<PAGE>
As filed with the Securities and Exchange Commission on July 2, 1999
SEC Registration No. 333-68553
================================================================================
U.S. Securities and Exchange Commission
Washington, D.C. 20549
AMENDMENT NO. 2 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
ELDORADO ARTESIAN SPRINGS, INC.
-----------------------------------
(Name of small business issuer in its charter)
Colorado 2086 84-0907853
- ------------------------------ ---------------------------- --------------------
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
P.O. Box 445, Eldorado Springs, Colorado 80025 (303)499-1316
-----------------------------------------------------------------
(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. [_]
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.
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Title of each class of Amount to be Proposed maximum Proposed maximum Amount of
securities to be registered offering price per aggregate offering registration fee
registered share price
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, 805,000 shares/(1)/ $6.00/(2)/ $4,830,000 $1,342.74
$0.001 par value
- -------------------------------------------------------------------------------------------------------------
</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.
<PAGE>
(LEGEND)
ELDORADO ARTESIAN SPRINGS, INC.
700,000 shares of Common Stock
Expected Offering Price.............. $6.00 to $7.00 per share
Proposed Trading Symbol Nasdaq
Small Cap Market..................... ELDO
The Offering Per Share Total
--------- ----------
Public Price $6.00 $4,200,000
Underwriting discounts $0.60 $ 420,000
Proceeds to Eldorado $5.40 $3,780,000
(before expenses payable
by Eldorado)
Eldorado bottles and markets natural artesian spring water from a natural spring
located in the foothills of the Colorado Rocky Mountains. Before this offering,
Eldorado common stock has traded on the OTC Bulletin Board. Upon completion of
this offering, Eldorado expects that the securities will trade on the Nasdaq
Small Cap Market(SM).
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 is not finished and 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.
Mills Financial Services, Inc. will underwrite the securities on a firm
commitment basis, subject to its acceptance of the common stock and certain
other conditions and legal matters. We expect that delivery of the common stock
will be made against payment in _______________________, on or about ______,
1999. The underwriter will receive an option, exercisable within 30 days after
the date of this prospectus, to buy up to 105,000 additional shares of common
stock. See the section Underwriting, beginning on page 26, for a more detailed
description of the underwriting agreement.
--------------
The date of this prospectus is ________, 1999
<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 significant market shares among the retail grocery chains that carry the
Eldorado products.
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.
<PAGE>
KEY FACTS
Shares to be sold to the
public by Eldorado......................... 700,000 shares
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
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 21, for a more detailed description of
Eldorado's stock option plan. Also, the section Description of Securities,
beginning on page 23, contains a more complete description of certain warrants
that were issued by Eldorado.
SUMMARY OF FINANCIAL INFORMATION
This prospectus contains audited financial statements for the fiscal
years ended March 31, 1996, 1997, 1998 and 1999. The following table highlights
some of the financial and operating information of Eldorado. 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
March 31
---------------------------------------------------------------------
1996 1997 1998 1999
---------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Statement of operations data:
Total revenues ................... $2,140,629 $2,644,521 $3,329,444 $4,036,822
Total operating expenses ......... 1,923,849 2,346,999 3,069,859 3,687,682
Earnings before taxes ............ 96,481 187,214 117,631 217,850
Net income ....................... 73,327 124,152 83,228 138,114
Earnings per share ..................... .03 .05 .03 .05
Weighted average of number of
shares outstanding ..................... 2,687,912 2,695,495 2,695,495 2,995,495
Balance sheet data:
Total assets ..................... 1,781,763 2,024,414 2,456,721 3,386,374
Total liabilities ................ 1,438,223 1,556,722 1,905,801 2,007,259
Stockholders' equity ............. 343,540 467,692 550,920 1,379,115
</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.
Water Available for Production May be Limited
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 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. This would
replace the water we use from our springs. We would always only bottle water
from our springs and would not use any additional water for our product.
However, by obtaining additional water rights, we would be allowed to continue
to use all the water flowing from our springs to meet our production
requirements.
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 13.
Our Company's Smaller Size May Limit Our Ability to Compete With National Brands
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. For more detailed information
about our competitors and our competitive strategy, see Eldorado and Its
Business - Competition on page 17.
Our Ability to Stock Sufficient Inventory May Limit Our Ability to Fill Customer
Orders
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.
Sale of Certain Other Shares May Affect 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. After this
offering is finished, we will have 2,707,404 shares of common stock outstanding
and held by our present shareholders that may be sold into the market. In
addition, we sold 300,000 shares of restricted common stock which may be sold
into the market. We also have 111,000 shares under incentive stock options
3
<PAGE>
granted to employees that can be sold right now without restriction. Of the
111,000 shares, 77,000 shares are subject to certain restrictions from sale for
six months following this offering. 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 24, for a more detailed description of the
shares that may be sold into the market in the future.
Dilution in the Value of Your Shares
Purchasers of shares in this offering will experience immediate
dilution of $4.68 per share or 78% of the offering price of $6.00 per share.
Lack of Established Trading Market and Market Maker May Adversely Affect the
Price of Your Shares
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 following the offering. You may not be able to resell your
shares if an active trading market does not develop. In addition, we have been
advised by the underwriter 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.
See Price Range of Common Stock, on page 8, for more detailed
information about the trading market for our shares.
The Liquidity of Your Shares Could be Limited if We Fail to List Our Common
Stock on the Nasdaq Small Cap Market
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.
Majority Control by Eldorado's Current Officers and Directors May Influence
Shareholder Votes
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, may 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 Offering is Arbitrarily Set at a Price Higher Than Recent Trades and the
Price of Your Shares May Decrease
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
4
<PAGE>
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
$4.25 on April 15, 1999. See Underwriting, on page 26, for a description of the
factors used to determine the offering price.
The Underwriter Has Limited Experience Which You Should Consider in Your
Investment
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.
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 11, 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:
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
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 14, 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:
Calendar 1999 High Low
------------ -----------
First quarter through March 31, 1999...... $ 3.25 $0.63
Second quarter through June 14, 1999...... 2.50 1.06
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
The latest closing bid quotation of the common stock, as reported by
Nasdaq, was $4.25 per share on April 15, 1999. As of June 15, 1999, there were
95 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 March 31, 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 $1,179,788 or about $.39 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 March 31,
1999 would be $4,894,115, or about $1.32 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 $4.68 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....................... $0.39
Increase per share due to offering...................................... .93
-------
Pro forma net tangible book value per share after offering...................... 1.32
----------
Dilution of net tangible book value per share to purchasers in this offering.... $4.68
==========
Dilution per share as a percentage of offering.................................. 78.0%
</TABLE>
CAPITALIZATION
The following table sets forth the capitalization of Eldorado as of
March 31, 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>
March 31, 1999
-------------------------------
Actual As Adjusted
------------- --------------
<S> <C> <C>
Long term debt (including current maturities) $1,584,721 $1,584,721
------------- --------------
Stockholders' equity
Common stock, $0.001 par value; authorized-50,000,000 shares; 2,995 3,695
issued and outstanding- 2,995,495 actual; and 3,695,495 as adjusted
Additional paid-in capital................................... 984,656 4,498,956
Retained earnings............................................ 391,464 391,464
------------- --------------
Total stockholders' equity................................. 1,379,115 4,894,115
------------- --------------
Total capitalization....................................... $2,963,836 $6,478,836
============= ==============
</TABLE>
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
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 and Comprehensive 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 and comprehensive income of $138,114. Net
income and comprehensive 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, 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.
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<PAGE>
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 and Comprehensive Income: Eldorado's net and comprehensive
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 for the year ended March 31, 1999 were 27.7% higher
than at year ended March 31, 1998. This resulted from the 21.3% increase in
revenues for the year ended March 31, 1999. Days sales outstanding was
approximately 56 days for March 31, 1999. Days sales outstanding was
approximately 55 days for March 31, 1998. Management has implemented new credit
policies to manage the accounts more effectively.
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 March 31, 1999, 493,000
options were outstanding, of which 111,000 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, which represents the
fair market value at the date of the grant as determined by the board of
directors. Of the remaining 382,000 shares, 68,700 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.
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 June 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
11
<PAGE>
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. If Eldorado does not
finish its planned conversions in a timely fashion, 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 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
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.
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<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.
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.
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<PAGE>
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 16.
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.
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.
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<PAGE>
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:
Product Target market
------- -------------
Five gallon bottles and three gallon bottles Home/commercial delivery
One gallon bottles Retail food stores
PET consumer packaging Retail food stores
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 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.
15
<PAGE>
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 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.
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
16
<PAGE>
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.
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.
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
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<PAGE>
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 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.
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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
Name Age Position(s) or Director
---- --- ----------- -----------
<S> <C> <C> <C>
Douglas A. Larson* 44 President and Director 1986 to present
Kevin M. Sipple 43 Vice President, Secretary and 1986 to present
Director
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
*Audit Committee Member.
</TABLE>
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.
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
19
<PAGE>
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
to 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.
20
<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 554,324 non-statutory options may be granted in the one year after the
completion of this offering. 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 March 31, 1999, 493,000 options were outstanding, of which 111,000
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, which represents the fair market value at the date of the grant as
determined by the board of directors. Of the remaining 382,000 shares, 68,700
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.
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<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 of Before After
Name and Address of Beneficial Owners 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.
22
<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.
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.
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<PAGE>
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.
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.
24
<PAGE>
Of the 2,707,404 restricted shares currently outstanding, a total of
2,298,407 shares are held by Douglas A. Larson, Kevin M. Sipple, and Jeremy S.
Martin, officers and directors of Eldorado or their affiliates. Messrs. Larson,
Sipple and Martin and certain other employees 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 493,000 are outstanding. Of the 493,000 options outstanding, 34,000
options are immediately exercisable and saleable and 77,000 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.
25
<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:
NUMBER
UNDERWRITERS OF SHARES
Mills Financial Services, Inc. ...................................... __________
Total.............................................. __________
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. 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.
NO EXERCISE FULL EXERCISE
------------------- ----------------------
Per share.............. $ 0.60 $ 0.60
Total.................. $420,000 $ 483,000
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.
NO EXERCISE FULL EXERCISE
------------------ ----------------------
Total allowance........ $ 126,000 $ 144,900
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'
warrant may be exercised for a four-year period beginning one year from the date
of
26
<PAGE>
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 and certain other persons 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. This warrant is exercisable from October 22, 1999 through April
21, 2002, and contains 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 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.
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
27
<PAGE>
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:
SEC Registration Fee $ 1342
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
*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.
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.
28
<PAGE>
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.
29
<PAGE>
ELDORADO ARTESIAN SPRINGS, INC.
Financial Statements
March 31, 1999 and 1998
<PAGE>
ELDORADO ARTESIAN SPRINGS, INC.
Table of Contents
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report............................................... F-2
Financial Statements
Balance Sheet....................................................... 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>
<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 Sheet
March 31, 1999
<TABLE>
<CAPTION>
Assets (Notes 3 and 4)
Current assets
<S> <C>
Cash $ 361,439
Accounts receivable (Note 2)
Trade - net 615,969
Other 16,326
Inventories 205,264
Prepaid expenses and other 33,106
Deferred income taxes (Note 5) 18,169
-----------
Total current assets 1,250,273
-----------
Property, plant and equipment - net (Note 2) 1,773,327
Other assets
Deferred offering costs 199,327
Water rights - net (Note 2) 110,130
Other - net (Note 2) 53,317
-----------
Total other assets 362,774
-----------
$ 3,386,374
===========
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 152,557
Accrued expenses (Note 2) 134,005
Deposits 74,757
Current maturities of long-term debt (Note 3) 167,385
-----------
Total current liabilities 528,704
Long-term liabilities
Long-term debt (Note 3) 1,417,336
Deferred income taxes (Note 5) 61,219
-----------
Total liabilities 2,007,259
-----------
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
Additional paid-in capital 984,656
Retained earnings 391,464
-----------
1,379,115
-----------
$ 3,386,374
===========
</TABLE>
See notes to financial statements.
F-3
<PAGE>
ELDORADO ARTESIAN SPRINGS, INC.
Statements of Operations
<TABLE>
<CAPTION>
Years Ended
March 31,
-------------------------
1999 1998
---------- ----------
<S> <C> <C>
Revenue
Water and related $3,901,836 $3,222,396
Rentals 48,944 49,288
Pool 99,435 68,349
Returns and allowances (13,393) (10,589)
---------- ----------
Net revenue 4,036,822 3,329,444
Cost of goods sold exclusive of depreciation and
amortization 546,900 501,288
---------- ----------
Gross profit 3,489,922 2,828,156
---------- ----------
Operating expenses
Salaries and related 1,539,275 1,310,303
Administrative and general 670,854 557,892
Selling and delivery 615,853 422,462
Depreciation and amortization 314,800 277,914
---------- ----------
3,140,782 2,568,571
---------- ----------
Operating income 349,140 259,585
---------- ----------
Other income (expense)
Interest income 16,242 3,720
Loss on sale of asset - (2,871)
Interest expense (147,532) (142,803)
---------- ----------
(131,290) (141,954)
---------- ----------
Income before income taxes 217,850 117,631
---------- ----------
Provision for income taxes (Note 5)
Current 72,778 19,683
Deferred 6,958 14,720
---------- ----------
79,736 34,403
---------- ----------
Net income $ 138,114 $ 83,228
========== ==========
Basic earnings per common share $ .05 $ .03
========== ==========
Weighted average number of shares outstanding 2,995,495 2,695,495
========== ==========
</TABLE>
See notes to financial statements.
F-4
<PAGE>
ELDORADO ARTESIAN SPRINGS, INC.
Statement of Stockholders' Equity
Years Ended March 31, 1999 and 1998
<TABLE>
<CAPTION>
Common Stock Additional
---------------------------- Paid-in Retained
Shares Amount Capital Earnings Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance - March 31, 1997 2,695,495 $ 2,695 $ 294,875 $ 170,122 $ 467,692
Net income for the year - - - 83,228 83,228
----------- ----------- ----------- ----------- -----------
Balance - March 31, 1998 2,695,495 2,695 294,875 253,350 550,920
Sale of common stock 300,000 300 689,781 - 690,081
Net income for the year - - - 138,114 138,114
----------- ----------- ----------- ----------- -----------
Balance - March 31, 1999 2,995,945 $ 2,995 $ 984,656 $ 391,464 $ 1,379,115
=========== =========== =========== =========== ===========
</TABLE>
See notes to financial statements.
F-5
<PAGE>
ELDORADO ARTESIAN SPRINGS, INC.
Statements of Cash Flows
<TABLE>
<CAPTION>
Years Ended
March 31,
---------------------------
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities
Net income $ 138,114 $ 83,228
----------- -----------
Adjustments to reconcile net income to net cash provided by
operating activities -
Depreciation and amortization 314,800 277,914
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)
Inventories (82,563) (30,153)
Prepaid expenses and other 15,207 (37,420)
Accounts payable 22,810 31,944
Accrued expenses 54,875 (10,765)
Deposits 25,579 15,620
----------- -----------
229,197 43,251
----------- -----------
Net cash provided by operating activities 367,311 126,479
----------- -----------
Cash flows from investing activities
Purchase of property, plant and equipment (388,161) (535,578)
Proceeds from sale of asset - 2,750
Purchase of other assets (4,221) -
----------- -----------
Net cash flows used in investing activities (392,382) (532,828)
----------- -----------
Cash flows from financing activities
Net (payments) proceeds from line-of-credit (40,000) 40,000
Additions to long-term debt - 1,500,000
Payments on long-term debt (134,410) (1,288,474)
Loan fees and origination cost - (19,776)
Proceeds from sale of common stock 825,000 -
Costs related to issuance of common stock (134,919) -
Deferred offering costs (199,327) -
----------- -----------
Net cash flows provided by financing activities 316,344 231,750
----------- -----------
Net increase (decrease) in cash 291,273 (174,599)
Cash - beginning of year 70,166 244,765
----------- -----------
Cash - end of year $ 361,439 $ 70,166
=========== ===========
</TABLE>
Supplemental disclosures of cash flow information:
Cash paid during the year for interest was $147,532 (1999) and $142,803
(1998).
Cash paid during the year for income taxes was $34,426 (1999) and $33,844
(1998).
Supplemental disclosure of noncash investing activity:
During the years ended 1999 and 1998, equipment was acquired through
capital leases 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.
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.
Deferred Offering Costs
- -----------------------
As of March 31, 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.
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.
F-7
<PAGE>
ELDORADO ARTESIAN SPRINGS, INC.
Notes to Financial Statements
Note 1 - Organization and Summary of Significant Accounting Policies (continued)
- --------------------------------------------------------------------------------
Revenue and Expense
- -------------------
Revenue is recognized on the sale of its products as customer shipments are
made. Returns are recognized when the product is received. Rental revenue is
recognized on a monthly basis upon commencement of the lease agreement.
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, 1998, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 128, Earnings Per Share (SFAS
No. 128). SFAS 128 established new definitions for calculating and disclosing
basic and diluted earnings per share. Basic earnings per share is based upon
the weighted average number of shares outstanding as defined in SFAS 128. No
diluted earnings per share is presented as no there are no potential dilutive
common shares. As required by SFAS 128, disclosure of subsequent events which
would have had an effect on the number of shares outstanding is contained in
Note 7.
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.
Concentration of Credit Risk
- ----------------------------
The Company maintains cash in bank accounts which, at times may exceed FDIC
insurance limits. Financial instruments which potentially subject the Company
to concentrations of credit risk consist primarily of accounts receivable. The
Company grants credit to customers located primarily in Colorado. The Company
periodically performs credit analysis and monitors the financial condition of
its clients in order to minimize credit risk.
F-8
<PAGE>
ELDORADO ARTESIAN SPRINGS, INC.
Notes to Financial Statements
Note 1 - Organization and Summary of Significant Accounting Policies (continued)
- --------------------------------------------------------------------------------
Fair Value of Financial Instruments
- -----------------------------------
The carrying amounts of financial instruments including cash, accounts
receivable, line-of-credit, accounts payable, deposits and accrued expenses
approximated fair value as of March 31, 1998 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.
Note 2 - Selected Balance Sheet Information
- -------------------------------------------
<TABLE>
<CAPTION>
March 31,
1999
-----------
Accounts receivable
<S> <C>
Trade $ 645,969
Less allowance for doubtful accounts (30,000)
-----------
$ 615,969
===========
Property, plant and equipment
Land $ 225,194
Buildings and improvements 1,166,289
Machinery and equipment 2,128,575
Vehicles 19,831
Office furniture and fixtures 150,061
-----------
3,689,950
Less accumulated depreciation (1,916,623)
-----------
$ 1,773,327
===========
Other assets
Water rights $ 179,500
Less accumulated amortization (69,370)
-----------
$ 110,130
===========
</TABLE>
F-9
<PAGE>
ELDORADO ARTESIAN SPRINGS, INC.
Notes to Financial Statements
Note 2 - Selected Balance Sheet Information (continued)
- -------------------------------------------------------
<TABLE>
<CAPTION>
March 31,
1999
-----------
<S> <C>
Customer lists, loan fees and other $ 70,892
Less accumulated amortization (17,575)
-----------
$ 53,317
===========
Accrued expenses
Property taxes $ 17,194
Sales tax 12,217
Income taxes 54,946
Payroll and payroll taxes 49,648
-----------
$ 134,005
===========
</TABLE>
Note 3 - Long-Term Debt
- -----------------------
<TABLE>
<CAPTION>
March 31,
Notes Payable 1999
- ------------- -----------
<S> <C>
Note payable to bank due June 20, 2012, interest at bank prime
(8% at March 31, 1999) adjusted bi-annually. 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. $ 1,126,050
Note payable to bank due June 20, 2002, interest at bank prime
plus 1.25% (9% at March 31, 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. 211,208
Capital Leases
- --------------
Capital lease for equipment. Monthly minimum lease payments
of $3,159, due April 1, 2002. 102,633
Capital leases for equipment. Combined monthly minimum lease
payments of approximately $5,000, maturing over various dates
from June 2001 through April 2002. 144,830
-----------
$ 1,584,721
===========
</TABLE>
F-10
<PAGE>
ELDORADO ARTESIAN SPRINGS, INC.
Notes to Financial Statements
Note 3 - Long-Term Debt (continued)
- -----------------------------------
The cost of equipment under capital lease at March 31, 1999 was $307,612 with
accumulated depreciation of $24,180.
Future maturities of long-term debt at March 31, 1999 are:
<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.
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-11
<PAGE>
ELDORADO ARTESIAN SPRINGS, INC.
Notes to Financial Statements
Note 5 - Income Taxes (continued)
- ---------------------------------
The net current and long-term deferred tax in the accompanying balance sheet
includes the following deferred tax assets and liabilities.
<TABLE>
<CAPTION>
March 31,
1999
----------
<S> <C>
Current deferred tax asset $ 18,169
Current deferred tax liability -
----------
Net current deferred tax asset $ 18,169
==========
Long-term deferred tax asset $ -
Long-term deferred tax liability 61,219
----------
Net long-term deferred tax liability $ 61,219
==========
</TABLE>
The provision for income taxes is summarized as follows:
<TABLE>
<CAPTION>
For the Years Ended
March 31,
--------------------------
1999 1998
---------- ----------
<S> <C> <C>
Current $ 72,778 $ 19,683
Deferred 6,958 14,720
---------- ----------
$ 79,736 $ 34,403
========== ==========
</TABLE>
The following is a reconciliation of income taxes at the Federal Statutory rate
with income taxes recorded by the Company.
<TABLE>
<CAPTION>
Years Ended
March 31,
--------------------------
1999 1998
---------- ----------
<S> <C> <C>
Computed income taxes at statutory rate - net of surtax $ 73,036 $ 31,503
State income taxes, net of Federal income tax benefit and
other 6,700 2,900
---------- ----------
$ 79,736 $ 34,403
========== ==========
</TABLE>
F-12
<PAGE>
ELDORADO ARTESIAN SPRINGS, INC.
Notes to Financial Statements
Note 5 - Income Taxes (continued)
- ---------------------------------
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,
1999
-----------
<S> <C>
Differences related to fixed assets $ (56,624)
Differences related to other assets (4,595)
Allowance for doubtful accounts 10,899
Alternative minimum tax and ITC credit carryforward 7,270
-----------
$ (43,050)
===========
</TABLE>
Note 6 - Commitments
- --------------------
The Company has various long-term leases for delivery trucks, vehicles equipment
and property. The following is a schedule by year of approximate future minimum
lease payments as of March 31, 1999.
<TABLE>
<CAPTION>
Year Ending March 31,
---------------------
<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 1999 and 1998 was approximately $222,000 and $134,000,
respectively.
F-13
<PAGE>
ELDORADO ARTESIAN SPRINGS, INC.
Notes to Financial Statements
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 on April 22, 1999
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 March 31, 1999, 493,000 options were outstanding, of which 111,000 are
fully vested. 343,000 of the options were issued on May 26, 1998 and 150,000
were issued on December 7, 1998, with an option price of $2.75 per share, fair
market value at the date of grant. Of the remaining 382,000 options, 68,700
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
not later than the expiration of ten years from the date of grant, subject to
earlier termination due to termination of service. The weighted average
exercise price and remaining contractual life of the options and warrants is
$8.03 per share and 110 months, respectively.
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.
F-14
<PAGE>
ELDORADO ARTESIAN SPRINGS, INC.
Notes to Financial Statements
Note 7 - Stockholders' Equity (continued)
- -----------------------------------------
Stock Option Plan (continued)
- -----------------------------
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 Nine
Months Ended
December 31
1998
----------------
<S> <C>
Net income - as reported 138,114
Net income - pro forma 16,470
Basic income per share - as reported .05
Basic loss per share - pro forma .01
</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
assumption: 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-15
<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 ................................................. 13
Management ................................................................ 19
Principal Stockholders .................................................... 22
Certain Relationships and Related Transactions ............................ 22
Legal Proceedings ......................................................... 22
History of Security Placements ............................................ 23
Description of Securities ................................................. 23
Shares Eligible for Future Sale ........................................... 24
Underwriting .............................................................. 26
Commission Position on Indemnification for Securities Act Liabilities ..... 28
Legal Matters ............................................................. 28
Experts ................................................................... 29
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
ELDORADO ARTESIAN
SPRINGS, INC.
-----------------------
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>
II-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
----------------------
<S> <C>
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 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.
II-2
<PAGE>
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.
II-3
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
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 1st day of
July, 1999.
ELDORADO ARTESIAN SPRINGS, INC.
By: /s/ Douglas A. Larson
---------------------------------------------
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>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ Douglas A. Larson President, Chief Executive Officer, July 1, 1999
- ------------------------------------ Director
Douglas A. Larson
/s/ Douglas A. Larson, POA Vice President and Secretary July 1, 1999
- ------------------------------------
Kevin M. Sipple Director
/s/ Douglas A. Larson, POA Vice President, Director July 1, 1999
- ------------------------------------
Jeremy S. Martin
/s/ Cathleen M. Collins Chief Financial Officer (Principal July 1, 1999
- ------------------------------------ Financial Officer)
Cathleen M. Collins
/s/ Douglas A. Larson, POA Director July 1, 1999
- ------------------------------------
George V. Schmidt
/s/ Douglas A. Larson, POA Director July 1, 1999
- ------------------------------------
Don P. Van Winkle
</TABLE>
II-4
<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED
BYLAWS
OF
ELDORADO ARTESIAN SPRINGS, INC.
ARTICLE I
SHAREHOLDERS
1. ANNUAL SHAREHOLDERS' MEETING. The annual shareholders' meeting of
Eldorado Artesian Springs, Inc. ("Corporation") shall be held in July of each
year or on some other date and at the time and place fixed from time to time by
the board of directors.
2. SPECIAL SHAREHOLDERS' MEETING. A special shareholders' meeting for
any purpose or purposes, may be called by the board of directors, the chief
executive officer, the chairman of the board, or the president. The Corporation
shall also hold a special shareholders' meeting in the event it receives, in the
manner specified in Section VII.3., one or more written demands for the meeting,
stating the purpose or purposes for which it is to be held, signed and dated by
the holders of shares representing not less than one-tenth of all of the votes
entitled to be cast on any issue at the meeting. Special meetings shall be held
at the principal office of the Corporation or at such other place as the board
of directors may determine.
3. RECORD DATE FOR DETERMINATION OF SHAREHOLDERS.
(a) In order to make a determination of shareholders (1) entitled to
notice of or to vote at any shareholders' meeting or at any adjournment of
a shareholders' meeting, (2) entitled to demand a special shareholders'
meeting, (3) entitled to take any other action, (4) entitled to receive
payment of a share dividend or a distribution, or (5) for any other
purpose, the board of directors may fix a future date as the record date
for such determination of shareholders. The record date may be fixed not
more than seventy days before the date of the proposed action.
(b) Unless otherwise specified when the record date is fixed, the time
of day for determination of shareholders shall be 5:00 p.m. local time on
the record date.
(c) A determination of shareholders entitled to be given notice of or
to vote at a shareholders' meeting is effective for any adjournment of the
meeting unless the board of directors fixes a new record date, which the
board shall do if the meeting is adjourned to a date more than one hundred
twenty days after the date fixed for the original meeting.
(d) If no record date is otherwise fixed, the record date for
determining shareholders entitled to be given notice of and to vote at an
annual or special shareholders' meeting is the day before the first notice
is given to shareholders.
<PAGE>
(e) The record date for determining shareholders entitled to take
action without a meeting is the date a writing upon which the action is
taken is first received by the Corporation.
4. VOTING LIST.
(a) After a record date is fixed for a shareholders' meeting, the
secretary shall prepare a list of the names of all its shareholders who are
entitled to be given notice of the meeting. The list shall be arranged by
voting groups and within each voting group by class or series of shares,
shall be alphabetical within each class or series, and shall show the
address of, and the number of shares of each such class and series that are
held by, each shareholder.
(b) The shareholders' list shall be available for inspection by any
shareholder, beginning the earlier of ten days before the meeting for which
the list was prepared or two business days after notice of the meeting is
given and continuing through the meeting, and any adjournment thereof, at
the Corporation's principal office or at a place identified in the notice
of the meeting in the city where the meeting will be held.
(c) The secretary shall make the shareholders' list available at the
meeting, and any shareholder or agent or attorney of a shareholder is
entitled to inspect the list at any time during the meeting or any
adjournment.
5. NOTICE TO SHAREHOLDERS.
(a) The secretary shall give notice to shareholders of the date, time,
and place of each annual and special shareholders' meeting no fewer than
ten nor more than sixty days before the date of the meeting; except that,
if the articles of incorporation are to be amended to increase the number
of authorized shares, at least thirty days' notice shall be given. Except
as otherwise required by the Colorado Business Corporation Act, the
secretary shall be required to give such notice only to shareholders
entitled to vote at the meeting.
(b) Notice of an annual shareholders' meeting need not include a
description of the purpose or purposes for which the meeting is called
unless a purpose of the meeting is to consider an amendment to the articles
of incorporation, a restatement of the articles of incorporation, a plan of
merger or share exchange, disposition of substantially all of the property
of the Corporation, consent by the Corporation to the disposition of
property by another entity, or dissolution of the Corporation.
(c) Notice of a special shareholders' meeting shall include a
description of the purpose or purposes for which the meeting is called.
2
<PAGE>
(d) Notice of a shareholders' meeting shall be in writing and shall
be given:
(1) by deposit in the United States mail, properly addressed to
the shareholder's address shown in the Corporation's current record of
shareholders, first class postage prepaid, and, if so given, shall be
effective when mailed; or
(2) by telegraph, teletype, electronically transmitted facsimile,
electronic mail, mail, or private carrier or by personal delivery to
the shareholder, and, if so given, shall be effective when actually
received by the shareholder.
(e) If an annual or special shareholders' meeting is adjourned to a
different date, time, or place, notice need not be given of the new date,
time or place if the new date, time, or place is announced at the meeting
before adjournment; provided, however, that, if a new record date for the
adjourned meeting is fixed pursuant to Section I.3.(c), notice of the
adjourned meeting shall be given to persons who are shareholders as of the
new record date.
(f) If three successive notices are given by the Corporation, whether
with respect to a shareholders' meeting or otherwise, to a shareholder and
are returned as undeliverable, no further notices to such shareholder shall
be necessary until another address for the shareholder is made known to the
Corporation.
6. QUORUM. Shares entitled to vote as a separate voting group may take
action on a matter at a meeting only if a quorum of those shares exists with
respect to that matter. A majority of the votes entitled to be cast on the
matter by the voting group shall constitute a quorum of that voting group for
action on the matter. If a quorum does not exist with respect to any voting
group, the president, the board of directors, chief executive officer, chairman
of the board, or the holders of a majority of outstanding shares, whether
present in person or by proxy, whether or not a member of that voting group, may
adjourn the meeting to a different date, time, or place, and (subject to the
next sentence) notice need not be given of the new date, time, or place if the
new date, time, or place is announced at the meeting before adjournment. If a
new record date for the adjourned meeting is or must be fixed pursuant to
Section I.3.(c), notice of the adjourned meeting shall be given pursuant to
Section I.5. to persons who are shareholders as of the new record date. At any
adjourned meeting at which a quorum exists, any matter may be acted upon that
could have been acted upon at the meeting originally called; provided, however,
that, if new notice is given of the adjourned meeting, then such notice shall
state the purpose or purposes of the adjourned meeting sufficiently to permit
action on such matters. Once a share is represented for any purpose at a
meeting, including the purpose of determining that a quorum exists, it is deemed
present for quorum purposes for the remainder of the meeting and for any
adjournment of that meeting unless a new record date is or shall be set for that
adjourned meeting.
3
<PAGE>
7. VOTING ENTITLEMENT OF SHARES. Except as stated in the articles of
incorporation, each outstanding share, regardless of class, is entitled to one
vote, and each fractional share is entitled to a corresponding fractional vote,
on each matter voted on at a shareholders' meeting.
8. PROXIES; ACCEPTANCE OF VOTES AND CONSENTS.
(a) A shareholder may vote either in person or by proxy.
(b) An appointment of a proxy is not effective against the Corporation
until the appointment is received by the Corporation. An appointment is
valid for eleven months unless a different period is expressly provided in
the appointment form.
(c) The Corporation may accept or reject any appointment of a proxy,
revocation of appointment of a proxy, vote, consent, waiver, or other
writing purportedly signed by or for a shareholder, if such acceptance or
rejection is in accordance with the provisions of (S)(S) 7-107-203 and 7-
107-205 of the Colorado Business Corporation Act.
9. WAIVER OF NOTICE.
(a) A shareholder may waive any notice required by the Colorado
Business Corporation Act, by the articles of incorporation or these bylaws,
whether before or after the date or time stated in the notice as the date
or time when any action will occur or has occurred. The waiver shall be in
writing, be signed by the shareholder entitled to the notice, and be
delivered to the Corporation for inclusion in the minutes or filing with
the corporate records, but such delivery and filing shall not be conditions
of the effectiveness of the waiver.
(b) A shareholder's attendance at a meeting waives objection to lack
of notice or defective notice of the meeting, unless the shareholder at the
beginning of the meeting objects to holding the meeting or transacting
business at the meeting because of lack of notice or defective notice, and
waives objection to consideration of a particular matter at the meeting
that is not within the purpose or purposes described in the meeting notice,
unless the shareholder objects to considering the matter when it is
presented.
10. ACTION BY SHAREHOLDERS WITHOUT A MEETING. Any action required or
permitted to be taken at a shareholders' meeting may be taken without a meeting
if all of the shareholders entitled to vote thereon consent to such action in
writing. Action taken pursuant to this section shall be effective when the
Corporation has received writings that describe and consent to the action,
signed by all of the shareholders entitled to vote thereon. Action taken
pursuant to this section shall be effective as of the date the last writing,
necessary to effect the action, is received by the Corporation, unless all of
the writings necessary to effect the action specify another date, which may be
before or after the date the writings are received by the Corporation. Such
action shall have
4
<PAGE>
the same effect as action taken at a meeting of shareholders and may be
described as such in any document. Any shareholder who has signed a writing
describing and consenting to action taken pursuant to this section may revoke
such consent by a writing signed by the shareholder describing the action and
stating that the shareholder's prior consent thereto is revoked, if such writing
is received by the secretary of the Corporation before the effectiveness of the
action.
11. MEETINGS BY TELECOMMUNICATIONS. Any or all of the shareholders may
participate in an annual or special shareholders' meeting by, or the meeting may
be conducted through the use of, any means of communication by which all persons
participating in the meeting may hear each other during the meeting. A
shareholder participating in a meeting by this means is deemed to be present in
person at the meeting.
ARTICLE II
DIRECTORS
1. AUTHORITY OF THE BOARD OF DIRECTORS. The corporate powers shall be
exercised by or under the authority of, and the business and affairs of the
Corporation shall be managed under the direction of, a board of directors.
2. NUMBER. The number of directors shall be at least one and not more
than seven. Within that range, the number of directors shall be as stated by
resolution adopted by the board of directors from time to time, but no decrease
in the number of directors shall have the effect of shortening the term of any
incumbent director.
3. QUALIFICATION. Directors shall be natural persons at least eighteen
years old but need not be residents of the State of Colorado or shareholders of
the Corporation.
4. ELECTION. The board of directors shall be elected at the annual
meeting of the shareholders or at a special meeting called for that purpose.
5. TERM.
Each director shall be elected to hold office until the next annual
meeting of shareholders and until the director's successor is elected and
qualified.
The term of a director elected to fill a vacancy by the board of
directors, even if less than a quorum, expires at the next annual meeting at
which directors are elected. Unless prohibited by the articles of
incorporation, shareholders may fill a vacancy that occurs on the board of
directors. If shareholders are permitted by the articles of incorporation to
fill a vacancy on the board of directors, the term of a director so elected
shall be the unexpired term of his or her last predecessor in office elected by
the shareholders.
5
<PAGE>
6. RESIGNATION. A director may resign at any time by giving written
notice of his or her resignation to any other director or (if the director is
not also the secretary) to the secretary. The resignation shall be effective
when it is received by the other director or secretary, as the case may be,
unless the notice of resignation specifies a later effective date. Acceptance
of such resignation shall not be necessary to make it effective unless the
notice so provides.
7. REMOVAL. Any director may be removed by the shareholders, of the
voting group that elected the director, but only with cause, at a meeting called
for that purpose. The notice of the meeting shall state that the purpose, or
one of the purposes, of the meeting is removal of the director. A director may
be removed only if the number of votes cast in favor of removal exceeds the
number of votes cast against removal.
8. VACANCIES.
(a) If a vacancy occurs on the board of directors, including a vacancy
resulting from an increase in the number of directors:
(1) The board of directors may fill the vacancy; or
(2) If the directors remaining in office constitute fewer than a
quorum of the board, they may fill the vacancy by the affirmative vote
of a majority of all the directors remaining in office.
(b) Notwithstanding Section II.8.(a), if the vacant office was held by
a director elected by a voting group of shareholders, then, if one or more
of the remaining directors were elected by the same voting group, only such
directors are entitled to vote to fill the vacancy if it is filled by
directors, and they may do so by the affirmative vote of a majority of such
directors remaining in office; and only the holders of shares of that
voting group are entitled to vote to fill the vacancy if it is filled by
the shareholders.
(c) A vacancy that will occur at a specific later date, by reason of a
resignation that will become effective at a later date under Section II.6.
or otherwise, may be filled before the vacancy occurs, but the new director
may not take office until the vacancy occurs.
9. MEETINGS. The board of directors may hold regular or special meetings
in or out of the State of Colorado. The board of directors may, by resolution,
establish dates, times and places for regular meetings, which may thereafter be
held without further notice. Special meetings may be called by the president,
chairman, chief executive officer or by any two directors and shall be held at
the principal office of the Corporation unless another place is consented to by
every director. At any time when the board consists of a single director, that
director may act at any time, date, or place without notice.
6
<PAGE>
10. NOTICE OF SPECIAL MEETING. Notice of a special meeting shall be given
to every director at least forty eight (48) hours before the time of the
meeting, stating the date, time, and place of the meeting. The notice need not
describe the purpose of the meeting. Notice may be given orally to the
director, personally or by telephone or other wire or wireless communication.
Notice may also be given in writing by telegraph, teletype, electronically
transmitted facsimile, electronic mail, mail, or private carrier. Notice shall
be effective at the earliest of the time it is received; five days after it is
deposited in the United States mail, properly addressed to the last address for
the director shown on the records of the Corporation, first class postage
prepaid; or the date shown on the return receipt if mailed by registered or
certified mail, return receipt requested, postage prepaid, in the United States
mail and if the return receipt is signed by the director to which the notice is
addressed.
11. QUORUM. Except as provided in Section II.8., a majority of the number
of directors fixed in accordance with these bylaws shall constitute a quorum for
the transaction of business at all meetings of the board of directors. The act
of a majority of the directors present at any meeting at which a quorum is
present shall be the act of the board of directors, except as otherwise
specifically required by law.
12. WAIVER OF NOTICE.
(a) A director may waive any notice of a meeting before or after the
time and date of the meeting stated in the notice. Except as provided by
Section II. 12.(b), the waiver shall be in writing and shall be signed by
the director. Such waiver shall be delivered to the secretary for filing
with the corporate records, but such delivery and filing shall not be
conditions of the effectiveness of the waiver.
(b) A director's attendance at or participation in a meeting waives
any required notice to him or her of the meeting unless, at the beginning
of the meeting or promptly upon his or her later arrival, the director
objects to holding the meeting or transacting business at the meeting
because of lack of notice or defective notice and does not thereafter vote
for or assent to action taken at the meeting.
13. ATTENDANCE BY TELEPHONE. One or more directors may participate in a
regular or special meeting by, or conduct the meeting through the use of, any
means of communication by which all directors participating may hear each other
during the meeting. A director participating in a meeting by this means is
deemed to be present in person at the meeting.
14. DEEMED ASSENT TO ACTION. A director who is present at a meeting of
the board of directors when corporate action is taken shall be deemed to have
assented to all action taken at the meeting unless:
7
<PAGE>
(a) The director objects at the beginning of the meeting, or promptly
upon his or her arrival, to holding the meeting or transacting business at
the meeting and does not thereafter vote for or assent to any action taken
at the meeting;
(b) The director contemporaneously requests that his or her dissent or
abstention as to any specific action taken be entered in the minutes of the
meeting; or
(c) The director causes written notice of his or her dissent or
abstention as to any specific action to be received by the presiding
officer of the meeting before adjournment of the meeting or by the
secretary (or, if the director is the secretary, by another director)
promptly after adjournment of the meeting.
The right of dissent or abstention pursuant to this Section II.14. as to a
specific action is not available to a director who votes in favor of the action
taken.
15. ACTION BY DIRECTORS WITHOUT A MEETING. Any action required or
permitted by law to be taken at a board of directors' meeting may be taken
without a meeting if all members of the board consent to such action in writing.
Action shall be deemed to have been so taken by the board at the time the last
director signs a writing describing the action taken, unless, before such time,
any director has revoked his or her consent by a writing signed by the director
and received by the secretary or any other person authorized by the bylaws or
the board of directors to receive such a revocation. Such action shall be
effective at the time and date it is so taken unless the directors establish a
different effective time or date. Such action has the same effect as action
taken at a meeting of directors and may be described as such in any document.
ARTICLE III
COMMITTEES OF THE BOARD OF DIRECTORS
Subject to the provisions of Section 7-109-106 of the Colorado Business
Corporation Act (the "Act"), the board of directors may create one or more
committees and appoint one or more members of the board of directors to serve on
them. The creation of a committee and appointment of members to it shall
require the approval of a majority of all the directors in office when the
action is taken.
The provisions of these bylaws governing meetings, action without meeting,
notice, waiver of notice, and quorum and voting requirements of the board of
directors apply to committees and their members as well.
To the extent specified by resolution adopted from time to time by a
majority of all the directors in office when the resolution is adopted, each
committee shall exercise the authority of the board of directors with respect to
the corporate powers and the management of the business and affairs of the
Corporation, except that a committee shall not:
8
<PAGE>
(a) Authorize distributions;
(b) Approve or propose to shareholders action that the Act requires
to be approved by shareholders;
(c) Fill vacancies on the board of directors or on any of its
committees;
(d) Amend the articles of incorporation pursuant to Section 7-110-102
of the Act, as amended or superseded;
(e) Adopt, amend, or repeal bylaws;
(f) Approve a plan of merger not requiring shareholder approval;
(g) Authorize or approve reacquisition of shares, except according to
a formula or method prescribed by the board of directors; or
(h) Authorize or approve the issuance or sale of shares, or a
contract for the sale of shares, or determine the designation and
relative rights, preferences, and limitations of a class or
series of shares; except that the board of directors may
authorize a committee or an officer to do so within limits
specifically prescribed by the board of directors.
The creation of, delegation of authority to, or action by, a committee
does not alone constitute compliance by a director with applicable standards of
conduct.
ARTICLE IV
OFFICERS
1. GENERAL. The Corporation shall have as officers a president, a
secretary, and a chief financial officer, who shall be appointed by the board of
directors. The board of directors may appoint such other officers, including a
chairman of the board, as they may consider necessary. The board of directors
and such other officers as the board of directors may authorize from time to
time, acting singly, may appoint as additional officers one or more vice
presidents, assistant secretaries, assistant treasurers, and such other
subordinate officers as the board of directors or such other appointing officers
deem necessary or appropriate. The officers of the Corporation shall hold
their offices for such terms and shall exercise such authority and perform such
duties as shall be determined from time to time by these bylaws, the board of
directors, or (with respect to officers whom are appointed by the appointing
officers) the persons appointing them; provided, however, that the board of
directors may change the term of offices and the authority of any officer
appointed by the appointing officers. Any two or more offices may be held by
the same person. The officers of the Corporation shall be natural persons at
least eighteen years old.
9
<PAGE>
2. TERM. Each officer shall hold office from the time of appointment
until the time of removal or resignation pursuant to Section IV.3. or until the
officer's death.
3. REMOVAL AND RESIGNATION. Any officer appointed by the board of
directors may be removed at any time by the board of directors. Any officer
appointed by an appointing officer may be removed at any time by the board of
directors or by the person appointing the officer. Any officer may resign at
any time by giving written notice of resignation to any director (or to any
director other than the resigning officer if the officer is also a director), to
the chief executive officer, to the president, to the secretary, or to the
officer who appointed the officer. Notwithstanding this Section IV.3, a
resignation may constitute a breach of contract. Acceptance of such resignation
shall not be necessary to make it effective, unless the notice so provides.
4. PRESIDENT. The president shall preside at all meetings of
shareholders, and the president shall also preside at all meetings of the board
of directors unless the board of directors has appointed a chairman, vice
chairman, or other officer of the board and has authorized such person to
preside at meetings of the board of directors instead of the president. Subject
to the direction and control of the board of directors, the president shall be
the chief executive officer of the Corporation and as such shall have general
and active management of the business of the Corporation. The president may
negotiate, enter into, and execute contracts, deeds, and other instruments on
behalf of the Corporation as are necessary and appropriate to the conduct of the
business and affairs of the Corporation or as are approved by the board of
directors. The president shall have such additional authority and duties as are
appropriate and customary for the office of president and chief executive
officer, except as the same may be expanded or limited by the board of directors
from time to time.
5. VICE PRESIDENT. The vice president, if any, or, if there are more
than one, the vice presidents in the order determined by the board of directors
or the president (or, if no such determination is made, in the order of their
appointment), shall be the officer or officers next in seniority after the
president. Each vice president shall have such authority and duties as are
prescribed by the board of directors or president. Upon the death, absence, or
disability of the president, the vice president, if any, or, if there are more
than one, the vice presidents in the order determined by the board of directors
or the president, shall have the authority and duties of the president.
6. SECRETARY. The secretary shall be responsible for the preparation and
maintenance of minutes of the meetings of the board of directors and of the
shareholders and of the other records and information required to be kept by the
Corporation under section 7-116-101 of the Act and for authenticating records of
the Corporation. The secretary, president or other authorized officer shall
give, or cause to be given, notice of all meetings of the shareholders and
special meetings of the board of directors. The secretary will keep the minutes
of such meetings, have charge of the corporate seal and have authority to affix
the corporate seal to any instrument requiring it (and, when so affixed, it may
be attested by the secretary's signature), be responsible for the maintenance of
all other corporate records and files and for the preparation and filing of
reports to governmental agencies (other than tax returns), and have such other
authority and duties as are
10
<PAGE>
appropriate and customary for the office of secretary, except as the same may be
expanded or limited by the board of directors from time to time.
7. ASSISTANT SECRETARY. The assistant secretary, if any, or, if there
are more than one, the assistant secretaries in the order determined by the
board of directors or the secretary (or, if no such determination is made, in
the order of their appointment) shall, under the supervision of the secretary,
perform such duties and have such authority as may be prescribed from time to
time by the board of directors or the secretary, and shall have such other
authority and duties as are appropriate and customary for the office of
assistant secretary, except as the same may be expanded or limited by the board
of directors from time to time. Upon the death, absence, or disability of the
secretary, the assistant secretary, if any, or, if there are more than one, the
assistant secretaries in the order designated by the board of directors or the
secretary (or, if no such determination is made, in the order of their
appointment), shall have the authority and duties of the secretary.
8. CHIEF FINANCIAL OFFICER. The chief financial officer shall have
control of the funds and the care and custody of all stocks, bonds, and other
securities owned by the Corporation, and shall be responsible for the
preparation and filing of tax returns. The chief financial officer shall
receive all moneys paid to the Corporation and, subject to any limits imposed by
the board of directors, shall have authority to give receipts and vouchers, to
sign and endorse checks and warrants in the Corporation's name and on the
Corporation's behalf, and give full discharge for the same. The chief financial
officer shall also have charge of disbursement of funds of the Corporation,
shall keep full and accurate records of the receipts and disbursements, and
shall deposit all moneys and other valuable effects in the name and to the
credit of the Corporation in such depositories as shall be designated by the
board of directors. The chief financial officer shall have such additional
authority and duties as are appropriate and customary for the office of chief
financial officer, except as the same may be expanded or limited by the board of
directors from time to time.
9. ASSISTANT TREASURER. The assistant treasurer, if any, or, if there
are more than one, the assistant treasurers in the order determined by the board
of directors or the treasurer (or, if no such determination is made, in the
order of their appointment) shall, under the supervision of the treasurer, have
such authority and duties as may be prescribed from time to time by the board of
directors or the treasurer. The assistant treasurer shall have such additional
authority and duties as are appropriate and customary for the office of
assistant treasurer, except as the same may be expanded or limited by the board
of directors from time to time. Upon the death, absence, or disability of the
treasurer, the assistant treasurer, if any, or if there are more than one, the
assistant treasurers in the order determined by the board of directors or the
treasurer (or, if no such determination is made, in the order of their
appointment), shall have the authority and duties of the treasurer.
10. COMPENSATION. Officers shall receive such compensation for their
services as may be authorized or ratified by the board of directors. Election
or appointment of an officer shall not of itself create a contractual right to
compensation for services performed as such officer.
11
<PAGE>
ARTICLE V
INDEMNIFICATION
1. DIRECTORS. The corporation shall indemnify directors of the
corporation in their capacities as directors pursuant to the procedures set
forth in, and to the fullest extent authorized by, Colorado law as the same
exists or may hereafter be amended. The right to indemnification provided
herein shall be a contract right and shall include the right to be paid by the
corporation in accordance with Colorado law for expenses incurred in advance of
any proceeding's final disposition.
2. OFFICERS, EMPLOYEES, FIDUCIARIES AND AGENTS. The corporation may
indemnify officers, employees, fiduciaries and agents of the corporation to the
same extent as is permitted for directors under Colorado law (and to a greater
extent if consistent with law). No such indemnification shall be made without
the prior approval of the Board of Directors and the determination by the Board
of Directors that such indemnification is permissible.
3. INSURANCE. The corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee, fiduciary and agent of the
corporation or another corpora tion, partnership, joint venture, trust, or
other enterprise against any expense, liability or loss whether or not the
corporation would have the power to indemnify such person against such expense,
liability or loss under Colorado law.
4. NOT EXCLUSIVE. The foregoing rights of indemnification shall not be
exclusive of other rights to which any director, officer, employee or agent may
be entitled as a matter of law.
ARTICLE VI
SHARES
1. CERTIFICATES. Certificates representing shares of the capital stock
of the Corporation shall be in such form as is approved by the board of
directors and shall be signed by the chairman or vice chairman of the board of
directors (if any), or the president or any vice president, and by the secretary
or an assistant secretary or the chief financial officer or an assistant
treasurer. All certificates shall be consecutively numbered, and the names of
the owners, the number of shares, and the date of issue shall be entered on the
books of the Corporation. Each certificate representing shares shall state upon
its face:
(a) That the Corporation is organized under the laws of the State of
Colorado;
(b) The name of the person to whom issued;
(c) The number and class of the shares and the designation of the
series, if any, that the certificate represents;
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<PAGE>
(d) The par value, if any, of each share represented by the
certificate;
(e) If the Corporation is authorized to issue different classes or
series of shares, a conspicuous statement, on the front or back of each
certificate, that the Corporation will furnish to the shareholder, on
request in writing and without charge, information concerning the
designations, preferences, limitations, and relative rights applicable to
each class, the variations in preferences, limitations, and rights
determined for each series, and the authority of the board of directors to
determine variations for future classes or series; and
(f) Any restrictions imposed by the Corporation upon the transfer of
the shares represented by the certificate.
2. FACSIMILE SIGNATURES. Where a certificate is signed:
(a) By a transfer agent other than the Corporation or its employee, or
(b) By a registrar other than the Corporation or its employee, any or
all of the officers' signatures on the certificate required by Section
VI.1. may be facsimile. If any officer, transfer agent or registrar who
has signed, or whose facsimile signature or signatures have been placed
upon, any certificate, shall cease to be such officer, transfer agent, or
registrar, whether because of death, resignation, or otherwise, before the
certificate is issued by the Corporation, it may nevertheless be issued by
the Corporation with the same effect as if he or she were such officer,
transfer agent or registrar at the date of issue.
3. TRANSFERS OF SHARES. Transfers of shares shall be made on the books
of the Corporation only upon presentation of the certificate or certificates
representing such shares properly endorsed by the person or persons appearing
upon the face of such certificate to be the owner, or accompanied by a proper
transfer or assignment separate from the certificate, except as may otherwise be
expressly provided by the statutes of the State of Colorado or by order of a
court of competent jurisdiction. The officers or transfer agents of the
Corporation may, in their discretion, require a signature guaranty before making
any transfer. The Corporation shall be entitled to treat the person in whose
name any shares are registered on its books as the owner of those shares for all
purposes and shall not be bound to recognize any equitable or other claim or
interest in the shares on the part of any other person, whether or not the
Corporation shall have notice of such claim or interest.
4. SHARES HELD FOR ACCOUNT OF ANOTHER. The board of directors may adopt
by resolution a procedure whereby a shareholder of the Corporation may certify
in writing to the Corporation that all or a portion of the shares registered in
the name of such shareholder are held for the account of a specified person or
persons. The resolution shall set forth:
13
<PAGE>
(a) The classification of shareholders who may certify;
(b) The purpose or purposes for which the certification may be made;
(c) The form of certification and information to be contained herein;
(d) If the certification is with respect to a record date or closing
of the stock transfer books, the time after the record date or the closing
of the stock transfer books within which the certification must be received
by the Corporation; and
(e) Such other provisions with respect to the procedure as are deemed
necessary or desirable. Upon receipt by the Corporation of a certification
complying with the procedure, the persons specified in the certification
shall be deemed, for the purpose or purposes set forth in the
certification, to be the holders of record of the number of shares
specified in place of the shareholder making the certification.
ARTICLE VII
MISCELLANEOUS
1. CORPORATE SEAL. The board of directors may adopt a seal, circular in
form and bearing the name of the Corporation and the words "SEAL" and
"COLORADO," which, when adopted, shall constitute the seal of the Corporation.
The seal may be used by causing it or a facsimile of it to be impressed,
affixed, manually reproduced, or rubber stamped with indelible ink.
2. FISCAL YEAR. The board of directors may, by resolution, adopt a
fiscal year for the Corporation.
3. RECEIPT OF NOTICES BY THE CORPORATION. Notices, shareholder writings
consenting to action, and other documents or writings shall be deemed to have
been received by the Corporation when they are received:
(a) At the registered office of the Corporation in the State of
Colorado;
(b) At the principal office of the Corporation (as that office is
designated in the most recent document filed by the Corporation with the
Secretary of State for the State of Colorado designating a principal
office) addressed to the attention of the secretary of the Corporation;
(c) By the secretary of the Corporation wherever the secretary may be
found; or
(d) By any other person authorized from time to time by the board of
directors, the president, or the secretary to receive such writings,
wherever such person is found.
14
<PAGE>
4. AMENDMENT OF BYLAWS. These bylaws may at any time and from time to
time be amended, supplemented, or repealed by the board of directors.
5. INTERESTED TRANSACTIONS. For every material transaction to which the
corporation is to be a party and in which any affiliate of the corporation, or
any associate or affiliate of the foregoing, has an indirect or direct material
interest, the terms of the transaction will be no less favorable to the
corporation than could be obtained from a nonaffiliated third party for similar
goods, services or real or personal property. All material affiliated
transactions and loans, and any forgiveness of loans, must be approved by a
majority of the corporation's independent directors who do not have an interest
in the transaction and who had access, at the corporation's expense, to the
corporation's or independent legal counsel.
CERTIFICATE
I hereby certify that the foregoing Bylaws, consisting of fifteen (15) pages,
including this page, constitute the Bylaws of Eldorado Artesian Springs, Inc.
adopted by the Board of Directors of the corporation as of December 1998.
/s/ Douglas A. Larson
-------------------------
15
<PAGE>
EXHIBIT 4.1
NUMBER SHARES
[LOGO] CUSIP 28468C 10 9
SEE REVERSE FOR
CERTAIN DEFINITIONS
ELDORADO ARTESIAN SPRINGS, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF COLORADO
$.001 PAR VALUE COMMON STOCK
THIS CERTIFIES THAT ***************SPECIMEN*****************is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK $.001 PAR VALUE OF
ELDORADO ARTESIAN SPRINGS, INC.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon the surrender of this Certificate properly
endorsed.
This Certificate is not valid until countersigned by the Transfer Agent.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated:
/s/ Douglas A. Larson [Corporate Seal] /s/ Kevin M. Sipple
Secretary President
COUNTERSIGNED:
CORPORATE STOCK TRANSFER, INC.
1675 Broadway, Suite 1480
Denver, Colorado 80202
By
-------------------------------------
Transfer Agent and Registrar Authorized
Signature
<PAGE>
[BACK OF CERTIFICATE]
ELDORADO ARTESIAN SPRINGS, INC.
TRANSFER FEE: $6.00 PER NEW CERTIFICATE
The Corporation shall furnish, without charge, to each shareholder who
requests, a full statement of the powers, designations, preferences, limitations
and relative rights of the shares of each class of stock or series thereof and
the variations in the relative rights and preferences between the shares of each
series, and the qualifications, limitations or restrictions of such preferences
or such rights and the authority of the board of directors to fix and determine
the relative rights and preferences of subsequent series.
- --------------------------------------------------------------------------------
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM--as tenants in common UNIF GIFT MIN ACT--______ Custodian ______
TEN ENT--as tenants by the entireties (Cust) (Minor)
JT TEN--as joint tenants with right of under Uniform Gifts to
survivorship and not as tenants Minors Act ____________
in common (State)
Additional abbreviations may also be used though not in the above list.
________________________________________________________________________________
For Value Received, _______________________________________ hereby sell,
assign and transfer unto
________________________________________________________________________________
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
(Please print or typewrite name and address of assignee)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
_______________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated _______________________________ X_______________________________________
________________________________________
SIGNATURE MUST BE GUARANTEED BY A NOTICE: The signature of this assignment
COMMERCIAL BANK OR TRUST COMPANY must correspond with the name as written
OR MEMBER FIRM OF ONE OF THE upon the face of the certificate in
FOLLOWING STOCK EXCHANGES: NEW YORK every particular, without alteration or
STOCK EXCHANGE, PACIFIC STOCK enlargement or any change whatever.
EXCHANGE, AMERICAN STOCK EXCHANGE,
MIDWEST STOCK EXCHANGE.
<PAGE>
EXHIBIT 10.1
ELDORADO ARTESIAN SPRINGS, INC.
1997 STOCK OPTION PLAN
(Amended and Restated as of July 1, 1999)
I. PURPOSE
The ELDORADO ARTESIAN SPRINGS, INC. STOCK OPTION PLAN ("PLAN") provides
for the grant of Stock Options to employees, directors and consultants of
Eldorado Artesian Springs, Inc. (the "COMPANY"), and such of its subsidiaries
(as defined in Section 424(f) of the Internal Revenue Code of 1986, as amended
(the "CODE")), as the Board of Directors of the Company (the "BOARD") shall from
time to time designate ("PARTICIPATING SUBSIDIARIES") in order to advance the
interests of the Company and its Participating Subsidiaries through the
motivation, attraction and retention of key personnel.
II. INCENTIVE STOCK OPTIONS AND NON-INCENTIVE STOCK OPTIONS
The Stock Options granted under the Plan may be either:
a) Incentive Stock Options ("ISOS") which are intended to be
"Incentive Stock Options" as that term is defined in Section 422 of the
Code; or
b) Nonstatutory Stock Options ("NSOS") which are intended to be
options that do not qualify as "Incentive Stock Options" under Section 422
of the Code.
All Stock Options shall be ISOs only to the extent specified in the Option
Agreement. Subject to the other provisions of the Plan, a Participant may
receive ISOs and NSOs at the same time, provided that the ISOs and NSOs are
clearly designated as such, and the exercise of one does not affect the exercise
of the other.
Except as otherwise expressly provided herein, all of the provisions and
requirements of the Plan relating to Stock Options shall apply to ISOs and NSOs.
III. ADMINISTRATION
The Plan shall be administered by the Board, or by a committee composed
solely of two or more directors ("COMMITTEE") each of whom is a Non-Employee
Director. The Committee or the Board, as the case may be, shall have full
authority to administer the Plan, including authority to interpret and construe
any provision of the Plan and any Stock Options granted thereunder, and to adopt
such rules and regulations for administering the Plan as it may deem necessary
in order to
<PAGE>
comply with the requirements of the Code or in order that Stock Options that are
intended to be ISOs will be classified as incentive stock options under the
Code, or in order to conform to any regulation or to any change in any law or
regulation applicable thereto. The Board shall have the power to reprice and
accelerate the vesting of Stock Options. The Board may reserve to itself any of
the authority granted to the Committee as set forth herein, and it may perform
and discharge all of the functions and responsibilities of the Committee at any
time that a duly constituted Committee is not appointed and serving. All
references in this Plan to the "Committee" shall be deemed to refer to the Board
whenever the Board is discharging the powers and responsibilities of the
Committee, and to any special committee appointed by the Board to administer
particular aspects of this Plan.
All actions taken and all interpretations and determinations made by the
Committee in good faith (including determinations of Fair Market Value) shall be
final and binding upon all Participants, the Company and all other interested
persons. No member of the Committee shall be personally liable for any action,
determination or interpretation made in good faith with respect to this Plan,
and all members of the Committee shall, in addition to their rights as
directors, be fully protected by the Company with respect to any such action,
determination or interpretation. Rule 16b-3 under the Securities Exchange Act
of 1934 (the "EXCHANGE ACT") provides that the grant of a stock option to a
director or officer of a company will be exempt from the provisions of Section
16(b) of the Exchange Act if the conditions set forth in that Rule are
satisfied. Unless otherwise specified by the Committee, grants of Stock Options
hereunder to individuals who are officers or directors of the Company shall be
made in a manner that satisfies the conditions of that Rule.
IV. DEFINITIONS
4.1. "STOCK OPTION." A Stock Option is the right granted under the Plan
------------
to an Employee, director, or consultant to purchase, at such time or times and
at such price or prices ("OPTION PRICE") as are determined by the Committee, the
number of shares of Common Stock determined by the Committee.
4.2. "COMMON STOCK." A share of Common Stock means a share of authorized
------------
common stock of the Company.
4.3. "FAIR MARKET VALUE." If the Common Stock is traded publicly, the
-----------------
Fair Market Value of a share of Common Stock on any date shall be the average of
the representative closing bid and asked prices, as quoted by the National
Association of Securities Dealers, Inc. through NASDAQ (its automated system for
reporting quotes), for the date in question, or, if the Common Stock is listed
on the NASDAQ National System or is listed on a national stock exchange, the
officially quoted closing price on NASDAQ or such exchange, as the case may be,
on the date in question. If there is no market for the Common Stock, the Fair
Market Value of a share of Common Stock on any date shall be determined in good
faith by the Committee after such consultations with outside legal, accounting
and other experts as the Committee may deem advisable, and the Committee may
maintain a written record of its method of determining such value.
4.4. "EMPLOYEE." An Employee is an employee of the Company or any
--------
Participating Subsidiary.
<PAGE>
4.5. "PARTICIPANT." A Participant is an Employee, director or consultant
-----------
to whom a Stock Option is granted.
4.6. "NON-EMPLOYEE DIRECTOR." A Non-Employee Director is a person who
---------------------
satisfies the definition of a "non-employee director" set forth in Rule 16b-3
under the Exchange Act or any successor rule or regulation, as it may be amended
from time to time.
4.7 "CORPORATE TRANSACTION." A Corporate Transaction shall mean one or
---------------------
more of the following transactions unless persons who were holders of
outstanding voting capital stock of the Company which was outstanding
immediately prior to such transaction are immediately after such transaction
holders of 51% or more of the outstanding voting capital stock of the surviving
or acquiring entity (or equivalent equity interest if the entity is not a
corporation): (i) a merger, consolidation or acquisition (ii) a share exchange
(with or without a stockholder vote) in which 95% or more of the outstanding
capital stock of the Company is exchanged for capital stock of another
corporation; or (iii) the sale, transfer or other disposition of all or
substantially all of the Company's assets.
4.8 "SECURITIES ACT." Securities Act shall mean the Securities Act of
--------------
1933, as amended.
4.9 "CHANGE IN CONTROL." Change in Control shall mean any of the following
-----------------
events occurring after October 27, 1997.
A. If any one Person (as defined below), in a single transaction or in
a series of transactions shall purchase or otherwise acquire or become the
beneficial owner of securities of the Company representing sixty percent (60%)
or more of the combined voting power of the Company's then outstanding voting
securities (including any voting securities issuable upon conversion of
convertible securities of the Company held by such Person).
B. If at any annual or special meeting of Company stockholders
following a contested election the Board of Directors of the Company shall cease
to be an Authorized Board. For purposes of this paragraph, a "CONTESTED
ELECTION" shall mean (i) an election contest subject to Rule 14a-11 under the
Exchange Act or (ii) an election which would have been subject to Rule 14a-11 if
at the time of such election the Company had securities registered pursuant to
Section 12 of the Exchange Act.
C. If a change of control of the Company (i) required to be reported
in accordance with Item 6 of Schedule 14A under the Exchange Act, or (ii) which
would be required to be reported in accordance with Item 6 of Schedule 14A if at
the time of such election the Company had securities registered pursuant to
Section 12 of the Exchange Act, has otherwise occurred, unless a Constitutional
Majority of an Authorized Board approves the change of control and specifically
waives the application of this section.
D. A dissolution or liquidation of the Company.
<PAGE>
E. A sale of all or substantially all the Company's assets.
F. A determination by the Board or the Committee (as applicable), in
its sole discretion, that there has been a change in control of the Company.
For purposes of this Section 4.9 "PERSON" shall have the meaning
set forth in Sections 13(d) and 14(d)(2) of the Exchange Act, as in effect on
the date thereof, and shall include, without limitation, any "AFFILIATE" or
"ASSOCIATE" of such Person (as those terms are used in Rule 12b-2 under the
Exchange Act); provided, however, that the term "Person" shall not include the
Company or any trustee or other fiduciary holding securities under any employee
benefit plan of the Company. For purposes of this Section 4.9, (i) beneficial
ownership shall be computed in accordance with Rule 13d-3 under the Exchange
Act; and (ii) "AUTHORIZED BOARD" shall mean a Board of Directors of the Company
of which a number of directors equal to a majority of the authorized number of
directors constituting the entire Board, including vacancies (a "CONSTITUTIONAL
MAJORITY"), were either members of the Board of Directors on October 27, 1997 or
were nominated or elected a director by a Constitutional Majority at the date of
nomination or election of an Authorized Board.
4.10 "INITIAL PUBLIC OFFERING". "Initial Public Offering" shall mean the
-------------------------
Company's first offering of securities to the public which is registered
pursuant to the Securities Act.
V. ELIGIBILITY AND PARTICIPATION
Grants of ISOs may be made to Employees of the Company or any Participating
Subsidiary. Grants of NSOs may be made to Employees or directors of, or
consultants to, the Company or any Participating Subsidiary. Any director of
the Company or of a Participating Subsidiary who is also an Employee shall also
be eligible to receive ISOs. The Committee shall from time to time determine
the Participants to whom Stock Options shall be granted, the number of shares of
Common Stock subject to each Stock Option to be granted to each such
Participant, and the Option Price of such Stock Options, all as provided in this
Plan. The Option Price of any ISO shall be not less than the Fair Market Value
of a share of Common Stock on the date on which the Stock Option is granted, and
the Option Price of an NSO shall be not less than eighty-five percent (85%) of
the Fair Market Value on the date the NSO is granted. If an ISO is granted to an
Employee who then owns stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company or any parent or subsidiary
corporation of the Company, the Option Price of such ISO shall be at least 110%
of the Fair Market Value of the Common Stock subject to the ISO at the time such
ISOs are granted, and such ISO shall not be exercisable after five years after
the date on which it was granted. Each Stock Option shall be evidenced by a
written agreement ("OPTION AGREEMENT") containing such terms and provisions as
the Committee may determine, subject to the provisions of this Plan.
<PAGE>
VI. SHARES OF COMMON STOCK SUBJECT TO THE PLAN
6.1. Maximum Number. The maximum aggregate number of shares of Common
--------------
Stock that may be made subject to Stock Options shall be 875,000 authorized
shares, of which no more than 300,000 authorized shares may be made available
for grant of NSOs. To the extent the aggregate Fair Market Value (determined as
of the time the ISO is granted) of the stock with respect to which ISOs are
exercisable for the first time by an individual in a particular calendar year
exceeds $100,000, such excess Stock Options shall be treated as NSOs. If any
shares of Common Stock subject to Stock Options are not purchased or otherwise
paid for before such Stock Options expire, such shares may again be made subject
to Stock Options.
6.2. Capital Changes. In the event any changes are made to the shares of
---------------
Common Stock (whether by reason of reorganization, recapitalization, stock
dividend, stock split, combination of shares, exchange of shares, change in
corporate structure or otherwise), appropriate adjustments shall be made in:
(i) the number of shares of Common Stock theretofore made subject to Stock
Options, and in the Option Price of said shares; and (ii) the aggregate number
of shares which may be made subject to Stock Options in the future. If any of
the foregoing adjustments shall result in a fractional share, the fraction shall
be disregarded, and the Company shall have no obligation to make any cash or
other payment with respect to such a fractional share.
VII. EXERCISE OF STOCK OPTIONS
7.1 Time of Exercise. Subject to the provisions of the Plan, the
----------------
Committee, in its discretion, shall determine the time when a Stock Option, or a
portion of a Stock Option, shall become exercisable, and the time when a Stock
Option, or a portion of a Stock Option, shall expire. Such time or times shall
be set forth in the Option Agreement evidencing such Stock Option. Unless
otherwise specified in an Option Agreement, a Stock Option shall become
exercisable (i) with respect to 20% of the shares subject thereto on the
anniversary of the date of grant, and (ii) with respect to 1/48th of the shares
subject thereto at the end of each month after the first anniversary of the date
of grant, (so that all Stock Options are fully vested five (5) years after the
date of grant) subject to continued employment with the Company or a
Participating Subsidiary and Section 7.4 hereof. A Stock Option shall expire,
to the extent not exercised, no later than the tenth anniversary of the date on
which it was granted, except for Stock Options granted to Directors of the
Company which Stock Options shall expire, to the extent not exercised, no later
than the fifth anniversary of the date on which it was granted. The Committee
may accelerate the vesting of any Participant's Stock Option by giving written
notice to the Participant. Upon receipt of such notice, the Participant and the
Company shall amend the Option Agreement to reflect the new vesting schedule.
The acceleration of the exercise period of a Stock Option shall not affect the
expiration date of that Stock Option.
7.2 Exchange of Outstanding Stock. The Committee, in its sole discretion,
-----------------------------
may permit a Participant to (i) surrender to the Company whole shares of Common
Stock previously acquired by the Participant and/or (ii) request that the
Company withhold whole shares of Common Stock issuable upon exercise of the
Stock Option, as part or full payment for the exercise of a Stock Option. Such
surrendered or withheld shares shall be valued at their Fair Market Value on the
date of exercise. Shares credited to a Participant shall again be available for
grant under the Plan.
<PAGE>
7.3. Use of Promissory Note; Exercise Loans. The Committee may, in its
--------------------------------------
sole discretion, impose terms and conditions, including conditions relating to
the manner and timing of payments, on the exercise of Stock Options. Such terms
and conditions may include, but are not limited to, permitting a Participant to
deliver to the Company his promissory note as full or partial payment for the
exercise of a Stock Option. The Committee, in its sole discretion, may
authorize the Company to make a loan to a Participant in connection with the
exercise of Stock Options, or authorize the Company to arrange or guarantee
loans to a Participant by a third party. Any loan by the Company or acceptance
of a promissory note shall be made in accordance with the corporate law of the
Company's state of incorporation.
7.4. Termination of Employment before Exercise. If the employment of a
-----------------------------------------
Participant who was an employee of the Company or a Participating Subsidiary
when the Stock Option was granted shall terminate for any reason other than the
Participant's death or disability, any Stock Option granted to the Participant,
to the extent then exercisable under the applicable Option Agreement(s), shall
remain exercisable after the termination of the Participant's employment for a
period of three (3) months (but not later than the specified expiration date).
If the Participant's employment is terminated because the Participant is
disabled within the meaning of Section 22(e)(3) of the Code, any Stock Option
granted to the Participant, to the extent then exercisable under the applicable
Option Agreement(s), shall remain exercisable after the termination of his
employment for a period of twelve (12) months (but not later than the specified
expiration date). If the Participant dies while employed by the Company or a
Participating Subsidiary, or during the three-month or twelve-month periods
referred to above, his Stock Options may be exercised by the Participant's
estate, duly appointed representative or beneficiary who acquires the Stock
Options by will or by the laws of descent and distribution, to the extent that
they were exercisable on the date of cessation of his employment, but no further
installments of the Participant's Stock Options will become exercisable and each
of the Participant's Stock Options shall terminate on the first anniversary of
the date of the Participant's death (but not later than the specified expiration
dates). If a Stock Option is not exercised during the applicable period, it
shall be deemed to have been forfeited and of no further force or effect.
Notwithstanding the foregoing provisions of this Section 7.4, but subject
to the other provisions of this Plan, the Option Agreement may specify longer
periods for exercise of a NSO or ISO (unless to do so in the case of an ISO
would cause the ISO not to qualify as an incentive stock option pursuant to
Section 422 of the Code) after any such an event.
Upon action of the Committee in its sole discretion, except as provided in
a written employment or consulting agreement of the Company or a Participating
Subsidiary with the Participant, which is referenced in the Option Agreement,
any Stock Option shall terminate immediately, and may not be exercised, (i) if
prior to the date of exercise Participant is terminated for cause as an Employee
of the Company or its Participating Subsidiary, or if not an Employee, for cause
as a director or consultant for the Company or its Participating Subsidiary; or
(ii) if subsequent to a Participant's termination and prior to the expiration of
the term of the Stock Option conditions arise or are discovered with respect to
a Participant that would have constituted cause for termination. "CAUSE" shall
have the meaning given to it in the Participant's written employment, consultant
or director agreement with the Company or Participating Subsidiary. If no such
written
<PAGE>
agreement exists, "cause" shall mean (i) dishonesty which is not the result of
an inadvertent or innocent mistake with respect to the Company or any of its
subsidiaries; (ii) willful misfeasance or nonfeasance of duty intended to injure
or having the effect of injuring in some material fashion the reputation,
business or business relationships of the Company or any of its subsidiaries or
any of their respective officers, directors or employees; (iii) conviction upon
a charge of any crime involving moral turpitude or a crime other than a vehicle
offense which could reflect in some material fashion unfavorably upon the
Company or any of its subsidiaries; or (iv) willful or prolonged absence from
work by the Participant (other than by reason of disability due to physical or
mental illness) or failure, neglect or refusal by the Participant to perform his
duties and responsibilities without the same being corrected upon twenty (20)
days prior written notice. In addition, unless specifically provided otherwise
in reference to this Plan in a written employment, consultant or director
agreement with the Company or Participating Subsidiary, "cause" for purposes of
this Section 7.4 shall exist (and termination of the Stock Option may occur even
if not so provided in the written employment, consultant or director agreement
with the Company or Participating Subsidiary) if the Participant materially
breaches any provision of an agreement with the Company or any of its
subsidiaries with respect to obligations regarding non-competition,
confidentiality, non-solicitation of customers, and non-hire of customers and
employees of the Company or a Subsidiary.
7.5. Disposition of Forfeited Stock Options. Any shares of Common Stock
--------------------------------------
subject to Stock Options forfeited by a Participant shall not thereafter be
eligible for purchase by the Participant, but may be made subject to Stock
Options granted to other Participants.
7.6. Conditions of Exercise. Notice of exercise shall be in the form
----------------------
attached to the Option Agreement and shall, in the discretion of the Company,
contain a representation, in the form provided by the Company, that the shares
are being purchased for investment only and not for resale or distribution, and
such other representations and agreements as the Company may reasonably require,
and may in addition require as a condition of exercise that the Participant
execute any stockholders agreement which is to be applicable to either: (i)
holders of 70% or more of the capital stock of the Company or (ii) holders of
70% or more of the Stock Options granted under this Plan. The Company may also
require as a condition of exercise that the Participant will agree, if requested
by the Company in connection with a public offering of the Company's securities,
to adhere to lock-up arrangements between the Company and an underwriter
involved in such public offering.
VIII. NO CONTRACT OF EMPLOYMENT
Nothing in this Plan shall confer upon the Participant the right to
continue as an employee, consultant or director of the Company or any
Participating Subsidiary, nor shall it interfere in any way with the right of
the Company, or any Participating Subsidiary, to discharge the Participant at
any time for any reason whatsoever, with or without cause. Nothing in this
Article VIII shall affect any rights or obligations of the Company or any
Participant under any written contract of employment.
IX. NO RIGHTS AS A STOCKHOLDER
<PAGE>
A Participant shall have no rights as a stockholder with respect to any
shares of Common Stock subject to a Stock Option. Except as provided in Section
6.2, no adjustment shall be made in the number of shares of Common Stock issued
to a Participant, or in any other rights of the Participant upon exercise of a
Stock Option by reason of any dividend, distribution or other right granted to
stockholders for which the record date is prior to the date of exercise of the
Participant's Stock Option. The Committee, the Board and the Company have no
continuing duty to provide a Participant with information concerning the
Company.
X. ASSIGNABILITY
No Stock Option granted under this Plan, nor any other rights acquired by
Participant under this Plan, shall be assignable or transferable by a
Participant, other than by will or the laws of descent and distribution.
Notwithstanding the preceding sentence, the Committee, in its sole discretion,
may permit the assignment or transfer of an NSO and the exercise thereof by a
person other than a Participant, on such terms and conditions as the Committee
in its sole discretion may determine. Any such terms shall be set forth in the
Option Agreement. In the event of a Participant's death, the Stock Option may
be exercised by the personal representative of the Participant's estate or by
the successor or successors in interest determined under the Participant's will
or under the applicable laws of descent and distribution. The terms of any
rights under this Plan in the hands of a transferee or assignee shall be
determined as if held by the Participant and shall be of no greater extent or
term than if the transfer or assignment had not taken place.
XI. CORPORATE TRANSACTIONS AND CHANGES IN CONTROL
11.1. At least ten (10) days prior to the consummation of a Corporate
Transaction, the Company shall give Participants written notice of the proposed
Corporate Transaction. The vesting schedules of all Stock Options shall
automatically be accelerated so that the Stock Options shall become exercisable
as to those shares which could be purchased under those vesting schedules 12
months after the date of consummation of the Corporation Transaction. In
addition, at the sole discretion of the Committee, the vesting schedule of some
or all other Stock Options may be accelerated so that all or any portion of
Stock Options outstanding under the Plan immediately prior to the consummation
of the Corporate Transaction shall, for all purposes under this Plan, become
exercisable as of such time. If a Corporate Transaction is to occur, in lieu of
allowing a Participant to exercise the Participant's Stock Options, the Board
may, in its sole discretion, require some or all Participants to accept a cash
payment in consideration for the termination of the Participant's Stock Options.
The termination shall occur immediately prior to the consummation of the
Corporate Transaction and the cash payment shall be equal to the difference
between the price per share of Common Stock in the Corporate Transaction as
determined by the Board and the exercise price of a Participant's Stock Options.
All Stock Options, to the extent not previously exercised, shall terminate upon
the consummation of such Corporate Transaction and cease to be exercisable
unless expressly assumed by the successor corporation or parent thereof.
Provided, however, that if the Corporate Transaction is to be accounted for as a
"pooling-of-interest," then unexercised stock options shall be exchanged for
similar options of the acquiror or surviving entity or voting common stock of
the acquiror or surviving entity based on the value of the options, as and to
the extent required by APB No. 16, accounting pronouncements of the Securities
and Exchange Commission,
<PAGE>
and other authoritative principles and pronouncements concerning pooling-of-
interest accounting. Notwithstanding the foregoing, the vesting of a
Participant's Stock Options shall not be accelerated (if and to the extent
requested in writing by the Participant) upon a Corporate Transaction if the
participant is a "disqualified individual" as that term is defined in Section
280G of the Internal Revenue Code.
11.2. The vesting schedules of all Stock Options shall be automatically
accelerated so that the Stock Options shall become exercisable as to all shares
subject to the Stock Options if the Participant's employment is terminated
without cause by the Company within one (1) year following a Change in Control.
"Without cause" means that "cause" did not exist as defined in Section 7.4.
11.3 The employment, consulting or directorship agreement, or the Option
Agreement of a Participant may contain terms which vary from Sections 11.1 and
11.2 upon approval of the Board and the Committee.
XII. AMENDMENT
The Board of Directors may from time to time alter, amend, suspend or
discontinue the Plan, including, where applicable, any modifications or
amendments as it shall deem advisable in order that ISOs will be classified as
incentive stock options under the Code, or in order to conform to any regulation
or to any change in any law or regulation applicable thereto; provided, however,
that no such action shall adversely affect the rights and obligations with
respect to Stock Options at any time outstanding under the Plan; and provided
further that no such action shall, without the approval of the stockholders of
the Company, (i) increase the maximum number of shares of Common Stock that may
be made subject to Stock Options (unless necessary to effect the adjustments
required by Section 6.2), (ii) materially modify the requirements as to
eligibility for participation in the Plan, or (iii) materially increase the
benefits accruing to Participants under the Plan.
XIII. REGISTRATION OF OPTIONED SHARES
The Stock Options shall not be exercisable unless the purchase of such
optioned shares is pursuant to an applicable effective registration statement
under the Securities Act and applicable state securities laws or unless, in the
opinion of counsel to the Company, the proposed purchase of such optioned shares
would be exempt from the registration requirements of the Securities Act and
from the registration or qualification requirements of applicable state
securities laws. Any certificates for such shares shall bear such legends as
deemed appropriate by the Committee.
XIV. WITHHOLDING TAXES
14.1 Satisfaction of Withholding Obligations. The Company or
----------------------------------------
Participating Subsidiary may take such steps as it may deem necessary or
appropriate for the withholding of any taxes or funds which the Company or the
Participating Subsidiary is required by any law or regulation of any
governmental authority, whether federal, state or local, domestic or foreign, to
withhold in connection with any Stock Options (collectively, "WITHHOLDING
OBLIGATIONS"). Such steps may include, by way of example only and not
limitation, (i) requiring a Participant to remit to the Company in
<PAGE>
cash an amount sufficient to satisfy such Withholding Obligations; (ii) allowing
the Participant to tender to the Company shares of Common Stock, the Fair Market
Value of which at the tender date the Committee determines to be sufficient to
satisfy such Withholding Obligations; (iii) withholding shares of Common Stock
otherwise issuable upon the exercise of a Stock Option and which have a Fair
Market Value at the exercise date sufficient to satisfy such Withholding
Obligations; or (iv) any combination of the foregoing.
14.2 Securities Law Restrictions on Satisfaction of Withholding
----------------------------------------------------------
Obligations. Notwithstanding any other provisions of the Plan, a Participant who
- -----------
is subject to Section 16(b) of the Exchange Act shall not be permitted to
satisfy Withholding Obligations in the manner set forth in clauses (ii) or (iii)
of Section 14.1 hereof prior to the expiration of six months after the date on
which the applicable Stock Option was granted, except in the event of the death
or Disability of the Participant, unless the Company is advised by its counsel
that such elections may be permitted pursuant to Section 16 of the Exchange Act
or any rule or interpretation of the U.S. Securities and Exchange Commission
thereunder. Except with the consent of the Committee, a Participant who is
subject to Section 16(b) of the Exchange Act may not satisfy Withholding
Obligations in the manner set forth in clauses (ii) or (iii) of Section 14.1
other than (i) during the 10-day window period beginning on the third business
day following the date of release for publication of the Company's quarterly and
annual summary statements of sales and earnings and ending on the twelfth
business day following such date or (ii) at least six months prior to the date
as of which the income attributable to the exercise of such Stock Option is
recognized under the Code.
14.3 Notification of Inquiries and Agreements. Each Participant shall
----------------------------------------
notify the Company in writing within 10 days after the date such Participant (i)
first obtains knowledge of any Internal Revenue Service inquiry, audit,
assertion, determination, investigation, or question relating in any manner to
the value of any shares of Common Stock or Stock Options granted or received
hereunder; (ii) includes or agrees (including, without limitation, in any
settlement, closing or other similar agreement) to include in gross income with
respect to any shares of Common Stock or Stock Options received or granted
hereunder (A) any amount in excess of the amount reported on Form 1099 or Form
W-2 to such Participant by the Company, or (B) if no such Form was received, any
amount; (iii) exercises, sells, disposes of, or otherwise transfers (other than
to such Person's successors, heirs, executors or administrators, as the case may
be) a Stock Option acquired pursuant to this Plan; or (iv) sells, disposes of,
or otherwise transfers (other than to such Person's successors, heirs, executors
or administrators, as the case may be) shares of Common Stock acquired pursuant
to the exercise of an Incentive Stock Option within the Disqualified Period.
Upon request, a Participant shall provide to the Company any information or
document relating to any event described in the preceding sentence which the
Company (in its sole discretion) requires in order to calculate and substantiate
any change in the Company's tax liability as a result of such event.
"DISQUALIFIED PERIOD" means, in the case of any Incentive Stock Option, the
period beginning on the date such Stock Option is granted and ending on the
later of the date (i) two years after the date such Stock Option is granted, or
(ii) one year after the transfer of any Common Stock to a Participant pursuant
to the exercise of such Stock Option.
XV. BROKERAGE ARRANGEMENTS
The Committee, in its discretion, may enter into arrangements with one or
more banks, brokers or other financial institutions to facilitate the
disposition of shares acquired upon the exercise of Stock Options including,
without limitation, arrangements for the simultaneous exercise of Stock Options
and the sale of shares acquired upon exercise.
<PAGE>
XVI. NONEXCLUSIVITY OF THE PLAN
Neither the adoption of the Plan by the Board nor the submission of the
Plan to stockholders of the Company for approval shall be construed as creating
any limitations on the power or authority of the Board to adopt such other or
additional incentive or other compensation arrangements of whatever nature as
the Board of Directors may deem necessary or desirable or preclude or limit the
continuation of any other plan, practice or arrangement for the payment of
compensation or fringe benefits to employees generally, or to any class or group
of employees, which the Company or any Participating Subsidiary now has lawfully
put into effect, including, without limitation, any retirement, pension, savings
and stock purchase plan, insurance, death and disability benefits and executive
short-term or long-term incentive plans.
XVII. EFFECTIVE DATE
This Plan was adopted by the Board of Directors on September 10, 1997 and
became effective on that date subject to the approval of the Company's
stockholders within twelve (12) months thereafter. The Company's stockholders
approved the Plan on October 27, 1997. No Stock Options shall be granted
subsequent to ten years after the effective date of the Plan. Stock Options
outstanding subsequent to ten years after the effective date of the Plan shall
continue to be governed by the provisions of the Plan.
<PAGE>
EXHIBIT 10.4
AGREEMENT
THIS AGREEMENT dated this 8th day of December, 1998, between the Farmers
Reservoir & Irrigation Company ("FRICO") and Eldorado Artesian Springs, Inc.
("Eldorado") is as follows.
WHEREAS, Eldorado desires to acquire a reliable source of replacement water
which is suitable for the purpose of replacing depletions attributable to uses
of water in Eldorado's operations in Eldorado Springs, Colorado; and
WHEREAS, FRICO has facilities and rights which are suitable for storing,
exchanging, and effectuating the delivery of such replacement water to replace
depletions arising from Eldorado's operations; and
WHEREAS, FRICO is presently negotiating an agreement with the Superior
Metropolitan District through which FRICO anticipates that it will acquire one
unit of the Windy Gap Project water ("Windy Gap Unit") from the Northern
Colorado Water Conservancy District;
NOW, THEREFORE, in consideration of an initial payment by Eldorado to FRICO
of $10,000.00, the mutual promises set forth below and other good and valuable
consider-ation, receipt and sufficiency of which is hereby acknowledged, the
parties agree as follows;
<PAGE>
1. FRICO will conclude its negotiations with the Superior Metropolitan
District through which FRICO anticipates it will be entitled to acquire the
Windy Gap Unit (equating up to 100 acre-feet of fully consumable water) and the
right to deliver the Windy Gap Unit water through an existing pipeline and a
proposed new pipeline spur into FRICO's Marshall Reservoir.
2. Any such agreement between FRICO and the Superior Metropolitan District
("FRICO/Superior Agreement") must be concluded within ninety (90) days of this
Agreement, unless such time period is extended by mutual agreement of the
parties. The terms of the FRICO/Superior Agreement must be fully acceptable to
Eldorado; or the $10,000.00 initial payment will be refunded to Eldorado and
this Agreement will terminate.
3. Upon execution of an acceptable FRICO/Superior Agreement, Eldorado shall
secure the funds for the payment of $490,000.00 to the Superior Metropolitan
District pursuant to the terms of the FRICO/Superior Agreement. Such payment
shall be made at the time of the conveyance of the Windy Gap Unit after entry of
an acceptable decree as described in paragraph 5., below. The said $490,000.00
shall be consideration for the Windy Gap Unit and consideration for FRICO's
right to use the new delivery pipeline to deliver water attributable to the
Windy Gap Unit into Marshall Lake for the benefit of Eldorado.
4. Immediately upon execution of this Agreement, FRICO and Eldorado will
cooperate in obtaining any necessary approvals, authorizations from, and
inclusions into the
2
<PAGE>
Northern Colorado Water Conservancy District and the Municipal Subdistrict which
will enable use of the Windy Gap Unit by Eldorado for replacement purposes.
5. Prior to final action on inclusion of Eldorado into the Northern
Colorado Water Conservancy District and Municipal Subdistrict, the parties shall
jointly seek the consent of the Northern Colorado Water Conservancy District to
the filing of an application by Eldorado in the District Court, Water Division
No. 1, whereby injurious out-of-priority depletions attributable to Eldorado's
uses of water will be fully replaced by exchange or direct release of water
stored pursuant to the Windy Gap Unit in Marshall Reservoir. If such consent is
not forthcoming, such application will be withdrawn and all amounts paid by
Eldorado to FRICO shall be returned. Eldorado will be the sole applicant in the
case, but the parties will cooperate in all significant case management
decisions and on the terms and conditions included in any proposed decree
submitted to the Court for consideration.
6. Within thirty (30) days after obtaining a final decree approving a
mutually acceptable plan for augmentation:
A. FRICO or Eldorado shall exercise the option to purchase the Windy
Gap Unit pursuant to the terms of the FRICO/Superior Agreement, Eldorado shall
make the $490,000.00 payment described in paragraph 3 to Superior and FRICO
shall pay $10,000.00 to Superior;
B. Eldorado shall pay FRICO $500,000.00, payable as follows:
3
<PAGE>
$150,000 down and the balance of $350,000.00 payable in ten (10) equal annual
installments, including principal and interest at the rate of nine percent (9%)
per annum. This amount shall include consideration for the operation of the
exchange of water within the FRICO System so as to make water attributable to
the Windy Gap Unit available at the headworks of the Community Canal at Eldorado
Springs, Colorado and/or to make direct releases of such water from Marshall
Lake to replace otherwise out-of-priority depletions attributable to Eldorado's
use of water at Eldorado Springs, Colorado, pursuant to the terms and conditions
set forth in the decree described in paragraph 5., above.
7. FRICO agrees that it will operate its system so as to make water
available at the headworks of the Community Canal at Eldorado Springs, Colorado
and/or to make direct releases of such water from Marshall Lake to replace
otherwise out-of-priority depletions attributable to Eldorado's use of water at
Eldorado Springs, Colorado, pursuant to the terms and conditions set forth in
the decree described in paragraph 5., above.
8. FRICO and Eldorado further agree that if Eldorado's future augmentation
requirements shall extend beyond the 100 acre-feet of water, which is the
subject of this Agreement, the parties will negotiate in good faith for
additional water which may be added to the Eldorado augmentation plan pursuant
to terms and conditions similar to those set forth herein.
4
<PAGE>
Dated the day and date above written.
FARMERS RESERVOIR & ELDORADO ARTESIAN SPRINGS,
IRRIGATION COMPANY INC.
By: /s/ Pete Roskop By: /s/ Douglas A. Larson
------------------------------------- -------------------------------------
Pete Roskop, President Douglas A. Larson, President
STATE OF COLORADO )
) ss.
COUNTY OF ADAMS )
The foregoing instrument was acknowledged before me this 8thday of
December, 1998, by Pete Roskop, President, Farmers Reservoir & Irrigation
Company.
WITNESS my hand and official seal.
My Commission Expires: November 22, 2001
/s/ Norma J. Morgan
-----------------------------------------
NOTARY PUBLIC
80 So. 27th Ave.
Brighton, CO 80601
Telephone: 303-659-7373
5
<PAGE>
STATE OF COLORADO )
) ss.
COUNTY OF BOULDER )
The foregoing instrument was acknowledged before me this 8th day of
December, 1998, by Douglas A. Larson, President, Eldorado Artesian Springs, Inc.
WITNESS my hand and official seal.
My Commission Expires: 8/8/2001
/s/ Anne Moplesh
------------------------------------
NOTARY PUBLIC
603 S. Broadway
Boulder, CO 80303
Telephone: (303) 245-6590
6
<PAGE>
EXHIBIT 10.5
EXTENSION AGREEMENT
-------------------
WHEREAS FRICO and Eldorado Springs Artesian Water Company (the "Parties") have
previously entered into an agreement with respect to, inter alia, the
acquisition and use of one unit of the Windy Gap Project water from the Northern
Colorado Water Conservancy District now owned by the Superior Metropolitan
District; and
WHEREAS paragraph 2 of said agreement provides as follows:
This agreement is contingent upon FRICO being able to conclude its
negotiations with the Superior District, as provided in paragraph 1, above,
within ninety days from the date of this agreement unless the parties to
this agreement shall mutually agree otherwise. To the extent that any term
or condition of the FRICO/Superior Agreement affects the interests of
Eldorado under this agreement, this agreement is conditional upon
Eldorado's discretionary approval of the FRICO/Superior agreement.
WHEREAS the parties as of this date are awaiting confirmation of the transfer of
one unit of Windy Gap Project water from the Superior District; and
WHEREAS the parties desire to confirm that the aforementioned Agreement remains
in full force and effect; and
WHEREAS, it is in the mutual interest of the Parties to extend the period of
time in which the confirmation of the transfer of one unit of Windy Gap Project
Water is to be afforded by Superior Metropolitan District.
NOW THEREFORE it is agreed as follows:
1. Said agreement remains in full force and effect as of this date;
2. Paragraph 2 of the Agreement is extended for an additional ninety (90) days
from the date of this Extension Agreement.
Dated this 19th day of May, 1999.
The Farmers Reservoir and Irrigation Company
By: /s/ Pete Roskop
-----------------------------------
Its President
Attest: /s/ Mary E. Hanssen
-------------------------------
Secretary
Eldorado Springs Artesian Water Co.
By: /s/ Douglas A. Larson
-----------------------------------
Its President
Attest: /s/ Kevin Sipple
-------------------------------
Secretary
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the inclusion, in this Amendment No. 2 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".
Ehrhardt Keefe Steiner & Hottman PC
July 1, 1999
Denver, Colorado
