298,407 62% 6 months from the date of this prospectus and then
subject to resale volume limitations under Rule 144
408,997 11% Immediately
</TABLE>
As a Result of This Offering, the Value of Your Shares Will Be Diluted
Immediately
Purchasers of shares in this offering will experience immediate dilution of
$4.67 per share or 78% of the offering price of $6.00 per share.
The Lack of an Established Trading Market and the Underwriter's Limited
Experience May Adversely Affect the Price of Your Shares
You should consider the limited experience of Mills Financial Services, Inc.,
the underwriter in this offering, in evaluating an investment in the common
stock. Mills Financial Services, Inc. was the lead underwriter in one initial
public offering finished in 1998. This offering was Mills' only participation
in a firm commitment offering. In addition, in 1994, Mills Financial Services,
Inc. attempted an initial public offering for another company on a best
efforts--minimum or none basis. Mills Financial Services, Inc. was not
successful in completing the minimum sales amount and the offering was
withdrawn. In addition, Mills Financial Services, Inc. has advised Eldorado
that it does not intend to make a market in our shares after the offering. In
the event that the underwriter's customers purchase a substantial percentage of
this offering, the decision by the underwriter not to make a market may
adversely affect the establishment and maintenance of a trading market by other
broker-dealers.
4
<PAGE>
Before this offering there has been a limited and sporadic public market for
our common stock. We cannot assure you that a trading market for our shares
will exist or be maintained following the offering. You may not be able to
resell your shares if an active trading market does not develop. See Price
Range of Common Stock, on page 8, for more detailed information about the
trading market for our shares.
You May Have Difficulty Selling Your Shares if We Fail to List Our Common
Stock on the Nasdaq Small Cap Market Because of the Limited Trading Volume on
the Over The Counter Bulletin Board or if Our Stock Becomes Subject to the
SEC's Penny Stock Regulations.
If we cannot maintain the standards for continued listing on the Nasdaq
Small Cap Market, our common stock could be subject to delisting. Trading, if
any, in our common stock would then be conducted in the over-the-counter
market on the OTC Bulletin Board or in what are commonly referred to as the
pink sheets. As a result, you may find it more difficult to sell your shares
or to obtain accurate quotations as to the price of our shares.
In addition, if our shares were delisted from the Nasdaq Small Cap Market,
our common stock could become subject to the penny stock rules of the SEC.
These rules impose additional sales practice requirements on broker-dealers
before our stock could be sold to the customers of the broker-dealers. The
additional sales practice requirements could materially adversely affect the
willingness or ability of broker-dealers to sell our common stock. This would
reduce the market liquidity for our shares and therefore adversely affect your
ability to sell shares in the secondary market.
Because The Offering Price Was Arbitrarily Set Higher Than Recent Trades, the
Price of Your Shares May Decrease and Be Subject to Volatility.
The public offering price of the shares being sold in this offering resulted
from negotiations between Eldorado and the underwriter. The price was not
based on selling prices in the public market for our common stock as is
normally the case with a second offering of stock by a public company. Since
the offering price is not based on trading of our common stock, the market for
the common stock after the offering may be volatile. In particular, the
offering price is not based upon the $2.75 sales price for 300,000 shares in a
private offering in April 1998 or upon a recent trading price of our common
stock of $1.75 in June 1999. See Underwriting, on page 28, for a description
of the factors used to determine the offering price.
Effects of the Year 2000 Could Adversely Impact Future Business
An assessment of our year 2000 exposure includes an analysis of third party
supplier information systems and production facilities to see if they will be
able to handle the affects of the year 2000. We have not yet determined if our
suppliers have systems that will handle the year 2000 problem. If we decide
that any supplier relationship is unsatisfactory based on the supplier's lack
of ability to deal with the year 2000 issue, we will look elsewhere for a
supplier. No assurance can be made that we will be able to find another
supplier with similar terms and pricing. Please see Management Discussion and
Analysis of Financial Condition and Results of Operation--Year 2000 Compliance
Issues, on page 12, for a more detailed discussion.
5
<PAGE>
FORWARD-LOOKING INFORMATION AND ASSOCIATED RISKS
This prospectus contains forward-looking statements, and statements
regarding, among other things, our growth strategy, expected 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, which may be beyond our control. The forward-looking statements
included in this prospectus are based on current expectations that involve a
number of risks and uncertainties that might negatively affect Eldorado's
operating results in the future. 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 purchase additional water rights;
. labor and marketing costs;
. operating and packaging costs;
. intensity of competition;
. legal claims; and
. the contingencies associated with year 2000 compliance.
Actual results could differ from these forward-looking statements as a
result of the factors described in this prospectus, or other 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.
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 SEC. Eldorado intends to furnish its shareholders with
annual reports containing audited financial statements and such other periodic
reports as Eldorado considers appropriate or as may be required by law.
You may read and copy any materials Eldorado files with the SEC at the SEC's
Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You
may get information on the operation of the Public Reference Room by calling
the SEC at 1-800-SEC-0330.
The SEC maintains an internet site that contains reports, proxy and
information statements, and other information regarding issuers that file
electronically with the SEC. 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 SEC in accordance with the provisions of the Securities Act. This
prospectus does not contain all the information included in the registration
statement. Certain parts have been omitted as permitted by the registration
statement rules and regulations of the SEC. For further information with
respect to Eldorado and the offered shares, refer to the registration statement
and the accompanying exhibits. Statements in this prospectus concerning the
provisions of any document are not necessarily complete and you should refer to
the copy of the document for more information filed as an exhibit to the
registration statement. The registration statement and the exhibits may be
inspected or copied, without charge, from:
<TABLE>
<S> <C> <C>
Public Reference Section Public Reference Section
Securities and Exchange Commission Midwest Regional Office
Judiciary Plaza or 500 West Madison Avenue
450 Fifth Street, NW, Room 1024 Room 1400
Washington, DC 20549 Chicago, Illinois 60661-2511.
<CAPTION>
</TABLE>
6
<PAGE>
USE OF PROCEEDS
The net proceeds to Eldorado from the sale of the shares offered in this
prospectus will be $3,515,000, assuming a per share offering price of $6.00 and
deducting the underwriting expenses and other expenses of the offering
estimated at $685,000. We expect that we will use the net proceeds of this
offering during the next twelve month period as follows:
<TABLE>
<CAPTION>
Approximate
Description Dollar Amount Percent
----------- ------------- -------
<S> <C> <C>
Water rights........................................... $ 680,000 19.3%
Offsite facilities..................................... 750,000 21.4%
Onsite improvements.................................... 600,000 17.1%
Marketing expenses
Advertising fees and broker commission............... 370,000 10.5%
Media campaign....................................... 200,000 5.7%
Special events and promotions........................ 120,000 3.4%
Slotting fees and in-store promotions................ 315,000 9.0%
Other marketing expenses............................. 245,000 7.0%
Additional working capital............................. 235,000 6.6%
---------- ----
TOTAL.............................................. $3,515,000 100%
</TABLE>
This represents Eldorado's present intention with respect to the use of the
offering proceeds. Capital requirements or business opportunities, which are
not currently expected, could cause management to elect to use proceeds for
other general corporate purposes and for other purposes not contemplated at
this time. Until we use the net proceeds, we 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 12 months.
If the underwriter exercises its overallotment option, any additional
proceeds will be used for working capital and general corporate purposes. See
Eldorado and Its Business--Strategy, on page 16, for more detailed information
about Eldorado's planned use of proceeds, including specific application of the
amounts described above and the time frame over which Eldorado will use the
proceeds.
DETERMINATION OF THE OFFERING PRICE
The public offering price of the shares has been determined between Eldorado
and the underwriter. Eldorado and the underwriter considered, in addition to
prevailing market conditions, Eldorado's historical performance, estimates of
the business potential and earnings prospects of Eldorado and an assessment of
Eldorado's management.
7
<PAGE>
PRICE RANGE OF COMMON STOCK
Eldorado's common stock is traded in the over-the-counter market on the OTC
Bulletin Board. The quotations presented below reflect inter-dealer prices,
without retail mark-up, mark-down or commissions and may not necessarily
represent actual transactions. The following table sets forth for the periods
shown, the quotations for the common stock:
<TABLE>
<CAPTION>
High Low
----- -----
Calendar 1999
<S> <C> <C>
First quarter through March 31, 1999............................. $3.25 $0.63
Second quarter through June 30, 1999............................. 2.50 1.06
Third quarter through September 30, 1999......................... 5.25 1.25
Calendar 1998
First quarter through March 31, 1998............................. 2.64 0.48
Second quarter through June 30, 1998............................. 2.50 0.25
Third quarter through September 30, 1998......................... 0.75 0.50
Fourth quarter through December 31, 1998......................... 0.63 0.50
Calendar 1997
First quarter through March 31, 1997............................. -- --
Second quarter through June 30, 1997............................. 0.12 0.12
Third quarter through September 30, 1997......................... 1.08 0.72
Fourth quarter through December 31, 1997......................... 1.08 0.84
</TABLE>
The latest closing bid quotation of the common stock, as reported by Nasdaq,
was $3.00 per share on October 18, 1999. As of October 1, 1999, there were 170
record holders of the common stock, which does not reflect shareholders who own
their shares in nominee or street name through their brokers. For the first
quarter of 1997, there was no bidding information. For the period June 1, 1997
through July 31, 1998, only one market maker posted quotes for the common
stock.
Eldorado has not paid cash dividends in the past and does not intend to pay
cash dividends in the future. Eldorado presently intends to keep earnings for
use in its business, with any future decision to pay cash dividends dependent
upon Eldorado's growth, profitability, financial condition, and other factors
as decided by the board of directors.
8
<PAGE>
DILUTION
At June 30, 1999, Eldorado had outstanding a total aggregate of 2,995,495
shares of common stock. The aggregate net tangible book value of these shares
was $1,210,375 or about $.40 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.
The pro forma net tangible book value of the common stock at June 30, 1999
would be $4,926,881, or about $1.33 per share. This gives 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 of the offering. This represents an
immediate increase in pro forma net tangible book value of $0.93 per share to
the present shareholders and an immediate dilution of $4.67 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>
<S> <C> <C>
Assumed public offering price per share....................... $6.00
Net tangible book value per share before offering........... $0.40
Increase per share due to offering.......................... .93
-----
Pro forma net tangible book value per share after offering.... 1.33
-----
Dilution of net tangible book value per share to purchasers in
this offering................................................ $4.67
=====
Dilution per share as a percentage of offering................ 77.8%
</TABLE>
CAPITALIZATION
The following table sets forth the capitalization of Eldorado as of June 30,
1999, and as adjusted, to give effect to the receipt of the net proceeds of
this offering based upon the assumed public offering price of $6.00 per share.
<TABLE>
<CAPTION>
June 30, 1999
---------------------
As
Actual Adjusted
---------- ----------
<S> <C> <C>
Long term debt (including current maturities)......... $1,545,699 $1,545,699
Stockholders' equity
Common stock, $0.001 par value; authorized--
50,000,000 shares; issued and outstanding--
2,995,495 actual;
and 3,695,495 as adjusted.......................... 2,995 3,695
Additional paid-in capital.......................... 984,656 4,498,956
Retained earnings..................................... 424,230 424,230
---------- ----------
Total stockholders' equity.......................... 1,411,881 4,926,881
---------- ----------
Total capitalization................................ $2,957,580 $6,472,580
========== ==========
</TABLE>
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Comparison of Three Months Ended June 30, 1999 and 1998
Revenues: Eldorado's net revenues for the three months ended June 30, 1999
increased $342,089 or 37.5% compared to the same period in 1998. Sales to new
customers accounted for approximately $258,000 or approximately 75.4% of the
increase in revenues. The remainder of the increase in sales is due to the
increase in sales to Eldorado's existing customer base. This increase resulted
from increased sales volumes to Eldorado's existing customer base as well as
from sales to new customers. Five and three gallon product sales generated the
majority of the increase in overall revenues compared to the smaller size
products. Revenues for the five and three gallon products increased 27.4% for
the three month period ending June 30, 1999 versus the same period ending June
30, 1998. Sales of the one gallon products increased 42.4% and sales of the
smaller (1.5 liter and less) PET packages increased by 134.9% for the three
months ended June 30, 1999 compared to the same period ending June 30, 1998.
Gross Profit: For the first three months of fiscal 1999, cost of goods sold
was $211,605 compared to $123,837 for the same period of fiscal 1998. Gross
profit increased 32.2% from $788,855 for the three months ended June 30, 1998
to $1,043,176 for the same period in 1999. The increase in gross profit for the
three months ended June 30, 1999 is the result of increased sales of the 5 and
3 gallon products utilizing more efficient bottling equipment. In addition,
Eldorado has been able to purchase goods in larger volumes and in return has
received better pricing on these goods.
Operating Expenses: Operating expenses for the three months ended June 30,
1999 increased 32.3% to $966,806 from $730,935 for the same period of fiscal
1998. Salaries and related expenses increased 29.4% to $449,365 for the period
ended June 30, 1999 versus $347,276 for the same period of fiscal 1998.
Salaries and related expenses are 36% and 38% of sales for the three months
ended June 30, 1999 and 1998, respectively. Salaries and related expenses have
increased for the three months ended June 30, 1999 due to the increased
revenues and the costs involved in obtaining and servicing new and existing
customers.
General and administrative expenses increased to $196,138 or 15.6% of sales
for the three months ended June 30, 1999 compared to $163,186 or 17.9% of sales
for the same period ending June 30, 1998. General and administrative expenses
increased due to the increased expenses incurred for sales commissions due to
the increase in revenues of 37.5%. Selling and delivery expenses increased to
$243,233 for the three months ended June 30, 1999 versus $156,164 for the same
period of fiscal 1998. As a percent of sales, this represents 19.4% and 17.1%
for the three months ended June 30, 1999 and 1998, respectively.
Depreciation and amortization was $78,070 for the three months ended June
30, 1999 compared to $64,309 for the same period ended June 30, 1998. Eldorado
added additional bottling equipment and improvements to the plant that
increased the amount of depreciation.
Interest Income (Expense): Interest income decreased from $4,574 for the
three months ended June 30, 1998 to $1,697 for the same period ended June 30,
1999. The decrease in interest income for the three months ended June 30, 1999
compared to June 30, 1998 is due to the use of the funds from the private
placement completed in April 1998 that are no longer earning interest.
Net Income: Eldorado's net income for the first three months of fiscal 1999
was $32,766 compared to $17,284 for the three months ended June 30, 1998. This
represents an increase in net income of 89.6% for the three months ended June
30, 1999 due to the previously described operations.
10
<PAGE>
Comparison of Fiscal Years Ended March 31, 1999 and 1998
Revenues: Revenues for the year ended March 31, 1999 increased 21.3% from
the previous year to $4,036,822. This increase resulted from increased sales to
Eldorado's existing customer base as well as from sales to new customers. In
addition, on October 1, 1998, Eldorado increased the selling price of the five
gallon products.
Gross Profit: The costs of goods sold increased 9.1% for the year ended
March 31, 1999 compared to a year earlier. This increase in cost is primarily
due to the overall increase in volume. Cost of goods sold represented 13.6% of
sales for the year ended March 31, 1999 compared to 15.1% of sales for the year
ended March 31, 1998. Eldorado has received more favorable purchasing
agreements because of the ability to buy goods in larger volumes.
Operating Expenses: Operating expenses for the year ended March 31, 1999
increased 22.3%. This overall increase is consistent with the increase in
revenues for the year. Salaries and related expenses increased 17.5% for the
year ended March 31, 1999. This increase is due to the increase in sales for
the year resulting in higher commissions and additional employees.
Administrative and general expenses increased 20.3% for the year ended March
31, 1999 consistent with the increase in revenues. Selling and delivery
expenses increased 45.8% for the year ended March 31, 1999. Much of the
increase in selling and delivery expenses is due to the increased expense for
advertising and promotions. Advertising and promotion expenses increased
approximately 56% for the year ended March 31, 1999. For the year ended March
31, 1999 advertising and promotion expenses were 8.9% of sales compared to 6.9%
of sales for the year ended March 31, 1998. Depreciation and amortization
increased 13.3% for the year ended March 31, 1999. This increase is due to the
purchase of new equipment over the last year.
Interest Income (Expense): Interest income for the year ended March 31, 1999
increased to $16,242 from $3,720 for the previous year ended March 31, 1998.
This increase is primarily due to the interest on the proceeds from the private
placement completed in April 1998. Interest expense increased 3.3% for the year
ended March 31, 1999. The increase in interest expense was due to the purchase
of additional machinery and equipment.
Net Income: For the year ended March 31, 1999, income before taxes increased
85.2% to $217,850. Income taxes for the year were $79,736, resulting in net
income of $138,114. Net income increased 66.0% from the same period a year ago.
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 5 gallon products to existing
customers as well as sales to new customers. Industry averages in the entire
bottled water market were up between 9% and 10% 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 5 gallon product and
the addition of more efficient bottling equipment.
Operating Expenses: For the fiscal year ended March 31, 1998 total operating
expenses were $2,568,571 and for the fiscal year ended March 31, 1997 total
operating expenses were $1,931,736, 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 and selling and delivery expenses in nine months for new
accounts as well as establishing brand name awareness in the highly competitive
bottled water market. Increases in salaries and wages were 32.7% for the year
ended March 31,
11
<PAGE>
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.
Interest Income and Expense: 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. Interest income was not material.
Net Income: Eldorado's net income decreased from $124,152 in fiscal 1997 to
$83,228 in fiscal 1998 due to the previously described operations.
Liquidity and Capital Resources
Eldorado has a bank line of credit of $500,000 which is due November 3,
1999. The interest rate is calculated at prime plus 0.5% which was 8.25% at
March 31, 1999. Interest is payable monthly and the line is collateralized by
substantially all of Eldorado's assets. There was no outstanding balance at
March 31, 1999.
Accounts receivable increased 1.9% for the first three months ended June 30,
1999 compared to the same period ending June 30, 1998. This represents 47 days
sales in receivables for the three months ended June 30, 1999 versus 54 days
sales in receivable for the same period of 1998. Eldorado has implemented new
credit policies as well as increasing efforts to collect from customers in a
more timely manner. Management believes the investment in receivables should be
under 40 days sales outstanding, more in line with industry averages.
On April 22, 1998, Eldorado completed a private placement of 300,000 shares
of common stock at $2.75 per share. Eldorado received proceeds, net of offering
costs, of approximately $690,000 from the private placement. In connection with
the offering, Eldorado issued to Mills Financial Services, Inc. a warrant to
purchase 30,000 shares of common stock at an exercise price of $3.30 per share.
In addition, Eldorado issued a warrant to purchase 250,000 shares to Mills at
an exercise price of $11.00 per share.
Eldorado utilized the proceeds of the offering to replace a five gallon
bottling line to increase capacity from 160 bottles per hour to 600 bottles per
hour. By September 1998, 100% of the bottling equipment was fully utilized. In
addition, Eldorado utilized the proceeds to increase advertising and
promotional activities.
On May 19, 1998, Eldorado registered 875,000 shares of common stock pursuant
to the 1997 stock option plan. The plan provides for the grant of stock options
to employees, directors and consultants. As of June 30, 1999, 504,000 options
were outstanding, of which 153,200 are fully vested. Of the options
outstanding, 348,000 were issued on May 26, 1998 and 150,000 were issued on
December 7, 1998, with an option price of $2.75 per share, and 11,000 were
issued on May 1, 1999, with an option price of $4.25, which represents the fair
market value at the date of grant. Of the remaining 350,800 options, 37,500
vest in fiscal 2000, 71,900 in 2001, 75,100 in 2002, 79,300 in 2003, 45,000 in
2004, 13,000 in 2005, 14,000 in 2006 and 15,000 in 2007. Options will terminate
no later than the expiration of ten years from the date of grant, subject to
earlier termination due to termination of service.
Year 2000 Compliance Issues
The year 2000 issue is the result of computer-controlled systems using two
digits rather than four to define the applicable year. For example, computer
programs that have time-sensitive software may recognize a date ending in 00 as
the year 1900 rather than the year 2000. This could result in system failure of
miscalculations causing disruptions of operations including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.
Currently, our bottling production facilities are not dependent on any
computer systems. Therefore, any potential year 2000 problem that Eldorado
faces will not affect our bottling lines. Any future purchases of equipment
will be analyzed for year 2000 compliance.
12
<PAGE>
In expectation of potential year 2000 problems, Eldorado has begun to
replace and upgrade its management information systems to be year 2000
compliant. We expect to finish this process by the quarter ending September
1999. Eldorado has consultants to coordinate successful system implementation,
including testing of year 2000 related problems. Testing for year 2000
compliance will continue throughout 1999. Eldorado presently believes that with
successful system conversions, the year 2000 issue will not pose significant
operational problems for its systems. However, although Eldorado's new software
is designed to be year 2000 compliant, there can be no assurance that it
contains all necessary data code changes. The reasonably likely worst case
scenario would be that we are unable to complete our planned conversions of our
management information systems in a timely fashion. In such case, year 2000
could have a material impact on our operations by requiring us to convert the
data to a new system that is year 2000 compliant. The time requirements and
cost to do this could be substantial.
Eldorado expects that assessment, remediation and contingency planning
activities for its internal systems will be ongoing through 1999. We currently
expect the total cost for these activities to be about $15,000. This total cost
estimate does not include replacement of internal software and hardware in the
normal course of business. The costs of the project and the date established
for completion of year 2000 modifications are based on managements' best
estimates. These estimates were derived using many assumptions of future
events, including the continued availability of certain resources, third party
modification plans and other factors. However, there can be no guarantee that
these estimates will be achieved, and actual results could differ materially
from those expected. Specific factors that might cause such material
differences include, but are not limited to, the availability and cost of
personnel trained in this area and the ability to locate and correct all
relevant computer codes. Eldorado does not currently have any information that
would lead it to believe that year 2000 issues relating to its internal systems
will have a material adverse impact on Eldorado's financial condition or
overall trends in results of operations.
Eldorado intends to get written verification from its suppliers and major
customers regarding their products' year 2000 compliance by September 1999.
Third party year 2000 compliance is not within Eldorado's control and we have
not yet received compliance information from all of our suppliers. There can be
no assurance that the failure by a supplier to achieve year 2000 compliance
would not adversely affect us. Based on the information we receive from third
party suppliers, we can decide if it will be reliable to continue to do
business with the third party. If we decide the relationship is unsatisfactory
based on our supplier's inability to deal with the year 2000 issues, our
contingency plan would be to have sufficient inventory on hand for a period of
time to allow us to look elsewhere for another supplier. No assurances can be
made that we will be able to find another supplier with similar terms and
pricing.
Recently Issued Accounting Pronouncements
During April 1998, Statement of Position 98-5, "Reporting on the Costs of
Start-Up Activities" was issued. SOP 98-5 requires costs of start-up activities
and organization costs to be expensed as incurred and is effective for
financial statements for fiscal years beginning after December 15, 1998. SOP
98-5 is not expected to have an impact on Eldorado's financial position or
results of operations as Eldorado currently has no such cost capitalized.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (FAS 133). FAS 133 requires all derivatives be
recognized as either assets or liabilities in the statement of financial
position and requires that those assets and liabilities be measured at fair
value. FAS 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. Early application of all provisions of this statement is
permitted but only as of the beginning of any fiscal quarter beginning after
issuance of the statement. FAS 133 is not expected to have an impact on the
Eldorado's financial position or results of operations as Eldorado has not been
involved in derivative activities.
13
<PAGE>
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 are components of
comprehensive income, be reported in a financial statement that is displayed
with the same prominence as other financial statements. Currently, Eldorado'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
Eldorado's 1999 fiscal year end financial statements and, as a reporting
standard, SFAS No. 130 will have no impact on Eldorado'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 decided. Currently, Eldorado only
has one significant operating segment. Therefore, this pronouncement poses no
significant changes in Eldorado's reporting methods.
14
<PAGE>
ELDORADO AND ITS BUSINESS
Eldorado 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 developed
in 1905 as a Colorado resort that attracted famous guests from across the
country.
The artesian springs which are located on Eldorado's property flow from a
unique geologic source. 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 a pure, natural artesian
spring.
In 1983, Messrs. Larson, Sipple and Martin bought the Eldorado Springs
property from the founders of the resort. Eldorado operated as a private
company until 1986 when it merged with Lexington Funding, Inc. Eldorado has
focused on developing and expanding the business of bottling Eldorado Spring
water. Eldorado bottles the water at the source in PET bottles and 3 and 5
gallon bottles. Eldorado has expanded the business by focusing its marketing
efforts on the 5 gallon delivery business. As this business has grown and
gained in profitability, management has had the chance to introduce the PET
bottles to grocery retailers and these products have gained significant market
shares among the large retail grocery chains. Current retail market shares for
Eldorado's PET bottles range from 3% to 29%, depending on the size of the
bottle.
Eldorado has met all FDA requirements for the labeling of its water as
natural and bottled at the source. Bottled at the source signifies that the
water is pumped directly from the source to the bottling facility. This removes
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 filtration.
Eldorado's goal 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;
. establishing distributor relationships;
. establishing strategic distribution alliances with other national
beverage companies.
Industry Overview
The bottled water industry is considered by many analysts to be the fastest
growing major market 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% to 10% for 1997. According to a major reporter of bottled water
statistics, bottled water sales increased to a $3.9 billion dollar business.
Along with sales and volume, per person consumption has increased to nearly 13
gallons, up from 11.7 gallons in 1996. Driving the market's growth is the
premium PET bottle segment which was up 30% in 1997, accounting for two-thirds
of the market's overall growth. 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
bottles sales in 1997 reached $930 million and the segment is expected to
double in 3 years.
15
<PAGE>
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 market volume. Non-sparkling water
gallonage has in fact realized uninterrupted growth every year since statistics
have been kept on the bottled water industry when a major industry analyst
began following this market in 1977.
Strategy
Eldorado's goal is to expand its operations based on the continued success
of its PET bottled water products. Eldorado's plan consists of multiple phases
that ultimately are targeted to expand distribution of Eldorado's retail
products to regional and national markets. Aspects of Eldorado's strategy,
utilizing the proceeds of this offering, include the following:
Our current production uses about 3,200,000 gallons from the springs.
Because we only sell water bottled from our springs, we believe that to
implement our business plan, it is necessary for us to acquire water rights
which will permit us to use substantially more water from our springs.
Therefore, we seek to acquire rights to water which also flows into the same
stream system to which our spring water would flow if not bottled by us. By
acquiring rights to this additional water, we would increase our right to use
our own spring water by close to an equal amount. We have entered into an
agreement that provides us the option to buy water that we believe meets these
quantity and availability requirements. If we decide to complete this purchase,
it will require a cash payment to the seller of $680,000. More detail of this
transaction and our other water rights is discussed in Eldorado and Its
Business--Water Rights, on page 18.
Additional Facilities and Improvements. Eldorado has plans to improve its
production facilities and increase its production capacity to facilitate
expansion into new geographic markets. Over the next two years, plans initially
call for remodeling the warehouse and adding additional office space.
Additional improvements of the area surrounding the warehouse will modernize
the current facilities and services.
Warehouse and Distribution Facility. Eldorado will need additional off-site
warehouse facilities to store raw materials and finished goods awaiting
delivery to the regional warehouses of its customers. Within the next two
years, Eldorado plans to buy or construct a warehouse in the Denver, Colorado
area and relocate the distribution operations to that facility. This would
provide Eldorado 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 PET bottles. This would include
the equipment and the molds for the Eldorado brand. This facility can be
included into the warehouse/distribution facility. This would provide Eldorado
with a more stable supply of the PET bottles and insure availability of the
products in the future.
Marketing Expenses. Eldorado believes that building its brand awareness and
consumer loyalty will allow Eldorado to expand distribution. Utilizing the
proceeds from the offering, Eldorado intends to hire advertising experts and
agencies to establish brand awareness and corporate image through media
campaigns and special events. Proceeds will also be used for slotting fees and
in-store promotions.
Enter New Distribution Channels. Eldorado's chance for growth lies in the
ability of Eldorado to expand into additional distribution channels. This would
involve agreements with distributors in the Colorado area. In addition,
Eldorado may try to acquire other companies currently involved in the 5 gallon
distribution business. This will allow Eldorado to build brand awareness and
consumer loyalty by incorporating current operating procedures and sales
strategies into the acquired companies. Any acquisitions will need additional
debt or equity financing. At this time, Eldorado has no agreements or
understandings to acquire additional companies.
16
<PAGE>
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
increased the demand for this product. The bottled water industry is considered
by many analysts to be the fastest growing major market in the beverage
industry.
The introduction of bottled water in convenience packaging has recently
driven the explosive growth of the retail 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. Manufacturers
have created a new subsegment of the bottled water market that is now growing
at a 30% rate for water in 1.5 liters bottles and smaller.
Consolidation
The bottled water industry as a whole remains highly fragmented with over
780 companies in the industry. Recent consolidation in the industry has 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 than 7.6% of total bottled
water sales. Based on 1997 wholesale figures from a major industry analyst, the
top 10 companies in the industry range in sales from $1,104 million for Perrier
Group to $41 million for AquaPenn which has since been purchased by Dannone.
Products
Historically, sales of Eldorado's water have been made by selling 5 gallon
bottles of water directly to home and business customers. More recently,
Eldorado began selling its water at wholesale to retail grocery food stores
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:
<TABLE>
<CAPTION>
Product Target market
------- -------------
<S> <C>
Five gallon bottles and three gallon bottles Home/commercial delivery
One gallon bottles Retail food stores
PET consumer packaging Retail food stores
</TABLE>
Distribution Channels
Home/Commercial Delivery Business The delivery market, generally consisting
of the delivery of 5 gallon bottles of water to residential and commercial
customers, provided the greatest amount of growth for the industry throughout
the 1970's and the 1980's. 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 5 gallon
containers of water to customers who lease water dispensers from Eldorado.
Eldorado delivers these 5 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 about 10,000 active delivery accounts and
the delivery business currently accounts for about 80% of Eldorado's revenues.
PET Packaging/Retail Distribution Business Sales of bottled water through
retail grocery outlets has become an increasingly important channel of
distribution for bottled water. Historically, retail outlets have sold bottled
water in one and two gallon containers. While the delivery segment of the
bottled water market was the
17
<PAGE>
chief driver of bottled water growth in the 1980's, the 1990's became the
decade of the PET bottles sold at retail. In 1994, Eldorado introduced its
water packaged in convenient consumer-sized or PET bottles. 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 of the
wholesale distribution of PET products to grocery store chains for retail sales
located primarily in 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
Colorado, Eldorado's products are 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 Kroger's, the
largest grocery chain in Colorado, and Rainbow Natural Foods, one of the
largest wholesale food distributors 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.
Eldorado's bottling facilities are located on a portion of about 26 acres of
land owned by Eldorado in Eldorado Springs, Colorado. Eldorado's bottling
process uses several quality control precautions built in to keep product
integrity. The spring water is bacteria free as it emanates from the earth due
to the fact that the water is naturally lightly carbonated. The spring water
originates 70 feet from the bottling plant and travels through an entirely
closed system. 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 treated with ozone for
further protection against bacteria.
The bottling process is conducted in a separate, sanitized fill room, where
the bottles are filled 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 and
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 production efficiencies. Specifically, Eldorado added a new
filler/capper, case packer, bottle rinser, 3 and 5 gallon bottle
stacker/racker, and bottle sorter to its production line. By adding this
equipment, Eldorado expects that it will realize significant labor savings over
its previous production cost structure.
Water Rights
When Eldorado's founders bought the property in 1983, included in the
purchase were certain water rights for Eldorado. These water rights were
decreed by the District Court, Water Division No. 1 in Greeley, Colorado, on
July 11, 1973. In that decree, the court decided that our water rights would
allow us to withdraw water from several points on our property with priority
dates ranging from December 1901 to December 1960. At that time, the court also
decided that all water from the springs and wells on our property was tributary
to the South Boulder Creek stream system. Under Colorado law, we have the right
to beneficially use all the water physically available from the springs and
wells on our property, if all downstream users with priority dates before ours
are being satisfied with water available in the stream system. In the event
these downstream users are not being satisfied with water in the stream system,
we would have to stop using our water and let it flow downstream, or we could
provide replacement water to the stream from an additional source.
18
<PAGE>
We currently lease water, to be used for replacement purposes, from an
organization with other water sources, on an annual basis. That organization
then makes water available to the stream system at various locations on behalf
of their subscribers as may be needed to replace water being used.
To remove this year to year uncertainty, we are taking steps to acquire
ownership of our own source of replacement water. We have signed an agreement
with the owner of a reservoir that gets water from and can return water to the
South Boulder Creek stream system. This agreement would allow us to buy water
from another source and place it into the reservoir by a pipeline. There the
water would be stored in the stream system until needed by downstream users. At
that time the owner of the reservoir would release enough water into the stream
system to replace what we use. It is expected that these releases would be done
at locations on the stream system that would allow for an almost gallon for
gallon exchange. We estimate our costs to include about $20,000 per year for
operation and upkeep charges and a one time fee of about $500,000 for the
operation of the reservoir. Our agreement provides that the $500,000 fee will
be paid with $150,000 down and the balance payable in ten equal annual
installments, including principal and interest at the rate of 9% per year.
Under the terms of the agreement, approval of our inclusion within the
boundaries of the Northern Colorado Water Conservancy District may be required.
It is expected that such approval or denial would be known by December 31,
1999. Our use of this water as a replacement source will also need a decree
from the water court. This process requires that we file a request for such
decree with the court. Other water users then have time for objections. If any
issues or objections remain after negotiations with the objectors, the matter
then proceeds to court where, after trial, a decision is made. It is expected
that this process could take from 12 to 30 months. We expect to file this
request with the water court within ninety days of the determination of our
inclusion in the Northern Colorado Water Conservancy District.
If all district and court decisions are favorable, this new source of water
for stream flow replacements could enable us to bottle up to 32 million gallons
of water per year without the threat of having to stop operations. We currently
bottle about 3,200,000 gallons per year of the spring's annual flow rate of
105,000,000 gallons.
Marketing
Eldorado focuses on three major areas in marketing its products: 3 and 5
gallon sales, small PET package product sales, and brand name recognition.
The 3 and 5 gallon products are sold primarily 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 sold through retail chain stores are effectively
marketed by using point of purchase offers or incentives to gain new trial,
usually in the form of discounts.
Eldorado tries 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, Eldorado Springs Cancer Research Run,
1999 World Alpine Ski Championship and takes part in many other local events.
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. Management has expected these shortages by implementing
plans to inventory sufficient safety stocks and not interrupt production.
19
<PAGE>
Seasonality of Business
Sales tend to be seasonal in the bottled water business. A 10% to 15%
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 companies, having substantially greater
assets and larger sales organizations than Eldorado, as well as other small
companies. Eldorado competes on the basis of customer service, product quality
and price. Management believes that the products' superior taste, competitive
pricing and attractive packaging are significant factors in maintaining
Eldorado's competitive position.
Environment
Eldorado's bottling operations are subject to regulation by the Food and
Drug Administration. These regulations are administered by the Colorado
Department of Public Health and Environment Consumer Protection Division. An
independent, state-approved laboratory conducts weekly product and source
bacteriological tests and annual inspections.
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 needed for this operation and water
is tested by independent labs.
Additionally, Eldorado operates the company's public swimming pool which is
regulated by Colorado. These regulations are administered by the Boulder County
health department and require daily testing by Eldorado and periodic
inspections by the health department.
Other Businesses
Eldorado's principal business is bottling and selling spring water. Eldorado
also owns and operates a swimming pool on its property during the summer
months. This part of the business accounts for about 2 to 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 part of the business accounts
for about 2% of revenues. Neither of these businesses represent a significant
part of Eldorado's results of operations.
Employees
Eldorado employs 47 full-time employees, 2 part-time employees and 14
seasonal employees during the summer resort months.
Properties
Eldorado owns about 26 acres of land in Eldorado Springs, Colorado. In
addition to real property, wells and springs, and water rights, Eldorado owns a
bottling plant, including building and bottling equipment, three buildings with
a total of 2,000 square feet of office space, seven single family homes, a
mobile home park with a maximum of 12 spaces, and an outdoor swimming pool
which are located on the property. Eldorado uses the total production and
warehousing space of about 12,000 square feet. Eldorado also leases 14 delivery
trucks for use in its delivery business. Most of the buildings were built in
the 1950's and improvements have been made over the years to keep the buildings
up to current standards. Eldorado's bottling equipment and vehicles are less
than ten years old and are in good working condition.
20
<PAGE>
MANAGEMENT
The following table includes information about the 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 or
Name Age Position(s) Director
---- --- ----------- ----------
<S> <C> <C> <C>
Douglas A. Larson*...... 44 President and Director 1986 to present
Kevin M. Sipple......... 43 Vice President, Secretary and Director 1986 to present
Jeremy S. Martin........ 44 Vice President and Director 1986 to present
Robert E. Weidler....... 53 Vice President 1998 to present
Cathleen M. Collins..... 30 Chief Financial Officer 1998 to present
George J. Schmitt*...... 67 Director 1998 to present
Don P. Van Winkle*...... 42 Director 1998 to present
</TABLE>
- --------
* Audit Committee Member.
Douglas A. Larson was a co-founder of Eldorado and has been President of
Eldorado since 1991. Mr. Larson's responsibilities include corporate strategy
and administration of all operating activities at Eldorado. Before his
association with Eldorado, Mr. Larson worked as a stockbroker 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 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. Before his
association with Eldorado, Mr. Sipple worked for 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 and has served as Vice
President since 1985. Mr. Martin's responsibilities include management of the 5
gallon sales and service business. In addition, he is also responsible for
special event promotions and public relations. Before 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 and 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 Eldorado 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 Eldorado since December 1998. From
1968 to 1996, Mr. Schmitt was CEO and President of Hinckley & Schmitt Bottled
Water Group. 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
holds a Bachelor of Arts degree from Dartmouth.
21
<PAGE>
Don P. Van Winkle has been a director of Eldorado since December 1998. From
1996 to 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 companies including Eldorado.
From 1980 to 1991, 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 in Denver, Colorado and Fresh Produce Sportswear, Inc. in Boulder,
Colorado. He holds a Bachelor of Science Degree in Finance from New Mexico
State University.
Committee of the Board of Directors
The board of directors has elected Messrs. Larson, Schmidt and Van Winkle as
the audit committee which will serve until the next annual meeting. Among other
functions, the audit committee will make recommendations to the board of
directors regarding the selection of independent auditors. The committee will
also review the results and scope of the audit and other services provided by
Eldorado's independent auditors. In addition, the committee will review
Eldorado's financial statements and review and evaluate Eldorado's internal
control functions.
Compensation of Outside Directors
Each outside director receives compensation totaling $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 totaling
$500 for each committee meeting he attends in person or by electronic means. On
December 7, 1998, Eldorado granted a total of 150,000 ten-year options to its
outside directors which are exercisable at $2.75 per share. Assuming the
outside directors remain directors of Eldorado, the options vest at the rate of
25% each year beginning one year after the date of grant.
In addition, if Eldorado engages an outside director as an independent
consultant, for such duties and responsibilities as the president determines,
the outside director will be compensated at the rate of $150 per hour, plus
nominal travel expenses as agreed upon if needed.
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, 1997, 1998 and 1999 No
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
--------------------------- ---- ------ ----- ------------
<S> <C> <C> <C> <C>
Douglas A. Larson, President................. 1999 $77,759 -- $13,107
1998 66,832 -- 9,848
1997 71,524 -- 4,690
</TABLE>
Other annual compensation in the table above includes, for the fiscal year
ended March 31, 1999, $5,616 for annual health care premiums, $2,333 for a 3%
match for all contributions to the 401(k) plan and $5,158 for a car allowance.
In 1992, Eldorado went through a restructuring of debt. The lender offering
the debt would not assume all corporate debt outstanding. To finish the
restructuring, a part of Eldorado's debt was replaced by Mr. Larson, who
assumed this obligation personally and his salary was increased from 1992-1997
to cover the cost of the note.
22
<PAGE>
Stock Option Plan
On September 10, 1997, Eldorado adopted a stock option plan which set aside
875,000 shares for the grant of stock options. Of this amount, no more than
300,000 non-statutory options may be granted in the one year after the
completion of this offering. The remaining 575,000 options will be granted as
incentive stock options issued at 100% of fair market value on the date of
grant. There is no limit on the number of incentive stock options that may be
granted during the one year after the completion of this offering. The stock
option plan is administered by the board of directors.
All officers, employees and directors of Eldorado and any subsidiaries are
eligible to receive options under the stock option plan. The stock option plan
will terminate by its terms on September 10, 2007, and 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 stock option plan expire, terminate or are canceled for any
reason without having been exercised in full, shares reserved for those options
will again be available for the purposes of the stock option plan. The purchase
price of the common stock under each option will 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, or a
combination of cash and shares.
Options will be exercisable immediately, after a period of time or in
installments at the discretion of the board of directors. Options will
terminate no later than the expiration of ten years from the date of grant, or
will terminate due to the end of service. Where termination of service is due
to retirement or death, options may be exercised for an additional period of
time following such termination of service. Otherwise, the option may be
exercised only while the employee remains in the employ of Eldorado or one of
its subsidiaries.
As of June 30, 1999, 504,000 options were outstanding, of which 153,200 are
fully vested. Of the options outstanding, 343,000 were issued on May 26, 1998
and 150,000 were issued on December 7, 1998, with an option price of $2.75 per
share, and 11,000 were issued on May 1, 1999, with an option price of $4.25 per
share, which represents the fair market value at the date of the grant as
determined by the board of directors. Of the remaining 350,800 shares, 37,500
vest in fiscal 2000, 71,900 in 2001, 75,100 in 2002, 79,300 in 2003, 45,000 in
2004, 13,000 in 2005, 14,000 in 2006 and 15,000 in 2007. Options will terminate
no later than the expiration of ten years from the date of grant, subject to
earlier termination due to termination of service. Eldorado will not grant
options in excess of 15% of its outstanding shares for the one year period
after the closing of this offering.
Profit Sharing Plan
Eldorado has adopted a 401(k) profit sharing plan for its employees.
Employees become eligible to participate in the plan once they have completed
one year of service and have reached 21 years of age. Contributions by Eldorado
and the employees vest immediately. Eldorado matches 100% of employee
contributions, up to 3% of employee gross pay. Eldorado matched approximately
$24,000 during the year ended March 31, 1999 and $13,000 during the year ended
March 31, 1998. No profit sharing contributions were approved by the board of
directors for the years ended March 31, 1999 and 1998.
23
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to Eldorado
regarding the beneficial ownership of Eldorado's common stock at the date of
this prospectus and adjusted to reflect the sale of the common stock offered
in this prospectus. The table includes:
.each person known by Eldorado to beneficially own more than 5% of
Eldorado's common stock;
.Eldorado's directors; and
.the officers and directors of Eldorado as a group.
<TABLE>
<CAPTION>
Percent Owned
---------------------------
Number Before After
Name and Address of Beneficial Owners of Shares Offering Offering
------------------------------------- --------- -------- --------
<S> <C> <C> <C>
Kevin M. Sipple ............................... 763,674 25.4% 20.6%
43 Fowler Lane
Eldorado Springs, CO 80025
Douglas A. Larson ............................. 775,073 25.9% 21.0%
12 Baldwin Circle
Eldorado Springs, CO 80025
Jeremy S. Martin............................... 771,060 25.7% 20.9%
2707--4th Street
Boulder, CO 80302
George J. Schmitt.............................. 0 -- --
11 Castle Pines North
Castle Rock, CO 80104
Don P. Van Winkle.............................. 0 -- --
1600 Indian Wells
Alamogordo, NM 88310
All Officers and Directors as a Group, 7
persons....................................... 2,401,807 80.2% 65.0%
</TABLE>
- --------
Mr. Larsons's shares include options to buy 9,200 shares held by his
spouse. The shares owned by all officers and directors as a group include
options to buy 46,000 shares each, held by Ms. Collins and Mr. Weidler.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the three years ended March 31, 1999, there were no transactions in
which the amount involved exceeded $60,000 between Eldorado and any director,
executive officer, any security holder known to own more than 5% of Eldorado's
stock, or any immediate family member of any of the foregoing persons.
All future material affiliated transactions and loans, and any forgiveness
of loans, must be made or entered into on terms that are no less favorable to
Eldorado than those that can be obtained from unaffiliated third parties. All
future material affiliated transactions and loans, and any forgiveness of
loans, must be approved by a majority of Eldorado's independent directors who
do not have an interest in the transactions and who had access, at Eldorado's
expense, to Eldorado's or independent legal counsel.
LEGAL PROCEEDINGS
Eldorado is not involved in any material legal proceedings.
24
<PAGE>
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.
Historical Stock Issuances
The founders of Eldorado operated the company as a private company from
April 1983 until April 1987 when it was merged into Lexington Funding, Inc.
Lexington Funding, Inc. 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. Before
April 1987, the primary activity of Lexington Funding, Inc. was directed to
organizational efforts and getting initial financing. Lexington Funding, Inc.
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.
Lexington Funding, Inc. acquired all the shares of Eldorado through a stock
exchange. According to the merger of Eldorado and Lexington, Eldorado
shareholders received an aggregate of 2,340,000 shares of Lexington Funding,
Inc.'s common stock, representing 90% of the outstanding shares of Lexington
Funding, Inc. after the acquisition. The number of shares of stock exchanged in
the acquisition was determined through arms-length negotiations. In June 1988,
Lexington changed its name to Eldorado Artesian Springs, Inc.
1998 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. Gross proceeds from the private placement were
$825,000. Of the net proceeds of $690,000, $662,000 was applied to:
.purchase of machinery and equipment--$250,000;
.PET distribution expenses--$150,000;
.working capital--$112,000; and
.an escrow for public offering expenses--$150,000.
25
<PAGE>
DESCRIPTION OF SECURITIES
General
Eldorado is authorized to issue 50,000,000 shares of common stock, $0.001
par value. As of the date of this prospectus and before the closing 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, if they vote the same, 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 expected 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, stockholders are
entitled to receive pro rata all the assets of Eldorado available for
distribution to stockholders. Stockholders of Eldorado do not have preemptive
rights or other rights to subscribe for or buy any stock, options, warrants or
other securities offered by Eldorado.
Warrants
1998 Warrants
In connection with the 1998 private placement, Eldorado issued to Mills
Financial Services, Inc., for a price of $100.00, a warrant to buy 250,000
shares of common stock at an exercise price of $11.00 per share. The warrant
will be exercisable at any time after October 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. It also provides for additional rights to
register the underlying shares on registration statements filed by Eldorado.
In connection with the 1998 private placement, Eldorado issued to Mills
Financial Services, Inc. for a price of $100, a warrant to buy 30,000 shares of
common stock at an exercise price of $3.30 per share. The warrant will be
exercisable at any time after October 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. It also provides for additional rights to
register the underlying shares on registration statements filed by Eldorado.
Representative's warrant
Eldorado has agreed to issue, for $700, a warrant entitling the underwriter
to buy shares of Eldorado's common stock in an amount equal to 10% of the
shares sold in this offering, not including any shares sold according to the
over-allotment option. The warrant is exercisable at 165% of the public
offering price, in whole or in part, between the first and fifth anniversary
dates of the effective date of this offering. The warrant exercise price is
subject to customary anti-dilution provisions. 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 registration statement covering all or
any part of the securities. In addition, for a period of five years after the
effective date of the registration statement relating to this offering, the
holders of these securities have unlimited registration rights to include their
shares in an offering by Eldorado.
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.
26
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, Eldorado will have 3,695,495 shares of
common stock outstanding or 3,800,495, if the over-allotment option is
exercised in full. Of these shares, 988,091 will be freely tradeable without
restriction or registration under the Securities Act of 1933, as amended,
unless held by affiliates of Eldorado. If the over-allotment is exercised,
1,093,091 shares will be freely tradeable. All the remaining 2,707,404 shares
will be restricted securities as that term is defined in Rule 144 published
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 published thereunder.
In general, under Rule 144 a person who has beneficially owned his shares
for one year, may sell in the open market within any three-month period a
limited number of shares. The shares sold may not exceed the greater of 1% of
the outstanding shares of Eldorado's common stock, or the average weekly
trading volume in the common stock during the four calendar weeks before such
sale. One percent of the outstanding shares will be about 36,955 shares or
38,005 shares if the over-allotment option is exercised in full. 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 who is considered not to be an affiliate of Eldorado and who has
beneficially owned his shares for at least two years, may sell such shares in
the public market under Rule 144(k). Rule 144(k) provides that shares may be
sold without regard to the volume limitations or certain other restrictions of
Rule 144. 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. Officers and
directors of the Company holding options which are exercisable right now,
entered into agreements not to sell any shares for a period of six months
following the date of this prospectus. Shares may be sold according to
privately negotiated transactions or by the 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 years before 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 now eligible for
sale under Rule 144(e)(2) subject to certain volume restrictions. 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 504,000 are outstanding. Of the 504,000 options outstanding, 52,000
options are immediately exercisable and saleable and 101,200 shares are
restricted for sale for six months after the completion of this offering.
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.
27
<PAGE>
UNDERWRITING
Subject to the terms and conditions contained in an underwriting agreement,
the underwriters named below, through their representative Mills Financial
Services, Inc., have each agreed to buy from Eldorado the number of shares of
common stock shown opposite their names below:
<TABLE>
<CAPTION>
Number
of
Underwriters Shares
------------ --------
<S> <C>
Mills Financial Services, Inc. .....................................
--------
Total ............................................................
--------
</TABLE>
The underwriting agreement provides that the duty of the underwriters to buy
the shares included in this offering are subject to approval of certain legal
matters by counsel and to certain other conditions, including the accuracy of
the representations and warranties of Eldorado contained in the Underwriting
Agreement, no change in financial condition or business prospects of Eldorado
from that set forth in this Prospectus, qualification of the shares on the
NASDAQ Small Cap Market and the receipt of certain lockup agreements from the
officers and directors of Eldorado. The underwriters are obligated to buy all
the shares, except those covered by the over-allotment option described below,
if they buy any of the shares.
The underwriters propose to offer some of the shares to the public, at the
public offering price shown on the cover page of this prospectus, and some of
the shares to certain dealers at the public offering price less a concession of
not more than $0.35 per share. After the initial public offering, the offering
price and other selling terms may be changed by Mills Financial Services, Inc.,
the representative of the underwriters.
Eldorado has granted to the underwriters an over-allotment option,
exercisable not later than 30 days after the date of this prospectus, to buy up
to 105,000 additional shares at the public offering price less the underwriting
discount. The underwriters may exercise this over-allotment option solely for
the purpose of covering over-allotments, if any, in connection with this
offering. To the extent the over-allotment option is exercised, each
underwriter will be obligated, subject to certain conditions, to buy a number
of additional shares approximately proportionate to such underwriter's initial
purchase commitment.
The following table shows the underwriting discount to be paid to the
underwriters by Eldorado in connection with this offering. These amounts are
shown assuming both no exercise and full exercise of the underwriters' over-
allotment option to buy additional shares to cover over-allotments.
<TABLE>
<CAPTION>
No Full
Exercise Exercise
-------- --------
<S> <C> <C>
Per share.................................................. $ 0.60 $ 0.60
Total...................................................... $420,000 $483,000
</TABLE>
Eldorado has agreed to pay to Mills Financial Services, Inc., a non-
accountable expense allowance of 3% of the gross proceeds received by Eldorado
from the sale of the shares. A total of $90,000 has been paid as of the date of
this prospectus. If the underwriter does not complete this offering, it is
required to repay Eldorado all funds advanced, except for out-of-pocket
expenses actually incurred for the offering and accounting for by the
underwriter. The following table shows the amount of the non-accountable
expense allowance to be paid, assuming both no exercise and full exercise of
the underwriters' over-allotment option to buy additional shares to cover over-
allotments.
<TABLE>
<CAPTION>
No Full
Exercise Exercise
-------- --------
<S> <C> <C>
Total allowance............................................ $126,000 $144,900
</TABLE>
28
<PAGE>
At the closing of this offering, and subject to the terms and conditions of
the underwriting agreement, Eldorado has agreed to sell to Mills Financial
Services, Inc. for $700, a representative's warrant. The warrant grants to
Mills Financial Services, Inc. the right to buy up to 70,000 shares at a price
equal to 165% of the public offering price. The representatives's 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
representative's warrant will be restricted from sale, transfer, assignment or
hypothecation, except to officers of Mills Financial Services, Inc., other
underwriters or their officers. The representative's warrant will also contain
anti-dilution provisions providing for appropriate adjustment of the exercise
price and number of shares which may be bought upon exercise upon the
occurrence of certain events. The representative's warrant also provides for a
one-time right to require Eldorado, at its expense, to register with the SEC
the shares bought upon exercise of the representative's warrant. Also the
representative's warrant provides the right to request that the shares bought
upon exercise of the representative's warrant be included in certain
registration statements, if any, filed by Eldorado with the SEC to register
other shares. Each of these registration rights will be exercisable during the
four-year period beginning one year from the date of this prospectus and
terminating five years from the date of this prospectus.
Eldorado has also agreed that Mills Financial Services, Inc. will have a
right of first refusal for three years from the date of this prospectus. Mills
Financial Services, Inc. will have the right to manage, underwrite or buy any
securities sold by Eldorado or, subject to certain exceptions, sold by 10%
shareholders of Eldorado. Eldorado may cancel this right of first refusal upon
the payment of $21,500 to Mills Financial Services, Inc.
Eldorado has agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
Eldorado's officers and directors have agreed that, for a period of 180 days
from the date of this prospectus, they will not sell or otherwise dispose of
their shares of common stock of Eldorado. Mills Financial Services, Inc., in
its sole discretion, may release any of the common stock subject to these lock-
up agreements at any time without notice.
Mills Financial Services, Inc., has advised Eldorado that the underwriters
do not intend to confirm sales to any account over which they exercise
discretionary authority.
In April 1998, Mills Financial Services, Inc. acted as placement agent in
the sale, by Eldorado, of 300,000 shares of common stock at $2.75 per share. As
compensation for its service as placement agent, Mills Financial Services, Inc.
received $82,500 in commissions and a non-accountable expense allowance of
$24,750. In addition, Mills Financial Services, Inc. received a warrant to buy
30,000 shares of Eldorado common stock at $3.30 per share, subject to
adjustment under certain circumstances. In addition, on April 22, 1998, Mills
Financial Services, Inc. bought from Eldorado, for $100, a warrant to buy
250,000 shares of common stock at $11.00 per share, subject to adjustment under
certain circumstances. These warrants were assigned to a third party. The
warrants are exercisable from April 22, 2000 through April 21, 2003, and
contain certain rights of registration. Also, on April 22, 1998, in connection
with a consulting agreement with Eldorado dated September 10, 1997, Mills
Financial Services, Inc. received $25,000 in compensation for providing
investment banking services to Eldorado.
Before this offering, there has been only a sporadic public market for
Eldorado's common stock. Consequently, the public offering price was decided by
negotiation between Eldorado and Mills Financial Services, Inc. Among the
factors considered in determining the public offering price were:
.prevailing market conditions;
.Eldorado's results of operations in recent periods;
.the present stage of Eldorado's development;
.estimates of Eldorado's business potential; and
.the current condition of the bottled water industry.
29
<PAGE>
In connection with this offering, certain underwriters, but not Mills
Financial Services, Inc., 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. Rule
104 provides that such persons may bid for or buy 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 buy 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 Mills
Financial Services, Inc. In addition, Mills Financial Services, Inc., on behalf
of the underwriters, may impose penalty bids under contractual arrangements
with the other underwriters. Under these arrangements, Mills Financial
Services, Inc. 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
bought for the account of the underwriters in the open market. Any of the
transactions described in this paragraph and the preceding 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 are needed, and, if they are undertaken, may be discontinued
at any time.
The expenses of the offering, other than underwriting discounts and non-
accountable expense allowance, are shown below:
<TABLE>
<S> <C>
SEC Registration Fee............................................... $ 1,342
NASD Filing Fee.................................................... 983
Nasdaq Small-Cap Listing Fee....................................... 10,000
Accounting Fees and Expenses*...................................... 25,000
Printing and Engraving*............................................ 35,000
Legal Fees and Expenses*........................................... 50,000
Blue Sky Fees and Expenses*........................................ 15,000
Transfer Agent and Registrar Fees*................................. 1,000
Other Expenses*.................................................... 675
--------
Total............................................................ $139,000
</TABLE>
- --------
*Estimated
Mills Financial Services, Inc. has previously taken part as lead underwriter
in one initial public offering on a firm commitment basis. This initial public
offering was finished in May 1998. Accordingly, Mills Financial Services, Inc.
has limited experience as manager or underwriter of public offerings of
securities. In addition, Mills Financial Services, Inc. is a small firm and
does not intend to take part as a market maker in the shares. No assurance can
be given that any broker-dealer will become or continue to be a market maker in
the stock.
30
<PAGE>
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 Eldorado
according to its bylaws, or otherwise, Eldorado has been advised that, in the
opinion of the SEC such indemnification is against public policy as expressed
in the Securities Act and therefore, is unenforceable. If a claim for
indemnification against such liabilities (other than the payment by Eldorado of
expenses incurred or paid by a director, officer or controlling person of
Eldorado 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, Eldorado 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 in this prospectus, will be handled for
Eldorado by Chrisman, Bynum & Johnson, P.C.
EXPERTS
The financial statements of Eldorado as of March 31, 1999 and the years
ended March 31, 1999 and 1998 have been included in reliance upon the report of
Ehrhardt Keefe Steiner & Hottman, P.C., independent certified public
accountants, as given upon the authority of said firm as experts in accounting
and auditing. With respect to the unaudited interim financial information for
the three months ended June 30, 1999 and 1998, 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.
31
<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-7
</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, 1999, and the related statements of operations,
stockholders' equity and cash flows for the years ended March 31, 1999 and
1998. 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, 1999, and the results of its operations and its cash flows
for the years ended March 31, 1999 and 1998 in conformity with generally
accepted accounting principles.
Ehrhardt Keefe Steiner & Hottman PC
May 5, 1999
Denver, Colorado
F-2
<PAGE>
ELDORADO ARTESIAN SPRINGS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, June 30,
1999 1999
---------- -----------
(Unaudited)
<S> <C> <C>
ASSETS (Notes 3 and 4)
----------------------
Current assets
Cash.................................................. $ 361,439 $ 354,035
Accounts receivable (Note 2)
Trade--net.......................................... 615,969 627,963
Other............................................... 16,326 14,279
Inventories........................................... 205,264 184,085
Prepaid expenses and other............................ 33,106 26,871
Deferred income taxes (Note 5)........................ 18,169 18,169
---------- ----------
Total current assets.............................. 1,250,273 1,225,402
---------- ----------
Property, plant and equipment--net (Note 2)............. 1,773,327 1,744,036
---------- ----------
Other assets
Water rights--net (Note 2)............................ 110,130 109,008
Deferred offering costs............................... 199,327 201,506
Other--net (Note 2)................................... 53,317 78,552
---------- ----------
Total other assets................................ 362,774 389,066
---------- ----------
$3,386,374 $3,358,504
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities
Accounts payable...................................... $ 152,557 $ 122,477
Accrued expenses (Note 2)............................. 134,005 144,114
Deposits.............................................. 74,757 73,114
Current maturities of long-term debt (Note 3)......... 167,385 188,188
---------- ----------
Total current liabilities......................... 528,704 527,893
Long-term liabilities
Long-term debt (Note 3)............................... 1,417,336 1,357,511
Deferred income taxes (Note 5)........................ 61,219 61,219
---------- ----------
Total liabilities................................. 2,007,259 1,946,623
---------- ----------
Commitments (Notes 3, 4 and 6)
Stockholders' equity (Note 7)
Common stock, par value $.001 per share; 50,000,000
shares authorized; 2,995,495 issued and outstanding.. 2,995 2,995
Additional paid-in capital............................ 984,656 984,656
Retained earnings..................................... 391,464 424,230
---------- ----------
1,379,115 1,411,881
---------- ----------
$3,386,374 $3,358,504
========== ==========
</TABLE>
See notes to financial statements.
F-3
<PAGE>
ELDORADO ARTESIAN SPRINGS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Three Months
Years Ended March 31, Ended June 30,
---------------------- ---------------------
1999 1998 1999 1998
---------- ---------- ---------- ---------
(Unaudited)
<S> <C> <C> <C> <C>
Revenue
Water and related............ $3,888,443 $3,211,807 $1,223,622 $ 878,463
Rentals...................... 48,944 49,288 12,900 10,900
Pool......................... 99,435 68,349 18,259 23,329
---------- ---------- ---------- ---------
Net revenue.................. 4,036,822 3,329,444 1,254,781 912,692
Cost of goods sold exclusive of
depreciation and amortization 546,900 501,288 211,605 123,837
---------- ---------- ---------- ---------
Gross profit................... 3,489,922 2,828,156 1,043,176 788,855
---------- ---------- ---------- ---------
Operating expenses
Salaries and related......... 1,539,275 1,310,303 449,365 347,276
Administrative and general... 670,854 557,892 196,138 163,186
Selling and delivery......... 615,853 422,462 243,233 156,164
Depreciation and
amortization................ 314,800 277,914 78,070 64,309
---------- ---------- ---------- ---------
3,140,782 2,568,571 966,806 730,935
---------- ---------- ---------- ---------
Operating income............... 349,140 259,585 76,370 57,920
---------- ---------- ---------- ---------
Other income (expense)
Interest income.............. 16,242 3,720 1,697 4,574
Interest expense............. (147,532) (142,803) (26,871) (38,066)
Loss on sale of assets....... -- (2,871) -- --
---------- ---------- ---------- ---------
(131,290) (141,954) (25,174) (33,492)
---------- ---------- ---------- ---------
Income before income taxes..... 217,850 117,631 51,196 24,428
---------- ---------- ---------- ---------
Provision for income taxes
(Note 5)...................... 79,736 34,403 18,430 7,144
---------- ---------- ---------- ---------
Net income..................... $ 138,114 $ 83,228 $ 32,766 $ 17,284
========== ========== ========== =========
Basic earnings per share....... $ 0.05 $ 0.03 $ 0.01 $ 0.01
========== ========== ========== =========
Weighted average number of
shares
outstanding................... 2,995,495 2,695,495 2,995,495 2,923,756
========== ========== ========== =========
</TABLE>
See notes to financial statements.
F-4
<PAGE>
ELDORADO ARTESIAN SPRINGS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
Year Ended March 31, 1999 and the Three Months Ended June 30, 1999
<TABLE>
<CAPTION>
Common Stock Additional
---------------- Paid-in Retained
Shares Amount Capital Earnings Total
--------- ------ ---------- -------- ----------
<S> <C> <C> <C> <C> <C>
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 year....... -- -- -- 138,114 138,114
--------- ------ -------- -------- ----------
Balance--March 31, 1999....... 2,995,495 2,995 984,656 391,464 1,379,115
Net income for the period
April 1, 1999 to June 30,
1999 (unaudited)............. -- -- -- 32,766 32,766
--------- ------ -------- -------- ----------
Balance--June 30, 1999
(unaudited).................. 2,995,495 $2,995 $984,656 $424,230 $1,411,881
========= ====== ======== ======== ==========
</TABLE>
See notes to financial statements.
F-5
<PAGE>
ELDORADO ARTESIAN SPRINGS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Three
Months Ended
Years Ended March 31, June 30,
---------------------- -------------------
1999 1998 1999 1998
--------- ----------- -------- ---------
(Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating
activities
Net income....................... $ 138,114 $ 83,228 $ 32,766 $ 17,284
--------- ----------- -------- ---------
Adjustments to reconcile net
income to net cash provided by
operating activities--
Depreciation and amortization... 314,800 277,914 78,070 64,309
Loss on sale of asset........... -- 2,871 -- --
Deferred income taxes........... 6,958 14,720 -- --
Changes in certain assets and
liabilities--
Accounts receivable............ (128,469) (221,480) (9,947) (21,037)
Inventories.................... (82,563) (30,153) 21,179 13,973
Prepaid expenses and other..... 15,207 (37,420) 6,235 40,000
Accounts payable............... 22,810 31,944 (30,080) 40,278
Accrued expenses............... 54,875 (10,765) 10,109 18,519
Deposits....................... 25,579 15,620 (1,643) (2,176)
Other.......................... -- -- (17,400) --
--------- ----------- -------- ---------
229,197 43,251 56,523 153,866
--------- ----------- -------- ---------
Net cash provided by operating
activities................... 367,311 126,479 89,289 171,150
--------- ----------- -------- ---------
Cash flows from investing
activities
Purchase of property, plant and
equipment....................... (388,161) (535,578) (46,206) (300,629)
Proceeds from sale of asset...... -- 2,750 -- --
Purchase of other assets......... (4,221) -- (9,286) --
--------- ----------- -------- ---------
Net cash flows used in
investing activities......... (392,382) (532,828) (55,492) (300,629)
--------- ----------- -------- ---------
Cash flows from financing
activities
Net (payments) proceeds from
line-of-credit.................. (40,000) 40,000 -- (40,000)
Additions to long-term debt...... -- 1,500,000 -- 41,050
Payments on long-term debt....... (134,410) (1,288,474) (39,022) (61,086)
Loan fees and origination cost... -- (19,776) -- --
Proceeds from sale of common
stock........................... 825,000 -- -- 825,000
Costs related to issuance of
common stock.................... (134,919) -- -- (134,919)
Deferred offering cost........... (199,327) -- (2,179) --
Restricted cash.................. -- -- -- (150,000)
--------- ----------- -------- ---------
Net cash flows provided by
(used in) financing
activities 316,344 231,750 (41,201) 480,045
--------- ----------- -------- ---------
Net increase (decrease ) in
cash............................ 291,273 (174,599) (7,404) 350,566
Cash--beginning of period........ 70,166 244,765 361,439 70,166
--------- ----------- -------- ---------
Cash--end of period.............. $ 361,439 $ 70,166 $354,035 $ 420,732
========= =========== ======== =========
</TABLE>
Supplemental disclosures of cash flow information:
Cash paid during the year for interest was $147,532 and $142,803 (March 31,
1999 and 1998, respectively) and $26,871 and $38,066 (June 30, 1999 and
1998, respectively).
Cash paid during the year for income taxes was $34,426 and $33,844 (March
31, 1999 and 1998, respectively) and $0 and $14,011 (June 30, 1999 and
1998 respectively).
Supplemental disclosure of noncash investing activity:
During the years ended March 31, 1999 and 1998, equipment was acquired
through a capital lease for $164,306 and $41,050, respectively.
See notes to financial statements.
F-6
<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, 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
June 30, 1999 and the results of its operations and changes in cash flows for
the three months ended June 30, 1999 and 1998. The results of operations for
the three months ended June 30, 1999 are not necessarily indicative of the
results to be expected for the full year.
Cash
The Company places its cash with high credit quality financial institutions.
On occasion, the amount in the bank may exceed the Federal Deposit Insurance
Corporation's (FDIC) insurance limit.
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, 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
As of June 30, 1999, the Company was attempting to complete a secondary
public offering. Expenses related to this offering have been accounted for as
deferred offering costs. If the offering is successful, such costs will be
charged against the gross proceeds received. If at any time it becomes probable
that the offering will not be consummated or after an unreasonable
postponement, such costs will be expensed.
F-7
<PAGE>
ELDORADO ARTESIAN SPRINGS, INC.
NOTES TO FINANCIAL STATEMENTS--(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.
Stock Based Compensation
The Company has adopted SFAS 123 "Accounting for Stock-Based Compensation"
(SFAS 123), which requires disclosure of the fair value and other
characteristics of stock options (Note 7). The Company has chosen under the
provisions of SFAS 123 to continue using the intrinsic-value method of
accounting for employee stock-based compensation in accordance with Accounting
Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees" (APB
25).
Basic Earnings Per Share
During the year ended March 31, 1999, 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, 1998 and three months ended
June 30, 1998, have been reclassified to conform with the 1999 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, 1999 and June 30, 1999 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-8
<PAGE>
ELDORADO ARTESIAN SPRINGS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Note 2--Selected Balance Sheet Information
<TABLE>
<CAPTION>
March 31, June 30,
1999 1999
----------- -----------
(Unaudited)
<S> <C> <C>
Accounts receivable
Trade............................................... $ 645,969 $ 657,963
Less allowance for doubtful accounts................ (30,000) (30,000)
----------- -----------
$ 615,969 $ 627,963
=========== ===========
Property, plant and equipment
Land................................................ $ 225,194 $ 225,194
Buildings and improvements.......................... 1,166,289 1,179,684
Machinery and equipment............................. 2,128,575 2,150,800
Vehicles............................................ 19,831 19,831
Office furniture and fixtures....................... 150,061 160,647
----------- -----------
3,689,950 3,736,156
Less accumulated depreciation....................... (1,916,623) (1,992,120)
----------- -----------
$ 1,773,327 $ 1,744,036
=========== ===========
Other assets
Water rights........................................ $ 179,500 $ 179,500
Less accumulated amortization....................... (69,370) (70,492)
----------- -----------
$ 110,130 $ 109,008
=========== ===========
Customer lists, loan fees and other................. $ 70,892 $ 80,177
Deposits............................................ -- 17,400
Less accumulated amortization....................... (17,575) (19,025)
----------- -----------
$ 53,317 $ 78,552
=========== ===========
Accrued expenses
Property taxes...................................... $ 17,194 $ 8,215
Sales tax........................................... 12,217 13,051
Income taxes........................................ 54,946 29,589
Payroll and payroll taxes........................... 49,648 93,259
----------- -----------
$ 134,005 $ 144,114
=========== ===========
</TABLE>
Note 3--Long-Term Debt
Notes Payable to Bank
<TABLE>
<CAPTION>
March 31, June 30,
1999 1999
---------- -----------
(Unaudited)
<S> <C> <C>
Note payable to bank due June 20, 2012, interest at bank
prime plus .5% (8.25% at March 31, 1999 and June 30,
1999). 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.................... $1,126,050 $1,111,497
Note payable to bank due June 20, 2002, interest at bank
prime plus 1.25% (9% at March 31, 1999 and June 30,
1999). 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.................... 211,208 197,227
</TABLE>
F-9
<PAGE>
ELDORADO ARTESIAN SPRINGS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
March 31, June 30,
1999 1999
---------- ----------
<S> <C> <C>
Capital Leases
Capital lease for equipment. Monthly minimum lease
payments of $3,159, due April 1, 2002............... 102,633 94,824
Capital lease for equipment. Monthly minimum lease
payments of $3,274, due April 25, 2001.............. 144,830 142,152
---------- ----------
$1,584,721 $1,545,700
========== ==========
</TABLE>
The cost of equipment under capital lease at March 31, 1999 and June 30,
1999 was $307,612 with accumulated depreciation of $24,180 and $30,225,
respectively.
Future maturities of long-term debt:
<TABLE>
<CAPTION>
Notes Capital
Year Ending March 31, Payable Leases Total
--------------------- ---------- -------- ----------
<S> <C> <C> <C>
2000 $ 105,928 $100,339 $ 206,267
2001 116,341 100,339 216,680
2002 127,778 81,270 209,048
2003 80,564 15,286 95,850
2004 68,289 -- 68,289
Thereafter............................... 838,358 -- 838,358
---------- -------- ----------
1,337,258 297,234 1,634,492
Less amount representing interest -- (49,771) (49,771)
---------- -------- ----------
Total principal.......................... 1,337,258 247,463 1,584,721
Less current portion..................... (105,928) (61,457) (167,385)
---------- -------- ----------
$1,231,330 $186,006 $1,417,336
========== ======== ==========
</TABLE>
Note 4--Line-of-Credit
The Company entered into an agreement with a bank for a line-of-credit of
$500,000 due November 3, 1999. The interest rate is calculated at prime plus
0.5% which was 8.25% at March 31, 1999. Interest is payable monthly and the
line is collateralized by substantially all of the assets of the Company. There
was no outstanding balance at March 31, 1999 and June 30, 1999.
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-10
<PAGE>
ELDORADO ARTESIAN SPRINGS, INC.
NOTES TO FINANCIAL STATEMENTS--(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, June 30,
1999 1999
--------- -----------
(Unaudited)
<S> <C> <C>
Current deferred tax asset............................. $18,169 $18,169
Current deferred tax liability......................... -- --
------- -------
Net current deferred tax asset......................... $18,169 $18,169
======= =======
Long-term deferred tax asset........................... $ -- $ --
Long-term deferred tax liability....................... 61,219 61,219
------- -------
Net long-term deferred tax liability................... $61,219 $61,219
======= =======
</TABLE>
The provision for income taxes is summarized as follows:
<TABLE>
<CAPTION>
For the Three
For the Years Months Ended
Ended March 31, June 30,
--------------- --------------
1999 1998 1999 1998
------- ------- ------- ------
(Unaudited)
<S> <C> <C> <C> <C>
Current....................................... $72,778 $19,683 $15,430 $4,644
Deferred...................................... 6,958 14,720 3,000 2,500
------- ------- ------- ------
Total....................................... $79,736 $34,403 $18,430 $7,144
======= ======= ======= ======
</TABLE>
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 Three
For the Years Months Ended
Ended March 31, June 30,
----------------- ----------------
1999 1998 1999 1998
-------- -------- -------- -------
(Unaudited)
<S> <C> <C> <C> <C>
Computed income taxes at statutory rate--
net of surtax............................. $ 73,036 $ 31,503 $ 17,430 $ 6,544
State income taxes, net of Federal income
tax benefit and other..................... 6,700 2,900 1,000 600
-------- -------- -------- -------
$79,736 $ 34,403 $ 18,430 $ 7,144
======== ======== ======== =======
</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, June 30,
1999 1999
--------- -----------
(Unaudited)
<S> <C> <C>
Differences related to fixed assets..................... $ (56,624) $(56,624)
Differences related to other assets..................... (4,595) (4,595)
Allowance for doubtful accounts......................... 10,899 10,899
Alternative minimum tax and ITC credit carryforward..... 7,270 7,270
--------- --------
$(43,050) $(43,050)
========= ========
</TABLE>
F-11
<PAGE>
ELDORADO ARTESIAN SPRINGS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
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, 1999.
<TABLE>
<CAPTION>
March
31,
Year Ending March 31, 1999
--------------------- --------
<S> <C>
2000............................................................. $199,000
2001............................................................. 144,000
2002............................................................. 105,000
2003............................................................. 95,000
2004............................................................. 85,000
Thereafter....................................................... 93,000
--------
$721,000
========
</TABLE>
Total rental expense for the years ended March 31, 1999 and 1998 was
approximately $222,000 and $134,000, respectively. Total rent expense for the
three months ended June 30, 1999 and 1998 was approximately $56,600 and
$48,000, 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.
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. Both warrants are exercisable beginning April 22, 2000 and
expire on April 22, 2003.
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 June 30, 1999, 504,000 options were outstanding, of which 153,200 are
fully vested. Of the options outstanding, 343,000 were issued on May 26, 1998
and 150,000 were issued on December 7, 1998, with an option price of $2.75 per
share, and 11,000 were issued on May 1, 1999, with an option price of $4.25,
fair market value at the date of grant. Of the remaining 350,800 options,
37,500 vest in fiscal year end 2000, 71,900 in 2001, 75,100 in 2002, 79,300 in
2003, 45,000 in 2004, 13,000 in 2005, 14,000 in 2006 and 15,000 in 2007.
Options will terminate no later than the expiration of ten years from the date
of grant, subject to earlier termination due to termination of service.
F-12
<PAGE>
ELDORADO ARTESIAN SPRINGS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation". Accordingly, no compensation cost has been recognized for the
stock option plans. Had compensation cost for the Company's stock option plan
been determined based on the fair value at the grant date for awards consistent
with the provisions of SFAS No. 123, the Company's net income and income per
share would have been decreased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
For the Three
For the Years Months Ended
Ended March 31, June 30,
--------------- -----------------
1999 1998 1999 1998
------- ------- ------- --------
(Unaudited)
<S> <C> <C> <C> <C>
Net income--as reported................ 138,114 83,228 32,766 17,284
Net income (loss)--pro forma........... 16,470 (41,096) (28,003) (107,040)
Basic income per share--as reported.... .05 .03 .01 .01
Basic income (loss) per share--pro
forma................................. .01 (.02) (.01) (.04)
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions: dividend yield of 0%; expected volatility of 1%; discount rate of
5.0% and expected lives of 10 years.
Note 8--Profit Sharing Plan
The Company has adopted a 401(k) profit sharing plan for its employees.
Employees become eligible to participate in the plan once they have completed
one year of service and have reached 21 years of age. Contributions by the
Company and employees vest immediately. The Company matches 100% of employees
contributions up to 3% of the employees gross pay. During the years ended March
31, 1999 and 1998, the Company matched approximately $24,000 and $13,000,
respectively. No profit sharing contributions were approved by the Board of
Directors for the years ended March 31, 1999 and 1998.
F-13
<PAGE>
[COLOR PHOTO]
<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
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 1
Eldorado Artesian Springs................................................ 1
Key Facts................................................................ 2
Summary of Financial Information......................................... 2
Risk Factors............................................................. 3
Forward-Looking Information and Associated Risks......................... 6
Additional Information................................................... 6
Use of Proceeds.......................................................... 7
Determination of the Offering Price...................................... 7
Price Range of Common Stock.............................................. 8
Dilution................................................................. 9
Capitalization........................................................... 9
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 10
Eldorado and its Business................................................ 15
Management............................................................... 21
Principal Stockholders................................................... 24
Certain Relationships and Related Transactions........................... 24
Legal Proceedings........................................................ 24
History of Security Placements........................................... 25
Description of Securities................................................ 26
Shares Eligible for Future Sale.......................................... 27
Underwriting............................................................. 28
Commission Position on Indemnification for Securities Act Liabilities.... 31
Legal Matters............................................................ 31
Experts.................................................................. 31
Index to Financial Statements............................................ F-1
</TABLE>
-----------------
Dealer prospectus delivery obligation until , 1999. 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
-----------------
PROSPECTUS
-----------------
Mills Financial Services, Inc.
, 1999
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<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 caused 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 before the date such provision was added.
Eldorado has acquired directors and officers liability insurance.
See the second and third paragraphs of Item 28 on page II-2 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.
<TABLE>
<S> <C>
Registration Fee .................................................. $ 1,342
National Association of Securities Dealers, Inc. Fee............... 983
Non-Accountable Expense Allowance.................................. 126,000
Legal Fees and Expenses............................................ 50,000
Accounting Fees and Expenses....................................... 25,000
Printing and Engraving Expenses.................................... 35,000
Blue Sky Fees and Expenses......................................... 15,000
Transfer Agent's and Registrar's Fees.............................. 1,000
Market Listing Fees................................................ 10,000
Other.............................................................. 675
--------
Total............................................................ 265,000
</TABLE>
I-1
<PAGE>
Item 26. Recent Sales of Unregistered Securities.
The Registrant sold the following unregistered securities during the past
three years.
During 1998, the following transaction occurred:
(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) because of the
exemption contained in Section 4(2) of the Securities Act and Rules 505 and
506 of Regulation D.
Item 27. Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------- ----------------------
<C> <S>
1.1 Form of Underwriting Agreement between Eldorado and the underwriter,
as amended.
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, as amended*
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, as amended
July 1, 1999*
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*
10.4 Water Augmentation Agreement dated December 8, 1998*
10.5 Extension Agreement dated May 19, 1999*
23.1 Consent of Ehrhardt 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)
</TABLE>
- --------
* Previously filed
Item 28. Undertakings.
The undersigned small business issuer will provide to the underwriter at the
closing named 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 according 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.
If 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
I-2
<PAGE>
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 according 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.
I-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 the requirements of filing on Form SB-2 and has caused this Amendment No. 1
to the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Boulder, Colorado, on the [18th] day
of [October], 1999.
ELDORADO ARTESIAN SPRINGS, INC.
/s/ Douglas A. Larson
By: _________________________________
Douglas A. Larson,
Chief Executive Officer
(Principal Executive Officer)
According 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 shown.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Douglas A. Larson President, Chief Executive [October 18,
_______________________________________ Officer, Director 1999]
Douglas A. Larson
* Vice President and [October 18],
_______________________________________ Secretary, Director 1999
Kevin M. Sipple
* Director [October 18],
_______________________________________ 1999
Jeremy S. Martin
/s/ Cathleen M. Collins Chief Financial Officer [October 18],
_______________________________________ (Principal [Accounting] 1999
Cathleen M. Collins Officer)
* Director [October 18],
_______________________________________ 1999
George V. Schmidt
* Director [October 18],
_______________________________________ 1999
Don P. Van Winkle
/s/ Douglas A. Larson
*By: __________________________________
Douglas A. Larson
Attorney-in-Fact
</TABLE>
I-4
<PAGE>
Exhibit 1.1
"UA3"
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. 333-68553) 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.
2
<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 and each officer and director 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 restrictions
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, 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 (3/rd/) 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 165% 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
12
<PAGE>
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 officer and director to whom the Company
has granted an option pursuant to the Company's stock option plan which is
exercisable within the period ending 180 days after this agreement, 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 $25,000.
13
<PAGE>
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 $90,000 has been advanced at the date of this
Agreement. Without regard to any other provision in this Agreement, in the event
this offering is not completed in accordance with the terms of this Agreement.
Mills Financial Services, Inc. shall repay to the Company all funds advanced
less an amount equal to the out of pocket expenses actually incurred by Mills
Financial Services, Inc. for this offering and which are reasonably accounted
for by it to the Company. Such amount of out of pocket expenses shall not exceed
the maximum provided for it in Section 6(o) 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,
14
<PAGE>
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 is material and
adverse and that makes it 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
15
<PAGE>
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;
16
<PAGE>
(xii) The form of certificate evidencing the Common Shares filed as an
exhibit to the Registration Statement complies with Colorado law;
(xiii) 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;
(xiv) 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;
(xv) 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;
(xvi) 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;
(xvii) 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 Rules and Regulations
thereunder, other than those, if any, described in the Registration
Statement or Prospectus;
17
<PAGE>
(xviii) 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;
(xix) 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;
(xx) 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;
(xxi) 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
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 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
18
<PAGE>
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 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
19
<PAGE>
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 is material and
adverse and that makes it 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 Optio nal
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 respects conformed to the requirements of such statutes and
rules and regulations, (b) the Registration Statement, and any amendment
or supplement thereto, did not
20
<PAGE>
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 officer and director, to whom the Company has granted an option
------------------------------------------------------------------
pursuant to the Company's stock option plan which is exercisable within the
- ---------------------------------------------------------------------------
period ending 180 days after this agreement 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.
21
<PAGE>
(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.
If any Underwriter or Underwriters so defaults and the aggregate number
of Firm Common Shares which such defaulting Underwriter or Underwriters agreed
but failed to take up and pay for exceeds 10% of the Firm Common Shares, the
remaining Underwriters shall have the right, but shall not be obligated, to take
up and pay for (in such proportions as may be agreed upon among them) the Firm
Common Shares which the defaulting Underwriter or Underwriters so agreed but
failed to purchase. If such remaining Underwriters do not, at the First Closing
Date, take up and pay for the Firm Common Shares which the defaulting
Underwriter or Underwriters so agreed but failed to purchase, the First Closing
Date shall be postponed for twenty-four (24) hours to allow the several
Underwriters the privilege of substituting within an additional twenty-four (24)
hours (including non-business hours) another underwriter or underwriters (which
may include any nondefaulting Underwriter) satisfactory to the Company. If no
such underwriter or underwriters shall have been substituted as aforesaid by
such postponed First Closing Date, the First Closing Date may, at the option of
the Company, be postponed for a further twenty-four (24) hours, if necessary, to
allow the Company the privilege of finding another underwriter or underwriters,
satisfactory to you, to purchase the Firm Common Shares which the defaulting
Underwriter or Underwriters so agreed but failed to purchase. If it shall be
arranged for the remaining Underwriters or substituted underwriter or
underwriters to take up the Firm Common Shares of the defaulting Underwriter or
Underwriters as provided in this Section 9, (i) the Company
22
<PAGE>
shall have the right to postpone the time of delivery for a period of not more
than seven (7) full business days, in order to effect whatever changes may
thereby be necessary in the Registration Statement or the Prospectus, or in any
other documents or arrangements, and the Company agreed promptly to file any
amendments to the Registration Statement or supplements to the Prospectus which
may thereby be made necessary, and (ii) the respective number of Firm Common
Shares to be purchased by the remaining Underwriters and substituted underwriter
or underwriters shall be taken as the basis of their underwriting obligation.
In the event of any termination of this Agreement pursuant to this
Section 9, the Company shall not be liable to any Underwriter (except as
provided in Section 10) nor shall any Underwriter (other than an Underwriter who
shall have failed, otherwise than for some reason permitted under this
Agreement, to purchase the number of Firm Common Shares agreed by such
Underwriter to be purchased hereunder, which Underwriter shall remain liable to
the Company and the other Underwriters for damages, if any, resulting from such
default) be liable to the Company (except as provided in Section 10 hereof).
The term "Underwriter" in this Agreement shall include any person
substituted for an Underwriter under this Section 9.
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 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
23
<PAGE>
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.
(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
24
<PAGE>
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 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,
25
<PAGE>
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 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
26
<PAGE>
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 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 makes it inadvisable or impracticable to proceed with the
offering, sale and delivery of the Common Shares, or (v) if there shall have
been 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.
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
----------------------
27
<PAGE>
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. Such affiliates shall include, but not be
-----------------------------------------
limited to, persons owning 10% or more of the common stock of the Company. The
- -------------------------------------------------------------------------
Company shall notify Mills Financial Services, Inc. in writing of the Company's
intention or the intention of any affiliate of the Company 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. The Company shall have the right to
-----------------------------------
terminate this right of first refusal upon the payment of $21,500 to Mills
- --------------------------------------------------------------------------
Financial Services, Inc.
- -----------------------
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.
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
28
<PAGE>
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 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
29
<PAGE>
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 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the inclusion, in this Amendment No. 5 to the Registration
Statement on Form SB-2, of our report dated May 5, 1999, 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".
/s/ Ehrhardt Keefe Steiner & Hottman
P.C.
Ehrhardt Keefe Steiner & Hottman PC
October 18, 1999
Denver, Colorado
