<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 29, 1998
REGISTRATION NO. 333-50037
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
----------------
AMENDMENT NO. 1 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
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<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>
<TABLE>
<CAPTION>
<S> <C>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
</TABLE>
SUBJECT TO COMPLETION, DATED MAY 29, 1998
1,400,000 SHARES
LOGO
COMMON STOCK
All of the shares of Common Stock offered hereby are offered by Colorado
Business Bankshares, Inc. Prior to the Offering, there has been 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 of 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 has not been 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 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 Bank
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...................
Proposed Nasdaq National 6,463,468 shares(1)
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
========= ========= ========= ========= ==========
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
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
Common shareholders' equity to average
total assets......................... 6.38 5.63 6.35 5.54 6.01
Total shareholders' equity to average
total assets......................... 6.95 5.63 6.85 5.54 6.01
Nonperforming assets to average 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 such 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."
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
9
<PAGE>
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 initiatives, including middle management, it
believes that its senior management and systems infrastructure are
15
<PAGE>
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 direction, or to
the same extent, as the prices of goods and services, increases in inflation
generally have resulted
24
<PAGE>
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 Bank
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 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 more than $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 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 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 portfolios 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 or results of operations 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 6 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.
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<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 8.0%, 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 50.1% 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 trust, 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 an aggregate of
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>
TABLE OF CONTENTS
<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
THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED) AND FOR
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
expenses........... 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
THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED) AND FOR
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
THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED) AND FOR
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
THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED) AND FOR
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. Comprehensive income components, including unrealized
gains and losses on available for sale securities, are not material.
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
were $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. CERTIFICATE OF DEPOSITS
The composition of certificate of deposits 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'
interest 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 these commitments arise when they are drawn upon, such as the
demands on liquidity the banks would
F-20
<PAGE>
COLORADO BUSINESS BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 its 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
Summary Consolidated Financial Data......................................
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.
** To be filed by amendment.
+ 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 29th day of May, 1998.
Colorado Business Bankshares, Inc.
/s/ Steven Bangert
By_____________________________
Steven Bangert
Chief Executive Officer
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.
SIGNATURE TITLE DATE
/s/ Steven Bangert Chairman of the
- ------------------------------------- Board of Directors May 29, 1998
STEVEN BANGERT and Chief Executive
Officer (Principal
Executive Officer)
/s/ Jonathan C. Lorenz Vice Chairman of the
- ------------------------------------- Board, President May 29, 1998
JONATHAN C. LORENZ and Director
/s/ Virginia K. Berkeley
- ------------------------------------- President of May 29, 1998
VIRGINIA K. BERKELEY Colorado Business
Bank--Denver and
Director
* Director
- ------------------------------------- May 29, 1998
MARK S. KIPNIS
* Director
- ------------------------------------- May 29, 1998
HOWARD. R. ROSS
* Director
- ------------------------------------- May 29, 1998
NOEL N. ROTHMAN
/s/ Michael B. Burgamy Director May 29, 1998
- -------------------------------------
MICHAEL B. BURGAMY
/s/ Timothy J. Travis Director May 29, 1998
- -------------------------------------
TIMOTHY J. TRAVIS
/s/ Richard J. Dalton Senior Vice
- ------------------------------------- President and Chief May 29, 1998
RICHARD J. DALTON Financial Officer
(Principal
Financial and
Accounting Officer)
- --------
* /s/ Steven Bangert
By______________________________
as attorney-in-fact.
II-6
<PAGE>
Exhibit 3.1
COLORADO BUSINESS BANKSHARES, INC.
ARTICLES OF AMENDMENT AND RESTATEMENT
Colorado Business Bankshares, Inc., a Colorado corporation (the
"Corporation"), having its principal office at 821 Seventeenth Street, Denver,
Colorado 80202 hereby certifies to the Secretary of State of the State of
Colorado that:
FIRST: The Corporation desires to amend and restate its Articles of
-----
Incorporation as currently in effect as hereinafter provided.
SECOND: The provisions set forth in these Articles of Amendment and
------
Restatement supersede the original Articles of Incorporation of the Corporation
and all amendments thereto. These Articles of Amendment and Restatement
correctly set forth the provisions of the Articles of Incorporation, as amended,
of the Corporation.
THIRD: The Articles of Incorporation of the Corporation are hereby
-----
amended by striking them in their entirety and substituting, in lieu thereof,
the following:
"ARTICLE I
Name
----
The name of the Corporation is Colorado Business Bankshares, Inc.
ARTICLE II
Purpose and Powers
------------------
The purpose for which the Corporation is organized is to transact all
lawful business for which corporations may be incorporated pursuant to the
Colorado Business Corporation Act, as amended (the "Act").
ARTICLE III
Capital Stock
-------------
3.1 Authorized Shares.
-----------------
(a) The total number of shares of all classes of stock which the
Corporation shall have authority to issue is twenty-seven million
(27,000,000) of which twenty-five million
<PAGE>
(25,000,000) shall be common stock, par value $.01 per share, and two million
(2,000,000) shall be preferred stock, par value $.01 per share.
(b) One thousand five hundred shares (1,500) of the preferred stock
shall be designated "Series A Adjustable Rate Cumulative Perpetual Preferred
Stock" (such Series A Adjustable Rate Cumulative Perpetual Preferred Stock is
hereinafter referred to as "Series A Preferred Stock"). The powers preferences
and relative, participating, optional and other special rights, and the
qualifications, limitations and restrictions, of the shares of the Series A
Preferred Stock shall be as follows:
(i) The number of shares of Series A Preferred Stock may not be
increased or decreased (except pursuant to Articles 3.1(b)(iii) or 3.1(b)(x)
hereof). Each share of Series A Preferred Stock shall have a stated value of
$1,000 per share, and a liquidation value of $1,000 per share, plus all accrued
and unpaid dividends thereof.
(ii) Dividends.
---------
(A) Entitlement. The holders of shares of Series A Preferred
-----------
Stock shall be entitled to receive, as and when declared payable by the Board of
Directors from funds legally available for the payment thereof, preferential
cumulative cash dividends in lawful money of the United States of America at the
applicable rate fixed and determined as herein authorized, but no more, payable
quarterly in arrears on April 1, July 1, October 1, and January 1 (the
"Quarterly Payment Dates") in each year with respect to the quarterly period
ending on the day prior to each such respective payment date (the "dividend
period"). Such dividends shall be paid to the Series A Preferred Stock
shareholders of record at the close of business on the date specified by the
Board of Directors at the time such dividend is declared; provided, however,
that such date shall not be more than sixty (60) days nor less than ten (10)
days prior to each Quarterly Payment Date. Accumulations of accrued but unpaid
dividends shall not bear interest. Such dividends will accrue whether or not
they have been declared and whether or not there are profits, surplus or other
funds of the Corporation legally available for the payment of the dividends. All
dividends which have accrued on each share of Series A Preferred Stock
outstanding during the dividend period ending upon each Quarterly Payment Date
will be added to the liquidation value of such share and will remain a part
thereof until such dividends are paid. The initial dividend payment for the
Preferred Stock will accrue from the date such Preferred Stock is first issued,
whichever is later (the "Issue Date"), and shall be payable on the first
Quarterly Payment Date. All shares of the Common Stock of the Corporation, and
all other capital stock of any class or series of the Corporation issued after
the Issue Date, shall rank junior to the Series A Preferred Stock as to
dividends and to rights upon liquidation, dissolution or winding up of the
Corporation.
(B) Dividend Rate. The rate of cumulative preferred dividends on the
-------------
Series A Preferred Stock shall, for any day while any shares of such Series A
Preferred Stock are outstanding, be the rate per annum per share of an amount
equal to $1,000 multiplied
2
<PAGE>
by (i) the Dividend Percentage (as hereinafter defined) applicable for such
shares of Series A Preferred Stock on such day and (ii) the Applicable Rate (as
defined below) for such shares in effect as of the opening of business on such
day (or if such day shall not be a business day, then as of the opening of
business on the next preceding business day), said dividend rate as the same
shall from time to time be in effect, being hereinafter called the "Dividend
Rate." The amount of dividends payable for each day while any of the Series A
Preferred Stock is outstanding with respect to one share of such Series A
Preferred Stock shall be equal to the quotient obtained by dividing (i) the
product of the Dividend Rate in effect for such Series A Preferred Stock and for
such day times $1,000 by (ii) 360. As used herein:
(1) The term "Dividend Percentage" shall mean 100%
(1.0), unless and until such percentage shall be adjusted pursuant to Article
3.1(b)(ii)(C). In each case, following such an adjustment pursuant to Article
3.1(b)(ii)(C) hereof, such term shall thereafter mean such percentage, as so
adjusted, unless and until a further adjustment shall be required pursuant to
such Article, it being intended that, at all times following the initial
adjustment (if any) pursuant to such Article, the term "Dividend Percentage"
shall mean such percentage, as the same has been previously adjusted pursuant to
such Article and as the same may from time to time be further adjusted (if at
all) pursuant to such Article.
(2) The term "Applicable Rate" shall mean the sum of:
(i) the rate equal to the Bank Rate on the last day of the preceding dividend
period (or on the Issue Date with respect to the initial dividend period); plus
(ii) two and one-quarter percent (2 1/4%).
(3) The term "Bank Rate" shall mean, at the option of
the Corporation, (a) the fluctuating rate of interest equal to the rate of
interest as designated from time to time by American National Bank and Trust
Company of Chicago ("ANB") as its base or prime rate or equivalent rate, which
rate may not necessarily be the lowest rate of interest charged by ANB;
provided, however, if for any reason ANB shall cease to announce a rate of
interest as its base or prime rate or equivalent rate, then "Bank Rate" shall
thereafter mean the corresponding rate of interest in effect on the aforesaid
dates as designated by Citibank, N.A., New York, New York, as its base or prime
rate or equivalent rate, which rate may not necessarily be the lowest rate of
interest charged by such bank; or (b) the fluctuating rate of interest equal to
the rate of interest as announced or published from time to time by The Wall
--- ----
Street Journal as the prime rate or equivalent rate on the last business day of
- ------ -------
the prior quarter.
(4) The term "Business Day" shall mean a day on which
the Corporation or any of its Subsidiaries is open for business.
(C) Adjustments for Changes in the Maximum Federal Corporate Tax Rate
-----------------------------------------------------------------
or the Dividend Reduction Rate. If at any time after the Issue Date any change
- ------------------------------
of law or regulation by any means shall occur (a "Tax Law Change") the effect of
which is to cause any change in the Dividend Deduction Rate (as hereinafter
defined) or in the
3
<PAGE>
Maximum Federal Corporate Tax Rate (as hereinafter defined), then, as of the
effective date of such Tax Law Change, the Dividend Percentage in effect
immediately prior to such effective date for the Series A Preferred Stock shall
be adjusted upward or, subject to the limitation set forth in Article
3.1(b)(ii)(B)(1) above, downwards as the case may be, by such amount (and no
more) as shall be necessary to offset any increase or decrease in the Net After-
Federal Income Tax Yield (as hereinafter defined) as a result of such Tax Law
Change.
(1) The term "Dividend Deduction Rate" shall mean the
rate at which dividends on preferred stock received from the issuer thereof are,
at the time of reference, deductible by a corporate holder of such stock for
Federal income tax purposes under Section 243(a)(1) of the Internal Revenue Code
of 1986, as amended (the "Code"), or any similar successor provision, and is
also sometimes referred to herein as the "Dividends Received Deduction."
(2) The term "Maximum Federal Corporate Tax Rate" shall
mean the highest marginal Federal income tax rate applicable at the time of
reference to corporate taxpayers under Section 11(b)(1) of the Code or any
similar successor provision, without regard to the increase in tax provided for
by the final two sentences of such Section 11(b)(l) or any similar successor
provision.
(3) The term "Net After-Federal Income Tax Yield" shall
mean a rate computed by multiplying the applicable Dividend Rate then in effect
for the Series A Preferred Stock by the Dividend Deduction Rate then in effect
and then adding thereto the product of such Dividend Rate multiplied by:
(I) one (1) minus the Dividend Deduction Rate then
in effect and
(II) one (1) minus the Maximum Federal Corporate
Tax Rate then in effect.
(D) Loss of Dividends Received Deduction. If at any time any person,
------------------------------------
corporation, association, partnership or other entity (collectively, a "
person") that at any time held shares of Series A Preferred Stock is unable to
deduct from taxable income the amount of any distribution on such stock at the
maximum Dividend Deduction Rate provided for by Section 243 of the Code or any
similar successor provision for any reason, including without limitation,
because of an audit, administrative pronouncement or a finding that the
Corporation had insufficient earnings and profits for Federal income tax
purposes to make the entire amount of any dividend on the Series A Preferred
Stock eligible for the Dividends Received Deduction, then, immediately with
respect to any amounts relating to prior periods, and on a quarterly basis if
such person continues to hold shares of Series A Preferred Stock, the
Corporation shall pay such person, if said person is a corporation, an amount
equal to (a) the difference (if any) between (i) the after tax dividends
received by such person, with regard to applicable state, local
4
<PAGE>
and Federal income taxes on the Series A Preferred Stock calculated with the
maximum Dividends Received Deduction and (ii) the after tax dividends received
by such person with regard to applicable state, local and Federal income taxes
calculated with the specific deduction, if any, available to such person, plus
(b) a sum equal to the applicable state, local and Federal income taxes payable
because of the receipt of such difference in after tax dividends and any
additional payments pursuant to this Article 3.1(b)(ii)(D), plus (c) an amount
equal to all interest and penalties payable to tax authorities because of such a
loss or reduction of the Dividends Received Deduction and such additional
payment. Income taxes on the additional payments shall be calculated using the
maximum respective applicable state, local and Federal statutory tax rates in
effect during the period of time to which any payment hereunder relates. Any
such additional payments made to a person that is then a holder of Series A
Preferred Stock, other than payments with respect to prior periods (hereafter
referred to as the "make up payment"), shall be made on the first Quarterly
Payment Date after the Quarterly Payment Date related to the make-up payment
calculation period (i.e., one quarter in arrears).
----
(E) Yield Indemnification. If the yield of the Series A
---------------------
Preferred Stock, after all taxes and governmental charges, is adversely affected
by a change in the Code, other than a change in the Maximum Corporate Tax Rate
or the Dividend Deduction Rate applicable to corporations, then the Corporation
will pay to the holder or holders of the Series A Preferred Stock such
additional dividends as may be necessary to maintain the yield, after all taxes
and governmental charges, equal to the level existing immediately prior to said
change in the Code, plus a sum equal to the applicable state, local and Federal
income taxes payable because of the receipt of such a payment and any additional
payments, plus an amount equal to all interest payable to tax authorities
because of such a change in the Code, and plus an amount equal to all penalties
payable because of such a change in the Code.
(iii) Redemption by Corporation. The shares of Series A Preferred
Stock shall be redeemable at the option of the Corporation in whole or in part
at any time and from time to time, provided that, in any partial redemption, the
Corporation shall redeem at least 250 shares or an integral multiple thereof.
Such redemptions will be according to the procedures established in Article
3.1(b)(iv) hereof at a price of $1,000 per share plus the amount of any unpaid
dividends accumulated thereon to and including the last preceding Quarterly
Payment Date, whether or not earned or declared, plus an amount equivalent to
the existing Dividend Rate prorated for the period after such last preceding
Quarterly Payment Date to and including the date of redemption (the redemption
date as described below). If the funds of the Corporation legally available for
the redemption of the Series A Preferred Stock on the redemption date
established pursuant to Article 3.1(b)(iv) hereof are insufficient to redeem the
total number of shares of Series A Preferred Stock to be redeemed on such date,
those funds which are legally available will be used to redeem the maximum
possible number of shares of Series A Preferred Stock ratably among the holders
thereof based upon the liquidation value of such Series A Preferred Stock held
by each such holder. At any time thereafter when additional funds of the
Corporation are legally available for the redemption of the Series A Preferred
Stock, such funds will immediately be used to redeem the balance of the Series A
Preferred Stock which the
5
<PAGE>
Corporation has become obligated to redeem on a redemption date, but which it
has not redeemed.
(iv) Redemption Procedure. The Corporation may at its option
--------------------
expressed by vote of the Board of Directors, and in accordance with Colorado
law, at any time or from time to time as permitted by Article 3.1(b)(iii) hereof
redeem the whole or any part of the Series A Preferred Stock then outstanding at
the redemption price of $1,000 per share plus all dividends as set forth in
Article 3.1(b)(iii) hereof, upon notice duly given as hereinafter provided. Any
such redemption shall be made on such redemption date and at such place or
places in Chicago, Illinois, as shall be likewise determined by vote of the
Board of Directors. Notice of any proposed redemption shall be given by the
Corporation by mailing a copy of such notice, not more than 60 nor less than 30
days prior to the redemption date, to the holders of record of the shares to be
redeemed at their respective addresses then appearing on the books of the
Corporation. On the redemption date, the Corporation shall, and at any time
within 60 days prior to such redemption date may, deposit in trust, for the
account of the holders of shares to be redeemed, funds necessary for such
redemption with a bank or trust company organized under the laws of the United
States of America or of the State of Illinois, and having combined capital,
surplus and undivided profits of at least $200,000,000, which bank or trust
company shall be designated in such notice of redemption. Notice of redemption
having been duly given, or said bank or trust company having been irrevocably
authorized by the Corporation to give such notice and funds necessary for such
redemption having been deposited therewith, all as aforesaid, all shares with
respect to which such deposit shall have been made shall forthwith, whether or
not the date fixed for such redemption shall have occurred or the certificates
for such shares shall have been surrendered for cancellation, be deemed no
longer to be outstanding for any purpose and all rights with respect to such
shares shall thereupon cease and terminate, excepting only the right of the
holders of the certificates for such shares to receive, out of the funds so
deposited in trust, on the redemption date (unless an earlier date is fixed by
the Board of Directors), the redemption funds to which they are entitled
pursuant to Article 3.1(b)(iii) hereof, without interest, and the right to
receive a new certificate representing shares not redeemed as described in
clause (b) below. If at any time the Corporation shall determine to redeem less
than the whole amount of the Series A Preferred Stock then outstanding, (a) the
particular Series A Preferred Stock to be redeemed shall be selected pro rata in
such manner as shall be provided in the Bylaws or by resolution of the Board of
Directors, and (b) a new certificate representing the number of unredeemed
shares of Series A Preferred Stock will be issued to the holder thereof without
cost to such holder within ten (10) Business Days after surrender of the
certificate representing the redeemed Series A Preferred Stock.
(v) Restriction on Issue of Additional Stock. So long as any of the
----------------------------------------
Series A Preferred Stock is outstanding, the Corporation shall not issue any
shares of any equity security or capital stock ranking senior to or on a parity
with the Series A Preferred Stock upon dissolution or liquidation or as to
dividends.
6
<PAGE>
(vi) Liquidation Preference. In the event of a voluntary or
----------------------
involuntary dissolution or liquidation or winding up of the Corporation, the
holders of outstanding shares of Series A Preferred Stock shall be entitled to
receive out of the assets of the Corporation available for distribution to
shareholders an amount per share equal to, but not more than, that which such
holders would have been entitled to receive had shares held by them been
redeemed on the date of the voluntary or involuntary dissolution or liquidation
or winding up of the Corporation. Until payment in full has been made to the
holders of all outstanding shares of Series A Preferred Stock, as aforesaid, or
until moneys or other assets sufficient for such payment in full shall have been
set apart by the Corporation, separate and apart from its other funds and
assets, for the account of such holders so as to be and continue to be available
for payment to such holders, no payment or distribution upon such dissolution,
liquidation or winding up shall be made to holders of Common Stock of any class
or of any other shares ranking junior to Series A Preferred Stock upon
dissolution or liquidation or winding up. The Corporation will mail notice of
such liquidation, dissolution or winding up not less than thirty (30) days prior
to the payment date stated therein to each record holder of Series A Preferred
Stock. All classes of Common Stock of the Corporation, and all classes and
series of capital stock of the Corporation issued after the date hereof, shall
be junior to Series A Preferred Stock upon dissolution or liquidation or winding
up of the Corporation. If upon any such dissolution or liquidation or winding
up, the assets of the Corporation available for payment and distribution to
shareholders are insufficient to make payment in full, as hereinabove provided,
to the holders of shares of Series A Preferred Stock, payment shall be made to
such holders ratably in proportion to the amounts such holders would have
received if all of the outstanding shares of Series A Preferred Stock had been
redeemed and paid in full.
Neither a consolidation nor merger of the Corporation with or into any
other corporation, nor a merger of any other corporation into the Corporation,
nor the purchase or redemption of all or any part of the outstanding shares of
any class or classes of stock of the Corporation, nor the sale or transfer of
the properties of the Corporation substantially as an entirety shall be
construed to be a dissolution or liquidation of the Corporation within the
meaning of the foregoing provisions.
(vii) No Conversion Privilege. The shares of the Series A Preferred
-----------------------
Stock shall not be convertible into other shares or securities of the
Corporation.
(viii) Voting of Preferred Shares. Holders of the shares of the
--------------------------
Series A Preferred Stock shall have no right to vote upon any question except as
shall be affirmatively provided in the Act, or in this Article 3.1(b)(viii) or
Article 3.1(b)(ix) or (x) hereof. With respect to any question upon which the
holders of shares of Series A Preferred Stock shall have the right to vote,
every such holder shall have one vote for each share standing in his name on the
books of the Corporation.
(ix) Voting for Directors. If at the time of any annual meeting of
--------------------
the shareholders, the Corporation shall be in arrears in dividends upon the
shares of Series A
7
<PAGE>
Preferred Stock in an amount equal to dividends for a total of two Quarterly
Payment Dates during any twelve (12) month period, then at such annual meeting
and thereafter at all meetings for the election of directors, until all
arrearages of dividends accumulated on the shares of Series A Preferred Stock
for all preceding dividend periods shall have been paid or declared and set
apart for payment, the holders of the shares of Series A Preferred Stock shall,
subject to applicable law, have the right, voting as a single class, to elect
one-fifth (or the next largest whole number greater than one-fifth of the
directors) of the total number of directors of the Corporation. The Corporation
may elect at such annual meeting to amend its bylaws to increase the number of
directors in order not to disrupt the current board; provided, however, that the
holders of the Series A Preferred Stock shall have the right to elect one-fifth
(1/5) of the total number of directors, as amended. If a holder of Series A
Preferred Stock is a bank holding company subject to regulation by the Board of
Governors of the Federal Reserve System (the "Board of Governors"), it will
notify the Board of Governors of its right to vote for directors, and, if
required, it will seek the permission of the Board of Governors to exercise such
right to vote. At all meetings for the election of directors, so long as their
right to elect directors shall continue, the holders of the shares of Series A
Preferred Stock, voting together as a single class and separately from all other
holders of the Corporation's shares, shall elect the total number of directors
that they are entitled to elect before any other directors are elected.
(x) Voting Rights Affecting Preference of the Preferred Shares. The
----------------------------------------------------------
Corporation shall not take any of the following corporate actions, except by and
with the unanimous written consent or unanimous affirmative vote of the holders
of the shares of Series A Preferred Stock at time outstanding, voting as a
class:
(A) New Classes or Series. Authorize, create or issue shares of
---------------------
any class or series, or any security convertible into shares of any class or
series ranking, as to the payment of dividends or as to the payment of
distributions upon dissolution, liquidation, or winding up of the Corporation,
senior or in parity with, the Series A Preferred Stock;
(B) Amendment of Articles of Incorporation. Amend any of the
--------------------------------------
provisions of the Articles of Incorporation so as to affect any of the
designations, preferences, qualifications, limitations or restrictions and
special or relative rights of the shares of Series A Preferred Stock;
(C) Extraordinary Transactions. Undertake any transaction
--------------------------
pursuant to one or more of Sections 7-111-101, 7-111-102, 7-111-104, 7-111-107,
7-112-102 and 7-114-102 of the Act; or
(D) Reduction of Number of Authorized Shares. Reduce the number
----------------------------------------
of authorized shares of Series A Preferred Stock provided in Article 3.1(b)
hereof.
(xi) Notices of Shareholders Meeting. The holders of the shares of
-------------------------------
Series A Preferred Stock shall be entitled to receive notice only of such
meetings of the
8
<PAGE>
shareholders of the Corporation at which questions are presented upon which they
are, by the foregoing provisions, entitled to vote.
(c) The remaining one million nine hundred and ninety-eight thousand,
five hundred (1,998,500) shares of preferred stock may be issued from time to
time in one or more series. The board of directors of this Corporation shall
have authority to fix by resolution or resolutions the designations and the
powers, preferences and relative, participating, optional or other special
rights and qualifications, limitations or restrictions thereof, including
without limitation the voting rights, the dividend rate, conversion rights,
redemption price and liquidation preference, of any series of shares of
preferred stock, to fix the number of shares constituting any such series and to
increase or decrease the number of shares of any such series (but not below the
number of shares thereof then outstanding). In case the number of shares of any
such series shall be so decreased, the shares constituting such decrease shall
resume the status which they had prior to the adoption of the resolution or
resolutions originally fixing the number of shares of such series.
3.2 Preemptive Rights. Shareholders shall not have the preemptive right to
-----------------
acquire additional unissued or treasury shares of the Corporation or securities
convertible into shares or carrying stock purchase warrants or privileges.
3.3 Cumulative Voting. Cumulative voting shall not be used in the election
-----------------
of directors or for any other purpose.
3.4 Transfer Restrictions. The Corporation shall have the right by
---------------------
appropriate action to impose restrictions upon the transfer of any shares of its
common stock, or any interest therein, from time to time issued, provided that
such restrictions, or notice thereof, shall be set forth upon the face or back
of the certificates representing such shares of common stock.
3.5 Majority Vote. Where the Act requires the affirmative vote or
-------------
concurrence in any action by the holders of two-thirds of the outstanding
shares, series, or class of shareholders entitled to vote thereon, pursuant to
Section 7-117-101(11) and 7-107-208(2) of the Act, such action may be taken by
the vote or concurrence of a simple majority of such shares, series, or class
thereof.
ARTICLE IV
Registered Office and Registered Agent
--------------------------------------
The address of the registered office of the Corporation is 821 17th Street,
Denver, Colorado 80202. The name of the registered agent of the Corporation at
such address is Steven Bangert.
9
<PAGE>
ARTICLE V
Board of Directors
------------------
The number of directors of the Corporation which shall constitute the
entire Board of Directors shall not be less than three directors. The exact
number of directors shall be fixed from time to time by a resolution adopted by
a majority of the entire Board of Directors. The directors shall be divided
into three classes (hereinafter referred to as "Class I," "Class II" and "Class
III," respectively), as nearly equal in number as possible, with respect to the
time for which they shall severally hold office. The initial Class I directors
shall hold office until the first annual meeting of shareholders after their
election, and subsequent Class I directors shall hold office for a term of three
years. The initial Class II directors shall hold office until the second annual
meeting of shareholders after their election, and subsequent Class II directors
shall hold office for a term of three years. The initial Class III directors
shall hold office until the third annual meeting of shareholders after their
election, and subsequent Class III directors shall hold office for a term of
three years. Each director elected shall hold office until his or her successor
is duly elected and qualified. Notwithstanding anything contained in these
Articles of Incorporation to the contrary, the affirmative vote of the holders
of at least 75% of the shares of the Corporation entitled to vote for the
election of directors shall be required to amend or repeal, or to adopt any
provision inconsistent with, this Article V.
ARTICLE VI
Indemnification
---------------
6.1 Definitions. As used in this Article VI, the following terms shall
-----------
have the definitions stated:
(a) "Director" means an individual who is, or was, a director of the
Corporation, and an individual who, while a director of the Corporation, is or
was serving at the Corporation's request as a director, officer, partner,
trustee, employee, or agent of any other foreign or domestic corporation or of
any partnership, joint venture, trust, other enterprise, or employee benefit
plan. A director shall be considered to be serving an employee benefit plan at
the Corporation's request if his duties to the Corporation also impose duties on
or otherwise involve services by such individual to the plan or to participants
in or beneficiaries of the plan. "Director" includes, unless the context
otherwise requires, the estate or personal representative of a Director.
(b) "Expenses" includes attorneys' fees.
(d) "Liability" means an obligation to pay a judgment, settlement,
penalty, fine (including an excise tax assessed with respect to an employee
benefit plan), or reasonable Expense incurred with respect to a proceeding.
10
<PAGE>
(e) "Official Capacity," when used with respect to a Director, means
the office of director in the Corporation, and when used with respect to an
individual other than a director, means the office in the Corporation held by
the officer or the employment or agency relationship undertaken by the employee
or agent on behalf of the Corporation. "Official Capacity" does not include
service for any other foreign or domestic corporation or for any partnership,
joint venture, trust, other enterprise, or employee benefit plan.
(f) "Party" includes an individual who was, is, or is threatened to be
made a named defendant or respondent in a proceeding.
(g) "Proceeding" means any threatened, pending, or completed action,
suit, or proceeding, whether civil, criminal, administrative, or investigative
and whether formal or informal.
6.2 Standards of Conduct.
--------------------
(a) Except as provided below in Article 6.2(d) hereof, the Corporation
may indemnify a person made a Party to a Proceeding because the person is or was
a Director against Liability incurred in the Proceeding if:
(i) the person conducted himself or herself in good faith;
(ii) the person reasonably believed:
(A) in the case of conduct in an Official Capacity with the
Corporation, that his or her conduct was in the Corporation's best interests,
and
(B) in all other cases, that his or her conduct was at
least not opposed to the Corporation's best interests; and
(iii) in the case of any criminal Proceeding, the person had no
reasonable cause to believe his or her conduct was unlawful.
(b) A Director's conduct with respect to an employee benefit plan for
a purpose the Director reasonably believed to be in the interest of the
participants in, or beneficiaries of, the plan is conduct that satisfies the
requirement of Article 6.2(a)(ii)(B) hereof. A Director's conduct with respect
to an employee benefit plan for a purpose that the Director did not reasonably
believe to be in the interests of the participants in, or beneficiaries of, the
plan shall be deemed not to satisfy the requirements of Article 6.2(a)(i)
hereof.
11
<PAGE>
(c) The termination of any Proceeding by judgment, order, settlement,
conviction, or upon the pleading of nolo contendere or its equivalent, is not,
of itself, determinative that the Director did not meet the standard of conduct
set forth in this Article 6.2.
(d) The Corporation may not indemnify a Director under this Article
6.2:
(i) in connection with a Proceeding by, or in the right of, the
Corporation in which the Director was adjudged liable to the Corporation; or
(ii) in connection with any Proceeding charging that the Director
derived an improper personal benefit, whether or not involving action in an
Official Capacity, in which Proceeding the Director was adjudged liable on the
basis that he or she derived an improper personal benefit.
(e) Indemnification permitted under this Article 6.2 in connection
with a Proceeding by, or in the right of, the Corporation is limited to
reasonable Expenses incurred in connection with the Proceeding.
6.3 Mandatory Indemnification. The Corporation shall indemnify a person
-------------------------
who was wholly successful, on the merits or otherwise, in defense of any
Proceeding to which the person was a party because the person is, or was, a
Director, against reasonable Expenses incurred by such Director in connection
with the Proceeding.
6.4 Advance of Expenses to Directors. The Corporation may pay for or
--------------------------------
reimburse the reasonable Expenses incurred by a Director who is a Party to a
Proceeding in advance of the final disposition of the Proceeding if:
(a) The Director furnishes the Corporation a written affirmation of
such Director's good faith belief that he or she has met the standard of conduct
described in Article 6.2 hereof;
(b) The Director furnishes the Corporation a written undertaking,
executed personally or on the Director's behalf, to repay the advance if it is
determined that he or she did not meet such standard of conduct; and
(c) A determination is made that the facts then known to those making
the determination would not preclude indemnification under this Article VI.
6.5 Application to Court for Indemnification. A Director who is, or was, a
----------------------------------------
Party to a Proceeding may apply for indemnification to the court conducting the
Proceeding or to another court of competent jurisdiction. On receipt of an
application, the court, after giving any notice the court considers necessary,
may order indemnification in the following manner:
12
<PAGE>
(a) If it determines that the Director is entitled to mandatory
indemnification under Article 6.3 hereof, the court shall order indemnification,
in which case the court shall also order the Corporation to pay the Director's
reasonable Expenses incurred to obtain court-ordered indemnification.
(b) If it determines that the Director is fairly and reasonably
entitled to indemnification in view of all the relevant circumstances, whether
or not such Director met the standard of conduct set forth in Article 6.2
hereof, or was adjudged liable in the circumstances described in Article 6.2(d)
hereof, the court may order such indemnification as the court deems proper;
except that the indemnification with respect to any Proceeding in which
liability shall have been adjudged in the circumstances described in Article
6.2(d) is limited to reasonable Expenses incurred in connection with the
Proceeding and reasonable Expenses incurred to obtain court-ordered
indemnification.
6.6 Award of Indemnification.
------------------------
(a) The Corporation may not indemnify a Director under Article 6.2
hereof unless authorized in the specific case after a determination has been
made that indemnification of the Director is permissible in the circumstances
because such Director has met the standard of conduct set forth in said Article
6.2.
(b) The determination required to be made by this Article 6.6 shall be
made:
(i) By the Board of Directors (the "Board) by a majority vote of
a quorum, which quorum shall consist of Directors not Parties to the Proceeding;
or
(ii) If a quorum cannot be obtained, by a majority vote of a
committee of the Board designated by the Board, which committee shall consist of
two or more Directors not Parties to the Proceeding; except that Directors who
are Parties to the Proceeding may participate in the designation of Directors
for the committee.
(c) If the quorum cannot be obtained or the committee cannot be
established under subparagraphs (b)(i) or (b)(ii) above, or even if a quorum is
obtained or committee designated if such quorum or committee so directs, the
determination required to be made by this Article 6.6 shall be made by:
(i) independent legal counsel selected by a vote of the Board or
of the committee in the manner specified in subparagraph (b)(i) or (b)(ii)
above, or, if a quorum of the full Board cannot be obtained and a committee
cannot be established, by independent legal counsel selected by a majority of
the full Board, or
(ii) by the shareholders.
13
<PAGE>
(d) Authorization of indemnification and advance of expenses shall be
made in the same manner as the determination that indemnification or advance of
expenses is permissible; except that, if the determination that indemnification
or advance of expenses is permissible is made by independent legal counsel,
authorization of indemnification and evaluation as to reasonableness of expenses
shall be made by the body that selected such counsel.
(e) In accordance with this Article 6.6, the Corporation may pay or
reimburse expenses incurred by a director in connection with his appearance as a
witness in a Proceeding at a time when he has not been made a named defendant or
respondent in the Proceeding.
6.7 Indemnification of Non-Directors.
--------------------------------
(a) An officer of the Corporation who is not a Director is entitled to
mandatory indemnification pursuant to Article 6.3 of these Articles and is
entitled to apply for court-ordered indemnification pursuant to Article 6.5 of
these Articles in each case to the same extent as a Director;
(b) The Corporation may indemnify and advance expenses to an officer,
employee, fiduciary or agent of the Corporation who is not a Director to the
same extent as a Director; and
(c) The Corporation may indemnify and advance expenses to an officer,
employee, fiduciary or agent of the Corporation who is not a Director to a
greater extent if consistent with law and if provided for by its Bylaws, general
or specific action of its Board or shareholders, or contract.
6.8 Insurance. The Corporation may purchase and maintain insurance on
---------
behalf of a person who is, or was, a Director, officer, employee, fiduciary, or
agent of the Corporation or who, while a Director, officer, employee, fiduciary,
or agent of the Corporation, is, or was, serving at the request of the
Corporation as a Director, officer, partner, trustee, employee, fiduciary, or
agent of any other domestic or foreign corporation or of any partnership, joint
venture, trust, other enterprise, or employee benefit plan against any liability
asserted against or incurred by such person in any such capacity or arising out
of such person's status as such, whether or not the Corporation would have the
power to indemnify such person against such liability under the provisions of
this Article VI. Any such insurance may be procured from any insurance company
designated by the Board of the Corporation, whether such insurance company is
formed under the laws of this state or any other jurisdiction of the United
States or elsewhere, including any insurance company in which the Corporation
has equity or any other interest, through stock ownership or otherwise.
6.9 Notice to Shareholders of Indemnification of Director. If the
-----------------------------------------------------
Corporation indemnifies or advances expenses to a Director under this Article VI
in connection with a Proceeding by, or in the right of, the Corporation, the
Corporation shall give written notice of the
14
<PAGE>
indemnification or advance to the shareholders with or before the notice of the
next shareholders' meeting. If the next shareholder action is taken without a
meeting at the instigation of the Board, such notice shall be given to the
shareholders at or before the time the first shareholder signs a writing
consenting to such action.
6.10 Nonexclusive. The provisions provided herein with regard to
------------
indemnification shall not be construed as a limitation on indemnification.
Indemnification shall at all times be allowed to the fullest extent as is now,
or in the future, provided for under the Act.
6.11 Limits on Indemnification. Indemnification shall not be permitted for
-------------------------
Expenses, penalties, or other payments incurred in connection with an
administrative Proceeding or action instituted by a regulatory agency which
Proceeding or action results in a final order assessing civil money penalties or
requiring affirmative action by such person in the form of payments to the
institution. In addition, advance payment to indemnified parties for legal and
other fees related to administrative Proceedings and actions instituted by a
regulatory agency shall not be permitted.
ARTICLE VII
Elimination of Liability
------------------------
There shall be no personal liability of a director to the Corporation or to
its shareholders for monetary damages for breach of fiduciary duty as a
director, except that said personal liability shall not be eliminated to the
Corporation or to the shareholders for monetary damages arising due to any
breach of the director's duty of loyalty to the Corporation or to the
shareholders, acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, acts specified in Section 7-108-405 of
the Act, or any transaction from which a director derived an improper personal
benefit. Notwithstanding any other provisions herein, personal liability of a
director shall be eliminated to the greatest extent possible as is now, or in
the future, provided for by law."
FOURTH: These Articles of Amendment and Restatement were approved by
------
a vote of the shareholders entitled to vote on such Articles on May 18, 1998,
and the number of shares cast for the Amended and Restated Article by each
voting group entitled to vote separately on such Articles was sufficient for
approval by such voting group.
15
<PAGE>
IN WITNESS WHEREOF, Colorado Business Bankshares, Inc. has caused
these Articles of Amendment and Restatement to be signed in its name and on its
behalf by its Chief Executive Officer on this 19th day of May, 1998, and its
Chief Executive Officer acknowledges that these Articles of Amendment and
Restatement are the act and deed of Colorado Business Bankshares, Inc., and,
under the penalties of perjury, that the matters and facts set forth herein with
respect to authorization and approval are true in all material respects to the
best of his knowledge, information and belief.
COLORADO BUSINESS BANKSHARES, INC.
By:/s/ Steven Bangert
---------------------------------
Name: Steven Bangert
Title: Chief Executive Officer
16
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Exhibit 3.2
COLORADO BUSINESS BANKSHARES, INC.
AMENDED AND RESTATED BYLAWS
ARTICLE I
---------
MEETINGS OF SHAREHOLDERS
------------------------
Section 1.1 Annual Meeting. The regular annual meeting of the shareholders of
--------------
Colorado Business Bankshares, Inc. (the "Corporation") for the election of
directors and the transaction of whatever other business may properly come
before the meeting, shall be held at 821 Seventeenth Street, City of Denver,
State of Colorado at 2:00 p.m., on the third Wednesday of May each year, or such
other date, place and time as may be designated by the Board of Directors of the
Corporation (the "Board"), the Chair of the Board (the "Chair") or the
President. If such day is a legal holiday, then the meeting shall be held on
the next succeeding business day at the same hour. Notice of such meeting shall
be mailed, postage prepaid, at least ten days prior to the date thereof,
addressed to each shareholder at his/her address appearing on the books of the
Corporation. If the election of directors shall not be held on the day
designated herein for any meeting of the shareholders, or at any adjournment
thereof, the Board shall cause the election to be held at a special meeting of
the shareholders as soon thereafter as may be convenient.
Section 1.2 Special Meetings. Except as otherwise specifically provided by
----------------
statute, special meetings of the shareholders may be called for any purpose at
any time by the President, the Chair, the Board, or by shareholders owning, in
the aggregate, not less than l0% of the common stock of the Corporation.
Written notice of such special meeting, stating the date, time, place and
purposes thereof shall be delivered personally or by mailing, postage prepaid,
not less than 10
<PAGE>
days prior to said meeting, to each shareholder entitled to vote thereat, at
his/her address appearing on the books of the Corporation on the date the notice
is sent.
Section 1.3 Nominations for Director. Nominations for election to the Board
------------------------
may be made by the Board or by any shareholder of any outstanding class of
capital stock of the corporation entitled to vote for the election of directors.
Nominations, other than those made by or on behalf of the existing management of
the Corporation, shall be made in writing and shall be delivered or mailed to
the President of the Corporation not less than 60 days nor more than 90 days
prior to any meeting of shareholders called for the election of directors. Such
notification shall contain the following information to the extent known to the
notifying shareholders: (a) the name and address of each proposed nominee; (b)
the principal occupation of each proposed nominee; (c) the name and residential
address of the notifying shareholder; (d) the number of shares expected to be
voted in favor of the proposed nominee. Nominations not made in accordance
herewith, may be disregarded by the Chair of the meeting, who may instruct the
vote tellers to disregard all votes cast for each such nominee.
Section 1.4 Proxies. At all meetings of shareholders, a shareholder may vote
-------
by proxy by signing an appointment form or similar writing, either personally or
by his or her duly authorized attorney-in-fact. A shareholder may also appoint
a proxy by transmitting or authorizing the transmission of a facsimile or other
electronic transmission providing a written statement of the appointment to the
proxy, a proxy solicitor, proxy support service organization, or other person
duly authorized by the proxy to receive appointments as agent for the proxy, or
to the
2
<PAGE>
Corporation. The transmitted appointment shall set forth or be transmitted with
written evidence from which it can be determined that the shareholder
transmitted or authorized the transmission of the appointment. The proxy
appointment form or similar writing shall be filed with the Secretary of the
Corporation before or at the time of the meeting. The appointment of a proxy is
effective when received by the Corporation and is valid for eleven months,
unless a different period is expressly provided in the appointment form or
similar writing.
Any complete copy, including an electronically transmitted facsimile, of an
appointment of a proxy may be substituted for or used in lieu of the original
appointment for any purpose for which the original appointment could be used.
Revocation of a proxy does not affect the right of the Corporation to
accept the proxy's authority unless (i) the Corporation had notice that the
proxy was coupled with an interest and notice that such interest is extinguished
is received by the Secretary or other officer or agent authorized to tabulate
votes before the proxy exercises his or her authority under the appointment, or
(ii) other notice of the revocation of the appointment is received by the
Secretary or other officer or agent authorized to tabulate votes before the
proxy exercise his or her authority under the appointment. Other notice of
revocation may, in the discretion of the Corporation, be deemed to include the
appearance at a shareholders' meeting of the shareholder who granted the proxy
and his or her voting in person on any matter subject to a vote at such meeting.
The death or incapacity of the shareholder appointing a proxy does not
affect the right of the Corporation to accept the proxy's authority unless
notice of the death or incapacity is received by the Secretary or other officer
or agent authorized to tabulate votes before the proxy exercises his or her
authority under the appointment.
3
<PAGE>
The Corporation shall not be required to recognize an appointment made
irrevocable if it has received a writing revoking the appointment signed by the
shareholder (including a shareholder who is a successor to the shareholder who
granted the proxy) either personally or by his or her attorney-in-fact,
notwithstanding that the revocation may be a breach of an obligation of the
shareholder to another person not to revoke the appointment.
Section 1.5 Quorum. A majority of the outstanding shares of capital stock
------
entitled to vote, represented in person or by proxy, shall constitute a quorum
at any meeting of shareholders, unless otherwise provided by law; but, in the
event that a quorum is not present, less than a quorum may adjourn any meeting
for up to 60 days without further notice, from time to time, until a quorum is
represented. A majority of the votes cast shall decide every question or matter
submitted to the shareholders at any meeting, unless otherwise provided by law,
these Bylaws, or by the Corporation's Articles of Incorporation. Shareholders
present at a duly organized meeting may continue to transact business until
adjournment, notwithstanding withdrawal of enough shareholders to leave less
than a quorum.
ARTICLE II
----------
DIRECTORS
---------
Section 2.1 Board of Directors. The Board shall have power to manage and
------------------
administer the business and affairs of the Corporation and establish its policy.
All corporate powers of the Corporation shall be vested in and may be exercised
by said Board.
4
<PAGE>
Section 2.2 Number. The number of directors of the Corporation which shall
------
constitute the entire Board of Directors shall not be less than three directors.
The exact number of directors shall be fixed from time to time by a resolution
adopted by a majority of the entire Board of Directors. The directors shall be
divided into three classes (hereinafter referred to as "Class I," "Class II" and
"Class III," respectively), as nearly equal in number as possible, with respect
to the time for which they shall severally hold office. The initial Class I
directors shall hold office until the first annual meeting of shareholders after
their election, and subsequent Class I directors shall hold office for a term of
three years. The initial Class II directors shall hold office until the second
annual meeting of shareholders after their election, and subsequent Class II
directors shall hold office for a term of three years. The initial Class III
directors shall hold office until the third annual meeting of shareholders after
their election, and subsequent Class III directors shall hold office for a term
of three years. Each director elected shall hold office until his or her
successor is duly elected and qualified. Notwithstanding anything contained in
these Bylaws to the contrary, the affirmative vote of the holders of at least
75% of the shares of the Corporation entitled to vote for the election of
directors shall be required to amend or repeal, or to adopt any provision
inconsistent with, this Section 2.2.
Section 2.3 Organizational Meeting. The directors-elect shall meet for the
----------------------
purpose of organizing the new Board and electing and appointing officers for the
succeeding year, on the day of the election, or as soon thereafter as is
practicable.
5
<PAGE>
Section 2.4 Regular Meetings. Regular meetings of the Board shall be held as
----------------
determined by resolution of the Board. When any regular meeting of the Board
falls upon a holiday, the meeting shall be held on the next business day unless
the Board shall designate some other day.
Section 2.5 Special Meetings. Special meetings of the Board may be called by
----------------
the Chair, Vice-Chair, President or at the request of two or more directors.
Each member of the Board shall be given notice stating the time, place and
purpose, by telephone, telegram, letter, facsimile or in person, of each such
special meeting.
Section 2.6 Quorum. A majority of the full Board shall constitute a quorum
------
at any meeting, except when otherwise provided by law; but a lesser number may
adjourn any meeting, from time to time, and the meeting may be held, as
adjourned, without further notice.
Section 2.7 Vacancies. Vacancies on the Board may be filled by an
---------
affirmative vote of the majority of the remaining directors for the remainder of
the vacant unexpired term.
Section 2.8 Voting. Approval of an issue properly before the Board will
------
require approval of a majority of those Directors present at the meeting, unless
otherwise required by these Bylaws, the Articles of Incorporation, by law, or by
resolution of the Board.
6
<PAGE>
ARTICLE III
-----------
COMMITTEES OF THE BOARD
-----------------------
Section 3.1 Executive Committee. An Executive Committee composed of two or
-------------------
more directors may be established by resolution of a majority of the full Board,
which shall have and may exercise all powers of the Board which are lawfully
delegated to it.
Section 3.2 Audit Committee. There shall be an audit committee of no less
---------------
than three directors, appointed annually by the Board, to make appropriate
examinations of the affairs of the Corporation and to report thereon to the
Board at least once per year. The Committee shall monitor and periodically
report on the condition of the Corporation and the adequacy of internal controls
and accounting procedures.
Section 3.3 Other Committees. The Board of Directors may appoint, from time
----------------
to time, from its own members, other committees of one or more persons, for such
purposes and with such powers as the Board may determine.
ARTICLE IV
----------
OFFICERS AND EMPLOYEES
----------------------
Section 4.1 Chair and Vice Chair. The Board shall elect one of its members
--------------------
to be Chair of the Board to serve at the pleasure of the Board. Such person
shall preside at all meetings of the Board. The Chair of the Board shall
supervise the carrying out of the policies adopted or
7
<PAGE>
approved by the Board; have the specific powers conferred by these Bylaws; and
may exercise such further powers and duties as from time to time may be
conferred upon or assigned by the Board. The Vice Chair shall serve in the
absence of the Chair and shall have full authority of the Chair in such
instances.
Section 4.2 President. The Board shall appoint a President who shall have
---------
general executive powers, and shall have, and may exercise, any and all other
powers and duties pertaining by law, regulation, or practice to the office of
President, or imposed by these Bylaws. The President shall also have, and may
exercise, such further powers and duties as from time to time may be conferred
or assigned by the Board.
Section 4.3 Secretary. The Board shall appoint a Secretary who shall keep
---------
accurate minutes of all meetings of the shareholders, the Board or any committee
thereof, shall attend to the giving of all notices required by these Bylaws,
shall be custodian of the corporate seal, records, documents and papers, and may
exercise any powers or duties pertaining by law, regulation or practice to the
office of the Secretary, imposed by these Bylaws or assigned by the Board, the
Chair or the President.
Section 4.4 Treasurer. The Board shall also appoint a Treasurer who shall be
---------
responsible for the keeping of proper books and financial records of all
transactions of the Corporation, filing required reports to taxing and
regulatory agencies, and who may exercise any other powers and
8
<PAGE>
duties pertaining by law, regulation or practice to the office of Treasurer,
imposed by these Bylaws or assigned by the Board, the Chair or the President.
Section 4.5 Other Officers. The Board may appoint Vice Presidents,
--------------
Secretaries or Treasurers, and other officers and Attorneys-in-fact as from time
to time may be required or desirable to transact the business of the
Corporation. Such officers shall respectively exercise such powers and perform
such duties as pertain to their several offices, or as may be assigned to them
by the Board, the Chair or the President.
Section 4.6 Tenure of Office. The President and all other officers shall
----------------
hold office for the current year for which the Board was elected, unless they
shall resign, become disqualified, or be removed; and any vacancy occurring in
the office of President shall be filled promptly by the Board.
Section 4.7 Election of Board Officers and Appointment of Committee Chairs.
--------------------------------------------------------------
The offices of Chair and Vice Chair shall be elected by the Board. Chairs of
committees shall be appointed by the Chair and ratified by the Board annually.
Should a vacancy occur, it may be filled by a majority vote of the full Board at
the next regularly scheduled Board meeting.
Section 4.8 Removal of an Officer. A majority of the full Board shall have
---------------------
the authority to remove an officer when it reasonably determines that the person
has acted in dereliction of his or
9
<PAGE>
her duties or taken any action which is unauthorized or contrary to the best
interests of the Corporation.
ARTICLE V
---------
EXECUTION OF INSTRUMENTS; LOANS; PROXIES
----------------------------------------
Section 5.1 Execution of Instruments. The proper officers of the Corporation
------------------------
shall have power to execute and deliver on behalf and in the name of the
Corporation any instrument requiring the signature of the Corporation or an
officer of the Corporation, except as otherwise provided in these Bylaws or
where the execution and delivery thereof shall be expressly delegated by the
Board to some other officer or agent of the Corporation. Unless authorized so
to do by these Bylaws or by the Board, no officer, agent or employee shall have
any power or authority to bind the Corporation in any way, to pledge its credit
or to render it liable pecuniarily for any purpose or in any amount.
Section 5.2 Loans. No loan shall be contracted on behalf of the Corporation,
-----
and no evidence of indebtedness shall be issued, endorsed or accepted in its
name, unless authorized by the Board. Such authority may be general or confined
to specific instances. The officers so authorized may effect loans at any time
for the Corporation from any entity and may execute and deliver promissory notes
or other evidences of indebtedness of the Corporation, and, when authorized,
may, as security for the payment of any loans (and any obligations incident
thereto) of the Corporation, mortgage, pledge, or otherwise encumber any real or
personal property, or any
10
<PAGE>
interest therein, at any time owned or held by the Corporation, and to that end
may execute and deliver such instruments as may be necessary and proper.
Section 5.3 Proxies. Unless otherwise provided by resolution adopted by the
-------
Board, the President or Secretary may, from time to time, appoint one or more
agents or attorneys-in-fact of the Corporation to cast the votes which the
Corporation is entitled to cast on behalf of the Corporation as the holder of
stock or other securities in any other Corporation, association or other entity
whose stock or other securities are held by the Corporation, at meetings of the
holders of the stock or other securities of such other corporation, association,
or other entity, or to consent in writing, in the name of the Corporation as
such holder, to any action by such other corporation, association, or other
entity, and may instruct the person or persons so appointed as to the manner of
casting such votes or giving such consent, and may execute or cause to be
executed, in the name and on behalf of the Corporation, all such written proxies
or other instruments as may be necessary and proper.
ARTICLE VI
----------
STOCK AND STOCK CERTIFICATES
----------------------------
Section 6.1 Transfers. Every holder of stock shall be entitled to a
---------
certificate in a form required by law and approved by the Board. Shares of
stock shall be transferable on the books of the Corporation, and a transfer book
shall be kept in which all transfers of stock shall be recorded. Every person
becoming a shareholder by such transfer shall, in proportion to his/her shares,
succeed to all rights of the prior holder of such shares.
11
<PAGE>
Section 6.2 Stock Certificates. Certificates of stock shall bear the
------------------
signature of the Chief Executive Officer or President (which may be engraved,
printed or impressed), and shall be signed manually by any officer appointed by
the Board for that purpose, and the seal of the Corporation shall be engraven
thereon. Each certificate shall recite on its face that the stock represented
hereby is transferable only upon the books of the Corporation upon proper
endorsement.
ARTICLE VII
-----------
CORPORATE SEAL
--------------
The President, Secretary, or Treasurer, or other officer thereunto designated by
the Board, shall have authority to affix the Corporate seal to any document
requiring such seal, and to attest the same.
ARTICLE VII
-----------
FISCAL YEAR
-----------
The Fiscal Year shall be the calendar year.
ARTICLE IX
----------
BYLAWS
------
Section 9.1 Inspection. A copy of the Bylaws, with all amendments thereto,
----------
shall at all times be kept in a convenient place at the Office of the
Corporation, and shall be open for inspection to all shareholders during normal
business hours.
12
<PAGE>
Section 9.2 Amendments. The Bylaws may be amended, altered or repealed, at
----------
any regular meeting of the Board by a vote of a majority of the full Board.
ARTICLE X
---------
INDEMNIFICATION
---------------
10.1 Definitions. As used in this Article X, the following terms shall have the
-----------
definitions stated:
(a) "Director" means an individual who is, or was, a director of the
Corporation, and an individual who, while a director of the Corporation, is or
was serving at the Corporation's request as a director, officer, partner,
trustee, employee, or agent of any other foreign or domestic corporation or of
any partnership, joint venture, trust, other enterprise, or employee benefit
plan. A director shall be considered to be serving an employee benefit plan at
the Corporation's request if his duties to the Corporation also impose duties on
or otherwise involve services by such individual to the plan or to participants
in or beneficiaries of the plan. "Director" includes, unless the context
otherwise requires, the estate or personal representative of a Director.
(b) "Expenses" includes attorneys' fees
(c) "Liability" means an obligation to pay a judgment, settlement,
penalty, fine (including an excise tax assessed with respect to an employee
benefit plan), or reasonable Expense incurred with respect to a proceeding.
13
<PAGE>
(d) "Official Capacity," when used with respect to a Director, means
the office of director in the Corporation, and when used with respect to an
individual other than a director, means the office in the Corporation held by
the officer or the employment or agency relationship undertaken by the employee
or agent on behalf of the Corporation. "Official Capacity" does not include
service for any other foreign or domestic corporation or for any partnership,
joint venture, trust, other enterprise, or employee benefit plan.
(e) "Party" includes an individual who was, is, or is threatened to be
made a named defendant or respondent in a proceeding.
(f) "Proceeding" means any threatened, pending, or completed action,
suit, or proceeding, whether civil, criminal, administrative, or investigative
and whether formal or informal.
10.2 Standards of Conduct.
--------------------
(a) Except as provided below in Section 10.2(d) hereof, the
Corporation may indemnify a person made a Party to a Proceeding because the
person is or was a Director against Liability incurred in the Proceeding if:
(i) the person conducted himself or herself in good faith;
(ii) the person reasonably believed:
(A) in the case of conduct in an Official Capacity with the
Corporation, that his or her conduct was in the
Corporation's best interests, and
(B) in all other cases, that his or her conduct was at
least not opposed to the Corporation's best interests;
and
14
<PAGE>
(iii) in the case of any criminal Proceeding, the person had no
reasonable cause to believe his or her conduct was unlawful.
(b) A Director's conduct with respect to an employee benefit plan for
a purpose the Director reasonably believed to be in the interest of the
participants in, or beneficiaries of, the plan is conduct that satisfies the
requirement of Section 10.2(a)(ii)(B) hereof. A Director's conduct with respect
to an employee benefit plan for a purpose that the Director did not reasonably
believe to be in the interests of the participants in, or beneficiaries of, the
plan shall be deemed not to satisfy the requirements of Section 10.2(a)(i)
hereof.
(c) The termination of any Proceeding by judgment, order, settlement,
conviction, or upon the pleading of nolo contendere or its equivalent, is not,
of itself, determinative that the Director did not meet the standard of conduct
set forth in this Section 10.2.
(d) The Corporation may not indemnify a Director under this Section
10.2:
(i) in connection with a Proceeding by, or in the right of, the
Corporation in which the Director was adjudged liable to the Corporation; or
(ii) in connection with any Proceeding charging that the Director
derived an improper personal benefit, whether or not involving action in an
Official Capacity, in which Proceeding the Director was adjudged liable on the
basis that he or she derived an improper personal benefit.
(e) Indemnification permitted under this Section 10.2 in connection
with a Proceeding by, or in the right of, the Corporation is limited to
reasonable Expenses incurred in connection with the Proceeding.
15
<PAGE>
10.3 Mandatory Indemnification. The Corporation shall indemnify a person who was
-------------------------
wholly successful, on the merits or otherwise, in defense of any Proceeding to
which the person was a party because the person is, or was, a Director, against
reasonable Expenses incurred by such Director in connection with the Proceeding.
10.4 Advance of Expenses to Directors. The Corporation may pay for or reimburse
--------------------------------
the reasonable Expenses incurred by a Director who is a Party to a Proceeding in
advance of the final disposition of the Proceeding if:
(a) The Director furnishes the Corporation a written affirmation of
such Director's good faith belief that he or she has met the standard of conduct
described in Section 10.2 hereof;
(b) The Director furnishes the Corporation a written undertaking,
executed personally or on the Director's behalf, to repay the advance if it is
determined that he or she did not meet such standard of conduct; and
(c) A determination is made that the facts then known to those making
the determination would not preclude indemnification under this Article X.
10.5 Application to Court for Indemnification. A Director who is, or was, a
----------------------------------------
Party to a Proceeding may apply for indemnification to the court conducting the
Proceeding or to another court of competent jurisdiction. On receipt of an
application, the court, after giving any notice the court considers necessary,
may order indemnification in the following manner:
16
<PAGE>
(a) If it determines that the Director is entitled to mandatory
indemnification under Section 10.3 hereof, the court shall order
indemnification, in which case the court shall also order the Corporation to pay
the Director's reasonable Expenses incurred to obtain court-ordered
indemnification.
(b) If it determines that the Director is fairly and reasonably
entitled to indemnification in view of all the relevant circumstances, whether
or not such Director met the standard of conduct set forth in Section 10.2
hereof, or was adjudged liable in the circumstances described in Section 10.2(d)
hereof, the court may order such indemnification as the court deems proper;
except that the indemnification with respect to any Proceeding in which
liability shall have been adjudged in the circumstances described in Section
10.2(d) is limited to reasonable Expenses incurred in connection with the
Proceeding and reasonable Expenses incurred to obtain court-ordered
indemnification.
10.6 Award of Indemnification.
------------------------
(a) The Corporation may not indemnify a Director under Section 10.2
hereof unless authorized in the specific case after a determination has been
made that indemnification of the Director is permissible in the circumstances
because such Director has met the standard of conduct set forth in said Section
10.2.
(b) The determination required to be made by this Section 10.6 shall
be made:
(i) By the Board by a majority vote of a quorum, which quorum
shall consist of Directors not Parties to the Proceeding; or
17
<PAGE>
(ii) If a quorum cannot be obtained, by a majority vote of a
committee of the Board designated by the Board, which committee shall consist of
two or more Directors not Parties to the Proceeding; except that Directors who
are Parties to the Proceeding may participate in the designation of Directors
for the committee.
(c) If the quorum cannot be obtained or the committee cannot be
established under subparagraphs (b)(i) or (b)(ii) above, or even if a quorum is
obtained or committee designated if such quorum or committee so directs, the
determination required to be made by this Section 10.6 shall be made by:
(i) independent legal counsel selected by a vote of the Board or
of the committee in the manner specified in subparagraph (b)(i) or (b)(ii)
above, or, if a quorum of the full Board cannot be obtained and a committee
cannot be established, by independent legal counsel selected by a majority of
the full Board, or
(ii) by the shareholders.
(d) Authorization of indemnification and advance of expenses shall be
made in the same manner as the determination that indemnification or advance of
expenses is permissible; except that, if the determination that indemnification
or advance of expenses is permissible is made by independent legal counsel,
authorization of indemnification and evaluation as to reasonableness of expenses
shall be made by the body that selected such counsel.
(e) In accordance with this Section 10.6, the Corporation may pay or
reimburse expenses incurred by a director in connection with his appearance as a
witness in a Proceeding at a time when he has not been made a named defendant or
respondent in the Proceeding.
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10.7 Indemnification of Non-Directors.
--------------------------------
(a) An officer of the Corporation who is not a Director is entitled to
mandatory indemnification pursuant to Section 10.3 hereof and is entitled to
apply for court-ordered indemnification pursuant to Section 10.5 hereof in each
case to the same extent as a Director;
(b) The Corporation may indemnify and advance expenses to an officer,
employee, fiduciary or agent of the Corporation who is not a Director to the
same extent as a Director; and
(c) The Corporation may indemnify and advance expenses to an officer,
employee, fiduciary or agent of the Corporation who is not a Director to a
greater extent if consistent with law and if provided for by its Bylaws, general
or specific action of its Board or shareholders, or contract.
10.8 Insurance. The Corporation may purchase and maintain insurance on behalf of
---------
a person who is, or was, a Director, officer, employee, fiduciary, or agent of
the Corporation or who, while a Director, officer, employee, fiduciary, or agent
of the Corporation, is, or was, serving at the request of the Corporation as a
Director, officer, partner, trustee, employee, fiduciary, or agent of any other
domestic or foreign corporation or of any partnership, joint venture, trust,
other enterprise, or employee benefit plan against any liability asserted
against or incurred by such person in any such capacity or arising out of such
person's status as such, whether or not the Corporation would have the power to
indemnify such person against such liability under the provisions of this
Article X. Any such insurance may be procured from any insurance company
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designated by the Board of the Corporation, whether such insurance company is
formed under the laws of this state or any other jurisdiction of the United
States or elsewhere, including any insurance company in which the Corporation
has equity or any other interest, through stock ownership or otherwise.
10.9 Notice to Shareholders of Indemnification of Director. If the Corporation
-----------------------------------------------------
indemnifies or advances expenses to a Director under this Article X in
connection with a Proceeding by, or in the right of, the Corporation, the
Corporation shall give written notice of the indemnification or advance to the
shareholders with or before the notice of the next shareholders' meeting. If
the next shareholder action is taken without a meeting at the instigation of the
Board, such notice shall be given to the shareholders at or before the time the
first shareholder signs a writing consenting to such action.
10.10 Nonexclusive. The provisions provided herein with regard to
------------
indemnification shall not be construed as a limitation on indemnification.
Indemnification shall at all times be allowed to the fullest extent as is now,
or in the future, provided for under the Colorado Business Corporation Act, as
amended.
10.11 Limits on Indemnification. Indemnification shall not be permitted for
-------------------------
Expenses, penalties, or other payments incurred in connection with an
administrative Proceeding or action instituted by a regulatory agency which
Proceeding or action results in a final order assessing civil money penalties or
requiring affirmative action by such person in the form of payments to the
institution.
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In addition, advance payment to indemnified parties for legal and other fees
related to administrative Proceedings and actions instituted by a regulatory
agency shall not be permitted.
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EXHIBIT 10.1
COLORADO BUSINESS BANKSHARES, INC.
1998 STOCK INCENTIVE PLAN
Section 1. Purpose. The purpose of the Plan is to promote the interests of
the Company and its shareholders by aiding the Company in attracting and
retaining management personnel capable of assuring the future success of the
Company, to offer such personnel incentives to put forth maximum efforts for
the success of the Company's business and to afford such personnel an
opportunity to acquire a proprietary interest in the Company.
Section 2. Definitions. As used in the Plan, the following terms shall have
the meanings set forth below:
(a) "Affiliate" shall mean (i) any entity that, directly or indirectly
through one or more intermediaries, is controlled by the Company, and (ii)
any entity in which the Company has a significant equity interest, in each
case as determined by the Committee.
(b) "Award" shall mean any Option, Stock Appreciation Right, Restricted
Stock, Restricted Stock Unit, Performance Award, Dividend Equivalent or
Other Stock-Based Award granted under the Plan.
(c) "Award Agreement" shall mean any written agreement, contract or other
instrument or document evidencing any Award granted under the Plan.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and any regulations promulgated thereunder.
(e) "Committee" shall mean a committee of the Board of Directors of the
Company designated by it to administer the Plan, which shall consist of
members appointed from time to time by the Board of Directors.
(f) "Company" shall mean Colorado Business Bankshares, Inc., a Colorado
corporation, and any successor corporation.
(g) "Dividend Equivalent" shall mean any right granted under Section 6(e)
of the Plan.
(h) "Effective Date" shall mean the date, if any, on which the Plan is
adopted by the shareholders of the Company.
(i) "Eligible Person" shall mean any director, officer or employee of the
Company or any Affiliate who the Committee determines to be an Eligible
Person.
(j) "Fair Market Value" shall mean, with respect to any property
(including, without limitation, any Shares or other securities), the fair
market value of such property determined by such methods or procedures as
shall be established from time to time by the Committee; provided, however,
that if the Shares are publicly traded on an exchange or on Nasdaq or a
successor quotation system, "Fair Market Value" shall mean (i) the closing
price per Share of the Shares on the principal exchange on which the Shares
are then trading, if any, on such date, or if the Shares were not traded on
such date, then on the next preceding trading day during which a sale
occurred; or (ii) if the Shares are not traded on an exchange but are
quoted on Nasdaq or a successor quotation system, (1) the last sales price
(if the Shares are then listed on the Nasdaq National Market) of the Shares
for such date as reported by Nasdaq or such successor quotation system or
(2) the mean between the closing representative bid and asked prices (in
all other cases) for the Shares on such date as reported by Nasdaq or such
successor quotation system.
(k) "Incentive Stock Option" shall mean an option granted under Section
6(a) of the Plan that is intended to meet the requirements of Section 422
of the Code or any successor provision.
(l) "Non-Qualified Stock Option" shall mean an option granted under
Section 6(a) of the Plan that is not intended to be an Incentive Stock
Option.
(m) "Option" shall mean an Incentive Stock Option or a Non-Qualified
Stock Option.
(n) "Other Stock-Based Award" shall mean any right granted under Section
6(f) of the Plan.
(o) "Participant" shall mean an Eligible Person designated to be granted
an Award under the Plan.
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(p) "Performance Award" shall mean any right granted under Section 6(d)
of the Plan.
(q) "Person" shall mean any individual, corporation, partnership,
association, trust, limited liability company or other entity.
(r) "Plan" shall mean this 1998 Stock Incentive Plan, as amended from
time to time.
(s) "Restricted Stock" shall mean any Share granted under Section 6(c) of
the Plan.
(t) "Restricted Stock Unit" shall mean any unit granted under Section
6(c) of the Plan evidencing the right to receive a Share (or a cash payment
equal to the Fair Market Value of a Share) at some future date.
(u) "Rule 16b-3" shall mean Rule 16b-3 promulgated by the Securities and
Exchange Commission under the Securities Exchange Act of 1934, as amended,
or any successor rule or regulation.
(v) "Shares" shall mean shares of Common Stock, $.01 par value, of the
Company or such other securities or property as may become subject to
Awards pursuant to an adjustment made under Section 4(c) of the Plan.
(w) "Stock Appreciation Right" shall mean any right granted under Section
6(b) of the Plan.
Section 3. Administration. (a) Power and Authority of the Committee. The
Plan shall be administered by the Committee. Subject to the express provisions
of the Plan and to applicable law, the Committee shall have full power and
authority to: (i) designate Participants; (ii) determine the type or types of
Awards to be granted to each Participant under the Plan; (iii) determine the
number of Shares to be covered by (or with respect to which payments, rights
or other matters are to be calculated in connection with) each Award; (iv)
determine the terms and conditions of any Award or Award Agreement; (v) amend
the terms and conditions of any Award or Award Agreement and accelerate the
exercisability of Options or the lapse of restrictions relating to Restricted
Stock, Restricted Stock Units or other Awards; (vi) determine whether, to what
extent and under what circumstances Awards may be exercised in cash, Shares,
other securities, other Awards or other property, or canceled, forfeited or
suspended; (vii) determine whether, to what extent and under what
circumstances cash, Shares, other securities, other Awards, other property and
other amounts payable with respect to an Award under the Plan shall be
deferred, either automatically or at the election of the holder thereof or the
Committee; (viii) interpret and administer the Plan and any instrument or
agreement relating to, or Award made under, the Plan; (ix) establish, amend,
suspend or waive such rules and regulations and appoint such agents as it
shall deem appropriate for the proper administration of the Plan; and (x) make
any other determination and take any other action that the Committee deems
necessary or desirable for the administration of the Plan. Unless otherwise
expressly provided in the Plan, all designations, determinations,
interpretations and other decisions under or with respect to the Plan or any
Award shall be within the sole discretion of the Committee, may be made at any
time and shall be final, conclusive and binding upon any Participant, any
holder or beneficiary of any Award and any employee of the Company or any
Affiliate. In exercising its authority pursuant to the Plan, the Committee
shall adhere to all provisions of the Code as are applicable to the grant,
issuance and exercise of any Award.
(b) Delegation. The Committee may delegate its powers and duties under the
Plan to one or more officers of the Company or any Affiliate or a committee of
such officers, subject to such terms, conditions and limitations as the
Committee may establish in its sole discretion; provided, however, that the
Committee shall not delegate its powers and duties under the Plan with regard
to officers or directors of the Company or any Affiliate who are subject to
Section 16 of the Securities Exchange Act of 1934, as amended.
Section 4. Shares Available for Awards. (a) Shares Available. Subject to
adjustment as provided in Section 4(c), the number of Shares available for
granting Awards under the Plan shall be 225,000. If any Shares covered by an
Award or to which an Award relates are not purchased or are forfeited, or if
an Award otherwise terminates without delivery of any Shares, then the number
of Shares counted against the aggregate number of Shares available under the
Plan with respect to such Award, to the extent of any such forfeiture or
termination, shall again be available for granting Awards under the Plan. The
Company shall at all times keep available the number of Shares to satisfy
Awards granted under the Plan.
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(b) Accounting for Awards. For purposes of this Section 4, if an Award
entitles the holder thereof to receive or purchase Shares, the number of
Shares covered by such Award or to which such Award relates shall be counted
on the date of grant of such Award against the aggregate number of Shares
available for granting Awards under the Plan.
(c) Adjustments. In the event that the Committee shall determine that any
dividend or other distribution (whether in the form of cash, Shares, other
securities or other property), recapitalization, stock split, reverse stock
split, reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase or exchange of Shares or other securities of the Company, issuance
of warrants or other rights to purchase Shares or other securities of the
Company or other similar corporate transaction or event affects the interest
in the Company represented by the Shares such that an adjustment is determined
by the Committee to be appropriate in order to prevent dilution or enlargement
of the benefits or potential benefits intended to be made available under the
Plan, then the Committee shall, in such manner as it may deem equitable,
adjust any or all of (i) the number and type of Shares (or other securities or
other property) which thereafter may be made the subject of Awards, (ii) the
number and type of Shares (or other securities or other property) subject to
outstanding Awards and (iii) the purchase or exercise price with respect to
any Award; provided, however, that the number of Shares covered by any Award
or to which such Award relates shall always be a whole number.
Section 5. Eligibility. (a) Designation of Participants. Any Eligible
Person, including any Eligible Person who is an officer or director of the
Company or any Affiliate, shall be eligible to be designated a Participant. In
determining which Eligible Persons shall receive an Award and the terms of any
Award, the Committee may take into account the nature of the services rendered
by the respective Eligible Persons, their present and potential contributions
to the success of the Company or such other factors as the Committee, in its
sole discretion, shall deem relevant. Notwithstanding the foregoing, an
Incentive Stock Option may only be granted to full or part-time employees
(which term as used herein includes, without limitation, officers and
directors who are also employees) and an Incentive Stock Option shall not be
granted to an employee of an Affiliate unless such Affiliate is also a
"subsidiary corporation" of the Company within the meaning of Section424(f) of
the Code or any successor provision.
(b) Award Limitations Under the Plan. No Eligible Person may be granted any
Award or Awards, the value of which Awards are based solely on an increase in
the value of the Shares after the date of grant of such Awards, for more than
22,500 Shares, in the aggregate, in any one calendar year. The foregoing
annual limitation specifically includes the grant of any Awards representing
"qualified performance-based compensation" within the meaning of Section
162(m) of the Code.
Section 6. Awards. (a) Options. The Committee is hereby authorized to grant
Options to Participants with the following terms and conditions and with such
additional terms and conditions not inconsistent with the provisions of the
Plan as the Committee shall determine:
(i) Exercise Price. The purchase price per Share purchasable under an
Option shall be determined by the Committee; provided, however, that such
purchase price shall not be less than 100% of the Fair Market Value of a
Share on the date of grant of such Option.
(ii) Option Term. The term of each Option shall be fixed by the
Committee.
(iii) Time and Method of Exercise. The Committee shall determine the time
or times at which an Option may be exercised in whole or in part and the
method or methods by which, and the form or forms (including, without
limitation, cash, Shares, promissory notes, other securities, other Awards
or other property, or any combination thereof, having a Fair Market Value
on the exercise date equal to the relevant exercise price) in which,
payment of the exercise price with respect thereto may be made or deemed to
have been made.
(iv) Incentive and Non-Qualified Stock Options. Each Option granted
pursuant to the Plan shall specify whether it is an Incentive Stock Option
or a Non-qualified Stock Option, provided that the Committee may, in the
case of the grant of an Incentive Stock Option, give the Participant the
right to receive in its place a Non-qualified Stock Option.
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(b) Stock Appreciation Rights. The Committee is hereby authorized to grant
Stock Appreciation Rights to Participants, subject to the terms of the Plan
and any applicable Award Agreement. A Stock Appreciation Right granted under
the Plan shall confer on the holder thereof a right to receive upon exercise
thereof the excess of (i) the Fair Market Value of one Share on the date of
exercise (or, if the Committee shall so determine, at any time during a
specified period before or after the date of exercise) over (ii) the grant
price of the Stock Appreciation Right as specified by the Committee, which
price shall not be less than 100% of the Fair Market Value of one Share on the
date of grant of the Stock Appreciation Right. Subject to the terms of the
Plan and any applicable Award Agreement, the grant price, term, methods of
exercise, dates of exercise, methods of settlement and any other terms and
conditions of any Stock Appreciation Right shall be as determined by the
Committee. The Committee may impose such conditions or restrictions on the
exercise of any Stock Appreciation Right as it may deem appropriate.
(c) Restricted Stock and Restricted Stock Units. The Committee is hereby
authorized to grant Awards of Restricted Stock and Restricted Stock Units to
Participants with the following terms and conditions and with such additional
terms and conditions not inconsistent with the provisions of the Plan as the
Committee shall determine:
(i) Restrictions. Shares of Restricted Stock and Restricted Stock Units
shall be subject to such restrictions as the Committee may impose
(including, without limitation, any limitation on the right to vote a Share
of Restricted Stock or the right to receive any dividend or other right or
property with respect thereto), which restrictions may lapse separately or
in combination at such time or times, in such installments or otherwise as
the Committee may deem appropriate.
(ii) Stock Certificates. Any Restricted Stock granted under the Plan
shall be evidenced by issuance of a stock certificate or certificates,
which certificate or certificates shall be held by the Company. Such
certificate or certificates shall be registered in the name of the
Participant and shall bear an appropriate legend referring to the terms,
conditions and restrictions applicable to such Restricted Stock. In the
case of Restricted Stock Units, no Shares shall be issued at the time such
Awards are granted.
(iii) Forfeiture; Delivery of Shares. Except as otherwise determined by
the Committee, upon termination of employment (as determined under criteria
established by the Committee) during the applicable restriction period, all
Shares of Restricted Stock and all Restricted Stock Units at such time
subject to restriction shall be forfeited and reacquired by the Company;
provided, however, that the Committee may, when it finds that a waiver
would be in the best interest of the Company, waive, in whole or in part,
any or all remaining restrictions with respect to Shares of Restricted
Stock or Restricted Stock Units. Any Share representing Restricted Stock
that is no longer subject to restrictions shall be delivered to the holder
thereof promptly after the applicable restrictions lapse or are waived.
Upon the lapse or waiver of restrictions and the restricted period relating
to Restricted Stock Units evidencing the right to receive Shares, such
Shares shall be issued and delivered to the holders of the Restricted Stock
Units.
(d) Performance Awards. The Committee is hereby authorized to grant
Performance Awards to Participants subject to the terms of the Plan and any
applicable Award Agreement. A Performance Award granted under the Plan (i) may
be denominated or payable in cash, Shares (including, without limitation,
Restricted Stock), other securities, other Awards or other property and (ii)
shall confer on the holder thereof the right to receive payments, in whole or
in part, upon the achievement of such performance goals during such
performance periods as the Committee shall establish. Subject to the terms of
the Plan and any applicable Award Agreement, the performance goals to be
achieved during any performance period, the length of any performance period,
the amount of any Performance Award granted, the amount of any payment or
transfer to be made pursuant to any Performance Award and any other terms and
conditions of any Performance Award shall be determined by the Committee.
(e) Dividend Equivalents. The Committee is hereby authorized to grant to
Participants Dividend Equivalents under which such Participants shall be
entitled to receive payments (in cash, Shares, other securities, other Awards
or other property as determined in the discretion of the Committee) equivalent
to the amount of
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cash dividends paid by the Company to holders of Shares with respect to a
number of Shares determined by the Committee. Subject to the terms of the Plan
and any applicable Award Agreement, such Dividend Equivalents may have such
terms and conditions as the Committee shall determine.
(f) Other Stock-Based Awards. The Committee is hereby authorized to grant to
Participants such other Awards that are denominated or payable in, valued in
whole or in part by reference to, or otherwise based on or related to, Shares
(including, without limitation, securities convertible into Shares), as are
deemed by the Committee to be consistent with the purpose of the Plan;
provided, however, that such grants must comply with Rule 16b-3 and applicable
law. Subject to the terms of the Plan and any applicable Award Agreement, the
Committee shall determine the terms and conditions of such Awards. Shares or
other securities delivered pursuant to a purchase right granted under this
Section 6(f) shall be purchased for such consideration, which may be paid by
such method or methods and in such form or forms (including without
limitation, cash, Shares, promissory notes, other securities, other Awards or
other property or any combination thereof), as the Committee shall determine,
the value of which consideration, as established by the Committee, shall not
be less than 100% of the Fair Market Value of such Shares or other securities
as of the date such purchase right is granted.
(g) General.
(i) No Cash Consideration for Awards. Awards shall be granted for no cash
consideration or for such minimal cash consideration as may be required by
applicable law.
(ii) Awards May Be Granted Separately or Together. Awards may, in the
discretion of the Committee, be granted either alone or in addition to, in
tandem with or in substitution for any other Award or any award granted
under any plan of the Company or any Affiliate other than the Plan. Awards
granted in addition to or in tandem with other Awards or in addition to or
in tandem with awards granted under any such other plan of the Company or
any Affiliate may be granted either at the same time as or at a different
time from the grant of such other Awards or awards.
(iii) Forms of Payment Under Awards. Subject to the terms of the Plan and
of any applicable Award Agreement, payments or transfers to be made by the
Company or an Affiliate upon the grant, exercise or payment of an Award may
be made in such form or forms as the Committee shall determine (including,
without limitation, cash, Shares, promissory notes, other securities, other
Awards or other property or any combination thereof), and may be made in a
single payment or transfer, in installments or on a deferred basis, in each
case in accordance with rules and procedures established by the Committee.
Such rules and procedures may include, without limitation, provisions for
the payment or crediting of reasonable interest on installment or deferred
payments or the grant or crediting of Dividend Equivalents with respect to
installment or deferred payments.
(iv) Limits on Transfer of Awards. No Award and no right under any such
Award shall be transferable by a Participant otherwise than by will or by
the laws of descent and distribution; provided, however, that, if so
determined by the Committee, a Participant may, in the manner established
by the Committee, designate a beneficiary or beneficiaries to exercise the
rights of the Participant and receive any property distributable with
respect to any Award upon the death of the Participant. Each Award or right
under any Award shall be exercisable during the Participant's lifetime only
by the Participant or, if permissible under applicable law, by the
Participant's guardian or legal representative. No Award or right under any
such Award may be pledged, alienated, attached or otherwise encumbered, and
any purported pledge, alienation, attachment or encumbrance thereof shall
be void and unenforceable against the Company or any Affiliate and, at the
discretion of the Committee, any Award may be extinguished if the holder of
such Award attempts to pledge, alienate, attach or encumber the Award in
violation of this Section 6(g)(iv).
(v) Term of Awards. The term of each Award shall be for such period as
may be determined by the Committee.
(vi) Restrictions; Securities Exchange Listing. All certificates for
Shares or other securities delivered under the Plan pursuant to any Award
or the exercise thereof shall be subject to such stop transfer orders and
other restrictions as the Committee may deem advisable under the Plan or
the rules, regulations and
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other requirements of the Securities and Exchange Commission and any
applicable federal or state securities laws, and the Committee may cause a
legend or legends to be placed on any such certificates to make appropriate
reference to such restrictions. If the Shares or other securities are
traded on a securities exchange, the Company shall not be required to
deliver any Shares or other securities covered by an Award unless and until
such Shares or other securities have been admitted for trading on such
securities exchange.
Section 7. Amendment and Termination; Adjustments. Except to the extent
prohibited by applicable law and unless otherwise expressly provided in an
Award Agreement or in the Plan:
(a) Amendments to the Plan. The Board of Directors of the Company may amend,
alter, suspend, discontinue or terminate the Plan; provided, however, that,
notwithstanding any other provision of the Plan or any Award Agreement,
without the approval of the shareholders of the Company, no such amendment,
alteration, suspension, discontinuation or termination shall be made that,
absent such approval:
(i) would cause Rule16b-3 to become unavailable with respect to the Plan;
(ii) would violate the rules or regulations of the Nasdaq National
Market, any other securities exchange or the National Association of
Securities Dealers, Inc. that are applicable to the Company; or
(iii) would cause the Company to be unable, under the Code, to grant
Incentive Stock Options under the Plan.
(b) Amendments to Awards. The Committee may waive any conditions of or
rights of the Company under any outstanding Award, prospectively or
retroactively. The Committee may not amend, alter, suspend, discontinue or
terminate any outstanding Award, prospectively or retroactively, without the
consent of the Participant or holder or beneficiary thereof, except as
otherwise herein provided.
(c) Correction of Defects, Omissions and Inconsistencies. The Committee may
correct any defect, supply any omission or reconcile any inconsistency in the
Plan or any Award in the manner and to the extent it shall deem desirable to
carry the Plan into effect.
(d) Income Tax Withholding; Tax Bonuses. In order to comply with all
applicable federal or state income tax laws or regulations, the Company may
take such action as it deems appropriate to ensure that all applicable federal
or state payroll, withholding, income or other taxes, which are the sole and
absolute responsibility of a Participant, are withheld or collected from such
Participant. In order to assist a Participant in paying all or a portion of
the federal and state taxes to be withheld or collected upon exercise or
receipt of (or the lapse of restrictions relating to) an Award, the Committee,
in its discretion and subject to such additional terms and conditions as it
may adopt, may permit the Participant to satisfy such tax obligation by (a)
electing to have the Company withhold a portion of the Shares otherwise to be
delivered upon exercise or receipt of (or the lapse of restrictions relating
to) such Award with a Fair Market Value equal to the amount of such taxes or
(b) delivering to the Company Shares other than Shares issuable upon exercise
or receipt of (or the lapse of restrictions relating to) such Award with a
Fair Market Value equal to the amount of such taxes. The election, if any,
must be made on or before the date that the amount of tax to be withheld is
determined.
(j) Tax Bonuses. The Committee, in its discretion, shall have the authority,
at the time of grant of any Award under this Plan or at any time thereafter,
to approve cash bonuses to designated Participants to be paid upon their
exercise or receipt of (or the lapse of restrictions relating to) Awards in
order to provide funds to pay all or a portion of federal and state taxes due
as a result of such exercise or receipt (or the lapse of such restrictions).
The Committee shall have full authority in its discretion to determine the
amount of any such tax bonus.
Section 8. General Provisions. (a) No Rights to Awards. No Eligible Person,
Participant or other Person shall have any claim to be granted any Award under
the Plan, and there is no obligation for uniformity of treatment of Eligible
Persons, Participants or holders or beneficiaries of Awards under the Plan.
The terms and conditions of Awards need not be the same with respect to any
Participant or with respect to different Participants.
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(b) Award Agreements. No Participant will have rights under an Award granted
to such Participant unless and until an Award Agreement shall have been duly
executed on behalf of the Company.
(c) No Limit on Other Compensation Arrangements. Nothing contained in the
Plan shall prevent the Company or any Affiliate from adopting or continuing in
effect other or additional compensation arrangements, and such arrangements
may be either generally applicable or applicable only in specific cases.
(d) No Right to Employment. The grant of an Award shall not be construed as
giving a Participant the right to be retained in the employ of the Company or
any Affiliate, nor will it affect in any way the right of the Company or an
Affiliate to terminate such employment at any time, with or without cause. In
addition, the Company or an Affiliate may at any time dismiss a Participant
from employment free from any liability or any claim under the Plan, unless
otherwise expressly provided in the Plan or in any Award Agreement.
(e) Governing Law. The validity, construction and effect of the Plan or any
Award, and any rules and regulations relating to the Plan or any Award, shall
be determined in accordance with the internal laws of the State of Colorado,
without regard to conflicts of law principles.
(f) Severability. If any provision of the Plan or any Award is or becomes or
is deemed to be invalid, illegal or unenforceable in any jurisdiction or would
disqualify the Plan or any Award under any law deemed applicable by the
Committee, such provision shall be construed or deemed amended to conform to
applicable laws, or if it cannot be so construed or deemed amended without, in
the determination of the Committee, materially altering the purpose or intent
of the Plan or the Award, such provision shall be stricken as to such
jurisdiction or Award, and the remainder of the Plan or any such Award shall
remain in full force and effect.
(g) No Trust or Fund Created. Neither the Plan nor any Award shall create or
be construed to create a trust or separate fund of any kind or a fiduciary
relationship between the Company or any Affiliate and a Participant or any
other Person. To the extent that any Person acquires a right to receive
payments from the Company or any Affiliate pursuant to an Award, such right
shall be no greater than the right of any unsecured general creditor of the
Company or any Affiliate.
(h) No Fractional Shares. No fractional Shares shall be issued or delivered
pursuant to the Plan or any Award, and the Committee shall determine whether
cash shall be paid in lieu of any fractional Shares or whether such fractional
Shares or any rights thereto shall be canceled, terminated or otherwise
eliminated.
(i) Headings. Headings are given to the Sections and subsections of the Plan
solely as a convenience to facilitate reference. Such headings shall not be
deemed in any way material or relevant to the construction or interpretation
of the Plan or any provision thereof.
Section 9. Term of the Plan. Unless the Plan shall have been discontinued or
terminated as provided in Section 7(a), the Plan shall terminate on the tenth
anniversary of the Effective Date. No Award shall be granted after the
termination of the Plan. However, unless otherwise expressly provided in the
Plan or in an applicable Award Agreement, any Award theretofore granted may
extend beyond the termination of the Plan, and the authority of the Committee
provided for hereunder with respect to the Plan and any Awards, and the
authority of the Board of Directors of the Company to amend the Plan, shall
extend beyond the termination of the Plan.
7
<PAGE>
Exhibit 10.2
AMENDED AND RESTATED
COLORADO BUSINESS BANKSHARES, INC.
1997 INCENTIVE STOCK OPTION PLAN
--------------------------------
Colorado Business Bankshares, Inc., a Colorado corporation (the "Company"),
hereby amends and restates, in its entirety, its 1997 Incentive Stock Option
Plan (the "Plan").
1. Purpose.
-------
This Plan is intended to advance the interests of the Company by providing
its Key Employees with (i) an opportunity to acquire a proprietary interest in
the Company through the purchase of stock of the Company, (ii) an additional
incentive to promote the success of the Company, and (iii) encouragement to
remain in the employ of the Company. The Company intends that Stock Options
granted under the Plan will qualify as Incentive Stock Options under Section 422
of the Code.
2. Definitions.
-----------
For purposes of this Plan and the Stock Option Agreements entered into
hereunder, the following definitions shall control:
(a) Board of Directors. The duly elected Board of Directors of the Company.
------------------
(b) Code. The Internal Revenue Code of 1986, as amended from time to time.
----
(c) Common Stock. Shares of the common stock, $0.01 par value per share, of
------------
the Company.
(d) Compensation Committee. The duly appointed members of the Compensation
----------------------
Committee of the Board of Directors.
(e) Fair Market Value. Fair Market Value shall be determined as follows:
-----------------
(i) the closing price per share of Common Stock on the date of grant
of the Stock Option as reported by a nationally recognized stock
exchange, (ii) if the Common Stock is not listed on such an exchange,
as reported by the National Association of Securities Dealers
Automated Quotation System, Inc. ("NASDAQ"), or (iii) if the Common
Stock is not quoted on NASDAQ, as determined by the independent
certified public accountants then retained by the Company in
accordance with generally accepted accounting principles applied on a
consistent basis, adjusted to reflect such market value factors as the
independent certified public accountants deem advisable in arriving at
Fair Market Value.
<PAGE>
(f) Greater-Than-Ten Percent (10%) Shareholder. An Employee who at the time
------------------------------------------
of the grant of a Stock Option owns stock possessing more than ten
percent (10%) of the total combined voting power of all classes of
stock of the Company.
(g) Incentive Stock Option. A Stock Option which qualifies as an Incentive
----------------------
Stock Option under Section 422(b) of the Code.
(h) Incentive Stock Option Agreement. The Incentive Stock Option Agreements
--------------------------------
pursuant to which Stock Options under this Plan are granted.
(i) Involuntary Termination of Employment. Any termination of an Optionee's
-------------------------------------
employment with the Company by reason of the discharge, firing or other
involuntary termination of an Optionee's employment by action of the
Company other than a Termination For Cause as described in subparagraph
(3) of paragraph 9(e).
(j) Key Employee. An employee of the Company or any of its subsidiaries so
------------
designated as a Key Employee by the Compensation Committee.
(k) Permanent and Total Disability. An Optionee is permanently and totally
------------------------------
disabled if he is unable to engage in any substantial gainful activity
by reason of any medically determinable physical or mental impairment
which can be expected to last for a continuous period of not less than
twelve (12) months; provided, however, that permanent and total
disability shall be determined in accordance with Section 22(e)(3) of
the Code and the regulations issued thereunder.
(l) Optionee. Any Key Employee who has been granted a Stock Option under
--------
this Plan.
(m) Option Price. The purchase price of each share of Common Stock issued
------------
pursuant to this Plan, which price shall be determined in accordance
with Section 2(d) of this Plan, as of the date such Stock Option is
granted.
(n) Stock Option. The right to purchase Common Stock granted to an Optionee
------------
pursuant to this Plan and under the Incentive Stock Option Agreement.
(o) Voluntary Termination of Employment. Any voluntary termination of
-----------------------------------
employment with the Company by reason of Optionee's quitting or
otherwise voluntarily leaving the Company's employ other than a
voluntary termination of employment constituting a Termination For
Cause as described in subparagraph (3) of paragraph 9(e).
(p) Years of Service. An Optionee shall receive credit for one (1) year of
----------------
service on each anniversary date of the grant of the Stock Option to
the Optionee if the Optionee was
-2-
<PAGE>
employed by the Company for at least one (1) day in each month of the
consecutive twelve (12) month period ending with the month which
includes the anniversary date of the grant.
3. Administration of the Plan.
--------------------------
This Plan shall be administered by the Compensation Committee. The
Compensation Committee shall have full power and authority to (a) designate Key
Employees; (b) determine when Stock Options will be granted; (c) determine the
number of Stock Options to be granted; (d) determine the terms and conditions of
respective Incentive Stock Option Agreements which shall be consistent with the
terms of this Plan; and (e) adopt rules and regulations from time to time for
carrying out this Plan. In rendering decisions, the Compensation Committee is
expressly granted sole discretion to interpret and construe any provision of
this Plan and his determination shall be final, conclusive and binding upon the
Company and Optionees.
4. Eligibility.
-----------
The Company shall grant Stock Options only to Key Employees who perform
services of major importance in the management, operation and development of the
business of the Company.
5. Stock.
-----
The total number of shares of Common Stock that may be issued pursuant to
Stock Options shall not exceed an aggregate of one-hundred-one thousand thirty-
six (101,036) shares of Common Stock; provided, however, that the class and
aggregate number of shares which may be granted under this Plan shall be subject
to adjustment as provided under Section 13 hereof. Stock Options to purchase any
shares of Common Stock issued pursuant to this Plan that, for any reason, are
terminated or expire unexercised may be reissued under this Plan. The Company
shall not be required to issue or deliver any certificate for Common Stock
purchased upon the exercise of any part of the Stock Option before (i) the
Optionee shall represent, in writing, that the purchase of all shares of Common
Stock is being made for investment only and not for resale with a view to
distribution, and (ii) the Optionee shall consent, in writing, that the Company
may (x) endorse the certificate evidencing such shares with appropriate legends
to the effect that said shares have not been registered under any securities
laws of any federal, state or foreign jurisdiction, were issued in a transaction
not involving a public offering under an investment representation, are further
subject to restrictions imposed by the Incentive Stock Option Agreement relating
to such shares and that transfer of said shares is accordingly restricted, and
(y) place a stop transfer order with the transfer agent with respect to said
shares. The Company shall not be obligated to deliver any shares until there has
been compliance with such laws and regulations as the Company may deem
applicable. No fractional shares shall be delivered.
-3-
<PAGE>
6. Limitations Upon Greater-Than-Ten-Percent (10%) Shareholders.
------------------------------------------------------------
Except as otherwise permitted by the Code or other applicable law or
regulations, no Stock Option shall be granted to an individual who, at the time
the Stock Option is granted, is a Greater-Than-Ten Percent (10%) Shareholder
unless such Stock Option provides that (i) the Option Price shall not be less
than one hundred ten percent (110%) of the Fair Market Value of the Common Stock
at the time such Stock Option is granted, and (ii) that such Stock Option shall
not be exercised to any extent after the expiration of five (5) years from the
date it is granted.
7. Grant of Stock Option.
---------------------
The Company may, in its sole discretion, grant Stock Options to any Key
Employee; provided, however, that (i) no Stock Option shall be granted later
than ten (10) years from the earlier of the date this Plan is adopted by the
Board of Directors or the date this Plan is approved by the shareholders of the
Company, and (ii) the aggregate Fair Market Value (determined at the time of
grant) of the Common Stock which first becomes exercisable during any calendar
year granted to an Optionee (under this or under any other stock option plan
established by the Company) shall not exceed One Hundred Thousand and no/100
Dollars ($100,000.00).
8. Terms of the Incentive Stock Option Agreements.
----------------------------------------------
Each Stock Option granted under this Plan shall be evidenced by an
Incentive Stock Option Agreement which shall be in writing and shall contain
such terms, conditions, restrictions, if any, and provisions as the Company
shall from time to time deem appropriate. Such provisions or conditions may
include without limitation restrictions on transfer, repurchase rights, or such
other provisions as shall be determined by the Company; provided, however, such
additional provisions shall not be inconsistent with any other term or condition
of this Plan and such additional provisions shall not cause any Stock Option
granted under this Plan to fail to qualify as an Incentive Stock Option.
Incentive Stock Option Agreements need not be identical, but each Incentive
Stock Option Agreement by appropriate language shall include the substance of
the provisions contained in Section 9 of this Plan.
9. Period of Option and Certain Limitations on Right to Exercise.
-------------------------------------------------------------
(a) Number of Shares. Each Stock Option shall state the number of Shares of
----------------
Common Stock to which it pertains.
(b) Option Price. Each Stock Option shall state the Option Price per share
------------
of Common Stock, as determined in accordance with Section 2(1) of this
Plan.
-4-
<PAGE>
(c) Term and Exercise of Stock Options. All Stock Options issued under the
----------------------------------
Plan shall be exercisable for such period as the Board of Directors
shall determine, but no Stock Option may be exercised later than ten
(10) years from the date of grant thereof (or as provided in Section 6,
five (5) years in the case of a Greater-Than-Ten Percent (10%)
Shareholder).
(d) Vesting. Each Stock Option granted under this Plan shall first become
-------
exercisable (i.e., the Optionee's ability to exercise shall vest) as to
the following percentages of the shares of Common Stock granted under
each Stock Option:
Years of Service Percentage of Stock
After the Grant Date Option Grant Exercisable
-------------------- ------------------------
Less than 1 year 0%
At least 1 year but less than 2 years 25%
At least 2 years but less than 3 years 50%
At least 3 years but less than 4 years 75%
4 years or more 100%
In the case of any resulting fractional shares from any calculations
under this Plan, the number of shares available for exercise shall be
determined by disregarding the fractional amount.
(e) Exercise Period and Termination of Employment. Except as hereinafter
---------------------------------------------
provided, no Stock Option may be exercised after the termination of
employment of the Optionee with the Company specifically subject,
however, to the provisions of paragraph (c) of this Section 9.
(1) Involuntary Termination of Employment. Stock Options granted under
-------------------------------------
the Plan may be exercised, if otherwise timely, within three (3)
months after the Involuntary Termination of Employment of the
Optionee with the Company, and the Stock Options shall only be
exercisable for the shares of Common Stock as determined under
paragraph (d) of this Section 9.
(2) Voluntary Termination of Employment. Stock Options granted under
-----------------------------------
the Plan may be exercised, if otherwise timely, within three (3)
months after the Voluntary Termination of Employment of the
Optionee with the Company, and the Stock Options shall only be
exercisable for the shares of Common Stock as determined under the
provisions of paragraph (d) of this Section 9.
(3) Termination for Cause. Notwithstanding anything contained herein
---------------------
to the contrary, if the termination of an Optionee's employment
with the Company is a result of or caused by the Optionee's theft
or embezzlement from the
-5-
<PAGE>
Company, the violation of a material term or condition of his
employment, the disclosure by the Optionee of confidential
information of the Company, conviction of the Optionee of a crime
of moral turpitude, the Optionee's theft or unauthorized use of
trade secrets or intellectual property owned by the Company, any
act by the Optionee in competition with the Company or any other
act, activity or conduct of the Optionee which in the opinion of
the Compensation Committee is adverse to the best interests of the
Company, then any Stock Options and any and all rights granted to
such Optionee thereunder, to the extent not effectively exercised
as of the date of termination of the Optionee's employment, shall
become null and void effective as of the date of the occurrence of
the event which results in the Optionee ceasing to be an employee
of the Company and any purported exercise of a Stock Option by or
on behalf of said Optionee following such date shall be of no
effect.
(4) Death or Permanent and Total Disability of Optionee. In the event
---------------------------------------------------
of the (i) death of the Optionee or (ii) Permanent and Total
Disability of the Optionee, prior to termination of the Optionee's
employment with the Company, and before the date of expiration of
such Stock Option, such Stock Option shall terminate on the
earlier of such date of expiration or one (1) year following the
date of such death or Permanent and Total Disability. After the
death of the Optionee, such Optionee's executors, administrators
or any person or persons to whom the Stock Option may be
transferred by will or by the laws of descent and distribution,
shall have the right, at any time prior to such termination, to
exercise the Stock Option to the extent the Optionee was entitled
to exercise such Stock Option immediately prior to such Optionee's
death.
(f) Manner of Exercise and Payment for Shares. Any Stock Option granted
-----------------------------------------
under this Plan may be exercised by the Optionee or his guardian, in
the case of his Permanent and Total Disability, or such Optionee's
executors, administers, or any other person to whom the Stock Option
may have been transferred under the Optionee's will or by the laws of
descent and distribution, by delivery to the Company on any business
day a written notice specifying the number of shares of Common Stock
that such holder of the Stock Option then desires to purchase and such
other information that the Company may require from time to time. The
exercise of any Stock Option shall also be contingent upon receipt by
the Company of cash or a certified bank check to its order in an amount
equal to the full Option Price of the shares of Common Stock being
purchased.
(g) Decrease In Common Stock Available Under Plan. An exercise of a Stock
---------------------------------------------
Option shall result in a corresponding decrease in the number of shares
of Common Stock which thereafter may be available for purchase under
this Plan by the number of
-6-
<PAGE>
shares of Common Stock acquired pursuant to the exercise of the Stock
Options by the same number of shares of Common Stock as to which the
Stock Options that were exercised relates.
(h) Withholding of Taxes. To the extent that the exercise of any Stock
--------------------
Option or the disposition of any optioned shares shall result in income
to the Optionee, or any other person to whom ownership of the Stock
Option or Common Stock has vested in accordance with the terms of this
Plan, the Company will withhold from the proceeds of such disposition
an appropriate amount for federal, state and local taxes. The Company's
obligation to honor an exercise of the Stock Options or disposition of
Common Stock acquired hereunder shall be subject to the holder of the
Stock Option making appropriate arrangements with the Company for the
satisfaction of all federal, state or local income tax withholding
requirements.
10. Assignability of Option.
-----------------------
No Stock Option granted under this Plan nor any of the rights and
privileges thereby conferred shall be transferred, assigned, pledged,
hypothecated or alienated in any way, or by operation of law during the
Optionee's lifetime. After the Optionee's death, the Stock Options may only be
transferrable by the Optionee's will or under the laws of descent and
distribution. No Stock Option, right or privilege shall be subject to execution,
attachment or similar process. Upon any attempt to so transfer, assign, pledge,
hypothecate, alienate or otherwise dispose of the Stock Option, or of any right
or privilege conferred thereby, contrary to the provisions hereof, or upon the
levy of any attachment or similar process upon such Stock Option, right or
privilege, the Stock Option and such rights and privileges shall immediately
become null and void. A Stock Option shall be exercisable only by the Optionee
to whom the Stock Option is granted, the Optionee's guardian in the case of such
Optionee's Permanent and Total Disability or such Optionee's executors,
administrators or any person or persons to whom the Stock Option may be
transferred by will or the laws of descent and distribution.
11. Right of First Refusal and Call Option.
--------------------------------------
(a) Right of First Refusal During Employment. If any Optionee, at any time
----------------------------------------
during the period of employment with the Company, desires to transfer
all or any part of or any interest in the Common Stock acquired
pursuant to the exercise of Stock Options granted under this Plan, such
Optionee shall first offer to sell such shares of Common Stock to the
Company upon the following terms and conditions:
(i) Notice. The Optionee shall give written notice to the Company of
------
his desire to sell or otherwise transfer shares of Common Stock
pursuant to a bona fide offer and shall set forth the number of
shares he desires to sell, the person or
-7-
<PAGE>
entity to whom such shares will be sold, if known, and the terms
upon which such shares would be sold, including the price per share
to be received for such shares.
(ii) Option of Company. For a period of twenty-one (21) days after
-----------------
such notice is received by the Company, the Company shall have
the option to purchase all of the shares covered by said notice
at the price per share equal to the price per share which the
Optionee would receive on transfer of the shares, as set forth in
the Optionee's notice. The Company shall exercise each option by
giving the Optionee written notice of exercise within the twenty-
one (21) day period. The shares as to which the Company exercises
its option shall be redeemed no later than sixty (60) days after
the date such option was exercised and the purchase price shall
be paid in cash or by certified bank check to Optionee's order.
(b) Call Option Upon Termination of Employment or Gift of Stock. In the
-----------------------------------------------------------
event (i) of the termination of the employment of the Optionee with the
Company, for any reason, including, but not limited to termination on
account of death, Permanent and Total Disability, Voluntary Termination
of Employment, Involuntary Termination of Employment, or (ii) the
Optionee desires to transfer by gift, that is a transfer for no
consideration, all or any part or interest in the Common Stock acquired
by the Optionee pursuant to this Plan; then, for a period of twenty-one
(21) days after the (x) date of termination, (y) notice of gift, or (z)
acquisition of any shares following the termination of employment, the
Company shall have the option to purchase all of the shares of Common
Stock acquired by the Optionee pursuant to this Plan at the price per
share equal to the Fair Market Value per share determined at the date
of termination or notice of gift. The Company shall exercise this
option by giving the Optionee, or the Optionee's representative of a
deceased Optionee, as the case may be, written notice of exercise
within the twenty-one (21) day period. The shares as to which the
Company exercises its call option under this Section 11(b) shall be
redeemed sixty (60) days after the date such call option was exercised;
and the purchase price shall be paid in cash or by certified bank check
to Optionee's order. The Company's rights under this Section 11(b)
shall be in addition to its rights under Section 11(a), 11(c), and
11(d); and exercise or failure to exercise any call option under this
Section 11(b) shall not in any way limit the Company's rights of first
refusal under Section 11(a), 11(c) and 11(d).
(c) Right of First Refusal After Employment. If any Optionee or the
---------------------------------------
personal representative of a Permanently and Totally Disabled Optionee
or deceased Optionee, as the case may be, at any time after termination
of employment with the Company, desires to transfer all or any part of
or any interest in the Common Stock acquired
-8-
<PAGE>
pursuant to exercise of Stock Options granted under this Plan, such
Optionee, or the personal representative of the Optionee, shall first
offer to sell the shares of such Common Stock to the Company upon the
terms and conditions set forth in Section 11(a)(i) and 11(a)(ii).
(d) Effect of Failure to Exercise Right of First Refusal. If the Company
----------------------------------------------------
shall fail to exercise its right to acquire the shares of Common Stock
pursuant to Sections 11(a), (b) or (c) within the time period set forth
in Section 11(a)(ii), then the Optionee shall thereafter for a period
of ninety (90) days be free to transfer all of such shares at a price
per share not less than the price per share set forth in the notice to
the Company. If all shares are not transferred within said ninety (90)
day period, such shares shall again be subject to all of the terms and
provisions of this Section 11.
12. Listing and Registration of Shares.
----------------------------------
Each Stock Option shall be subject to the requirement that if at any time
the Company shall determine that the listing, registration or qualification of
the shares covered thereby upon any securities exchange or under any state or
federal law or the consent or approval of any governmental regulatory body is
necessary or desirable as a condition of, or in connection with, the granting of
such Stock Option or the issue or purchase of shares thereunder, such Stock
Option may not be exercised in whole or in part unless and until such listing,
registration, qualification, consent or approval shall have been effected or
obtained free of any conditions not acceptable to the Company.
13. Changes In Company's Capital Structure.
--------------------------------------
(a) Rights of Company. The existence of outstanding Stock Options shall not
-----------------
affect in any way the right or power of the Company or its stockholders
to make or authorize, without limitation, any or all adjustments,
recapitalizations, reorganizations or other changes in the Company's
capital structure or its business, or any merger or consolidation of
the Company, or any issue of Common Stock, or any issue of bonds,
debentures, preferred or prior preference stock or other capital stock
ahead of or affecting the Common Stock or the rights thereof, or the
dissolution or liquidation of the Company, or any sale or transfer of
all or any part of its assets or business, or any other corporate act
or proceeding, whether of a similar character or otherwise.
(b) Recapitalization, Stock Splits and Dividends. If the Company shall
--------------------------------------------
effect a subdivision or consolidation of shares or other capital
readjustment, the payment of a stock dividend, or other increase or
reduction of the number of shares of the Common Stock outstanding, in
any such case without receiving compensation therefore in money,
services or property, then (i) the number, class and price per share of
shares of Common Stock subject to outstanding Stock Options hereunder
shall be appropriately adjusted in such a manner as to entitle an
Optionee to receive upon exercise of a Stock Option, for the same
aggregate cash consideration, the same
-9-
<PAGE>
total number and class of shares as he would have received as a result
of the event requiring the adjustment had he exercised his Stock
Options in full immediately prior to such event; and (ii) the number
and class of shares with respect to which Stock Options may be granted
under the Plan shall be adjusted by substituting for the total number
of shares of Common Stock then reserved for issuance under the Plan
that number and class of shares of stock that the owner of an equal
number of outstanding shares of Common Stock would own as the result of
the event requiring the adjustment.
(c) Adjustments to Common Stock Subject to Options. Except as expressly
----------------------------------------------
provided herein, the issue by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, for
cash or property, or for labor or services, either upon direct sale or
upon the exercise of rights or warrants to subscribe thereto, or upon
conversion of shares or obligations of the Company convertible into
such shares or other securities, shall not affect, and no adjustment by
reason thereof shall be made with respect to, the number or price of
shares of Common Stock then subject to outstanding Stock Options.
(d) Miscellaneous. Adjustments under this Section 13 shall be determined by
-------------
the Company and such determinations shall be conclusive. No fractional
shares of Common Stock shall be issued under this Plan on account of
any adjustment specified above.
14. Amendment of Plan.
-----------------
The Company may at any time and from time to time modify and amend this
Plan (including such form of Incentive Stock Option Agreement) in any respect;
provided, however, that no such amendment shall: (a) increase (except in
accordance with Section 13) the maximum number of shares for which Stock Options
may be granted under this Plan either in the aggregate or to any individual
employee; or (b) reduce (except in accordance with Section 13) the minimum
Option Prices which may be established under the Plan; or (c) extend the period
or periods during which Stock Options may be granted or exercised; or (d) change
the provisions relating to the determination of employees to which Stock Options
shall be granted and the number of shares to be covered by such Stock Options;
or (e) change the provisions relating to adjustments to be made upon changes in
capitalization. The termination or any modification or amendment of this Plan
shall not, without the consent of the Optionee, affect his rights under a Stock
Option theretofore granted to him.
15. Applicability of Plan to Outstanding Stock Options.
--------------------------------------------------
This Plan shall not affect the terms and conditions of any non-qualified
Stock Options heretofore granted to any employee of the Company, if any, under
any plan relating to non-qualified Stock Options; nor shall it affect any of the
rights of any employee to whom such a non-qualified Stock Option was granted.
-10-
<PAGE>
16. Effective Date and Duration of Plan.
-----------------------------------
This Plan shall become effective upon its adoption by the Board of
Directors of the Company provided that the shareholders of the Company shall
have approved the Plan within twelve (12) months prior to or following adoption
of the Plan by the Board of Directors. No Stock Option shall be granted under
the Plan after the tenth (l0th) anniversary of the effective date. The Plan
shall terminate upon the earlier of: (i) when the total number of shares of
Common Stock with respect to which Stock Options may be granted shall have been
issued upon the exercise of Stock Options, or (ii) by action of the Company
pursuant to Section 14, hereof.
17. Employment Obligation.
---------------------
The granting of any Stock Option shall not impose upon the Company any
obligation to employ or continue to employ any Optionee; and the right of the
Company to terminate the employment of any officer or other employee shall not
be diminished or affected by reason of the fact that a Stock Option has been
granted to him or her.
18. Rights as a Shareholder.
-----------------------
An Optionee shall have no rights as a shareholder with respect to any
shares covered by any of said Optionee's Stock Options until the date that the
Company receives payment in full for the purchase of said shares pursuant to the
effective exercise of said Stock Option. No adjustment shall be made for
dividends or distributions or other rights for which the record date is prior to
the date such payment is received by the Company.
-11-
<PAGE>
Exhibit 10.3
AMENDED AND RESTATED
COLORADO BUSINESS BANKSHARES, INC.
1995 INCENTIVE STOCK OPTION PLAN
--------------------------------
Colorado Business Bankshares, Inc., a Colorado corporation formerly known
as Equitable Bankshares of Colorado, Inc.(the "Company"), hereby amends and
restates, in its entirety, its 1995 Incentive Stock Option Plan (the "Plan").
1. Purpose.
-------
This Plan is intended to advance the interests of the Company by providing
its Key Employees with (i) an opportunity to acquire a proprietary interest in
the Company through the purchase of stock of the Company, (ii) an additional
incentive to promote the success of the Company, and (iii) encouragement to
remain in the employ of the Company. The Company intends that Stock Options
granted under the Plan will qualify as Incentive Stock Options under Section 422
of the Code.
2. Definitions.
-----------
For purposes of this Plan and the Stock Option Agreements entered into
hereunder, the following definitions shall control:
(a) Board of Directors. The duly elected Board of Directors of the Company.
------------------
(b) Code. The Internal Revenue Code of 1986, as amended from time to time.
----
(c) Common Stock. Shares of the common stock, $0.01 par value per share, of
------------
the Company.
(d) Compensation Committee. The duly appointed members of the Compensation
----------------------
Committee of the Board of Directors.
(e) Fair Market Value. Fair Market Value shall be determined as follows:
-----------------
(i) the closing price per share of Common Stock on the date of grant
of the Stock Option as reported by a nationally recognized stock
exchange, (ii) if the Common Stock is not listed on such an exchange,
as reported by the National Association of Securities Dealers
Automated Quotation System, Inc. ("NASDAQ"), or (iii) if the Common
Stock is not quoted on NASDAQ, as determined by the independent
certified public accountants then retained by the Company in
accordance with generally accepted accounting principles applied on a
consistent basis, adjusted to reflect such market value factors as the
independent certified public accountants deem advisable in arriving at
Fair Market Value.
<PAGE>
(f) Greater-Than-Ten Percent (10%) Shareholder. An Employee who at the time
------------------------------------------
of the grant of a Stock Option owns stock possessing more than ten
percent (10%) of the total combined voting power of all classes of
stock of the Company.
(g) Incentive Stock Option. A Stock Option which qualifies as an Incentive
----------------------
Stock Option under Section 422(b) of the Code.
(h) Incentive Stock Option Agreement. The Incentive Stock Option Agreements
--------------------------------
pursuant to which Stock Options under this Plan are granted.
(i) Involuntary Termination of Employment. Any termination of an Optionee's
-------------------------------------
employment with the Company by reason of the discharge, firing or other
involuntary termination of an Optionee's employment by action of the
Company other than a Termination For Cause as described in subparagraph
(3) of paragraph 9(e).
(j) Key Employee. An employee of the Company or any of its subsidiaries so
------------
designated as a Key Employee by the Compensation Committee.
(k) Permanent and Total Disability. An Optionee is permanently and totally
------------------------------
disabled if he is unable to engage in any substantial gainful activity
by reason of any medically determinable physical or mental impairment
which can be expected to last for a continuous period of not less than
twelve (12) months; provided, however, that permanent and total
disability shall be determined in accordance with Section 22(e)(3) of
the Code and the regulations issued thereunder.
(l) Optionee. Any Key Employee who has been granted a Stock Option under
--------
this Plan.
(m) Option Price. The purchase price of each share of Common Stock issued
------------
pursuant to this Plan, which price shall be determined in accordance
with Section 2(d) of this Plan, as of the date such Stock Option is
granted.
(n) Stock Option. The right to purchase Common Stock granted to an Optionee
------------
pursuant to this Plan and under the Incentive Stock Option Agreement.
(o) Voluntary Termination of Employment. Any voluntary termination of
-----------------------------------
employment with the Company by reason of Optionee's quitting or
otherwise voluntarily leaving the Company's employ other than a
voluntary termination of employment constituting a Termination For
Cause as described in subparagraph (3) of paragraph 9(e).
(p) Years of Service. An Optionee shall receive credit for one (1) year of
----------------
service on each anniversary date of the grant of the Stock Option to
the Optionee if the Optionee was
-2-
<PAGE>
employed by the Company for at least one (1) day in each month of the
consecutive twelve (12) month period ending with the month which
includes the anniversary date of the grant.
3. Administration of the Plan.
--------------------------
This Plan shall be administered by the Compensation Committee. The
Compensation Committee shall have full power and authority to (a) designate Key
Employees; (b) determine when Stock Options will be granted; (c) determine the
number of Stock Options to be granted; (d) determine the terms and conditions of
respective Incentive Stock Option Agreements which shall be consistent with the
terms of this Plan; and (e) adopt rules and regulations from time to time for
carrying out this Plan. In rendering decisions, the Compensation Committee is
expressly granted sole discretion to interpret and construe any provision of
this Plan and his determination shall be final, conclusive and binding upon the
Company and Optionees.
4. Eligibility.
-----------
The Company shall grant Stock Options only to Key Employees who perform
services of major importance in the management, operation and development of the
business of the Company.
5. Stock.
-----
The total number of shares of Common Stock that may be issued pursuant to
Stock Options shall not exceed an aggregate of one-hundred-ninety-seven thousand
nine-hundred-twenty-five(197,925) shares of Common Stock; provided, however,
that the class and aggregate number of shares which may be granted under this
Plan shall be subject to adjustment as provided under Section 13 hereof. Stock
Options to purchase any shares of Common Stock issued pursuant to this Plan
that, for any reason, are terminated or expire unexercised may be reissued under
this Plan. The Company shall not be required to issue or deliver any certificate
for Common Stock purchased upon the exercise of any part of the Stock Option
before (i) the Optionee shall represent, in writing, that the purchase of all
shares of Common Stock is being made for investment only and not for resale with
a view to distribution, and (ii) the Optionee shall consent, in writing, that
the Company may (x) endorse the certificate evidencing such shares with
appropriate legends to the effect that said shares have not been registered
under any securities laws of any federal, state or foreign jurisdiction, were
issued in a transaction not involving a public offering under an investment
representation, are further subject to restrictions imposed by the Incentive
Stock Option Agreement relating to such shares and that transfer of said shares
is accordingly restricted, and (y) place a stop transfer order With the transfer
agent with respect to said shares. The Company shall not be obligated to deliver
any shares until there has been compliance with such laws and regulations as the
Company may deem applicable. No fractional shares shall be delivered.
-3-
<PAGE>
6. Limitations Upon Greater-Than-Ten-Percent (10%) Shareholders.
------------------------------------------------------------
Except as otherwise permitted by the Code or other applicable law or
regulations, no Stock Option shall be granted to an individual who, at the time
the Stock Option is granted, is a Greater-Than-Ten Percent (10%) Shareholder
unless such Stock Option provides that (i) the Option Price shall not be less
than one hundred ten percent (110%) of the Fair Market Value of the Common Stock
at the time such Stock Option is granted, and (ii) that such Stock Option shall
not be exercised to any extent after the expiration of five (5) years from the
date it is granted.
7. Grant of Stock Option.
---------------------
The Company may, in its sole discretion, grant Stock Options to any Key
Employee; provided, however, that (i) no Stock Option shall be granted later
than ten (10) years from the earlier of the date this Plan is adopted by the
Board of Directors or the date this Plan is approved by the shareholders of the
Company, and (ii) the aggregate Fair Market Value (determined at the time of
grant) of the Common Stock which first becomes exercisable during any calendar
year granted to an Optionee (under this or under any other stock option plan
established by the Company) shall not exceed One Hundred Thousand and no/100
Dollars ($100,000.00).
8. Terms of the Incentive Stock Option Agreements.
----------------------------------------------
Each Stock Option granted under this Plan shall be evidenced by an
Incentive Stock Option Agreement which shall be in writing and shall contain
such terms, conditions, restrictions, if any, and provisions as the Company
shall from time to time deem appropriate. Such provisions or conditions may
include without limitation restrictions on transfer, repurchase rights, or such
other provisions as shall be determined by the Company; provided, however, such
additional provisions shall not be inconsistent with any other term or condition
of this Plan and such additional provisions shall not cause any Stock Option
granted under this Plan to fail to qualify as an Incentive Stock Option.
Incentive Stock Option Agreements need not be identical, but each Incentive
Stock Option Agreement by appropriate language shall include the substance of
the provisions contained in Section 9 of this Plan.
9. Period of Option and Certain Limitations on Right to Exercise.
-------------------------------------------------------------
(a) Number of Shares. Each Stock Option shall state the number of Shares of
----------------
Common Stock to which it pertains
(b) Option Price. Each Stock option shall state the Option Price per share
------------
of Common Stock, as determined in accordance with Section 2(1) of this
Plan.
-4-
<PAGE>
(c) Term and Exercise of Stock Options. All Stock Options issued under the
----------------------------------
Plan shall be exercisable for such period as the Board of Directors
shall determine, but no Stock Option may be exercised later than ten
(10) years from the date of grant thereof (or as provided in Section 6,
five (5) years in the case of a Greater-Than-Ten Percent (10%)
Shareholder).
(d) Vesting. Each Stock Option granted under this Plan shall first become
-------
exercisable (i.e., the Optionee's ability to exercise shall vest) as to
the following percentages of the shares of Common Stock granted under
each Stock Option:
Years of Service Percentage of Stock
After the Grant Date Option Grant Exercisable
-------------------- ------------------------
Less than 1 year 0%
At least 1 year but less than 2 years 25%
At least 2 years but less than 3 years 50%
At least 3 years but less than 4 years 75%
4 years or more 100%
In the case of any resulting fractional shares from any calculations
under this Plan, the number of shares available for exercise shall be
determined by disregarding the fractional amount.
(e) Exercise Period and Termination of Employment. Except as hereinafter
---------------------------------------------
provided, no Stock Option may be exercised after the termination of
employment of the Optionee with the Company specifically subject, however,
to the provisions of paragraph (c) of this Section 9.
(1) Involuntary Termination of Employment. Stock Options granted under
-------------------------------------
the Plan may be exercised, if otherwise timely, within three (3)
months after the Involuntary Termination of Employment of the
Optionee with the Company, and the Stock options shall only be
exercisable for the shares of Common Stock as determined under
paragraph (d) of this Section 9.
(2) Voluntary Termination of Employment. Stock Options granted under
-----------------------------------
the Plan may be exercised if otherwise timely, within three (3)
months after the Voluntary Termination of Employment of the
Optionee with the Company, and the Stock Options shall only be
exercisable for the shares of Common Stock as determined under the
provisions of paragraph (d) of this Section 9.
(3) Termination for Cause. Notwithstanding anything contained herein
---------------------
to the contrary, if the termination of an Optionee's employment
with the Company is a result of or caused by the Optionee's theft
or embezzlement from the
-5-
<PAGE>
Company, the violation of a material term or condition of his
employment, the disclosure by the Optionee of confidential
information of the Company, conviction of the Optionee of a crime
of moral turpitude, the Optionee's theft or unauthorized use of
trade secrets or intellectual property owned by the Company, any
act by the Optionee in competition with the Company or any other
act, activity or conduct of the Optionee which in the opinion of
the Compensation Committee is adverse to the best interests of the
Company, then any Stock Options and any and all rights granted to
such Optionee thereunder, to the extent not effectively exercised
as of the date of termination of the Optionee's employment, shall
become null and void effective as of the date of the occurrence of
the event which results in the Optionee ceasing to be an employee
of the Company and any purported exercise of a Stock Option by or
on behalf of said Optionee following such date shall be of no
effect.
(4) Death or Permanent and Total Disability of Optionee. In the event
---------------------------------------------------
of the (i) death of the Optionee or (ii) Permanent and Total
Disability of the Optionee, prior to termination of the Optionee's
employment with the Company, and before the date of expiration of
such Stock Option, such Stock Option shall terminate on the
earlier of such date of expiration or one (1) year following the
date of such death or Permanent and Total Disability. After the
death of the Optionee, such Optionee's executors, administrators
or any person or persons to whom the Stock Option may be
transferred by will or by the laws of descent and distribution,
shall have the right, at any time prior to such termination, to
exercise the Stock Option to the extent the Optionee was entitled
to exercise such Stock Option immediately prior to such Optionee's
death.
(f) Manner of Exercise and Payment for Shares. Any stock Option granted
-----------------------------------------
under this Plan may be exercised by the Optionee or his guardian, in
the case of his Permanent and Total Disability, or such Optionee's
executors administers, or any other person to whom the Stock Option may
have been transferred under the Optionee's will or by the laws of
descent and distribution, by delivery to the Company on any business
day a written notice specifying the number of shares of Common Stock
that such holder of the Stock Option then desires to purchase and such
other information that the Company may require from time to time. The
exercise of any Stock Option shall also be contingent upon receipt by
the Company of cash or a certified bank check to its order in an amount
equal to the full Option Price of the shares of Common Stock being
purchased.
(g) Decrease In Common Stock Available Under Plan. An exercise of a Stock
---------------------------------------------
Option shall result in a corresponding decrease in the number of shares
of Common Stock which thereafter may be available for purchase under
this Plan by the number of
-6-
<PAGE>
shares of Common Stock acquired pursuant to the exercise of the Stock
Options by the same number of shares of Common Stock as to which the
Stock Options that were exercised relates.
(h) Withholding of Taxes. To the extent that the exercise of any Stock
--------------------
Option or the disposition of any optioned shares shall result in income
to the Optionee, or any other person to whom ownership of the Stock
Option or Common Stock has vested in accordance with the terms of this
Plan, the Company will withhold from the proceeds of such disposition
an appropriate amount for federal, state and local taxes. The Company's
obligation to honor an exercise of the Stock Options or disposition of
Common Stock acquired hereunder shall be subject to the holder of the
Stock Option making appropriate arrangements with the Company for the
satisfaction of all federal, state or local income tax withholding
requirements.
10. Assignability of Option.
-----------------------
No Stock Option granted under this Plan nor any of the rights and
privileges thereby conferred shall be transferred, assigned, pledged,
hypothecated or alienated in any way, or by operation of law during the
Optionee's lifetime. After the Optionee's death, the Stock Options may only be
transferrable by the Optionee's will or under the laws of descent and
distribution. No Stock option, right or privilege shall be subject to execution,
attachment or similar process. Upon any attempt to so transfer, assign, pledge
hypothecate, alienate or otherwise dispose of the Stock Option or of any right
or privilege conferred thereby, contrary to the provisions hereof, or upon the
levy of any attachment or similar process upon such Stock option, right or
privilege, the Stock Option and such rights and privileges shall immediately
become null and void. A Stock Option shall be exercisable only by the Optionee
to whom the Stock Option is granted, the Optionee's guardian in the case of such
Optionee's Permanent and Total Disability or such Optionee's executors,
administrators or any person or persons to whom the Stock Option may be
transferred by will or the laws of descent and distribution.
11. Right of First Refusal and Call Option.
--------------------------------------
(a) Right of First Refusal During Employment. If any Optionee, at any time
----------------------------------------
during the period of employment with the Company, desires to transfer
all or any part of or any interest in the Common Stock acquired
pursuant to the exercise of Stock Options granted under this Plan, such
Optionee shall first offer to sell such shares of Common Stock to the
Company upon the following terms and conditions:
(i) Notice. The Optionee shall give written notice to the Company of
------
his desire to sell or otherwise transfer shares of Common Stock
pursuant to a bona fide offer and shall set forth the number of
shares he desires to sell, the person or entity to whom such
shares will be sold, if known, and the terms upon which
-7-
<PAGE>
such shares would be sold, including the price per share to be
received for such shares.
(ii) Option of Company. For a period of twenty-one (21) days after
-----------------
such notice is received by the Company, the Company shall have
the option to purchase all of the shares covered by said notice
at the price per share equal to the price per share~which the
Optionee would receive on transfer of the shares, as set forth in
the Optionee's notice. The Company shall exercise each option by
giving the Optionee written notice of exercise within the twenty-
one (21) day period. The shares as to which the Company exercises
its option shall be redeemed no later than sixty (60) days after
the date such option was exercised and the purchase price shall
be paid in cash or by certified bank check to Optionee's order.
(b) Call Option Upon Termination of Employment or Gift of Stock. In the
-----------------------------------------------------------
event (i) of the termination of the employment of the Optionee with the
Company, for any reason, including, but not limited to termination on
account of death, Permanent and Total Disability Voluntary Termination
of Employment, Involuntary Termination of Employment, or (ii) the
Optionee desires to transfer by gift, that is a transfer for no
consideration, all or any part or interest in the Common Stock acquired
by the Optionee pursuant to this Plan; then, for a period of twenty-one
(21) days after the (x) date of termination, (y) notice of gift, or (z)
acquisition of any shares following the termination of employment, the
Company shall have the option to purchase all of the shares of Common
Stock acquired by the Optionee pursuant to this Plan at the price per
share equal to the Fair Market Value per share determined at the date
of termination or notice of gift. The Company shall exercise this
option by giving the Optionee, or the Optionee's representative of a
deceased Optionee, as the case may be, written notice of exercise
within the twenty-one (21) day period. The shares as to which the
Company exercises its call option under this Section 11(b) shall be
redeemed sixty (60) days after the date such call option was exercised;
and the purchase price shall be paid in cash or by certified bank check
to Optionee's order. The Company's rights under this Section 11(b)
shall be in addition to its rights under Section 11(a), 11(c), and
11(d); and exercise or failure to exercise any call option under this
Section 11(b) shall not in any way limit the Company's rights of first
refusal under Section 11(a), 11(c) and 11(d).
(c) Right of First Refusal After Employment. If any Optionee or the
---------------------------------------
personal representative of a Permanently and Totally Disabled Optionee
or deceased Optionee, as the case may be, at any time after termination
of employment with the Company, desires to transfer all or any part of
or any interest in the Common Stock acquired pursuant to exercise of
Stock Options granted under this Plan, such Optionee, or the
-8-
<PAGE>
personal representative of the Optionee, shall first offer to sell the
shares of such Common Stock to the Company upon the terms and
conditions set forth in Section 11(a)(i) and 11(a)(ii).
(d) Effect of Failure to Exercise Right of First Refusal. If the Company
----------------------------------------------------
shall fail to exercise its right to acquire the shares of Common Stock
pursuant to Sections 11(a), (b) or (c) within the time period set forth
in Section 11(a)(ii), then the Optionee shall thereafter for a period
of ninety (90) days be free to transfer all of such shares at a price
per share not less than the price per share set forth in the notice to
the Company. If all shares are not transferred within said ninety (90)
day period, such shares shall again be subject to all of the terms and
provisions of this Section 11.
12. Listing and Registration of Shares.
----------------------------------
Each Stock Option shall be subject to the requirement that if at any time
the Company shall determine that the listing, registration or qualification of
the shares covered thereby upon any securities exchange or under any state or
federal law or the consent or approval of any governmental regulatory body is
necessary or desirable as a condition of, or in connection with, the granting of
such Stock Option or the issue or purchase of shares thereunder, such Stock
Option may not be exercised in whole or in part unless and until such listing,
registration, qualification, consent or approval shall have, been effected or
obtained free of any conditions not acceptable to the Company.
13. Changes In Company's Capital Structure.
--------------------------------------
(a) Rights of Company. The existence of outstanding Stock Options shall not
-----------------
affect in any way the right or power of the Company or its stockholders
to make or authorize, without limitation, any or all adjustments,
recapitalizations, reorganizations or other changes in the Company's
capital structure or its business, or any merger or consolidation of
the Company, or any issue of Common Stock, or any issue of bonds,
debentures, preferred or prior preference stock or other capital stock
ahead of or affecting the Common Stock or the rights thereof, or the
dissolution or liquidation of the Company, or any sale or transfer of
all or any part of its assets or business, or any other corporate act
or proceeding, whether of a similar character or otherwise.
(b) Recapitalization, Stock Splits and Dividends. If the Company shall
--------------------------------------------
effect a subdivision or consolidation of shares or other capital
readjustment, the payment of a stock dividend, or other increase or
reduction of the number of shares of the Common Stock outstanding, in
any such case without receiving compensation therefore in money,
services or property, then (i) the number, class and price per share of
shares of Common Stock subject to outstanding Stock Options hereunder
shall be appropriately adjusted in such a manner as to entitle an
Optionee to receive upon exercise of a Stock Option, for the same
aggregate cash consideration, the same total number and class of shares
as he would have received as a result of the event
-9-
<PAGE>
requiring the adjustment had he exercised his Stock Options in full
immediately prior to such event; and (ii) the number and class of
shares with respect to which Stock Options may be granted under the
Plan shall be adjusted by substituting for the total number of shares
of Common Stock then reserved for issuance under the Plan that number
and class of shares of stock that the owner of an equal number of
Outstanding shares of Common Stock would own as the result of the event
requiring the adjustment.
(c) Adjustments to Common Stock Subject to Options. Except as expressly
----------------------------------------------
provided herein the issue by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, for
cash or property, or for labor or services, either upon direct sale or
upon the exercise of rights or warrants to subscribe thereto, or upon
conversion of shares or obligations of the Company convertible into
such shares or other securities, shall not affects and no adjustment by
reason thereof shall be made with respect to, the number or price of
shares of Common Stock then subject to outstanding Stock Options.
(d) Miscellaneous. Adjustments under this Section 13 shall be determined by
-------------
the Company and such determinations shall be conclusive. No fractional
shares of Common Stock shall be issued under this Plan on account of
any adjustment specified above.
14. Amendment of Plan.
-----------------
The Company may at any time and from time to time modify and amend this
Plan (including such form of Incentive Stock Option Agreement) in any respect;
provided, however, that no such amendment shall: (a) increase (except in
accordance with Section 13) the maximum number of shares for which Stock Options
may be granted under this Plan either in the aggregate or to any individual
employee; or (b) reduce (except in accordance with Section 13) the minimum
Option Prices which may be established under the Plan; or (c) extend the period
or periods during which Stock Options may be granted or exercised; or (d) change
the provisions relating to the determination of employees to which Stock Options
shall be granted and the number of shares to be covered by such Stock Options;
or (e) change the provisions relating to adjustments to be made upon changes in
capitalization. The termination or any modification or amendment of this Plan
shall not, without the consent of the Optionee, affect his rights under a Stock
Option theretofore granted to him.
15. Applicability of Plan to Outstanding Stock Options.
--------------------------------------------------
This Plan shall not affect the terms and conditions of any non-qualified
Stock Options heretofore granted to any employee of the Company, if any, under
any plan relating to non-qualified Stock Options; nor shall it affect any of the
rights of any employee to whom such a non-qualified Stock Option was granted.
-10-
<PAGE>
16. Effective Date and Duration of Plan.
-----------------------------------
This Plan shall become effective upon its adoption by the Board of
Directors of the Company provided that the shareholders of the Company shall
have approved the Plan within twelve (12) months prior to or following adoption
of the Plan by the-Board of Directors. No Stock Option shall be granted under
the Plan after the tenth (l0th) anniversary of the effective date. The Plan
shall terminate upon the earlier of: (i) when the total number of shares of
Common Stock with respect to which Stock Options may be granted shall have been
issued upon the exercise of Stock Options, or (ii) by action of the Company
pursuant to Section 14, hereof.
17. Employment Obligation.
---------------------
The granting of any Stock Option shall not impose upon the Company any
obligation to employ or continue to employ any Optionee; and the right of the
Company to terminate the employment of any officer or other employee shall not
be diminished or affected by reason of the fact that a Stock Option has been
granted to him or her.
18. Rights as a Shareholder.
-----------------------
An Optionee shall have no rights as a shareholder with respect to any
shares covered by any of said Optionee's Stock Options until the date that the
Company receives payment in full for the purchase of said shares pursuant to the
effective exercise of said Stock Option. No adjustment shall be made for
dividends or distributions or other rights for which the record date is prior to
the date such payment is received by the Company.
-11-
<PAGE>
Exhibit 10.20
OFFICE LEASE
1. THIS LEASE, dated December 2, 1996, is between Elliott Kiowa,
---------------- --------------
Inc., a corporation organized under the laws of the State of Colorado
- ----
hereinafter called the Landlord, and Colorado Business Bank, N.A., hereinafter
----------------------------
called the Tenant. The Landlord does hereby demise and lease unto the Tenant
the premises known and described as 2409 W. Main Street, in the City of
Littleton, State of Colorado, for the term of Seven Years plus Option (See
----------------------------
Additional Provisions)
- ----------------------
Term beginning on February 1, 1997, and ending on January 31, 2004, unless the
---------------- ----------------
term hereof shall be sooner terminated as hereinafter provided.
Rent 2. IN CONSIDERATION of the rent and the performance of the covenants
and provisions herein, the Tenant agrees to pay to the Landlord as rent for the
full term aforesaid, the sum of $148,176 plus (See Additional Provisions),
------------------------------------------
payable as follows: 84 consecutive monthly installments of $1,764.00 each,
------------------------------------------------------
beginning February 1, 1997
- --------------------------
which said sums shall be due and payable in advance on the first day of each and
every calendar month during said term at the office of the Landlord at 2040 W.
-------
Pineridge Avenue, Littleton, CO 80120 or at such other location as the Landlord
- -------------------------------------
may designate in writing.
Security 3. The Landlord acknowledges receipt of a security deposit in the
amount of
Deposit $1,764.00.
----------
SERVICES
4. The Landlord and Tenant agree, as follows:
The Tenant shall keep all the improvements upon the Premises, including but
not limited to, structural components, interior and exterior walls, floors,
ceiling, roofs, sewer connections, plumbing, wiring, and glass in good
maintenance and repair at Tenant's expense. Tenant shall notify the Landlord of
any condition upon the Premises requiring repair. The Tenant shall heat the
demised premises whenever necessary during reasonable business hours or
customary heating season.
CHARACTER OF OCCUPANCY
5. Tenant agrees that the demised premises shall be used and occupied only as
Commercial Bank in a careful, safe and proper manner, and that Tenant will pay
- ---------------
on demand for any damage to the premises caused by the misuse of same by Tenant,
or Tenant's agents or employees.
Tenant agrees that Tenant will not use or permit the demised premises to be
used for any purposes prohibited by the laws of the United States or the State
of Colorado, or the ordinances of the City or County in which the property is
located.
Tenant will not use or keep any substance or material in or about the
demised premises which may vitiate or endanger the validity of the insurance on
said building or increase the hazard of the risk, or which may prove offensive
or annoying to other tenants of the building.
<PAGE>
Tenants will not permit any nuisance in the demised premises.
ALTERATIONS
6. The Landlord shall have the right at any time to enter the demised premises
to examine and inspect the same.
Tenant shall make no alterations in or additions to the demised premises
without first obtaining the written consent of Landlord. Tenant shall permit no
liens to be attached to the property as a result of any alterations. All
additions or improvements made by the Tenant (except only movable office
furniture) shall be deemed a part of the real estate and permanent structure
thereon and shall remain upon and be surrendered with said premises as a part
thereof at the end of the said term, by lapse of term, by lapse of time, or
otherwise.
SUBLETTING
7. Tenant agrees that it will not sublet the demised premises, or any part
thereof, nor assign this lease, or any interest therein, without first obtaining
the written consent of the Landlord, which consent shall not be unreasonably
withheld. This provision shall not apply to any change in controller ownership
of tenant, whether by merger, consolidation liquidation or otherwise, or to
affiliate organization.
INSOLVENCY
8. Any assignment for the benefit of creditors or by operation of law shall
not be effective to transfer any rights hereunder to the said assignee without
the written consent of the Landlord first having been obtained.
It is further agreed between the parties hereto that if Tenant shall be
declared insolvent, or if any assignment of Tenant's property shall be made for
the benefit of creditors or otherwise, or if Tenant's leasehold interest herein
shall be levied upon under execution, or seized by virtue of any writ of any
court of law, or a Receiver be appointed for the property of Tenant, whether
under the operation of State or Federal statutes, then and in any such case,
Landlord may, at its option, terminate this lease and retake possession of said
premises, without being guilty of any manner of trespass or forcible entry or
detainer, and without the same working any forfeiture of the obligations of
Tenant hereunder.
In case the Tenant is adjudicated a bankrupt, or proceeds or is proceeded
against under any State or Federal laws, for relief of debtors, or in case a
receiver is appointed to wind up and liquidate the affairs of the Tenant, the
Landlord, at its election, shall have a provable claim in bankruptcy or
receivership in an amount equal to at least the sum of the last 12 monthly
payments of the rental provided for herein, which sum is fixed and liquidated by
the parties hereto as the minimum amount of said damages sustained by the
Landlord as a result of the bankruptcy or receivership of the Tenant, and the
amount of said damages may be satisfied, at the election of the Landlord, out of
any moneys or securities deposited hereunder as security for the payment by the
Tenant of the rent herein provided for.
DEFAULT
9. If the Tenant shall be in arrears in payment of any installment of rent, or
any portion thereof, or in default of any other covenants or agreements set
forth in this lease ("Default"), and
<PAGE>
the Default remains uncorrected for a period of ten (10) days after the Landlord
has given written notice thereof pursuant to applicable law, then the Landlord
may, at the Landlord's option, undertake any of the following remedies without
limitation: (a) declare the term of the lease ended; (b) terminate the Tenant's
right to possession of the premises and reenter and repossess the premises
pursuant to applicable provisions of the Colorado Forcible Entry and Detainer
Statute; (c) recover all present and future damages, costs and other relief to
which the Landlord is entitled including, but not limited to, the cost to
recover and repossess the premises, the expenses of reletting, necessary
renovation and alteration expenses, and commissions; (d) pursue breach of
contract remedies; and/or (e) pursue any and all available remedies in law or
equity. In the event possession is terminated by a reason of Default prior to
expiration of the term, the Tenant shall be responsible for the rent occurring
for remainder of the term, subject to the Landlord's duty to mitigate such
damages. Pursuant to applicable law [13-40-104(d-5), (c.5) and 13-40-
107.5,C.R.S.] which is incorporated by this reference, in the event repeated or
substantial Default(s) under the lease written Notice to Quit, without a right
to cure. Upon such termination, the Landlord shall have available any and all of
the above-listed remedies.
SECURITY DEPOSIT
10. The Landlord acknowledges receipt of the aforementioned deposit to be held
by the Landlord for the faithful performance of all of the terms, conditions and
covenants of this lease. The Landlord may apply the deposit to cure any default
under the terms of this lease and shall account to the Tenant for the balance.
The Tenant may not apply the deposit hereunder to the payment of the rent
reserved hereunder or the performance of other obligations.
PREMISES VACATED DURING TERM OF LEASE
11. If the Tenant shall abandon or vacate said premises before the end of the
term of this lease, the Landlord may, at its option, enter said premises, remove
any signs of the Tenant therefrom, and re-let the same, or any part thereof, as
it may see fit, without thereby voiding or terminating this lease, and for the
purpose of such re-letting, the Landlord is authorized to make any repairs,
changes, alterations or additions in or to said demised premises, as may, in the
opinion of the Landlord, be necessary or desirable for the purpose of such re-
letting, and if a sufficient sum shall not be realized from such re-letting
(after payment of all the costs and expenses and the collection of rent accruing
therefrom), each month to equal the monthly rental agreed to be paid by the
Tenant under the provisions of this lease, then the Tenant agrees to pay such
deficiency each month upon demand therefor. This paragraph shall only apply if
tenant is also in default of its rent obligation of this lease.
REMOVAL OF TENANT'S PROPERTY
12. If the Tenant shall fail to remove all effects from said premises upon the
abandonment thereof or upon the termination of this lease, the Landlord, at its
option, may remove the same in any manner and store the said effects without
liability to the Tenant for loss thereof, and the Tenant agrees to pay the
Landlord on demand, any and all expenses incurred in such removal, including
court costs and attorney's fees and storage charges on such effects for any
length of time the same shall be in the Landlord's possession. The Landlord, at
its option, and after 30 days notice to Tenant, may sell said effects, or any of
the same, at private sale and without legal process, for such prices as the
Landlord may obtain, and apply the proceeds of such sale upon any amounts due
under this lease from the Tenant to the Landlord and upon the expense indicated
to the removal and sale of said effects, rendering the surplus, if any, to the
Tenant.
<PAGE>
LOSS OR DAMAGE TO TENANT'S PROPERTY
13. All personal property of any kind or description whatsoever in the demised
premises shall be at the Tenant's sole risk, and the Landlord shall not be held
liable for any damage done to or loss of such personal property, or for damage
or loss suffered by the business or occupation of the Tenant arising from any
act or neglect of contenants or other occupants of the building, or of their
employees or the employees of the Landlord or of other persons, or from
bursting, overflowing or leaking of water, sewer or steam pipes, or from heating
or plumbing fixtures, or from electric wires, or from gases, or odors, or caused
in any other manner whatever, except in the case of willful neglect on the part
of the Landlord.
Tenant shall hold Landlord, Landlord's agents and their respective
successors and assigns, harmless and indemnified from all injury, loss, claims
or damage to any person or property while on the demised premises or any other
part of Landlord's property, or arising in any way out of Tenant's business,
which is occasioned by an act or omission of Tenant, its employees, agents,
invitees, licensees or contractors.
SURRENDER OF POSSESSION
15. The Tenant agrees to deliver up and surrender to the Landlord possession of
said premises at the expiration or termination of this lease, by lapse of time
or otherwise, in as good repair as when the Tenant obtained the same at the
commencement said term, excepting only ordinary wear and tear, or damage by the
elements (occurring without the fault of the Tenant or other persons permitted
by the Tenant to occupy or enter the demised premises or any part thereof), or
by act of God, or by insurrection, riot, invasion or commotion, or of military
or usurped power.
FIRE CLAUSE
16. If the demised premises or said building shall be so damaged by fire or
other catastrophe as to render said premises untenantable, so Tenant cannot
substantial conduct its business in a first class manner and if such damage
shall be so great that a competent architect selected by the Landlord, shall
certify in writing to the Landlord and the Tenant that said premises, with the
exercise of reasonable diligence, cannot be made fit for occupancy within ninety
(90) days from the happening thereof, then this lease shall cease and terminate
from the date of the occurrence of such damage; and the Tenant thereupon shall
surrender to the Landlord said premises and all interest therein, and the
landlord may reenter and take possession of said premises and remove the Tenant
therefrom. The Tenant shall pay rent, duly apportioned, up to the time of such
termination of this lease.
If, however, the damage shall be such that such an architect so shall
certify that said demised premises can be made tenantable within such number of
days form the happening of such damage by fire or other catastrophe, then the
Landlord shall repair the damage so done with all reasonable speed, and the rent
shall be abated only for the period during which the Tenant shall be deprived of
the use of said premises by reason of such damage and the repair thereof.
If said demised premises, without the fault of the Tenant, shall be
slightly damaged by fire or other catastrophe but not so as to render the same
untenantable, the Landlord, after receiving notice in writing of the occurrence
of the injury, shall cause the same to be repaired with reasonable promptness;
but in such event, there shall be no abatement of the rent.
<PAGE>
In case the building throughout be so injured or damaged, whether by fire
or otherwise (though said demised premises may not be affected) that the
Landlord within sixty (60) days' notice in writing to that effect given by the
Landlord to the Tenant, this lease shall cease and terminate from the date of
the occurrence of said damage, and the Tenant shall pay the rent, properly
apportioned, up to such date, and both parties hereto shall be free and
discharged of all further obligations hereunder.
If the demised premises or any part thereof is condemned by right of
eminent domain, or transferred by agreement in connection with such condemnation
(all of the foregoing events being referred to as "taking"), the rights of the
parties shall be governed by this Paragraph. If the entire premises are taken,
this Lease shall terminate on the date title shall best in the condemnor,
Tenant's obligations to pay rent shall continue to said date, and Landlord shall
refund to Tenant prepaid rental, if any, and other sums paid hereunder for any
period beyond said date. If less than the entire demised premises will no
longer be suitable for the first class conduct of Tenant's business thereon,
Tenant may terminate this Lease by so notifying Landlord at least thirty (30)
days before the termination date set forth in Tenant's notice. If this Lease is
terminated, Landlord shall be entitled to all compensation awarded by the
condemnor whether for the fee or the leasehold, provided that Tenant may make a
separate claim in its own right for removing and relocating its trade fixtures
and for loss of profits or damage to the tenant's business. If this Lease is
not terminated, Landlord shall restore any improvements on the part of the
demised premises not taken, but shall not be obligated to spend more for
restoration than the amount awarded Landlord by the condemnor, and the rent
payable hereunder shall be adjusted so that Tenant shall be required to pay for
the remainder of the term only such portion of such rent as the value of the
part remaining after the taking bears to the value of the part remaining after
the taking bears to the value of the entire demised premises immediately before
the date of the taking.
INSURANCE
17. Tenant shall, at Tenant's expense, obtain and keep in full force, fire and
liability insurance as may be reasonably required by the Landlord. Tenant shall
provide copies of such insurance policies upon the Landlord's request.
ACCEPTANCE OF PREMISES BY TENANT
18. The taking possession of said premises by the Tenant shall be conclusive
evidence as against the Tenant that said premises were in good and satisfactory
condition when possession of the same was taken.
WAIVER
19. No waiver of any breach or Default of any one or more of the conditions or
covenants of this lese by the Landlord shall be deemed to imply or constitute a
waiver of any succeeding or other breach or Default hereunder.
AMENDMENT OR MODIFICATION
20. Tenant acknowledges and agrees that it has not relied upon any statements,
representations, agreements or warranties, except such as are expressed herein,
and that no amendment or modification of this lease shall be valid or binding
unless expressed in writing and executed by the parties hereto in the same
manner as the execution of this lease.
<PAGE>
PAYMENTS AFTER TERMINATION
21. No payments of money by the Tenant to the Landlord after the termination of
this lease, in any manner, or after the giving of any notice (other than a
demand for the payment of money) by the Landlord to the Tenant, shall reinstate,
continue or extend the term of this lease or affect any notice given to the
Tenant prior to the payment of such money, it being agreed that after the
service of notice or the commencement of a suit or after final judgment granting
the Landlord possession of said premises, the Landlord may receive and collect
any sums of rent due, or payment of such sums of money whether as rent or
otherwise, shall not waive said notice, or in any manner affect any pending suit
or any judgment theretofore obtained.
HOLDING AFTER TERMINATION
22. It is mutually agreed that if after the expiration of this lease the Tenant
shall remain in possession of said premises without a written agreement as to
such holding, then such holding over shall be deemed to be a holding upon a
tenancy from month to month at a monthly rental equivalent to the last monthly
payment provided herein, payable in advance on the same day of each month as
above provided; all other terms and conditions of this lease remaining the same.
ENTRY BY LANDLORD
23. The Landlord shall at all reasonable times have the right, by its officers
or agents, to enter the demised premises to inspect and examine the same, and to
show the same to persons wishing to lease them, and may at any time within
fifteen days next preceding the termination of this tenancy, place upon the
doors and windows of the premises the notice "For Rent", which said notice shall
not be removed by the Tenant.
ATTORNEY'S FEES
24. In the event any dispute arises concerning the terms of this Lease or the
non-payment of any sums under this Lease, and the matter is turned over to an
attorney, the party prevailing in such dispute shall be entitled, in addition to
other damages and costs, to recover reasonable attorney's fees from the other
party.
Additional Provisions:
Rent: See Rider attached Paragraph "A"
Options: See Rider attached Paragraph "B"
First Right of Refusal: See Rider attached Paragraph "C"
Additional Conditions: See Rider II attached Paragraphs 1 & 2
QUIET POSSESSION
25. The Landlord shall warrant and defend the Tenant in the in the enjoyment
and peaceful possession of the premises during the term aforesaid.
All titles and captions are for convenience only and are not a part of this
lease. This lease shall be binding on the parties, their personal
representatives, successors and assigns. If there are more than one entity or
persons which are the Tenants under this lease, all covenants and agreements
herein to be performed by the Tenant shall be joint and several.
<PAGE>
Should any provision of this lease violate any federal, state or local law
or ordinance, that provision shall be deemed amended to so comply with such law
or ordinance, and shall be construed in a manner so as to comply, and the
remainder of this lease shall not be affected thereby.
Executed on 12-9-96
----------------
Date
Attest: /s/ Joe Kan Attest: /s/ J. Campbell, Cashier/VP
-------------------- ----------------------------
Elliott Kiowa, Inc. COLORADO BUSINESS BANK, N.A.
- --------------------------- -----------------------------
Landlord Tenant
By Lawrence Elliott Darrell J. Schulte, President
- --------------------------- ------------------------------
STATE OF COLORADO
____________ County of ____________
The foregoing instrument was acknowledged before me this 9/th/ day of December,
------ --------
1996,
- ----
by /s/ Darrell J. Schulte, as President President
----------------------- ------------------------
and , as Secretary
---------------------- -------------------------
of COLORADO BUSINESS BANK, N.A. , a corporation.
----------------------------------------------
My commission expires: 10-21-97
--------------------------------------------------------
Witness my hand and official seal. /s/ Denise M. Queen
---------------------------------------
101 West Mineral Notary Public
Littleton, CO 80120
STATE OF COLORADO
____________ County of ____________
The foregoing instrument was acknowledged before me this day of December,
------ --------
19 ,
- ----
by , as President
----------------------- ------------------------
and , as Secretary
---------------------- -------------------------
of , a corporation.
----------------------------------------------
My commission expires:
--------------------------------------------------------
Witness my hand and official seal.
---------------------------------------
Notary Public
<PAGE>
RIDER
THIS RIDER IS ATTACHED TO AND HEREBY FORMS PART OF THE CERTAIN LEASE DATED
DECEMBER 2, 1996, WHEREIN ELLIOTT KIOWA, INC. IS REFERRED TO AS THE LANDLORD AND
- ----------------
COLORADO BUSINESS BANK, N.A. IS REFERRED TO AS THE TENANT COVERING THE PREMISES
KNOWN AS 2409 W. MAIN STREET, LITTLETON, COLORADO 80120
PARAGRAPH "A"
1. Notwithstanding anything herein contained to the contrary, it is agreed
that this is a Net Lease; the Tenant agrees to maintain the property and
its appurtenances at all times in good condition, including any
replacements and/or repairs, which may be required or necessary.
2. The Landlord warrants and represents that the existing structure is in good
condition and that all utilities serving the premises are adequate and in
good repair and working condition. *SEE RIDER III ATTACHED
3. The Tenant agrees to pay in addition to the rentals and other payments as
provided herein, real estate taxes each year for that portion of the year
as provided under the terms of this lease on the real estate, and failure
to pay same shall be default under the terms of said lease in the same
manner as any default in the payment of rent. Landlord agrees to send the
tax bills to the Tenant each year, and the Tenant will, after payment of
said taxes as aforesaid, send to the Landlord a photostatic copy of the
receipt evidencing payment of the taxes each year. Tenant has the right to
dispute and object to the amount of taxes assessed, pursuant to the laws
and regulations, which provide for such dispute procedures.
4. It is understood and agreed that the taxes for 1997 and the last calendar
year of lease shall be prorated between Landlord and Tenant with the
Tenant's responsibility beginning when possession of the building is
delivered.
5. "Real estate taxes" shall mean and include all general and special taxes
and assessments levied upon or assigned against the building and the land
upon which it is located. If at any time during the term of this lease the
method of taxation of real estate prevailing at the time of execution
hereof shall be, or have been, altered so as to cause the whole or any part
of the taxes now or hereafter levied, assessed or imposed on real estate to
be levied, assessed or imposed upon the Landlord, wholly or partially, as
capital levy or otherwise, or on or measured by the rents received
therefrom, then such new or altered taxes attributable to the demised
premises shall be deemed to be included within the term "real estate
taxes", save and except that such shall not be deemed to include any
enhancement of said tax attributable to other income or other ownerships of
the Landlord.
6. The Tenant hereunder agrees to keep said improvements covered for fire and
extended coverage insurance on a replacement cost basis, and for liability
insurance; shall pay all premiums on such policies, naming the Landlord and
the Tenant as insureds in reasonable
<PAGE>
amounts to be determined by the Landlord. Failure of the Landlord to
determine what are reasonable amounts, shall not relieve the Tenant from
maintaining said insurance.
PARAGRAPH "B"
Tenant has the option to renew the term of this Lease on two successive
occasions for an additional five (5) years each. The term of the first option
(the "First Option") commences February 1, 2004, and continues through January
31, 2009. The term of the second option (the "Second Option") commences
February 1, 2009, and continues through January 31, 2014. In the event that
Tenant exercises either or both of these options, the terms and conditions of
this Lease applicable to the original term shall also apply to each renewal
term, except that the rental during each renewal term will change as set forth
below.
In the event that the tenant wishes to exercise either option, it shall
give written notice of such exercise to Landlord by August 1, 2003 (with respect
to the "First Option") and by August 1, 2008 (with respect to the "Second
Option"). Tenant may not exercise an option if it is in default of the Lease at
the time that the notice of exercise of the option is given. Tenant's notice of
exercise shall be sent to the Landlord's address designated in this Lease, by
United States certified mail, postage prepaid, return receipt requested, and
shall be deemed given when so deposited with the United States Postal Service.
As used in this paragraph, the term "Index" shall mean the Consumer Price
Index for All Urban Consumers (CPI-U) for the Denver-Boulder area, 1982-
1984=100, or if such Index does not then exist, such reasonably equivalent index
as may then be published by the United States Department of Labor, Bureau of
Labor Statistics. Each monthly installment of rent during the term of an option
shall be determined by multiplying (i) $1,764 by (ii) the "Percentage Increase"
as defined herein. The Percentage Increase shall be the percentage equivalent
to a fraction, the numerator of which is the most recently published Index then
in effect on or before July 31, 2003 (with respect to the "First Option") or the
most recently published Index then in effect on or before July 31, 2008 (with
respect to the "Second Option"), and the denominator of which is the most
recently published Index then in effect or before January 31, 1997.
Notwithstanding the foregoing, in no event shall the Percentage Increase be less
than 110% and in no event shall the Percentage Increase be more than 125%.
PARAGRAPH "C"
FIRST RIGHT OF REFUSAL
- ----------------------
Provided that the Tenant has not defaulted under this Lease, Tenant has the
first right of refusal to purchase the demised premises in accordance with the
provisions of this paragraph. In the event that Landlord wishes to accept an
offer (the "Offer") to acquire the demised premises, Landlord shall first give
written notice to Tenant at the address of 2409 W. Main Street, Littleton,
-------------------------------
Colorado 80120 that Landlord wishes to sell the demised premises in accordance
- --------------
with the provisions of the Offer. The written notice shall be accompanied by a
copy of the written Offer. It Tenant wishes to exercise its first right of
refusal with respect to the Offer, Tenant shall give written notice to Landlord
within twenty days after Tenant receives Landlord's notice. Upon Tenant giving
such notice of exercise, Landlord shall be deemed to have accepted Tenant's
offer
<PAGE>
on the same terms and conditions contained in the copy of the Offer
provided to Tenant. However, if the Offer contains any provisions that are
unique to the offer or such that they could not be reasonably expected to be
matched by Tenant or other persons in general, Landlord agree that such
provisions shall be adjusted so that they can be matched by the Tenant and give
reasonably equivalent economic value to both Landlord and Tenant. If Tenant
does not exercise its right of first refusal with respect to the Offer, Landlord
shall be entitled to close the transaction described in the Offer in accordance
with its terms, but if Landlord desires to make any changes to the material
terms of the Offer, it must first present the revised Offer to Tenant who shall
have the same right of first refusal with respect to the revised Offer as the
Tenant had with respect to the original Offer. If Tenant does not exercise its
right of first refusal with respect to an Offer and the transaction contemplated
by that Offer does not close, the right of first refusal described in this
paragraph shall continue to apply to any subsequent offers which Landlord
desires to accept.
This First Right of Refusal can be recorded by the Tenant if desired.
Executed this 9/th/ day of December, 1996 in Littleton Colorado.
------ ---------
Colorado Business Bank, N.A. Elliott Kiowa, Inc.
/s/ Darrell J. Schulte, President 12/9/96 /s/ by Lawrence Elliott 12-9-96
- -------------------------------------------- ---------------------------------
Tenant Date Landlord Date
<PAGE>
RIDER II
THIS RIDER IS ATTACHED TO AND HEREBY FORMS PART OF THE CERTAIN LEASE DATED
DECEMBER 2, 1996, WHEREIN ELLIOTT KIOWA, INC. IS REFERRED TO AS THE LANDLORD AND
- ----------------
COLORADO BUSINESS BANK, N.A. IS REFERRED TO AS THE TENANT COVERING THE PREMISES
KNOWN AS 2409 W. MAIN STREET, LITTLETON, COLORADO 80120
PARAGRAPH 1
This Lease is expressly conditional upon the following condition:
(A) Landlord receiving and acceptance of a request of cancellation, as of
January 31, 1997 of the Assignment and Assumption of Lease (the
"Assignment") dated February 10, 1993 by and between First Nationwide Bank,
A Federal Savings Bank ("Assignor"), Norwest Bank - Littleton ("Assignee")
and Elliott Kiowa, Inc. ("Lessor") (copy attached).
Giving the Landlord possession and right to Lease the property, located at
2409 W. Main Street, Littleton, Colorado 80120.
PARAGRAPH 2
REGULATORY APPROVAL RIDER:
Tenant shall use its best efforts to obtain charter approval in a timely
manner, but not later than 45 days from the execution at this lease
agreement. The payment of rent shall commence upon branch approval, but
not sooner than February 1, 1997, or before tenant has occupancy to the
building. This lease agreement is subject to tenant receiving branch
approval on or before January 15, 1997. If tenant fails to receive branch
approval on or before January 15, 1997, this lease agreement shall be null
and void and to no further effect.
Executed this 9/th/ day of December, 1996 in Littleton Colorado.
------ ---------
Colorado Business Bank, N.A. Elliott Kiowa, Inc.
/s/ Darrell J. Schulte, President 12/9/96 /s/ by Lawrence Elliott 12-9-96
- --------------------------------------------- ---------------------------------
Tenant Date Landlord Date
<PAGE>
ASSIGNMENT AND ASSUMPTION OF LEASE
----------------------------------
This Assignment of Lease (the "Assignment") is made as of February 10,
1993, by and between First Nationwide Bank, A Federal Savings Bank ("Assignor"),
Norwest Bank-Littleton, ("Assignee"), and Elliott Kiowa, Inc. ("Lessor").
RECITALS
--------
A. Pursuant to a Lease Agreement dated January 30, 1973, a Rider Number 2
executed June 11, 1973 and a Rider Agreement dated October 30, 1987
(collectively, the "Lease") Van Schaak Corporation (as Predecessor in Interest
to Lessor) leased to Columbia Savings and Loan Association (as Predecessor in
Interest to Assignor), the property described in the Lease at the rent and upon
and subject to the terms and conditions set forth in the Lease.
B. Subject to the conditions in this Assignment, Assignor desires to
assign its interest in the Lease to Assignee and to be released from all its
obligations under this Lease, and Lessor desires to accept such assignment and
to release Assignor from its obligations under the Lease.
C. Capitalized terms not otherwise defined herein shall have the meaning
set forth in the Lease.
NOW, THEREFORE, the parties hereto, for themselves, their successors and
assigns, mutually covenant and agree as follows:
1. Recitals. The recitals set forth above are incorporated herein by
--------
reference as if set forth in full.
2. Premises. Assignor does hereby assign its right, title and interest
--------
in, to and under the Lease to Assignee, and Assignee does hereby accept the
assignment from Assignor and assumes and agrees to perform, from the date this
Assignment becomes effective, as a direct obligation to Lessor, all provisions
of the Lease.
3. Lessor's Consent. Lessor consents to the assignment by Assignor to
----------------
Assignee without waiver of the restriction concerning further assignment.
4. Use of Premises. Lessor acknowledges that Assignee will occupy the
---------------
premises for use as a commercial bank and hereby approves of such use.
5. Effective Date of Assignment. The assignment in this Assignment shall
----------------------------
take effect on Closing Date as set forth in the Purchase and Assumption
Agreement dated January 12, 1993 between Norwest Bank and First Nationwide Bank
(the "Assignment Date") and Assignor shall give possession of the Premises to
Assignee on that date.
6. Assignor's Liability. Assignor shall remain liable for the
--------------------
performance of the provisions of the Lease until midnight, on the day before the
Assignment Date. After midnight, on the day before the Assignment Date,
Assignor's obligations under the Lease shall terminate. Lessor and Assignee
shall fully and unconditionally release and discharge Assignor from its
<PAGE>
obligations hereunder and under the Lease except to the extent of obligations
incurred by Assignor prior to the Assignment Date. This Assignment shall fully
and finally settle all demands, charges, claims, accounts, or causes of action
of any nature, including, without limitation, both known and unknown claims and
causes of action that arose out of or in connection with this Assignment or the
Lease.
7. Insurance. Effective on the Assignment Date and prior to Assignee
---------
occupying the Premises, Assignee shall maintain Insurance or self-insurance in
reasonable amounts which are mutually agreeable to Assignee and Lessor.
8. Indemnification. Assignee shall and hereby does indemnify and hold
---------------
Assignor harmless from and against any and all actions, claims, demands,
damages, liabilities and expenses (including, without limitation, reasonable
attorneys' fees) asserted against, imposed upon or incurred by Assignor by
reason of (i) any violation caused, suffered or permitted by Assignee, its
agents, servants, employees or invitees, of any of the terms, covenants or
conditions of the Lease or this Assignment after the Assignment Date, (ii) any
damage or injury to persons or property occurring in connection with Assignee's
use or occupancy of the Premises, (iii) any damage or injury to persons or
property occurring in connection with Assignee's construction of tenant
improvements in the Premises, and (iv) the failure of Assignee to vacate the
Premises promptly at the end of the term of the Lease.
Assignor shall and hereby does indemnify and hold Assignee harmless from
and against any and all actions, claims, demands, liabilities and expenses
(including, without limitation, reasonable attorneys' fees) asserted against,
imposed upon or incurred by Assignee by reason of (i) any violation caused,
suffered or permitted by Assignor, its agents, servants, employees or invitees,
of any of the terms, covenants or conditions of the Lease or this Assignment
prior to the Assignment Date, (ii) any damage or injury to persons or property
occurring in connection with Assignor's use or occupancy of the premises, (iii)
any damage or injury to persons or property occurring in connection with the
Assignor's construction of tenant improvements in the Premises, and (iv) the
failure of Assignor to vacate the Premises promptly before the Assignment Date.
9. Miscellaneous. This Assignment contains all of the covenants,
-------------
agreements, terms, provisions, conditions, warranties and understandings
relating to the assignment of the Lease and Assignor's obligations in connection
herewith, and neither Assignor nor any agent or representative of Assignor has
made or is making, and Assignee in executing and delivering this Assignment is
not relying upon, any warranties, representations, promises or statements
whatsoever, except to the extent expressly set forth in this agreement. All
understandings and agreements relating to the subject matter of this Assignment,
if any, heretofore made between the parties are merged into this Assignment,
which alone fully and completely expresses the agreement of the parties.
Assignor and Lessor each represent to Assignee that there is no default under
the terms of the Lease. Assignor and Lessor further warrant to Assignee that
validity of the Lease and will defend the leasehold estate created by the Lease.
10. Execution. This Assignment shall not be effective unless executed by
---------
Assignee, Assignor and Lessor.
<PAGE>
11. Further Assurances. Lessor, Assignor and Assignee shall each execute
-------------------
and deliver such further instruments and do such further acts and things as may
be required to carry out the intent and purposes of this Assignment.
12. Counterparts. This Assignment may be executed in two or more
------------
counterparts, each of which shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Assignment to be
executed as of the date first written above.
ASSIGNOR:
FIRST NATIONWIDE BANK,
A FEDERAL SAVINGS BANK
By: /s/ Peter J. Ban
----------------------
Its: First Vice President
---------------------
ASSIGNEE:
NORWEST BANK LITTLETON
By: /s/ David E. Bailey
--------------------
Its: Chairman
-------------------
LESSOR:
ELLIOTT KIOWA, INC.
By: /s/ Lawrence Elliott
---------------------
Its: President
--------------------
<PAGE>
RIDER III
THIS RIDER IS ATTACHED TO AND HEREBY FORMS PART OF THE CERTAIN LEASE DATED
DECEMBER 2, 1996, WHEREIN ELLIOTT KIOWA, INC. IS REFERRED TO AS THE LANDLORD AND
- ----------------
COLORADO BUSINESS BANK, N.A. IS REFERRED TO AS THE TENANT COVERING THE PREMISES
KNOWN AS 2409 W. MAIN STREET, LITTLETON, COLORADO 80120
The Landlord acknowledges the receiving of physical inspection reports on
the Roof and H.V.A.C.
The Landlord will, at his cost, correct the deficiencies noted in the
reports.
Executed this 9/th/ day of December, 1996 in Littleton Colorado.
------ ---------
Colorado Business Bank, N.A. Elliott Kiowa, Inc.
/s/ Darrell J. Schulte, President 12/9/96 /s/ by Lawrence Elliott 12-9-96
- ------------------------------------------- -----------------------------------
Tenant Date Landlord Date
<PAGE>
Exhibit 10.21
LEASE
1. PARTIES. This Lease, dated, for reference purposes only, November, 1997 is
made by and between SPENCER ENTERPRISES, a Colorado General Partnership (herein
called "Lessor") and COLORADO BUSINESS BANK, N.A., a Colorado Corporation
(herein called "Lessees").
2. LEASED PREMISES.
2.1 Leased Premises. Lessor hereby leases to Lessee and Lessee leases
---------------
from Lessor for the term, at the rental, and upon all of the conditions set for
herein, that certain real property situated in the County of Jefferson, State of
Colorado, commonly know as Suite 100 (First Floor), 15710 West Colfax Avenue,
Golden CO 80401. Refer to Exhibits One, Two, attached and incorporated by
reference. Said property including the land and all improvements thereon, is
herein called "the Leased Premises".
2.2 Premises. As used in this Lease, the term "Premises" shall include
--------
the real property and improvements know as 15710 West Colfax Avenue, Golden,
Colorado, 80401.
3. TERM.
3.1 TERM. The term of this Lease shall be for seven (7) Years commencing
on December 1, 1997, and ending on November 30, 2004, unless sooner terminated
pursuant to any provision hereof.
3.2 DELAY IN COMMENCEMENT. Notwithstanding said commencement date, if for
any reason Lessor cannot deliver possession of the Leased Premises to Lessee on
said date, Lessor shall not be subject to any liability therefor, nor shall such
failure affect the validity of this Lease or the obligations of Lessee hereunder
or extend the term hereof, but in such case Lessee shall not be obligated to pay
rent until possession of the Leased Premises is tendered to Lessee; provided,
however, that if Lessor shall not have delivered possession of the Leased
Premises within sixty (60) days from said commencement date, Lessee may, at
Lessee's option, by notice in writing to Lessor within ten (10) days thereafter,
cancel this Lease, in which event the parties shall be discharged from all
obligations hereunder. If Lessee occupies the Leased Premises prior to said
commencement date, such occupancy shall be subject to all provisions hereof,
such occupancy shall not advance the termination date, and Lessee shall pay rent
for such period at the initial monthly rates set forth below.
4. RENT. Lessee shall pay to Lessor as rent for the Leased Premises the rent
stated on Exhibit 1 dollars ($______________________________), payable in equal
monthly installments of $____________________ in advance, on the first day of
each month of the term hereof. Lessee shall pay Lessor upon the execution
hereof $1,000.00 as rent for December 1997. Rent for any period during the term
hereof which is for less than one month shall be a pro rate portion of the
monthly installment. Rent shall be payable in lawful money of the United States
to Lessor at the address stated herein or to such other persons or at such other
places as Lessor may designate in writing.
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5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
$0.00 as security for Lessee's faithful performance of Lessee's obligations
hereunder. If Lessee fails to pay rent or other charges due hereunder, or
otherwise defaults with respect to any provision of this Lease, Lessor may use,
apply or retain all or any portion of said deposit for the payment of any rent
or other charge in default or for the payment of any other sum to which Lessor
may become obligated by reason of Lessee's default, or to compensate Lessor for
any loss or damage which Lessor may suffer thereby. If Lessor so uses or applies
all or any portion of said deposit, Lessee shall within ten (10) days after
written demand therefor deposit cash with Lessor in an amount sufficient to
restore said deposit to the full amount hereinabove stated and Lessee's failure
to do so shall be a material breach of this Lease. Lessor shall not be required
to keep said deposit separate from its general accounts. If Lessee performs all
of Lessee's obligations hereunder, said deposit, or so much thereof as has not
theretofore been applied by Lessor, shall be returned, without payment of
interest or other increments for its use, to Lessee (or, at Lessor's option, to
the last assignee, if any, of Lessee's interest hereunder) within sixty (60)
days after the expiration of the term hereof, and after Lessee has vacated the
Leased Premises.
6. USE.
6.1 USE. The Leased Premises shall be used and occupied only for a
commercial bank.
6.2 COMPLIANCE WITH LAW. Lessee shall, at Lessee's expense, comply
promptly with all applicable statutes, ordinances, rules, regulations, orders
and requirements in effect during the term or any part of the term hereof
regulating the use by Lessee of the Leased Premises. Lessee shall not use or
permit the use of the Leased Premises in any manner that will tend to create
waste or a nuisance or, if there shall be more than one tenant of the building
containing the Leased Premises, which shall tend to disturb such other tenants.
6.3 CONDITION OF LEASED PREMISES. Lessee hereby accepts the Leased
Premises in their condition existing as of the date of the execution hereof,
subject to all applicable zoning, municipal, county and state laws, ordinances
and regulations governing and regulating the use of the Premises, and accepts
this Lease subject thereto and to all matters disclosed thereby and by any
exhibits attached hereto. Lessee acknowledges that neither Lessor nor Lessor's
agent has made any representation or warranty as to the suitability of the
Premises for the conduct of Lessee's business.
7. MAINTENANCE, REPAIRS AND ALTERATIONS.
7.1 LESSOR'S OBLIGATIONS. Subject to the provisions of Article 9 and
except for damage caused by any negligent or intentional act or omission of
Lessee, Lessee's agents, employees, or invitees, Lessor, at Lessor's expense,
shall keep in good order, condition and repair the foundations, exterior walls
and the exterior roof of the Premises. Lessor shall not, however, be obligated
to paint such exterior, nor shall Lessor be required to maintain the interior
surface of exterior walls, windows, doors or plate glass. Lessor shall have no
obligation to make repairs under this Paragraph 7.1 until a reasonable time
after receipt of written notice of the need for such repairs. Lessee expressly
waives the benefits of any stature now or hereafter in effect which would
otherwise afford Lessee the right to make repairs at Lessor's expense or to
terminate this Lease because of Lessor's failure to keep the Premises in good
order, condition and repair.
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7.2 LESSEE'S OBLIGATIONS.
(a) Subject to the provision of Paragraph 9 and Paragraph 7.1, Lessee,
at Lessee's expense, shall keep in good order, condition and repair the Leased
Premises and every part thereof (regardless of whether the damaged portion of
the Leased Premises or the means of repairing the same are accessible to
Lessee), including, without limiting the generality of the foregoing, fixtures,
interior walls and interior surface of exterior wall, floor and floor coverings,
ceilings, windows, doors, plate glass, and tenant improvements located within
the Leased Premises.
(b) Lessee in addition to the obligations set forth in sub-paragraph
(a) above, and the other obligations contained in this Lease, shall pay the
percentage % of all costs and expenses pertaining to the repair and maintenance
of common areas and facilities at 15710 West Colfax Avenue, Golden, CO as stated
on Exhibit 1, including, but not limited to landscaping, snow removal, common
systems, including without limitation, window cleaning, parking lot and
sidewalks, HVAC, electrical and plumbing. Lessor shall have the option to
estimate these expenses and invoice monthly; adjustment to be made annually.
(c) If Lessee fails to perform Lessee's obligations under this
Paragraph 7.2, Lessor may at Lessor's option enter upon the Leased Premises
after ten (10) days, prior written notice to Lessee, and put the same in good
order, condition and repair, and the cost thereof together with interest thereon
at the rate of 18% per annum shall be due and payable as additional rent to
Lessor together with Lessee's next rental installment.
(d) On the last day of the term hereof, or on any sooner termination,
Lessee shall surrender the Leased Premises to Lessor in the same condition as
received, broom clean, ordinary wear and tear excepted. Lessee shall repair any
damage to the Premise occasioned by the removal of its trade fixtures,
furnishings and equipment pursuant to Paragraph 7.3(c), which repair shall
include the patching and fitting of holes and repair of structural damage.
7.3 ALTERATIONS AND ADDITIONS.
(a) Lessee shall not, without Lessor's prior written consent, make any
alterations, improvements, additions, or utility installations in, on or about
the Leased Premises, except for non-structural alterations not exceeding $1,000
in cost. As used in this Paragraph 7.3, the term "utility installations" shall
include bus ducting, power panels, fluorescent fixtures, space heaters, conduits
and wiring. As a condition to giving such consent, Lessor may require that
Lessee agree to remove any such alterations, improvements, additions or utility
installations at the expiration of the term, and to restore the Leased Premises
to their prior condition. As a further condition to giving such consent, Lessor
may require Lessee to provide Lessor, at Lessee's sole cost and expense, a lien
and completion bond in an amount equal to one and one-half times the estimated
cost of such improvements, to insure Lessor against any liability for mechanics'
and materialmen's liens and to insure completion of the work.
(b) Lessee shall pay, when due, all claims for labor or material
furnished or alleged to have been furnished to or for Lessee at or for use in
the Leased Premises, which claims are or may be secured by mechanics', or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days' notice prior to the commencement of any
work in the Leased Premises, and Lessor shall have the right to post notices of
non-responsibility in or on the Premises as provided by law.
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(c) Unless Lessor requires their removal, as set forth in Paragraph
7.3(a), all alteration, improvement, additions and utility installations
(whether or not such utility installations constitute trade fixtures of Lessee),
which may be made on the Leased Premises, shall become the property of Lessor
and remain upon and be surrendered with the Leased Premises at the expiration of
the term. Notwithstanding the provisions of this Paragraph 7.3(c), Lessee's
machinery and equipment, other than that which is affixed to the Leased Premises
so that it cannot be removed without material damage to the Premises, shall
remain the property of Lessee and may be removed by Lessee subject to the
provisions of Paragraph 7.2(c).
8. INSURANCE; INDEMNITY.
8.1 LIABILITY INSURANCE. Lessee shall, at Lessee's expense, obtain and
keep in force during the term of this Lease a policy of comprehensive public
liability insurance insuring Lessor and Lessee against any liability arising out
of the ownership, use, occupancy or maintenance of the Leased Premises and all
areas appurtenant thereto. Such insurance shall be in an amount of not less
than $1,000,000 for injury to or death of one person in any one accident or
occurrence and in an amount of not less than $1,000,000 for injury to or death
of more than one person in any one accident or occurrence. Such insurance shall
further insure Lessor and Lessee against liability for property damage of at
least $500,000. The limits of said insurance shall not, however, limit the
liability of Lessee hereunder. In the event that the Leased Premises constitute
a part of a larger property said insurance shall have a Lessor's Protective
Liability endorsement attached thereto. If Lessee shall fail to procure and
maintain said insurance Lessor may, but shall not be require to, procure and
maintain the same, but at the expense of Lessee.
8.2 PROPERTY INSURANCE. Lessor shall obtain and keep in force during the
term of this Lease a policy or policies of insurance covering loss or damage to
the Premises, in the amount of the full replacement value thereof, providing
protection against all perils included within the classification of fire,
extended coverage, vandalism, malicious mischief, special extended perils (all
risk). Lessee shall pay during the term hereof, in addition to rent, the
percentage % of the premiums as stated on Exhibit 1, for the insurance required
under this Paragraph 8.2. Lessee shall pay such premium to Lessor within 30
days after receipt by Lessee of a copy of the premium statement or other
satisfactory evidence of the amount due. If the insurance policies maintained
hereunder cover other improvements in addition to the Premises, Lessor shall
also deliver to Lessee a statement of the amount of the premiums attributable to
the Premises and showing in reasonable detail the manner in which such amount
was computed. If the term of this Lease shall not expire concurrently with the
expiration of the period covered by such insurance, Lessee's liability for the
premium shall be prorated on an annual basis.
8.3 INSURANCE POLICIES. Insurance required hereunder shall he in
companies rated AAA or better in "Best's Insurance Guide". Lessee shall deliver
to Lessor copies of policies of liability insurance required under Paragraph 8.1
or certificates evidencing the existence and amounts of such insurance with loss
payable clauses satisfactory to Lessor. No such policy shall be cancelable or
subject to reduction of coverage or other modification except after ten (10)
days' prior written notice to Lessor. Lessee shall, within ten (10) days prior
to the expiration of such policies, furnish Lessor with renewals or "binders"
thereof, or Lessor may order such insurance and charge the cost thereof
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to Lessee, which amount shall be payable by Lessee upon demand. Lessee shall not
do or permit to be done anything which shall invalidate the insurance policies
referred to in Paragraph 8.2.
8.4 WAIVER OF SUBROGATION. Lessee hereby waives any and all rights of
recovery against Lessor, or against the officers, employees, agents and
representatives of Lessor, for loss of or damage to such Lessee or its property
or the property of others under its control, where such loss or damage is
insured against under any insurance policy in force at the time of such loss or
damage. Lessee shall, upon obtaining the policies of insurance required
hereunder, give notice to the insurance carrier or carriers that the forgoing
waiver of subrogation is contained in the Lease.
8.5 INDEMNITY. Lessee shall indemnify and hold harmless Lessor from and
against any and all claims arising from Lessee's possession and use of the
Leased Premises, or from the conduct of Lessee's business or from any activity,
work or things done, permitted or suffered by Lessee in or about the Premises or
elsewhere and shall further indemnify and hold harmless Lessor from and against
any and all claims arising from any breach or default in the performance of any
contractors, or employees and from and against all costs, attorney's fees,
expenses and liabilities incurred in the defense of any such claim or any action
or proceeding brought thereon; and in case any action or proceeding be brought
against Lessor by reason of any such claim, Lessee upon notice from Lessor shall
defend the same at Lessee's expense by counsel satisfactory to Lessor. Lessee,
as a material part of the consideration to Lessor, hereby assumes all risk of
damage to property or injury to persons, in, upon or about the Premises arising
from any cause and Lessee hereby waives all claims in respect thereof against
Lessor.
8.6 EXEMPTION OF LESSOR FROM LIABILITY. Lessee hereby agrees that Lessor
shall not be liable for injury to Lessee's business or any loss of income
therefrom or for damage to the goods, wares, merchandise or other property of
Lessee, Lessee's employees, invitees, customers, or any other person in or about
the Premises, nor shall Lessor be liable for injury to the person of Lessee,
Lessee's employees, agents or contractors, whether such damage or injury is
caused by or results from fire, steam, electricity, gas, water or rain, or from
the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether the said damage or injury results from conditions arising upon
the Premises or upon other portions of the building of which the Leased Premises
are a part, or from other sources or places, and regardless of whether the cause
of such damage or injury or the means of repairing the same is inaccessible to
Lessee. Lessor shall not be liable for any damage arising from any act or
neglect of any other tenant, if any, of the building in which the Premises are
located.
9. DAMAGE OR DESTRUCTION.
9.1 PARTIAL DAMAGE-INSURED. Subject to the provisions of Paragraph 9.4,
if the Premises are damaged and such damage was caused by a casualty covered
under an insurance policy required to be maintained pursuant to Paragraph 8.2,
Lessor shall at Lessor's expense repair such damages as soon as reasonable
possible and this Lease shall continue in full force and effect.
9.2 PARTIAL DAMAGE-UNINSURED. Subject to the provisions of Paragraph 9.4,
if at anytime during the term hereof the Leased Premises are damaged, except by
a negligent or willful act of Lessee, and such damage was caused by a casualty
not covered under an insurance policy required to be maintained by Lessor
pursuant to Paragraph 8.2, Lessor may at Lessor's option (i) repair such damage
as soon as reasonably possible at Lessor's expense, in which event this Lease
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shall continue in full force and effect, or (ii) give written notice to Lessee
within thirty (30) days after the date of the occurrence of such damage of
Lessor's intention to cancel and terminate this Lease as of the date of the
occurrence of such damage. In the event Lessor elects to give such Notice of
Lessor's intention to cancel and terminate this Lease, Lessee shall have the
right within ten (10) days after the receipt of such notice to give written
notice to Lessor of Lessee's intention to repair such damage at Lessee's
expense, without reimbursement from Lessor, in which event this Lease shall
continue in full force and effect, and Lessee shall proceed to make such repairs
as soon as reasonable possible. If Lessee does not give such notice within such
10-day period this Lease shall be canceled and terminated as of the date of the
occurrence of such damage.
9.3 TOTAL DESTRUCTION. If at any time during the term hereof the premises
are totally destroyed from any cause whether or not covered by the insurance
required to be maintained by Lessor pursuant to Paragraph 8.2 (including any
total destruction required by any authorized public authority) this Lease shall
automatically terminate as of the date of such total destruction.
9.4 DAMAGE NEAR END OF TERM. If the Premises are partially destroyed or
damaged during the last six months of the term of this Lease, Lessor may at
Lessor's option cancel and terminate this Lease as of the date of occurrence of
such damage by giving written notice to Lessee of Lessor's election to do so
within 30 days after the date of occurrence of such damage.
9.5 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) If the Premises are partially destroyed or damaged and Lessor or
Lessee repairs or restores them pursuant to the provisions of this Article, the
rent payable hereunder for the period during which such damage, repair or
restoration continues shall be abated in proportion to the degree to which
Lessee's use of the Leased Premises is impaired. Except for abatement of rent,
if any, Lessee shall have no claim against Lessor for any damage suffered by
reason of any such damage, destruction, repair or restoration.
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not commence such repair or
restoration within 90 days after such obligations shall accrue, Lessee may at
Lessee's option cancel and terminate this Lease by giving Lessor written notice
of Lessee's election to do so at any time prior to the commencement of such
repair or restoration. In such event this Lease shall terminate as of the date
of such notice. Any abatement in rent shall be computed as provided in
Paragraph 9.5(a).
9.6 TERMINATION-ADVANCE PAYMENTS. Upon termination of this Lease pursuant
to this Paragraph 9, an equitable adjustment shall be made concerning advance
rent and any advance payments made by Lessee to Lessor. Lessor shall, in
addition, return to Lessee so much of Lessee's security deposit as has not
theretofore been applied by Lessor.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF REAL PROPERTY TAX. Lessee shall pay the percentage % of
all real property taxes as stated on Exhibit 1, applicable to the Premises
during the term of the Lease. Such payment shall be made by Lessee within
thirty (30) days after receipt of Lessor's written statement setting forth the
amount of tax. If the term of this Lease shall not expire concurrently with the
expiration of the tax fiscal year, Lessee's liability for taxes for the last
partial lease year shall be prorated on an annual basis.
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10.2 DEFINITION OF "REAL PROPERTY" TAX. As used herein, the term "real
property tax" shall include any form of assessment, license fee, commercial
rental tax, levy, penalty, or tax (other than inheritance or estate taxes) ,
imposed by any authority having the direct or indirect power to tax including
any city, county, state or federal government, or any school, agricultural,
lighting, drainage or other improvement district thereof, as against any legal
or equitable interest of Lessor in the Premises or in the real property of which
the Leased Premises are a part, as against Lessor's right to rent or other
income therefrom, or as against Lessor's business of leasing the Premises.
10.3 JOINT ASSESSMENT. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the real property taxes
for all of the land and improvements included within the tax parcel assessed,
such proportion to be determined by Lessor from the respective valuations
assigned in the assessor's work sheets or such other information as may be
reasonable available. Lessor's reasonable determination thereof, in good faith,
shall be conclusive.
(a) For purposes of this Lease, any real property tax which can be
paid over a number of years or in one lump sum payment, shall be treated as if
paid over time and Lessee shall only be billed for the portion of the real
property tax attributable to each lease year on a year by year basis with the
same interest rate factor as that which is being charged by the assessor of the
real property tax.
10.4 PERSONAL PROPERTY TAXES.
(a) Lessee shall pay prior to delinquency all taxes assessed against
and levied upon trade fixtures, furnishings, equipment and all other personal
property of Lessee contained in the Premises or elsewhere. When possible,
Lessee shall cause said trade fixtures, furnishings, equipment and all other
personal property to be assessed and billed separately from the real property of
Lessor.
(b) If any of Lessee's said personal property shall be assessed with
Lessor's real property, Lessee shall pay Lessor the taxes attributable to Lessee
within 10 days after receipt of a written statement setting forth the taxes
applicable to Lessee's property.
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone and other utilities and services supplied to the Leased Premises,
together with any taxes thereon. If any such services are not separately
metered to Lessee, Lessee shall pay a reasonable proportion to be determined by
Lessor of all charges jointly metered to the Premises.
12. LESSOR'S CONSENT REQUIRED.
12.1 LESSOR'S CONSENT REQUIRED. Lessee shall not voluntarily or by
operation of law assign, transfer, mortgage, sublet, or otherwise transfer or
encumber all or any part of Lessee's interest in this Lease or in the Leased
Premises, without Lessor's prior written consent, which Lessor shall not
unreasonably withhold. Any attempted assignment, transfer, mortgage,
encumbrance or subletting without such consent shall be void, and shall
constitute a breach of this Lease.
12.2 NO RELEASE OF LESSEE. Regardless of Lessor's consent, no subletting
or assignment shall release Lessee of Lessee's obligation or alter the primary
liability of Lessee to pay the rent and to perform all other obligations to be
performed by Lessee hereunder. The acceptance of rent by Lessor from any other
person shall not be deemed to be a waiver by Lessor of any provision hereof.
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Consent to one assignment or subletting shall not be deemed consent to any
subsequent assignment or subletting.
12.3 ATTORNEY'S FEES. In the event that Lessor shall consent to a sublease
or assignment under Paragraph 12.1, Lessee shall pay Lessor's reasonable
attorneys' fees not to exceed $1000 incurred in connection with giving such
consent.
13. DEFAULTS; REMEDIES.
13.1 DEFAULTS. The occurrence of any one or more of the following events
shall constitute a material default and breach of this Lease by Lessee:
(a) The vacating or abandonment of the Leased Premises by Lessee.
(b) The failure by Lessee to make any payment of rent or any other
payment required to be made by Lessee hereunder, as and when due, where such
failure shall continue for a period of five days after written notice thereof
from Lessor to Lessee.
(c) The failure by Lessee to observe or perform any of the covenants,
conditions or provisions of the Lease to be observed or performed by Lessee,
other than described in paragraph (b) above, where such failure shall continue
for a period of 15 days after written notice hereof from Lessor to Lessee;
provided, however, that if the nature of Lessee's default is such that more than
15 days are reasonable required for its cure, then Lessee shall not be deemed to
be in default if Lessee commenced such cure within said 30-day period and
thereafter diligently prosecutes such cure to completion.
(d) (i) The making by Lessee of any general assignment, or general
arrangement for the benefit of creditors; (ii)the filing by or against Lessee of
a petition to have Lessee adjudged a bankrupt or a petition or reorganization or
arrangement under any law relating to bankruptcy (unless, in the case of a
petition filed against Lessee, the same is dismissed within 60 days; (iii) the
appointment of a trustee or receiver to take possession of substantially all of
Lessee's assets located at the Leased Premises or of Lessee's interest in this
Lease, where possession is not restored to Lessee within 30 days; or (iv) the
attachment, execution or other judicial seizure of substantially all of Lessee's
assets located at the Leased Premises or of Lessee's interest in this Lease,
where such seizure is not discharged within 30 days.
13.2 REMEDIES. In the event of any such material default or breach by
Lessee, Lessor may at any time thereafter, with or without notice or demand and
without limiting Lessor in the exercise of any right or remedy which Lessor may
have by reason of such default or breach:
(a) Terminate Lessee's right to possession of the Leased Premises by
any lawful means, in which case this Lease shall terminate and Lessee shall
immediately surrender possession of the Leased Premises to Lessor. In such
event Lessor shall be entitled to recover from Lessee all damages incurred by
Lessor by reason of Lessee's default including, but not limited to, the cost of
recovering possession of the Leased Premises; expenses of reletting, including
necessary renovation and alteration of the Leased Premises, reasonable
attorney's fees, and any real estate commission actually paid; the worth at the
time of award by the court having jurisdiction thereof of the amount by which
the unpaid rent for the balance of the term after the time of such award exceeds
the amount of such rental loss for the same period that Lessee proves could be
reasonable avoided; that portion of the leasing commission paid by Lessor
pursuant to Article 15 applicable to the unexpired term of this Lease. Unpaid
installments of rent or other sums shall bear interest from the date due at the
rate
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of 18% per annum. In the event Lessee shall have abandoned the Leased Premises,
Lessor shall have the option of (i) retaking possession of the Leased Premises
and recovering from Lessee the amount specified in the Paragraph 13.2(a), or
(ii) proceeding under Paragraph 13.2(b).
(b) Maintain Lessee's right to possession in which case this Lease
shall continue in effect whether or not Lessee shall have abandoned the Leased
Premises. In such event Lessor shall be entitled to enforce all of Lessor's
rights and remedies under this Lease, including the right to recover the rent as
it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to Lessor under
the laws or judicial decisions of the State of Colorado.
13.3 DEFAULT BY LESSOR. Lessor shall not be in default unless Lessor fails
to perform obligations required of Lessor within a reasonable time, but in no
event later than thirty (30) days after written notice by Lessee to Lessor
specifying wherein Lessor has failed to perform such obligation; provided,
however, that if the nature of Lessor's obligation is such that more than thirty
(30) days are required for performance then Lessor shall not be in default if
Lessor commences performance within such 30-day period and thereafter diligently
prosecutes the same to completion.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee
to Lessor of rent and other sums due hereunder will cause Lessor to incur costs
not contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed on Lessor by the
terms of any mortgage or trust deed covering the Premises. Accordingly, if any
installment of rent or any other sum due from Lessee shall not be received by
Lessor or Lessor's designee within the (10) days after such amount shall be due,
Lessee shall pay to Lessor a late charge equal to 18% of such overdue amount.
The parties hereby agree that such late charge represents a fair and reasonable
estimate of the costs Lessor will incur by reason of late payment by Lessee.
Acceptance of such late charge by Lessor shall in no event constitute a waiver
of Lessee's default with respect to such overdue amount, to prevent Lessor from
exercising any of the other rights and remedies granted hereunder.
14. CONDEMNATION. If the Premises or any portion thereof are taken under the
power of eminent domain, or sold under the threat of the exercise of said power
(all of which are herein call "condemnation"), this Lease shall terminate as to
the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than 10% of the floor area of the
improvements on the Premises, or more than 25% of the land area of the Premises
which is not occupied by any improvements, is taken by condemnation, Lessee may,
at Lessee's option, to be exercised in writing only within ten (10) days after
Lessor shall have given Lessee written notice of such taking (nor in the absence
of such notice, within ten (10) days after condemning authority shall have taken
possession) terminate this Lease as of the date the condemning authority takes
such possession. If Lessee does not terminate this Lease in accordance with the
foregoing, this Lease shall remain in full force and effect as to the portion of
the Leased Premises remaining, except that the rent shall be reduced in the
proportion that the floor area taken bears to the total floor area of the
building situated on the Premises. Any award for taking of all or any part of
the Premises under the power of eminent domain or any payment made under threat
of the exercise of such power shall be the property of Lessor, whether such
award shall be made as compensation for diminution in value
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of the leasehold or for the taking of the fee, or as severance damages; provide,
however, that Lessee shall he entitled to any award for loss of or damage to
Lessee's trade fixtures and removable personal property. In the event that this
Lease is not terminated by reason of such condemnation, Lessor shall, to the
extent of severance damages received by Lessor in connection with such
condemnation, repair any damage to the Premises caused by such condemnation
except to the extent that Lessee has been reimbursed therefor by the condemning
authority. Lessee shall pay any amount in excess of such severance damages
required to complete such repair.
15. BROKER'S FEE. Upon execution of this Lease by both parties, Lessor shall
pay to N/A , a licensed real estate broker, a fee of $ N/A
----------- ------------
for brokerage services heretofore rendered.
16. GENERAL PROVISIONS.
16.1 ESTOPPEL CERTIFICATE.
(a) Lessee shall at any time upon not less than ten (10) days' prior
written notice from Lessor execute, acknowledge and deliver to Lessor a
statement in writing (1) certifying that this Lease is unmodified and in full
force and effect (or, if modified, stating the nature of such modification and
certifying that this Lease, as so modified, is in full force and effect) and the
date to which the rent and other charges are paid in advance, if any, and (ii)
acknowledging that there are not, to Lessee's knowledge, any uncured defaults on
the party of Lessor hereunder or specifying such defaults if any are claimed.
Any such statement may be conclusively relied upon by any prospective purchaser
or encumbrancer of the Premises.
(b) Lessee's failure to deliver such statement within such time shall
be conclusive upon Lessee (i) that this Lease is in full force and effect,
without modification except as may be represented by Lessor, (ii) that there are
no uncured defaults in Lessor's performance, and (iii) that not more than one
months's rent has been paid in advance.
(c) If Lessor desires to finance or refinance the Premises, or any
part thereof, Lessee hereby agrees to deliver to any lender designated by Lessor
such financial statements of Lessee as may be reasonable required by such
lender. Such statements shall include the past three years' financial statements
of Lessee. All such financial statements shall be received by Lessor in
confidence and shall be used only for the purposes herein set forth.
16.2 LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean only
the owner or owners at the time in question of the fee title or a lessee's
interest in a ground lease of the Premises, and except as expressly provided in
Paragraph 15, in the event of any transfer of such title or interest, Lessor
herein named (and in case of any subsequent transfers the then grantor) shall be
relieved from and after the date of such transfer of all liability as respects
Lessor's obligations thereafter to be performed, provided that any funds in the
hands of Lessor or the then grantor at the time of such transfer, in which
Lessee has an interest, shall be delivered to the grantee. The obligations
contained in this Lease to be performed by Lessor shall, subject as aforesaid,
be binding on Lessor's successors and assigns, only during their respective
periods of ownership.
16.3 SEVERABILITY. The invalidity of any provision of this Lease as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.
Page 10
<PAGE>
16.4 INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein
provided, any amount due to Lessor not paid when due shall bear interest at 18%
per annum from the date due. Payment of such interest shall not excuse or cure
any default by Lessee under this Lease.
16.5 TIME OF ESSENCE. Time is of the essence.
16.6 CAPTIONS. Article and paragraph captions are not a part hereof.
16.7 INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS. This Lease contains
all agreements of the parties with respect to any matter mentioned herein. No
prior agreement or understanding pertaining to any such matter shall be
effective. This Lease may be modified in writing only, signed by the parties in
interest at the time of the modification.
16.8 NOTICES. Any notice required or permitted to be given hereunder shall
be in writing and may be served personally or by regular mail, addressed to
Lessor and Lessee respectively at the addresses set forth after their signatures
at the end of this Lease.
16.9 WAIVERS. No waiver by Lessor of any provision hereof shall be deemed
a waiver of any other provision hereof or of any subsequent breach by Lessee of
the same or any other provision. Lessor's consent to or approval of any act
shall not be deemed to render unnecessary the obtaining of Lessor's consent to
or approval of any subsequent act by Lessee. The acceptance of rent hereunder
by Lessor shall not be a waiver of any preceding breach by Lessee of any
provision hereof, other than the failure of Lessee to pay the particular rent to
so accepted, regardless of Lessor's knowledge of such preceding breach at the
time of acceptance of such rent.
16.10 RECORDING. Lessee shall not record this Lease without Lessor's
prior written consent, and such recordation shall at the option of Lessor,
constitute a non-curable default of Lessee hereunder. Lessee shall, upon
request of Lessor, execute, acknowledge and deliver to Lessor a "short form"
memorandum of this Lease for recording purposes.
16.11 HOLDING OVER. If Lessee remains in possession of the Leased
Premises or any part thereof after the expiration of the term hereof without the
express written consent of Lessor, such occupancy shall be a tenancy from month
to month at a rental in the amount of the 150% of the last monthly rental plus
all other charges payable hereunder, and upon all the terms hereof applicable to
a month-to-month tenancy.
16.12 CUMULATIVE REMEDIES. No remedy or election hereunder shall be
deemed exclusive but shall, wherever possible, be cumulative with all other
remedies at law or in equity.
16.13 COVENANTS AND CONDITIONS. Each provision of this Lease
performable by Lessee shall be deemed both a covenant and a condition.
16.14 BINDING EFFECT; CHOICE OF LAW. Subject to any provisions hereof
restricting assignment or subletting by Lease and subject to the provisions of
Paragraph 16.2, this Lease shall bind the parties, their personal
representatives, successors and assigns. This Lease shall be governed by the
laws of the State of Colorado.
16.15 SUBORDINATION.
(a) This Lease, at Lessor's option, shall be subordinate to any ground
lease, mortgage, deed of trust, or any other hypothecation for security now or
hereafter placed upon the real property of which the Leased Premises are a part
and to any and all advances made on the security thereof and to all renewals,
modifications, consolidations, replacements and extensions thereof.
Notwithstanding such subordination, Lessee's right to quiet possession of the
Leased Premises shall not be disturbed if Lessee is not in default and so long
as Lessee shall pay the rent and observe and
Page 11
<PAGE>
perform all of the provisions of this Lease, unless this Lease is otherwise
terminated pursuant to its terms. If any mortgagee, trustee or ground lessor
shall elect to have this Lease prior to lien of its mortgage, deed of trust or
ground lease, and shall give written notice thereof to Lessee, this Lease shall
be deemed prior to such mortgage, deed of trust, or ground lease, whether this
Lease is date prior or subsequent to the date of said mortgage, deed of trust or
ground lease or the date of recording thereof.
(b) Lessee agrees to execute any reasonable documents required to
effectuate such subordination or to make this Lease prior to the lien of any
mortgage, deed of trust or ground lease, as the case bay be, and failing to do
so within ten (10) days after written demand, does hereby make, constitute and
irrevocably appoint Lessor as Lessee's attorney in fact and in Lessee's name,
place and stead, to do so.
16.16 ATTORNEY'S FEES. If either party brings an action to enforce the
terms hereof or declare rights hereunder, the prevailing party in any such
action, on trial or appeal, shall be entitled to his reasonable attorney's fees
to be paid by the losing party as fixed by the court.
16.17 LESSOR'S ACCESS. Lessor and Lessor's agents shall have the right
to enter the Leased Premises at reasonable times during Lessee's normal business
hours upon advance notice to Lessee for the purpose of inspecting the same,
showing the same to prospective purchasers, or lenders, and making such
alterations, repairs, improvements or additions to the Leased Premises or to the
building of which they are a part as Lessor may deem necessary or desirable.
Lessor may at any time place on or about the Premises any ordinary "For Sale"
signs and Lessor may at any time during the last 120 days of the term hereof
place on or about the Premises any ordinary "For Lease" signs, all without
rebate or rent or liability to Lessee. Notwithstanding anything herein to the
contrary, Lessor agrees not to place any such signs in the windows or doors of
the Leased Premises.
16.18 SIGNS AND AUCTIONS. Lessee shall not place any sign upon the
Premises or conduct any auction thereon without Lessor's prior written consent.
All sign shall comply with applicable government regulations. Lessee shall be
entitled, if allowed by current government regulations, two exterior signs.
16.19 MERGER. The voluntary or other surrender of this Lease by
Lessee, or a mutual cancellation thereof, shall not work a merger, and shall, at
the option of Lessor, terminate all or any existing subtenancies or may, at the
option of Lessor, operate as an assignment to Lessor of any or all of such
subtenancies.
16.20 HAZARDOUS MATERIALS. Lessee shall not generate, use, store or
dispose of any Hazardous Material in, on, or about the Premises except as
specifically provided for herein. Hazardous Materials shall mean: (a) "hazardous
waste" as defined by the Resource Conservation and Recovery Act of 1976 (RCRA)
as amended, (b) "hazardous substances" as defined by the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 (CERCLA) as
amended, (c) "toxic substances" as defined by the Toxic Substances Control Act,
as amended, (d) "hazardous materials," as defined by the Hazardous Materials
Transportation Act, as amended, (e) oil or other petroleum products, and (f) any
substance whose presence could be detrimental to health or to the environment.
This provision shall not prohibit Lessee from using or storing such petroleum
products, oil, lubricants, or solvents as may be necessary for the conduct of
its business, provided that a) such substances are used and stored in the
minimum amounts necessary for such business,
Page 12
<PAGE>
and b) Lessee indemnifies and holds Lessor harmless for any and all soil and/or
groundwater contamination resulting directly or indirectly therefrom.
16.21 PARKING SPACES. Lessee shall be allowed the exclusive use of 16
of the parking paces located on 15710 West Colfax Avenue, Golden, CO 80401, the
location shall be agreed upon by Lessor. Lessee shall not lock any alleyways or
driveways running through the Premises.
16.22 CORPORATE AUTHORITY. If Lessee is a corporation, each individual
executing this Lease on behalf of said corporation represents and warrants that
he is duly authorized to execute and deliver this Lease on behalf of said
corporation in accordance with a duly adopted resolution of the Board of
Directors of said corporation or in accordance with the Bylaws of said
corporation, and that this Lease is binding upon said corporation in accordance
with its terms. If Lessee is a corporation Lessee shall, within thirty (3) days
after execution of this Lease, deliver to Lessor a certified copy of a
resolution of the Board of Directors of said corporation authorizing or
ratifying the execution of this Lease.
16.23 ADDITIONAL PROVISIONS. Refer to Exhibits One, Two, attached and
incorporated by reference.
The parties hereto have executed this Lease at the place and on the dates
specified immediately adjacent to their respective signatures.
Page 13
<PAGE>
If this Lease has been filled in it has been prepared for submission
to your attorney for his approval. No representation or
recommendation is made by the real estate broker or its agents or
employees as to the legal sufficiency, legal effect, or tax
consequences of this Lease or the transaction relating thereto.
<TABLE>
<CAPTION>
<S> <C>
Executed at Denver, Colorado Spencer Enterprises,
---------------------- ------------------------------------
A Colorado General Partnership
on November 6, 1997 By /s/ Bruce S. Scott
------------------------------- ------------------------------------
Bruce S. Scott
Managing General Partner
Address 1221 Auraria Parkway By
-------------------------- ------------------------------------
Denver, CO 80204 "LESSOR"
--------------------------
Executed at Denver, Colorado Colorado Business Bank, N.A.
---------------------- ------------------------------------
A Colorado Corporation
on November 6, 1997 By /s/ Jonathan C. Lorenz
------------------------------- ------------------------------------
Jonathan C. Lorenz
President
Address 821 17th Street By
-------------------------- ------------------------------------
"LESSEE"
Denver, CO 80204
--------------------------
</TABLE>
Page 14
<PAGE>
EXHIBIT ONE - LEASE
DATE: November , 1997
EFFECTIVE DATE: December 1, 1997
LESSOR: Spencer Enterprises,
a Colorado general partnership
LESSEE: Colorado Business Bank N.A.
a Colorado corporation
LEASED PREMISES: Suite 100, 15710 West Colfax Avenue, Golden, Colorado
PREMISES: 15170 West Colfax Avenue, Golden, Colorado
The following terms and conditions are incorporated into the LEASE by this
reference:
2.1 DEFINITION OF LEASED PREMISES.
Year One: Sixty percent (60%) of the first floor, as identified on
EXHIBIT TWO, attached and incorporated by reference, as the cross hatched area
(XXXX), with the two areas identified as "common area" as non-exclusive lease
and use.
Year Two through Seven: One hundred percent (100%) of the first floor,
with the area identified as "entry" and the rear stair well as non-exclusive
lease and use.
3.3 OPTIONS TO EXTEND LEASE; RENTAL.
(A) LESSEE may at its option, extend this LEASE for two (2)
additional five (5) year terms on the terms and conditions stated herein,
provided LESSEE is not in default under any of the terms and conditions of this
LEASE. LESSEE may exercise said options singularly (only), by giving LESSOR
advance, written notice of the intent to exercise the option a minimum of four
(4) months prior to the end of the then existing term.
(B) In the event LESSEE exercises the option to extend this
LEASE for either or both of the two (2) five (5) year option terms, rental
shall be at then market rates, which rates shall be established prior to
the commencement of each option period, by LESSOR by reviewing comparable
lease rates for similar office space located within the west Denver
metropolitan area. LESSOR shall determine said market rate and provide
written notice to LESSEE of said rate a minimum of six (6) months prior to
the end of the then existing term of the LEASE. Notwithstanding anything
herein to the contrary, in the event LESSOR fails to provide said notice in
the time frame stated above, LESSEE'S time limitation for exercising either
option hereunder, shall be extended to two (2) months subsequent to
LESSEE'S receipt of market rate information from LESSOR.
<PAGE>
EXHIBIT ONE - LEASE
PAGE 2
4.1 RENT SCHEDULE.
Rental for the term of this LEASE, payable by LESSEE to LESSOR as
provided in the LEASE, shall be as follows:
Year One
months 1 - 6 $1,000.00/month
months 7 - 12 $3,000.00/month
Year Two $5,000.00/month
Year Three $5,500.00/month
Year Four $6,000.00/month
Year Five $6,500.00/month
Year Six $7,000.00/month
Year Seven $7,500.00/month
6.4 CONDITION - HVAC, PLUMBING, AND ELECTRICAL SYSTEMS.
LESSOR shall have the following systems inspected and in good working
order as of the effective date of this LEASE:
HVAC Electrical
Plumbing
7.2(B) SCHEDULE - PERCENTAGE OF COSTS AND EXPENSES.
LESSEE shall be responsible for the following percentages of said
costs and expenses:
Year One thirty percent (30%)
Years Two through
Seven fifty percent (50%)
7.2(E) REPLACEMENT OF CAPITAL ITEMS.
Notwithstanding anything in this lease to the contrary, in the event
capital items, including but not limited to the HVAC, plumbing and electrical
systems, roof and parking lot require replacement due to becoming inoperable
through no fault of LESSEE, or the roof needs repair through no fault of LESSEE,
the LESSOR shall be responsible at its sole cost and expense, to make the
necessary replacement, and/or the repair of the roof.
<PAGE>
EXHIBIT ONE - LEASE
PAGE 3
7.3(A)(1) TENANT IMPROVEMENTS.
LESSEE, at its sole cost and expense, shall be responsible for all
tenant improvements to the Leased Premises, except for the following:
a. demising wall and security door shown on EXHIBIT TWO. LESSOR
further agrees to remove said demising wall and security door at the end of year
one.
b. bringing the exterior of the Premises and the two (s) first floor
bathrooms in compliance with the Americans With Disabilities Act (ADA), if
required.
LESSEE shall obtain the prior written approval of LESSOR, which approval shall
not be unreasonable withheld, for all proposed tenant improvements.
7.3(A)(2) TENANT IMPROVEMENTS -LESSEE.
LESSEE may, in additional to other tenant improvements pursuant to
subparagraph 7.3(A)(1), construct a night deposit drop and a one lane drive up
banking/teller window. The location of said improvements is subject to prior
written approval of LESSOR, which approval shall not be unreasonably withheld,
and subject to all applicable governmental regulations.
8.2(A) SCHEDULE - PERCENTAGES OF PROPERTY INSURANCE PREMIUMS.
LESSEE shall be responsible for the following percentages of said
insurance premiums:
Year One thirty percent (30%)
Years Two through
Seven fifty percent (50%)
10.1(A) SCHEDULE - PERCENTAGES OF REAL PROPERTY TAX.
LESSEE shall be responsible for the following percentages of said real
property tax:
Year One thirty percent (30%)
Years Two through
Seven Fifty percent (50%)
16.23 ADDITIONAL PROVISIONS.
LESSEE agrees to provide LESSOR current audited financial statements
of LESSEE within five (5) days of execution of this LEASE.
<PAGE>
EXHIBIT ONE
[Diagram of Leased Space]
<PAGE>
EXHIBIT 16.1
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
RE: Colorado Business Bankshares, Inc.
Ladies and Gentlemen:
We have read the section entitled "Changes in Accountants" of Amendment No.
1 to the Registration Statement on Form SB-2 of COLORADO BUSINESS BANKSHARES,
INC. filed on May 28, 1998 and are in agreement with the statements contained
therein.
Very truly yours,
BAIRD, KURTZ & DOBSON
/s/ Baird, Kurtz & Dobson
May 28, 1998
Denver, Colorado
<PAGE>
Exhibit 16.2
May 21, 1998
Securities and Exchange Commission
Washington, D.C. 20549
We were previously the independent accountants for Colorado Business Bankshares,
Inc., and on January 12, 1996, we reported on the consolidated statements of
income, stockholders' equity and cash flows of Colorado Business Bankshares,
Inc. and subsidiaries for the year ended December 31, 1995.
We have read Colorado Business Bankshares, Inc.'s statements included in the
section entitled "Changes in Accountants" of its Registration Statement on Form
SB-2, and we agree with such statements.
McGLADREY & PULLEN, LLP
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 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
May 27, 1998
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
--------------------------------------------------
We hereby consent to the use in Amendment No. 1 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
May 28, 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.1) 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
May 28, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> MAR-31-1998 MAR-31-1997
<CASH> 21,027,000 12,368,000
<INT-BEARING-DEPOSITS> 154,803,000 120,464,000
<FED-FUNDS-SOLD> 1,500,000 0
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 41,699,000 41,041,000
<INVESTMENTS-CARRYING> 13,166,000 20,288,000
<INVESTMENTS-MARKET> 221,000 265,000
<LOANS> 181,841,000 122,464,000
<ALLOWANCE> 2,630,000 1,777,000
<TOTAL-ASSETS> 272,916,000 207,631,000
<DEPOSITS> 220,595,000 169,649,000
<SHORT-TERM> 21,085,000 9,129,000
<LIABILITIES-OTHER> 2,061,000 1,269,000
<LONG-TERM> 10,760,000 13,150,000
0 0
1,500,000 0
<COMMON> 51,000 49,000
<OTHER-SE> 16,864,000 14,385,000
<TOTAL-LIABILITIES-AND-EQUITY> 272,916,000 207,631,000
<INTEREST-LOAN> 4,368,000 2,972,000
<INTEREST-INVEST> 1,009,000 921,000
<INTEREST-OTHER> 0 0
<INTEREST-TOTAL> 5,377,000 3,893,000
<INTEREST-DEPOSIT> 1,657,000 1,137,000
<INTEREST-EXPENSE> 2,018,000 1,561,000
<INTEREST-INCOME-NET> 3,359,000 2,332,000
<LOAN-LOSSES> 351,000 146,000
<SECURITIES-GAINS> 0 0
<EXPENSE-OTHER> 3,015,000 2,446,000
<INCOME-PRETAX> 998,000 475,000
<INCOME-PRE-EXTRAORDINARY> 587,000 272,000
<EXTRAORDINARY> 0 0
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<NET-INCOME> 587,000 272,000
<EPS-PRIMARY> .11 .07
<EPS-DILUTED> .10 .07
<YIELD-ACTUAL> 5.66 5.28
<LOANS-NON> 441,000 237,000
<LOANS-PAST> 0 0
<LOANS-TROUBLED> 795,000 347,000
<LOANS-PROBLEM> 1,472,000 1,592,000
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</TABLE>
