<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 11, 1998
REGISTRATION NO. 333-50037
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
----------------
AMENDMENT NO. 2 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
COLORADO BUSINESS BANKSHARES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
COLORADO 6021 84-0826324
(STATE OR JURISDICTION (PRIMARY STANDARD (I.R.S. EMPLOYER
OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
----------------
821 SEVENTEENTH STREET
DENVER, COLORADO 80202
(303) 293-2265
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
STEVEN BANGERT
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
COLORADO BUSINESS BANKSHARES, INC.
821 SEVENTEENTH STREET
DENVER, COLORADO 80202
(303) 293-2265
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPIES OF COMMUNICATIONS TO:
KEVIN A. CUDNEY, ESQ. ANDREW L. BLAIR, JR., ESQ.
JONATHAN P. FREEDMAN, ESQ. GREGORY J. RAMOS, ESQ.
DORSEY & WHITNEY LLP SHERMAN & HOWARD, L.L.C.
REPUBLIC PLAZA BUILDING, SUITE 4400 633 SEVENTEENTH STREET
370 SEVENTEENTH STREET DENVER, COLORADO 80202
DENVER, COLORADO 80202 (303) 297-2900
(303) 629-3400
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) 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 this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
----------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED (1) PER SHARE (2) PRICE (2) REGISTRATION FEE
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par
value................. 1,610,000 shares $12.00 $19,320,000 $5,699.40
</TABLE>
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(1) Includes 210,000 shares that may be purchased by the underwriters from the
registrant to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee.
----------------
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, OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JUNE 11, 1998
1,400,000 SHARES
[LOGO OF COLORADO BUSINESS BANKSHARES, INC.]
COMMON STOCK
All of the shares of Common Stock offered hereby are offered by Colorado
Business Bankshares, Inc. Prior to the Offering, there was no public market for
the Common Stock. It is currently estimated that the initial public offering
price per share will be between $10.00 and $12.00. See "Underwriting" for a
discussion of the factors considered in determining the initial public offering
price. The Company has applied for the inclusion of the Common Stock on the
Nasdaq National Market under the symbol "COBZ" and meets the quantitative
standards for listing thereunder.
Up to 90,000 shares of the Common Stock offered hereby have been reserved for
sale to certain directors, executive officers and key employees of the Company
who have expressed an interest in purchasing shares of Common Stock in the
Offering, including Steven Bangert, the Company's Chairman of the Board and
Chief Executive Officer, and Howard R. Ross, a director of the Company.
-----------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" AT PAGE 7.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS (1) COMPANY (2)
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<S> <C> <C> <C>
Per Share................................. $ $ $
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Total (3)................................. $ $ $
</TABLE>
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(1) The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended, and to pay certain other compensation to the Underwriter. The
Underwriter has agreed with the Company that the Underwriting Discounts and
Commissions will be reduced to $ per share for up to 90,000 shares
reserved for sale to directors, executive officers and key employees. See
"Underwriting."
(2) Before deducting offering expenses payable by the Company estimated at
$480,000. See "Use of Proceeds."
(3) The Company has granted to the Underwriter an option, exercisable within 30
days after the date of this Prospectus, to purchase up to 210,000
additional shares of Common Stock solely to cover over-allotments, if any.
If the Underwriter exercises this option in full, the total Price to
Public, Underwriting Discounts and Commissions and Proceeds to Company will
be $ , $ and $ , respectively. See "Underwriting."
-----------
The shares of Common Stock are being offered by the Underwriter, when, as and
if delivered to and accepted by the Underwriter, subject to prior sale and to
certain other conditions. It is expected that delivery of the shares of Common
Stock will be made on or about , 1998.
DAIN RAUSCHER WESSELS
A DIVISION OF DAIN RAUSCHER INCORPORATED
THE DATE OF THIS PROSPECTUS IS , 1998
<PAGE>
[Map of Denver metropolitan area, indicating various locations of the Bank]
----------------
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR
DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, ANY
OTHER GOVERNMENT AGENCY OR OTHERWISE.
----------------
The Company intends to furnish its shareholders with annual reports
containing audited financial statements, together with a report from its
independent public auditors, and quarterly reports for the first three
quarters of each fiscal year containing unaudited interim financial
information. Prior to the Offering, the Company was not a reporting company
with the Securities and Exchange Commission.
----------------
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN SUCH
COMMON STOCK, AND THE IMPOSITION OF A PENALTY BID, IN CONNECTION WITH THE
OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
This summary is qualified in its entirety by the more detailed information
and the Consolidated Financial Statements and the Notes thereto included
elsewhere in this Prospectus. Unless otherwise indicated, all information in
this Prospectus (i) reflects a 4.7125-for-1 stock split of the Company's Common
Stock, par value $.01 per share (the "Common Stock"), effected in May 1998, and
(ii) assumes that the Underwriter's over-allotment option is not exercised.
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ materially from those
described in such forward-looking statements. Factors that might cause such a
difference, include, but are not limited to, those discussed under the caption
"Risk Factors." Unless the context otherwise requires, references to the
Company contained in this Prospectus include all of the Company's subsidiaries.
THE COMPANY
Colorado Business Bankshares, Inc. (the "Company") is a bank holding company
headquartered in Denver, Colorado that owns Colorado Business Bank, N.A. (the
"Bank"), a full-service, commercial banking institution with five locations in
the Denver metropolitan area. As of March 31, 1998, the Company had total
assets of $272.9 million, net loans and leases of $179.2 million and deposits
of $220.6 million. The Bank provides a broad range of sophisticated banking
products and services, including credit, cash management, investment, deposit
and trust products, to its targeted customer base of small- and medium-sized
businesses and high net worth individuals. Each of the Bank's locations
operates as a separate community bank, with significant local decision-making
authority. Support functions, such as accounting, data processing, bookkeeping,
credit administration, loan operations and investment and cash management
services, are provided centrally from the Company's downtown Denver office. As
a result of this operating approach, the Company believes that it is well
positioned as a community business bank, combining the elements of personalized
service found in community banks with sophisticated banking products and
services traditionally offered by larger regional banks. The Company believes
that its market position and experienced personnel give it the potential to
generate growth and financial returns in excess of industry averages.
The Company's objective is to build a highly profitable, customer-focused
community banking network with assets in excess of $500 million by the end of
the year 2000. The Company believes that its senior management and systems
infrastructure are adequate to support growth to this level without incurring
proportionate increases in general, administrative and other noninterest
expenses. The Company's growth and operating strategies are designed to achieve
this objective. Although management intends to build the Company primarily
through internal growth, the introduction of new product lines and de novo
branching, the Company will also explore opportunities to expand through
acquisitions of existing banks. As the next step in its growth strategy, the
Company intends to open a de novo location in south metropolitan Denver by the
end of 1998. At the same time, the Company intends to continue to execute its
operating strategy, the principal components of which are: (i) assembling a
top-quality team, (ii) expanding existing banking relationships, (iii)
emphasizing high quality customer service, (iv) capitalizing on the use of
technology, (v) achieving efficiencies and economies of scale through
centralized administrative and support operations and (vi) maintaining asset
quality and controlling interest rate risk.
The Company's approach to expansion is predicated on recruiting key personnel
to lead new initiatives. While the Company normally considers an array of new
locations and product lines as potential expansion initiatives, it generally
will proceed only upon identifying quality management personnel with a loyal
customer following in the community or product line that is the target of the
initiative. The Company believes that, by focusing on individuals who are
established in their communities and are experienced in offering sophisticated
banking products and services, it enhances its market position and adds
profitable growth opportunities while managing credit risk.
3
<PAGE>
The Company was acquired by a group of private investors in September 1994
(the "Acquisition"). At that time, the Bank's operations were conducted through
two separate banks--Equitable Bank of Littleton, located in Littleton,
Colorado, and The Women's Bank, located in downtown Denver. From December 31,
1994 to March 31, 1998, the Company's assets increased to $272.9 million from
$143.9 million, an increase of 89.6%, its net loan and lease portfolio
increased to $179.2 million from $70.6 million, an increase of 154.0%, and
deposits increased to $220.6 million (29.8% of which were noninterest-bearing
deposits) from $124.5 million, an increase of 77.2%. During that period, the
Company made several changes in operations that it believes have had a
significant positive impact on its business, including:
. ASSEMBLED EXPERIENCED MANAGEMENT TEAM. The Company assembled a senior
management team comprised primarily of experienced Colorado banking
professionals. These individuals brought to the Company a network of
existing relationships with Denver metropolitan area businesses.
. ESTABLISHED NEW LOCATIONS IN THE DENVER METROPOLITAN AREA. The Company
established three new banking locations, each staffed with bankers
experienced in their respective markets: a Boulder location, which was
opened in November 1995, a second location in Littleton, which was opened
in March 1997, and a location in West Denver, which was opened in
December 1997. As of March 31, 1998, these three locations had grown to
$53.0 million, $10.8 million and $9.7 million in assets, respectively.
. EXPANDED PRODUCT AND SERVICE OFFERINGS. Product and service offerings
introduced since the Acquisition include (i) equipment leasing, (ii) a
variety of new investment options and (iii) trust and estate
administration services, including the administration of employee benefit
plans. In addition, the Company significantly expanded the capability of
its commercial real estate lending department.
. CONSOLIDATED BANKS. The Company consolidated its two bank charters into
the Bank, which was renamed "Colorado Business Bank." The Company
believes that, by placing all of its operations under the "Colorado
Business Bank" standard, it increased its name recognition, better
described its market focus and eliminated duplicative regulatory
functions and costs.
The Company was incorporated in Colorado in 1980 as Equitable Bancorporation,
Inc. and changed its name to Colorado Business Bankshares, Inc. in September
1995. The Company's principal executive office is located at 821 Seventeenth
Street, Denver Colorado 80202, and its telephone number is (303) 293-2265.
4
<PAGE>
THE OFFERING
Common Stock offered........ 1,400,000 shares
Common Stock to be
outstanding after the
Offering................... 6,463,468 shares (1)
Proposed Nasdaq National
Market symbol.............. COBZ
Use of proceeds............. To repay indebtedness, to redeem all of the
Company's outstanding Preferred Stock and to
contribute to the capital of the Bank. See "Use
of Proceeds."
Risk factors................ The Common Stock offered hereby involves a high
degree of risk, including, without limitation,
risks relating to: the impact of economic
conditions and interest rates on the Company's
business; loan and lease losses; and the
execution of the Company's growth strategy. See
"Risk Factors."
- --------
(1) Excludes (a) 249,764 shares of Common Stock issuable upon exercise of
outstanding options held by officers, directors and employees of the
Company, (b) 273,839 shares of Common Stock reserved for issuance pursuant
to future grants of options to officers, directors and employees of the
Company and (c) 100,000 shares of Common Stock issuable upon exercise of a
warrant to be issued to the Underwriter. See "Management" and
"Underwriting."
5
<PAGE>
SUMMARY HISTORICAL FINANCIAL DATA
The summary financial data presented below is derived from the Consolidated
Financial Statements of the Company included elsewhere in this Prospectus and
should be read in conjunction with such financial statements, and the notes
thereto, and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
<TABLE>
<CAPTION>
AT OR FOR THE
THREE MONTHS ENDED AT OR FOR THE
MARCH 31, YEAR ENDED DECEMBER 31,
-------------------- --------------------------------
1998 1997 1997 1996 1995
--------- --------- --------- --------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA:
Interest income......... $ 5,377 $ 3,893 $ 18,147 $ 13,711 $ 11,231
Interest expense........ 2,018 1,561 7,016 5,323 4,400
--------- --------- --------- --------- ----------
Net interest income
before provision for
loan and lease losses.. 3,359 2,332 11,131 8,388 6,831
Provision for loan and
lease losses........... 351 146 949 493 242
--------- --------- --------- --------- ----------
Net interest income
after provision for
loan and lease losses.. 3,008 2,186 10,182 7,895 6,589
Noninterest income...... 1,005 735 3,303 1,794 1,191
Noninterest expense..... 3,015 2,446 10,387 7,827 6,632
--------- --------- --------- --------- ----------
Income before income
taxes.................. 998 475 3,098 1,862 1,148
Provision for income
taxes.................. 411 203 1,245 762 432
--------- --------- --------- --------- ----------
Net income.............. $ 587 $ 272 $ 1,853 $ 1,100 $ 716
========= ========= ========= ========= ==========
Earnings per share--
basic.................. $ 0.11 $ 0.07 $ 0.37 $ 0.29 $ 0.19
========= ========= ========= ========= ==========
Earnings per share--
diluted................ $ 0.10 $ 0.07 $ 0.36 $ 0.29 $ 0.19
========= ========= ========= ========= ==========
Weighted average common
shares and common share
equivalents
outstanding--basic..... 4,941,990 3,784,138 4,690,852 3,771,885 3,773,063
========= ========= ========= ========= ==========
Weighted average common
shares and common share
equivalents
outstanding--diluted... 5,220,531 3,900,021 4,802,778 3,826,467 3,800,147
========= ========= ========= ========= ==========
STATEMENT OF FINANCIAL
CONDITION DATA:
Total assets............ $ 272,916 $ 207,631 $ 264,059 $ 190,645 $ 160,421
Loans and leases, net... 179,211 120,687 164,091 110,748 87,310
Investments............. 57,085 62,533 58,784 57,571 50,991
Deposits................ 220,595 169,649 221,058 155,310 137,513
Note payable............ 7,500 9,750 7,500 10,000 10,500
Preferred shareholders'
equity................. 1,500 1,500 1,500 -- --
Common shareholders'
equity................. 16,915 12,934 15,925 10,189 9,066
KEY RATIOS:
Net interest
margin (1)............. 5.66% 5.28% 5.52% 5.46% 5.44%
Efficiency ratio (2).... 69.09 79.75 71.96 76.87 82.67
Return on average
assets (1)............. 0.90 0.56 0.83 0.64 0.50
Return on average common
shareholders'
equity (1)............. 12.98 9.88 12.21 11.47 8.24
Average common
shareholders' equity to
average total assets... 6.38 5.63 6.35 5.54 6.01
Average total
shareholders' equity to
average total assets... 6.95 5.63 6.85 5.54 6.01
Nonperforming assets to
total assets........... 0.45 0.33 0.31 0.36 0.58
Nonperforming loans and
leases to total loans
and leases............. 0.68 0.57 0.49 0.52 0.69
Allowance for loan and
lease losses to total
loans and leases....... 1.45 1.45 1.35 1.48 1.57
Allowance for loan and
lease losses to
nonperforming loans and
leases................. 212.78 256.05 277.19 285.22 225.97
</TABLE>
- --------
(1) The ratios for the three months ended March 31, 1998 and 1997 have been
annualized and are not necessarily indicative of the results for the entire
year.
(2) Efficiency ratio is the ratio of noninterest expense to the sum of net
interest income before provision for loan and lease losses and noninterest
income.
6
<PAGE>
RISK FACTORS
An investment in the Common Stock offered hereby involves a high degree of
risk. In addition to the other information contained in this Prospectus, the
following factors should be considered carefully. This Prospectus contains
forward-looking statements that involve risks and uncertainties. The Company's
actual results may differ from those described in such forward-looking
statements. Factors that might cause such a difference include, but are not
limited to, those discussed in the following risk factors.
IMPACT OF ECONOMIC CONDITIONS AND INTEREST RATES
The Company's operating results may be materially and adversely affected by
changes in prevailing local and national economic conditions, including
declines in real estate market values, rapid changes in interest rates and the
monetary and fiscal policies of the federal government. Substantially all of
the Company's loans and leases are to businesses and individuals in the Denver
metropolitan area, and any decline in the economy of this market area could
impact the Company adversely. Recent economic conditions in the Denver
metropolitan area have been generally more favorable than those in many other
regions of the country, but there can be no assurance that such favorable
conditions will continue to prevail. In addition, the Company's profitability
is, in part, a function of the spread between the interest rates earned on
loans and leases and the interest rates paid on deposits and other interest-
bearing liabilities. Since 1991, many banking organizations, including the
Company, have experienced historically high interest rate spreads. There can
be no assurance, however, that the Company will continue to experience such
high interest rate spreads. A decrease in interest rate spreads would have a
negative effect on the Company's business, financial condition, results of
operations and cash flows. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Net Interest Income" and "--
Asset/Liability Management," "Business--Market Area Served" and "Supervision
and Regulation--Monetary Policy."
LOAN AND LEASE LOSSES
The inability of borrowers to repay loans and leases can erode the earnings
and capital of a bank. As a community business bank, the Bank's loan and lease
portfolio is somewhat less diversified than that of a traditional community
bank because it includes a higher concentration of larger commercial loans.
The Bank maintains an allowance for loan and lease losses to provide for loan
and lease defaults and nonperformance. The allowance is based on prior
experience with loan and lease losses, as well as an evaluation of the risks
in the current loan and lease portfolio. The amount of future losses is
susceptible to changes in economic, operating and other conditions, including
changes in interest rates, that may be beyond the Company's control. Despite
the Company's efforts to estimate future loan and lease losses, such losses
may exceed the Bank's allowance for loan and lease losses. As of March 31,
1998, the Company had total nonperforming loans and leases of $1.2 million
(0.68% of total loans and leases). At the same date, the Bank's allowance for
loan and lease losses was $2.6 million (1.45% of total loans and leases and
212.78% of nonperforming loans and leases). There can be no assurance that
such allowance will be adequate to cover actual losses. Moreover, future
additions to the Bank's allowance for loan and lease losses could result in a
material decrease in the Company's net income and capital. See "Business--
Nonperforming Assets" and "--Analysis of Allowance for Loan and Lease Losses."
RISKS OF GROWTH STRATEGY
The Company's growth initiatives are based upon recruiting experienced
personnel to lead such initiatives, and, accordingly, the failure to identify
and retain such personnel would place significant limitations on the Company's
ability to execute its growth strategy. In addition, to the extent that the
Company seeks to grow by acquiring other financial institutions, it may face
significant competition from other entities, including larger regional bank
holding companies seeking to acquire such institutions. Since there are a
limited number of attractive acquisition candidates that operate in the
Company's target markets, the Company's ability to grow through acquisitions
may be significantly constrained. Moreover, any such acquisitions would be
subject to regulatory approval, and there can be no assurance that the Company
would obtain such approval. The Company
7
<PAGE>
does not have any agreement, arrangement or understanding regarding the
acquisition of any financial institution. In addition, in the event that the
Company does proceed with any acquisition, there can be no assurance that it
will be successful in integrating the acquired institution into its business.
Furthermore, the Company must maintain sufficient regulatory capital levels to
support any such acquisition. There can be no assurance that the Company will
implement its growth strategy successfully. See "Business--Growth Strategy"
and "Supervision and Regulation--The Holding Company."
DEPENDENCE ON KEY PERSONNEL
Consistent with its policy of focusing growth initiatives on the recruitment
of qualified personnel, the Company is highly dependent on the continued
services of a number of its executive officers and key employees. The loss of
the services of any of these individuals could adversely affect the Company's
business, financial condition, results of operations and cash flows. The
Company does not have key person life insurance on the life of any of these
individuals. Moreover, the Company's anticipated growth is expected to place
increased demands on its human resources and will require the recruitment of
additional middle management personnel. The failure to recruit and retain key
personnel could have a material adverse effect on the Company's business,
financial condition, results of operations and cash flows. See "Business--
Growth Strategy" and "Management."
COMPETITIVE BANKING ENVIRONMENT
The banking business in the Denver metropolitan area is highly competitive.
The Company competes for loans and deposits with other commercial banks,
savings and loan associations, finance companies, mutual funds, credit unions
and mortgage bankers. In addition to traditional financial institutions, the
Company also competes for loans with brokerage and investment banking
companies, nonfinancial institutions, including retail stores that maintain
their own credit programs, and governmental agencies that make available low
cost or guaranteed loans to certain borrowers. Particularly in times of high
interest rates, the Company also faces significant competition for deposits
from sellers of short-term money market securities and other corporate and
government securities. By virtue of their larger capital bases or affiliation
with larger multi-bank holding companies, many of the Company's competitors
have substantially greater resources and lending limits than the Company and
perform other functions that the Company offers only through correspondents.
Interstate banking is permitted in Colorado, and, since January 1, 1997,
unlimited state-wide branch banking has been permitted. As a result, the
Company may experience greater competition in its primary service areas. The
Company's business, financial condition, results of operations and cash flows
may be adversely affected by an increase in competition. Moreover, recently
enacted and proposed legislation has focused on expanding the ability of
participants in the banking industry to engage in other lines of business. The
enactment of such legislation could put the Company at a competitive
disadvantage because it may not have the capital to participate in other lines
of business to the same extent as more highly capitalized bank holding
companies. See "Business--Competition" and "Supervision and Regulation."
CONVERSION TO NEW DATA PROCESSING SYSTEM
The Company is in the process of converting to a data processing system
designed, installed and serviced by Jack Henry & Associates, Inc. (the "Jack
Henry System") and is scheduled to begin operating on the new system in June
1998. There can be no assurance that the Company will be able to complete the
conversion without temporary interruptions of service. Any such interruptions
of service could have a material adverse effect on the Company's relationships
with its customers and, therefore, its business, financial condition, results
of operations and cash flows. See "Business--Data Processing Systems."
YEAR 2000 COMPLIANCE
As the year 2000 approaches, a significant business issue has emerged
regarding how existing application software programs and operating systems can
accommodate the date value for the year 2000. Many existing software
application products, including software application products used by the
Bank, were designed to
8
<PAGE>
accommodate only a two-digit date value, which represents the year. For
example, information relating to the year 1996 is stored in the system as
"96." As a result, the year 1999 (i.e., "99") could be the maximum date value
that these systems will be able to process accurately. In response to concerns
about this issue, bank regulatory agencies have begun to monitor bank holding
companies' and banks' readiness for the year 2000 as part of the regular
examination process. In the event that a bank holding company or a bank is
determined not to be satisfactorily prepared for the year 2000, it will be
required to submit a written plan establishing a timetable for year 2000
compliance and periodic progress reports on its efforts to implement the plan.
Failure to formulate a satisfactory plan, or to implement the plan
successfully, could result in an enforcement action. The inability of the
Company to address year 2000 issues successfully could result in significant
interruptions in its operations and, therefore, could have a material adverse
effect on the Company's business, financial condition, results of operations
and cash flows. See "Business--Data Processing Systems" and "Supervision and
Regulation--The Bank--Monitoring of Year 2000 Compliance."
GOVERNMENT REGULATION AND RECENT LEGISLATION
The Company and the Bank are subject to extensive federal and state
legislation, regulation and supervision, which is intended to protect
depositors rather than shareholders of the Company. Recently enacted, proposed
and future legislation and regulations have had, and will likely continue to
have, a significant impact on the Company, the Bank and the banking industry.
Some of these legislative and regulatory changes will increase the Company's
costs of doing business and create advantages for its competitors. For
example, recently enacted and proposed legislation has focused on expanding
the ability of participants in the banking industry to engage in other lines
of business. The enactment of such legislation could put the Company at a
competitive disadvantage because it may not have the capital to participate in
other lines of business to the same extent as more highly capitalized bank
holding companies. See "Business--Competition" and "Supervision and
Regulation."
POTENTIAL LIABILITY FOR UNDERCAPITALIZED SUBSIDIARY
Under federal law, a bank holding company may be required to guarantee a
capital plan filed by an undercapitalized bank subsidiary with its primary
regulator. If the subsidiary defaults under the plan, the holding company may
be required to contribute to the capital of the subsidiary bank an amount
equal to the lesser of 5% of the bank's assets at the time it became
undercapitalized or the amount necessary to bring the bank into compliance
with applicable capital standards. Therefore, it is possible that the Company
will be required to contribute capital to the Bank or any other bank that it
may acquire in the event that such bank becomes undercapitalized. Moreover,
the Company may be required to make such capital contribution at a time when
it has other significant capital needs, and, therefore, such requirement may
adversely affect the Company's business, financial condition, results of
operations and cash flows. See "Supervision and Regulation--The Holding
Company--Capital Adequacy" and "--The Bank--Capital Adequacy."
NEED FOR TECHNOLOGICAL CHANGE
The banking industry is undergoing rapid technological change, with frequent
introductions of new technology-driven products and services. The Company's
future success will depend, in part, on its ability to address the needs of
its customers by using technology to provide products and services that will
satisfy customer demands for convenience, as well as its ability to create
additional efficiencies in its operations. Many of the Company's competitors
have substantially greater resources to invest in technological improvements.
There can be no assurance that the Company will be able to effectively
implement new technology-driven products and services or be successful in
marketing such products and services to its customers. See "Business--
Operating Strategy."
9
<PAGE>
NO PRIOR MARKET
Prior to the Offering, there was no public market for the Common Stock. The
Company has applied for the inclusion of the Common Stock on the Nasdaq
National Market. However, there can be no assurance that a market for the
Common Stock will develop or, if developed, will be sustained. See
"Description of Capital Stock."
NO DIVIDENDS SINCE ACQUISITION; RESTRICTIONS ON PAYMENTS OF DIVIDENDS
Since the Acquisition, the Company has not paid cash dividends on its Common
Stock and does not intend to pay dividends in the foreseeable future. Instead,
the Company intends to retain earnings to support the growth of its business.
Moreover, the Company's ability to pay a cash dividend on its Common Stock, if
it determines to do so, is largely dependent upon the payment of dividends by
the Bank to the Company. The Bank's ability to pay dividends to the Company is
restricted by federal regulations. Without prior regulatory approval, the Bank
cannot pay dividends during any calendar year in excess of the sum of its
earnings during that year and the two previous years (less any other
distributions to shareholders during that period). See "Dividend Policy" and
"Supervision and Regulation--The Bank--Dividend Restrictions."
CONCENTRATION OF OWNERSHIP
As of March 31, 1998, directors, executive officers and key employees of the
Company beneficially owned approximately 60.1% of the Common Stock. Upon
completion of this offering (the "Offering"), directors, executive officers
and key employees of the Company will beneficially own approximately 48.6% of
the Common Stock (including the 90,000 shares of Common Stock reserved for
sale to directors, executive officers and key employees of the Company in the
Offering). Accordingly, such persons will be in a position to exercise
substantial influence over the affairs of the Company. See "Management" and
"Principal Shareholders."
ANTI-TAKEOVER PROVISIONS
The Company's Articles of Incorporation and Bylaws include a number of
provisions that may have the effect of encouraging persons considering
unsolicited tender offers or other unilateral takeover proposals to negotiate
with the Board of Directors of the Company rather than pursue non-negotiated
takeover attempts. These provisions include preferred stock as to which the
Company's Board of Directors has the authority to issue additional series and
to fix the rights, preferences and limitations thereof without shareholder
approval, the availability for issuance of authorized but unissued Common
Stock and a classified Board of Directors, with three classes of directors
having staggered terms of three years each. See "Description of Capital Stock"
and "Management--Classified Board of Directors." Moreover, the Company has
entered into employment agreements with a number of its executive officers and
key employees that require the Company to make a lump sum payment to such
employee in an amount equal to a multiple of such employee's annual
compensation in the event that his or her employment is terminated within two
years after the occurrence of certain types of changes in control of the
Company. As of March 31, 1998, the estimated aggregate amount of such payments
that would be due if the employment of each such executive officer and key
employee were to terminate after such a change of control was $2.7 million.
See "Management--Employment Agreements." Moreover, the shareholders' agreement
between the Bank and the 20% minority shareholders of its equipment leasing
subsidiary requires any person or entity acquiring the Bank to purchase the
equity interest of such shareholders in the subsidiary in connection with such
acquisition. These anti-takeover provisions have the effect of discouraging a
change in control of the Company not approved by its Board of Directors,
thereby potentially depriving shareholders of an opportunity to sell their
shares at a substantial premium over market price. See "Description of Capital
Stock--Certain Charter and Bylaw Provisions." In addition, no person or
entity, individually or together with persons or entities acting in concert
with such person or entity, may acquire the ownership, control, right to vote
or right to acquire 10% or more of the Company's total outstanding Common
Stock, without first complying with the requirements of the Change in Bank
Control Act and the Bank Holding Company Act of 1956. These requirements also
may have the effect of delaying or preventing a change of control of the
Company. See "Supervision and Regulation."
10
<PAGE>
POSSIBLE VOLATILITY OF MARKET PRICE
The initial public offering price of the Common Stock will be determined by
negotiations between the Company and the Underwriter based upon several
factors. There can be no assurance that future market prices will equal or
exceed the initial public offering price. Following the Offering, the market
price of the Common Stock may fluctuate, depending on various factors,
including the general economy, stock market conditions, general trends in the
banking industry, announcements by the Company or its competitors and
variations in the Company's quarterly and annual operating results. See
"Underwriting."
DILUTION
Purchasers of the Common Stock offered hereby will incur substantial
immediate dilution. See "Dilution."
SHARES OF COMMON STOCK ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock in the public market
following the Offering could adversely affect the market price of the Common
Stock. Following the Offering, the Company will have outstanding 6,463,468
shares of Common Stock. As of the date of this Prospectus, the 1,400,000
shares of Common Stock offered hereby and approximately 293,264 additional
shares of Common Stock may be sold in the public market. Beginning 90 days
after the date of this Prospectus, approximately 899,805 additional shares of
Common Stock may be sold in the public market, subject to the volume
limitations and other requirements contained in Rule 144 ("Rule 144"),
promulgated under the Securities Act of 1933, as amended (the "Securities
Act"). Beginning 180 days after the date of this Prospectus, approximately
3,870,399 additional shares of Common Stock subject to lock-up agreements
between the Underwriter and the Company's directors, executive officers and
key employees, and certain other shareholders, will become available for sale
in the public market. Thereafter, substantially all of the outstanding shares
of Common Stock may be sold in the public market, subject to compliance with
Rule 144. See "Shares Eligible for Future Sale."
11
<PAGE>
USE OF PROCEEDS
Assuming an initial public offering price of $11.00 per share, the net
proceeds to the Company from the sale of the Common Stock offered hereby,
after deducting underwriting discounts and commissions and estimated offering
expenses, will be approximately $13.9 million ($16.0 million if the
Underwriter's over- allotment option is exercised in full).
The Company anticipates that approximately $7.3 million of the net proceeds
will be used to repay all remaining outstanding indebtedness under the
Company's credit facility (the "Credit Facility") with American National Bank
and Trust Company ("ANB"). The Credit Facility is secured by the Company's
pledge of all of the capital stock of the Bank. Interest on the Credit
Facility accrues at the prime rate and is payable quarterly. All outstanding
indebtedness under the Credit Facility is payable in full on June 30, 2001.
Approximately $1.5 million of the net proceeds will be used to redeem all of
the Company's outstanding Preferred Stock, including the payment of accrued
but unpaid dividends (which accrue at a variable rate that is 2.25% higher
than the prime rate and are payable quarterly). The outstanding shares of the
Preferred Stock may be redeemed by the Company at any time without premium or
penalty. All such shares of Preferred Stock were issued to an entity
affiliated with ANB in April 1997 in connection with ANB's exchange of $1.5
million of outstanding indebtedness under the Credit Facility for Preferred
Stock. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Overview." The remaining approximately $5.1 million
(36.7% of the net proceeds from the Offering) will be contributed to the
capital of the Bank. Although the Bank currently exceeds regulatory capital
requirements, the additional capital will enable it to continue asset growth.
DIVIDEND POLICY
The Company's policy is to retain its earnings to support the growth of its
business. The Board of Directors of the Company has not declared cash
dividends on the Common Stock since the Acquisition and does not plan to do so
in the foreseeable future. The ability of the Company to pay cash dividends
largely depends on the amount of cash dividends paid to it by the Bank.
Capital distributions, including dividends, by institutions such as the Bank
are subject to restrictions tied to the institution's earnings. See
"Supervision and Regulation--The Bank--Dividend Restrictions."
12
<PAGE>
DILUTION
The net tangible book value of the Company's Common Stock at March 31, 1998
was approximately $11.9 million, or approximately $2.35 per share. After
giving effect to the Offering (at an assumed initial public offering price of
$11.00 per share of Common Stock) and the application of the estimated net
proceeds therefrom, the net tangible book value of the Common Stock at March
31, 1998 would have been approximately $25.8 million, or $3.99 per share. This
represents an immediate dilution to investors of $7.01 per share, as
illustrated by the following table:
<TABLE>
<S> <C> <C>
Assumed public offering price per share....................... $11.00
Net tangible book value per share of Common Stock as of March
31, 1998..................................................... $2.35
Increase per share of Common Stock attributable to new
investors.................................................... 1.64
-----
Pro forma net tangible book value per share of Common Stock
after the Offering (1)....................................... 3.99
------
Dilution per share of Common Stock to new investors (1)....... $ 7.01
======
</TABLE>
- --------
(1) Excludes (a) 249,764 shares of Common Stock issuable upon exercise of
outstanding options held by officers, directors and employees of the
Company, (b) 273,839 shares of Common Stock reserved for issuance pursuant
to future grants of options to officers, directors and employees of the
Company and (c) 100,000 shares of Common Stock issuable upon exercise of a
warrant to be issued to the Underwriter.
The following table summarizes, as of March 31, 1998, on a pro forma basis,
the number of shares of Common Stock issued by the Company, the total
consideration received by the Company for such shares and the average price
per share of Common Stock paid by existing shareholders and by investors in
the Offering (based upon an assumed initial public offering price of $11.00
per share), before deducting the estimated underwriting discounts and
commissions and offering expenses.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------- ------------------- PRICE PER
SHARES PERCENT AMOUNT PERCENT SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders........... 5,063,468 78.3% $12,382,000 44.6% $ 2.45
New investors................... 1,400,000 21.7 15,400,000 55.4 11.00
--------- ----- ----------- -----
Total......................... 6,463,468 100.0% $27,782,000 100.0%
========= ===== =========== =====
</TABLE>
13
<PAGE>
CAPITALIZATION
The following table, which should be read in conjunction with the
Consolidated Financial Statements and related Notes thereto included elsewhere
in this Prospectus, sets forth the capitalization (including deposits) of the
Company as of March 31, 1998, and as adjusted to reflect the Offering (at an
assumed public offering price of $11.00 per share) and the application of the
estimated net proceeds therefrom.
<TABLE>
<CAPTION>
AT MARCH 31, 1998
--------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Deposits.................................................. $220,595 $220,595
======== ========
Borrowings:
Securities sold under agreements to repurchase.......... $ 16,085 $ 16,085
Federal funds purchased................................. 5,000 5,000
FHLB notes payable...................................... 3,260 3,260
Note payable............................................ 7,500 --
-------- --------
Total borrowings...................................... $ 31,845 $ 24,345
======== ========
Shareholders' equity:
Preferred Stock, $.01 par value per share; 2,000,000
shares authorized; 1,500 shares issued and outstanding,
actual; no shares issued and outstanding, as adjusted.. $ 1,500 $ --
Common Stock, $.01 par value per share; 25,000,000
shares authorized; 5,063,468 shares issued and
outstanding, actual; 6,463,468 shares issued and
outstanding, as adjusted............................... 51 65
Additional paid-in capital.............................. 12,331 26,187
Retained earnings....................................... 4,380 4,380
Net unrealized appreciation on available for sale
securities, net of taxes............................... 153 153
-------- --------
Total shareholders' equity............................ $ 18,415 $ 30,785
======== ========
</TABLE>
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company was acquired by a group of private investors in September 1994
for a purchase price of approximately $17.4 million. The purchase price was
financed, in part, by a loan obtained by the Company in the amount of $10.5
million from ANB. In connection with the Acquisition, the Company recorded (i)
a deposit intangible valued at $352,000, which was amortized over a three-year
period, and (ii) goodwill of $6.4 million, which is being amortized over a 15-
year period. The amortization of these assets adversely affects the Company's
net income, although it has no effect on its cash flow.
In March 1997, the Company completed a private placement of 1,102,725 shares
of Common Stock at a price of $3.61 per share for an aggregate of
approximately $4.0 million, which was used to fund the Company's continuing
growth. The capital raised in this transaction was provided primarily by
certain Colorado-based investors who have played a significant role in the
growth of the Company by providing deposits and loan opportunities, both
directly and indirectly through referrals. In April 1997, the Company
increased its regulatory capital by converting $1.5 million of its outstanding
indebtedness to ANB into Preferred Stock.
Since the Acquisition, the Company's objective has been to maximize its
return on shareholders' equity and to retain earnings to support growth. From
December 31, 1994 to March 31, 1998, the Company's shareholders' equity
(excluding preferred stock) increased 104.1%, from $8.3 million to $16.9
million (including the $4.0 million in additional capital raised in March 1997
in the private placement referred to above). During that same time period, the
Company's outstanding loans and leases increased 153.0%, from $71.9 million to
$181.8 million. This increase has primarily been the result of the Company's
focus on local relationship banking and commercial lending to small- and
medium-sized businesses. In addition, the Company has emphasized building and
maintaining asset quality through its credit underwriting and monitoring
process. See "Business--Lending Activities." Nonperforming assets have ranged
from 0.31% to 0.58% of total assets during this period. While the Company has
maintained asset quality, it has continued to build its allowance for loan and
lease losses. The Company's allowance for loan and lease losses was increased
122.7%, from $1.2 million as of December 31, 1994 to $2.6 million as of March
31, 1998 to maintain strong reserve coverage of the Company's growing loan and
lease portfolio.
In March 1996, the Company formed an equipment leasing subsidiary, Colorado
Business Leasing, Inc. ("CBL"). The Company owns an 80% interest in CBL and
the remaining 20% is owned by CBL's management. Prior to April 1, 1998, the
Bank purchased all leases originated by CBL and, accordingly, assumed all
credit risk associated with such leases. The Bank paid a servicing fee to CBL
for each lease, and customers sometimes paid additional origination fees
directly to CBL. As of April 1, 1998, the Company and CBL restructured their
relationship so that all leases are held by CBL, with the Bank providing CBL a
line of credit to fund the purchase of leased equipment. The Company believes
that the restructuring will not have a material effect on its consolidated
financial statements.
The Company's management has focused on developing an organization with
personnel, management systems and products that will allow it to compete
effectively and position it for growth. The cost of this process relative to
the Company's size has been high. In addition, the Company has operated with
excess capacity during the start-up phases of various projects. As a result,
the Company's earnings over the past several years have been adversely
affected by relatively high levels of noninterest expense. Salaries and
employee benefits comprised most of this overhead category, but the Company
believes that its compensation levels have allowed it to recruit and retain a
highly qualified management team capable of implementing its business
strategies. The Company believes that its compensation policies, which include
the granting of options to purchase Common Stock to many employees, have
highly motivated its employees and have enhanced its ability to maintain
customer loyalty and generate earnings. While the Company will continue to add
personnel to lead new growth
15
<PAGE>
initiatives, including middle management, it believes that its senior
management and systems infrastructure are adequate to support its anticipated
growth without incurring proportionate increases in general, administrative
and other noninterest expenses.
This discussion should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto included elsewhere in this
Prospectus. For a description of the Company's accounting policies, see Note 1
of Notes to Consolidated Financial Statements.
NET INTEREST INCOME
The largest component of the Company's net income is its net interest
income. Net interest income is the difference between interest income,
principally from loans, leases and investment securities, and interest
expense, principally on customer deposits and borrowings. Changes in net
interest income result from changes in volume, net interest spread and net
interest margin. Volume refers to the average dollar levels of interest-
earning assets and interest-bearing liabilities. Net interest spread refers to
the difference between the average yield on interest-earning assets and the
average cost of interest-bearing liabilities. Net interest margin refers to
net interest income divided by average interest-earning assets and is
influenced by the level and relative mix of interest-earning assets and
interest-bearing liabilities.
The following tables present, for the periods indicated, certain information
related to the Company's average balance sheet items or accounts and its
average yields on assets and average costs of liabilities. Such yields are
derived by dividing income or expense by the average balance of the
corresponding assets or liabilities.
16
<PAGE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
-------------------------------------------------------------
1998 1997
------------------------------ ------------------------------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE EARNED YIELD AVERAGE EARNED YIELD
BALANCE OR PAID OR COST (1) BALANCE OR PAID OR COST (1)
-------- -------- ----------- -------- -------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Federal funds sold...... $ 6,660 $ 88 5.29% $ 4,897 $ 87 7.07%
Investment securities
(2).................... 59,483 921 6.19 56,338 834 5.92
Loans and leases (3).... 173,526 4,368 10.07 117,173 2,972 10.15
Allowance for loan and
lease losses........... (2,413) -- -- (1,707) -- --
-------- ------ -------- ------
Total interest-
earning assets...... 237,256 5,377 9.07 176,701 3,893 8.81
Noninterest-earning
assets:
Cash and due from
banks................. 12,819 10,637
Other.................. 13,612 10,872
-------- --------
Total assets......... $263,687 $198,210
======== ========
LIABILITIES AND SHARE-
HOLDERS' EQUITY:
Deposits:
NOW and money market
accounts.............. $ 79,414 650 3.28 $ 61,598 481 3.12
Savings................ 6,103 40 2.59 5,858 38 2.59
Certificates of
deposit:
Under $100,000......... 19,504 246 5.04 13,211 176 5.33
$100,000 and over...... 51,317 721 5.62 32,598 442 5.42
-------- ------ -------- ------
Total interest-bearing
deposits.............. 156,338 1,657 4.24 113,265 1,137 4.02
Short-term borrowings:
Securities and loans
sold under agreements
to repurchase and
federal funds
purchased............. 11,217 150 5.33 10,775 149 5.52
FHLB notes payable..... 4,400 52 4.73 4,400 69 6.29
Long-term borrowings.... 7,500 159 8.50 9,917 206 8.32
-------- ------ -------- ------
Total interest-bearing
liabilities........... 179,455 2,018 4.50 138,357 1,561 4.51
Noninterest-bearing
demand accounts........ 64,420 46,574
-------- --------
Total deposits and
interest-bearing
liabilities........... 243,875 184,931
Other noninterest-
bearing liabilities.... 1,478 2,113
-------- --------
Total liabilities.... 245,353 187,044
Shareholders' equity.... 18,334 11,166
-------- --------
Total liabilities and
shareholders'
equity.............. $263,687 $198,210
======== ========
Net interest income..... $3,359 $2,332
====== ======
Net interest spread..... 4.57% 4.30%
===== =====
Net interest margin..... 5.66% 5.28%
===== =====
Ratio of average
interest-earning assets
to average interest-
bearing liabilities.... 132.21% 127.71%
======== ========
</TABLE>
- --------
(1) Average yield or cost for the three months ended March 31, 1998 and 1997
has been annualized and is not necessarily indicative of results for the
entire year.
(2) Yields do not include adjustments for tax-exempt interest because the
amount of such interest is not material.
(3) Loan fees included in interest income are not material. Nonaccrual loans
and leases are included in average loans and leases outstanding.
17
<PAGE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1997 1996
-------------------------- --------------------------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE EARNED YIELD AVERAGE EARNED YIELD
BALANCE OR PAID OR COST BALANCE OR PAID OR COST
-------- -------- ------- -------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Federal funds sold....... $ 5,204 $ 360 6.92% $ 2,633 $ 179 6.80%
Investment securities
(1)..................... 59,602 3,616 6.07 54,397 3,415 6.38
Loans and leases (2)..... 138,787 14,171 10.21 98,075 10,117 10.32
Allowance for loan and
lease losses............ (1,933) -- -- (1,518) -- --
-------- ------- -------- ------
Total interest-earning
assets................. 201,660 18,147 9.00 153,587 13,711 8.93
Noninterest-earning
assets:
Cash and due from
banks.................. 12,810 9,997
Other................... 9,758 9,580
-------- --------
Total assets.......... $224,228 $173,164
======== ========
LIABILITIES AND
SHAREHOLDERS' EQUITY:
Deposits:
NOW and money market
accounts............... $ 66,222 2,141 3.23 $ 63,037 1,950 3.09
Savings................. 5,780 152 2.63 5,669 150 2.65
Certificates of deposit:
Under $100,000.......... 16,942 877 5.18 9,872 445 4.51
$100,000 and over....... 35,936 2,083 5.80 26,227 1,450 5.53
-------- ------- -------- ------
Total interest-bearing
deposits............... 124,880 5,253 4.21 104,805 3,995 3.81
Short-term borrowings:
Securities and loans
sold under agreements
to repurchase and
federal funds
purchased.............. 15,059 751 4.99 5,287 377 7.13
FHLB notes payable...... 4,167 280 6.72 1,073 68 6.34
Long-term borrowings..... 8,458 732 8.65 10,417 883 8.48
-------- ------- -------- ------
Total interest-bearing
liabilities............ 152,564 7,016 4.60 121,582 5,323 4.38
Noninterest-bearing
demand accounts......... 54,706 41,070
-------- --------
Total deposits and
interest-bearing
liabilities............ 207,270 162,652
Other noninterest-bearing
liabilities............. 1,606 923
-------- --------
Total liabilities..... 208,876 163,575
Shareholders' equity..... 15,352 9,589
-------- --------
Total liabilities and
shareholders' equity... $224,228 $173,164
======== ========
Net interest income...... $11,131 $8,388
======= ======
Net interest spread...... 4.40% 4.55%
===== =====
Net interest margin...... 5.52% 5.46%
===== =====
Ratio of average
interest-earning assets
to average interest-
bearing liabilities..... 132.18% 126.32%
======== ========
</TABLE>
- --------
(1) Yields do not include adjustments for tax-exempt interest because the
amount of such interest is not material.
(2) Loan fees included in interest income are not material. Nonaccrual loans
and leases are included in average loans and leases outstanding.
18
<PAGE>
The following table illustrates, for the periods indicated, the changes in
the Company's net interest income due to changes in volume and changes in
interest rates. Changes in net interest income due to both volume and rate
have been included in the changes due to rate.
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
MARCH 31, 1998 DECEMBER 31, 1997
COMPARED WITH COMPARED WITH
THREE MONTHS ENDED YEAR ENDED
MARCH 31, 1997 DECEMBER 31, 1996
INCREASE (DECREASE) INCREASE (DECREASE)
IN NET INTEREST INCOME IN NET INTEREST INCOME
DUE TO CHANGES IN DUE TO CHANGES IN
-------------------------- ------------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL
-------- ------ -------- -------- ------ -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Federal funds sold...... $ 31 $ (30) $ 1 $ 176 $ 5 $ 181
Investments............. 47 40 87 326 (125) 201
Loans and leases........ 1,429 (33) 1,396 4,200 (146) 4,054
-------- ------ -------- ------- ------ -------
Total interest-earning
assets............... 1,507 (23) 1,484 4,702 (266) 4,436
-------- ------ -------- ------- ------ -------
Interest-bearing
liabilities:
NOW and money market
accounts............... 138 31 169 99 92 191
Savings................. 2 -- 2 3 (1) 2
Certificates of
deposits:
Under $100,000.......... 84 (14) 70 319 113 432
$100,000 and over....... 254 25 279 537 96 633
Short-term borrowings:
Securities and loans
sold under agreements
to repurchase and
federal funds
purchased.............. 6 (5) 1 696 (322) 374
FHLB notes payable...... -- (17) (17) 197 15 212
Long-term borrowings.... (50) 3 (47) (166) 15 (151)
-------- ------ -------- ------- ------ -------
Total interest-bearing
liabilities.......... 434 23 457 1,685 8 1,693
-------- ------ -------- ------- ------ -------
Net increase
(decrease) in net
interest income...... $ 1,073 $ (46) $ 1,027 $ 3,017 $ (274) $ 2,743
======== ====== ======== ======= ====== =======
</TABLE>
ASSET/LIABILITY MANAGEMENT
The Company's results of operations depend significantly on net interest
income. Like most financial institutions, the Company's interest income and
cost of funds are affected by general economic conditions and by competition
in the marketplace. Rising and falling interest rate environments can have
various impacts on net interest income, depending on the interest rate profile
(i.e., the difference between the repricing of interest- earning assets and
interest-bearing liabilities), the relative changes in interest rates that
occur when various assets and liabilities reprice, unscheduled repayments of
loans and leases and investments, early withdrawals of deposits and other
factors. As a general rule, banks with positive interest rate gaps are more
likely to be susceptible to declines in net interest income in periods of
falling interest rates, while banks with negative interest rate gaps are more
likely to experience declines in net interest income in periods of rising
interest rates. As of March 31, 1998, the Company's cumulative interest rate
gap for the period of less than one year was a positive 8.75%. Therefore,
assuming no change in the Company's gap position, a rise in interest rates is
likely to result in increased net interest income, while a decline in interest
rates is likely to result in decreased net interest income.
19
<PAGE>
The following table sets forth the estimated maturity or repricing, and the
resulting interest rate gap, of the Company's interest-earning assets and
interest-bearing liabilities at March 31, 1998. All amounts in the table are
based on contractual pricing schedules. Actual prepayment and withdrawal
experience may vary significantly from the assumptions reflected in the table.
<TABLE>
<CAPTION>
ESTIMATED MATURITY OR REPRICING AT MARCH 31, 1998
--------------------------------------------------------
THREE MONTHS
LESS THAN TO LESS THAN ONE TO OVER
THREE MONTHS ONE YEAR FIVE YEARS FIVE YEARS TOTAL
------------ ------------ ---------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Fixed rate loans...... $ 17,035 $ 25,393 $ 17,138 $ 13,351 $ 72,917
Floating rate loans... 98,336 173 1,107 140 99,756
Lease financing....... 1,108 3,401 4,659 -- 9,168
Investment securities
held to maturity and
available for sale... 16,942 28,538 10,460 1,145 57,085
Federal funds sold.... 1,500 -- -- -- 1,500
-------- -------- -------- -------- --------
Total interest-
earning assets..... $134,921 $ 57,505 $ 33,364 $ 14,636 $240,426
======== ======== ======== ======== ========
Interest-bearing
liabilities:
NOW and money market
accounts............. $ 15,910 $ 63,636 $ -- $ -- $ 79,546
Savings............... 619 1,313 3,021 1,238 6,191
Time deposits under
$100,000............. 5,003 11,871 2,125 -- 18,999
Time deposits $100,000
and over............. 30,149 17,819 2,092 7 50,067
Federal funds
purchased............ 5,000 -- -- -- 5,000
Other interest-bearing
liabilities.......... 17,155 70 1,560 560 19,345
-------- -------- -------- -------- --------
Total interest-
bearing
liabilities........ $ 73,836 $ 94,709 $ 8,798 $ 1,805 $179,148
======== ======== ======== ======== ========
Interest rate gap....... $ 61,085 $(37,204) $ 24,566 $ 12,831 $ 61,278
======== ======== ======== ======== ========
Cumulative interest rate
gap at
March 31, 1998......... $ 61,085 $ 23,881 $ 48,447 $ 61,278
======== ======== ======== ========
Cumulative interest rate
gap to total assets.... 22.38% 8.75% 17.75% 22.45%
======== ======== ======== ========
</TABLE>
To manage these relationships, the Company evaluates the following factors:
liquidity, equity, debt/capital ratio, anticipated prepayment rates, portfolio
maturities, maturing assets and maturing liabilities. The Company's Asset and
Liability Management Committee is responsible for establishing procedures that
enable the Company to achieve its goals while adhering to prudent banking
practices and existing loan and investment policies. The Company's policy is
intended to control the exposure of its operations to changing interest rates
by attempting to maintain a position within a narrow range around an "earnings
neutral position," which is defined as the mix of assets and liabilities that
generates the net interest margin that is least affected by interest rate
changes.
The Company has focused on maintaining balance between interest rate
sensitive assets and liabilities and repricing frequencies. An important
element of this focus has been to emphasize variable rate loans and
investments funded by deposits which also mature or reprice over periods of
twelve months or less.
20
<PAGE>
The following table presents, at March 31, 1998, loans and leases by
maturity in each major category of the Company's portfolio. Actual maturities
may differ from the contractual maturities shown below as a result of renewals
and prepayments. Loan renewals are evaluated in the same manner as new credit
applications.
<TABLE>
<CAPTION>
AT MARCH 31, 1998
----------------------------------------
LESS THAN ONE TO OVER
ONE YEAR FIVE YEARS FIVE YEARS TOTAL
--------- ---------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial............................ $ 65,317 $14,139 $1,869 $ 81,325
Real estate--mortgage................. 18,195 20,853 5,840 44,888
Real estate--construction............. 31,882 1,468 -- 33,350
Consumer.............................. 8,637 4,108 365 13,110
Direct financing leases............... 3,245 5,923 -- 9,168
-------- ------- ------ --------
Total loans and leases.............. $127,276 $46,491 $8,074 $181,841
======== ======= ====== ========
</TABLE>
As of March 31, 1998, of the $54.6 million of loans and leases with
maturities of one year or more, approximately $53.3 million were fixed rate
loans and leases and $1.3 million were variable rate loans and leases.
RESULTS OF OPERATIONS
The following table sets forth selected statement of income data for the
periods indicated.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE YEAR ENDED
ENDED MARCH 31, DECEMBER 31,
--------------------- -----------------------
1998 1997 1997 1996 1995
---------- ---------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income................. $ 5,377 $ 3,893 $18,147 $13,711 $11,231
Interest expense................ 2,018 1,561 7,016 5,323 4,400
---------- ---------- ------- ------- -------
Net interest income before
provision for loan and lease
losses......................... 3,359 2,332 11,131 8,388 6,831
Provision for loan and lease
losses......................... 351 146 949 493 242
---------- ---------- ------- ------- -------
Net interest income after
provision for loan and lease
losses......................... 3,008 2,186 10,182 7,895 6,589
Noninterest income.............. 1,005 735 3,303 1,794 1,191
Noninterest expense............. 3,015 2,446 10,387 7,827 6,632
---------- ---------- ------- ------- -------
Income before income taxes...... 998 475 3,098 1,862 1,148
Provision for income taxes...... 411 203 1,245 762 432
---------- ---------- ------- ------- -------
Net income...................... $ 587 $ 272 $ 1,853 $ 1,100 $ 716
========== ========== ======= ======= =======
</TABLE>
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31,
1997
Overview. Net income increased 115.8%, to $587,000 for the three months
ended March 31, 1998 from $272,000 for the three months ended March 31, 1997.
This increase was primarily due to increases of $1.0 million in net interest
income and $270,000 in noninterest income, which were partially offset by
increases in noninterest expense and income taxes. Annualized return on
average assets and annualized return on average common equity were 0.90% and
12.98%, respectively, for the three months ended March 31, 1998, compared with
0.56% and 9.88%, respectively, for the three months ended March 31, 1997.
Total assets increased by 31.4%, to $272.9 million at March 31, 1998 from
$207.6 million at March 31, 1997, primarily as a result of an increase of
$58.5 million in net loans and leases.
21
<PAGE>
Interest Income. Interest income increased 38.1%, to $5.4 million for the
three months ended March 31, 1998 from $3.9 million for the three months ended
March 31, 1997. This increase was caused primarily by an increase of $56.4
million in average loan and lease volume, which resulted in $1.4 million of
additional interest income. The yield on average interest-earning assets
increased to 9.07% from 8.81% as a result of a change in the mix of interest-
earning assets from investments to higher yielding loans and leases. Yield on
average investment securities increased to 6.19% from 5.92%, and yield on
average loans and leases decreased to 10.07% from 10.15%.
Interest Expense. Interest expense increased 29.3%, to $2.0 million for the
three months ended March 31, 1998 from $1.6 million for the three months ended
March 31, 1997, primarily due to increased volume of interest-bearing
liabilities. Average interest-bearing deposits increased $43.1 million, and
average interest-bearing liabilities increased $41.1 million, while the cost
of interest-bearing liabilities remained constant at approximately 4.50%. The
volume increase resulted in $434,000 in additional interest expense. Average
cost of interest-bearing deposits increased to 4.24% for the three months
ended March 31, 1998 from 4.02% for the three months ended March 31, 1997. The
increase in cost of interest-bearing deposits was primarily the result of an
$18.7 million increase in higher cost certificates of deposit. Average
noninterest-bearing demand accounts increased 38.3% to $64.4 million for the
three months ended March 31, 1998 from $46.6 million for the three months
ended March 31, 1997.
Provision for Loan and Lease Losses. The provision for loan and lease losses
increased 140.4%, to $351,000 for the three months ended March 31, 1998 from
$146,000 for the three months ended March 31, 1997. This increase was due
primarily to the increase in total loans and leases outstanding for the
period.
Noninterest Income. Noninterest income increased 36.7%, to $1.0 million for
the three months ended March 31, 1998 from $735,000 for the three months ended
March 31, 1997, primarily due to an increase of $398,000 in lease revenue
associated with operating leases. The Company believes that noninterest income
has not grown at as high a rate as loans and leases and deposits, in part
because the Company provides customers with the option of paying for services
in cash or by maintaining additional noninterest-bearing account balances.
Although the use of compensating balances in lieu of fees decreases
noninterest income, it increases the percentage of noninterest-bearing
deposits. At March 31, 1998, 29.8% of deposits at the Bank were noninterest-
bearing deposits.
Noninterest Expense. Noninterest expense increased 23.3%, to $3.0 million
for the three months ended March 31, 1998 from $2.4 million for the three
months ended March 31, 1997. Of this increase, approximately $281,000 was
additional personnel costs. A substantial portion of the additional personnel
costs were due to additional staff hired to accommodate growth. In addition,
$194,000 of the noninterest expense incurred was related to depreciation
expense from operating leases.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Overview. Net income increased 68.5%, to $1.9 million in 1997 from $1.1
million in 1996. This increase was primarily due to increases of $2.7 million
in net interest income and $1.5 million in noninterest income, which were
partially offset by increases in noninterest expense and income taxes. Return
on average assets and return on average common equity were 0.83% and 12.21%,
respectively, for 1997, compared with 0.64% and 11.47%, respectively, for
1996. Total assets increased by 38.5%, to $264.1 million at December 31, 1997
from $190.6 million at December 31, 1996, primarily as a result of an increase
of $53.3 million in net loans and leases.
Interest Income. Interest income increased 32.4%, to $18.1 million in 1997
from $13.7 million in 1996. This increase was caused primarily by an increase
of $40.7 million in average loan and lease volume, which resulted in $4.1
million of additional interest income. The yield on average interest-earning
assets increased to 9.00% from 8.93% as a result of a change in the mix of
interest-earning assets from investments to higher yielding loans and leases.
Yield on average investment securities decreased to 6.07% from 6.28%, and
yield on average loans and leases decreased to 10.21% from 10.32%.
22
<PAGE>
Interest Expense. Interest expense increased 31.8%, to $7.0 million in 1997
from $5.3 million in 1996, primarily due to increased volume of interest-
bearing liabilities. Average interest-bearing deposits increased $20.1 million
and average interest-bearing liabilities increased $31.0 million, while the
cost of interest-bearing liabilities increased to 4.60% from 4.38%. The volume
increase resulted in $1.7 million in additional interest expense. The increase
in cost of liabilities was primarily the result of a $9.7 million increase in
higher cost certificates of deposit. The cost of interest-bearing deposits
increased to 4.21% in 1997 from 3.81% in 1996.
Provision for Loan and Lease Losses. The provision for loan and lease losses
increased 92.5%, to $949,000 in 1997 from $493,000 in 1996. This increase was
due to the increase in total loans and leases outstanding in 1997, and was not
reflective of a deterioration of credit quality.
Noninterest Income. Noninterest income increased 84.1%, to $3.3 million in
1997 from $1.8 million in 1996, primarily due to an increase of $1.1 million
in lease revenue associated with operating leases. The Company believes that
noninterest income has not grown at as high a rate as loans and leases and
deposits, in part because the Company provides customers with the option of
paying for services in cash or by maintaining additional noninterest-bearing
account balances. Although the use of compensating balances in lieu of fees
decreases noninterest income, it increases the percentage of noninterest-
bearing deposits. At December 31, 1997, 31.2% of deposits at the Bank were
noninterest-bearing deposits.
Noninterest Expense. Noninterest expense increased 32.7%, to $10.4 million
in 1997 from $7.8 million in 1996. Of this increase, approximately $975,000
was additional personnel costs and $184,000 was related to increased occupancy
costs. A substantial portion of the additional personnel and occupancy costs
were due to additional staff hired, and office space leased, to accommodate
growth. In addition, $1.2 million of the noninterest expense incurred was
related to depreciation expense from operating leases.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Overview. Net income increased 53.6%, to $1.1 million in 1996 from $716,000
in 1995. This increase was primarily due to increases of $1.6 million in net
interest income and $603,000 in noninterest income, which were partially
offset by increases in noninterest expense and income taxes. Return on average
assets and return on average common equity were 0.64% and 11.47%,
respectively, for 1996, compared with 0.50% and 8.24%, respectively, for 1995.
Total assets increased by 18.8%, to $190.6 million at December 31, 1996 from
$160.4 million at December 31, 1995, primarily as a result of increases of
$23.4 million in net loans and leases and $2.1 million in operating leases.
Interest Income. Interest income increased 22.1%, to $13.7 million in 1996
from $11.2 million in 1995. This increase resulted primarily from increases of
$20.1 million in average loan and lease volume and $12.0 million in the
average balance of investment securities. The loan and lease volume increase
resulted in $1.9 million of additional interest income, while the investment
securities volume increase resulted in $580,000 of additional interest income.
The yield on average interest-earning assets remained relatively constant from
1995 to 1996.
Interest Expense. Interest expense increased 21.0%, to $5.3 million in 1996
from $4.4 million in 1995, primarily due to increased volume of interest-
bearing liabilities. The increases in average interest-bearing deposits of
$15.9 million and in average interest-bearing liabilities of $20.6 million
were the primary causes of the increase in interest expense. The cost of
interest-bearing liabilities increased only marginally. The volume increase
resulted in $923,000 of additional interest expense. The increase in costs of
liabilities was primarily the result of an $11.0 million increase in higher
cost certificates of deposit. The cost of interest-bearing deposits increased
only marginally.
Provision for Loan and Lease Losses. The provision for loan and lease losses
increased 103.8%, to $493,000 in 1996 from $242,000 in 1995. This increase was
due to the increase in total loans and leases outstanding in 1996, and was not
reflective of a deterioration of credit quality.
23
<PAGE>
Noninterest Income. Noninterest income increased 50.6%, to $1.8 million in
1996 from $1.2 million in 1995, due, in part, to increases of $261,000 in
lease revenue associated with operating leases and $80,000 in service charges.
Noninterest Expense. Noninterest expense increased 18.0%, to $7.8 million in
1996 from $6.6 million in 1995. Of this increase, approximately $898,000 was
additional personnel costs and $302,000 was related to increased occupancy
costs. A substantial portion of the additional personnel and occupancy costs
were due to additional staff hired, and office space leased, to accommodate
growth.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity management objective is to ensure its ability to
satisfy the cash flow requirements of depositors and borrowers and allow the
Company to meet its own cash flow needs. The Company's primary source of funds
historically has been customer deposits. Scheduled loan and lease repayments
are a relatively stable source of funds, while deposit inflows and unscheduled
loan and lease prepayments, which are influenced by fluctuations in general
interest rates, returns available on other investments, competition, economic
conditions and other factors, are relatively unstable. Company borrowings may
be used on a short-term basis to compensate for reductions in other sources of
funds (such as deposit inflows at less than projected levels). Company
borrowings may also be used on a longer term basis to support expanded lending
activities and to match the maturity or repricing intervals of assets.
Deposits increased by $65.8 million or 42.3% in 1997. The Company believes
that the increase in deposits during 1997 was the result of (i) the continuing
growth of Colorado Business Bank--Boulder, (ii) the opening of Colorado
Business Bank--West and a second location in Littleton, (iii) increased
marketing activities by the Company and (iv) customer dissatisfaction with
service at large banks owned by regional bank holding companies. The Company
anticipates that it will continue to rely primarily upon customer deposits,
sales and maturities of investment securities, loan and lease sales and
payments on loans and leases, as well as retained earnings, to provide
liquidity to fund loans and leases and purchase investment securities.
As of March 31, 1998, the Company had $48.0 million of certificates of
deposit ("CDs") with balances of more than $100,000 and maturities of less
than one year (21.7% of total deposits and 69.5% of total CDs). See
"Business--Deposits." Because the Company has ongoing, multiple product
banking relationships with the holders of most of these CDs, it believes that
such persons will continue to maintain the large majority of such funds on
deposit at the Bank after the CDs have matured, although there can be no
assurance that this will be the case. In the event that a large portion of
such funds were to be withdrawn from the Bank upon maturity, the Company would
address liquidity concerns by selling a portion of its portfolio of investment
securities. As of March 31, 1998, 88.1% of the Company's investment securities
mature or reprice within one year. See "Business--Investments."
The Company believes that the proceeds from the Offering, together with the
Company's cash flow, will be sufficient to support its operations for the
foreseeable future. If, however, additional liquidity or regulatory capital is
needed, the Company will be required to raise such capital by obtaining
additional debt or equity financing, in either the public or private markets.
There can be no assurance that such financing will be available to the Company
upon acceptable terms or at all.
EFFECTS OF INFLATION AND CHANGING PRICES
The primary impact of inflation on the Company's operations is increased
operating costs. Unlike most retail or manufacturing companies, virtually all
of the assets and liabilities of a financial institution such as the Bank are
monetary in nature. As a result, the impact of interest rates on a financial
institution's performance is generally greater than the impact of inflation.
Although interest rates do not necessarily move in the same
24
<PAGE>
direction, or to the same extent, as the prices of goods and services,
increases in inflation generally have resulted in increased interest rates.
Over short periods of time, interest rates may not move in the same direction,
or at the same magnitude, as inflation.
YEAR 2000 COMPLIANCE
As a result of the conversion to the Jack Henry System, which is designed to
be year 2000 compliant, the Company does not anticipate incurring any material
incremental costs in connection with year 2000 compliance. See "Risk Factors--
Conversion to New Data Processing System" and "--Year 2000 Compliance" and
"Business--Data Processing Systems."
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, SFAS No. 130, "Reporting Comprehensive Income," was issued.
SFAS No. 130 establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses) in a full set
of general purpose financial statements. SFAS No. 130 requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed
with the same prominence as other financial statements. SFAS No. 130 requires
that a company (a) classify items of other comprehensive income by their
nature in a financial statement and (b) display the accumulated balance of
other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of the balance sheet. This standard was
adopted in the first quarter of 1998 and did not have a significant impact on
the disclosure of operating results.
Also, in June 1997, SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," was issued. SFAS No. 131 establishes
standards for the way that public companies report selected information about
operating segments in annual financial statements and requires that those
companies report selected information about segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
Generally, financial information is required to be reported on the basis that
it is used internally for evaluating segment performance and deciding how to
allocate resources to segments. SFAS No. 131 requires that a public company
report a measure of segment profit or loss, certain specific revenue and
expense items and segment assets. SFAS No. 131 is effective for financial
statements for periods beginning after December 15, 1997. The Company will
adopt this standard for the year ended December 31, 1998 and does not
anticipate any significant effect on its disclosures.
25
<PAGE>
BUSINESS
GENERAL
Colorado Business Bankshares, Inc. (the "Company") is a bank holding company
headquartered in Denver, Colorado that owns Colorado Business Bank, N.A. (the
"Bank"), a full-service, commercial banking institution with five locations in
the Denver metropolitan area. As of March 31, 1998, the Company had total
assets of $272.9 million, net loans and leases of $179.2 million and deposits
of $220.6 million. The Bank provides a broad range of sophisticated banking
products and services, including credit, cash management, investment, deposit
and trust products, to its targeted customer base of small- and medium-sized
businesses and high net worth individuals. Each of the Bank's locations
operates as a separate community bank, with significant local decision-making
authority. Support functions, such as accounting, data processing,
bookkeeping, credit administration, loan operations and investment and cash
management services, are provided centrally from the Company's downtown Denver
office. As a result of this operating approach, the Company believes that it
is well positioned as a community business bank, combining the elements of
personalized service found in community banks with sophisticated banking
products and services traditionally offered by larger regional banks. The
Company believes that its market position and experienced personnel give it
the potential to generate growth and financial returns in excess of industry
averages.
The Company was acquired by a group of private investors in September 1994
(the "Acquisition"). At that time, the Bank's operations were conducted
through two separate banks--Equitable Bank of Littleton, located in Littleton,
Colorado, and The Women's Bank, located in downtown Denver. From December 31,
1994 to March 31, 1998, the Company's assets increased to $272.9 million from
$143.9 million, an increase of 89.6%, its net loan and lease portfolio
increased to $179.2 million from $70.6 million, an increase of 154.0%, and
deposits increased to $220.6 million (29.8% of which were noninterest-bearing
deposits) from $124.5 million, an increase of 77.2%. During that period, the
Company made several changes in operations that it believes have had a
significant positive impact on its business, including:
. ASSEMBLED EXPERIENCED MANAGEMENT TEAM. The Company assembled a senior
management team comprised primarily of experienced Colorado banking
professionals. These individuals brought to the Company a network of
existing relationships with Denver metropolitan area businesses.
. ESTABLISHED NEW LOCATIONS IN THE DENVER METROPOLITAN AREA. The Company
established three new banking locations, each staffed with bankers
experienced in their respective markets: a Boulder location, which was
opened in November 1995, a second location in Littleton, which was opened
in March 1997, and a location in West Denver, which was opened in
December 1997. As of March 31, 1998, these three locations had grown to
$53.0 million, $10.8 million and $9.7 million in assets, respectively.
. EXPANDED PRODUCT AND SERVICE OFFERINGS. Product and service offerings
introduced since the Acquisition include (i) equipment leasing, (ii) a
variety of new investment options and (iii) trust and estate
administration services, including the administration of employee benefit
plans. In addition, the Company significantly expanded the capability of
its commercial real estate lending department.
. CONSOLIDATED BANKS. The Company consolidated its two bank charters into
the Bank, which was renamed "Colorado Business Bank." The Company
believes that, by placing all of its operations under the "Colorado
Business Bank" standard, it increased its name recognition, better
described its market focus and eliminated duplicative regulatory
functions and costs.
GROWTH STRATEGY
The Company's objective is to build a highly profitable, customer-focused
community banking network with assets in excess of $500 million by the end of
the year 2000. The Company believes that its senior management and systems
infrastructure are adequate to support growth to this level without incurring
proportionate increases in general, administrative and other noninterest
expenses. The Company plans to achieve this objective by (i) leveraging
existing customer relationships and growing the Company's core business of
providing loans and attracting deposits, (ii) de novo branching and (iii)
introducing new product lines. The
26
<PAGE>
Company will also explore opportunities to expand through acquisitions of
existing banks. There can be no assurance, however, that any of the Company's
growth objectives will be achieved. See "Risk Factors--Risks of Growth
Strategy."
. INTERNAL GROWTH. The Company believes that conditions in the Colorado
banking market provide it with significant opportunities for internal
growth. The market is currently dominated by a number of large regional
financial institutions which have acquired Colorado-based bank holding
companies. The Company believes that this consolidation has created gaps
in the banking industry's ability to serve certain customers in the
Denver metropolitan area because small- and medium-sized businesses often
are not large enough to warrant significant marketing focus and customer
service by these large banks. In addition, the Company believes that
these banks often do not satisfy the needs of high net worth individuals
who desire personal attention from experienced bankers. Similarly, the
Company believes that many of the remaining independent banks in the area
are unable to satisfy the needs of these businesses and individuals
because, although these banks are dedicated to customer service, they do
not provide the sophisticated banking products and services that such
customers require. Through its ability to combine personalized service,
experienced personnel who are established in their community,
sophisticated technology and a broad product line, the Company believes
that it will continue to achieve strong internal growth by attracting
customers currently banking at both larger and smaller financial
institutions and expanding its business with existing customers. A
significant amount of the Company's loan and lease growth to date has
resulted from pre-existing relationships between customers and lending
officers and senior management recruited by the Company.
. DE NOVO BRANCHING. The Company also intends to explore growth
opportunities to expand through de novo branching in areas with high
concentrations of the Company's target customers. The Company intends to
use Colorado Business Bank--Boulder as a model for further de novo
branching. Colorado Business Bank--Boulder opened in November 1995 with a
staff of three experienced lending officers from the Boulder branch of a
large regional bank. Operations are conducted in a relatively small
office in an office building in downtown Boulder, rather than in a
traditional, free-standing bank building, thereby substantially
decreasing overhead. Colorado Business Bank--Boulder achieved
profitability in eight months and had grown to $53.0 million in assets as
of March 31, 1998.
. NEW PRODUCT LINES. In addition, the Company will seek to grow through the
addition of new product lines. The Company's product development efforts
are focused on providing enhanced credit, cash management, investment,
deposit and trust products to its target customer base. For example, in
March 1996, the Company formed CBL, an 80% owned equipment leasing
subsidiary, which provides equipment leasing primarily to middle-market
companies. CBL offers leasing programs for computers, telecommunications
equipment, telephone systems, business furniture, manufacturing
equipment, materials handling equipment and other capital equipment.
Within the past few years, the Company has also greatly expanded its
commercial real estate lending department to allow for the origination of
larger and more complex real estate loans. In addition, the Company began
to offer trust and estate administration services in March 1998. The
Company believes that offering such complementary products allows it to
both broaden its relationships with existing customers and attract new
customers to its core business. In addition, the Company believes that
the fees generated by these services will increase its noninterest
income.
. ACQUISITIONS. The Company will consider acquisition candidates that
present attractive opportunities to expand its business in its target
market segment. However, the Company currently has no agreement,
arrangement or understanding regarding the acquisition of any financial
institution.
The Company's approach to expansion is predicated on recruiting key
personnel to lead new initiatives. While the Company normally considers an
array of new locations and product lines as potential expansion initiatives,
it generally will proceed only upon identifying quality management personnel
with a loyal customer following in the community or product line that is the
target of the initiative. The Company believes that, by focusing on
individuals who are established in their communities and are experienced in
offering sophisticated
27
<PAGE>
banking products and services, it enhances its market position and adds
profitable growth opportunities with limited credit risk.
OPERATING STRATEGY
The Company believes that it has a competitive advantage due to its market
position as a community business bank. The Company has adopted a multi-faceted
strategy to maintain and enhance this market position, the principal elements
of which include:
. ASSEMBLING A TOP-QUALITY TEAM. In all areas of its operations, the
Company focuses on attracting and retaining the highest quality
personnel. A significant number of the Company's employees have previous
work experience with larger banking organizations in the Denver
marketplace and have been attracted to the Company's entrepreneurial
culture and decentralized banking approach. The Company believes that
such an experienced, quality team reduces the risks associated with
pursuing its growth strategy.
. EXPANDING EXISTING BANKING RELATIONSHIPS. The Company normally is not a
transaction lender and typically requires that borrowers enter into a
multiple product banking relationship with the Company, including
deposits and cash management services, in connection with the receipt of
credit from the Bank. The Company believes that such relationships
provide it with the opportunity to introduce its customers to a broader
array of the products and services offered by the Company and generate
additional noninterest income. In addition, the Company believes that
this philosophy aids in customer retention.
. EMPHASIZING HIGH QUALITY CUSTOMER SERVICE. The Company believes that its
ability to offer high quality customer service provides it with a
competitive advantage over many regional banks that operate in the Denver
metropolitan area. Customer service is emphasized in all aspects of the
Company's operations and is an integral component of its employee
training programs. Moreover, the Company is constantly exploring methods
to make banking an easier and more convenient process for its customers.
For example, the Company has recently begun to offer a courier service to
pick up deposits for customers who are not in close proximity to any of
the Bank's five locations or simply do not have the time to go to the
Bank.
. CAPITALIZING ON THE USE OF TECHNOLOGY. The Company believes that it has
been able to distinguish itself from traditional community banks
operating in its market through the use of technology, particularly in
the area of depository relationships. Services currently offered by the
Bank include controlled disbursement, lock box services, repurchase
agreements and sweep investment accounts, and the planned conversion of
the Company's data processing system will allow it to add several new
customer services, including upgraded P.C. Banking and cash management
products and check and document imaging, as well as a 24-hour voice
response system, to its product portfolio. In addition to providing
sophisticated services for its customers, the Company utilizes technology
extensively in its systems and operational support functions in order to
improve customer service, maximize profitability and provide management
with the information and analyses necessary to manage the Company's
growth effectively.
. ACHIEVING EFFICIENCIES AND ECONOMIES OF SCALE THROUGH CENTRALIZED
ADMINISTRATIVE AND SUPPORT OPERATIONS. The Company seeks to maximize
operational and support efficiencies in a manner consistent with
maintaining high quality customer service. Various management and
administrative functions, including accounting, data processing,
bookkeeping, credit administration, loan operations and investment and
cash management services, have been consolidated at the Bank's downtown
Denver office. The Company believes that this structure allows Bank
personnel to focus on customer service and sales strategies adapted to
each individual community that the Bank serves.
. MAINTAINING ASSET QUALITY AND CONTROLLING INTEREST RATE RISK. The Company
seeks to maintain asset quality through a program that includes regular
reviews of loans by responsible loan officers and monitoring of the loan
and lease portfolio by a loan review officer who reports directly to the
Audit Committee of the Bank's Board of Directors. As of March 31, 1998,
the Company's ratio of nonperforming loans and leases to total loans and
leases was 0.68%. In addition, the Company seeks to control its exposure
to changing interest rates by attempting to maintain an interest rate
profile within a narrow range around an earnings neutral position.
28
<PAGE>
MARKET AREA SERVED
The Company's current market area is the Denver metropolitan area, which is
comprised of the counties of Denver, Boulder, Adams, Arapahoe, Douglas and
Jefferson. This area is the most densely populated in the Rocky Mountain
region. Total population is approximately 2.2 million, and the area has
experienced net immigration of over 300,000 people since 1990. Employment in
the Denver metropolitan area has become increasingly diversified across the
manufacturing, financial services, tourism, transportation, technology, cable
television, retail trade, services and government sectors. In 1997, Colorado
achieved its eleventh straight year of employment growth, with nonagricultural
employment increasing 4.0% during the year to approximately 2.0 million.
The Bank has one location each in downtown Denver, Boulder and West Denver,
and two locations in Littleton. Downtown Denver is the business center of
metropolitan Denver. Boulder has one of the highest concentrations of small
businesses and affluent individuals in the Rocky Mountain region. West Denver
contains a number of newer industrial and office parks. The Littleton
locations serve a more residential area, including Highlands Ranch, one of the
fastest growing communities in the Denver metropolitan area.
The Company intends to open a de novo location in the south metropolitan
Denver area by the end of 1998. In May 1998, the Company hired Kevin G. Quinn
as a Senior Vice President and intends to appoint him as President of this new
location when space is leased and the location is opened. See "Management--
Directors, Executive Officers and Key Employees." A number of areas in the
south metropolitan Denver region, including the Denver Tech Center, Inverness
and Greenwood Village, feature high concentrations of office parks and
businesses. Given the large number of high net worth individuals that work in
this area, and Mr. Quinn's previous experience, this new location will focus
on private banking services.
While the Company's expansion initiatives will continue to focus on the
Denver metropolitan area, it will consider adding locations in other
geographic regions, either through de novo branching or acquisitions.
LENDING ACTIVITIES
General. The Company provides a broad range of commercial and retail lending
services, including commercial loans, commercial and residential real estate
construction loans, commercial and residential real estate mortgage loans,
consumer loans, revolving lines of credit and equipment lease financing. The
Company's primary lending focus is on commercial lending to small- and medium-
sized businesses that have annual sales of $2 million to $50 million and
businesses and individuals with borrowing requirements of $200,000 to $3
million. As of March 31, 1998, substantially all of the Bank's outstanding
loans and leases were to customers within the Denver metropolitan area.
Interest rates charged on loans vary with the degree of risk, maturity,
underwriting and servicing costs, principal amount and extent of other banking
relationships between the Bank and the customer, and are further subject to
competitive pressures, money market rates, availability of funds and
government regulations. As of March 31, 1998, approximately 56.4% of the loans
in the Bank's portfolio were at interest rates that float with the Bank's base
rate or some other reference rate.
Credit Procedures and Review. The Company addresses credit risk through
internal credit policies and procedures, including underwriting criteria,
officer and customer lending limits, a multi-layered loan approval process for
larger loans, periodic document examination, justification for any exceptions
to credit policies, loan review and concentration monitoring. In addition, the
Company provides ongoing loan officer training and review.
The Company's loan approval process varies depending upon the size of the
loan. Each of the Bank's senior loan officers has the authority to approve
loans of up to $250,000. Other loan officers have the authority to approve
loans of lower amounts up to limits set by the Bank's Board of Directors.
Loans of between $250,000 and $500,000 must be approved by the Chief Executive
Officer of the Bank or the President of Colorado
29
<PAGE>
Business Bank--Denver. Loans in excess of $500,000 must be approved by the
Bank's loan committee, which consists of most of the Bank's executive officers
and certain other designated officers. In cases requiring expedited treatment,
approvals may be made by a subgroup of the committee.
The Company has a continuous loan review process designed to promote early
identification of credit quality problems. All loan officers are charged with
the responsibility of reviewing, no less frequently than monthly, all past due
loans in their respective portfolios. In addition, each of the loan officers
establishes a watch list of loans to be reviewed monthly by the Bank's Board
of Directors. The loan and lease portfolio is also monitored regularly by a
loan review officer who reports directly to the Audit Committee of the Bank's
Board of Directors.
Loan and Lease Portfolio Composition. The following table sets forth the
composition of the Bank's loan and lease portfolio by type of loan or lease at
the dates indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------
AT MARCH 31, 1998 1997 1996
------------------- --------------- ---------------
AMOUNT % AMOUNT % AMOUNT %
----------- ------- -------- ----- -------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Commercial.............. $ 81,325 45.4 $ 78,152 47.6 $ 58,727 53.0
Real estate --
mortgage............... 44,888 25.1 40,262 24.6 24,491 22.1
Real estate --
construction........... 33,350 18.6 27,786 16.9 19,119 17.3
Consumer................ 13,110 7.3 11,732 7.2 8,266 7.5
Direct financing leases,
net.................... 9,168 5.1 8,407 5.1 1,805 1.6
---------- ------- -------- ----- -------- -----
Loans and leases........ 181,841 101.5 166,339 101.4 112,408 101.5
Less allowance for loan
and lease losses....... (2,630) (1.5) (2,248) (1.4) (1,660) (1.5)
---------- ------- -------- ----- -------- -----
Net loans and leases.... $ 179,211 100.0 $164,091 100.0 $110,748 100.0
========== ======= ======== ===== ======== =====
</TABLE>
Under federal law, the aggregate amount of loans that may be made to one
borrower by the Bank is generally limited to 15% of the Bank's unimpaired
capital, surplus, undivided profits and allowance for loan and lease losses
(the "Individual Lending Limit"). See "Supervision and Regulation--The Bank--
Restrictions on Loans to One Borrower." As of March 31, 1998, the Bank's
Individual Lending Limit was $3.4 million. To accommodate customers whose
financing needs exceed applicable lending limits, and to address portfolio
concentration concerns, the Company sells loan participations to outside
participants, including Hawthorne Colorado, Inc., an entity controlled by
Messrs. Bangert and Ross. See "Certain Transactions." At March 31, 1998,
December 31, 1997 and December 31, 1996, the outstanding balances of loan
participations sold by the Company were $12.7 million, $10.1 million and $2.9
million, respectively. The Company has retained servicing rights on all loan
participations sold. In addition, the Company may purchase loan participations
from other banks, although it has not done so to date. While the Company would
use the same analysis in deciding whether or not to purchase a participation
in a loan as it would in deciding whether to originate the same loan, the
purchase of a significant amount of loan participations by the Company could
decrease its control over the magnitude of risk in its loan and lease
portfolio because the Company would not be able to control the ongoing
relationship with the borrower after purchasing the participation.
In the ordinary course of business, the Company enters into various types of
transactions that include commitments to extend credit. The Company applies
the same credit standards to these commitments as it applies to its other
lending activities and has included these commitments in its lending risk
evaluations. The Company's exposure to credit loss under commitments to extend
credit is represented by the amount of these commitments.
Commercial Loans. Commercial lending, which is the primary focus of the
Company's lending activities, consists of loans to small- and medium-sized
businesses in a wide variety of industries. The Bank's areas of emphasis in
commercial lending include, but are not limited to, loans to wholesalers,
manufacturers and business
30
<PAGE>
services companies. The Company provides a broad range of commercial loans,
including lines of credit for working capital purposes and term loans for the
acquisition of equipment and other purposes. Commercial loans are generally
collateralized by inventory, accounts receivable, equipment, real estate and
other commercial assets and may be supported by other credit enhancements such
as personal guarantees. However, where warranted by the overall financial
condition of the borrower, loans may be made on an unsecured basis. Terms of
commercial loans generally range from one to five years, and the majority of
such loans have floating interest rates.
Real Estate Mortgage Loans. Real estate mortgage loans include various types
of loans for which the Company holds real property as collateral. The Company
generally restricts commercial real estate lending activity to owner-occupied
properties or to investor properties that are owned by customers with which
the Company has a current banking relationship. Commercial real estate loans
are made at both fixed and floating interest rates, with maturities generally
ranging from five to seven years. The Bank's underwriting standards generally
require that a commercial real estate loan not exceed 75% of the appraised
value of the property securing the loan. In addition, the Company originates
SBA loans on owner-occupied properties with maturities of up to 25 years in
which the SBA finances up to 90% of the project cost and takes a security
position that is subordinated to that of the Company. The Company also
originates residential mortgage loans on a limited basis as a service to
preferred customers.
The primary risks of real estate mortgage loans include the borrower's
inability to pay, material decreases in the value of the real estate that is
being held as collateral and significant increases in interest rates, which
may make the real estate mortgage loan unprofitable. The Company does not
actively seek permanent mortgage loans for its own portfolio, but, rather,
syndicates such loans to other financial institutions. However, on those
permanent mortgage loans that are extended, the Company attempts to apply
conservative loan-to-value ratios and obtain personal guarantees, and
generally requires a strong history of debt servicing capability and fully
amortized terms of 15 years or less.
Real Estate Construction Loans. The Company originates loans to finance
construction projects involving one- to four-family residences. It provides
financing to residential developers that the Company believes have
demonstrated a favorable record of accurately projecting completion dates and
budgeting expenses. The Company provides loans for the construction of both
pre-sold projects and projects built prior to the location of a specific
buyer, although loans for projects built prior to the identification of a
specific buyer are provided on a more selective basis. Residential
construction loans are due upon the sale of the completed project and are
generally collateralized by first liens on the real estate and have floating
interest rates. In addition, these loans are generally secured by personal
guarantees to provide an additional source of repayment. The Company generally
requires that a permanent financing commitment be in place before it makes a
residential construction loan. Moreover, the Company generally monitors
construction draws monthly and inspects property to ensure that construction
is progressing as specified. The Company's underwriting standards generally
require that the principal amount of the loan be no more than 75% of the
appraised value of the completed construction project. Values are determined
only by approved, independent appraisers.
The Company also originates loans to finance the construction of multi-
family, office, industrial and tax credit projects. These projects are
predominantly owned by the user of the property or are sponsored by
financially strong developers who maintain an ongoing banking relationship
with the Company. The Company's underwriting standards generally require that
the principal amount of these loans be no more than 75% of appraised value.
The Company selectively provides loans for the acquisition and development
of land for residential building projects by financially strong developers who
maintain an ongoing banking relationship with the Company. The Company's
underwriting standards generally require that the principal amount of these
loans be no more than 65% of the appraised value.
Consumer Loans. The Company provides a broad range of consumer loans to
customers, including personal lines of credit, credit and debit cards, home
equity loans and automobile loans. In order to improve
31
<PAGE>
customer service, continuity and customer retention, management of commercial
banking customers often work with the same loan officer who handles their
commercial banking relationship.
Direct financing leases. The Company, through CBL, provides lease financing
as a complement to its other lending services. These leases are structured as
either operating or direct financing leases, with the Company retaining title
to the leased assets as security for payment. Only direct financing leases are
included in the Company's loan and lease portfolio. Operating leases are
reported as investment in operating leases. Although the leasing program acts
as a stand-alone product, it offers the opportunity to introduce leasing
customers to other products and services offered by the Bank.
NONPERFORMING ASSETS
The Company's nonperforming assets consist of nonaccrual loans and leases,
restructured loans and leases, past due loans and leases and other real estate
owned. The following table sets forth information with respect to these assets
at the dates indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31,
AT MARCH 31, ----------------------
1998 1997 1996 1995
------------ ------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Nonperforming loans and leases:
Loans and leases 90 days or more
delinquent and still accruing
interest.............................. $ -- $ -- $ -- $ --
Nonaccrual loans and leases............ 441 470 234 --
Restructured loans and leases.......... 795 341 348 616
------ ------ ------ ------
Total nonperforming loans and
leases.............................. 1,236 811 582 616
Real estate acquired by foreclosure...... -- -- 109 310
------ ------ ------ ------
Total nonperforming assets........... $1,236 $ 811 $ 691 $ 926
====== ====== ====== ======
Allowance for loan and lease losses...... $2,630 $2,248 $1,660 $1,392
====== ====== ====== ======
Ratio of nonperforming assets to total
assets.................................. 0.45% 0.31% 0.36% 0.58%
Ratio of nonperforming loans and leases
to total loans and leases............... 0.68 0.49 0.52 0.69
Ratio of allowance for loan and lease
losses to total loans and leases........ 1.45 1.35 1.48 1.57
Ratio of allowance for loan and lease
losses to nonperforming loans and
leases.................................. 212.78 277.19 285.22 225.97
</TABLE>
Accrual of interest is discontinued on a loan or lease when management
believes, after considering economic and business conditions and collection
efforts, that the borrower's financial condition is such that the collection
of interest is doubtful. A delinquent loan or lease is generally placed on
nonaccrual status when it becomes 90 days past due. When a loan or lease is
placed on nonaccrual status, all accrued and unpaid interest on the loan or
lease is reversed and deducted from earnings as a reduction of reported
interest income. No additional interest is accrued on the loan or lease
balance until the collection of both principal and interest becomes reasonably
certain. When the issues relating to a nonaccrual loan or lease are finally
resolved, there may ultimately be an actual write down or charge-off of the
principal balance of the loan or lease, which may necessitate additional
charges to earnings.
Restructured loans and leases are those for which concessions, including the
reduction of interest rates below a rate otherwise available to the borrower,
or the deferral of interest or principal, have been granted due to the
borrower's weakened financial condition. Interest on restructured loans and
leases is accrued at the restructured rates when it is anticipated that no
loss of original principal will occur.
The additional interest income that would have been recognized for the three
months ended March 31, 1998 and the year ended December 31, 1997 if the
Company's nonaccrual and restructured loans and leases had been
32
<PAGE>
current in accordance with their original terms, and the interest income on
nonaccrual and restructured loans and leases actually included in the
Company's net income for such periods, were not material.
Real estate acquired by foreclosure includes deeds acquired under agreements
with delinquent borrowers. Real estate acquired by foreclosure is appraised
annually and is carried at the lesser of (i) fair market value less
anticipated closing costs or (ii) the balance of the related loan. As of March
31, 1998, the Company did not own any real estate acquired in foreclosure
proceedings or under agreements with delinquent borrowers.
Potential Problem Loans and Leases. A potential problem loan or lease is one
where management has serious doubts about the borrower's future performance
under the terms of the loan or lease contract. These loans and leases are
current as to the principal and interest and, accordingly, are not included in
the nonperforming asset categories. Management monitors these loans and leases
closely to protect the Company. However, further deterioration may result in
the loan or lease being classified as nonperforming. At March 31, 1998, the
Company held 16 loans and leases considered by management to be potential
problem loans or leases with principal totaling approximately $1.5 million.
The level of potential problem loans and leases is factored into the
determination of the adequacy of the allowance for loan and lease losses.
ANALYSIS OF ALLOWANCE FOR LOAN AND LEASE LOSSES
The allowance for loan and lease losses represents management's recognition
of the risks of extending credit and its evaluation of the quality of the loan
and lease portfolio. The allowance for loan and lease losses is maintained at
a level considered adequate to provide for anticipated loan and lease losses,
based on various factors affecting the loan and lease portfolio, including a
review of problem loans and leases, business conditions, historical loss
experience, evaluation of the quality of the underlying collateral and holding
and disposal costs. The allowance is increased by additional charges to
operating income and reduced by loans and leases charged off, net of
recoveries.
33
<PAGE>
The following table sets forth information regarding changes in the
Company's allowance for loan and lease losses for the periods indicated.
<TABLE>
<CAPTION>
FOR THE
FOR THE THREE YEAR ENDED
MONTHS ENDED DECEMBER 31,
MARCH 31, ------------------
1998 1997 1996
------------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balance of allowance for loan and lease
losses at beginning of period............. $ 2,248 $ 1,660 $ 1,392
-------- -------- -------
Charge-offs:
Commercial............................... 2 356 275
Real estate--mortgage.................... -- -- --
Real estate--construction................ -- -- 47
Consumer................................. 17 38 6
Direct financing leases.................. -- -- --
-------- -------- -------
Total charge-offs...................... 19 394 328
-------- -------- -------
Recoveries:
Commercial............................... 50 6 61
Real estate--mortgage.................... -- -- --
Real estate--construction................ -- -- 39
Consumer................................. -- 27 3
Direct financing leases.................. -- -- --
-------- -------- -------
Total recoveries....................... 50 33 103
-------- -------- -------
Net (charge-offs) recoveries............... 31 (361) (225)
Provisions for loan and lease losses
charged to operations..................... 351 949 493
-------- -------- -------
Balance of allowance for loan and lease
losses at end of period................... $ 2,630 $ 2,248 $ 1,660
======== ======== =======
Ratio of net (charge-offs) recoveries to
average loans and leases.................. 0.02% (0.26)% (0.23)%
======== ======== =======
Average loans and leases outstanding during
the period................................ $173,526 $138,787 $98,075
======== ======== =======
</TABLE>
The Company's lending personnel are responsible for continuous monitoring of
the quality of the loan and lease portfolio. The loan and lease portfolio is
monitored regularly by a loan review officer who reports directly to the Audit
Committee of the Bank's Board of Directors. In addition, the Bank's Board of
Directors reviews monthly reports of delinquent and potential problem loans.
These reviews assist in the identification of potential and probable losses
and also in the determination of the level of the allowance for loan and lease
losses. The allowance for loan and lease losses is based primarily on
management's estimates of possible loan and lease losses from the foregoing
processes and historical experience. These estimates involve ongoing judgments
and may be adjusted in the future, depending on economic conditions and
changing portfolio performance. At March 31, 1998, the allowance for loan and
lease losses equaled 1.45% of total loans and leases. See "--Lending
Activities."
Federal regulatory agencies, as an integral part of their examination
process, review the Company's loans and allowance for loan and lease losses.
The Company believes that its allowance for loan and lease losses is adequate
to cover anticipated loan and lease losses. However, management may determine
a need to increase the allowance for loan and lease losses, or regulators,
when reviewing the Bank's loan and lease portfolio in the future, may request
the Bank to increase such allowance. Either of these events could adversely
affect the Company's earnings. Further, there can be no assurance that the
Company's actual loan and lease losses will not exceed its allowance for loan
and lease losses.
34
<PAGE>
Additions to the allowance for loan and lease losses, which are charged as
expenses on the Company's income statement, are made periodically to maintain
the allowance at the appropriate level, based on management's analysis of the
potential risk in the loan and lease portfolio. The allowance for loan and
lease losses is reduced by loans and leases charged off, net of amounts
recovered from such loans and leases. The amount of the allowance is a
function of the levels of loans and leases outstanding, the level of
performing loans and leases, historical loan and lease loss experience, the
amount of loan and lease losses actually charged against the reserve during a
given period and current and anticipated economic conditions.
The following table sets forth the allowance for loan and lease losses by
category to the extent specific allocations have been determined relative to
particular loans or leases. The unallocated portion of the allowance is
intended to cover loss exposure related to potential problem loans or leases
for which no specific allocation has been estimated and for the possible risk
in the remainder of the loan and lease portfolio. Management believes that any
allocation of the allowance into categories lends an appearance of precision
which does not exist. The allocation table should not be interpreted as an
indication of the specific amounts, by loan or lease classification, to be
charged to the allowance. Management believes that the table is a useful
device for assessing the adequacy of the allowance as a whole. The table has
been derived in part by applying historical loan and lease loss ratios to both
internally classified loans and leases and the portfolio as a whole in
determining the allocation. The allowance is utilized as a single unallocated
allowance available for all loans and leases.
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------------------------
AT MARCH 31, 1998 1997 1996
-------------------------- -------------------------- -----------------------
LOANS OR LOANS OR LOANS OR
LEASES IN LEASES IN LEASES IN
CATEGORY AS A CATEGORY AS A CATEGORY AS A
PERCENTAGE PERCENTAGE PERCENTAGE
OF TOTAL OF TOTAL OF TOTAL
AMOUNT GROSS LOANS AMOUNT GROSS LOANS AMOUNT OF GROSS LOANS
OF ALLOWANCE AND LEASES OF ALLOWANCE AND LEASES ALLOWANCE AND LEASES
------------ ------------- ------------ ------------- --------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Commercial.............. $1,074 44.7% $ 811 47.0% $ 510 52.2%
Real estate --
mortgage............... 336 24.7 296 24.2 189 21.8
Real estate --
construction........... 387 18.4 318 16.7 237 17.0
Consumer................ 90 7.2 73 7.0 51 7.4
Direct financing
leases................. -- 5.0 -- 5.1 -- 1.6
Unallocated............. 743 -- 750 -- 673 --
------ ----- ------ ----- ------ -----
Total................. $2,630 100.0% $2,248 100.0% $1,660 100.0%
====== ===== ====== ===== ====== =====
</TABLE>
INVESTMENTS
The Company's investment portfolio is comprised of A-rated or better
securities, with the majority of the portfolio either maturing or repricing
within a one- to five-year period. The Company's practice is to purchase U.S.
Treasury and U.S. Governmental Agency securities exclusively. The primary
factors considered in the overall management of the securities portfolio are
liquidity, yield, volatility, asset/liability management and the ability to
pledge securities for public deposits. Since November 1994, the Company has
selected primarily mortgage-backed securities which reprice annually. The
Company's investment strategies are reviewed at the quarterly meetings of the
Asset and Liability Management Committee.
The Company's mortgage-backed securities are typically classified as
available for sale. The Company's goals with respect to its securities
portfolio are to (i) maximize safety and soundness, (ii) provide adequate
liquidity, (iii) maximize rate of return within the constraints of applicable
liquidity requirements and(iv) complement asset/liability management
strategies.
35
<PAGE>
The following table sets forth the book value of the securities in the
Company's investment portfolio by type at the dates indicated.
<TABLE>
<CAPTION>
AT AT DECEMBER 31,
MARCH 31, ---------------
1998 1997 1996
--------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
U.S. Treasury and U.S. government agency
securities......................................... $ 6,448 $ 7,009 $15,822
Mortgage-backed securities.......................... 47,218 48,354 38,611
State and municipal bonds........................... 1,199 1,198 1,919
Federal Reserve and FHLB stock...................... 2,012 2,012 1,054
Other investments................................... 208 211 165
------- ------- -------
Total............................................. $57,085 $58,784 $57,571
======= ======= =======
</TABLE>
The following table sets forth the book value, maturity and approximate
yield of the securities in the Company's investment portfolio at March 31,
1998.
<TABLE>
<CAPTION>
MATURITY
--------------------------------------------------------------------
WITHIN 1 YEAR 1-5 YEARS 5-10 YEARS OVER 10 YEARS TOTAL BOOK VALUE
----------------- ---------------- ---------------- ---------------- -----------------
AMOUNT YIELD (1) AMOUNT YIELD (1) AMOUNT YIELD (1) AMOUNT YIELD (1) AMOUNT YIELD (1)
------- --------- ------ --------- ------ --------- ------ --------- ------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and U.S.
government agency
securities............. $ 4,000 5.63% $2,015 5.52% $433 5.76% $ -- -- % $ 6,448 5.60%
Mortgage-backed
securities (2)......... 46,086 6.22 1,132 5.92 -- -- -- -- 47,218 6.22
State and municipal
bonds.................. 210 6.27 978 7.06 11 10.20 -- -- 1,199 6.95
Federal Reserve and
FHLB stock............. -- -- -- -- -- -- 2,012 6.73 2,012 6.73
Other investments....... -- -- -- -- -- -- 208 9.50 208 9.50
------- ------ ---- ------ -------
Total.................. $50,296 6.18% $4,125 5.99% $444 5.87% $2,220 6.99% $57,085 6.19%
======= ====== ==== ====== =======
</TABLE>
- --------
(1) Yields do not include adjustments for tax-exempt interest, because the
amount of such interest is not material.
(2) Mortgage-backed securities are generally one year or less adjustable rate
securities.
36
<PAGE>
DEPOSITS
The Company's primary source of funds has historically been customer
deposits. The Company offers a variety of accounts for depositors, which are
designed to attract both short-term and long-term deposits. These accounts
include CDs, savings accounts, money market accounts, checking and negotiable
order of withdrawal accounts and individual retirement accounts. At March 31,
1998, $65.8 million, or 29.8%, of the Company's deposits were noninterest-
bearing deposits. The Company believes that it receives a large amount of
noninterest-bearing deposits because it provides customers with the option of
paying for services in cash or by maintaining additional noninterest-bearing
account balances. However, since proposed changes in banking regulations would
allow for the payment of interest on commercial accounts, there can be no
assurance that the Company will be able to continue to maintain such a high
level of noninterest-bearing deposits. Interest-bearing accounts earn interest
at rates established by management based on competitive market factors and its
desire to increase or decrease certain types of maturities or deposits. The
Company has not actively sought brokered deposits and does not currently
intend to do so. The following table presents the average balances for each
major category of deposits and the weighted average interest rates paid for
interest-bearing deposits for the periods indicated.
<TABLE>
<CAPTION>
FOR THE THREE FOR THE YEAR ENDED DECEMBER 31,
MONTHS ENDED ---------------------------------------------
MARCH 31, 1998 1997 1996
---------------------- ---------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
-------- ------------- -------- ------------- -------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
NOW and money market
accounts............... $ 79,414 3.28% $ 66,222 3.23% $ 63,037 3.09%
Savings................. 6,103 2.59 5,780 2.63 5,669 2.65
Certificates of deposit
under $100,000......... 19,504 5.04 16,942 5.18 9,872 4.51
Certificates of deposit
$100,000
and over............... 51,317 5.62 35,936 5.80 26,227 5.53
-------- -------- --------
Total interest-bearing
deposits............. 156,338 4.24 124,880 4.21 104,805 3.81
Noninterest-bearing
demand deposits........ 64,420 -- 54,706 -- 41,070 --
-------- -------- --------
Total deposits........ $220,758 3.00% $179,586 2.93% $145,875 2.74%
======== ======== ========
</TABLE>
The following table sets forth the amount and maturity of CDs that had
balances of more than $100,000 at March 31, 1998.
<TABLE>
<CAPTION>
AT MARCH 31,
REMAINING MATURITY 1998
------------------ --------------
(IN THOUSANDS)
<S> <C>
Less than three months........................................ $ 30,149
Three months up to six months................................. 9,921
Six months up to one year..................................... 7,898
One year and over............................................. 2,099
--------
Total....................................................... $ 50,067
========
</TABLE>
37
<PAGE>
SHORT-TERM BORROWINGS
The Company's short-term borrowings include federal funds purchased and
securities sold under agreements to repurchase, which generally mature within
60 days. The following table sets forth information relating to the Company's
short-term borrowings.
<TABLE>
<CAPTION>
AT OR FOR THE YEAR
AT OR FOR THE ENDED DECEMBER 31,
THREE MONTHS ENDED --------------------
MARCH 31, 1998 1997 1996
------------------ --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Federal funds purchased.............. $ 5,000 -- $ 6,226
Weighted average interest rate at
period end.......................... 4.76% -- 5.87%
Securities sold under agreement to
repurchase.......................... $16,085 $ 13,024 $ 3,422
Weighted average interest rate at
period end.......................... 4.91% 4.58% 4.89%
Maximum borrowings outstanding at any
month end during the period......... $14,795 $ 25,251 $ 11,990
Average borrowings outstanding for
the period.......................... 12,237 17,602 7,323
Weighted average interest rate for
the period.......................... 4.88% 5.21% 5.92%
</TABLE>
COMPETITION
The banking business in the Denver metropolitan area is highly competitive
and is currently dominated by a number of large regional financial
institutions, including Norwest Corporation, U.S. Bancorp, Inc. (formerly
First Bank System) Banc One Corporation, Zions Bancorporation, KeyCorp and
Wells Fargo & Company. In addition to these regional banks, there are a number
of community banks that operate in the area, including, Guaranty Bank and
Trust Company, Colorado State Bank & Trust, First Bank Holding Company of
Colorado and Union Bank and Trust. The Company competes for loans and deposits
with other commercial banks (including those listed above), savings and loan
associations, finance companies, credit unions and mortgage bankers. In
addition to the traditional financial institutions, the Company also competes
for loans with brokerage and investment banking companies, nonfinancial
institutions, including retail stores that maintain their own credit programs,
and governmental agencies that make available low cost or guaranteed loans to
certain borrowers. Particularly in times of high interest rates, the Company
also faces significant competition for deposits from sellers of short-term
money market securities and other corporate and government securities.
By virtue of their larger capital bases or affiliation with larger multi-
bank holding companies, many of the Company's competitors have substantially
greater capital resources and lending limits than the Company and perform
other functions that the Company offers only through correspondents.
Interstate banking is permitted in Colorado, and, since January 1, 1997,
unlimited state-wide branch banking is permitted. As a result, the Company may
experience greater competition in its primary service areas. The Company's
business, financial condition, results of operations and cash flows may be
adversely affected by an increase in competition. Moreover, recently enacted
and proposed legislation has focused on expanding the ability of participants
in the banking industry to engage in other lines of business. The enactment of
such legislation could put the Company at a competitive disadvantage because
it may not have the capital to participate in other lines of business to the
same extent as more highly capitalized bank holding companies.
The Company competes for loans and deposits principally through the scope
and quality of the services it provides, interest rates and loan fees. The
Company believes that its emphasis on personalized service enables it to
compete favorably with larger financial institutions in its target market of
small- to medium-sized businesses and high net worth individuals. The Company
actively solicits deposit-related clients and competes for deposits by
offering customers personal attention and professional service. The Company
also believes that its technology-based cash management and short-term
investment products provide it with a competitive advantage over other local
community banks.
38
<PAGE>
DATA PROCESSING SYSTEMS
The Company is currently in the process of converting to the Jack Henry
System, a data processing system that will provide the Company with the
ability to offer more advanced services such as upgraded P.C. banking, a voice
response system and check and document imaging. The Company anticipates
investing approximately $1.8 million in converting to the Jack Henry System.
The Company is scheduled to begin operating on the Jack Henry System in June
1998. In addition, unlike the Company's current data processing system, the
Jack Henry System is designed to be year 2000 compliant. The Company has
formed a Year 2000 Committee to oversee issues relating to its year 2000
compliance program. The program calls for all critical systems to be certified
as year 2000 compliant by December 31, 1998. See "Risk Factors--Conversion to
New Data Processing System" and "--Year 2000 Compliance."
FACILITIES
The Company presently leases an aggregate of approximately 59,000 square
feet. The Company's downtown Denver facility is approximately 40,500 square
feet, of which 26,600 square feet are leased from Kesef, LLC ("Kesef"), an
entity in which Jack Stern and Evan Makovsky (both directors of the Bank) and
Messrs. Bangert, Lorenz and Ross each own a 20% interest, for approximately
$22,200 per month. The remaining 13,900 square feet are subleased from another
tenant in the building for approximately $3,400 per month. Kesef purchased the
building from its previous owners in January 1998. The initial term of the
lease with Kesef expires in June 1998, with an option to renew for an
additional five-year term at 90% of then-current market rates. Rather than
exercising its renewal option, the Company is currently renegotiating the
lease to provide for a longer term and to provide the Company with the
opportunity to improve the property. The Company anticipates that the new
lease will have a ten-year term and will include an option by the Company to
renew for additional terms. The new lease will also provide the Company with
the right to make improvements on the leased space and to offset the costs of
such improvements against lease payments on an amortized basis. Payments under
the new lease will be approximately $28,500 per month at the commencement of
the lease. Once the improvements have been made, monthly rental payments will
increase to approximately $42,000 per month, subject to escalation provisions
in subsequent years. In connection with the renegotiation of this lease, the
Company will be moving some of its operations to other spaces within the same
building and will be leasing approximately 5,000 square feet of additional
space. See "Certain Transactions."
The Company also leases facilities for its Boulder, West Denver and two
Littleton locations. The two Littleton facilities include approximately 6,800
and 2,600 square feet of space, respectively, and current lease payments are
approximately $7,600 and $1,800 per month, respectively. Colorado Business
Bank--Boulder's facilities include approximately 2,900 square feet of space in
downtown Boulder. Current lease payments are approximately $4,000 per month
and will increase to $4,600 at the expiration of the current lease term in
2000. The Company plans to lease additional space to accommodate the
anticipated growth of Colorado Business Bank--Boulder. Colorado Business
Bank--West's facilities include approximately 3,500 square feet of space in
Golden. Current lease payments are $3,000 per month.
LEGAL PROCEEDINGS
Periodically and in the ordinary course of business, various claims and
lawsuits which are incidental to the Company's business are brought against,
or by, the Company. The Company believes that the ultimate liability, if any,
resulting from such claims or lawsuits will not have a material adverse effect
on the business, financial condition, results of operations or cash flows of
the Company.
EMPLOYEES
As of March 31, 1998, the Company had 122 employees, including 114 full-time
employees. None of the Company's employees is covered by a collective
bargaining agreement, and the Company believes that its relationship with its
employees is good.
39
<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth certain information with respect to the
Company's directors, executive officers and key employees.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Steven Bangert........................ 41 Chairman of the Board and Chief
Executive Officer
Jonathan C. Lorenz.................... 46 Vice Chairman of the Board and
President
Virginia K. Berkeley.................. 45 President of Colorado Business Bank--
Denver and Director
Richard J. Dalton..................... 41 Senior Vice President and Chief
Financial Officer
Lyne B. Andrich....................... 31 Vice President and Controller
Darrell J. Schulte.................... 43 President of Colorado Business Bank--
Littleton
Charles E. Holmes..................... 41 President of Colorado Business Bank--
Boulder
Andrew L. Bacon....................... 42 President of Colorado Business Bank--
West
K. Denise Albrecht.................... 45 President of Community Trust Division
Richard M. Hall, Jr. ................. 51 President of Colorado Business
Leasing, Inc.
Kevin G. Quinn........................ 37 Senior Vice President
Mark S. Kipnis........................ 50 Director
Noel N. Rothman....................... 68 Director
Howard R. Ross........................ 72 Director
Michael B. Burgamy.................... 52 Director
Timothy J. Travis..................... 53 Director
</TABLE>
There are no family relationships among any of the directors, executive
officers or key employees of the Company.
Steven Bangert has served as Chairman of the Board and Chief Executive
Officer of the Company since September 1994. He also serves as Chairman of the
Board of the Bank and a director of CBL. From August 1992 to present, Mr.
Bangert has served as President and a director of Western Capital Holdings,
Inc. ("Western Capital"), formerly the bank holding company for River Valley
Bank--Texas, located in McAllen, Texas. From March 1992 to July 1996, Mr.
Bangert also served as Chairman of the Board of River Valley Bank--Texas, and,
from April 1988 to July 1994, he served as Vice Chairman of the Board and
Chief Executive Officer of River Valley Savings Bank--Illinois, a financial
institution with approximately $500 million of assets and locations in Chicago
and Peoria, Illinois. From February 1994 to July 1996, Mr. Bangert served as a
director and member of the Executive Committee of Lafayette American Bank. He
holds a B.S. degree in business administration from the University of
Nebraska--Lincoln.
Jonathan C. Lorenz has served as President and Vice Chairman of the Company
since March 1995. He also serves as Vice Chairman of the Board and Chief
Executive Officer of the Bank. From June 1993 to March 1995, Mr. Lorenz
pursued various business investment opportunities, including the formation of
First Western Growth Fund, a small business investment company. Mr. Lorenz was
employed by Colorado National Bank ("CNB") in various capacities from
September 1976 to June 1993. Mr. Lorenz' last position with CNB was Senior
Vice President and Manager of Corporate Banking, where he was responsible for
a $600 million commercial and real estate loan portfolio. He holds a B.A.
degree in political science and an M.B.A. from the University of Colorado.
Virginia K. Berkeley has served as President of Colorado Business Bank--
Denver since May 1995 and as a director of the Company since October 1995. Ms.
Berkeley served as Senior Vice President and Manager of
40
<PAGE>
Business Banking of Bank One, Denver from January 1994 to May 1995. From
December 1986 to January 1994, Ms. Berkeley held several positions with CNB,
including President of CNB--Tech Center and CNB--Northeast. She holds a B.S.
degree in economics from Purdue University and an M.B.A. from the University
of Oklahoma.
Richard J. Dalton has served as the Senior Vice President and Chief
Financial Officer of the Company since January 1997. From August 1992 to
January 1998, Mr. Dalton was the Vice President of Western Capital. From
August 1992 to June 1996, Mr. Dalton served as the President and Chief
Executive Officer of River Valley Bank--Texas. He holds a B.S. degree in
business administration from the University of Southern Colorado and an M.B.A.
from the University of Colorado.
Lyne B. Andrich has served as Vice President and Controller of the of the
Company since May 1997. From November 1995 to May 1997, Ms. Andrich was a line
of business reporting manager for Key Bank. From June 1989 to November 1995,
Ms. Andrich served as an accounting manager and internal auditor for Bank One,
Colorado, N.A. She holds a M.S. degree in accounting from the University of
Florida.
Darrell J. Schulte has served as President of Colorado Business Bank--
Littleton since May 1985. Mr. Schulte has been employed in the banking
industry for 21 years. He holds a B.S. degree in finance from Colorado State
University.
Charles E. Holmes has served as President of Colorado Business Bank--Boulder
since June 1995. Mr. Holmes has been employed in the banking industry for 17
years. Mr. Holmes served as Vice President and Manager of Commercial Lending
at Bank One--Boulder from June 1992 to June 1995, where he was responsible for
a $300 million loan portfolio. He holds a B.S. degree in business
administration from Oklahoma State University.
Andrew L. Bacon has served as President of Colorado Business Bank--West
since November 1997. From March 1997 to September 1997, Mr. Bacon served as
Senior Vice President of UMB Bank. From June 1988 to December 1996, Mr. Bacon
served as Senior Vice President in charge of the Commercial Banking Division
at Norwest Bank--Golden. He holds a B.A. degree in business administration
from Colorado State University.
K. Denise Albrecht has served as the President of Community Trust Division
of the Company since October 1997. From May 1993 to October 1997, Ms. Albrecht
served as Senior Vice President and Denver Market Manager of the Trust
Department of Bank One, Colorado, N.A. Ms. Albrecht was employed, in several
capacities, with CNB from December 1988 to May 1993. From January 1993 to May
1993, Ms. Albrecht served as President of Colorado Capital Advisors, a
subsidiary of CNB, and, from September 1988 to January 1993, she served as
Vice President and Institutional Services Division Manager for CNB. She holds
a B.S. degree in business administration and an M.B.A. from Northern Michigan
University.
Richard M. Hall, Jr. has served as President of CBL, the Company's equipment
leasing subsidiary, since March 1996 and has been employed in the banking and
financial services industry for 21 years. Prior to leading the formation of
CBL, Mr. Hall served as President of Evergreen Lifetime Income, Inc., a
development stage company in the reverse mortgage industry which was formed in
March 1995. From March 1992 to February 1995, Mr. Hall was employed by CNB,
where he served as a commercial banking division manager and as President of
Colorado National Leasing, Inc., a subsidiary of CNB. He holds B.S. and M.S.
degrees in business administration from Wichita State University and a
graduate degree in banking from the Southwestern Graduate School of Banking at
Southern Methodist University.
Kevin G. Quinn has served as a Senior Vice President of the Company since
May 1998. The Company intends to appoint Mr. Quinn as President of Colorado
Business Bank--South when that location is opened. Prior to joining the
Company, Mr. Quinn had been employed by Norwest Bank of Colorado since June
1988. From June 1996 to May 1998, Mr. Quinn was a Senior Vice President of
Norwest, responsible for a private banking department with assets in excess of
$295 million. From October 1991 to June 1996, Mr. Quinn was a Vice President
and the Bank Manager of a Norwest Bank location in downtown Denver with assets
of approximately
41
<PAGE>
$75 million. Mr. Quinn holds a Business Administration degree in general
business from the University of Northern Colorado and a graduate degree in
banking from the Stonier Graduate School of Banking of the University of
Delaware.
Mark S. Kipnis has served as a director of the Company since September 1994.
Since January 1998, he has also served as Vice President, Secretary and
Corporate Counsel for Hollinger International Inc., a newspaper publishing
company that is publicly traded on the New York Stock Exchange. From January
1979 to December 1997, Mr. Kipnis was a partner of the Chicago-based law firm
of Holleb & Coff. He holds a B.S. degree in accounting from the University of
Illinois and a J.D. degree from Northwestern University School of Law.
Noel N. Rothman has served as a director of the Company since September
1994. Mr. Rothman is a private investor and has served as President of Namtor,
Inc. ("Namtor"), a closely held business services company in which he is a
principal shareholder, since September 1985. Mr. Rothman attended Wayne
University.
Howard R. Ross has served as a director of the Company since September 1994.
Mr. Ross is a private investor and has served as President of H.R. Financial,
Inc., a closely held investment company in which he is the principal
shareholder, since May 1994. From August 1992 to present, he has served as a
director of Western Capital, and, from August 1992 to July 1995, he served as
Vice Chairman of the Board of River Valley Bank--Texas. He holds a B.S. degree
in mechanical engineering from the Illinois Institute of Technology.
Michael B. Burgamy has served as a director of the Company since May 1998.
From 1991 to present, Mr. Burgamy has served as the president of Perky-Pet
Products Co., a manufacturer of pet products and supplies. From January 1976
to November 1994, he was President of CGS Distributing, Inc., a wholesale
distributor of lawn and garden supplies. He holds a B.S. degree in engineering
management from the United States Air Force Academy.
Timothy J. Travis has served as a director of the Company since May 1998.
Since November 1981, Mr. Travis has been the President and Chief Executive
Officer of Eaton Metal Products Company, with which he has been employed since
1958.
CLASSIFIED BOARD OF DIRECTORS
The Company's Articles of Incorporation and Bylaws provide for a classified
board of directors. Three class I directors, Messrs. Lorenz and Kipnis, and
Ms. Berkeley, are serving for an initial term expiring at the 1999 annual
meeting. Three class II directors, Messrs. Bangert, Rothman and Travis, are
serving for an initial term expiring at the 2000 annual meeting. Two class III
directors, Messrs. Ross and Burgamy, are serving for an initial term expiring
at the 2001 annual meeting. Subsequent terms will be for successive three-year
periods.
DIRECTOR COMPENSATION
Each director who is not an employee of the Company is paid a director's fee
of $1,000 for each meeting of the Board of Directors, or any committee
thereof, attended by such director. Directors of the Company who also serve as
officers do not receive additional compensation for their service as
directors. All directors are reimbursed for expenses incurred in attending
board and committee meetings.
COMMITTEES
The Company's Board of Directors has an Executive Committee, an Audit
Committee and a Compensation Committee.
The Executive Committee is comprised of Messrs. Bangert, Lorenz and Ross.
The Executive Committee is authorized to exercise certain of the powers of the
Board of Directors, subject to ratification by the full Board, and meets as
needed, usually in situations where it is not feasible to take action by the
full Board.
42
<PAGE>
The Audit Committee is comprised of Messrs. Kipnis, Burgamy and Travis. The
Audit Committee is responsible for (i) making recommendations to the Board of
Directors concerning the engagement of independent public accountants, (ii)
consulting with the Company's independent public accountants with regard to
the plan of audit, (iii) consulting directly with the Company's Chief
Financial Officer on any matter that the Audit Committee or the Chief
Financial Officer deems appropriate in connection with carrying out the audit,
(iv) reviewing the results of audits of the Company by its independent public
accountants and certain regulatory agencies, (v) discussing audit
recommendations with management and reporting results of its reviews to the
Board of Directors, and (vi) performing such other functions as may be
prescribed by the Board of Directors.
The Compensation Committee is comprised of Messrs. Ross, Rothman, Burgamy
and Travis. The Compensation Committee is authorized to review the
compensation of the executive officers and key employees of the Company and
the Bank and to make recommendations to the Board of Directors concerning
salaries, stock option grants and other forms of compensation, review
recommendations to the Board of Directors concerning the compensation of
directors and to perform such other functions as the Board of Directors may
direct.
EXECUTIVE COMPENSATION
The following table summarizes the compensation that the Company paid to its
chief executive officer and each of its four next most highly compensated
executive officers (the "Named Executive Officers") for the year ended
December 31, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS
- --------------------------- ---- ---------- ---------
<S> <C> <C> <C>
Steven Bangert, Chief Executive Officer............... 1997 $ 125,000 $ --
Jonathan C. Lorenz, President......................... 1997 145,000 39,000
Virginia K. Berkeley, President of Colorado
Business Bank--Denver................................ 1997 106,000 25,000
Richard M. Hall, Jr., President of Colorado Business
Leasing, Inc......................................... 1997 99,837 26,236
Darrell J. Schulte, President of Colorado
Business Bank--Littleton............................. 1997 90,000 15,000
</TABLE>
The following table summarizes the value of the options held at the end of
1997 by the Named Executive Officers. None of the Named Executive Officers
exercised any options during 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT END OF 1997 AT END OF 1997 (1)
------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Steven Bangert.............. 28,275 -- $251,025 $ --
Jonathan C. Lorenz.......... 56,785 19,086 504,182 169,442
Virginia K. Berkeley........ 11,781 16,494 102,094 138,931
Richard M. Hall, Jr......... -- -- -- --
Darrell J. Schulte.......... 4,948 9,661 42,679 77,517
</TABLE>
- --------
(1) Value based on the difference between $11.00 (the assumed initial public
offering price) and the option exercise price, multiplied by the number of
shares of Common Stock subject to such option.
43
<PAGE>
STOCK INCENTIVE PLANS
1995 and 1997 Plans. In 1995 and 1997, respectively, the Company adopted a
1995 Incentive Stock Option Plan (the "1995 Plan") and a 1997 Incentive Stock
Option Plan (the "1997 Plan") to provide long-term incentives in the form of
stock options to the key employees of the Company and its subsidiaries. The
1995 and 1997 Plans provide for the authorization of an aggregate of 298,961
shares of Common Stock for issuance thereunder.
The 1995 and 1997 Plans, which are identical, except with respect to the
number of shares authorized for issuance thereunder, are both administered by
the Compensation Committee. Subject to the terms of the 1995 or 1997 Plan (as
applicable), the Compensation Committee determines the key employees to whom
options are granted, the number of shares subject to the options, the type of
consideration to be paid to the Company upon exercise of options, and the term
of any option (which cannot exceed ten years). One-fourth of the options
included in each grant under either the 1995 Plan or the 1997 Plan vest on
each of the first four anniversaries of the grant.
Under both the 1995 and 1997 Plans, the Company may grant incentive stock
options ("Incentive Stock Options") intended to qualify under Section 422 of
the Internal Revenue Code of 1986, as amended. Incentive Stock Options may not
be granted at an exercise price of less than the fair market value of the
Common Stock on the date of grant and may not have a term exceeding ten years.
The exercise price of Incentive Stock Options granted to holders of more than
10% of the Common Stock must be at least 110% of the fair market value of the
Common Stock on the date of the grant, and the term of these options cannot
exceed five years. Incentive Stock Options granted pursuant to either the 1995
or 1997 Plan may not be exercised more than three months after the option
holder ceases to be an employee of the Company or its subsidiaries, except
that, in the event of the death or permanent and total disability of the
option holder, the option may be exercised by the holder (or his or her
estate, as the case may be) for a period of up to one year after the date of
death or permanent and total disability.
As of March 31, 1998, options had been granted under the 1995 and 1997 Plans
to purchase 249,764 shares of Common Stock at a weighted average exercise
price of $3.20 per share.
Both the 1995 and 1997 Plans provide that the total number of shares covered
by such plan, the number of shares covered by each option or performance award
and the exercise price per share will be proportionately adjusted by the
Company in the event of a stock split, reverse stock split, stock dividend or
similar capital adjustment effected without receipt of consideration by the
Company.
1998 Plan. The Colorado Business Bankshares, Inc. 1998 Stock Incentive Plan
(the "1998 Plan") was adopted by the Board of Directors in April 1998 and
approved by the shareholders of the Company in May 1998. As currently in
effect, the maximum number of shares authorized to be issued under the 1998
Plan is 225,000 shares of Common Stock, and the maximum number of shares
underlying awards that may be granted to an individual employee in a calendar
year is 22,500 shares of Common Stock. As of March 31, 1998, no awards had
been granted under the 1998 Plan. The exercise price for options granted under
the 1998 Plan must be at least equal to 100% of the fair market value of the
Common Stock on the date of grant. The 1998 Plan permits the granting of stock
options, including Incentive Stock Options and non-qualified stock options.
The purpose of the 1998 Plan is to reward and provide incentives for
directors, executive officers and key employees of the Company by providing
them with an opportunity to acquire an equity interest in the Company, thereby
increasing their personal interest in its continued success and progress.
The 1998 Plan is administered by the Compensation Committee, which has the
sole and complete authority to select the employees (including executive
officers) and directors who will receive awards under the 1998 Plan. The
Compensation Committee has the authority to determine the number of stock
options to be granted to eligible individuals, whether the options will be
Incentive Stock Options or non-qualified stock options, and the terms and
conditions of the options (which may vary from grantee to grantee). The number
of shares available under the 1998 Plan and the exercise price of the options
granted thereunder are subject to adjustment to reflect stock splits, stock
dividends, recapitalizations, mergers or other major corporate actions.
44
<PAGE>
The Compensation Committee also has the authority under the 1998 Plan to
grant stock appreciation rights ("SARs") to employees. SARs confer on the
holder a right to receive, upon exercise, the excess of the fair market value
of one share of Common Stock on the date of exercise over the grant price of
the SAR as specified by the Compensation Committee, which price may not be
less than 100% of the fair market value of one share of Common Stock on the
date of grant of the SAR. The grant price, term, methods of exercise, dates of
exercise, methods of settlement and any other terms and conditions of any SAR
are determined by the Compensation Committee.
The Compensation Committee is also authorized to grant restricted stock,
restricted stock units, performance awards, dividend equivalents or other
stock-based awards pursuant to the 1998 Plan.
The Board of Directors may discontinue, amend, or suspend the 1998 Plan in a
manner consistent with the its provisions, provided such changes do not
violate the federal or state securities laws.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with each of Jonathan C.
Lorenz, Virginia K. Berkeley, Richard M. Hall, Jr. and Darrell J. Schulte.
Each such agreement is terminable at will by the Company or the employee and
provides for annual salary, the use of a Company automobile, expenses related
to membership at a country, health or social club and eligibility for a bonus
and stock option grants. Each such agreement provides that, during the term of
the agreement and for one year thereafter, the employee is prohibited from
soliciting any employees or customers of the Company or the Bank. In the event
that the Company terminates the employment agreement for reasons other than
"for cause," or the Company constructively discharges the employee (for
example, by materially decreasing his or her responsibilities or decreasing
his or her compensation) or the employee's employment is terminated because of
disability or death, the Company is required to pay the employee one full year
of salary (including bonus) and maintain all other benefits for one full year
after termination. Moreover, each such employment agreement requires the
Company to make a lump sum payment to such employee in an amount equal to a
multiple of such employee's annual compensation in the event that their
employment is terminated within two years of the occurrence of certain types
of changes of control of the Company or the Bank. As of March 31, 1998, the
estimated payments that would be due to Mr. Lorenz, Ms. Berkeley, Mr. Hall and
Mr. Schulte upon a termination of employment after such a change in control
were $653,000, $385,000, $101,000 and $236,000, respectively.
LIMITATION OF DIRECTORS' AND OFFICERS' LIABILITY AND INDEMNIFICATION
The Company's Articles of Incorporation and Bylaws provide that the Company
will indemnify its directors and officers to the fullest extent now or
hereafter permitted by Colorado law. Under such provisions, any director or
officer who, in his or her capacity as such, is made, or threatened to be
made, a party to any suit or proceeding will be indemnified if such director
or officer acted in good faith and in a manner reasonably believed to be in,
or not opposed to, the best interests of the Company and, with respect to any
criminal proceeding, had no reasonable cause to believe that his or her
conduct was unlawful. The Articles of Incorporation, Bylaws and Colorado law
further provide that such indemnification is not exclusive of any other rights
to which such individuals may be entitled under the Articles of Incorporation,
Bylaws, any agreement, insurance policies, vote of shareholders or
disinterested directors or otherwise.
In addition, the Articles of Incorporation provide that, to the fullest
extent now or hereafter permitted by Colorado law, the Company's directors
will not be liable for monetary damages for breach of their fiduciary duty of
care to the Company and its shareholders. This provision in the Articles of
Incorporation does not eliminate the directors' fiduciary duty of care, and,
in appropriate circumstances, equitable remedies such as an injunction or
other forms of non-monetary relief would remain available under Colorado law.
Each director will continue to be subject to liability for breach of his or
her duty of loyalty to the Company and its shareholders for acts or omissions
not in good faith or involving intentional misconduct or knowing violations of
law, for certain activities prohibited by Colorado law (relating primarily to
the unlawful payment of dividends or repurchase of
45
<PAGE>
stock), or for any transaction from which the director derived an improper
personal benefit. This provision also does not affect a director's
responsibilities under any other laws, such as the federal securities laws or
state or federal environmental laws.
The Company believes that these provisions are necessary to attract and
retain qualified individuals to serve as directors. In addition, such
provisions allow directors to perform their duties in good faith, without
concern for the application of monetary liability on a retrospective basis in
the event that a court determines that their conduct was negligent.
There is no pending litigation or proceeding involving a director, officer,
employee or other agent of the Company as to which indemnification is being
sought. The Company is not aware of any other threatened litigation that may
result in claims for indemnification by any director, officer, employee or
other agent.
The Company maintains directors' and officers' liability insurance with a $5
million limit per year per occurrence. The Company pays annual premiums and
expenses relating to the policy of approximately $17,500 per year. There can
be no assurance that coverage will continue to be available at a cost that the
Company considers reasonable.
Insofar as indemnification for liabilities arising under the Securities Act
may be provided to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed 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.
46
<PAGE>
CERTAIN TRANSACTIONS
The executive officers, key employees, directors and principal shareholders
of the Company, members of their immediate family and businesses in which they
hold controlling interests are customers of the Company, and it is anticipated
that such parties will continue to be customers of the Company in the future.
All outstanding loans and extensions of credit by the Company to these parties
were made in the ordinary course of business in accordance with applicable
laws and regulations and on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with unaffiliated persons, and, in the Company's opinion, do not
involve more than the normal risk of collectibility or present other
unfavorable features. At March 31, 1998, the aggregate balance of the
Company's loans and advances under existing lines of credit to these parties
was approximately $1.4 million, or 0.8% of the Company's total loans and
leases.
In consideration for their agreement to personally guarantee the Company's
$10.5 million loan from ANB, Messrs. Bangert and Ross were each paid $2,500
per quarter for each of the first three quarters of 1995. Messrs. Bangert and
Ross agreed to forego further payment for the guarantees as of October 1995,
and ANB released them from such guarantees, effective July 1996.
From time to time, Hawthorne Colorado, Inc. ("Hawthorne"), an entity
controlled by Messrs. Bangert and Ross, purchases participations in loans
originated by the Company that the Company does not fund fully because of its
legal lending limit or in order to manage portfolio concentration. To date,
Hawthorne has participated in 14 real estate loans, with an aggregate
participation commitment of $12.2 million, of which six loans, with an
aggregate balance of $3.6 million, were outstanding as of March 31, 1998. The
Company believes that the terms of such participations were commensurate with
what would be negotiated in similar transactions between unrelated third
parties. Hawthorne receives interest on the portion of such loans funded by it
at the same rate as the Bank does on the portion that it funds. In addition,
Hawthorne receives a share of origination fees for such loans.
The Company leases 26,600 square feet of its downtown Denver facility from
Kesef, an entity in which Jack Stern and Evan Makovsky (both directors of the
Bank) and Messrs. Bangert, Lorenz and Ross each own a 20% interest, for
approximately $22,200 per month. Kesef purchased the building from its
previous owners in January 1998. The initial term of this lease expires in
June 1998, with an option to renew for an additional five-year term at 90% of
then-current market rates. Rather than exercising its renewal option, the
Company is currently renegotiating the lease to provide for a longer term and
to provide the Company with the opportunity to improve the property. The
Company anticipates that the new lease will have a ten-year term and will
include an option by the Company to renew for additional terms. The new lease
will also provide the Company with the right to make improvements on the
leased space and to offset the costs of such improvements against lease
payments on an amortized basis. Payments under the new lease will be
approximately $28,500 per month at the commencement of the lease. Once the
improvements have been made, monthly rental payments will increase to
approximately $42,000 per month, subject to escalation provisions in
subsequent years. In connection with the renegotiation of this lease, the
Company will be moving some of its operations to other spaces within the
office building and will be leasing approximately 5,000 square feet of
additional space.
In July 1997, the Bank committed to purchase up to $500,000 of limited
partnership interests in Prairie Capital Mezzanine Fund, L.P. ("Prairie
Capital"), an investment fund, having $24 million in total capital
commitments, that makes subordinated debt and preferred stock investments in a
wide variety of small businesses throughout the United States. Prairie Capital
is licensed as a Small Business Investment Company (an "SBIC"). The Company
intends to refer companies in its market area requiring this type of
investment capital to Prairie Capital. As of March 31, 1998, the Bank's
aggregate investment in Prairie Capital was $93,000, and the Bank was subject
to additional capital calls pursuant to which it may be required to invest
additional capital of $407,000 in the fund. Messrs Bangert and Ross, Mr. Ross'
wife and Namtor, an entity controlled by Mr. Rothman, have made individual
capital commitments to the fund in amounts of $2 million, $2 million, $50,000
and $1.5 million, respectively, and own interests in the fund proportionate to
their capital commitments. Messrs.
47
<PAGE>
Bangert and Ross act as consultants to Prairie Capital. Their services consist
primarily of assisting in the identification and review of investments to be
made by the fund. To date, Messrs. Bangert and Ross have each received $60,000
in consulting fees from Prairie Capital, and they are each entitled to receive
a final payment of $20,000 in June 1998. In addition, Messrs. Bangert and Ross
are members of the advisory board of Prairie Capital. The general partner of
Prairie Capital has agreed to make certain payments to the Bank, Messrs.
Bangert and Ross, Ms. Ross and Namtor (pro rata, in proportion to their
respective investments in the fund) following the liquidation of the fund in
the event that they do not realize an internal rate of return of at least 25%
on their respective investments.
48
<PAGE>
SUPERVISION AND REGULATION
The Company and the Bank are extensively regulated under federal and
Colorado law. These laws and regulations are primarily intended to protect
depositors and federal deposit insurance funds, not shareholders of the
Company. The following information summarizes certain material statutes and
regulations affecting the Company and the Bank and is qualified in its
entirety by reference to the particular statutory and regulatory provisions.
Any change in applicable laws, regulations or regulatory policies may have a
material adverse effect on the business, financial condition, results of
operations and cash flows of the Company and the Bank. The Company is unable
to predict the nature or extent of the effects that fiscal or monetary
policies, economic controls or new federal or state legislation may have on
its business and earnings in the future.
THE HOLDING COMPANY
General. The Company is a bank holding company registered under the Bank
Holding Company Act of 1956, as amended (the "BHCA"), and is subject to
regulation, supervision and examination by the Board of Governors of the
Federal Reserve System (the "FRB"). The Company is required to file an annual
report with the FRB and such other reports as the FRB may require pursuant to
the BHCA.
Acquisitions. As a bank holding company, the Company is required to obtain
the prior approval of the FRB before acquiring direct or indirect ownership or
control of more than 5% of the voting shares of a bank or bank holding
company. The FRB will not approve any acquisition, merger or consolidation
that would result in substantial anti-competitive effects, unless the anti-
competitive effects of the proposed transaction are outweighed by a greater
public interest in meeting the needs and convenience of the public. In
reviewing applications for such transactions, the FRB also considers
managerial, financial, capital and other factors, including the record of
performance of the applicant and the bank or banks to be acquired under the
Community Reinvestment Act of 1977, as amended (the "CRA"). See "--The Banks--
Community Reinvestment Act."
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, as
amended (the "1994 Act"), which became effective September 29, 1995, displaces
state laws governing interstate bank acquisitions. Under the 1994 Act, a bank
holding company can acquire a bank outside of its home state without regard to
local law. Thus, an out-of-state holding company could acquire the Bank, and
the Company could acquire a bank outside of Colorado.
All acquisitions pursuant to the 1994 Act require regulatory approval. In
reviewing applications under the 1994 Act, an applicant's record under the CRA
must be considered, and a determination must be made that the transaction will
not result in any violations of federal or state antitrust laws. In addition,
there is a limit of 25% on the amount of deposits in insured depository
institutions in Colorado that can be controlled by any bank or bank holding
company.
The 1994 Act also permits bank subsidiaries of a bank holding company to act
as agents for affiliated institutions by receiving deposits, renewing time
deposits, closing loans, servicing loans and receiving payments on loans. As a
result, a relatively small Colorado bank owned by an out-of-state holding
company could make available to customers in Colorado some of the services of
a larger affiliated institution located in another state.
Permissible Activities. A bank holding company may not engage in, or acquire
direct or indirect control of more than 5% of the voting shares of any company
engaged in, a non-banking activity, unless such activity has been determined
by the FRB to be closely related to banking or managing banks. The FRB has
identified certain non-banking activities in which a bank holding company may
engage without notice or prior approval of the FRB.
Capital Adequacy. The FRB monitors, on a consolidated basis, the capital
adequacy of bank holding companies that have total assets in excess of $150
million by using a combination of risk-based and leverage ratios. Failure to
meet the capital guidelines may result in the application by the FRB of
supervisory or
49
<PAGE>
enforcement actions. Under the risk-based capital guidelines, different
categories of assets, including certain off-balance sheet items, such as loan
commitments in excess of one year and letters of credit, are assigned
different risk weights, based generally on the perceived credit risk of the
asset. These risk weights are multiplied by corresponding asset balances to
determine a "risk-weighted" asset base. For purposes of the risk-based capital
guidelines, total capital is defined as the sum of "Tier 1" and "Tier 2"
capital elements, with Tier 2 capital being limited to 100% of Tier 1 capital.
Tier 1 capital includes, with certain restrictions, common shareholders'
equity, perpetual preferred stock (no more than 25% of Tier 1 capital being
comprised of cumulative preferred stock or trust preferred stock) and minority
interests in consolidated subsidiaries. Tier 2 capital includes, with certain
limitations, perpetual preferred stock not included in Tier 1 capital, certain
maturing capital instruments and the allowance for loan and lease losses
(limited to 1.25% of risk-weighted assets). The regulatory guidelines require
a minimum ratio of total capital to risk-weighted assets of 8% (of which at
least 4% must be in the form of Tier 1 capital). The FRB has also implemented
a leverage ratio, which is defined to be a company's Tier 1 capital divided by
its average total consolidated assets. The minimum required leverage ratio for
top-rated bank holding companies is 3%, but most companies are required to
maintain an additional cushion of at least 100 to 200 basis points.
The table below sets forth the Company's ratios of (i) total capital to
risk-weighted assets, (ii) Tier 1 capital to risk-weighted assets and (iii)
Tier 1 leverage ratio, at March 31, 1998, and as adjusted to give effect to
the Offering.
<TABLE>
<CAPTION>
AT MARCH 31, 1998
-----------------------------------
AS ADJUSTED FOR THE MINIMUM
RATIO ACTUAL OFFERING (1) REQUIRED
- ----- ------ ------------------- --------
<S> <C> <C> <C>
Total capital to risk-weighted assets...... 8.2% 14.6% 8.0%
Tier 1 capital to risk-weighted assets..... 6.9 13.3 4.0
Tier 1 leverage ratio...................... 5.2 10.0 3.0
</TABLE>
- --------
(1) As adjusted to reflect the Offering (at an assumed public offering price
of $11.00 per share) and the application of the estimated net proceeds
therefrom.
Support of Banks. As discussed below, the Bank is also subject to capital
adequacy requirements. Under the Federal Deposit Insurance Corporation
Improvement Act of 1991 (the "FDICIA"), the Company could be required to
guarantee the capital restoration plan of the Bank, should the Bank become
"undercapitalized," as defined in the FDICIA and the regulations thereunder.
See "--The Bank--Capital Adequacy." The Company's maximum liability under any
such guarantee would be the lesser of 5% of the Bank's total assets at the
time it became undercapitalized or the amount necessary to bring the Bank into
compliance with the capital plan. The FRB also has stated that bank holding
companies are subject to the "source of strength doctrine," which requires
bank holding companies to serve as a source of "financial and managerial"
strength to their subsidiary banks.
The FDICIA requires the federal banking regulators to take "prompt
corrective action" with respect to capital-deficient institutions. In addition
to requiring the submission of a capital restoration plan, the FDICIA contains
broad restrictions on certain activities of undercapitalized institutions
involving asset growth, acquisitions, branch establishment and expansion into
new lines of business. With certain exceptions, an insured depository
institution is prohibited from making capital distributions, including
dividends, and is prohibited from paying management fees to control persons,
if the institution would be undercapitalized after any such distribution or
payment.
Monitoring of Year 2000 Compliance. Bank regulatory agencies have begun to
monitor bank holding companies' and banks' readiness for the year 2000 as part
of the regular examination process. In the event that a bank holding company
or a bank is determined not to be satisfactorily prepared for the year 2000,
it will be required to submit a written plan establishing a timetable for year
2000 compliance and periodic progress reports on its efforts to implement the
plan. Failure to formulate a satisfactory plan, or to implement the plan
successfully, could result in an enforcement action.
50
<PAGE>
THE BANKS
General. The Bank is a national banking association, the deposits of which
are insured by the Bank Insurance Fund of the FDIC (the "FDIC"), and is
subject to supervision, regulation and examination by the Office of the
Comptroller of the Currency (the "OCC") and by the FDIC. Pursuant to such
regulation, the Bank is subject to special restrictions, supervisory
requirements and potential enforcement actions. The FRB's supervisory
authority over the Company can also affect the Bank.
Branching. The Colorado Revised Statutes were amended in 1991 to phase in
open branching over a six-year period. Colorado law also provides a phase-in
schedule for the conversion of an affiliate bank into a branch bank. Banks
desiring to establish a de novo branch bank have been allowed to do so since
January 1, 1993, though only one branch bank could initially be created. Since
January 1, 1997, no limitations are placed on the number of branches a bank
may establish, and any bank which has had its charter approved or
conditionally or preliminarily approved on or after April 1, 1991, may, upon
30 days' written notice to the Colorado banking board or banking commissioner,
be converted to a branch of any bank.
Community Reinvestment Act. The CRA requires the Bank to adequately meet the
credit needs of the communities in which it operates. The CRA allows
regulators to reject an applicant seeking, among other things, to make an
acquisition or establish a branch, unless it has performed satisfactorily
under the CRA. Federal regulators regularly conduct examinations to assess the
performance of financial institutions under the CRA. In its most recent CRA
examination, the Bank received a satisfactory rating.
Transactions with Affiliates. The Bank is subject to Section 23A of the
Federal Reserve Act, which limits the amount of loans to, investments in, and
certain other transactions with, affiliates of the Bank, requires certain
levels of collateral for such loans or transactions, and limits the amount of
advances to third parties that are collateralized by the securities or
obligations of affiliates, unless the affiliate is a bank and is at least 80%
owned by the Company. If the affiliate is a bank and is at least 80% owned by
the Company, such transactions are generally exempted from these restrictions,
except as to "low quality" assets, as defined under the Federal Reserve Act,
and transactions not consistent with safe and sound banking practices. In
addition, Section 23A generally limits transactions with affiliates of the
Bank to 10% of the Bank's capital and surplus and generally limits all
transactions with affiliates to 20% of the Bank's capital and surplus.
Section 23B of the Federal Reserve Act requires that certain transactions
between the Bank and any non-bank affiliate must be on substantially the same
terms, or at least as favorable to the Bank, as those prevailing at the time
for comparable transactions with, or involving, non-affiliated companies or,
in the absence of comparable transactions, on terms and under circumstances,
including credit standards, that in good faith would be offered to, or would
apply to, non-affiliated companies. The aggregate amount of the Bank's loans
to its officers, directors and principal shareholders (or their affiliates) is
limited to the amount of its unimpaired capital and surplus, unless the FDIC
determines that a lesser amount is appropriate.
A violation of the restrictions of Section 23A or Section 23B of the Federal
Reserve Act may result in the assessment of civil monetary penalties against
the Bank, or a person participating in the conduct of the affairs of the Bank
or the imposition of an order to cease and desist.
Dividend Restrictions. Dividends paid by the Bank are expected to provide
substantially all of the Company's cash flow. The approval of the OCC is
required prior to the declaration of any dividend by the Bank if the total of
all dividends declared by the Bank in any calendar year exceeds the total of
its net profits of that year combined with the retained net profits for the
preceding two years. In addition, the FDICIA provides that the Bank cannot pay
a dividend if it will cause the Bank to be "undercapitalized," as discussed
below.
Examinations. The OCC periodically examines and evaluates national banks.
Based upon such an evaluation, the examining regulator may revalue the assets
of an insured institution and require that it establish specific reserves to
compensate for the difference between the value determined by the regulator
and the book value of such assets.
51
<PAGE>
Capital Adequacy. Federal regulations establish minimum requirements for the
capital adequacy of depository institutions that are generally the same as
those established for bank holding companies. See "--The Holding Company--
Capital Adequacy." Banks with capital ratios below the required minimum are
subject to certain administrative actions, including the termination of
deposit insurance and the appointment of a receiver, and may also be subject
to significant operating restrictions pursuant to regulations promulgated
under the FDICIA. See "--The Holding Company--Support of Banks."
The following table sets forth the capital ratios of the Bank at March 31,
1998, and as adjusted to give effect to the Offering.
<TABLE>
<CAPTION>
AT MARCH 31, 1998
-----------------------------------
AS ADJUSTED FOR THE MINIMUM
RATIO ACTUAL OFFERING (1) REQUIRED
- ----- ------ ------------------- --------
<S> <C> <C> <C>
Total capital to risk-weighted assets...... 11.6% 13.9% 8.0%
Tier 1 capital to risk-weighted assets..... 10.3 12.7 4.0
Tier 1 leverage ratio...................... 7.7 9.5 4.0
</TABLE>
- --------
(1) As adjusted to reflect the Offering (at an assumed public offering price
of $11.00 per share) and the application of the estimated net proceeds
therefrom.
Pursuant to the FDICIA, regulations have been adopted defining five capital
levels: well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized and critically undercapitalized. Increasingly
severe restrictions are placed on a depository institution as its capital
level classification declines. An institution is critically undercapitalized
if it has a tangible equity to total assets ratio less than or equal to 2%. An
institution is adequately capitalized if it has a total risk-based capital
ratio less than 10%, but greater than or equal to 8%, or a Tier 1 risk-based
capital ratio less than 6%, but greater than or equal to 4% or a leverage
ratio less than 5%, but greater than or equal to 4% (3% in certain
circumstances). An institution is well capitalized if it has a total risk-
based capital ratio of 10% or greater, a Tier 1 risk-based capital ratio of 6%
or greater, and a leverage ratio of 5% or greater, and the institution is not
subject to an order, written agreement, capital directive or prompt corrective
action directive to meet and maintain a specific capital level for any capital
measure. Under these regulations, as of March 31, 1998, the Bank was well
capitalized, which classification places no significant restrictions on the
Bank's activities.
Internal Operating Requirements. Federal regulations promote the safety and
soundness of individual institutions by specifically addressing, among other
things: (1) internal controls, information systems and internal audit systems;
(2) loan documentation; (3) credit underwriting; (4) interest rate exposure;
(5) asset growth; and (6) compensation and benefit standards for management
officials.
Real Estate Lending Evaluations. Federal regulators have adopted uniform
standards for the evaluation of loans secured by real estate or made to
finance improvements to real estate. The Bank is required to establish and
maintain written internal real estate lending policies consistent with safe
and sound banking practices and appropriate for its size and the nature and
scope of its operations. The regulations establish loan to value ratio
limitations on real estate loans, which are equal to or higher than the loan
to value limitations established by the Company.
Deposit Insurance Premiums. Under current regulations, FDIC-insured
depository institutions that are members of the FDIC pay insurance premiums at
rates based on their assessment risk classification, which is determined, in
part, based on the institution's capital ratios and, in part, on factors that
the FDIC deems relevant to determine the risk of loss to the FDIC. Assessment
rates range from $0 to $0.27 per $100. The Bank currently does not pay an
assessment rate on insured deposits. This classification for determination of
assessment rate may be reviewed semi-annually.
Restrictions on Loans to One Borrower. Under federal law, the aggregate
amount of loans that may be made to one borrower by the Bank is generally
limited to 15% of its unimpaired capital, surplus, undivided
52
<PAGE>
profits and allowance for loan and lease losses. The Bank seeks participations
to accommodate borrowers whose financing needs exceed the Bank's lending
limits.
Monitoring of Year 2000 Compliance. Banking regulators monitor the year 2000
compliance of the Bank in the same manner as they do the compliance of the
Company. See "--The Holding Company--Monitoring of Year 2000 Compliance."
CHANGING REGULATORY STRUCTURE
Regulation of the activities of national and state banks and their holding
companies imposes a heavy burden on the banking industry. The FRB, OCC and
FDIC all have extensive authority to police unsafe or unsound practices and
violations of applicable laws and regulations by depository institutions and
their holding companies. These agencies can assess civil monetary penalties,
issue cease and desist or removal orders, seek injunctions and publicly
disclose such actions. Moreover, the authority of these agencies has expanded
in recent years, and the agencies have not yet fully tested the limits of
their powers.
The laws and regulations affecting banks and bank holding companies have
changed significantly in recent years, and there is reason to expect that
changes will continue in the future, although it is difficult to predict the
outcome of these changes. From time to time, various bills are introduced in
the United States Congress with respect to the regulation of financial
institutions. Certain of these proposals, if adopted, could significantly
change the regulation of banks and the financial services industry. In
particular, recently enacted and proposed legislation has focused on expanding
the ability of participants in the banking industry to engage in other lines
of business. The enactment of such legislation could put the Company at a
competitive disadvantage because it may not have the capital to participate in
other lines of business to the same extent as more highly capitalized bank
holding companies. The Company cannot predict whether any of these proposals
will be adopted or, if adopted, how these proposals would affect the Company.
MONETARY POLICY
The Monetary policy of the FRB has a significant effect on the operating
results of bank holding companies and their subsidiaries. Among the means
available to the FRB to affect the money supply are open market transactions
in U.S. government securities, changes in the discount rate on member bank
borrowings and changes in reserve requirements against member bank deposits.
These means are used in varying combinations to influence overall growth and
distribution of bank loans, investments and deposits, and their use may affect
interest rates charged on loans or paid on deposits. FRB monetary policies
have materially affected the operations of commercial banks in the past and
are expected to continue to do so in the future. The nature of future monetary
policies and the effect of such policies on the business and earnings of the
Company and its subsidiaries cannot be predicted.
53
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of March 31, 1998, certain information
regarding beneficial ownership of the Common Stock by (i) each shareholder
known by the Company to be the beneficial owner of more than 5% of the
outstanding Common Stock, (ii) each director of the Company, (iii) each Named
Executive Officer and (iv) all of the Company's directors, executive officers
and key employees as a group. Unless otherwise indicated, the Company believes
that the shareholders listed below have sole investment and voting power with
respect to their shares based on information furnished to the Company by such
owners.
<TABLE>
<CAPTION>
PERCENT OF
OUTSTANDING
COMMON STOCK
-----------------
NUMBER OF SHARES
BENEFICIALLY BEFORE AFTER
NAME OF BENEFICIAL OWNER (1) OWNED (2) OFFERING OFFERING
- ---------------------------- ---------------- -------- --------
<S> <C> <C> <C>
Steven Bangert (3)......................... 1,023,183 20.2% 15.8%
Jonathan C. Lorenz (4)..................... 142,200 2.8 2.2
Virginia K. Berkeley (5)................... 26,390 * *
Richard M. Hall, Jr. ...................... -- -- --
Darrell J. Schulte (6)..................... 11,310 * *
Mark S. Kipnis............................. 82,403 1.6 1.3
Noel N. Rothman............................ 705,494 13.9 10.9
Howard R. Ross (7)......................... 958,320 18.9 14.8
Michael B. Burgamy (8)..................... -- -- --
Timothy J. Travis.......................... 28,275 * *
Edward W. Ross, as Trustee for the Edward
W. Ross Revocable Trust (9)............... 325,935 6.4 5.0
All directors, executive officers and key
employees as a group
(16 persons) (2).......................... 3,080,307 60.1 47.2
</TABLE>
- --------
* Denotes less than 1%.
(1) Unless otherwise indicated, the address of each of the above-named
shareholders is c/o Colorado Business Bankshares, Inc., 821 Seventeenth
Street, Denver, Colorado 80202.
(2) Does not include shares of Common Stock that may be purchased in the
Offering. If all 90,000 shares of Common Stock that have been reserved for
sale to directors, executive officers and key employees are purchased by
such persons, directors, executive officers and key employees of the
Company will own approximately 48.6% of the Common Stock after the
Offering. See "Underwriting."
(3) Includes 32,375 shares held jointly by Mr. Bangert and his wife and
105,981 shares held by Mr. Bangert's minor children.
(4) Includes 38,171 shares which may be issued upon the exercise of options
exercisable within 60 days of March 31, 1998.
(5) Includes 14,137 shares which may be issued upon the exercise of options
exercisable within 60 days of March 31, 1998.
(6) Includes 6,126 shares which may be issued upon the exercise of options
exercisable within 60 days of March 31, 1998.
(7) Includes 28,275 shares held by Mr. Ross' wife. Does not include 36,588
shares held by Mr. Ross' adult daughter and his grandchildren.
(8) Does not include 56,550 shares held by certain trusts for the benefit of
Mr. Burgamy's minor children, for which Mr. Burgamy's father acts as
trustee.
(9) The address of the Edward W. Ross Revocable Trust is c/o Edward W. Ross,
919 North Michigan Avenue, Suite 1500, Chicago, Illinois 60611
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 25,000,000 shares of
Common Stock and 2,000,000 shares of preferred stock, $.01 par value per
share, issuable in series (the "Preferred Stock"). Prior to the Offering,
there was no public market for the Common Stock. The Company has applied for
the inclusion of the Common Stock on the Nasdaq National Market and meets the
quantitative standards for listing thereunder. However, there can be no
assurance that a market for the Common Stock will develop or, if developed,
that it will be sustained. The following description of the capital stock of
the Company is qualified in its entirety by reference to the Company's
Articles of Incorporation (the "Articles") and Bylaws, copies of which are
filed as exhibits to the registration statement of which this Prospectus forms
a part.
COMMON STOCK
As of March 31, 1998, 5,063,468 shares of Common Stock were outstanding and
held of record by 85 persons. Each holder of Common Stock is entitled to one
vote for each share held of record on all matters on which shareholders are
entitled to vote; shareholders may not cumulate votes for the election of
directors. Subject to the preferences accorded to the holders of outstanding
shares of the Preferred Stock, if any, holders of Common Stock are entitled to
dividends at such times and in such amounts as the Board of Directors may
determine. The Company has not paid cash dividends on its Common Stock since
the Acquisition and does not intend to pay dividends in the foreseeable
future. The ability of the Company to pay cash dividends in the future largely
depends on the amount of cash dividends paid to it by the Bank. Capital
distributions, including dividends, by the Bank are subject to federal and
state regulatory restrictions tied to the Bank's earnings and capital. Upon
the dissolution, liquidation or winding up of the Company, after payment of
debts and expenses and payment of the liquidation preference, plus any accrued
dividends on any outstanding shares of Preferred Stock, the holders of Common
Stock will be entitled to receive all remaining assets of the Company ratably
in proportion to the number of shares held by them. Holders of shares of
Common Stock have no preemptive, subscription, conversion or redemption rights
and are not subject to further calls or assessments, or rights of redemption
by the Company. The outstanding shares of Common Stock are, and the shares of
Common Stock being sold in the Offering will be, validly issued, fully paid
and nonassessable.
PREFERRED STOCK
The Company's Board of Directors has the authority, without approval of the
shareholders, to issue shares of Preferred Stock in one or more series and to
fix the number of shares and rights, preferences and limitations of each
series. Among the specific matters that may be determined by the Board of
Directors are the dividend rights, the redemption price, if any, the terms of
a sinking fund, if any, the amount payable in the event of any voluntary
liquidation, dissolution or winding up of the affairs of the Company,
conversion rights, if any, and voting powers, if any.
To date, the Board of Directors has created only one series of Preferred
Stock, 1,500 shares of Series A Preferred Stock, all of which are outstanding
and held of record by one person. All such shares will be redeemed with a
portion of the proceeds of the Offering. For a description of the terms and
conditions of the Series A Preferred Stock, see Note 9 of Notes to
Consolidated Financial Statements.
One of the effects of the existence of authorized but unissued Common Stock
and undesignated Preferred Stock may be to enable the Board of Directors to
make more difficult, or to discourage, any attempt to obtain control of the
Company by means of a merger, tender offer, proxy contest of otherwise, and
thereby to protect the continuity of the Company's management. If, in the
exercise of its fiduciary obligations, the Board of Directors were to
determine that a takeover proposal was not in the Company's best interest,
such shares could be issued by the Board of Directors without shareholder
approval in one or more transactions that might prevent or make more difficult
or costly the completion of the takeover transaction by diluting the voting or
other rights of the proposed acquirer or insurgent shareholder group, by
creating a substantial voting block in institutional or other hands that might
undertake to support the position of the incumbent Board of Directors, by
effecting an
55
<PAGE>
acquisition that might complicate or preclude the takeover, or otherwise. In
this regard, the Company's Articles grant the Board of Directors broad power
to establish the rights and preferences of the authorized and unissued
Preferred Stock, one or more series of which could be issued entitling holders
to, among other things, (i) vote separately as a class on any proposed merger
or consolidation, (ii) cast a proportionately larger vote together with the
Common Stock on any such transaction or for all purposes, (iii) elect
directors having terms of office or voting rights greater than those of other
directors, (iv) convert Preferred Stock into a greater number of shares of
Common Stock or other securities, (v) demand redemption at a specified price
under prescribed circumstances related to a change of control or (vi) exercise
other rights designated to impede a takeover. The issuance of shares of
Preferred Stock pursuant to the Board of Directors' authority described above
may adversely effect the rights of holders of the Common Stock.
In addition, certain other provisions of the Company's Articles that are
described below, either alone, in combination with each other or with the
existence of authorized by unissued capital stock of the Company, may have the
effect of discouraging, or making more difficult, an acquisition of the
Company deemed undesirable by the Board of Directors.
CERTAIN CHARTER AND BYLAW PROVISIONS
The Company's Articles and Bylaws provide for a classified board of
directors. Three class I directors, Messrs. Lorenz and Kipnis, and Ms.
Berkeley, are serving for an initial term expiring at the 1999 annual meeting.
Three class II directors, Messrs. Bangert, Rothman and Travis, are serving for
an initial term expiring at the 2000 annual meeting. Two class III directors,
Messrs. Ross and Burgamy, are serving for an initial term expiring at the 2001
annual meeting. Subsequent terms will be for successive three-year periods.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is Corporate Transfer,
Inc.
56
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, Dain
Rauscher Wessels, a division of Dain Rauscher Incorporated (the
"Underwriter"), has agreed to purchase from the Company 1,400,000 shares of
Common Stock at the initial public offering price, less the Underwriting
Discounts and Commissions, set forth on the cover page of this Prospectus.
The Underwriting Agreement provides that the Underwriter's obligation to pay
for and accept delivery of the shares of Common Stock offered hereby is
subject to certain conditions precedent and that the Underwriter will be
obligated to purchase all such shares, excluding shares covered by the over-
allotment option, if any are purchased. The Underwriter has informed the
Company that no sales of Common Stock will be confirmed to discretionary
accounts.
The Company and the Underwriter have agreed that the Underwriter will
purchase the shares of Common Stock offered hereby at an initial public
offering price of $ per share, less Underwriting Discounts and Commissions
of $ per share.
Up to 90,000 shares of the Common Stock offered hereby have been reserved
for sale to certain directors, executive officers and key employees of the
Company who have expressed an interest in purchasing shares of Common Stock in
the Offering and who will each sign a 180-day lock up agreement as described
below (the "Selected Purchasers"). The Underwriting Discounts and Commissions
will be reduced to $ per share with respect to sales to the Selected
Purchasers.
The Company has been advised by the Underwriter that it proposes initially
to offer the Common Stock to the public at the Price to Public, and to certain
dealers at such price less a concession not in excess of $ per share. The
Underwriter may allow and such dealers may reallow a concession not in excess
of $ per share to certain other brokers and dealers. After the Offering,
the Price to Public, the concession and reallowances to dealers and other
selling terms may be changed by the Underwriter.
The Company has granted to the Underwriter an option, exercisable for 30
days after the date of this Prospectus, to purchase up to 210,000 additional
shares of Common Stock to cover overallotments, if any, at the same price per
share to be paid by the Underwriter for the other shares of Common Stock
offered hereby.
In connection with the Offering, the Company has agreed to sell to the
Underwriter, for nominal consideration, a warrant to purchase 100,000 shares
of Common Stock (the "Warrant"). The Warrant will be exercisable at a price
equal to 120% of the initial public offering price ($ per share). The
Warrant will be exercisable commencing one year from the date of this
Prospectus and will remain exercisable for a period of four years after such
date. The Warrant includes a net exercise provision pursuant to which the
holder may convert the Warrant by, in effect, paying the exercise price using
shares of Common Stock underlying such Warrant valued at the fair market value
at the time of the conversion. For a period of one year after it is issued,
the Warrant cannot be sold, transferred, assigned, pledged or hypothecated
except to or among officers of the Underwriter and except for transfers by
operation of law, by will or pursuant to the laws of descent and distribution.
The Warrant contains anti-dilution provisions that adjust the exercise price
and the number of shares issuable thereunder upon the occurrence of certain
events, including, with certain exceptions, any stock dividend, stock split,
stock combination, reorganization, reclassification, consolidation, merger,
sale or similar transaction. The holders of the Warrant will have no voting,
cash dividend or other rights as shareholders of the Company with respect to
shares underlying the Warrant, unless the Warrant has been exercised. The
Warrant grants to the holders thereof certain limited rights of registration
of the Common Stock issuable upon exercise of such Warrant. Any profits
realized by the Underwriter upon the sale of the Warrant or the securities
issuable upon exercise thereof may be deemed to constitute additional
underwriting compensation.
57
<PAGE>
The Company, its directors and executive officers, the Selected Purchasers
and certain other shareholders, (who beneficially own an aggregate of
3,870,399 shares of the Common Stock outstanding before the Offering) have
agreed with the Underwriter, for a period of 180 days after the date of this
Prospectus, not to issue, sell, offer to sell, grant any options for the sale
of, or otherwise dispose of any shares of Common Stock or any rights to
purchase shares of Common Stock (other than issuances or grants of stock or
options by the Company pursuant to the 1995 Plan, the 1997 Plan or the 1998
Plan), without the prior written consent of the Underwriter. See "Shares
Eligible for Future Sale."
Pursuant to the Underwriting Agreement entered into by the Company and the
Underwriter in connection with the Offering, the Company has agreed to
indemnify the Underwriter against certain liabilities that may be incurred in
connection with the sale of the Common Stock, including liabilities arising
under the Securities Act, and to contribute to payments that the Underwriter
may be required to make with respect thereto.
In connection with the Offering, the Underwriter may purchase and sell
Common Stock in the open market. These transactions may include over-allotment
and stabilizing transactions and purchases to cover Underwriter short
positions created in connection with the Offering. Stabilizing transactions
consist of certain bids or purchases for the purpose of preventing or
retarding a decline in the market price of the Common Stock. Underwriter short
positions involve the sale by the Underwriter of a greater number of shares of
Common Stock than it is required to purchase from the Company in the Offering.
The Underwriter may also impose a penalty bid, whereby selling concessions
allowed to broker-dealers in respect of the Common Stock sold in the Offering
for their account may be reclaimed by the Underwriter if such shares of Common
Stock are repurchased by the Underwriter in stabilizing or covering
transactions. These activities may stabilize, maintain or otherwise affect the
market price of the Common Stock, which may be higher than the price that
might otherwise prevail in the open market; and these activities, if
commenced, may be discontinued at any time. These transactions may be effected
on the Nasdaq National Market, in the over-the-counter market or otherwise.
Prior to the Offering, there was no public market for the Common Stock. The
initial public offering price for the Common Stock will be determined by
negotiation between the Company and the Underwriter. Among other factors to be
considered in determining the initial public offering price are prevailing
market and economic conditions, revenues and earnings of the Company, the
state of the Company's business operation, an assessment of the Company's
management and consideration of the above factors in relation to market
valuation of companies in related businesses and other factors deemed
relevant. There can be no assurance, however, that the prices at which the
Common Stock will sell in the public market after the Offering will be equal
to or greater than the initial public offering price.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 6,463,468 shares of
Common Stock outstanding (excluding 349,764 shares issuable upon the exercise
of outstanding options and the Warrant). The 1,400,000 shares of Common Stock
sold in the Offering (plus any additional shares sold upon the Underwriter's
exercise of its over-allotment option) will be freely transferable without
restriction under the Securities Act, by persons who are not deemed to be
affiliates of the Company or acting as underwriters, as those terms are
defined in the Securities Act. The remaining 5,063,468 shares of Common Stock
held by existing shareholders are "restricted securities" within the meaning
of Rule 144. Consequently, such shares may not be resold unless they are
registered under the Securities Act or are sold pursuant to an applicable
exemption from registration, such as Rule 144.
In general, under Rule 144, as currently in effect, if at least one year has
elapsed since shares of Common Stock that constitute restricted securities
were last acquired from the Company or an affiliate of the Company, the holder
is entitled to sell within any three-month period a number of shares that does
not exceed the greater of one percent of the total shares of Common Stock then
outstanding or the average weekly trading volume of the Common Stock in the
over-the-counter market during the four calendar weeks preceding the date on
which
58
<PAGE>
notice of the sale is filed with the Securities and Exchange Commission. Sales
under Rule 144 are subject to certain manner of sale provisions, notice
requirements and the availability of current public information about the
Company. If at least two years have elapsed since the shares were last
acquired from the Company or an affiliate, a person who has not been an
affiliate of the Company at any time during the three months preceding the
sale is entitled to sell such shares under Rule 144(k) without regard to
volume limitations, manner of sale provisions, notice requirements or the
availability of current public information concerning the Company.
Approximately 293,264 shares of the Common Stock that constitute restricted
securities within the meaning of Rule 144 will be eligible for sale
immediately following the date of this Prospectus in reliance on Rule 144. An
additional 899,805 of such shares will be eligible for sale in reliance on
Rule 144 commencing 90 days after the date of this Prospectus. The Company,
its directors and executive officers, the Selected Purchasers and certain
other shareholders, who hold, in the aggregate, approximately 3,870,399
shares, have agreed that they will not, with certain limited exceptions,
issue, offer for sale, sell, transfer, grant options to purchase or otherwise
dispose of any shares of Common Stock without the prior written consent of the
Underwriter for a period of 180 days from the date of this Prospectus.
The Company is unable to estimate the number of shares that will be sold
under Rule 144, since this will depend on the market price for the Common
Stock of the Company, the personal circumstances of the sellers and other
factors. Prior to the Offering, there was no public market for the Common
Stock, and there can be no assurance that a significant public market for the
Common Stock will develop or be sustained after the Offering. Any future sale
of substantial amounts of Common Stock in the open market or the perception
that such sales may occur could adversely affect the market price of the
Common Stock offered hereby.
CHANGES IN ACCOUNTANTS
In July 1996, Baird, Kurtz & Dobson purchased the Denver office of McGladrey
& Pullen, LLP, which had previously acted as the Company's independent public
accountants and thereby replaced McGladrey & Pullen, LLP as the Company's
independent public accountants. The report of McGladrey & Pullen, LLP on the
Company's financial statements as of and for the year ended December 31, 1995
did not contain an adverse opinion or disclaimer of opinion and was not
modified as to uncertainty, audit scope or accounting principles. There were
no disagreements with McGladrey & Pullen, LLP on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure at the time of the change of independent public accountants or with
respect to the Company's financial statements as of and for the year ended
December 31, 1995. Prior to the purchase by Baird, Kurtz & Dobson of the
McGladrey & Pullen, LLP office, the Company had not consulted with it
regarding accounting principles.
In July 1997, the Company's Board of Directors replaced Baird, Kurtz &
Dobson with Deloitte & Touche LLP as the Company's independent public
auditors. The report of Baird, Kurtz & Dobson on the Company's financial
statements as of and for the year ended December 31, 1996 did not contain an
adverse opinion or disclaimer of opinion and was not modified as to
uncertainty, audit scope or accounting principles. There were no disagreements
with Baird, Kurtz & Dobson on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure at
the time of the change of independent public accountants or with respect to
the Company's financial statements as of and for the year ended December 31,
1996. Prior to retaining Deloitte & Touche LLP, the Company had not consulted
with it regarding accounting principles.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Dorsey & Whitney LLP, Denver, Colorado. Sherman & Howard L.L.C.,
Denver, Colorado, is acting as counsel for the Underwriter in connection with
certain legal matters relating to the shares of Common Stock offered hereby.
59
<PAGE>
EXPERTS
The Consolidated Financial Statements of the Company as of and for the year
ended December 31, 1997 included in this Prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report
appearing herein, and are included in reliance upon the report of such firm
given upon their authority as experts in accounting and auditing.
The Consolidated Financial Statements of the Company as of and for the year
ended December 31, 1996 included in this Prospectus have been audited by
Baird, Kurtz & Dobson, independent accountants, as stated in their report
appearing herein, and are included in reliance upon the report of such firm
given upon their authority as experts in accounting and auditing.
The Consolidated Financial Statements of the Company for the year ended
December 31, 1995 included in this Prospectus have been audited by McGladrey &
Pullen, LLP, independent accountants, as stated in their report appearing
herein, and are included in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
OTHER INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form SB-2 under the Securities Act
with respect to the Common Stock being offered pursuant to this Prospectus.
This Prospectus does not contain all information set forth in the Registration
Statement, certain portions of which are omitted in accordance with the rules
and regulations of the Commission. The Registration Statement may be inspected
and copied at the public reference facilities maintained by the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's
regional offices at 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511 and 7 World Trade Center, Suite 1300, New York, New York 10048.
Copies of such materials can be obtained at prescribed rates from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington D.C.
20549. In addition, the Commission maintains a World Wide Web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. The
address of the site is http:// www.sec.gov. Statements contained herein
concerning the provisions of any document are not necessarily complete
(although the Company believes that such statements disclose all elements of
such documents material to an investment decision in the Common Stock offered
hereby) and, in each instance, reference is made to the copy of such document
filed as an exhibit to the Registration Statement.
60
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
------------
<S> <C>
INDEPENDENT AUDITORS' REPORTS...................................... F-1, 2 and 3
CONSOLIDATED FINANCIAL STATEMENTS:
Statements of Condition.......................................... F-4
Statements of Income............................................. F-5
Statements of Shareholders' Equity............................... F-6
Statements of Cash Flows......................................... F-7
Notes to Consolidated Financial Statements....................... F-8
</TABLE>
F
<PAGE>
INDEPENDENT AUDITORS' REPORT
Colorado Business Bankshares, Inc.
Denver, Colorado
We have audited the accompanying consolidated statement of condition of
Colorado Business Bankshares, Inc. and subsidiaries (the Company) as of
December 31, 1997, and the related consolidated statements of income,
shareholders' equity, and cash flows for the year then ended. 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 audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the 1997 consolidated financial statements present fairly,
in all material respects, the consolidated financial position of the Company
and subsidiaries as of December 31, 1997, and the results of their operations
and their cash flows for the year then ended in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
April 3, 1998 (May 20, 1998 as to Note 13)
Denver, Colorado
F-1
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Stockholders
Colorado Business Bankshares, Inc.
Denver, Colorado
We have audited the accompanying consolidated statement of condition of
Colorado Business Bankshares, Inc. and subsidiaries as of December 31, 1996,
and the related consolidated statements of income, shareholders' equity and
cash flows for the year then ended. 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 audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the 1996 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Colorado
Business Bankshares, Inc. and subsidiaries as of December 31, 1996, and the
results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
BAIRD, KURTZ & DOBSON
Denver, Colorado
January 24, 1997, except for Note 13
as to which the date is May 20, 1998
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Colorado Business Bankshares, Inc.
Denver, Colorado
We have audited the accompanying consolidated statements of income,
shareholders' equity and cash flows of Colorado Business Bankshares, Inc. and
subsidiaries for the year ended December 31, 1995. 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 audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the 1995 consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of Colorado Business Bankshares, Inc. and subsidiaries for the year
ended December 31, 1995, in conformity with generally accepted accounting
principles.
McGLADREY & PULLEN, LLP
Denver, Colorado
January 12, 1996 (May 20, 1998 as to the
effects of the stock split described in Note 13)
F-3
<PAGE>
COLORADO BUSINESS BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF CONDITION
MARCH 31, 1998 (UNAUDITED), DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, -------------------------
1998 1997 1996
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and due from banks................. $ 21,027,000 $ 15,075,000 $ 10,672,000
Federal funds sold...................... 1,500,000 12,700,000 --
------------ ------------ ------------
Total cash and cash equivalents........ 22,527,000 27,775,000 10,672,000
------------ ------------ ------------
Investment securities available for sale
(cost of $41,456,000 (unaudited),
$41,456,000 and $29,314,000,
respectively).......................... 41,699,000 41,630,000 29,457,000
Investment securities held to maturity
(fair value of $13,387,000 (unaudited)
$15,189,000 and $27,142,000,
respectively).......................... 13,166,000 14,931,000 26,895,000
Other investments....................... 2,220,000 2,223,000 1,219,000
------------ ------------ ------------
Total investments...................... 57,085,000 58,784,000 57,571,000
------------ ------------ ------------
Loans and leases, net................... 179,211,000 164,091,000 110,748,000
Excess of cost over fair value of net
assets acquired, net................... 5,007,000 5,116,000 5,550,000
Investment in operating leases.......... 3,851,000 3,297,000 2,076,000
Premises and equipment, net............. 2,083,000 1,266,000 1,474,000
Accrued interest receivable............. 1,245,000 1,331,000 1,114,000
Real estate acquired through
foreclosure, net....................... -- -- 109,000
Deferred income taxes................... 882,000 777,000 448,000
Other................................... 1,025,000 1,622,000 883,000
------------ ------------ ------------
TOTAL ASSETS............................ $272,916,000 $264,059,000 $190,645,000
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Demand................................. $ 65,792,000 $ 69,069,000 $ 48,741,000
NOW and money market................... 79,546,000 75,164,000 63,276,000
Savings................................ 6,191,000 5,971,000 5,839,000
Certificates of deposit................ 69,066,000 70,854,000 37,454,000
------------ ------------ ------------
Total deposits......................... 220,595,000 221,058,000 155,310,000
Federal funds purchased................. 5,000,000 -- 6,226,000
Securities sold under agreements to
repurchase............................. 16,085,000 13,024,000 3,422,000
Advances from the Federal Home Loan
Bank................................... 3,260,000 3,260,000 4,400,000
Note payable............................ 7,500,000 7,500,000 10,000,000
Accrued interest and other liabilities.. 2,061,000 1,792,000 1,098,000
------------ ------------ ------------
Total liabilities...................... 254,501,000 246,634,000 180,456,000
MINORITY INTEREST
COMMITMENTS AND CONTINGENCIES
Shareholders' Equity:
Cumulative preferred, $.01 par value;
2,000,000 shares authorized; 1,500
issued and outstanding, $1,000
liquidation preference................ 1,500,000 1,500,000 --
Common, $.01 par value; 25,000,000
shares authorized; 5,063,468
(unaudited), 4,874,968 and 3,771,885
issued and outstanding, respectively.. 51,000 49,000 38,000
Additional paid-in capital............. 12,331,000 11,933,000 7,965,000
Retained earnings...................... 4,380,000 3,833,000 2,096,000
Net unrealized appreciation on
available for sale securities, net of
income tax of $91,000 (unaudited),
$65,000 and $53,000, respectively..... 153,000 110,000 90,000
------------ ------------ ------------
Total shareholders' equity............. 18,415,000 17,425,000 10,189,000
------------ ------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY................................. $272,916,000 $264,059,000 $190,645,000
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
COLORADO BUSINESS BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED) AND
THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
--------------------- ----------------------------------
1998 1997 1997 1996 1995
---------- ---------- ----------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on
loans and leases..... $4,368,000 $2,972,000 $14,171,000 $10,117,000 $8,217,000
Interest on
investments.......... 1,009,000 921,000 3,976,000 3,594,000 3,014,000
---------- ---------- ----------- ----------- ----------
Total interest
income............. 5,377,000 3,893,000 18,147,000 13,711,000 11,231,000
INTEREST EXPENSE:
Interest on deposits.. 1,657,000 1,137,000 5,253,000 3,995,000 3,357,000
Interest on short-term
borrowings........... 202,000 218,000 1,031,000 445,000 93,000
Interest on note
payable.............. 159,000 206,000 732,000 883,000 950,000
---------- ---------- ----------- ----------- ----------
Total interest
expense............ 2,018,000 1,561,000 7,016,000 5,323,000 4,400,000
NET INTEREST INCOME
BEFORE PROVISION FOR
LOAN AND LEASE LOSSES.. 3,359,000 2,332,000 11,131,000 8,388,000 6,831,000
PROVISION FOR LOAN AND
LEASE LOSSES........... 351,000 146,000 949,000 493,000 242,000
---------- ---------- ----------- ----------- ----------
NET INTEREST INCOME
AFTER PROVISION FOR
LOAN AND LEASE LOSSES.. 3,008,000 2,186,000 10,182,000 7,895,000 6,589,000
---------- ---------- ----------- ----------- ----------
OTHER INCOME:
Service charges....... 228,000 203,000 830,000 804,000 724,000
Operating lease
income............... 706,000 308,000 1,334,000 261,000 --
Other income.......... 71,000 224,000 1,139,000 729,000 467,000
---------- ---------- ----------- ----------- ----------
Total other income.. 1,005,000 735,000 3,303,000 1,794,000 1,191,000
---------- ---------- ----------- ----------- ----------
OTHER EXPENSE:
Salaries and employee
benefits............... 1,579,000 1,298,000 5,339,000 4,364,000 3,466,000
Occupancy expenses,
premises and
equipment.............. 344,000 277,000 1,202,000 1,018,000 716,000
Depreciation on leases.. 468,000 274,000 1,168,000 247,000 --
Amortization of
intangibles............ 109,000 134,000 501,000 639,000 697,000
Other................... 515,000 463,000 2,177,000 1,559,000 1,753,000
---------- ---------- ----------- ----------- ----------
Total other
expense............ 3,015,000 2,446,000 10,387,000 7,827,000 6,632,000
---------- ---------- ----------- ----------- ----------
INCOME BEFORE INCOME
TAXES.................. 998,000 475,000 3,098,000 1,862,000 1,148,000
PROVISION FOR INCOME
TAXES.................. 411,000 203,000 1,245,000 762,000 432,000
---------- ---------- ----------- ----------- ----------
NET INCOME.............. $ 587,000 $ 272,000 $ 1,853,000 $ 1,100,000 $ 716,000
========== ========== =========== =========== ==========
EARNINGS PER SHARE:
Basic................. $ 0.11 $ 0.07 $ 0.37 $ 0.29 $ 0.19
========== ========== =========== =========== ==========
Diluted............... $ 0.10 $ 0.07 $ 0.36 $ 0.29 $ 0.19
========== ========== =========== =========== ==========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
COLORADO BUSINESS BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED) AND
THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
NET
UNREALIZED
COMMON STOCK PREFERRED STOCK APPRECIATION
------------------ ADDITIONAL ----------------- ON AVAILABLE
SHARES PAID-IN SHARES FOR SALE
ISSUED AMOUNT CAPITAL ISSUED AMOUNT RETAINED EARNINGS SECURITIES TOTAL
--------- ------- ----------- ------ ---------- ----------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1,
1995................... 3,774,241 $38,000 $ 7,971,000 -- $ -- $ 280,000 $ -- $ 8,289,000
REDEMPTION OF COMMON
STOCK.................. (2,356) -- (6,000) -- -- -- -- (6,000)
NET CHANGE IN UNREALIZED
APPRECIATION ON
AVAILABLE FOR SALE
SECURITIES, net of
income taxes of
$40,000................ -- -- -- -- -- -- 68,000 68,000
NET INCOME.............. -- -- -- -- -- 716,000 -- 716,000
--------- ------- ----------- ----- ---------- ---------- -------- -----------
BALANCE, DECEMBER 31,
1995................... 3,771,885 38,000 7,965,000 -- -- 996,000 68,000 9,067,000
NET CHANGE IN UNREALIZED
APPRECIATION ON
AVAILABLE FOR SALE
SECURITIES, net of
income taxes of
$13,000................ -- -- -- -- -- -- 22,000 22,000
NET INCOME.............. -- -- -- -- -- 1,100,000 -- 1,100,000
--------- ------- ----------- ----- ---------- ---------- -------- -----------
BALANCE, DECEMBER 31,
1996................... 3,771,885 38,000 7,965,000 -- -- 2,096,000 90,000 10,189,000
ISSUANCE OF COMMON
STOCK.................. 1,102,725 11,000 3,967,000 -- -- -- -- 3,978,000
ISSUANCE OF PREFERRED
STOCK.................. -- -- -- 1,500 1,500,000 -- -- 1,500,000
OPTIONS EXERCISED....... 358 -- 1,000 -- -- -- -- 1,000
DIVIDENDS PAID--
PREFERRED ($77.33 per
share)................. -- -- -- -- -- (116,000) -- (116,000)
NET CHANGE IN UNREALIZED
APPRECIATION ON
AVAILABLE FOR SALE
SECURITIES, net of
income taxes of
$12,000................ -- -- -- -- -- -- 20,000 20,000
NET INCOME.............. -- -- -- -- -- 1,853,000 -- 1,853,000
--------- ------- ----------- ----- ---------- ---------- -------- -----------
BALANCE, DECEMBER 31,
1997................... 4,874,968 49,000 11,933,000 1,500 1,500,000 3,833,000 110,000 17,425,000
OPTIONS EXERCISED
(Unaudited)............ 188,500 2,000 398,000 -- -- -- -- 400,000
DIVIDENDS PAID--
PREFERRED ($77.33 per
share) (Unaudited)..... -- -- -- -- -- (40,000) -- (40,000)
NET CHANGE IN UNREALIZED
APPRECIATION ON
AVAILABLE FOR SALE
SECURITIES, net of
income taxes of $26,000
(Unaudited)............ -- -- -- -- -- -- 43,000 43,000
NET INCOME (Unaudited).. -- -- -- -- -- 587,000 -- 587,000
--------- ------- ----------- ----- ---------- ---------- -------- -----------
BALANCE, MARCH 31, 1998
(Unaudited)............ 5,063,468 $51,000 $12,331,000 1,500 $1,500,000 $4,380,000 $153,000 $18,415,000
========= ======= =========== ===== ========== ========== ======== ===========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
COLORADO BUSINESS BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED) AND
THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
-------------------------- ----------------------------------------
1998 1997 1997 1996 1995
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income.............. $ 587,000 $ 272,000 $ 1,853,000 $ 1,100,000 $ 716,000
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Net amortization
(accretion) on
securities............ 61,000 (100,000) (988,000) (116,000) (104,000)
Depreciation and
amortization.......... 713,000 542,000 2,141,000 1,247,000 828,000
Provision for loan and
lease losses.......... 351,000 146,000 949,000 493,000 242,000
Deferred income taxes.. (107,000) (97,000) (341,000) (184,000) (237,000)
Gain on sale of
premises and
equipment............. -- -- -- (1,000) (5,000)
Gain on sale of real
estate acquired
through foreclosure... -- -- -- (79,000) (20,000)
Changes in:
Accrued interest
receivable............ 86,000 (22,000) (217,000) (34,000) (30,000)
Other assets........... 105,000 (609,000) (1,962,000) (270,000) (272,000)
Accrued interest and
other liabilities..... 269,000 171,000 694,000 (163,000) 634,000
------------ ------------ ------------ ------------ ------------
Net cash provided by
operating activities.. 2,065,000 303,000 2,129,000 1,993,000 1,752,000
CASH FLOWS FROM
INVESTING ACTIVITIES:
Purchase of held to
maturity securities... -- (1,980,000) (2,024,000) (13,261,000) (18,365,000)
Purchase of available
for sale securities... (2,970,000) (10,695,000) (25,809,000) (8,444,000) (24,343,000)
Proceeds from
maturities of held to
maturity securities... 1,611,000 1,425,000 13,966,000 8,570,000 36,789,000
Proceeds from
maturities and sale of
available for sale
securities............ 3,066,000 6,380,000 13,662,000 6,708,000 2,046,000
Loan originations and
repayments, net....... (16,025,000) (10,138,000) (55,513,000) (24,040,000) (16,997,000)
Proceeds from sale of
real estate acquired
through foreclosure... -- -- 109,000 389,000 70,000
Purchase of premises
and equipment......... (954,000) (147,000) (370,000) (2,615,000) (1,136,000)
Proceeds from sale of
premises and
equipment............. 1,000 -- 106,000 1,000 22,000
------------ ------------ ------------ ------------ ------------
Net cash used in
investing activities.. (15,271,000) (15,155,000) (55,873,000) (32,692,000) (21,914,000)
CASH FLOWS FROM
FINANCING ACTIVITIES:
Net increase in demand,
NOW, money market, and
savings account....... $ 1,325,000 $ 2,271,000 $ 32,348,000 $ 12,944,000 $ 4,118,000
Net (decrease) increase
in certificates of
deposit............... (1,788,000) 12,068,000 33,400,000 4,853,000 8,905,000
Net (decrease) increase
in federal funds
purchased............. 5,000,000 (3,226,000) (6,226,000) 6,226,000 --
Net increase in
securities sold under
agreements to
repurchase............ 3,061,000 1,707,000 9,602,000 1,341,000 2,081,000
Advances from the
Federal Home Loan
Bank.................. -- -- (1,140,000) 4,400,000 --
Payment on notes
payable............... -- (250,000) (1,000,000) (500,000) --
Proceeds from issuance
of common stock....... 3,978,000 3,978,000 -- --
Dividends paid on
preferred stock....... (40,000) -- (116,000) -- --
Proceeds from options
exercised............. 400,000 -- 1,000 -- --
Redemption of stock.... -- -- -- -- (6,000)
------------ ------------ ------------ ------------ ------------
Net cash provided by
financing activities.. 7,958,000 16,548,000 70,847,000 29,264,000 15,098,000
------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS............ (5,248,000) 1,696,000 17,103,000 (1,435,000) (5,064,000)
CASH AND CASH
EQUIVALENTS, BEGINNING
OF PERIOD.............. 27,775,000 10,672,000 10,672,000 12,107,000 17,171,000
------------ ------------ ------------ ------------ ------------
CASH AND CASH
EQUIVALENTS, END OF
PERIOD................. $ 22,527,000 $ 12,368,000 $ 27,775,000 $ 10,672,000 $ 12,107,000
============ ============ ============ ============ ============
SUPPLEMENTAL DISCLOSURES
OF CASH INFORMATION:
Cash paid during the
period for:
Interest............... $ 2,100,000 $ 1,509,000 $ 6,910,000 $ 5,241,000 $ 4,344,000
============ ============ ============ ============ ============
Income taxes........... $ 147,000 $ -- $ 1,455,000 $ 874,000 $ 659,000
============ ============ ============ ============ ============
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
During the year ended December 31, 1997, the Company issued preferred stock
of $1,500,000 in consideration for repayment of notes payable.
See notes to consolidated financial statements.
F-7
<PAGE>
COLORADO BUSINESS BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED) AND
THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Insofar as these consolidated financial statements and notes relate to March
31, 1998 and for the three month periods ended March 31, 1998 and 1997, they
are unaudited. In the opinion of management, such unaudited consolidated
financial statements and notes thereto reflect all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of
consolidated financial position, results of operations and cash flows for such
periods. The consolidated results of operations for the three months ended
March 31, 1998 are not necessarily indicative of the consolidated results of
operations that may be expected for the year ending December 31, 1998.
1. SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting practices of Colorado Business Bankshares, Inc.
("Parent"), its wholly-owned subsidiary, the Colorado Business Bank, N.A.
("Bank"), and its 80% owned equipment leasing subsidiary, Colorado Business
Leasing, Inc. ("Leasing"), collectively referred to as the "Company," conform
to generally accepted accounting principles and prevailing practices within
the banking industry.
The Bank, formerly operating under two separate charters, is a full-service,
commercial banking institution with five locations in the Denver metropolitan
area. Leasing provides equipment leasing primarily to middle-market companies.
In preparing its financial statements, management of the Company is required
to make estimates and assumptions that affect the reported amount 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
significantly from those estimates. Material estimates that are particularly
susceptible to significant changes in the near-term relate to the
determination of the allowance for loan and lease losses, the valuation of
real estate acquired through foreclosures or in satisfaction of loans, lease
residuals and valuation of property under operating leases. The following is a
summary of the Company's significant accounting and reporting policies.
Consolidation--The consolidated financial statements include the accounts of
the Parent, the Bank and Leasing. All significant intercompany balances and
transactions have been eliminated. Losses attributable to minority
shareholders of Leasing have exceeded their capital contribution.
Cash and Cash Equivalents--The Company considers all liquid investments with
original maturities of three months or less to be cash equivalents. At
December 31, 1997 and 1996, cash equivalents consisted of federal funds sold.
Investments--The Company classifies its investment securities as held to
maturity, available for sale, or trading according to management's intent. As
of December 31, 1997 and 1996, the Company has no trading securities.
a. Investment Securities Held to Maturity--Bonds, notes and debentures
for which the Company has the positive intent and ability to hold to
maturity are reported at cost, adjusted for premiums and discounts.
b. Investment Securities Available for Sale--Available for sale
securities consist of bonds, notes, and debentures not classified as held-
to-maturity securities. Unrealized holding gains and losses, net of tax are
reported as a net amount in a separate component of shareholders' equity
until realized.
Premiums and discounts are recognized in interest income using the level-
yield method over the period to maturity. Declines in the fair value of
individual held to maturity and available for sale securities below their cost
that are other than temporary are recorded as write-downs of the individual
securities to their fair value and
F-8
<PAGE>
COLORADO BUSINESS BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the related write-downs are included in earnings as realized losses. Gains and
losses on disposal of securities are determined using the specific-
identification method.
Other investments, including primarily Federal Home Loan Bank and Federal
Reserve Bank stock, are accounted for under the cost method.
Loans and Leases--Loan and leases that management has the intent and ability
to hold for the foreseeable future or until maturity or pay-off are reported
at their outstanding principal balance adjusted for any charge-offs, the
allowance for loan and lease losses, deferred fees or costs on originated
loans and leases, and unamortized premiums or discounts on purchased loans.
Loan fees and certain costs of originating loans and leases are being deferred
and the net amount is amortized over the contractual life of the related loans
and leases. Interest is accrued and credited to income daily based on the
principal balance outstanding. The accrual of interest income is generally
discontinued when a loan or lease becomes 90 days past due as to principal and
interest. When a loan is designated as nonaccrual, the current period's
accrued interest receivable is charged against current earnings, while any
portions applicable to prior periods are charged against the allowance for
loan and lease losses. Interest payments received on nonaccrual loans are
applied to the principal balance of the loan. Management may elect to continue
the accrual of interest when the loan is in the process of collection and the
realizable value of collateral is sufficient to cover the principal balance
and accrued interest.
Net Investment in Direct Financing Leases--The Company has entered into
various lease agreements which are accounted for as direct financing leases,
in accordance with Statement of Financial Accounting Standards No. 13.
Under this method, the present value of the future lease payments, the
present value of the unguaranteed residual and initial direct costs are
recorded as assets, which are equal to the fair value of the equipment leased.
In each period, initial direct costs are amortized, and interest income, which
is included in income from direct financing leases, is recognized as a
constant percentage return on the net investment in the lease.
Residual values are established at lease inception equal to the estimated
value, as determined by the Company, to be received from the equipment
following termination of the initial lease. In estimating such values, the
Company considers all relevant information and circumstances regarding the
equipment and the lessee. Any permanent reduction in the estimated residual
value of lease property is charged to operations in the period it occurs.
Allowance for Loan and Lease Losses--The allowance for loan and lease losses
is based primarily on management's estimate of probable losses, as determined
by analysis of the loan and lease portfolio and historical experience as
adjusted for other factors which, in management's judgment, deserve current
recognition in estimating probable loan and lease losses. Loans and leases
deemed uncollectible are charged to the allowance. Recoveries on loans and
leases previously charged-off are added to the allowance.
A loan is considered impaired when it is probable that the Company will not
receive all amounts due according to the contractual terms of the loan. This
includes loans that are nonaccrual loans and certain other loans classified by
management. Interest is recognized for nonaccrual loans only upon receipt and
only after all principal amounts are current according to the terms of the
contract.
Excess of Cost Over Fair Value of Net Assets Acquired--Excess of cost over
fair value of net assets acquired is amortized by the straight-line method
over 15 years. The Company periodically reviews such asset for impairment.
F-9
<PAGE>
COLORADO BUSINESS BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Investment in Operating Leases--The Company has entered into various
equipment leases accounted for as operating leases in accordance with
Statement of Financial Accounting Standards No. 13. The equipment, which is
reported as investment in operating leases, is depreciated over the estimated
useful life or lease term, if shorter.
Premises and Equipment--Premises and equipment are stated at cost less
accumulated depreciation and amortization, which is calculated by the
straight-line method over the estimated useful lives of the respective assets
as follows:
<TABLE>
<S> <C>
Office buildings........................................... 20 to 40 years
Furniture, fixtures and equipment.......................... 3 to 10 years
</TABLE>
Leasehold improvements are capitalized and amortized using the straight-line
method over the terms of the respective leases or the estimated useful lives
of the improvements, whichever is shorter.
Real Estate Acquired through Foreclosure--Assets acquired by foreclosure or
in settlement of debt and held for sale are valued at estimated fair value as
of the date of foreclosure, and a related valuation allowance is provided for
estimated costs to sell the assets. Management periodically evaluates the
value of foreclosed assets held for sale and increases the valuation allowance
for any subsequent declines in fair value less selling costs. Subsequent
declines in value are charged to operations.
Income Taxes--A deferred income tax liability or asset is recognized for
temporary differences which exist in the recognition of certain income and
expense items for financial statement reporting purposes in periods different
than for tax reporting purposes. The provision for income taxes is based on
the amount of current and deferred income taxes payable or refundable at the
date of the financial statements as measured by the provisions of current tax
laws.
Earnings Per Share--Basic earnings per share is based on net income divided
by the weighted average number of common shares outstanding during the period.
The weighted average number of shares outstanding used to compute diluted
earnings per share include the number of additional common shares that would
be outstanding if the potential dilutive common shares and common share
equivalents had been issued at the beginning of the year.
Recent Accounting Pronouncements--In June 1997, SFAS No. 130, "Reporting
Comprehensive Income," was issued. SFAS No. 130 established standards for
reporting and display of comprehensive income and its components (revenues,
expenses, gains, and losses) in a full set of general-purpose financial
statements. SFAS No. 130 requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence
as other financial statements. SFAS No. 130 requires that a company (a)
classify items of other comprehensive income by their nature in a financial
statement and (b) display the accumulated balance of other comprehensive
income separately from retained earnings and additional paid-in capital in the
equity section of the balance sheet. The Company adopted this statement in the
first quarter of 1998. The Company's only comprehensive income component is
unrealized gains and losses on available for sale securities. For the three
months ended March 31, 1998 and 1997, comprehensive income was $740,000
(unaudited) and $357,000 (unaudited), respectively.
In June 1997, SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information," was issued. SFAS No. 131 establishes standards for the
way that public companies report selected information about operating segments
in annual financial statements and requires that those companies report
selected information about segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. Generally,
financial information is required to be reported on the basis that it is used
internally for evaluating segment performance and deciding how to allocate
resources to segments. SFAS No. 131 requires that a public company report a
F-10
<PAGE>
COLORADO BUSINESS BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
measure of segment profit or loss, certain specific revenue and expense items,
and segment assets. This statement will be adopted for the year ended December
31, 1998 and will not have a material affect on the Company's disclosures.
2. INVESTMENTS
The amortized cost and estimated fair values of investment securities are
summarized as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
MARCH 31, 1998 (UNAUDITED) COST GAINS LOSSES VALUE
-------------------------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Available for sale securities:
Mortgage-backed securities... $37,457,000 $247,000 $ 3,000 $37,701,000
U.S. treasury................ 999,000 2,000 -- 1,001,000
U.S. government agencies..... 3,000,000 -- 3,000 2,997,000
----------- -------- ------- -----------
$41,456,000 $249,000 $ 6,000 $41,699,000
=========== ======== ======= ===========
Held to maturity securities:
U.S. government agencies..... $ 1,433,000 $ -- $17,000 $ 1,416,000
Mortgage-backed securities... 9,517,000 200,000 -- 9,717,000
Obligations of states and
political subdivisions...... 1,199,000 40,000 -- 1,239,000
U.S. treasury................ 1,017,000 -- 2,000 1,015,000
----------- -------- ------- -----------
$13,166,000 $240,000 $19,000 $13,387,000
=========== ======== ======= ===========
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
DECEMBER 31, 1997 COST GAINS LOSSES VALUE
----------------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Available for sale securities:
Mortgage-backed securities... $36,957,000 $185,000 $ 1,000 $37,141,000
U.S. treasury................ 1,499,000 -- 1,000 1,498,000
U.S. government agencies..... 3,000,000 -- 9,000 2,991,000
----------- -------- ------- -----------
$41,456,000 $185,000 $11,000 $41,630,000
=========== ======== ======= ===========
Held to maturity securities:
U.S. government agencies..... $ 1,500,000 $ -- $ 3,000 $ 1,497,000
Mortgage-backed securities... 11,213,000 239,000 23,000 11,429,000
Obligations of states and
political subdivisions...... 1,198,000 50,000 -- 1,248,000
U.S. treasury................ 1,020,000 -- 5,000 1,015,000
----------- -------- ------- -----------
$14,931,000 $289,000 $31,000 $15,189,000
=========== ======== ======= ===========
</TABLE>
F-11
<PAGE>
COLORADO BUSINESS BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
DECEMBER 31, 1996 COST GAINS LOSSES VALUE
----------------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Available for sale
securities:
Mortgage-backed
securities................ $22,811,000 $238,000 $ 76,000 $22,973,000
U.S. treasury.............. 3,500,000 8,000 -- 3,508,000
U.S. government agencies
and corporations.......... 3,003,000 -- 27,000 2,976,000
----------- -------- -------- -----------
$29,314,000 $246,000 $103,000 $29,457,000
=========== ======== ======== ===========
Held to maturity securities:
U.S. government agencies
and corporations.......... $ 7,804,000 $ 2,000 $ 7,000 $ 7,799,000
Mortgage-backed
securities................ 15,638,000 256,000 27,000 15,867,000
Obligations of states and
political subdivisions.... 1,919,000 40,000 4,000 1,955,000
U.S. treasury.............. 1,534,000 1,000 14,000 1,521,000
----------- -------- -------- -----------
$26,895,000 $299,000 $ 52,000 $27,142,000
=========== ======== ======== ===========
</TABLE>
The amortized cost and estimated fair value of investments in debt
securities at March 31, 1998 and December 31, 1997 by contractual maturity,
are shown below. Expected maturities may differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without penalties.
<TABLE>
<CAPTION>
AVAILABLE FOR SALE HELD TO MATURITY
----------------------- -----------------------
ESTIMATED ESTIMATED
AMORTIZED FAIR AMORTIZED FAIR
MARCH 31, 1998 (UNAUDITED) COST VALUE COST VALUE
-------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Due in one year or less..... $ 3,000,000 $ 2,997,000 $ 1,210,000 $ 1,210,000
Due after one year through
five years................. 999,000 1,001,000 1,995,000 2,030,000
Due after five years through
ten years.................. -- -- 444,000 430,000
Mortgage-backed securities.. 37,457,000 37,701,000 9,517,000 9,717,000
----------- ----------- ----------- -----------
$41,456,000 $41,699,000 $13,166,000 $13,387,000
=========== =========== =========== ===========
<CAPTION>
AVAILABLE FOR SALE HELD TO MATURITY
----------------------- -----------------------
ESTIMATED ESTIMATED
AMORTIZED FAIR AMORTIZED FAIR
DECEMBER 31, 1997 COST VALUE COST VALUE
----------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Due in one year or less..... $ 500,000 $ 500,000 $ 210,000 $ 214,000
Due after one year through
five years................. 3,999,000 3,989,000 3,498,000 3,536,000
Due after five years through
ten years.................. -- -- 10,000 10,000
Mortgage-backed securities.. 36,957,000 37,141,000 11,213,000 11,429,000
----------- ----------- ----------- -----------
$41,456,000 $41,630,000 $14,931,000 $15,189,000
=========== =========== =========== ===========
</TABLE>
During the years ended December 31, 1997, 1996 and 1995, there were no sales
of held to maturity securities. Proceeds from sales of available for sale
securities totaled $9,155,000, $0 and $2,046,000, respectively, during the
years ended December 31, 1997, 1996 and 1995. The related gross realized gains
were $82,000, $0 and $20,000, respectively.
Investment securities with an approximate fair value of $10,793,000 and
$13,221,000 were pledged to secure public deposits of $8,976,000 and
$9,677,000 at December 31, 1997 and 1996, respectively.
F-12
<PAGE>
COLORADO BUSINESS BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Obligations of states and political subdivisions at December 31, 1997 and
1996 do not include any single issuer for which the aggregate carrying amount
exceeds 10% of the Company's shareholders' equity.
Other investments at December 31, 1997 consists primarily of Federal Home
Loan Bank stock (carrying value of $1,399,000), and Federal Reserve Bank stock
(carrying value of $613,000). In addition, the Bank had a $150,000 investment
in a trust company which was partially liquidated in March 1998 at cost, and
$93,000 in an investment partnership being accounted for on the cost method.
The Bank has committed to investing up to $500,000 in the partnership. Certain
shareholders and directors have also invested and received consulting fees
from the partnership.
3. LOANS AND LEASES
Categories of loans and leases, net of deferred fees include:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, -------------------------
1998 1997 1996
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Commercial.......................... $ 81,325,000 $ 78,152,000 $ 58,727,000
Real estate--mortgage............... 44,888,000 40,262,000 24,491,000
Real estate--construction........... 33,350,000 27,786,000 19,119,000
Consumer............................ 13,110,000 11,732,000 8,266,000
Direct financing leases, net........ 9,168,000 8,407,000 1,805,000
------------ ------------ ------------
181,841,000 166,339,000 112,408,000
Less: Allowance for loan and lease
loss............................... 2,630,000 2,248,000 1,660,000
------------ ------------ ------------
$179,211,000 $164,091,000 $110,748,000
============ ============ ============
</TABLE>
The majority of the Company's lending and leasing activities are with
customers located in the Denver metropolitan area.
In the ordinary course of business, the Company makes various direct and
indirect loans to officers and directors of the Company and its subsidiaries
at competitive rates. Activity with respect to officer and director loans is
as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1997 1996
------------ ------------
<S> <C> <C>
Balance, beginning of period..................... $ 2,201,000 $ 1,717,000
New loans........................................ 4,867,000 2,709,000
Principal paydowns and payoffs................... (4,929,000) (2,225,000)
------------ ------------
Balance, end of period........................... $ 2,139,000 $ 2,201,000
============ ============
</TABLE>
The recorded investment in loans that are considered to be impaired under
SFAS No. 114 as amended by SFAS No. 118, was $811,000 and $582,000 at December
31, 1997 and 1996, respectively (all of which have a related allowance for
loan and lease loss). The related allowance for loan and lease losses were
$324,000 and $164,000 at December 31, 1997, and 1996, respectively. Interest
of $33,000, $117,000 and $147,000 was recognized on average impaired loans of
$697,000, $1,105,000, $1,630,000, during the years ended December 31, 1997,
1996 and 1995, respectively. The gross interest income that would have been
recorded if the loans had been current in accordance with the original terms
is insignificant for the years ended December 31, 1997, 1996 and 1995.
F-13
<PAGE>
COLORADO BUSINESS BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company sells participations in loans to an entity controlled by the
Chairman of the Board of Directors and a member of the Board of Directors. At
December 31, 1997, the amount of participations outstanding with the affiliate
was $2,753,000.
Transactions in the allowance for loan and lease loss are summarized as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEARS ENDED DECEMBER 31,
MARCH 31, ----------------------------------
1998 1997 1996 1995
------------------ ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Balance, beginning of
period................. $2,248,000 $1,660,000 $1,392,000 $1,181,000
Provision for loan and
lease losses........... 351,000 949,000 493,000 242,000
---------- ---------- ---------- ----------
2,599,000 2,609,000 1,885,000 1,423,000
Losses charged off
(recovered), net of
recoveries of $50,000
(unaudited) for March
1998, $33,000 for
December 1997, $103,000
for December 1996 and
$14,000 for December
1995................... 31,000 (361,000) (225,000) (31,000)
---------- ---------- ---------- ----------
Balance, end of period.. $2,630,000 $2,248,000 $1,660,000 $1,392,000
========== ========== ========== ==========
</TABLE>
4. INVESTMENT IN LEASES
The Company is the lessor of equipment under agreements expiring in various
future years. Certain of the equipment leases provide for additional rents,
based on use in excess of a stipulated minimum number of hours, and allow the
lessees to purchase the equipment for fair value at the end of the lease
terms.
Property leased or held for lease to others under operating leases consists
of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ---------------------
1998 1997 1996
----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Equipment................................. $5,074,000 $4,290,000 $2,279,000
Unamortized initial direct costs.......... 74,000 64,000 44,000
---------- ---------- ----------
5,148,000 4,354,000 2,323,000
Less accumulated depreciation............. 1,297,000 1,057,000 247,000
---------- ---------- ----------
Total................................... $3,851,000 $3,297,000 $2,076,000
========== ========== ==========
</TABLE>
The Company's net investment in direct financing leases consists of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ----------------------
1998 1997 1996
----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Minimum lease payments receivable..... $10,557,000 $9,819,000 $2,115,000
Unamortized initial direct costs...... 156,000 150,000 21,000
Estimated unguaranteed residual
values............................... 17,000 17,000 2,000
Unearned income....................... (1,562,000) (1,579,000) (333,000)
----------- ---------- ----------
Total $ 9,168,000 $8,407,000 $1,805,000
=========== ========== ==========
</TABLE>
F-14
<PAGE>
COLORADO BUSINESS BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
At March 31, 1998 and December 31, 1997, future minimum lease payments
receivable under direct financing leases and noncancelable operating leases are
as follows:
<TABLE>
<CAPTION>
MARCH 31, 1998
(UNAUDITED) DECEMBER 31, 1997
---------------------- ---------------------
DIRECT DIRECT
FINANCING OPERATING FINANCING OPERATING
LEASES LEASES LEASES LEASES
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1998............................ $ 2,666,000 $1,321,000 $3,141,000 $1,400,000
1999............................ 3,404,000 1,324,000 2,870,000 934,000
2000............................ 2,337,000 603,000 1,884,000 571,000
2001............................ 1,441,000 104,000 1,333,000 102,000
2002............................ 507,000 -- 490,000 --
Thereafter...................... 202,000 -- 101,000 --
----------- ---------- ---------- ----------
Total......................... $10,557,000 $3,352,000 $9,819,000 $3,007,000
=========== ========== ========== ==========
</TABLE>
5. PREMISES AND EQUIPMENT
The major classes of premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ---------------------
1998 1997 1996
----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Building.................................. $ 355,000 $ 355,000 $ 355,000
Leasehold improvements.................... 983,000 951,000 693,000
Furniture, fixtures, and equipment........ 2,964,000 2,049,000 772,000
---------- ---------- ----------
4,302,000 3,355,000 1,820,000
Accumulated depreciation.................. 2,219,000 2,089,000 346,000
---------- ---------- ----------
$2,083,000 $1,266,000 $1,474,000
========== ========== ==========
</TABLE>
6. CERTIFICATES OF DEPOSIT
The composition of certificates of deposit is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, -----------------------
1998 1997 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Less than $100,000....................... $18,999,000 $18,724,000 $ 9,936,000
$100,000 and more........................ 50,067,000 52,130,000 27,518,000
----------- ----------- -----------
$69,066,000 $70,854,000 $37,454,000
=========== =========== ===========
</TABLE>
Related interest expense is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
------------------- --------------------------------
1998 1997 1997 1996 1995
--------- --------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Less than $100,000..... $ 246,000 $ 175,000 $ 877,000 $ 445,000 $ 349,000
$100,000 and more...... 721,000 442,000 2,083,000 1,450,000 843,000
--------- --------- ---------- ---------- ----------
$ 967,000 $ 617,000 $2,960,000 $1,895,000 $1,192,000
========= ========= ========== ========== ==========
</TABLE>
F-15
<PAGE>
COLORADO BUSINESS BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Maturities of certificates of deposit of $100,000 and more are as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
Less than three months.............................. $30,149,000 $29,828,000
Three months up to six months....................... 9,921,000 8,387,000
Six months up to one year........................... 7,898,000 7,976,000
One year and over................................... 2,099,000 5,939,000
----------- -----------
$50,067,000 $52,130,000
=========== ===========
</TABLE>
7. BORROWED FUNDS
The Company has advances from the Federal Home Loan Bank of Topeka (FHLB)
with interest rates that range from 5.98% to 6.89%. Advances are
collateralized generally by all assets of the Company.
Aggregate annual maturities of advances are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
1998............................................................ $1,140,000
1999............................................................ 1,140,000
2000............................................................ 140,000
2001............................................................ 140,000
2002............................................................ 140,000
Thereafter...................................................... 560,000
----------
Total......................................................... $3,260,000
==========
</TABLE>
Securities sold under agreements to repurchase are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ----------------------
1998 1997 1996
----------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Securities with an estimated fair value
of $18,928,000 (unaudited) in 1998,
$13,152,000 in 1997 and $3,431,000 in
1996................................... $16,085,000 $13,024,000 $3,422,000
=========== =========== ==========
</TABLE>
The Company enters into sales of securities under agreements to repurchase.
The amounts received under these agreements represent short-term borrowings
and are reflected as a liability in the consolidated statement of condition.
During the period, securities were pledged to the customers' and segregated
into a separate safekeeping account that explicitly recognizes the customers'
interests in the securities. Securities sold under agreements to repurchase
averaged $17,602,000 and $7,323,000 and the maximum amounts outstanding at any
month-end during the years ended December 31, 1997 and 1996 were $25,251,000
and $6,084,000, respectively. At December 31, 1997, the weighted average
interest rate was 5.21%.
Note payable at March 31, 1998 and December 31, 1997, consists of a
$7,500,000 promissory note due to a bank. Interest on the note is payable
quarterly and is set at the lending bank's prime rate. Principal is payable in
quarterly installments of $250,000 through July 1998, increasing to $313,000
through April 2001, with the remaining outstanding balance due July 2001. The
note is collateralized by a pledge of all of the Colorado Business Bank,
N.A.'s common stock. The agreement also contains covenants which include
compliance with
F-16
<PAGE>
COLORADO BUSINESS BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
certain financial requirements, including minimum tangible equity capital to
total quarterly average assets at the subsidiary bank of 6.50%.
Aggregate annual maturities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
1998............................................................ $ 813,000
1999............................................................ 1,250,000
2000............................................................ 1,250,000
2001............................................................ 4,187,000
----------
Total......................................................... $7,500,000
==========
</TABLE>
8. INCOME TAXES
The components of consolidated income tax expense are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
------------------- --------------------------------
1998 1997 1997 1996 1995
--------- -------- ---------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current tax expense..... $ 518,000 $300,000 $1,586,000 $ 946,000 $ 669,000
Deferred tax expense
(benefit).............. (107,000) (97,000) (341,000) (184,000) (237,000)
--------- -------- ---------- --------- ---------
Total................. $ 411,000 $203,000 $1,245,000 $ 762,000 $ 432,000
========= ======== ========== ========= =========
</TABLE>
A deferred tax asset or liability is recognized for the tax consequences of
temporary differences in the recognition of revenue and expense for financial
and tax reporting purposes. The net change during the year in the deferred tax
asset or liability results in a deferred tax expense or benefit. The temporary
differences, tax effected, which give rise to the Company's net deferred tax
assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1996
-------- --------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses............................... $688,000 $486,000
Depreciation............................................ 43,000 --
Deferred loan fees...................................... 102,000 105,000
Vacation and other accrued liabilities.................. 44,000 --
Other................................................... 62,000 35,000
-------- --------
Total deferred tax assets............................. 939,000 626,000
-------- --------
Deferred tax liabilities:
Deferred direct costs................................... -- --
Building leasehold improvements......................... 97,000 125,000
Unrealized gain on available-for-sale securities........ 65,000 53,000
-------- --------
Total deferred tax liabilities........................ 162,000 178,000
-------- --------
Net deferred tax assets................................... $777,000 $448,000
======== ========
</TABLE>
F-17
<PAGE>
COLORADO BUSINESS BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A reconciliation of income tax expense at the statutory rate to the
Company's actual income tax expense is shown below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1997 1996 1995
---------- -------- --------
<S> <C> <C> <C>
Computed at the statutory rate (34%)....... $1,053,000 $633,000 $390,000
Increase (decrease) resulting from:
Tax exempt interest income on loans and
securities.............................. (10,000) (61,000) (56,000)
Nondeductible goodwill amortization...... 148,000 146,000 136,000
State income taxes, net of federal income
tax effect.............................. 65,000 50,000 32,000
Other.................................... (11,000) (6,000) (70,000)
---------- -------- --------
Actual tax provision..................... $1,245,000 $762,000 $432,000
========== ======== ========
</TABLE>
9. SHAREHOLDERS' EQUITY
Preferred Stock--The Board of Directors is authorized, among other things,
to fix the designation and the powers, preferences and relative,
participating, optional and other special rights for preferred shares. All
outstanding preferred shares are held by the holder of the note payable
referred to in Note 7 and are designated by the Board as Series A Adjustable
Rate Cumulative Perpetual Preferred Stock. Holders of the Series A Preferred
Stock have no voting rights except under certain conditions. The Board further
entitled the holders of Preferred Stock to receive preferential cumulative
cash dividends at the applicable floating rate payable quarterly in arrears
(prime plus 2.25%). Prime was 8.50% at December 31, 1997. Shares of the
Preferred Stock are redeemable by the Company in whole or in part at the
outstanding redemption price of $1,000 per share plus all unpaid dividends.
The Preferred Stock is putable to two current shareholders and directors of
the Company. However, the Company is not required to redeem the stock. All
shares of Common Stock of the Company, and all other capital stock of any
class or series of the Company issued after the issue date, rank junior to the
Preferred Stock as to dividends and rights upon liquidation, dissolution or
winding up of the Company.
Stock Options--Certain officers of the Company have been granted options to
purchase shares of the Company's common stock pursuant to two stock option
plans. The plan's options are granted at prices not less than the fair market
value of the Company's stock at the date of grant. Generally, the options are
exercisable commencing one year from the date of grant and vest 25% per year
thereafter becoming fully exercisable after four years. The options expire
after ten years and, as of December 31, 1997 the total number of shares
reserved under the plans is 298,603, and remaining shares available for
granting is 53,552. The following is a summary of changes in shares under
option:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1998
---------------------
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
---------- ----------
(UNAUDITED)
<S> <C> <C>
Outstanding, beginning of period....................... 245,051 $ 3.12
Granted.............................................. 4,713 7.43
Exercised............................................ -- --
Forfeited............................................ -- --
---------- --------
Outstanding, end of period............................. 249,764 $ 3.20
========== ========
Options exercisable, end of period..................... 84,354 $ 2.49
========== ========
</TABLE>
F-18
<PAGE>
COLORADO BUSINESS BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------
1997 1996 1995
---------------- ---------------- ----------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning
of year................ 157,162 $2.54 138,783 $2.42 --
Granted............... 102,733 4.00 27,804 3.21 138,783 $2.42
Exercised............. 358 2.12 -- -- -- --
Forfeited............. 14,486 3.18 9,425 2.76 -- --
------- ----- ------- ----- ------- -----
Outstanding, end of
year................... 245,051 $3.12 157,162 $2.54 138,783 $2.42
======= ===== ======= ===== ======= =====
Options exercisable, end
of year................ 67,153 $2.43 31,574 $2.38 -- $ --
======= ===== ======= ===== ======= =====
</TABLE>
The Company granted other stock options ("Other Options") in 1994 to
individuals for their contributions to the Company which were immediately
exercisable at $2.12 per share. An aggregate of 188,500 shares of common stock
reserved for issuance under these agreements were exercised in February 1998.
The Company has elected to continue to account for its stock options using
the intrinsic value method prescribed by Accounting Principles Board Opinion
No. 25 and related interpretations. Accordingly, no compensation cost has been
recognized for its stock option plans. The Company estimated the fair value of
options granted in 1997, 1996 and 1995 to be $119,000, $11,000, and $123,000,
respectively using an analysis similar to the Black-Scholes option pricing
model prescribed by SFAS No. 123, "Accounting for Stock-Based Compensation."
The fair value of each stock option grant is estimated using the Black-Scholes
option pricing model with the following weighted average assumptions: risk-
free interest rate of 5.58%; expected dividend yield of 0%; expected life of
five years; and expected volatility of 8.10%. The outstanding stock options at
March 31, 1998 have a weighted average contractual life of 8.25 years and the
range of exercise prices is $2.12 to $7.43. Had compensation cost been
determined based on fair value at the grant date for the Company's stock
options in accordance with SFAS No. 123, the proforma effect on net income for
the years ended December 31, 1997, 1996 and 1995 would have been a decrease of
$41,000, $35,000, and $19,000, respectively. The effect on earnings per share
is not material.
At December 31, 1997, the Company's ability to pay dividends on its common
stock, if it determines to do so, is largely dependent upon the payment of
dividends by the Bank. At December 31, 1997, the Bank could have paid total
dividends to the Company of approximately $1 million, without prior regulatory
approval.
The weighted average shares outstanding used in the calculation of Basic and
Diluted Earnings Per Share are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
------------------- -------------------------------
1998 1997 1997 1996 1995
--------- --------- ---------- ---------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net income.............. $587,000 $272,000 $1,853,000 $1,100,000 $716,000
Less: Preferred stock
dividends.............. 40,000 -- 116,000 -- --
--------- --------- ---------- ---------- ---------
Income available to
common shareholders.... $547,000 $272,000 $1,737,000 $1,100,000 $716,000
========= ========= ========== ========== =========
Weighted average shares
outstanding--basic
earnings per share..... 4,941,990 3,784,138 4,690,852 3,771,885 3,773,063
Effect of dilutive
securities--stock
options................ 278,541 115,883 111,926 54,582 27,084
--------- --------- ---------- ---------- ---------
Weighted average shares
outstanding--diluted
earnings per share..... 5,220,531 3,900,021 4,802,778 3,826,467 3,800,147
========= ========= ========== ========== =========
</TABLE>
F-19
<PAGE>
COLORADO BUSINESS BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. COMMITMENTS AND CONTINGENCIES
Employee Profit Sharing Trust--The Company has a defined contribution
pension plan covering substantially all employees. Employees may contribute up
to 15% of their compensation with the Company's discretionary matching within
the limits defined for a 401(k) Plan. Employer contributions charged to
expense for the years ended December 31, 1997, 1996, and 1995 were $123,000,
$114,000 and $67,000, respectively.
Lease Commitments--The Company entered into various operating lease
agreements for office space. Total rental expense for the years ended December
31, 1997, 1996 and 1995 was $533,000, $477,000, and $374,000, respectively.
The Company's corporate office lease expires June 30, 1998. Subsequent to
December 31, 1997, certain officers and directors acquired the building in
which the corporate office is located and certain banking operations are
performed. Future minimum lease payments under all noncancelable operating
leases are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
1998............................................................ $ 405,000
1999............................................................ 318,000
2000............................................................ 319,000
2001............................................................ 169,000
2002............................................................ 146,000
Thereafter...................................................... 343,000
----------
Total......................................................... $1,700,000
==========
</TABLE>
Financial Instruments with Off-Balance Sheet Risk--In the normal course of
business, the Company has entered into financial instruments which are not
reflected in the accompanying consolidated financial statements. These
financial instruments include commitments to extend credit and stand-by
letters of credit. The Company had the following commitments:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
Commitments to originate commercial or real
estate construction loans and unused lines of
credit granted to customers..................... $84,464,000 $79,354,000
=========== ===========
Commitments to fund consumer loans:
Personal lines of credit....................... $ 3,485,000 $ 3,499,000
=========== ===========
Credit card loans.............................. $ 1,353,000 $ 1,285,000
=========== ===========
Standby and performance letters of credit........ $ 1,736,000 $ 1,027,000
=========== ===========
</TABLE>
The Company makes contractual commitments to extend credit and provide
standby letters of credit, which are binding agreements to lend money to its
customers at predetermined interest rates for a specific period of time. The
credit risk involved in issuing these financial instruments is essentially the
same as that involved in granting on-balance sheet financial instruments. As
such, the Company's exposure to credit loss in the event of non-performance by
the counter-party to the financial instrument is represented by the
contractual amounts of those instruments. However, the Company applies the
same credit policies, standards and ongoing reassessments in making
commitments and conditional obligations as they do for loans. In addition, the
amount and type of collateral obtained, if deemed necessary upon extension of
a loan commitment or standby letter of credit, is essentially the same as the
collateral requirements provided for loans. Additional risk associated with
providing
F-20
<PAGE>
COLORADO BUSINESS BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
these commitments arise when they are drawn upon, such as the demands on
liquidity the banks would experience if a significant portion were drawn down
at the same time. However, this is considered unlikely, as many commitments
expire without being drawn upon and therefore do not necessarily represent
future cash requirements.
Employment Contracts--Certain officers of the Company have entered into
employment agreements providing for salaries and fringe benefits. In addition,
severance is provided in the event of termination for other than cause and
under certain changes in control a lump sum payment is required.
Other Matters--The Company is involved in various lawsuits which have arisen
in the normal course of business. It is management's opinion, based upon
advice of legal counsel, that the ultimate outcome of these lawsuits will not
have a material impact upon the financial condition or results of operations
of the Company.
Pursuant to normal banking practices, the Company is required to maintain
certain balances (reserves) with the Federal Reserve Bank. At December 31,
1997, the required balance was approximately $1,568,000.
11. REGULATORY MATTERS
The Company and the Bank are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory--and possibly
additional discretionary--actions by regulators that, if undertaken, could
have a direct material effect on the Company's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, the Company and the Bank must meet specific capital guidelines that
involve quantitative measures of the Company and the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Company and the Banks' capital amounts
and classification are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier I capital (as defined in the
regulations) to risk-weighted assets, and of Tier I capital to average assets.
The Company's total capital to risk weighted assets at December 31, 1997 was
$4,448,000 or $838,000, less than the required 8% minimum. The most recent
notification from the Office of the Comptroller of the Currency categorized
the Bank as well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized, the Bank must
maintain minimum total risk-based, Tier I risk-based, and Tier I leverage
ratios as set forth in the table. There are no conditions or events that
management believes have changed the Bank's categories.
F-21
<PAGE>
COLORADO BUSINESS BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table shows the Company and the Bank's actual capital amounts
and ratios and regulatory thresholds (note that the Company does not meet the
criteria for utilizing the minimum Tier I capital to average assets ratio of
3%):
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998 (UNAUDITED)
----------------------------------------------------------
TO BE "WELL
CAPITALIZED" UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
----------------- ----------------- ---------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
----------- ----- ----------- ----- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
COMPANY
Total capital
(to risk weighted
assets)................ $15,660,000 8.2% $15,380,000 8.0% N/A N/A
Tier I capital
(to risk weighted
assets)................ 13,254,000 6.9% 7,690,000 4.0% N/A N/A
Tier I capital
(to average assets).... 13,254,000 5.2% 10,294,000 4.0% N/A N/A
COLORADO BUSINESS BANK,
N.A.
Total capital
(to risk weighted
assets)................ $22,200,000 11.6% $15,336,000 8.0% $ 19,170,000 10.0%
Tier I capital
(to risk weighted
assets)................ 19,801,000 10.3% 7,668,000 4.0% 11,502,000 6.0%
Tier I capital
(to average assets).... 19,801,000 7.7% 10,286,000 4.0% 12,858,000 5.0%
<CAPTION>
AS OF DECEMBER 31, 1997
----------------------------------------------------------
TO BE "WELL
CAPITALIZED" UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
----------------- ----------------- ---------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
----------- ----- ----------- ----- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
COMPANY
Total capital
(to risk weighted
assets)................ $14,448,000 7.6% $15,286,000 8.0% N/A N/A
Tier I capital
(to risk weighted
assets)................ 12,200,000 6.4% 7,643,000 4.0% N/A N/A
Tier I capital
(to average assets).... 12,200,000 4.9% 9,980,000 4.0% N/A N/A
COLORADO BUSINESS BANK,
N.A.
Total capital
(to risk weighted
assets)................ $21,179,000 11.6% $14,652,000 8.0% $ 18,315,000 10.0%
Tier I capital
(to risk weighted
assets)................ 18,931,000 10.3% 7,326,000 4.0% 10,989,000 6.0%
Tier I capital
(to average assets).... 18,931,000 7.6% 9,964,000 4.0% 12,455,000 5.0%
</TABLE>
F-22
<PAGE>
COLORADO BUSINESS BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
-------------------------------------------------------------
TO BE "WELL
CAPITALIZED" UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
----------------- ------------------------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
----------- ----- ------------ -------------------- --------
<S> <C> <C> <C> <C> <C> <C>
COMPANY
Total capital
(to risk weighted
assets)................ $ 6,063,000 5.3% $ 9,152,000 8.0% N/A N/A
Tier I capital
(to risk weighted
assets)................ 4,549,000 4.0% 4,549,000 4.0% N/A N/A
Tier I capital
(to average assets).... 4,549,000 2.6% 6,998,000 4.0% N/A N/A
THE WOMEN'S BANK
Total capital
(to risk weighted
assets)................ $11,733,000 15.1% $ 6,225,000 8.0% $ 7,781,000 10.0%
Tier I capital
(to risk weighted
assets)................ 10,655,000 13.7% 3,112,000 4.0% 4,668,000 6.0%
Tier I capital
(to average assets).... 10,655,000 7.9% 5,394,000 4.0% 6,743,000 5.0%
COLORADO BUSINESS BANK,
N.A.
Total capital
(to risk weighted
assets)................ $ 3,830,000 10.3% $ 2,986,000 8.0% 3,732,000 10.0%
Tier I capital
(to risk weighted
assets)................ 3,391,000 9.1% 1,493,000 4.0% 2,239,000 6.0%
Tier I capital
(to average assets).... 3,391,000 7.2% 1,895,000 4.0% 2,369,000 5.0%
</TABLE>
F-23
<PAGE>
COLORADO BUSINESS BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of the Company's
financial instruments is made in accordance with the requirements of SFAS No.
107, "Disclosures about Fair Value of Financial Instruments." The estimated
fair value amounts have been determined by the Company using available market
information and appropriate valuation methodologies. However, considerable
judgment is required to interpret market data in order to develop the
estimates of fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts the Company could realize in a current
market exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.
<TABLE>
<CAPTION>
MARCH 31, 1998 DECEMBER 31, 1997
----------------------- -----------------------
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash
equivalents.......... $22,527,000 $22,527,000 $27,775,000 $27,775,000
Investment securities
available-for-sale... 41,699,000 41,699,000 41,630,000 41,630,000
Investment securities
held-to-maturity..... 13,166,000 13,387,000 14,931,000 15,189,000
Other investments..... 2,220,000 2,220,000 2,223,000 2,223,000
Accrued interest
receivable........... 1,245,000 1,245,000 1,331,000 1,331,000
Loans and leases,
net.................. 179,211,000 178,976,000 164,091,000 164,020,000
Financial liabilities:
Deposits.............. 220,595,000 220,675,000 221,058,000 220,972,000
Accrued interest
payable.............. 279,000 279,000 361,000 361,000
Note payable.......... 7,500,000 7,500,000 7,500,000 7,500,000
Federal funds
purchased............ 5,000,000 5,000,000 -- --
Securities sold under
agreement to
repurchase........... 16,085,000 16,085,000 13,024,000 13,024,000
Advances from Federal
Home Loan Bank....... 3,260,000 3,296,000 3,260,000 3,298,000
</TABLE>
The estimation methodologies utilized by the Company are summarized as
follows:
Cash and Cash Equivalents--For cash and due from banks and federal funds
sold the carrying amount is a reasonable estimate of fair value.
Investment Securities--For investment securities, fair value equals the
quoted market price, if available. If a quoted market price is not available,
fair value is estimated using quoted market prices for similar investment
securities.
Loans and Leases--The fair value of fixed rate loans and leases is estimated
by discounting the future cash flows using the current rates at which similar
loans would be made to borrowers with similar credit ratings and for the same
remaining maturities. In computing the estimate of fair value for all loans
and leases, the estimated cash flows and/or carrying value have been reduced
by specific and general reserves for loan losses.
Accrued Interest Receivable/Payable--The carrying amount of accrued interest
receivable/payable is a reasonable estimate of fair value due to the short-
term nature of these amounts.
Deposits--The fair value of demand deposits, NOW and savings accounts, and
certain money market deposits is the amount payable on demand. The fair value
of fixed-maturity certificates of deposit is estimated using the rates
currently offered for deposits with similar remaining maturities.
F-24
<PAGE>
COLORADO BUSINESS BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Note Payable, Federal Funds Purchased, Securities Sold under Repurchase
Agreement--The estimated fair value of variable rate borrowed funds
approximates their carrying value.
Advances from the Federal Home Loan Bank--Estimated fair value is based on
discounting cash flows for comparable instruments.
Commitments to Extend Credit and Standby Letters of Credit--The Company's
off-balance sheet commitments are funded at current market rates at the date
they are drawn upon. It is management's opinion that the fair value of these
commitments would approximate their carrying value, if drawn upon.
The fair value estimates presented herein are based on pertinent information
available to management as of March 31, 1998, December 31, 1997 and 1996.
Although management is not aware of any factors that would significantly
affect the estimated fair value amounts, such amounts have not been
comprehensively revalued for purposes of these financial statements since that
date and, therefore, current estimates of fair value may differ significantly
from the amounts presented herein.
13. SUBSEQUENT EVENTS
At the Company's annual shareholders meeting, held on May 19, 1998, the
shareholders approved a 4.7125 for 1 stock split of the Company's common stock
and increased authorized shares to 25,000,000. In addition, the shareholders
approved an increase in the number of preferred shares authorized to 2,000,000
shares. All references to outstanding shares, options and earnings per share
have been adjusted for the stock split.
In May 1998, the Company approved the 1998 Stock Incentive Plan (the "1998
Plan"). The maximum number of shares authorized to be issued under the 1998
Plan is 225,000 shares of Common Stock, and the maximum number of shares
underlying awards that may be granted to an individual employee in a calendar
year is 22,500 shares of Common Stock. As of March 31, 1998, no awards had
been granted under the 1998 Plan. The exercise price for options granted under
the 1998 Plan must be at least equal to 100% of the fair market value of the
Common Stock on the date of grant. The 1998 Plan permits the granting of stock
options, including Incentive Stock Options and non-qualified stock options.
F-25
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN IS CONTAINED IN THIS PRO-
SPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITER. NEI-
THER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE ANY OF THE DATES AS TO WHICH INFORMATION IS FUR-
NISHED HEREIN OR SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OF-
FERED HEREBY TO ANY PERSON OR IN ANY JURISDICTION IN WHICH THE PERSON MAKING
SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM
IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 7
Use of Proceeds.......................................................... 12
Dividend Policy.......................................................... 12
Dilution................................................................. 13
Capitalization........................................................... 14
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 15
Business................................................................. 26
Management............................................................... 40
Certain Transactions..................................................... 47
Supervision and Regulation .............................................. 49
Principal Shareholders .................................................. 54
Description of Capital Stock............................................. 55
Underwriting............................................................. 57
Shares Eligible for Future Sale.......................................... 58
Changes in Accountants................................................... 59
Legal Matters............................................................ 59
Experts.................................................................. 60
Other Information........................................................ 60
Index to Consolidated Financial Statements............................... F
</TABLE>
----------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDI-
TION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UN-
DERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1,400,000 SHARES
[LOGO OF COLORADO BUSINESS BANKSHARES, INC.]
COMMON STOCK
----------------
PROSPECTUS
----------------
DAIN RAUSCHER WESSELS
A DIVISION OF DAIN RAUSCHER INCORPORATED
, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Articles of Incorporation and Bylaws provide that the
Registrant shall indemnify its directors, officers, employees and agents to
the fullest extent now or hereafter permitted by Colorado law. Under such
provisions, any director or officer who, in his or her capacity as such, is
made, or threatened to be made, a party to any suit or proceeding will be
indemnified if such director or officer acted in good faith and in a manner
reasonably believed to be in, or not opposed to, the best interests of the
Registrant and, with respect to any criminal proceeding, had no reasonable
cause to believe that his or her conduct was unlawful. The Articles of
Incorporation, Bylaws and Colorado law further provide that such
indemnification is not exclusive of any other rights to which such individual
may be entitled under the Articles of Incorporation, Bylaws, any agreement,
insurance policies, vote of shareholders or disinterested directors or
otherwise.
In addition, the Articles of Incorporation provide that, to the full extent
now or hereafter permitted by Colorado law, the Registrant's directors will
not be liable for monetary damages for breach of their fiduciary duty of care
to the Registrant and its shareholders. This provision in the Articles of
Incorporation does not eliminate the directors' fiduciary duty of care, and,
in appropriate circumstances, equitable remedies such as an injunction or
other forms of non-monetary relief would remain available under Colorado law.
Each director will continue to be subject to liability for breach of his or
her duty of loyalty to the Registrant and its shareholders for acts or
omissions not in good faith or involving intentional misconduct or knowing
violations of law, for certain activities prohibited by Colorado law (relating
primarily to the unlawful payment of dividends or repurchase of stock), or for
any transaction from which the director derived an improper personal benefit.
This provision does not affect a director's responsibilities under any other
laws, such as the federal securities laws or state or federal environmental
laws.
The Registrant maintains directors' and officers' liability insurance with a
$5 million limit per year per occurrence. The Registrant pays annual premiums
and expenses relating to the policy of approximately $17,500 per year.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable in connection with the sale of
the Common Stock being registered hereby. All amounts are estimates except the
Commission registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
ITEM AMOUNT
---- -----------
<S> <C>
Commission registration fee..................................... $ 5,669.40
NASD filing fee................................................. 2,432.00
Nasdaq listing fee.............................................. 66,875.00
Printing and engraving expenses................................. 90,000.00
Legal fees and expenses......................................... 150,000.00
Accounting fees and expenses.................................... 110,000.00
-----------
Transfer agent fees............................................. 3,500.00
Miscellaneous expenses.......................................... 51,523.60
-----------
Total.......................................................... $480,000.00
===========
</TABLE>
II-1
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
The following is a summary of the transactions by Registrant during the last
three years involving sales of Registrant's securities that were not
registered under the Securities Act of 1933, as amended (the "Securities
Act"):
1. In March 1997, the Registrant issued and sold approximately 1,102,725
(after giving effect to a 4.7125-for-1 stock split, effected in May 1998)
shares of its Common Stock, $.01 par value, to 48 purchasers at
approximately $3.61 per share, for an aggregate purchase price of
approximately $4 million.
2. In April 1997, the Registrant issued 1,500 shares of Series A
Adjustable Rate Cumulative Perpetual Preferred Stock, par value $.01, to
one purchaser in exchange for the forgiveness of $1.5 million in
indebtedness of the Registrant.
The above-described sales were deemed to be exempt from registration under
the Securities Act in reliance on Section 4(2) of such Act, and/or Regulation
D promulgated thereunder.
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.
*3.1 Amended and restated Articles of Incorporation of the Registrant.
*3.2 Amended and restated Bylaws of the Registrant.
4.1 Form of Underwriters' Warrant
5.1 Opinion of Dorsey & Whitney LLP.
*10.1 Colorado Business Bankshares, Inc. 1998 Stock Incentive Plan.
*10.2 Amended and Restated Colorado Business Bankshares, Inc. 1997
Incentive Stock Option Plan.
*10.3 Amended and Restated Colorado Business Bankshares, Inc. 1995
Incentive Stock Option Plan.
*10.4 Shareholders Agreement of Colorado Business Leasing, Inc., dated
as of March 29, 1996, by and among The Women's Bank, N.A., Richard
M. Hall, Jr., James F. Enssle, Andrea J. Johnson and Colorado
Business Leasing, Inc.
*+10.5 License Agreement, dated as of November 19, 1997, by and between
Jack Henry & Associates, Inc. and Colorado Business Bank, N.A.
*+10.6 Contract Modification, dated as of November 19, 1997, by and
between Jack Henry & Associates, Inc. and Colorado Business Bank,
N.A.
*+10.7 Computer Software Maintenance Agreement, dated as of November 19,
1997, by and between
Jack Henry & Associates, Inc. and Colorado Business Bank, N.A.
*10.8 Employment Agreement, dated as of March 1, 1995, by and between
Equitable Bankshares of
Colorado, Inc. and Jonathan C. Lorenz.
*10.9 Employment Agreement, dated as of May 8, 1995, by and between
Equitable Bankshares of
Colorado, Inc. and Virginia K. Berkeley.
*10.10 Employment Agreement, dated as of January 3, 1998, by and between
Colorado Business
Bankshares, Inc. and Richard J. Dalton.
*10.11 Employment Agreement, dated as of February 29, 1996, by and
between Equitable Bankshares of Colorado, Inc. and Darrell J.
Schulte.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
*10.12 Employment Agreement, dated as of June 12, 1995, by and between
Colorado Business
Bankshares, Inc. and Charles E. Holmes.
*10.13 Employment Agreement, dated as of November 16, 1997, by and between
Colorado Business Bankshares, Inc. and Andrew L. Bacon.
*10.14 Employment Agreement, dated as of October 1, 1997, by and between
Colorado Business Bankshares, Inc. and K. Denise Albrecht.
*10.15 Employment Agreement, dated as of March 29, 1996, by and between
Colorado Business Leasing, Inc. and Richard M. Hall, Jr.
*10.16 Employment Agreement, dated as of September 29, 1995, by and
between Equitable Bankshares of Colorado, Inc. and Katherine H.
Kaley.
*10.17 Employment Agreement, dated as of January 8, 1996, by and between
Colorado Business Bankshares, Inc. and Robert J. Ostertag.
*10.18 Retail Lease, dated as of April 1, 1991, by and between Southbridge
Plaza, L.P. and Equitable Bank of Littleton, N.A.
*10.19 First Amendment to Retail Lease, dated as of January 4, 1996, by
and between Southbridge Plaza, L.P. and Colorado Business Bank,
N.A., formerly known as Equitable Bank of Littleton, N.A.
*10.20 Office Lease, dated as of December 2, 1996, by and between Elliott
Kiowa, Inc. and Colorado Business Bank, N.A.
*10.21 Lease, dated as of December 1, 1997, by and between Spencer
Enterprises and Colorado Business Bank, N.A.
*10.22 Office Building Lease, dated as of July 19, 1995, by and between
Chrisman, Bynum & Johnson P.C. and Equitable Bank of Littleton.
*10.23 Office Lease, dated as of February 23, 1996, by and between
Colorado Business Leasing, Inc. and Denver Place Associates Limited
Partnership.
*16.1 Letter from Baird, Kurtz & Dobson.
*16.2 Letter from McGladrey & Pullen LLP.
*21.1 List of subsidiaries.
23.1 Consent of Dorsey & Whitney LLP (included as part of Exhibit 5.1).
23.2 Consent of Deloitte & Touche LLP.
23.3 Consent of Baird, Kurtz & Dobson.
23.4 Consent of McGladrey & Pullen LLP.
24.1 Power of Attorney (included in the signature page of this
Registration Statement).
*27.1 Financial Data Schedule.
</TABLE>
- --------
* Previously filed.
+ Confidential treatment requested as to certain portions of exhibit. Such
portions have been redacted.
ITEM 28. UNDERTAKINGS.
The Registrant hereby undertakes to provide to the Underwriters, at the
closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
II-3
<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in Item 14, or otherwise, the
Registrant has been advised that, in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer
of controlling person of the Registrant 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
Registrant 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 whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The Registrant hereby undertakes that, for the purposes of determining any
liability under the Securities Act:
(1) 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 Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective; and
(2) each post-effective amendment that contains a form of prospectus
shall be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
In accordance with the requirement of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements of filing on Form SB-2 and authorized this
Registration Statement to be signed on its behalf by the undersigned, in the
City and County of Denver, State of Colorado, on the 11th day of June, 1998.
Colorado Business Bankshares, Inc.
/s/ Jonathan C. Lorenz
By__________________________________
Jonathan C. Lorenz
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Steven Bangert and Jonathan C. Lorenz and each
of them, as his true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for him and in his name, place and stead,
in any and all capacities, to sign any and all amendments (including post-
effective amendments) to this Registration Statement, and to file the same
with all exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission, granting unto said attorneys-in-fact
and agents, and each of them, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or either of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
II-5
<PAGE>
SIGNATURES
IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT WAS SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES
INDICATED BELOW AND ON THE DATES STATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
Chairman of the
* Board of Directors June 11, 1998
- ------------------------------------- and Chief Executive
STEVEN BANGERT Officer (Principal
Executive Officer)
/s/ Jonathan C. Lorenz Vice Chairman of the
- ------------------------------------- Board, President June 11, 1998
JONATHAN C. LORENZ and Director
/s/ Virginia K. Berkeley President of
- ------------------------------------- Colorado Business June 11, 1998
VIRGINIA K. BERKELEY Bank--Denver and
Director
* Director
- ------------------------------------- June 11, 1998
MARK S. KIPNIS
* Director
- ------------------------------------- June 11, 1998
HOWARD. R. ROSS
* Director
- ------------------------------------- June 11, 1998
NOEL N. ROTHMAN
Director
* June 11, 1998
- -------------------------------------
MICHAEL B. BURGAMY
Director
* June 11, 1998
- -------------------------------------
TIMOTHY J. TRAVIS
/s/ Richard J. Dalton Senior Vice
- ------------------------------------- President and Chief June 11, 1998
RICHARD J. DALTON Financial Officer
(Principal
Financial and
Accounting Officer)
* /s/ Jonathan C. Lorenz
By___________________________________
as attorney-in-fact.
</TABLE>
II-6
<PAGE>
EXHIBIT 1.1
1,400,000 SHARES
COLORADO BUSINESS BANKSHARES, INC.
COMMON STOCK
PAR VALUE $0.01 PER SHARE
UNDERWRITING AGREEMENT
----------------------
[Date of agreement]
Dain Rauscher Wessels
As Representative of the several Underwriters
Dain Rauscher Plaza
60 South Sixth Street
Minneapolis, Minnesota 55402
Ladies and Gentlemen:
Colorado Business Bankshares, Inc., a Colorado corporation (the
"Company"), proposes, subject to the terms and conditions stated herein, to
issue and sell to the several Underwriters named in Schedule A hereto (the
"Underwriters"), for which you are acting as representative (the
"Representative"), an aggregate of 1,400,000 shares (the "Firm Shares") of
Common Stock, par value $0.01 per share, of the Company (the "Common Stock"),
and, at the election of the Underwriters, up to 210,000 additional shares of
Common Stock (the "Option Shares"). The Firm Shares and the Option Shares are
herein collectively called the "Shares." The Company also proposes to issue and
sell to the Representative on the "Closing Date" (as hereinafter defined), for
$100, warrants to purchase up to 100,000 shares of Common Stock as described in
Section 2 hereof (the "Warrants").
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form SB-2 (File No. 333-50037) and a
related preliminary prospectus for the registration of the Shares under the
Securities Act of 1933, as amended (the "Act"). The registration statement, as
amended at the time it was declared effective, including the information (if
any) deemed to be part thereof pursuant to Rule 430A under the Act, is herein
referred to as the "Registration Statement." The form of prospectus first filed
by the Company with the Commission pursuant to Rules 424(b) and 430A under the
Act is referred to herein as the "Prospectus." Each preliminary prospectus
included in the registration statement prior to the time it becomes effective or
filed with the Commission pursuant to Rule 424(a) under the Act is referred to
herein as a "Preliminary Prospectus." Copies of the Registration Statement,
including all exhibits and schedules thereto, any amendments thereto and all
Preliminary Prospectuses have been delivered to you.
<PAGE>
The Company hereby confirms its agreements with respect to the
purchase of the Shares by the Underwriters as follows:
1. Representations and Warranties of the Company.
---------------------------------------------
(a) The Company represents and warrants to, and agrees with, each of
the Underwriters that:
(i) The Registration Statement has been declared effective under the
Act, and no post-effective amendment to the Registration Statement has
been filed as of the date of this Agreement. No stop order suspending
the effectiveness of the Registration Statement has been issued, and
no proceeding for that purpose has been instituted or threatened by
the Commission.
(ii) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary
Prospectus, at the time of filing thereof, conformed, in all material
respects, to the requirements of the Act and the rules and regulations
of the Commission promulgated thereunder (collectively, the
"Regulations"), and did not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided,
however, the Company makes no representation or warranty as to
information contained in or omitted in reliance upon, and in
conformity with, written information furnished to the Company by or on
behalf of any Underwriter through the Representative expressly for use
in the preparation thereof.
(iii)The Registration Statement conforms, and the Prospectus and any
amendments or supplements thereto will conform, in all material
respects to the requirements of the Act and the Regulations. Neither
the Registration Statement nor any amendment thereto, and neither the
Prospectus nor any amendment or supplement thereto, contains or will
contain, as the case may be, any untrue statement of a material fact
or omits or will omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided,
however, that the Company makes no representation or warranty as to
information contained in or omitted from the Registration Statement or
the Prospectus, or any such amendment or supplement, in reliance upon,
and in conformity with, written information furnished to the Company
by or on behalf of any Underwriter through the Representative,
expressly for use in the preparation thereof.
(iv) The Company has been duly organized, is validly existing as a
corporation in good standing under the laws of Colorado, has the
corporate power and authority to own or lease its properties and
conduct its business as described in the Prospectus
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and is duly qualified to transact business in all jurisdictions in
which the failure so to qualify would have a material adverse effect
on the business or condition, financial or otherwise, of the Company
and its subsidiaries, taken as a whole.
(v) The Company does not directly or indirectly own any stock or other
equity interest in any corporation, partnership, joint venture,
unincorporated association or other entity other than Colorado
Business Bank, N.A. (the "Subsidiary Bank") and Colorado Business
Leasing, Inc. (the Subsidiary Bank and such other entity being
collectively referred to herein as, the "subsidiaries"). Each
subsidiary of the Company has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and
authority to own or lease its properties and conduct its business as
described in the Prospectus, and is duly qualified to transact
business in all jurisdictions in which the failure so to qualify would
have a material adverse effect on the business or condition, financial
or otherwise, of the Company and its subsidiaries, taken as a whole.
All outstanding shares of capital stock of each of the subsidiaries of
the Company have been duly authorized and validly issued, are fully
paid and non-assessable, and are owned, directly or indirectly, by the
Company free and clear of all liens, encumbrances and security
interests, except as disclosed in the Prospectus. No options,
warrants or other rights to purchase, agreements or other obligations
to issue, or other rights to convert any obligations into, shares of
capital stock or ownership interests in any of the subsidiaries of the
Company are outstanding.
(vi)The Company and each of its subsidiaries holds and is operating in
material compliance with all licenses, approvals, certificates and
permits from governmental and regulatory authorities, foreign and
domestic, which are necessary to the conduct of its business as
described in the Prospectus and the failure to comply with which would
have a material adverse effect on the business or condition, financial
or otherwise, of the Company and its subsidiaries, taken as a whole.
Without limiting the generality of the foregoing, the Company has all
necessary approvals of the Board of Governors of the Federal Reserve
System to own the stock of its subsidiaries. Neither the Company nor
any subsidiary has received notice of or has actual knowledge of any
basis for any proceeding or action relating specifically to the
Company or its subsidiaries for the revocation or suspension of any
such approval, license, certificate or permit or any other action or
proposed action by any regulatory authority having jurisdiction over
the Company or its subsidiaries that would, if determined adversely to
the Company, have a material adverse effect on the Company or any
subsidiary.
(vii)The Company is registered as a bank holding company under the
Bank Holding Company Act of 1956, as amended. The Subsidiary Bank is a
national banking association duly organized, validly existing and in
good standing under the laws of the United States and has the
requisite corporate power to carry on its business as
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now conducted. The Subsidiary Bank is a member of the Bank Insurance
Fund of the Federal Deposit Insurance Corporation (the "FDIC"), and
its deposit accounts are insured by the FDIC to the fullest extent
provided by law. No proceeding for the termination of such insurance
is pending or, to the Company's knowledge, is threatened. Except as
disclosed in the Prospectus, neither the Company nor the Subsidiary
Bank is subject to any cease and desist order, written agreement or
memorandum of understanding with, or is a party to any commitment
letter or similar undertaking to, or is subject to any order or
directive (other than orders or directives applicable to the banking
industry as a whole) by, or is a recipient of any extraordinary
supervisory agreement letter from, or has adopted any board
resolutions (other than board resolutions required by law or
regulation and applicable to the banking industry as a whole) at the
request of, federal or state governmental authorities charged with the
supervision or regulation of national banking associations, savings
banks, banks, savings and loan companies or associations, bank holding
companies or savings and loan holding companies or engaged in the
insurance of bank deposits (collectively, the "Bank Regulators"),
neither the Company nor the Subsidiary Bank has been advised by any
Bank Regulator that it is contemplating issuing or requesting (or is
considering the appropriateness of issuing or requesting) any such
order, directive or extraordinary supervisory letter, and neither the
Company nor the Subsidiary Bank is contemplating (A) becoming a party
to any such written agreement, memorandum of understanding, commitment
letter or similar undertaking with any Bank Regulator or (B) adopting
any such board resolutions at the request of any Bank Regulator.
(viii) The outstanding shares of capital stock of the Company have
been duly authorized and validly issued and are fully paid and
nonassessable. All offers and sales by the Company of outstanding
shares of capital stock and other securities of the Company, prior, to
the date hereof, were made in material compliance with the Act and all
applicable state securities or blue sky laws. The Shares to be issued
and sold by the Company to the Underwriters pursuant to this Agreement
have been duly authorized and, when issued and paid for as
contemplated herein, will be validly issued, fully paid and
nonassessable. The shares of Common Stock to be issued upon exercise
of the Warrants, as described in Section 2 hereof, have been reserved
for issuance and duly authorized and, when issued and paid for
pursuant to the terms of the Warrants, will be validly issued, fully
paid and nonassessable. There are no preemptive rights or, except as
described in the Prospectus, other rights to subscribe for or to
purchase, or any restriction upon the voting or transfer of, any
shares of capital stock of the Company pursuant to the Company's
Articles of Incorporation, Bylaws or any agreement or other instrument
to which the Company is a party or by which the Company is bound.
Neither the filing of the Registration Statement nor the offering or
the sale of the Shares as contemplated by this Agreement gives rise to
any rights for, or relating to, the registration of any shares of
capital stock or other securities of the Company, except such rights
which have been validly waived or satisfied. Except as described in
the Prospectus, there are no outstanding options,
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warrants, agreements, contracts or other rights to purchase or acquire
from the Company shares of its capital stock. The Company has the
authorized and outstanding capital stock as set forth under the
heading "Capitalization" in the Prospectus. The outstanding capital
stock of the Company, including the Shares, conforms, and the Shares
to be issued by the Company to the Underwriters will conform, to the
description thereof contained in the Prospectus.
(ix) The financial statements, together with the related notes and
schedules as set forth in the Registration Statement, present fairly
the consolidated financial position, results of operations and changes
in financial position of the Company and its subsidiaries on the basis
stated in the Registration Statement at the indicated dates and for
the indicated periods. Such financial statements have been prepared
in accordance with generally accepted accounting principles
consistently applied throughout the periods involved, and all
adjustments necessary for a fair presentation of results for such
periods have been made, except as otherwise stated therein and except
that the unaudited financial statements included therein have been
prepared in accordance with generally accepted accounting principles
applicable to unaudited interim financial statements. The summary and
selected financial and statistical data included in the Registration
Statement present fairly the information shown therein on the basis
stated in the Registration Statement and have been compiled on a basis
consistent with the financial statements presented therein. No other
financial statements or schedules are required to be included in the
Registration Statement or Prospectus. The allowance for loan losses
of the Bank is adequate based on management's assessment of various
factors affecting the loan portfolio, including a review of problem
loans, business conditions, historical loss experience, evaluation of
the quality of the underlying collateral and holding and disposal
costs.
(x) There is no action or proceeding pending or, to the knowledge of
the Company, threatened or contemplated against the Company or any of
its subsidiaries before any court or administrative or regulatory
agency which, if determined adversely to the Company or any of its
subsidiaries, would, individually or in the aggregate, result in a
material adverse change in the business or condition (financial or
otherwise) or prospects of the Company and its subsidiaries, taken as
a whole, except as set forth in the Registration Statement.
(xi) The Company has good and marketable title to all properties and
assets reflected as owned in the financial statements hereinabove
described (or described as owned in the Prospectus), in each case free
and clear of all liens, encumbrances and defects, except such as are
described in the Prospectus or do not materially affect the value of
such properties and assets and do not materially interfere with the
use made and proposed to be made of such properties and assets by the
Company and its subsidiaries. Any real property and buildings held
under lease by the Company and its subsidiaries are held by them under
valid, subsisting and enforceable leases with such exceptions as are
not material and do not interfere with the use made and
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<PAGE>
proposed to be made of such property and buildings by the Company and
its subsidiaries.
(xii) Since the respective dates as of which information is given in
the Registration Statement, (A) there has not been any material
adverse change, or any development involving a prospective material
adverse change, in or affecting the condition, financial or otherwise,
of the Company and its subsidiaries, taken as a whole, or the business
affairs, management, financial position, shareholders' equity or
results of operations of the Company and its subsidiaries, taken as a
whole, whether or not occurring in the ordinary course of business,
including, without limitation, any increase in the amount of non-
performing assets of the Bank, to a level above 0.90% of the Bank's
total assets, any decrease in net interest margin for any month to a
level below 5.0%, or any material decrease in the volume of loan
originations, the amount of deposits or the amount of loans, (B) there
has not been any transaction not in the ordinary course of business
entered into by the Company or any of its subsidiaries which is
material to the Company and its subsidiaries, taken as a whole, other
than transactions described or contemplated in the Registration
Statement, (C) the Company and its subsidiaries have not incurred any
material liabilities or obligations, which are not in the ordinary
course of business or which could result in a material reduction in
the future earnings of the Company and its subsidiaries, (D) the
Company and its subsidiaries have not sustained any material loss or
interference with their respective businesses or properties from fire,
flood, windstorm, accident or other calamity, whether or not covered
by insurance, (E) there has not been any change in the capital stock
of the Company (other than upon the exercise of options and warrants
described in the Registration Statement), or any material increase in
the total borrowings of the Company (as calculated under the heading
"Capitalization" in the Prospectus), (F) there has not been any
declaration or payment of any dividends or any distributions of any
kind with respect to the capital stock of the Company, other than any
dividends or distributions described or contemplated in the
Registration Statement, or (G) there has not been any issuance of
warrants, options, convertible securities or other rights to purchase
or acquire capital stock of the Company.
(xiii) Neither the Company nor any of its subsidiaries is in violation
of, or in default under, its Articles of Incorporation or Bylaws, or
any statute, or any rule, regulation, order, judgment, decree or
authorization of any court or governmental or administrative agency or
body having jurisdiction over the Company or any of its subsidiaries
or any of their properties, or any indenture, mortgage, deed of trust,
loan agreement, lease, franchise, license or other agreement or
instrument to which the Company or any of its subsidiaries is a party
or by which it or any of them are bound or to which any property or
assets of the Company or any of its subsidiaries is subject, which
violation or default would have a material adverse effect on the
business, condition (financial or otherwise) or prospects of the
Company and its subsidiaries, taken as a whole.
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(xiv) The issuance and sale of the Shares by the Company and the
compliance by the Company with all of the provisions of this Agreement
and the consummation of the transactions contemplated herein will not
violate any provision of the Articles of Incorporation or Bylaws of
the Company or any of its subsidiaries or any statute or any order,
judgment, decree, rule, regulation or authorization of any court or
governmental or administrative agency or body having jurisdiction over
the Company or any of its subsidiaries or any of their properties, and
will not conflict with, result in a breach or violation of, or
constitute, either by itself or upon notice or passage of time or
both, a default under any indenture, mortgage, deed of trust, loan
agreement, lease, franchise, license or other agreement or instrument
to which the Company or any of its subsidiaries is a party or by which
the Company or any of its subsidiaries is bound or to which any
property or assets of the Company or any of its subsidiaries is
subject. No approval, consent, order, authorization, designation,
declaration or filing by or with any court or governmental agency or
body is required for the execution and delivery by the Company of this
Agreement and the consummation of the transactions herein
contemplated, except as may be required under the Act or any state
securities or blue sky laws.
(xv) The Company has the power and authority to enter into this
Agreement and the Warrants and to authorize, issue and sell the Shares
it will sell hereunder as contemplated hereby and the shares of Common
Stock to be issued upon exercise of the Warrants. This Agreement and
the Warrants have been duly and validly authorized, executed and
delivered by the Company.
(xvi) Deloitte & Touche LLP, Baird, Kurtz & Dobson and McGladrey &
Pullen, LLP, which each have certified certain of the financial
statements filed with the Commission as part of the Registration
Statement, are independent public accountants as required by the Act
and the Regulations.
(xvii) In July 1996, Baird, Kurtz & Dobson acquired the office of
McGladrey & Pullen, LLP, that had previously acted as the Company's
independent public accountants and thereby replaced McGladrey &
Pullen, LLP, as the Company's independent public accountants. Baird,
Kurtz & Dobson was replaced as the Company's auditors by action of the
Board of Directors in July 1997. The accountants' reports on the
financial statements of the Company for each of the past two fiscal
years did not contain in adverse opinion or a disclaimer of opinion,
and was not qualified as to uncertainty, audit scope, or accounting
principles. During the two most recent fiscal years, there were no
disagreements between the Company and either McGladrey & Pullen, LLP
or Baird, Kurtz & Dobson on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or
procedure.
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(xviii) The Company has not taken and will not take, directly or
indirectly, any action designed to, or which has constituted, or which
might reasonably be expected to cause or result in, stabilization or
manipulation of the price of the Common Stock.
(xix) The Company's registration statement pursuant to Section 12(g)
of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), has been declared effective by the Commission; and the Shares
have been approved for designation upon notice of issuance on the
Nasdaq National Market under the symbol "COBZ."
(xx) The Company has obtained and delivered to the Representative
written agreements, in form and substance satisfactory to the
Representative, of each of its directors and executive officers, each
person or entity who owns or has the right to acquire shares
representing one percent (1%) or more, on a fully diluted basis, of
the Company's outstanding shares of Common Stock, and each Selected
Purchaser, as referred in Section 3 hereof that no offer, sale,
assignment, transfer, encumbrance, contract to sell, grant of an
option to purchase or other disposition of any Common Stock or other
capital stock of the Company will be made for a period of 180 days
after the date of the Prospectus, directly or indirectly, by such
holder otherwise than hereunder or with the prior written consent of
the Representative.
(xxi) The Company has not distributed and will not distribute any
prospectus or other offering material in connection with the offering
and sale of the Shares other than any Preliminary Prospectus or the
Prospectus or other materials permitted by the Act to be distributed
by the Company.
(xxii) The Company is in compliance with all provisions of Florida
Statutes Section 517.075 (Chapter 92-198, laws of Florida). The
Company does not do any business, directly or indirectly, with the
government of Cuba or with any person or entity located in Cuba.
(xxiii) The Company and its subsidiaries have filed all federal,
state, local and foreign tax returns or reports required to be filed,
and have paid in full all taxes indicated by said returns or reports
and all assessments received by it or any of them to the extent that
such taxes have become due and payable, except where the Company and
its subsidiaries are contesting in good faith such taxes and
assessments. The Company and the Subsidiary Bank have also filed all
required applications, reports, returns and other documents and
information with all Bank Regulators, and no such application, report,
return or other document or information contained, as of the date it
was filed, an untrue statement of a material fact required to be
stated therein or necessary to make the statements therein not
misleading when made or failed to comply with the applicable
requirements of the Bank Regulator with which such application,
report, return, document or information was filed.
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(xxiv) The Company and each of its subsidiaries owns or licenses all
patents, patent applications, trademarks, service marks, tradenames,
trademark registrations, service mark registrations, copyrights,
licenses, inventions, trade secrets and other similar rights necessary
for the conduct of its business as described in the Prospectus. The
Company has no knowledge of any infringement by it or its subsidiaries
of any patents, patent applications, trademarks, service marks,
tradenames, trademark registrations, service mark registrations,
copyrights, licenses, inventions, trade secrets or other similar
rights of others, and neither the Company nor any of its subsidiaries
has received any notice or claim of conflict with the asserted rights
of others with respect any of the foregoing.
(xxv) The Company is not, and upon completion of the sale of Shares
contemplated hereby will not be, required to register as an
"investment company" under the Investment Company Act of 1940, as
amended.
(xxvi) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (A) transactions are
executed in accordance with management's general or specific
authorization; (B) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally
accepted accounting principles and the rules of Bank Regulators, and
to maintain accountability for assets; (C) access to records is
permitted only in accordance with management's general or specific
authorization; and (D) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(xxvii) Other than as contemplated by this Agreement, the Company has
not incurred any liability for any finder's or broker's fee or agent's
commission in connection with the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby.
(xxviii) The minute books and stock record books of the Company and
the subsidiaries are complete and correct and accurately reflect all
material actions taken at meetings of the shareholders and directors
of the Company and the subsidiaries, and of all committees thereof,
including, without limitation, the loan committees and the audit
committees of the Subsidiary Bank, since September 1, 1994, and all
issuances and transfers of any shares of the capital stock of the
Company and the subsidiaries since September 1, 1994.
(xxix) No material labor dispute with the employees of the Company or
any of its subsidiaries exists or, to the Company's knowledge, is
imminent.
(xxx) The Company and its subsidiaries maintain insurance of the types
and in the amounts generally deemed adequate in their respective
businesses and consistent
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with insurance coverage maintained by similar companies and
businesses, and as required by the rules and regulations of all
governmental agencies having jurisdiction over the Company or the
Subsidiary Bank, all of which insurance is in full force and effect.
(xxxi) Neither the Company nor its subsidiaries have, directly or
indirectly, at any time during the past five years (A) made any
unlawful contribution to any candidate for public office, or failed to
disclose fully any contribution in violation of law, or (B) made any
payment to any federal or state governmental officer or official, or
other person charged with similar public or quasi-public duties, other
than payments required or permitted by the laws of the United States
or any jurisdiction thereof.
(b) Any certificate signed by any officer of the Company and delivered
to the Representative or counsel to the Underwriters shall be deemed to be
a representation and warranty of the Company to each Underwriter as to the
matters covered thereby.
2. Purchase, Sale and Delivery of Shares. On the basis of the
--------------------------------------
representations, warranties and covenants contained herein, and subject to the
terms and conditions herein set forth, the Company agrees to sell to each
Underwriter and each Underwriter agrees, severally and not jointly, to purchase
from the Company, at a price of $ per share ($___ per share for Firm Shares
sold to "Selected Purchasers" as provided in Section 3), the number of Firm
Shares set forth opposite the name of each Underwriter in Schedule A hereto,
subject to adjustments in accordance with Section 8 hereof.
In addition, on the basis of the representations, warranties and
covenants herein contained and subject to the terms and conditions herein set
forth, the Company hereby grants to the several Underwriters an option to
purchase, at their election, up to 210,000 Option Shares at a price of $_____
per share, for the sole purpose of covering overallotments in the sale of the
Firm Shares. The option granted hereby may be exercised in whole or in part, but
only once, and at any time upon written notice given within 30 days after the
date of this Agreement, by you, as Representative of the several Underwriters,
to the Company setting forth the number of Option Shares as to which the several
Underwriters are exercising the option and the time and date at which
certificates are to be delivered. If any Option Shares are purchased, each
Underwriter agrees, severally and not jointly, to purchase that portion of the
number of Option Shares as to which such election shall have been exercised
(subject to adjustment to eliminate fractional shares) determined by multiplying
such number of Option Shares by a fraction the numerator of which is the maximum
number of Option Shares which such Underwriter is entitled to purchase as set
forth opposite the name of such Underwriter in Schedule A hereto and the
denominator of which is the maximum number of Option Shares which all of the
Underwriters are entitled to purchase hereunder. The time and date at which
certificates for Option Shares are to be delivered shall be determined by the
Representative but shall not be earlier than two or later than ten full business
days after the exercise of such option, and shall not in any event be prior to
the Closing Date. If the date of exercise of the option is three or more
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full days before the Closing Date, the notice of exercise shall set the Closing
Date as the Option Closing Date.
On the Closing Date, the Company will issue and sell for nominal
consideration to the Representative or its designee, consistent with all
applicable state and federal securities laws and regulations and all applicable
regulations of the NASD, Warrants to purchase 100,000 shares of the Common
Stock. Such Warrants shall have a per share exercise price equal to 120% of the
initial public offering price per share, shall be exercisable over a four-year
period commencing one year from the Closing Date and shall be in substantially
the form attached hereto as Exhibit A. Such Warrants shall be dated, executed
and delivered as of the Closing Date.
Certificates in definitive form for the Shares to be purchased by each
Underwriter hereunder, and in such denominations and registered in such names as
Dain Rauscher Wessels may request upon at least 48 hours' prior notice to the
Company, shall be delivered by or on behalf of the Company to you for the
account of such Underwriter at such time and place as shall hereafter be
designated by the Representative, against payment by such Underwriter or on its
behalf of the purchase price therefor by certified or official bank check or
checks, payable to the order of the Company in next day funds. The time and
date of such delivery and payment shall be, with respect to the Firm Shares,
8:30 a.m. Denver time, at the offices of Sherman & Howard L.L.C., 633 17th
Street, Suite 3000, Denver, Colorado 80202, on , 1998, or such other time
and date as you and the Company may agree upon in writing, such time and date
being herein referred to as the "Closing Date," and, with respect to the Option
Shares, at the time and on the date specified by you in the written notice given
by you of the Underwriters' election to purchase the Option Shares, or such
other time and date as you and the Company may agree upon in writing, such time
and date being referred to herein as the "Option Closing Date." Such
certificates will be made available for checking and packaging at least twenty-
four hours prior to the Closing Date or the Option Closing Date, as the case may
be, at a location as may be designated by you.
3. Offering by Underwriters. It is understood that the several
------------------------
Underwriters propose to make a public offering of the Firm Shares as soon as the
Representative deems it advisable to do so. The Firm Shares are to be initially
offered to the public at the initial public offering price of $______ per share.
To the extent, if at all, that any Option Shares are purchased pursuant to
Section 2 hereof, the Underwriters will offer such Option Shares to the public
on the foregoing terms.
It is understood that 90,000 Firm Shares will be reserved by the
Representative for offer and sale upon the terms and conditions set forth in the
Prospectus to directors, executive officers and key employees of the Company and
its subsidiaries (each, a "Selected Purchaser"). The price paid by the
Underwriters for Firm Shares under Section 2 shall be $______ per share with
respect to sales to Selected Purchasers. Any of such Firm Shares which are not
purchased by such Selected Purchasers will be offered by the Representative to
the public upon the terms and conditions set forth in the Prospectus and will be
sold to the Underwriters for a price of $_____ per share.
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4. Covenants of the Company. The Company covenants and agrees with
------------------------
the several Underwriters that:
(a) The Company will prepare and timely file with the Commission
under Rule 424(b) under the Act a Prospectus containing information
previously omitted at the time of effectiveness of the Registration
Statement in reliance on Rule 430A under the Act, and will not file
any amendment to the Registration Statement or supplement to the
Prospectus of which the Representative shall not previously have been
advised and furnished with a copy or as to which the Representative
shall have objected in writing promptly after reasonable notice
thereof or which is not in compliance with the Act or the Regulations.
(b) The Company will advise the Representative promptly of any
request of the Commission for amendment of the Registration Statement
or for any supplement to the Prospectus or for any additional
information, or of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the use
of the Prospectus, of the suspension of the qualification of the
Shares for offering or sale in any jurisdiction, or of the institution
or threatening of any proceedings for that purpose, and the Company
will use its best efforts to prevent the issuance of any such stop
order preventing or suspending the use of the Prospectus or suspending
such qualification and to obtain as soon as possible the lifting
thereof, if issued.
(c) To the extent required of issuers listed on the Nasdaq
National Market, the Company will endeavor to qualify the Shares for
sale under the securities laws of such jurisdictions as the
Representative may reasonably have designated in writing and will, or
will cause counsel to, make such applications, file such documents,
and furnish such information as may be reasonably requested by the
Representative, provided that the Company shall not be required to
qualify as a foreign corporation or to file a general consent to
service of process in any jurisdiction where it is not now so
qualified or required to file such a consent. The Company will, from
time to time, prepare and file such statements, reports and other
documents as are or may be required to continue such qualifications in
effect for so long a period as the Representative may reasonably
request for distribution of the Shares.
(d) The Company will furnish the Underwriters with as many copies
of any Preliminary Prospectus as the Representative may reasonably
request and, during the period when delivery of a prospectus is
required under the Act, the Company will furnish the Underwriters with
as many copies of the Prospectus in final form, or as thereafter
amended or supplemented, as the Representative may, from time to time,
reasonably request. The Company will deliver to the Representative,
at or before the Closing Date, two signed copies of the Registration
Statement and all amendments
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thereto, including all exhibits filed therewith, and will deliver to
the Representative such number of copies of the Registration
Statement, without exhibits, and of all amendments thereto, as the
Representative may reasonably request.
(e) If, during the period in which a prospectus is required by
law to be delivered by an Underwriter or dealer, any event shall occur
as a result of which the Prospectus as then amended or supplemented
would include an untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements therein,
in light of the circumstances existing at the time the Prospectus is
delivered to a purchaser, not misleading, or if for any other reason
it shall be necessary at any time to amend or supplement the
Prospectus to comply with any law, the Company promptly will prepare
and file with the Commission an appropriate amendment to the
Registration Statement or supplement to the Prospectus so that the
Prospectus as so amended or supplemented will not include an untrue
statement of a material fact or omit to state any material fact
necessary in order to make the statements therein in light of the
circumstances existing when it is so delivered, not misleading, or so
that the Prospectus will comply with law. In case any Underwriter is
required to deliver a prospectus in connection with sales of any
Shares at any time nine months or more after the effective date of the
Registration Statement, upon the request of the Representative but at
the expense of such Underwriter, the Company will prepare and deliver
to such Underwriter as many copies as the Representative may request
of an amended or supplemented Prospectus complying with Section
10(a)(3) of the Act.
(f) The Company will make generally available to its security
holders, as soon as it is practicable to do so, but in any event not
later than 18 months after the effective date of the Registration
Statement, an earnings statement (which need not be audited) in
reasonable detail, covering a period of at least 12 consecutive months
beginning after the effective date of the Registration Statement,
which earnings statement shall satisfy the requirements of Section
11(a) of the Act and Rule 158 thereunder and will advise you in
writing when such statement has been so made available.
(g) The Company will, for a period of five years from the Closing
Date, deliver to the Representative copies of its annual report and
copies of all other documents, reports and information furnished by
the Company to its security holders or filed with any securities
exchange pursuant to the requirements of such exchange or with the
Commission pursuant to the Act or the Exchange Act.
(h) No offering, sale or other disposition of any Common Stock or
other capital stock of the Company, or warrants, options, convertible
securities or other rights to acquire such Common Stock or other
capital stock (other than pursuant to employee stock option plans,
outstanding options or on the conversion of convertible
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securities outstanding on the date of this Agreement) will be made for
a period of 180 days after the date of this Agreement, directly or
indirectly, by the Company otherwise than hereunder or with the prior
written consent of the Representative.
(i) The Company will apply the net proceeds from the sale of the
Shares to be sold by it hereunder substantially in accordance with the
purposes set forth under "Use of Proceeds" in the Prospectus. The
Company will invest such proceeds pending their use in such a manner
that, upon completion of such investment, the Company will not be an
"investment company" as defined in the Investment Company Act of 1940,
as amended.
(j) The Company will use its best efforts to maintain the
designation of the Common Stock on the Nasdaq National Market.
(k) The Company will file with the Commission such information
with respect to the use of proceeds from the sale of the shares as may
be required pursuant to Rule 463 under the Act.
5. Costs and Expenses. Whether or not the transactions contemplated
------------------
by this Agreement are consummated, the Company will pay (directly or by
reimbursement) all costs, expenses and fees incident to the performance of the
obligations of the Company under this Agreement, including, without limiting the
generality of the foregoing, the following: accounting fees of the Company; the
fees and disbursements of counsel for the Company; the cost of preparing,
printing and filing of the Registration Statement, Preliminary Prospectuses and
the Prospectus and any amendments and supplements thereto and the printing,
mailing and delivery to the Underwriters and dealers of copies thereof and of
this Agreement, the Agreement Among Underwriters, any Selected Dealers
Agreement, the Underwriters' Selling Memorandum, the Invitation Letter, the
Power of Attorney, the Blue Sky Memorandum and any supplements or amendments
thereto (excluding, except as provided below, fees and expenses of counsel to
the Underwriters); the filing fees of the Commission; the filing fees and
expenses (including legal fees and disbursements of counsel for the
Underwriters) incident to securing any required review by the NASD of the terms
of the sale of the Shares; listing fees, if any, transfer taxes and the
expenses, including the fees and disbursements of counsel for the Underwriters
incurred in connection with the qualification of the Shares under state
securities or Blue Sky laws; the fees and expenses incurred in connection with
the designation of the Shares on the Nasdaq National Market; the costs of
preparing stock certificates; the costs and fees of any registrar or transfer
agent and all other costs and expenses incident to the performance of its
obligations hereunder which are not otherwise specifically provided for in this
Section 5. In addition, the Company will pay all travel and lodging expenses
incurred by management of the Company in connection with any informational "road
show" meetings held in connection with the offering and will also pay for the
preparation of all materials used in connection with such meetings. The Company
shall not, however, be required to pay for any of the Underwriters' expenses
(other than those related to qualification of the Shares under state securities
or Blue Sky laws and those incident to securing any required review by the NASD
of the
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terms of the sale of the shares) except that, if this Agreement shall not
be consummated because the conditions in Section 6 hereof are not satisfied, or
because this Agreement is terminated by the Representative pursuant to Section
10(a) hereof, or by reason of any failure, refusal or inability on the part of
the Company to perform any undertaking or satisfy any condition of this
Agreement or to comply with any of the terms hereof on its part to be performed,
unless such failure to satisfy said condition or to comply with said terms shall
be due to the default or omission of any Underwriter, then the Company shall
promptly upon request by the Representative reimburse the several Underwriters
for all appropriately itemized out-of-pocket accountable expenses, including
fees and disbursements of counsel, incurred in connection with investigating,
marketing and proposing to market the Shares or in contemplation of performing
their obligations hereunder; but the Company shall not in any event be liable to
any of the several Underwriters for damages on account of loss of anticipated
profits from the sale by them of the Shares.
6. Conditions of Obligations of the Underwriters. The several
---------------------------------------------
obligations of the Underwriters to purchase the Firm Shares on the Closing Date
and the Option Shares, if any, on the Option Closing Date, are subject to the
condition that all representations and warranties of the Company contained
herein are true and correct, at and as of the Closing Date or the Option Closing
Date, as the case may be, the condition that the Company shall have performed
all of its covenants and obligations hereunder and to the following additional
conditions:
(a) The Prospectus shall have been filed with the Commission pursuant
to Rule 424(b) within the applicable time period prescribed for such filing
by the Regulations and in accordance with Section 4(a) hereof; no stop
order suspending the effectiveness of the Registration Statement, as
amended from time to time, or any part thereof shall have been issued, and
no proceedings for that purpose shall have been initiated or threatened, by
the Commission; and all requests for additional information on the part of
the Commission shall have been complied with to the reasonable satisfaction
of the Representative.
(b) The Representative shall have received on the Closing Date or the
Option Closing Date, as the case may be, the opinion of Dorsey & Whitney
LLP, counsel for the Company, dated the Closing Date or the Option Closing
Date, as the case may be, addressed to the Underwriters, to the effect
that:
(i) The Company has been duly organized and is validly existing
as a corporation in good standing under the laws of Colorado, with
corporate power and authority to own or lease its properties and
conduct its business as described in the Prospectus.
(ii) Based on such counsel's reasonable reliance upon the Company's
certification, the Company does not own any stock or other equity
interest in any corporation, partnership, joint venture,
unincorporated association or other entity other than the Subsidiary
Bank and Colorado Business Leasing, Inc. Each subsidiary of the
Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, with corporate power
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and authority to own or lease its properties and conduct its business
as described in the Prospectus. The Company owns all of the issued and
outstanding capital stock of the Subsidiary Bank and 80% of all of the
issued and outstanding capital stock of Colorado Business Leasing,
Inc. The outstanding shares of capital stock of each such subsidiary
have been duly authorized and validly issued, are fully paid and
nonassessable and are owned, directly or indirectly, by the Company,
free and clear of all liens, encumbrances and security interests,
other than security interests specifically disclosed in the
Prospectus. To the knowledge of such counsel, no options, warrants or
other rights to purchase, agreements or other obligations to issue or
other rights to convert any obligations into any shares of capital
stock or ownership interests in each such subsidiary are outstanding.
(iii) The Company has authorized and outstanding capital stock as
described in the Prospectus. The outstanding shares of the Company's
capital stock have been duly authorized and validly issued and are
fully paid and nonassessable. The form of certificate for the Shares
is in due and proper form and complies with all applicable statutory
requirements. The Shares to be issued and sold by the Company
pursuant to this Agreement have been duly authorized and, when issued
and paid for as contemplated herein, will be validly issued, fully
paid and nonassessable. To the knowledge of such counsel, no
preemptive or other similar subscription rights of shareholders of the
Company, or of holders of warrants, options, convertible securities or
other rights to acquire shares of capital stock of the Company, exist
with respect to any of the Shares or the issue and sale thereof. To
the knowledge of such counsel, no rights to register outstanding
shares of the Company's capital stock, or shares issuable upon the
exercise of outstanding warrants, options, convertible securities or
other rights to acquire shares of such capital stock, exist which have
not been validly exercised or waived with respect to the Registration
Statement. The capital stock of the Company, including the Shares,
conforms in all material respects to the description thereof contained
in the Prospectus.
(iv) The Registration Statement has become effective under the Act
and, to the knowledge of such counsel, no stop order proceedings with
respect thereto have been instituted or are pending or threatened by
the Commission.
(v) The Registration Statement, the Prospectus, and each amendment or
supplement thereto comply as to form in all material respects with the
requirements of the Act and the Regulations (except that such counsel
need express no opinion as to the financial statements and related
schedules included therein).
(vi) The statements (A) in the Prospectus under the caption
"Description of Capital Stock" and (B) in the Registration Statement
in Item 24 insofar as such statements constitute a summary of matters
of law, are, in all material respects, accurate summaries and fairly
present the information called for with respect to such matters.
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(vii) Such counsel does not know of any contracts, agreements,
documents or instruments required to be filed as exhibits to the
Registration Statement, incorporated by reference into the Prospectus,
or described in the Registration Statement or the Prospectus which are
not so filed, incorporated by reference or described as required; and
insofar as any statements in the Registration Statement or the
Prospectus constitute summaries of any contract, agreement, document
or instrument to which the Company is a party, such statements are, in
all material respects, accurate summaries and fairly present the
information called for with respect to such matters.
(viii) Such counsel knows of no legal or governmental proceeding,
pending or threatened, before any court or administrative body or
regulatory agency, to which the Company or any of its subsidiaries is
a party or to which any of the properties of the Company or any of its
subsidiaries is subject that are required to be described in the
Registration Statement or Prospectus and are not so described, or
statutes or regulations that are required to be described in the
Registration Statement or the Prospectus that are not so described.
(ix) The execution and delivery of this Agreement and the consummation
of the transactions herein contemplated do not and will not conflict
with or result in a violation of or default under the charter or
bylaws of the Company or any of its subsidiaries, or under any
statute, permit, judgment, decree, order, rule or regulation known to
such counsel of any court or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries or any of
their properties, or under any lease, contract, indenture, mortgage,
loan agreement or other agreement or other instrument or obligation
known to such counsel to which the Company or any of its subsidiaries
is a party or by which the Company or any of its subsidiaries is bound
or to which any property or assets of the Company or any of its
subsidiaries is subject, except such agreements, instruments or
obligations with respect to which valid consents or waivers have been
obtained by the Company or any of its subsidiaries.
(x) The Company has the corporate power and authority to enter into
this Agreement and to authorize, issue and sell the Shares as
contemplated hereby. This Agreement has been duly and validly
authorized, executed and delivered by the Company.
(xi) No approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or
other governmental body is necessary in connection with the execution
and delivery of this Agreement and the consummation of the
transactions herein contemplated (other than as may be required by
state securities and blue sky laws, as to which such counsel need
express no opinion) except such as have been obtained or made,
specifying the same.
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(xii) The Company is not, and immediately upon completion of the
sale of Shares contemplated hereby will not be, required to register
as an "investment company" under the Investment Company Act of 1940,
as amended.
(xiii) Such counsel has no reason to believe that, as of its effective
date, the Registration Statement or any further amendment thereto made
by the Company prior to the Closing Date or the Option Closing Date,
as the case may be (other than the financial statements and related
schedules therein, as to which such counsel need express no opinion),
contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading or that, as of its date, the
Prospectus or any further amendment or supplement thereto made by the
Company prior to the Closing Date or the Option Closing Date, as the
case may be (other than the financial statements and related schedules
therein, as to which such counsel need express no opinion), contained
an untrue statement of a material fact or omitted to state a material
fact necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading or that, as of
the Closing Date or the Option Closing Date, as the case may be,
either the Registration Statement or the Prospectus or any further
amendment or supplement thereto made by the Company prior to the
Closing Date or the Option Closing Date, as the case may be (other
than the financial statements and related schedules therein, as to
which such counsel need express no opinion), contains an untrue
statement of a material fact or omits to state a material fact
necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading; and they do not
know of any amendment to the Registration Statement required to be
filed.
(xiv) The Subsidiary Bank is a national banking association duly
organized, validly existing, and in good standing under the laws of
the United States and has the requisite corporate power to carry on
its business as now conducted. The Company has all necessary power
and authority to own the Subsidiary Bank. The Company and the
Subsidiary Bank have all necessary consents and approvals under
applicable federal and state laws and regulations relating to banks
and bank holding companies to own their respective assets and carry on
their respective businesses as currently conducted.
(xv) The Company has the corporate power and authority to enter into
the Warrants and to authorize, issue and sell the shares of Common
Stock issuable upon exercise of the Warrants. The Warrants have been
duly authorized, executed and delivered by the Company and constitutes
the valid and binding obligation of the Company enforceable in
accordance with its terms, except as enforceability thereof may be
limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws of general application affecting
creditors' rights generally, and by
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general principles of equity. The shares of Common Stock issuable upon
exercise of the Warrants have been duly authorized and reserved for
issuance upon exercise of the Warrants, and, upon exercise of the
Warrants and receipt by the Company of the consideration for such
shares in accordance with the terms thereof, such shares will be
validly issued, fully paid and nonassessable.
(xvi) The Company is duly registered as a bank holding company under
the Bank Holding Company Act of 1956, as amended.
(xvii) The Company has all necessary approvals of the Board of
Governors to own the stock of its subsidiaries. Except as disclosed in
the Prospectus, based on such counsel's reasonable reliance on the
Company's certification, neither the Company nor the Subsidiary Bank
is subject to any cease and desist order, written agreement or
memorandum of understanding with, or are a party to any commitment
letter or similar undertaking to, or are subject to any order or
directive (other than orders or directives applicable to the banking
industry as a whole) by, or is a recipient of any extraordinary
supervisory agreement letter from, or has adopted any board
resolutions (other than board resolutions required by law or
regulation and applicable to the banking industry as a whole) at the
request of any of the Bank Regulators, and based on such counsel's
reasonable reliance at the Company's certification, neither the
Company nor the Subsidiary Bank has been advised by any of the Bank
Regulators that it is contemplating issuing or requesting (or is
considering the appropriateness of issuing or requesting) any such
order, directive, or extraordinary supervisory letter, and neither the
Company nor the Subsidiary Bank is contemplating (A) becoming a party
to any such written agreement, memorandum of understanding, commitment
letter or similar undertaking with any Bank Regulator or (B) adopting
any such board resolutions at the request of any Bank Regulator. Based
on such Counsel's reasonable reliance on the Company's certification,
neither the Company nor any subsidiary has received notice of or has
knowledge of any basis for any proceeding or action relating
specifically to the Company or its subsidiaries for the revocation or
suspension of any such consent, authorization, approval, order,
license, certificate or permit or any other action or proposed action
by any regulatory authority having jurisdiction over the Company or
its subsidiaries that would have a material effect on the Company or
any subsidiary.
(xviii) For purposes of the opinion of counsel described in this
Section 6(b), "based on such counsel's reasonable reliance upon the
Company's certification" means that such counsel has relied solely
upon a certification signed by a duly authorized officer of the
Company and to which such counsel has no actual knowledge to the
contrary.
(c) The Representative shall have received from Sherman & Howard, L.L.C.,
counsel for the Underwriters, an opinion dated the Closing Date or the
Option Closing Date, as the case may be, with respect to the incorporation
of the Company, the validity of the Shares, the
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Registration Statement, the Prospectus, and other related matters as the
Representative may reasonably request, and such counsel shall have received
such papers and information as they may reasonably request to enable them
to pass upon such matters.
(d) The Representative shall have received on each of the date hereof, the
Closing Date and the Option Closing Date, as the case may be, a signed
letter, dated as of the date hereof, the Closing Date or the Option Closing
Date, as the case may be, in form and substance satisfactory to the
Representative, from Deloitte & Touche LLC, to the effect that they are
independent public accountants with respect to the Company and its
subsidiaries within the meaning of the Act and the Regulations and
containing statements and information of the type ordinarily included in
accountants' "comfort letters" to underwriters with respect to the
financial statements and certain financial information contained in the
Registration Statement and the Prospectus.
(e) Subsequent to the execution and delivery of this Agreement and prior
to the Closing Date or the Option Closing Date, as the case may be, there
shall not have been any change or any development involving a prospective
change, in or affecting the general affairs, management, financial
position, shareholders' equity or results of operations of the Company and
its subsidiaries, otherwise than as set forth or contemplated in the
Prospectus, the effect of which, in your judgment, is material and adverse
to the Company and makes it impracticable or inadvisable to proceed with
the public offering or the delivery of the Shares being delivered at the
Closing Date or the Option Closing Date, as the case may be, on the terms
and in the manner contemplated in the Prospectus.
(f) The Representative shall have received on the Closing Date or the
Option Closing Date, as the case may be, a certificate or certificates of
the chief executive officer and the chief financial officer of the Company
to the effect that, as of the Closing Date or the Option Closing Date, as
the case may be, each of them severally represents as follows:
(i) The Prospectus was filed with the Commission pursuant to Rule
424(b) within the applicable period prescribed for such filing by the
Regulations and in accordance with Section 4 of this Agreement; no
stop order suspending the effectiveness of the Registration Statement
has been issued, and no proceedings for such purpose have been
initiated or are, to his knowledge, threatened by the Commission.
(ii) The representations and warranties of the Company set forth in
Section 1 of this Agreement are true and correct at and as of the
Closing Date or the Option Closing Date, as the case may be, and the
Company has performed all of its obligations under this Agreement to
be performed at or prior to the Closing Date or the Option Closing
Date, as the case may be.
(g) The Company shall have furnished to the Representative such further
certificates and documents as the Representative may reasonably have
requested.
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The opinions and certificates mentioned in this Agreement shall be
deemed to be in compliance with the provisions hereof only if they are in all
material respects reasonably satisfactory to the Representative and to Sherman &
Howard L.L.C., counsel for the Underwriters.
If any of the conditions hereinabove provided for in this Section 6
shall not have been fulfilled when and as required by this Agreement to be
fulfilled, the obligations of the Underwriters hereunder may be terminated by
the Representative by notifying the Company of such termination in writing or by
telegram at or prior to the Closing Date or the Option Closing Date, as the case
may be. In such event, the Company and the Underwriters shall not be under any
obligation to each other (except to the extent provided in Sections 5 and 7
hereof).
7. Indemnification.
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(a) The Company agrees to indemnify and hold harmless each
Underwriter, each officer and director thereof, and each person, if any,
who controls any Underwriter within the meaning of the Act, against any
losses, claims, damages or liabilities to which such Underwriter or such
persons may became subject under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions or proceedings in
respect thereof) arise out of or are based upon (i) any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus or the Prospectus, including any
amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary
to make the statements therein not misleading in light of the circumstances
under which they were made, or (iii) any act or failure to act or any
alleged act or failure to act by any Underwriter in connection with or
relating in any manner to, the Common Stock or the offering contemplated
hereby, which is made in reliance upon any statement or omission of the
type referred to in clause (i) or (ii) above, and will reimburse each
Underwriter and each such controlling person for any legal or other
expenses reasonably incurred by such Underwriter or such controlling person
in connection with investigating or defending any such action or claim as
such expenses are incurred; provided, however, that the Company shall not
be liable in any such case to the extent that any such loss, claim, damage
or liability arises out of or is based upon an untrue statement or alleged
untrue statement, or omission or alleged omission, made in the Registration
Statement, any Preliminary Prospectus or the Prospectus, including any
amendments or supplements thereto, in reliance upon and in conformity with
written information furnished to the Company by any Underwriter through the
Representative specifically for use therein; and provided, further, that
the Company shall not be liable in the case of any matter covered by clause
(iii) above to the extent that it is determined in a final judgment by a
court of competent jurisdiction that such losses, claims, damages or
liabilities resulted directly from any such acts or failures to act
undertaken or omitted to be taken by such Underwriter through its gross
negligence or willful misconduct.
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(b) Each Underwriter agrees to indemnify and hold harmless the
Company, each of its directors, each of its officers who have signed the
Registration Statement and each person, if any, who controls the Company
within the meaning of the Act, against any losses, claims, damages or
liabilities to which the Company or any such director, officer or
controlling person may become subject under the Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions or proceedings
in respect thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus or any amendment or
supplement thereto, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading in the
light of the circumstances under which they were made, and will reimburse
any legal or other expenses reasonably incurred by the Company or any such
director, officer or controlling person in connection with investigating or
defending any such action or claim as such expenses are incurred; provided,
however, that each Underwriter will be liable in each case to the extent,
but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission has been made in the Registration
Statement, any Preliminary Prospectus, the Prospectus or any such amendment
or supplement in reliance upon and in conformity with written information
furnished to the Company by any Underwriter through the Representative
specifically for use therein.
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity or
contribution may be sought pursuant to this Section 7, such person (the
"indemnified party") shall promptly notify the person against whom such
indemnity may be sought (the "indemnifying party") in writing. No
indemnification provided for in Section 7(a) or (b) or contribution
provided for in Section 7(d) shall be available with respect to a
proceeding to any party who shall fail to give notice of such proceeding as
provided in this Section 7(c) if the party to whom notice was not given was
unaware of the proceeding to which such notice would have related and was
prejudiced by the failure to give such notice, but the failure to give such
notice shall not relieve the indemnifying party or parties from any
liability which it or they may have to the indemnified party otherwise than
on account of the provisions of Section 7(a), (b) or (d). In case any such
proceeding shall be brought against any indemnified party and it shall
notify the indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate therein and, to the extent that it
shall wish, jointly with any other indemnifying party similarly notified,
to assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party and shall pay as incurred the fees and disbursements of
such counsel related to such proceeding. In any such proceeding, any
indemnified party shall have the right to retain its own counsel at its own
expense. Notwithstanding the foregoing, the indemnifying party shall pay
promptly as incurred the reasonable fees and expenses of the counsel
retained by the indemnified party in the event (i) the indemnifying party
and the indemnified party shall have mutually agreed to the retention of
such counsel or (ii) the named parties to any such proceeding (including
any impleaded parties) include both the
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indemnifying party and the indemnified party and the indemnified party
shall have reasonably concluded that there may be a conflict between the
positions of the indemnifying party and the indemnified party in conducting
the defense of any such action or that there may be legal defenses
available to it or other indemnified parties which are different from or
additional to those available to the indemnifying party. It is understood
that the indemnifying party shall not, in connection with any proceeding or
related proceedings in the same jurisdiction, be liable for the fees and
expenses of more than one separate firm at any time for all such
indemnified parties. Such firm shall be designated in writing by the
Representative and shall be reasonably satisfactory to the Company in the
case of parties indemnified pursuant to Section 7(a) and shall be
designated in writing by the Company and shall be reasonably satisfactory
to the Representative in the case of parties indemnified pursuant to
Section 7(b). The indemnifying party shall not be liable for any settlement
of any proceeding effected without its written consent, but if settled with
such consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party from and
against any loss or liability by reason of such settlement or judgment.
(d) If the indemnification provided for in this Section 7 is
unavailable or insufficient to hold harmless an indemnified party under
Section 7(a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to
therein, then each indemnifying party shall contribute to the amount paid
or payable by such indemnified party as a result of such losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) in
such proportion as is appropriate to reflect the relative benefits received
by the Company on the one hand and the Underwriters on the other from the
offering of the Shares. If, however, the allocation provided by the
immediately preceding sentence is not permitted by applicable law, then
each indemnifying party shall contribute to such amount paid or payable by
such indemnified party in such proportion as is appropriate to reflect not
only such relative benefits but also the relative fault of the Company on
the one hand and the Underwriters on the other in connection with the
statements or omissions which resulted in such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof), as well as any
other relevant equitable considerations. The relative benefits received by
the Company on the one hand and the Underwriters on the other shall be
deemed to be in the same proportion as the total net proceeds from the
offering (before deducting expenses) received by the Company bears to the
total underwriting discounts and commissions received by the Underwriters,
in each case as set forth in the table on the cover page of the Prospectus.
The relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to
information supplied by the Company on the one hand or the Underwriters on
the other and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission. The Company and the Underwriters agree that it would not be just
and equitable if contributions pursuant to this Section 7(d) were
determined by pro rata allocation (even if the Underwriters were treated as
one entity for
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such purpose) or by any other method of allocation which does not take
account of the equitable considerations referred to above in this Section
7(d). The amount paid or payable by an indemnified party as a result of the
losses, claims, damages or liabilities (or actions or proceedings in
respect thereto) referred to above in this Section 7(d) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or
claim. Notwithstanding the provisions of this Section 7(d), no Underwriter
shall be required to contribute any amount in excess of the underwriting
discounts and commissions applicable to the Shares purchased by such
Underwriter; and no person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Act) shall be entitled to contribution
from any person who was not guilty of such fraudulent misrepresentation.
The Underwriters' obligations in this Section 7(d) to contribute are
several in proportion to their respective underwriting obligations and not
joint.
(e) The obligations of the Company under this Section 7 shall be in
addition to any liability which the Company may otherwise have, and the
obligations of the Underwriters under this Section 7 shall be in addition
to any liability which the Underwriters may otherwise have.
8. Default by Underwriters. If on the Closing Date or the Option
-----------------------
Closing Date, as the case may be, any Underwriter shall fail to purchase and pay
for the portion of the Shares which such Underwriter has agreed to purchase and
pay for on such date (otherwise than by reason of any default on the part of the
Company), you, as Representative of the Underwriters, shall use your best
efforts to procure within 36 hours thereafter one or more of the other
Underwriters, or any others, to purchase from the Company such amounts as may be
agreed upon, and upon the terms set forth herein, of the Firm Shares or Option
Shares, as the case may be, which the defaulting Underwriter or Underwriters
failed to purchase. If during such 36 hours, you, as Representative, shall not
have procured such other Underwriters, or any others, to purchase the Firm
Shares or Option Shares, as the case may be, agreed to be purchased by the
defaulting Underwriter or Underwriters, then (a) if the aggregate number of
Shares with respect to which such default shall occur does not exceed 10% of the
Firm Shares or Option Shares, as the case may be, covered hereby, the other
Underwriters shall be obligated, severally, in proportion to the respective
numbers of Firm Shares or Option Shares, as the case may be, which they are
obligated to purchase hereunder, to purchase the Firm Shares or Option Shares,
as the case may be, which such defaulting Underwriter or Underwriters failed to
purchase, or (b) if the aggregate number of shares of Firm Shares or Option
Shares, as the case may be, with respect to which such default shall occur
exceeds 10% of the Firm Shares or Option Shares, as the case may be, covered
hereby, the Company or you as the Representative of the Underwriters will have
the right, by written notice given within the next 36-hour period to the parties
to this Agreement, to terminate this Agreement without liability on the part of
the non-defaulting Underwriters or of the Company except for expenses to be
borne by the Company and the Underwriters as provided in Section 5 hereof and
the indemnity and contribution agreements in Section 7 hereof. In the event of
a default by any Underwriter or Underwriters, as set forth in this Section 8,
the Closing Date or Option Closing Date, as the case may be, may be postponed
for such
24
<PAGE>
period, not exceeding seven days, as you, as Representative, may determine in
order that the required changes in the Registration Statement or in the
Prospectus or in any other documents or arrangements may be effected. The term
"Underwriter" includes any person substituted for a defaulting Underwriter. Any
action taken under this Section 8 shall not relieve any defaulting Underwriter
from liability in respect of any default of such Underwriter under this
Agreement.
9. Notices. All communications hereunder shall be in writing and,
-------
except as otherwise provided herein, will be mailed, delivered or telegraphed
and confirmed as follows: if to the Underwriters, to Dain Rauscher Wessels, 60
South Sixth Street, Minneapolis, MN 55402, fax: (612) 371-2763, Attention: David
Welch, with a copy to Sherman & Howard L.L.C., 633 17th Street, Suite 3000,
Denver, Colorado 80202, fax: (303) 298-0940, Attention: Andrew L. Blair, Jr.;
and if to the Company, to Colorado Business Bankshares, Inc., 821 17th Street,
Denver, Colorado 80202, fax: (303) 293-0700, Attention: Steven Bangert, with a
copy to Dorsey & Whitney LLP, 370 17th Street, Suite 4400, Denver, Colorado
80202, fax: (303) 629-3450, Attention: Kevin A. Cudney.
10. Termination. This Agreement may be terminated by you by notice
-----------
to the Company as follows:
(a) at any time prior to the Closing Date if any of the following has
occurred: (i) since the respective dates as of which information is given
in the Registration Statement and the Prospectus, any material adverse
change in or affecting the condition, financial or otherwise, of the
Company and its subsidiaries taken as a whole or the business affairs,
management, financial position, shareholders' equity or results of
operations of the Company and its subsidiaries taken as a whole, whether or
not arising in the ordinary course of business, (ii) any outbreak or
escalation of hostilities or declaration of war or national emergency after
the date hereof or other national or international calamity or crisis or
change in economic or political conditions if the effect of such outbreak,
escalation, declaration, emergency, calamity, crisis or change on the
financial markets of the United States would, in your judgment, make the
offering or delivery of the Shares impracticable or inadvisable, (iii)
suspension of trading in securities on the New York Stock Exchange or the
American Stock Exchange or limitation on prices (other than limitations on
hours or numbers of days of trading) for securities on either such
Exchange, or a halt or suspension of trading in securities generally which
are quoted on Nasdaq National Market System, or (iv) declaration of a
banking moratorium by either federal or New York State authorities; or
(b) as provided in Sections 6 and 8 of this Agreement.
This Agreement also may be terminated by you, by notice to the
Company, as to any obligation of the Underwriters to purchase the Option Shares,
upon the occurrence at any time prior to the Option Closing Date of any of the
events described in subparagraph (b) above or as provided in Sections 6 and 8 of
this Agreement.
25
<PAGE>
11. Written Information. For all purposes under this Agreement
--------------------
(including, without limitation, Section 1, Section 2 and Section 7 hereof), the
Company understands and agrees with each of the Underwriters that the following
constitutes the only written information furnished to the Company by or through
the Representative specifically for use in preparation of the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto: (i) the per share "Price to Public" and per share
"Underwriting Discounts and Commissions" set forth on the cover page of the
Prospectus, (ii) the information relating to stabilization set forth in the last
paragraph on page two of the Preliminary Prospectus and the Prospectus, and
(iii) the information set forth under the caption "Underwriting" in the
Preliminary Prospectus and the Prospectus.
12. Successors. This Agreement has been and is made solely for the
----------
benefit of and shall be binding upon the Underwriters, the Company and their
respective successors, executors, administrators, heirs and assigns, and the
officers, directors and controlling persons referred to herein, and no other
person will have any right or obligation hereunder. The term "successors" shall
not include any purchaser of the Shares merely because of such purchase.
13. Miscellaneous. The reimbursement, indemnification and
-------------
contribution agreements contained in this Agreement and the representations,
warranties and covenants in this Agreement shall remain in full force and effect
regardless of (a) any termination of this Agreement, (b) any investigation made
by or on behalf of any Underwriter or controlling person thereof, or by or on
behalf of the Company or its directors and officers and (c) delivery of and
payment for the Shares under this Agreement.
Each provision of this Agreement shall be interpreted in such a manner
as to be effective and valid under applicable law, but if any provision of this
Agreement is held to be invalid, illegal or unenforceable under any applicable
law or rule in any jurisdiction, such provision will be ineffective only to the
extent of such invalidity, illegality or unenforceability in such jurisdiction
or any provision hereof in any other jurisdiction
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
This Agreement shall be governed by, and construed in accordance with,
the internal laws of the State of Minnesota, without regard to conflicts of law
principles.
If the foregoing letter is in accordance with your understanding of
our agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company and the several
Underwriters in accordance with its terms.
Very truly yours,
26
<PAGE>
COLORADO BUSINESS BANKSHARES,
INC.
By:__________________________
[NAME]
[TITLE]
The foregoing Underwriting
Agreement is hereby confirmed
and accepted as of the date
first above written.
DAIN RAUSCHER WESSELS, a division of
Dain Rauscher Incorporated
As Representative of the several
Underwriters
By:_________________________________
Its:
27
<PAGE>
SCHEDULE A
SCHEDULE OF UNDERWRITERS
Number of Firm Maximum Number
Underwriter Shares to be Purchased of Option Shares
----------- ---------------------- ------------------
Dain Rauscher Wessels..............
[NAMES OF UNDERWRITERS BY GROUPING]
Total....................
28
<PAGE>
EXHIBIT A
FORM OF WARRANT
29
<PAGE>
Exhibit 4.1
EXHIBIT A
to the Underwriting
Agreement
WARRANT
To Subscribe for and Purchase Common Stock of
Colorado Business Bankshares, Inc.
----------------------------------
THIS CERTIFIES THAT, for value received, Dain Rauscher Wessels, a division
of Dain Rauscher Incorporated (herein called the "Purchaser"), or its registered
assigns, is entitled to subscribe for and purchase, from Colorado Business
Bankshares, Inc. (herein called the "Company"), a corporation organized and
existing under the laws of the State of Colorado, at the price specified below
(subject to adjustment as noted below) at any time from and after the first
anniversary of the date on which the Company's Registration Statement on Form
SB-2 (No. 333-50337) is declared effective by the Securities and Exchange
Commission (the "Effective Date") to and including the fifth anniversary of the
Effective Date, one hundred thousand (100,000) fully paid and nonassessable
shares of the Company's Common Stock, par value $0.01 (subject to adjustment as
noted below).
The warrant purchase price (subject to adjustment as noted below) shall be
$_____________ per share (120% of the initial public offering price).
This Warrant is subject to the following provisions, terms and conditions:
1. Exercise. The rights represented by this Warrant may be exercised by
--------
the holder hereof, in whole or in part, by written notice of exercise delivered
to the Company and by the surrender of this Warrant (properly endorsed if
required) at the principal office of the Company and upon payment to it by check
of the purchase price for such shares. The Company agrees that the shares so
purchased shall be deemed to be issued to the holder hereof as the record owner
of such shares as of the close of business on the date on which this Warrant
shall have been surrendered and payment made for such shares as aforesaid.
Subject to the provisions of the next succeeding paragraph, certificates for the
shares of stock so purchased shall be delivered to the holder hereof within a
reasonable time, not exceeding seven days, after the rights represented by this
Warrant shall have been so exercised, and, unless this Warrant has expired, a
new Warrant representing the number of shares, if any, with respect to which
this Warrant shall not then have been exercised shall also be delivered to the
holder hereof within such time.
2. Restriction on Transferability. Notwithstanding the foregoing,
------------------------------
however, the Company shall not be required to deliver any certificate for shares
of stock upon exercise of this Warrant except in accordance with the provisions,
and subject to the limitations, of paragraph 7 hereof, and each such
certificate shall bear the restrictive legend described under the heading
"Restriction on Transfer" below. This Warrant shall not be sold, transferred,
assigned or hypothecated for a period of one year from the Effective Date,
except to persons who are officers or partners of the Purchaser and the
Purchaser, or by operation of law.
<PAGE> EXHIBIT A
to the Underwriting
Agreement
3. Covenants of the Company. The Company covenants and agrees that all
------------------------
shares which may be issued upon the exercise of the rights represented by this
Warrant will, upon issuance, be duly authorized and issued, fully paid and
nonassessable. The Company further covenants and agrees that, during the period
within which the rights represented by this Warrant may be exercised, the
Company will, at all times, have authorized, and reserved for the purpose of
issue or transfer upon exercise of the subscription rights evidenced by this
Warrant, a sufficient number of shares of its Common Stock to provide for the
exercise of the rights represented by this Warrant.
4. Anti-Dilution Adjustments. The above provisions are, however, subject
-------------------------
to the following:
(a) The warrant purchase price shall, from and after the date of
issuance of this Warrant, be subject to adjustment from time to time as
hereinafter provided. Upon each adjustment of the warrant purchase price,
the holder of this Warrant shall thereafter be entitled to purchase, at the
warrant purchase price resulting from such adjustment, the number of shares
obtained by multiplying the warrant purchase price in effect immediately
prior to such adjustment by the number of shares purchasable pursuant
hereto immediately prior to such adjustment and dividing the product
thereof by the warrant purchase price resulting from such adjustment.
(b) In case the Company shall at any time subdivide its outstanding
shares of Common Stock into a greater number of shares, including any stock
dividend declared to effect a subdivision of the outstanding shares of
Common Stock, the warrant purchase price in effect immediately prior to
such subdivision shall be reduced in proportion to the increase in the
number of outstanding shares of Common Stock resulting from such
subdivision, and conversely, in case the outstanding shares of Common Stock
of the Company shall be combined into a smaller number of shares, the
warrant purchase price in effect immediately prior to such combination
shall be increased in proportion to the decrease in the number of shares of
Common Stock resulting from such combination.
(c) If any capital reorganization or reclassification of the capital
stock of the Company, or consolidation or merger of the Company with
another corporation, or the sale of all or substantially all of its assets
to another corporation shall be effected in such a way that holders of
Common Stock shall be entitled to receive stock, securities or assets with
respect to, or in exchange for, Common Stock, then, as a condition of such
reorganization, reclassification, consolidation, merger or sale, lawful and
adequate provision shall be made whereby the holder hereof shall thereafter
have the right to purchase and receive, upon the basis and upon the terms
and conditions specified in this Warrant and in lieu of the shares of the
Common Stock of the Company immediately theretofore purchasable and
receivable upon the exercise of the rights represented hereby, such shares
of stock, securities or assets as may be issued or payable with respect to,
or in exchange for, a number of outstanding shares of such Common Stock
equal to the number of shares of such stock immediately theretofore
purchasable and receivable upon the exercise of the rights represented
hereby, had such reorganization, reclassification, consolidation, merger or
sale not taken place, and
-2-
<PAGE> EXHIBIT A
to the Underwriting
Agreement
in any such case, appropri ate provision shall be made with respect to the
rights and interests of the holder of this Warrant to the end that the
provisions hereof (including, without limitation, provisions for
adjustments of the warrant purchase price and of the number of shares
purchasable upon the exercise of this Warrant) shall thereafter be
applicable, as nearly as may be, in relation to any shares of stock,
securities or assets thereafter deliverable upon the exercise hereof. The
Company shall not effect any such consolidation, merger or sale, unless
prior to the consummation thereof, the successor corporation resulting from
such consolidation or merger or the corporation purchasing such assets
shall assume, by written instrument executed and mailed to the registered
holder hereof at the last address of such holder appearing on the books of
the Company, the obligation to deliver to such holder such shares of stock,
securities or assets as, in accordance with the foregoing provisions, such
holder may be entitled to purchase.
(d) Upon any adjustment of the warrant purchase price, the Company
shall give written notice thereof, by first-class mail, postage prepaid,
addressed to the registered holder of this Warrant at the address of such
holder as shown on the books of the Company, which notice shall state the
warrant purchase price resulting from such adjustment and the increase or
decrease in the number of shares purchasable at such price upon the
exercise of this Warrant, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based.
(e) In case any time:
(1) the Company shall declare any cash dividend on its Common Stock
at a rate in excess of the rate of the last cash dividend theretofore
paid;
(2) the Company shall pay any dividend payable in stock upon its
Common Stock or make any distribution (other than regular cash
dividends) to the holders of its Common Stock;
(3) the Company shall offer for subscription pro rata to the holders
of its Common Stock any additional shares of stock of any class or
other rights;
(4) there shall be any capital reorganization, or reclassification
of the capital stock of the Company, or consolidation or merger of the
Company with, or sale of all or substantially all of its assets to,
another corporation; or
(5) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of said cases, the Company shall give written
notice, by first-class mail, postage prepaid, addressed to the registered
holder of this Warrant at the address of such holder as shown on the books
of the Company, of the date on which (A) the books of the Company shall
close or a record shall be taken for such dividend, distribution or
-3-
<PAGE>
EXHIBIT A
to the Underwriting
Agreement
subscription rights, or (B) such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up shall
take place, as the case may be. Such notice shall also specify the date as
of which the holders of Common Stock of record shall participate in such
dividend, distribution or subscription rights, or shall be entitled to
exchange their Common Stock for securities or other property deliverable
upon such reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up, as the case may be. Such written
notice shall be given at least 20 days prior to the action in question and
not less than 20 days prior to the record date or the date on which the
Company's transfer books are closed in respect thereto, or such shorter
time as may be allowed to be given to the Nasdaq National Market.
(f) If any event occurs as to which the other provisions of this
paragraph 4 are not strictly applicable or if strictly applicable would not
fairly protect the purchase rights of the holder of this Warrant or of
Common Stock in accordance with the essential intent and principles of such
provisions, then the Company shall adjust this Warrant in the application
of such provisions, in accordance with such essential intent and
principles, so as to protect such purchase rights as aforesaid.
(g) No fractional shares of Common Stock shall be issued upon the
exercise of this Warrant, but, instead of any fraction of a share which
would otherwise be issuable, the Company shall pay a cash adjustment (which
may be effected as a reduction of the amount to be paid by the holder
hereof upon such exercise) in respect of such fraction in an amount equal
to the same fraction of the market price per share of Common Stock as of
the close of business on the date of the written notice of exercise
required by paragraph 1 above. "Market price," for purposes of this
paragraph 4(g) and for purposes of paragraph 10(d) hereof, shall mean, if
the Common Stock is traded on a securities exchange or on the Nasdaq
National Market, the closing price of the Common Stock on such exchange or
the Nasdaq National Market, or, if the Common Stock is otherwise traded in
the over-the-counter market, the closing bid price, in each case averaged
over a period of 5 consecutive business days prior to the date as of which
"market price" is being determined. If at any time the Common Stock is not
traded on an exchange or the Nasdaq National Market, or otherwise traded in
the over-the-counter market, the "market price" shall be deemed to be the
higher of (i) the book value thereof as determined by any firm of
independent public accountants of recognized standing selected by the Board
of Directors of the Company as of the last day of any month ending within
60 days preceding the date as of which the determination is to be made
(provided that the Company will not be required to perform an audit solely
for the purpose of making such determination), or (ii) the fair value
thereof determined in good faith by the Board of Directors of the Company
as of a date which is within 15 days of the date as of which the
determination is to be made.
5. Common Stock. As used herein, the term "Common Stock" shall mean and
------------
include the Company's presently authorized Common Stock and shall also include
any capital stock of any class of the Company hereafter authorized which shall
not be limited to a fixed sum or percentage in respect of the rights of the
holders thereof to participate in dividends or in the distribution of assets
-4-
<PAGE>
EXHIBIT A
to the Underwriting
Agreement
upon the voluntary or involuntary liquidation, dissolution or winding up of the
Company; provided that the shares purchasable pursuant to this Warrant shall
include shares designated as Common Stock of the Company on the date of original
issue of this Warrant or, in the case of any reclassification of the outstanding
shares thereof, the stock, securities or assets provided for in paragraph 4(c)
above.
6. No Voting Rights. This Warrant shall not entitle the holder hereof to
----------------
any voting rights or other rights as a shareholder of the Company.
7. Notice of Transfer of Warrant or Resale of Shares. The holder of this
-------------------------------------------------
Warrant, by acceptance hereof, agrees to give written notice to the Company
before transferring this Warrant of such holder's intention to do so, describing
briefly the manner of any proposed transfer of this Warrant or such holder's
intention as to the disposition to be made of shares of Common Stock issuable or
issued upon the exercise hereof. Such holder shall also provide the Company
with written representations from the holder and the proposed transferee
satisfactory to the Company regarding the transfer or, at the election of the
Company, an opinion of counsel reasonably satisfactory to the Company to the
effect that the proposed transfer of this Warrant or disposition of shares may
be effected without registration or qualification (under any Federal or State
law) of this Warrant or the shares of Common Stock issuable or issued upon the
exercise hereof. Upon receipt of such written notice and either such
representations or opinion by the Company, such holder shall be entitled to
transfer this Warrant, or to exercise this Warrant in accordance with its terms
and dispose of the shares received upon such exercise or to dispose of shares of
Common Stock received upon the previous exercise of this Warrant, all in
accordance with the terms of the notice delivered by such holder to the Company,
provided that an appropriate legend, if any, respecting the aforesaid
restrictions on transfer and disposition may be endorsed on this Warrant or the
certificates for such shares.
8. Transferability. Subject to the provisions of paragraph 2 and
---------------
paragraph 7 hereof, this Warrant and all rights hereunder are transferable, in
whole or in part, at the principal office of the Company by the holder hereof in
person or by duly authorized attorney, upon surrender of this Warrant properly
endorsed. Each taker and holder of this Warrant, by taking or holding the same,
consents and agrees that the bearer of this Warrant, when endorsed, may be
treated by the Company and all other persons dealing with this Warrant as the
absolute owner hereof for any purpose and as the person entitled to exercise the
rights represented by this Warrant, or to the transfer hereof on the books of
the Company, any notice to the contrary notwithstanding; but until such transfer
on such books, the Company may treat the registered holder hereof as the owner
for all purposes.
This Warrant is exchangeable, upon the surrender hereof by the holder
hereof at the principal office of the Company, for new Warrants of like tenor
representing in the aggregate the right to subscribe for and purchase the number
of shares which may be subscribed for and purchased hereunder, each of such new
Warrants to represent the right to subscribe for and purchase such number of
shares as shall be designated by said holder hereof at the time of such
surrender.
-5-
<PAGE>
EXHIBIT A
to the Underwriting
Agreement
9. Registration Rights. The holder of this Warrant and of the Common
-------------------
Stock issuable or issued upon the exercise hereof shall be entitled to the
registration rights set forth in Exhibit A attached hereto.
10. Optional Conversion.
-------------------
(a) In addition to and without limiting the rights of the holder of
this Warrant under the terms of this Warrant, the holder of this Warrant
shall have the right (the "Conversion Right") to convert this Warrant or
any portion thereof into shares of Common Stock as provided in this
paragraph 10 at any time, or from time to time, after the first anniversary
of the date hereof and prior to its expiration, subject to the restrictions
set forth in paragraph (c) below. Upon exercise of the Conversion Right
with respect to a particular number of shares subject to this Warrant (the
"Converted Warrant Shares"), the Company shall deliver to the holder of
this Warrant, without payment by the holder of any exercise price or any
cash or other consideration, that number of shares of Common Stock equal to
the quotient obtained by dividing the Net Value (as hereinafter defined) of
the Converted Warrant Shares by the fair market value (as defined in
paragraph (d) below) of a single share of Common Stock, determined in each
case as of the close of business on the Conversion Date (as hereinafter
defined). The "Net Value" of the Converted Warrant Shares shall be
determined by subtracting the aggregate warrant purchase price of the
Converted Warrant Shares from the aggregate fair market value of the
Converted Warrant Shares. Notwithstanding anything in this paragraph 10 to
the contrary, the Conversion Right cannot be exercised with respect to a
number of Converted Warrant Shares having a Net Value below $100. No
fractional shares shall be issuable upon exercise of the Conversion Right,
and if the number of shares to be issued in accordance with the foregoing
formula is other than a whole number, the Company shall pay to the holder
of this Warrant an amount in cash equal to the fair market value of the
resulting fractional share.
(b) The Conversion Right may be exercised by the holder of this Warrant
by the surrender of this Warrant at the principal office of the Company
together with a written statement specifying that the holder thereby
intends to exercise the Conversion Right and indicating the number of
shares subject to this Warrant which are being surrendered (referred to in
paragraph (a) above as the Converted Warrant Shares) in exercise of the
Conversion Right. Such conversion shall be effective upon receipt by the
Company of this Warrant together with the aforesaid written statement, or
on such later date as is specified therein (the "Conversion Date"), but not
later than the expiration date of this Warrant. Certificates for the
shares of Common Stock issuable upon exercise of the Conversion Right,
together with a check in payment of any fractional share and, in the case
of a partial exercise, a new warrant evidencing the shares remaining
subject to this Warrant, shall be issued as of the Conversion Date and
shall be delivered to the holder of this Warrant within 7 days following
the Conversion Date.
(c) In the event the Conversion Right would, at any time this Warrant
remains outstanding, be deemed by the Company's independent certified
public accountants to give
-6-
<PAGE>
EXHIBIT A
to the Underwriting
Agreement
rise to a charge to the Company's earnings for financial reporting
purposes, then the Conversion Right shall automatically terminate upon the
Company's written notice to the holder of this Warrant of such adverse
accounting treatment.
(d) For purposes of this paragraph 10, the "fair market value" of a
share of Common Stock as of a particular date shall be its "market price",
calculated as described in paragraph 4(g) hereof.
11. Miscellaneous. All questions concerning this Warrant will be governed
--------------
and interpreted and enforced in accordance with the internal law of the State of
Minnesota, without regard for principles of conflict of law. Neither this
Warrant nor any term hereof may be changed, waived, discharged or terminated
except by a written instrument executed by the party against whom enforcement of
the change, waiver, discharge or termination is sought. Each provision of this
Warrant shall be interpreted in such a manner as to be effective and valid under
applicable law, but if any provision of this Warrant is held to be invalid,
illegal or unenforceable under any applicable law or rule in any jurisdiction,
such provision will be ineffective only to the extent of such invalidity,
illegality or unenforceability in such jurisdiction, without invalidating the
remainder of this Warrant in such jurisdiction or any provision hereof in any
other jurisdiction.
-7-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer and this Warrant to be dated as of _______________ ,
199___.
COLORADO BUSINESS BANKSHARES, INC.
By_______________________________
Its___________________________
RESTRICTION ON TRANSFER
THIS WARRANT OR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE
HEREOF MAY NOT BE RESOLD OR TRANSFERRED UNLESS SUCH RESALE OR TRANSFER IS
EXEMPTED FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), AND ANY APPLICABLE STATE SECURITIES LAWS ("LAWS"), AND THE
COMPANY RECEIVES, PRIOR TO RESALE OR TRANSFER, WRITTEN REPRESENTATIONS OF THE
HOLDER AND PROPOSED TRANSFEREE SATISFACTORY TO THE COMPANY REGARDING SUCH
TRANSFER OR, AT THE ELECTION OF THE COMPANY, AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY TO THE EFFECT THAT THE PROPOSED TRANSFER OF THIS
WARRANT OR OF SUCH SHARES MAY BE EFFECTED WITHOUT REGISTRATION UNDER THE ACT OR
QUALIFICATION UNDER THE LAWS , OR THE RESALE OR TRANSFER OF THIS WARRANT OR OF
SUCH SHARES IS REGISTERED UNDER THE ACT AND ANY APPLICABLE LAWS.
-8-
<PAGE>
FORM OF ASSIGNMENT
(To Be Signed Only Upon Assignment)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ____________ this Warrant, and appoints ___________to transfer this Warrant
on the books of the Company with the full power of substitution in the premises.
Dated:
In the presence of:
Signature:_____________________________
Note: The signature must conform in all
respects to the name of the holder as
written on the face of this Warrant
without alteration, enlargement or any
change whatsoever, and the signature
must be guaranteed in the usual manner.
-9-
<PAGE>
SUBSCRIPTION FORM
To be Executed by the Holder of this Warrant if such Holder
Desires to Exercise this Warrant in Whole or in Part:
To: Colorado Business Bankshares, Inc. (the "Company")
The undersigned_____________________________________________
Please insert Social Security or other identifying number of Subscriber:
hereby irrevocably elects to exercise the right of purchase represented by this
Warrant for, and to purchase thereunder,___________ shares of the Common Stock
provided for therein and tenders payment herewith to the order of the Company in
the amount of $_____, such payment being made as provided on the face of this
Warrant.
The undersigned requests that certificates for such shares of Common Stock
be issued as follows:
Name:________________________________________________
Address:_____________________________________________
Deliver to:__________________________________________
Address:_____________________________________________
and, if such number of shares of Common Stock shall not be all the shares of
Common Stock purchasable hereunder, that a new Warrant for the balance remaining
of the shares of Common Stock purchasable under this Warrant be registered in
the name of, and delivered to, the undersigned at the address stated above.
Dated:
Signature:______________________________
Note: The signature must conform in all
respects to the name of the holder as
written on the face of this Warrant
without alteration, enlargement or any
change whatsoever.
-10-
<PAGE>
EXHIBIT A to
Warrant
REGISTRATION RIGHTS
-------------------
1. Required Registration. If at any time up to five (5) years after the
---------------------
Effective Date the Company shall receive a written request therefor from any
record holder or holders of an aggregate of at least a majority of the shares of
Purchased Stock (as hereinafter defined) not theretofore registered under the
Securities Act of 1933 (the "Securities Act") and sold (but in no event less
than ____ shares), the Company shall prepare and file a registration statement
under the Securities Act covering the shares of Purchased Stock which are the
subject of such request and shall use its best efforts to cause such
registration statement to become effective. In addition, upon the receipt of
such request, the Company shall promptly give written notice to all other record
holders of shares of Purchased Stock not theretofore registered under the
Securities Act and sold that such registration is to be effected. The Company
shall include in such registration statement such shares of Purchased Stock for
which it has received written requests to register by such other record holders
within 30 days after the delivery of the Company's written notice to such other
record holders. The Company shall be obligated to prepare, file and cause to
become effective only one registration statement pursuant to this Section 1 and
to pay all costs and expenses associated with such registration statement. In
the event that the holders of a majority of the Purchased Stock for which
registration has been requested pursuant to the foregoing determine for any
reason not to proceed with a registration at any time before a registration
statement has been declared effective by the Securities and Exchange Commission
(the "Commission"), and such registration statement, if theretofore filed with
the Commission, is withdrawn with respect to the Purchased Stock covered
thereby, and the holders of such Purchased Stock agree to bear their own
expenses incurred in connection therewith and to reimburse the Company for the
expenses incurred by it attributable to the registration of such Purchased
Stock, then the holders of such Purchased Stock shall not be deemed to have
exercised their right to require the Company to register Purchased Stock
pursuant to this Section 1. Notwithstanding the foregoing, at any time up to
five (5) years after the Effective Date the record holder or holders of an
aggregate of at least a majority of the shares of Purchased Stock not
theretofore registered under the Securities Act and sold may require, pursuant
to this Section 1, the Company to prepare, file and cause to become effective
any number of registration statements but such holder or holders shall bear
their own costs and expenses and reimburse the Company for its costs and
expenses associated with such registration statements and the Company shall not
be required to comply with more than two such requests per year.
If, at the time any written request for registration is received by the
Company pursuant to this Section 1, the Company has finally determined to
proceed with the actual preparation and filing of a registration statement under
the Securities Act in connection with the proposed offer and sale for cash of
any of its securities by it or any of its security holders, such written request
shall be deemed to have been given pursuant to Section 2 hereof rather than this
Section 1, and the rights of the holders of Purchased Stock covered by such
written request shall be governed by Section 2 hereof.
Without the written consent of the holders of a majority of the Purchased
Stock for which registration has been requested pursuant to this Section 1,
neither the Company nor any other holder of securities of the Company may
include securities in such registration if in the good faith judgment of the
managing underwriter, if any, of such public offering the inclusion of such
securities would
-11-
<PAGE>
EXHIBIT A to
Warrant
interfere with the successful marketing of the Purchased Stock
or require the exclusion of any portion of the Purchased Stock to be registered.
The rights granted by this Section 1 may be transferred to, and are
exercisable by subsequent transferee of any shares of Purchased Stock, except
with respect to shares of Purchased Stock that have been registered under the
Securities Act and sold.
2. Incidental Registration. For a period of seven (7) years after the
-----------------------
Effective Date, Each time the Company shall determine to proceed with the actual
preparation and filing of a registration statement under the Securities Act in
connection with the proposed offer and sale for cash of any of its securities by
it or any of its security holders (other than a registration statement on a form
that does not permit the inclusion of the Purchased Stock), the Company will
give written notice of its determination to all record holders of Purchased
Stock not theretofore registered under the Securities Act and sold. Upon the
written request of a record holder of any shares of Purchased Stock given within
30 days after receipt of any such notice from the Company, the Company will,
except as herein provided, cause all such shares of Purchased Stock, the record
holders of which have so requested registration thereof, to be included in such
registration statement, all to the extent requisite to permit the sale or other
disposition by the prospective seller or sellers of the Purchased Stock to be so
registered; provided, however, that nothing herein shall prevent the Company
from, at any time, abandoning or delaying any registration. If any registration
pursuant to this Section 2 shall be underwritten in whole or in part, the
Company may require that the Purchased Stock requested for inclusion pursuant to
this Section 2 be included in the underwriting on the same terms and conditions
as the securities otherwise being sold through the underwriters. In the event
that the Purchased Stock requested for inclusion pursuant to this Section 2
would constitute more than 25% of the total number of shares to be included in a
proposed underwritten public offering, and if, in the good faith judgment of the
managing underwriter of such public offering, the inclusion of all of the
Purchased Stock originally covered by requests for registration would reduce the
number of shares to be offered by the Company or interfere with the successful
marketing of the shares of stock offered by the Company, the number of shares of
Purchased Stock otherwise to be included in the underwritten public offering may
be reduced pro rata (by number of shares) among the holders thereof requesting
such registration.
The rights granted by this Section 2 may be transferred to and are
exercisable by a subsequent transferee of any shares of Purchased Stock, except
with respect to shares of Purchased Stock that have been registered under the
Securities Act and sold.
3. Registration Procedures. If and whenever the Company is required by
-----------------------
the provisions of Section 1 or Section 2 hereof to effect the registration of
shares of Purchased Stock under the Securities Act, the Company will:
(a) prepare and file with the Commission a registration statement with
respect to such securities, and use its best efforts to cause such
registration statement to become and remain effective for such period as
may be reasonably necessary to effect the sale of such securities, not to
exceed nine months;
-12-
<PAGE>
EXHIBIT A to
Warrant
(b) prepare and file with the Commission such amendments to such
registration statement and supplements to the prospectus contained therein
as may be necessary to keep such registration statement effective for such
period as may be reasonably necessary to effect the sale of such
securities, not to exceed nine months;
(c) furnish to the security holders participating in such registration
and to the underwriters of the securities being registered such reasonable
number of copies of the registration statement, preliminary prospectus,
final prospectus and such other documents as such underwriters may
reasonably request in order to facilitate the public offering of such
securities;
(d) use its best efforts to register or qualify the securities covered
by such registration statement under such state securities or blue sky laws
of such jurisdictions as such participating holders may reasonably request
in writing within 20 days following the original filing of such
registration statement, except that the Company shall not for any purpose
be required to execute a general consent to service of process or to
qualify to do business as a foreign corporation in any jurisdiction wherein
it is not so qualified;
(e) notify the security holders participating in such registration,
promptly after it shall receive notice thereof, of the time when such
registration statement has become effective or a supplement to any
prospectus forming a part of such registration statement has been filed;
(f) notify such holders promptly of any request by the Commission for
the amending or supplementing of such registration statement or prospectus
or for additional information;
(g) prepare and file with the Commission, promptly upon the request of
any such holders, any amendments or supplements to such registration
statement or prospectus which, in the opinion of counsel for such holders
(and concurred in by counsel for the Company), are required under the
Securities Act or the rules and regulations thereunder in connection with
the distribution of the Purchased Stock by such holder;
(h) prepare and promptly file with the Commission, and promptly notify
such holders of the filing of, such amendments or supplements to such
registration statement or prospectus as may be necessary to correct any
statements or omissions if, at the time when a prospectus relating to such
securities is required to be delivered under the Securities Act, any event
shall have occurred as the result of which any such prospectus or any other
prospectus as then in effect would include an untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances in which they were
made, not misleading;
(i) advise such holders, promptly after it shall receive notice or
obtain knowledge thereof, of the issuance of any stop order by the
Commission suspending the effectiveness of such registration statement or
the initiation or threatening of any proceeding for that purpose and
promptly use its best efforts to prevent the issuance of any stop order or
to obtain its withdrawal, if such stop order should be issued;
-13-
<PAGE>
EXHIBIT A to
Warrant
(j) not file any amendment or supplement to such registration statement
or prospectus to which a majority in interest of such holders shall have
reasonably objected on the grounds that such amendment or supplement does
not comply in all material respects with the requirements of the Securities
Act or the rules and regulations thereunder, after having been furnished
with a copy thereof at least five business days prior to the filing
thereof, unless in the opinion of counsel for the Company the filing of
such amendment or supplement is reasonably necessary to protect the Company
from any liabilities under any applicable federal or state law and such
filing will not violate applicable law; and
(k) at the request of any such holder, furnish (i) an opinion, dated as
of the closing date, of the counsel representing the Company for the
purposes of such registration, addressed to the underwriters, if any, and
to the holder or holders making such request, covering such matters as such
underwriters and holder or holders may reasonably request; and (ii) letters
dated as of the effective date of the registration statement and as of the
closing date, from the independent certified public accountants of the
Company, addressed to the underwriters, if any, and to the holder or
holders making such request, covering such matters as such underwriters and
holder or holders may reasonably request.
4. Expenses. With respect to Section 1 and Section 2 hereof (except as
--------
otherwise provided in Section 1), the Company shall bear the following fees,
costs and expenses: all registration, filing and NASD fees, printing expenses,
fees and disbursements of counsel and accountants for the Company, fees and
disbursements of counsel for the underwriter or underwriters of such securities
(if the Company and/or selling security holders are required to bear such fees
and disbursements), all internal Company expenses, all legal fees and
disbursements and other expenses of complying with state securities or blue sky
laws of any jurisdictions in which the securities to be offered are to be
registered or qualified, and the premiums and other costs of policies of
insurance against liability (if any) arising out of such public offering. Fees
and disbursements of counsel and accountants for the selling security holders,
underwriting discounts and commissions and transfer taxes relating to the shares
included in the offering by the selling security holders, and any other expenses
incurred by the selling security holders not expressly included above, shall be
borne pro rata by the selling security holders.
5. Indemnification.
---------------
(a) The Company will indemnify and hold harmless each holder of shares
of Purchased Stock which are included in a registration statement pursuant
to the provisions of Section 1 or 2 hereof, its directors and officers, and
any underwriter (as defined in the Securities Act) for such holder and each
person, if any, who controls such holder or such underwriter within the
meaning of the Securities Act, from and against, and will reimburse such
holder and each such underwriter and controlling person with respect to,
any and all loss, damage, liability, cost and expense to which such holder
or any such underwriter or controlling person may become subject under the
Securities Act or otherwise, insofar as such losses, damages, liabilities,
costs or expenses are caused by any untrue statement or alleged untrue
statement of any material fact contained in such registration statement,
any prospectus contained therein or any amendment or supplement thereto, or
arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein
-14-
<PAGE>
EXHIBIT A to
Warrant
or necessary to make the statements therein, in light of the circumstances
in which they were made, not misleading; provided, however, that the
Company will not be liable in any such case to the extent that any such
loss, damage, liability, cost or expense arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged
omission so made in conformity with information furnished by such holder,
such underwriter or such controlling person in writing specifically for use
in the preparation thereof.
(b) Each holder of shares of Purchased Stock which are included in a
registration pursuant to the provisions of Section 1 or 2 hereof will
indemnify and hold harmless the Company, its directors and officers, any
controlling person and any underwriter from and against, and will reimburse
the Company, its directors and officers, any controlling person and any
underwriter with respect to, any and all loss, damage, liability, cost or
expense to which the Company or any controlling person and/or any
underwriter may become subject under the Securities Act or otherwise,
insofar as such losses, damages, liabilities, costs or expenses are caused
by any untrue or alleged untrue statement of any material fact contained in
such registration statement, any prospectus contained therein or any
amendment or supplement thereto, or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein, in light
of the circumstances in which they were made, not misleading, in each case
to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was so made in
reliance upon written information furnished by such holder specifically for
use in the preparation thereof.
(c) Promptly after receipt by an indemnified party pursuant to the
provisions of paragraph (a) or (b) of this Section 5 of notice of the
commencement of any action involving the subject matter of the foregoing
indemnity provisions such indemnified party will, if a claim thereof is to
be made against the indemnifying party pursuant to the provisions of said
paragraph (a) or (b), promptly notify the indemnifying party of the
commencement thereof; but the omission to so notify the indemnifying party
will not relieve it from any liability which it may have to any indemnified
party otherwise than hereunder. In case such action is brought against any
indemnified party and it notifies the indemnifying party of the
commencement thereof, the indemnifying party shall have the right to
participate in, and, to the extent that it may wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party, provided, however, if the
defendants in any action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably
concluded that there may be legal defenses available to it and/or other
indemnified parties which are different from or additional to those
available to the indemnifying party, or if there is a conflict of interest
which would prevent counsel for the indemnifying party from also
representing the indemnified party, the indemnified party or parties shall
have the right to select separate counsel to participate in the defense of
such action on behalf of such indemnified party or parties. After notice
from the indemnifying party to such indemnified party of its election so to
assume the defense thereof, the indemnifying party will not be liable to
such indemnified party pursuant to the provisions of said paragraph (a) or
(b) for any legal or other expense subsequently incurred by such
indemnified party in connection with the defense thereof other than
reasonable costs of investigation, unless (i) the indemnified party shall
-15-
<PAGE>
EXHIBIT A to
Warrant
have employed counsel in accordance with the proviso of the preceding
sentence, (ii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified party
within a reasonable time after the notice of the commencement of the
action, or (iii) the indemnifying party has authorized the employment of
counsel for the indemnified party at the expense of the indemnifying party.
6. Special Definition. "Purchased Stock" shall mean the Warrant dated as
------------------
of________, 199__(together with any warrant or warrants issued in substitution
or exchange therefor, the "Warrant") to purchase 100,000 shares of Common Stock
of the Company, and the shares of Common Stock of the Company issuable upon
exercise of the Warrant and all shares of such Common Stock issued in exchange
or substitution therefor, whether or not such securities (other than such
Warrant) have in fact been issued, and the stock or other securities of the
Company issued in a stock split or reclassification of, or a stock dividend or
other distribution on or in substitution or exchange for, or otherwise in
connection with, any of the foregoing securities, or in a merger or
consolidation involving the Company or a sale of all or substantially all of the
Company's assets. For purposes hereof, the record holder of the Warrant shall
be treated as the record holder of the related Common Stock then issuable upon
the exercise thereof. Nothing in this Section 6 shall, however, be deemed to
require the Company to register the Warrant, it being understood that the
registration rights granted hereby relate only to shares of Common Stock of the
Company and securities issued in substitution or exchange therefor.
7. Availability of Registration Rights. The right to registration
-----------------------------------
pursuant hereto shall commence on the first anniversary of the Issuance Date (as
defined in the Warrant to which these Registration Rights are attached) and
shall terminate with respect to the provisions of Section 1 hereof, on the
seventh anniversary of the Issuance Date.
-16-
<PAGE>
Exhibit 5.1
Colorado Business Bankshares, Inc.
821 Seventeenth Street
Denver, Colorado 80202
Re: Registration Statement on Form SB-2
Ladies and Gentlemen:
We have acted as special counsel to Colorado Business Bankshares,
Inc., a Colorado corporation (the "Company"), in connection with a Registration
Statement on Form SB-2 (the "Registration Statement") relating to the
registration for sale by the Company of 1,610,000 shares (the "Shares") of
common stock of the Company, par value $0.01 per share (including 210,000 shares
to be subject to the Underwriter's over-allotment option) (the "Common Stock").
We have examined such documents and have reviewed such questions of
law as we have considered necessary and appropriate for the purposes of our
opinions set forth below. In rendering our opinion set forth below, we have
assumed the authenticity of all documents submitted to us as originals, the
genuineness of all signatures and the conformity to authentic originals of all
documents submitted to us as copies. We have also assumed the legal capacity
for all purposes relevant hereto of all natural persons and, with respect to all
parties to agreements or instruments relevant hereto other than the Company,
that such parties had the requisite power and authority (corporate or otherwise)
to execute, deliver and perform such agreements or instruments, that such
agreements or instruments have been duly authorized by all requisite action
(corporate or otherwise), executed and delivered by such parties and that such
agreements or instruments are the valid, binding and enforceable obligations of
such parties. As to questions of fact material to our opinions, we have relied
upon certificates of officers of the Company and of public officials. We have
also assumed that the Shares will be priced by the Pricing Committee established
by the authorizing resolutions adopted by the Company's Board of Directors in
accordance with such resolutions and will be issued and sold as described in the
Registration Statement.
Based on the foregoing, we are of the opinion that the Shares have
been duly authorized by all requisite corporate action and, upon issuance,
delivery and payment
<PAGE>
Colorado Business Bankshares, Inc.
June 11, 1998
Page 2
therefor as described in the Registration Statement, will be validly issued,
fully paid and nonassessable.
Our opinions expressed above are limited to the Colorado Business
Corporation Act.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, and to the reference to our firm under the heading
"Legal Matters" in the Prospectus constituting part of the Registration
Statement.
Dated: June 11, 1998
Very truly yours,
/s/ Dorsey & Whitney LLP
KAC
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 2 to Registration Statement No.
33-50037 of Colorado Business Bankshares, Inc. of our report dated April 3,
1998 (May 20, 1998 as to Note 13) appearing in the Prospectus, which is a part
of such Registration Statement, and to the reference to us under the heading
"Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Denver, Colorado
June 11, 1998
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
--------------------------------------------------
We hereby consent to the use in Amendment No. 2 to the Registration Statement
on Form SB-2 of our report, dated January 24, 1997, relating to the consolidated
financial statements of COLORADO BUSINESS BANKSHARES, INC. and subsidiaries as
of December 31, 1996, and for the year then ended. We also consent to the
reference to our Firm under the caption "Experts" in the Prospectus.
BAIRD, KURTZ & DOBSON
/s/ Baird, Kurtz & Dobson
Denver, Colorado
June 11, 1998
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form
SB-2 (Amendment No.2) of our report, dated January 12, 1996,relating to the
consolidated financial statements of Colorado Business Bankshares, Inc. and
subsidiaries. We also consent to the reference to our Firm under the caption
"Experts" in the Prospectus.
McGLADREY & PULLEN,LLP
Charlotte, North Carolina
June 11, 1998
