<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 23, 2000
REGISTRATION NO. 333-
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
FRONT RANGE CAPITAL CORPORATION FRONT RANGE CAPITAL TRUST I
(Name of Small Business Issuer in its Charter)
<TABLE>
<S> <C> <C> <C> <C> <C>
COLORADO 6712 84-0970160 DELAWARE 6712 51-6517364
(State of (Primary Standard (I.R.S. Employer (State of (Primary Standard (I.R.S. Employer
incorporation or Industrial Identification incorporation or Industrial Identification
organization) Classification Number) organization) Classification Number)
Code Code
Number) Number)
</TABLE>
<TABLE>
<S> <C>
1020 CENTURY DRIVE 1020 CENTURY DRIVE
SUITE 202 SUITE 202
LOUISVILLE, COLORADO 80027 LOUISVILLE, COLORADO 80027
(303) 926-0300 (303) 926-0300
(Address and telephone number of principal (Address and telephone number of principal
executive offices and principal place of business) executive offices and principal place of business)
--------------------- ---------------------
</TABLE>
ROBERT L. BEAUPREZ
CHAIRMAN OF THE BOARD AND
PRESIDENT
1020 CENTURY DRIVE
SUITE 202
LOUISVILLE, COLORADO 80027
(Name, address and telephone number of agent for service)
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Copies to:
<TABLE>
<S> <C>
WILLIAM T. LUEDKE IV, ESQ. HERBERT H. DAVIS, ESQ.
BRACEWELL & PATTERSON, L.L.P. ROTHGERBER JOHNSON & LYONS LLP
2900 SOUTH TOWER PENNZOIL PLACE 1200 17TH STREET, SUITE 3000
HOUSTON, TEXAS 77002-2781 DENVER, COLORADO 80202-5839
(713) 223-2900 (303) 623-9000
</TABLE>
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APPROXIMATE DATE OF PROPOSED SALE TO PUBLIC: As soon as practicable after
the effective date of the Registration Statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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<CAPTION>
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PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE PROPOSED MAXIMUM AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED OFFERING PRICE OFFERING PRICE REGISTRATION FEE(1)
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<S> <C> <C> <C> <C>
% Trust Preferred Securities of 600,000 $25.00 $15,000,000 $3,960
Front Range Capital Trust I......
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% Junior Subordinated Debentures (2)
of Front Range Capital
Corporation......................
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Guarantee of Trust Preferred (3)
Securities.......................
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</TABLE>
(1) The registration fee is calculated in accordance with Rule 457(a), (i) and
(n).
(2) The Debentures will be purchased by Front Range Capital Trust I with the
proceeds from the sale of the Trust Preferred Securities of Front Range
Capital Trust I upon its dissolution.
(3) This Registration Statement is deemed to cover the Debentures of Front Range
Capital Corporation, the rights of holders of Debentures of Front Range
Capital Corporation under the Indenture, and the rights of holders of the
Trust Preferred Securities under the Trust Agreement, the Guarantee and the
Expense Agreement entered into by Front Range Capital Corporation.
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THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
The information in this Prospectus is not complete and may be changed. We
may not sell these securities until the Registration Statement filed with
the Securities and Exchange Commission is effective. This Prospectus is not
an offer to sell these securities, and it is not soliciting an offer to buy
these securities in any state where the offer to sell is not permitted.
SUBJECT TO COMPLETION DATED JUNE 23, 2000
600,000 TRUST PREFERRED SECURITIES
FRONT RANGE CAPITAL TRUST I
% CUMULATIVE TRUST PREFERRED SECURITIES
(LIQUIDATION AMOUNT $25 PER TRUST PREFERRED SECURITY)
FULLY, IRREVOCABLY AND UNCONDITIONALLY GUARANTEED BY
FRONT RANGE CAPITAL CORPORATION
The trust preferred securities represent undivided beneficial interests in
the assets of Front Range Capital Trust I. The trust will invest the proceeds of
this offering of trust preferred securities in the % junior subordinated
debentures of Front Range Capital Corporation.
For each of the trust preferred securities that you own, you are entitled
to receive cumulative cash distributions at an annual rate of % on March 31,
June 30, September 30 and December 31 of each year, beginning September 30,
2000, from payments on the debentures. Payment of distributions may be deferred
at any time for up to 20 consecutive quarters. The trust preferred securities
are effectively subordinated to all senior and subordinated indebtedness of
Front Range Capital Corporation and its subsidiaries. The debentures mature and
the trust preferred securities must be redeemed on , 2030. The trust
may redeem the trust preferred securities, at a redemption price of $25 per
trust preferred security plus accumulated and unpaid distributions, at any time
on or after , 2005, or earlier under certain circumstances.
We will apply for listing of the trust preferred securities on the American
Stock Exchange under the trading symbol " ."
WE URGE YOU TO CAREFULLY READ THE "RISK FACTORS" SECTION BEGINNING ON PAGE
7, WHERE WE DESCRIBE SPECIFIC RISKS RELATED TO AN INVESTMENT IN THE TRUST
PREFERRED SECURITIES AND RISKS RELATING TO FRONT RANGE CAPITAL CORPORATION,
ALONG WITH THE REMAINDER OF THIS PROSPECTUS, BEFORE YOU MAKE YOUR INVESTMENT
DECISION.
THE TRUST PREFERRED SECURITIES AND THE DEBENTURES ARE NOT SAVINGS ACCOUNTS,
DEPOSITS OR OBLIGATIONS OF ANY BANK AND ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
<TABLE>
<CAPTION>
PER TRUST
PREFERRED SECURITY TOTAL
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<S> <C> <C>
Public offering price................................... $25.00 $15,000,000
Underwriting fees to be paid by Front Range Capital
Corporation........................................... $0.875 $ 525,000
Proceeds to the trust................................... $25.00 $15,000,000
</TABLE>
The underwriters have entered into a firm commitment underwriting agreement
with Front Range Capital Corporation and Front Range Capital Trust I, which
means that all of the trust preferred securities will be purchased by the
underwriters, if any are.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
HOEFER & ARNETT
INCORPORATED
, 2000
<PAGE> 3
[INSERT MAP OF BANKING CENTER LOCATIONS]
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
Summary..................................................... 1
Summary Consolidated Financial Data......................... 5
Risk Factors................................................ 7
Forward-Looking Information................................. 13
Use of Proceeds............................................. 14
Accounting Treatment........................................ 15
Capitalization.............................................. 16
Selected Consolidated Financial Data........................ 17
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 19
Business.................................................... 35
Management.................................................. 38
Interests of Management and Others in Certain
Transactions.............................................. 42
Beneficial Ownership of Common Stock by Management and
Principal Stockholders.................................... 43
Supervision and Regulation.................................. 44
Description of the Trust.................................... 51
Description of the Trust Preferred Securities............... 52
Description of the Debentures............................... 63
Book-Entry Issuance......................................... 71
Description of the Guarantee................................ 72
Relationship Among the Trust Preferred Securities, the
Debentures and the Guarantee.............................. 75
Federal Income Tax Consequences............................. 76
ERISA Considerations........................................ 79
Underwriting................................................ 80
Legal Matters............................................... 81
Experts..................................................... 81
Where You Can Find Information.............................. 81
Index to Financial Statements............................... F-1
</TABLE>
You should rely only on the information contained in this prospectus. We
have not, and our underwriters have not, authorized any person to provide you
with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and our
underwriters are not, making an offer to sell these securities in any
jurisdictions where the offer or sale is not permitted.
You should assume that the information appearing in this prospectus is
accurate as of the date on the front cover of this prospectus only.
i
<PAGE> 5
SUMMARY
The items in the following summary are described in more detail later in
this prospectus. Therefore, you should also read the more detailed information
appearing elsewhere in this prospectus and in our financial statements, together
with the notes thereto.
FRONT RANGE CAPITAL CORPORATION
We are a bank holding company headquartered in Louisville, Colorado, which
is located in the Denver-Boulder metropolitan area. Through our subsidiary,
Heritage Bank, we conduct business from 11 full-service banking branches located
throughout the greater Denver-Boulder metropolitan area, giving us a substantial
presence in the communities along Colorado's primary business corridor. We are
not currently a publicly traded company, although as a part of this offering, we
will apply to list the trust preferred securities for trading on the American
Stock Exchange under the symbol " ."
We operate under a community banking philosophy. We seek to develop broad
customer relationships based on responsive, individualized service provided by
our experienced officers and staff. We offer our customers, including local
residents and small to medium-sized businesses, a variety of traditional loan
and deposit products from our attractive, convenient locations.
We began operations in 1985 when we acquired the predecessor of Heritage
Bank, which was chartered in 1973. As part of our strategy to capitalize on the
economic and population growth in the Denver-Boulder market, we have opened and
expanded a number of new banking branches in our market, including six new
branches over the past two years. As a result of our internal growth, our assets
have increased from $5.6 million at the end of 1990 to $186.6 million at March
31, 2000. During that same time period, our deposits have increased from $4.9
million to $149.6 million.
In addition to significant growth, our operating performance has been
characterized by a strong net interest margin, improving earnings and sound
asset quality. Despite the cost of overhead associated with our growth, net
income increased by 165.0% from year-end 1998 to year-end 1999. Our net interest
margins for the three months ended March 31, 2000 and the year ended December
31, 1999 were 6.04% and 6.30%, respectively. At the same time, we have
maintained sound asset quality as represented by our 0.10% ratio of
nonperforming assets to total loans and other real estate owned at March 31,
2000.
We believe that our strong community ties, reputation for service,
expanding presence and experienced personnel allow us to combine responsive
community banking with quality products and services, and give us a competitive
advantage in our market area with excellent opportunities for future growth and
business development.
Our executive offices are located at 1020 Century Drive, Suite 202,
Louisville, Colorado 80027. Our telephone number is (303) 926-0300.
BUSINESS STRATEGY
Our business strategy primarily consists of our continued focus on the
following:
- Emphasizing community banking relationships and a strong customer service
culture;
- Expanding market share and increasing efficiency through internal growth;
- Enhancing the use of technology to provide competitive products and
service; and
- Maintaining strong asset quality.
<PAGE> 6
FRONT RANGE CAPITAL TRUST I
The trust, which is the issuer of the trust preferred securities, is a
Delaware business trust. Upon issuance of the trust preferred securities offered
by this prospectus, the purchasers in this offering will own all of the issued
and outstanding trust preferred securities of the trust. In exchange for our
capital contribution to the trust, we will own all of the common securities of
the trust. The trust exists for the sole purposes of:
- issuing the trust preferred securities to the public for cash;
- issuing the common securities to us;
- investing the proceeds from the sale of the trust preferred and common
securities in an equivalent amount of % junior subordinated debentures
due , 2030 issued by us; and
- engaging in other activities that are incidental to those listed above.
The trust's address is 1020 Century Drive, Suite 202, Louisville, Colorado
80027. Its telephone number is (303) 926-0300.
THE OFFERING
Trust preferred securities
issuer................... Front Range Capital Trust I
Securities that are being
offered.................. The trust is offering 600,000 trust preferred
securities, which represent undivided beneficial
interests in the assets of the trust. Those assets
will consist solely of the debentures and interest
paid on the debentures. The trust will sell the
trust preferred securities to the public for cash.
The trust will use that cash to buy debentures from
us.
Offering price............. $25 per trust preferred security.
Payment of distributions... If you purchase the trust preferred securities, you
are entitled to receive cumulative cash
distributions at an % annual rate. Distributions
will accumulate from the date the trust issues the
trust preferred securities and will be paid
quarterly on March 31, June 30, September 30 and
December 31 of each year beginning September 30,
2000. The record date for distributions on the
trust preferred securities will be the business day
prior to the distribution date. Please note that
the trust may defer the payment of cash
distributions, as more fully described below.
We have the option to defer
the interest payments.... The trust will rely solely on payments made by us
on the debentures to pay distributions on the trust
preferred securities. So long as no event of
default under the indenture, executed by us and the
indenture trustee, has occurred and is continuing,
we may, at one or more times, defer interest
payments on the debentures for up to 20 consecutive
quarters, but not beyond , 2030. If we
defer interest payments on the debentures:
- the trust will also defer distributions on the
trust preferred securities;
- distributions you are entitled to will
accumulate; and
- these accumulated distributions will accumulate
additional distributions at an annual rate of %
compounded quarterly.
At the end of any deferral period, we will pay to
the trust all accrued and unpaid amounts on the
debentures. The trust will then pay all accumulated
and unpaid distributions to you.
2
<PAGE> 7
You will still be taxed if
distributions on the
trust preferred
securities are
deferred................. If a deferral of payment occurs, you will still be
required to recognize the deferred amounts as
income for United States federal income tax
purposes in advance of receiving these amounts for
as long as the debentures remain outstanding, even
if you are a cash basis taxpayer.
Maturity................... The debentures will mature and the trust preferred
securities must be redeemed on , 2030.
We have the option, however, to shorten the
maturity date to a date not earlier than
, 2005. We will not shorten the
maturity date unless we have received the prior
approval of the Board of Governors of the Federal
Reserve System (the "Federal Reserve"), if
required.
Redemption of the trust
preferred securities is
possible................. The trust must redeem the trust preferred
securities when the debentures are paid at maturity
or upon any earlier redemption of the debentures.
We may redeem all or part of the debentures on or
after , 2005. In addition, we may
redeem, at any time, all of the debentures if:
- the interest we pay on the debentures is no
longer deductible by us for federal tax purposes
or the trust becomes subject to federal income
tax;
- there is a change in the Investment Company Act
of 1940 that requires the trust to register under
that law; or
- there is a change in the capital adequacy
guidelines of the Federal Reserve that prevents
or inhibits our ability to count a portion of the
trust preferred securities as Tier 1 capital.
Redemption of the debentures prior to maturity will
be subject to the prior approval of the Federal
Reserve, if required. If the trust preferred
securities are redeemed by the trust, you will
receive the liquidation amount of $25 per trust
preferred security plus any accumulated and unpaid
distributions up to the date of redemption.
How the securities will
rank in right of payment. Our obligations under the trust preferred
securities, debentures and guarantee are unsecured
and will rank as follows with regard to right of
payment:
- The trust will pay distributions on the trust
preferred securities and the common securities
pro rata. However, if we default with respect to
the debentures, then no distributions on the
common securities will be paid until all
accumulated and unpaid distributions on the trust
preferred securities have been paid;
- our obligations under the debentures and the
guarantee will rank junior in priority to our
existing and future senior and other subordinated
indebtedness; and
- because we are a holding company, the debentures
and the guarantee will effectively be
subordinated to all existing and future
liabilities of our subsidiaries.
3
<PAGE> 8
We may distribute the
debentures directly to
you...................... We may, at any time, dissolve the trust and
distribute the debentures to you in exchange for
your trust preferred securities, subject to the
prior approval of the Federal Reserve, if required.
If we distribute the debentures, we will use our
best efforts to list them on a national securities
exchange or comparable automated quotation system.
Our guarantee of payment... We guarantee that the trust will use its assets to
pay the distributions on the trust preferred
securities. However, the guarantee does not apply
when the trust does not have sufficient funds to
make the payments. In this event, your remedy is to
initiate a legal proceeding directly against us for
enforcement of payments under the debentures.
Voting rights of the trust
preferred securities..... Except in limited circumstances, holders of the
trust preferred securities will have no voting
rights.
American Stock Exchange
symbol................... " "
Book-entry................. The trust preferred securities will be represented
by a global security that will be deposited with
and registered in the name of The Depository Trust
Company, New York, New York, or its nominee. This
means that you will not receive a certificate for
the trust preferred securities.
Use of proceeds............ We plan to use the net proceeds from the sale of
the trust preferred securities for debt repayment,
general corporate purposes (including investments
in the bank to support growth and to finance
possible new branch openings) and for working
capital.
RISK FACTORS
Before purchasing the trust preferred securities offered by this
prospectus, you should carefully consider the "Risk Factors" beginning on page
7.
4
<PAGE> 9
SUMMARY CONSOLIDATED FINANCIAL DATA
We are providing the following financial information to aid you in your
financial analysis of us and our ability to pay the principal and interest on
the debentures. This information is only a summary and you should read it in
conjunction with our consolidated financial statements and notes thereto,
"Selected Consolidated Financial Data" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
AS OF AND FOR THE THREE AS OF AND FOR THE YEAR ENDED
MONTHS ENDED MARCH 31, DECEMBER 31,
----------------------- ------------------------------------
2000 1999 1999 1998 1997
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Interest income.................... $ 3,951 $ 2,889 $ 13,228 $ 9,512 $ 7,246
Interest expense................... 1,641 1,105 5,088 3,783 2,815
---------- ---------- ---------- ---------- ----------
Net interest income............. 2,310 1,784 8,140 5,729 4,431
Provision for loan losses.......... 72 121 402 421 318
---------- ---------- ---------- ---------- ----------
Net interest income after
provision for loan losses..... 2,238 1,663 7,738 5,308 4,113
Noninterest income................. 270 207 969 811 477
Noninterest expense................ 2,044 1,604 6,772 5,450 3,520
---------- ---------- ---------- ---------- ----------
Income before income taxes...... 464 266 1,935 669 1,070
Income tax expense................. 142 77 573 155 405
---------- ---------- ---------- ---------- ----------
Net income...................... $ 322 $ 189 $ 1,362 $ 514 $ 665
========== ========== ========== ========== ==========
COMMON SHARE DATA:
Earnings per common share
(basic)......................... $ 0.24 $ 0.14 $ 1.03 $ 0.42 $ 0.06
Earnings per common share
(diluted)....................... 0.24 0.14 1.02 0.42 0.06
Book value per common share........ 5.88 5.22 5.62 5.18 0.39
Tangible book value per common
share........................... 5.78 5.12 5.52 5.07 0.38
Cash dividends per common share.... 0.00 0.00 0.00 0.00 0.00
Weighted average common shares
outstanding (basic)............. 1,327,744 1,325,744 1,326,906 1,225,391 1,178,619
Weighted average common shares
outstanding (diluted)........... 1,338,244 1,336,244 1,337,406 1,235,891 1,189,119
End of period common shares
outstanding..................... 1,327,744 1,325,744 1,327,744 1,325,744 1,186,477
BALANCE SHEET DATA (AT PERIOD END):
Total assets....................... $ 186,608 $ 140,204 $ 172,690 $ 131,745 $ 90,739
Investment securities.............. 25,451 24,580 22,193 23,236 12,184
Loans, net of unearned income...... 138,724 101,818 130,708 91,793 59,284
Allowance for loan losses.......... 1,484 1,207 1,411 1,097 754
Deposits........................... 149,640 118,166 141,926 114,933 84,138
Federal funds purchased............ 5,775 3,500 9,200 -- --
Borrowed funds..................... 21,922 10,275 12,627 8,937 1,122
Stockholders' equity............... 7,809 6,925 7,462 6,861 4,636
</TABLE>
5
<PAGE> 10
<TABLE>
<CAPTION>
AS OF AND FOR THE THREE AS OF AND FOR THE YEAR ENDED
MONTHS ENDED MARCH 31, DECEMBER 31,
----------------------- ------------------------------------
2000 1999 1999 1998 1997
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
PERFORMANCE RATIOS:
Return on average assets........... 0.73% 0.57% 0.92% 0.49% 0.87%
Return on average stockholders'
equity.......................... 17.57 11.55 22.22 10.24 15.90
Net interest margin................ 6.04 6.08 6.30 6.16 6.59
Operating efficiency ratio(1)...... 79.22 80.56 74.34 83.33 71.72
Stockholders' equity to total
assets.......................... 4.18 4.94 4.32 5.21 5.11
Loan to deposit ratio.............. 91.71 85.57 91.10 78.91 69.56
ASSET QUALITY RATIOS(2):
Nonperforming assets to total
assets(3)....................... 0.08% 0.03% 0.10% 0.83% 0.65%
Nonperforming loans to total
loans(4)........................ 0.02 0.05 0.05 0.93 0.96
Net loan charge-offs to average
total loans..................... 0.00 0.03 0.08 0.11 0.46
Allowance for loan losses to total
loans........................... 1.07 1.18 1.08 1.20 1.27
Allowance for loan losses to
nonperforming loans............. 6,183.33 2,463.27 2,391.53 128.76 132.51
CAPITAL RATIOS (AT PERIOD END)(5):
Leverage ratio..................... 4.73% 4.65% 4.87% 7.06% 5.49%
Tier 1 risk-based capital ratio.... 5.28 5.55 5.47 8.22 6.29
Total risk-based capital ratio..... 6.22 6.63 6.43 9.28 7.36
</TABLE>
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(1) Calculated by dividing total noninterest expenses, excluding intangible
asset amortization, by net interest income plus noninterest income.
(2) At period end, except for net loan charge-offs to average total loans, which
is for periods ended on such dates.
(3) Nonperforming assets consist of nonaccrual loans, loans past due 90 days or
more, restructured loans and other real estate owned.
(4) Nonperforming loans consist of nonaccrual loans, loans past due 90 days or
more and restructured loans.
(5) The leverage and risk-based capital ratios are defined in "Supervision and
Regulation."
6
<PAGE> 11
RISK FACTORS
An investment in the trust preferred securities involves a number of risks.
You should carefully read and consider the following factors in evaluating us,
our business and the trust, in addition to the other information in this
prospectus, before you purchase the trust preferred securities offered by this
prospectus.
Because the trust will rely on the payments it receives on the debentures
to fund all payments on the trust preferred securities, and because the trust
may distribute the debentures in exchange for the trust preferred securities,
you are making an investment decision that relates to the debentures as well as
the trust preferred securities. You should carefully review the information in
this prospectus about the trust preferred securities, the debentures and the
guarantee.
RISKS RELATED TO AN INVESTMENT IN THESE
TRUST PREFERRED SECURITIES
IF WE DO NOT MAKE INTEREST PAYMENTS ON THE DEBENTURES, THE TRUST WILL BE UNABLE
TO PAY DISTRIBUTIONS AND LIQUIDATION AMOUNTS AND THE GUARANTEE WILL NOT APPLY.
The trust will depend solely on our payments on the debentures to pay
distributions and the liquidation amount on the trust preferred securities. If
we default on our obligation to pay the principal or interest on the debentures,
the trust will not have sufficient funds to pay distributions or the liquidation
amount on the trust preferred securities. In that case, you will not be able to
rely on the guarantee for payment of these amounts because the guarantee only
applies if the trust has sufficient funds to make distributions on or to pay the
liquidation amount of the trust preferred securities. Instead, you or the
property trustee will have to initiate a direct action against us to enforce the
property trustee's rights under the indenture relating to the debentures. See
"Description of the Guarantee."
IF OUR SUBSIDIARY BANK IS UNABLE TO PAY SUFFICIENT DIVIDENDS TO US, THEN WE
LIKELY WILL BE UNABLE TO MAKE PAYMENTS ON THE DEBENTURES, THEREBY LEAVING
INSUFFICIENT FUNDS FOR THE TRUST TO MAKE PAYMENTS TO YOU ON THE TRUST PREFERRED
SECURITIES.
We are a holding company and substantially all of our assets are held by
our subsidiary bank. Our ability to make payments on the debentures when due
will depend primarily on available cash resources at the holding company and
dividends from the bank. Dividend payments from the bank are subject to
regulatory limitations, generally based on capital levels and current and
retained earnings, imposed by the various regulatory agencies with authority
over the bank. The ability of the bank to pay dividends is also subject to its
profitability, financial condition and capital expenditures and other cash flow
requirements. We cannot assure you that the bank will be able to pay dividends
in the future.
THE DEBENTURES AND THE GUARANTEE RANK LOWER THAN OUR OTHER INDEBTEDNESS, AND OUR
HOLDING COMPANY STRUCTURE EFFECTIVELY SUBORDINATES ANY CLAIMS AGAINST US TO
CLAIMS AGAINST THE BANK.
Our obligations under the debentures and the guarantee are unsecured and
will rank junior in priority of payment to our existing and future senior and
subordinated indebtedness and senior to our capital stock. At March 31, 2000, we
had approximately $3.7 million of senior and subordinated indebtedness. Although
we intend to use a portion of the proceeds we receive from the sale of the trust
preferred securities to pay off this debt, we expect from time to time to incur
additional indebtedness. The issuance of the debentures and the trust preferred
securities does not limit our ability to incur additional indebtedness,
including indebtedness that ranks senior or equal in priority of payment to the
debentures or the guarantee.
Because we are a holding company, the creditors and depositors of the bank
will also have priority over you in any distribution of assets in liquidation,
reorganization or otherwise. Accordingly, the debentures and the guarantee will
be effectively subordinated to all existing and future liabilities of the bank,
and you should look only to our assets for payments on the trust preferred
securities and the debentures. See "Description of the
Debentures -- Subordination."
7
<PAGE> 12
WE HAVE THE OPTION TO DEFER INTEREST PAYMENTS ON THE DEBENTURES FOR SUBSTANTIAL
PERIODS, WHICH WOULD CAUSE DISTRIBUTIONS ON THE TRUST PREFERRED SECURITIES TO BE
DEFERRED ALTHOUGH YOU WOULD STILL HAVE TO DECLARE THESE AMOUNTS AS INCOME FOR
TAX PURPOSES.
We may, at one or more times, defer interest payments on the debentures for
up to 20 consecutive quarters. If we defer interest payments on the debentures,
the trust will defer distributions on the trust preferred securities during any
deferral period. During a deferral period, you will be required to recognize as
income for federal income tax purposes the amount approximately equal to the
interest that accrues on your proportionate share of the debentures held by the
trust in the tax year in which that interest accrues, even though you will not
receive these amounts until a later date.
You will also not receive the cash related to any accrued and unpaid
interest from the trust if you sell the trust preferred securities before the
end of any deferral period. During a deferral period, your tax basis in the
trust preferred securities will increase by the amount of accumulated but unpaid
distributions. If you sell the trust preferred securities during a deferral
period, your increased tax basis will decrease the amount of any capital gain or
increase the amount of any capital loss that you may have otherwise realized on
the sale. A capital loss, except in certain limited circumstances, cannot be
applied to offset ordinary income. Accordingly, deferral of distributions could
result in ordinary income, a related tax liability for the holder, and a capital
loss that may only be used to offset a capital gain.
We do not currently intend to exercise our right to defer interest payments
on the debentures. However, if we exercise our right in the future, the market
price of the trust preferred securities is likely to fall. The trust preferred
securities may trade at a price that does not fully reflect the value of accrued
but unpaid interest on the debentures. If you sell the trust preferred
securities during an interest deferral period, you may not receive the same
return on investment as someone who continues to hold the trust preferred
securities. Due to our right to defer interest payments, the market price of the
trust preferred securities may be more volatile than the market prices of other
securities without the deferral feature. See "Description of the Trust Preferred
Securities -- Distributions -- Extension Period."
WE MAY REDEEM THE DEBENTURES BEFORE , 2030.
Under the following circumstances, and subject to Federal Reserve approval,
if required, we may redeem the debentures before their stated maturity:
- in whole or in part, at any time on or after ,
2005; or
- in whole, but not in part, within 90 days after certain occurrences at
any time during the life of the trust. These occurrences include adverse
tax, Investment Company Act or bank regulatory developments.
You should assume that we will exercise our redemption option if we are
able to obtain capital at a lower cost than we must pay on the debentures or if
it is otherwise in our interest to redeem the debentures. If the debentures are
redeemed, the trust must redeem trust preferred securities having an aggregate
liquidation amount equal to the aggregate principal amount of debentures
redeemed, and you may be required to reinvest your principal at a time when you
may not be able to earn a return that is as high as you were earning on the
trust preferred securities. See "Description of the Trust Preferred
Securities -- Redemption or Exchange."
YOU ARE MAKING AN INVESTMENT DECISION ABOUT THE DEBENTURES AS WELL AS ABOUT THE
TRUST PREFERRED SECURITIES.
Subject to the terms of the trust agreement, the trustees may distribute
the debentures to the trust preferred securities holders in exchange for their
trust preferred securities. Because you may receive debentures, you are also, in
effect, making an investment decision with regard to the debentures. You should
carefully review all of the information regarding the debentures contained in
this prospectus.
8
<PAGE> 13
We cannot predict the market prices for the debentures that may be
distributed. Accordingly, the debentures that you receive upon a distribution,
or the trust preferred securities you hold pending such a distribution, may
trade at a discount to the price that you paid to purchase the trust preferred
securities. Although we have agreed to use our best efforts to list the
debentures on a national securities exchange or comparable automated quotation
system if this occurs, there can be no assurance that the debentures will be
approved for listing or that a liquid trading market for the debentures will
exist, develop or be sustained after the offering. This could also have a
negative impact on their trading price. A public trading market having the
desired characteristics of depth, liquidity and orderliness depends upon the
presence in the marketplace of willing buyers of the trust preferred securities
at any given time, which presence is dependent upon the individual decisions of
investors over which neither us, the underwriters nor any market maker has any
control. See "Description of the Trust Preferred Securities -- Liquidation
Distribution Upon Termination."
Under current federal income tax law and interpretations, a distribution of
the debentures should not be a taxable event to holders of the trust preferred
securities. If there is a change in law or in legal interpretation, the
distribution could be a taxable event to holders of the trust preferred
securities. See "Federal Income Tax Consequences."
WE HAVE MADE ONLY LIMITED COVENANTS IN THE INDENTURE AND THE TRUST AGREEMENT.
The indenture governing the debentures and the trust agreement governing
the trust and the trust preferred securities do not require us to maintain any
financial ratios or specified levels of net worth, revenues, income, cash flow
or liquidity, and therefore, do not protect holders of the debentures or the
trust preferred securities in the event we experience significant adverse
changes in our financial condition or results of operations. In addition,
neither the indenture nor the trust agreement limits our ability or the ability
of our subsidiaries to incur additional indebtedness. Therefore, you should not
consider the provisions of these documents as a significant factor in evaluating
whether we will be able to comply with our obligations under the debentures or
the guarantee.
THERE IS NO CURRENT PUBLIC MARKET FOR THE TRUST PREFERRED SECURITIES, AND THEIR
MARKET PRICE MAY BE SUBJECT TO SIGNIFICANT FLUCTUATIONS.
There is currently no public market for the trust preferred securities.
Although we will apply for listing of the trust preferred securities on the
American Stock Exchange, there is no guarantee that an active or liquid trading
market will develop or that such listing will continue. If an active trading
market does not develop, the market price and liquidity of the trust preferred
securities will be adversely affected. Even if an active public market does
develop, there is no guarantee that the market price for the trust preferred
securities will equal or exceed the price you pay for the trust preferred
securities.
Future trading prices of the trust preferred securities may be subject to
significant fluctuations in response to prevailing interest rates, our future
financial condition and results of operations, the market for similar securities
and general economic and market conditions. The initial public offering price of
the trust preferred securities has been set at the liquidation amount of the
trust preferred securities and may be greater than the market price following
the offering.
The market price for the trust preferred securities, or the debentures that
you may receive in a distribution, is also likely to decline during any period
in which we defer interest payments on the debentures. If this were the case,
the trust preferred securities or the debentures would not trade at a price that
accurately reflects the value of accrued but unpaid interest on the debentures.
YOU MAY HAVE TO RELY ON THE PROPERTY TRUSTEE TO ENFORCE YOUR RIGHTS IF THERE IS
AN EVENT OF DEFAULT UNDER THE INDENTURE.
You may not be able to directly enforce your rights against us if an event
of default under the indenture occurs. If an event of default under the
indenture occurs and is continuing, this event will also be an event of default
under the trust agreement. In that case, you may have to rely on enforcement by
the property trustee of its rights as holder of the debentures against us. The
holders of a majority in liquidation amount of the
9
<PAGE> 14
trust preferred securities will have the right to direct the property trustee to
enforce its rights. If the property trustee does not enforce its rights
following an event of default and a request by the record holders to do so, any
record holder may, to the extent permitted by applicable law, take action
directly against us to enforce the property trustee's rights. If an event of
default occurs under the trust agreement that is attributable to our failure to
pay interest or principal on the debentures, or if we default under the
guarantee, you may proceed directly against us to enforce our obligation to make
payment under the debentures. You will not be able to exercise directly any
other remedies available to the holders of the debentures unless the property
trustee fails to do so.
AS A HOLDER OF TRUST PREFERRED SECURITIES YOU HAVE LIMITED VOTING RIGHTS.
Holders of trust preferred securities have limited voting rights. Your
voting rights pertain primarily to amendments to the trust agreement. In
general, only we can replace or remove any of the trustees. However, if an event
of default under the trust agreement occurs and is continuing, the holders of at
least a majority in aggregate liquidation amount of the trust preferred
securities may replace the property trustee and the Delaware trustee.
NEITHER THE TRUST PREFERRED SECURITIES NOR THE DEBENTURES ARE FDIC INSURED.
Neither the Federal Deposit Insurance Corporation nor any other
governmental agency has insured the trust preferred securities or the
debentures.
RISKS RELATED TO AN INVESTMENT IN
FRONT RANGE CAPITAL CORPORATION
IF WE ARE UNABLE TO MANAGE OUR SIGNIFICANT GROWTH, OUR BUSINESS COULD BE
ADVERSELY AFFECTED.
We have pursued an aggressive internal growth strategy centered on the
establishment of new branches in new and existing markets. The success of our
strategy will depend on our ability to adequately and profitably manage this
growth by:
- generating an increasing volume of loans and deposits at acceptable risk
levels and on acceptable terms;
- attracting and retaining qualified management and staff;
- providing adequate technology and support systems;
- maintaining adequate internal audit, loan review and compliance
functions; and
- controlling costs and increasing efficiency.
The success of our growth strategy may also be adversely affected by
general economic conditions and changes in laws or regulations or other
regulatory developments over which we have no control. There can be no assurance
that we will be successful in managing our growth profitably.
WE MAY NEED ADDITIONAL FINANCING.
Our ability to support and continue our growth may depend on our ability to
obtain additional debt and equity financing. Other than as described in this
prospectus, we have no commitments for additional borrowings or sales of equity
capital. Factors which could affect our access to capital markets, or the costs
of such capital, include changes in interest rates, general economic conditions
and the perception in the capital markets of our business, results of
operations, leverage, financial condition and business prospects. Each of these
factors is to a large extent subject to economic, financial, competitive and
other factors that are beyond our control. Regulatory borrowing restrictions
which may apply to us and to the bank may also affect our ability to obtain
additional financing. Our ability to repay outstanding indebtedness at maturity
may depend on our ability to refinance such indebtedness, which could be
adversely affected if we do not have access to capital markets for the sale of
additional debt or equity securities.
10
<PAGE> 15
CHANGES IN INTEREST RATES MAY ADVERSELY AFFECT OUR RESULTS OF OPERATIONS.
Our earnings are significantly dependent on our net interest income. Net
interest income is the difference between the interest income we earn on loans,
investments and other interest-earning assets and the interest expense we pay on
deposits and other interest-bearing liabilities. Therefore, any change in
general market interest rates, such as a change in the monetary policy of the
Federal Reserve or otherwise, can have a significant effect on our net interest
income. Our assets and liabilities may react differently to changes in overall
market rates or conditions because there may be mismatches between the repricing
or maturity characteristics of the assets and liabilities. As a result, an
increase or decrease in market interest rates could have an adverse impact on
our net interest margin and results of operations. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Financial
Condition -- Interest Rate Sensitivity and Liquidity."
LOSS OF OUR EXECUTIVE OFFICERS OR OTHER KEY EMPLOYEES COULD ADVERSELY AFFECT OUR
BUSINESS.
Our success is dependent upon the continued service and skills of Robert L.
Beauprez, our Chairman of the Board and President, Claudia A. Beauprez, our
Secretary and Treasurer, Alice M. Bier, our Chief Financial Officer, William A.
Mitchell, our Vice President, Larry W. Gibson, the bank's Senior Vice President
and other senior officers, such as the bank's branch presidents. Our success
depends in large part on the retention of present key management personnel and
upon the ability to hire and retain additional qualified personnel in the
future. The loss of services of any of these key personnel could have a negative
impact on our business because of their skills, years of industry experience,
relationships in the communities we serve and the difficulty of promptly finding
qualified replacement personnel. Since we do not have employment agreements with
any of our key personnel, there can be no assurance that they will continue to
be employed with us in the future. See "Management."
WE OPERATE IN A HIGHLY COMPETITIVE MARKET.
There is significant competition in the Denver-Boulder metropolitan area
for banking customers and our profitability depends primarily upon our ability
to compete in our market areas. We experience competition from commercial banks,
savings banks, savings and loans associations, credit unions, finance companies,
mutual funds, investment banking firms and certain other nonfinancial entities,
including retail stores which have their own credit programs and governmental
organizations which may offer more favorable financing than we can. Some of our
competitors have greater financial strength, marketing capability and name
recognition than we do, and operate on a statewide or nationwide basis.
The recently enacted Gramm-Leach-Bliley Act, effective March 11, 2000,
eliminates the barriers to affiliations among banks, securities firms, insurance
companies and financial service providers. As a result, securities firms and
insurance companies that elect to become financial holding companies may acquire
banks and other financial institutions, enabling them to offer a broader range
of products and services than we can. In addition, technology and mass marketing
have permitted larger companies to market loans and other products and services
more aggressively to our business customers. Such advantages may enable our
competitors to realize greater economies of scale and operating efficiencies
than we can. Further, some of our nonbank competitors are not subject to the
same extensive regulations that govern us and the bank.
Federal legislation enacted in August 1998 eased membership limits on
credit unions, which previously were permitted to serve only members that shared
a single, common bond. One effect of this legislation is the potential increase
in the ability of credit unions to compete with community banks, such as the
bank, for both deposits and loans. We can provide no assurance that we will be
able to compete effectively against such competition.
OUR BUSINESS IS CONCENTRATED IN COLORADO AND A DOWNTURN IN THE COLORADO ECONOMY
MAY ADVERSELY AFFECT OUR BUSINESS.
Substantially all of our business is located in Colorado, particularly in
the Denver-Boulder metropolitan area, and as a result, our financial condition,
results of operations and cash flows may be affected by changes
11
<PAGE> 16
in the economic condition of that area. Since the late 1980s, the Colorado
economy has diversified from a substantially energy-based industry into a
broader industry base, including the technology industry. As a result, a
downturn in the energy industry is not expected to have the same impact that it
did in the 1980s.
Nevertheless, a prolonged period of economic recession, relocation of
companies currently headquartered in Colorado or other adverse economic
conditions in Colorado could result in an increase in nonpayment of loans and a
decrease in collateral value, causing operating losses, impairing liquidity and
eroding capital. Conditions in the Colorado economy could deteriorate in the
future, and such a deterioration could have a material adverse effect on our
financial condition or results of operations. A substantial portion of our loans
are secured by liens on real estate. A downturn in the Colorado economy would
likely have an adverse affect on the value of real estate as collateral, which
in turn could cause us to experience significant loan losses.
IF OUR ALLOWANCE FOR LOAN LOSSES IS NOT ADEQUATE TO COVER ACTUAL LOSSES OUR
EARNINGS COULD DECREASE.
We believe that our allowance for loan losses is maintained at a level
adequate to absorb any inherent losses in our loan portfolio. Management's
estimates used in determining the allowance are based on our historical loan
loss experience, the amount of nonperforming loans and related collateral,
volume, growth and composition of the loan portfolio, current economic
conditions that may affect the borrower's ability to pay and the value of
collateral, the evaluation of our loan portfolio through our internal loan
review process and other relevant factors. These estimates are inherently
subjective and their accuracy depends on the outcome of future events. Ultimate
losses may differ from current estimates. Depending on changes in economic,
operating and other conditions, including the aforementioned changes in interest
rates, that are generally beyond our control, our actual loan losses could
increase significantly. As a result, such losses could exceed our current
allowance estimates. We can provide no assurance that our allowance is
sufficient to cover actual loan losses should such losses be realized.
In addition, federal and state regulators, as an integral part of their
respective supervisory functions, periodically review our allowance for loan
losses. Such regulatory agencies may require us to increase our provision for
loan losses or to recognize further loan charge-offs, based upon judgments
different from those of management. Any increase in our allowance required by
these regulatory agencies could have a negative effect on us. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Financial Condition -- Allowance for Loan Losses."
WE WILL NEED TO CONTINUE TO UPDATE OUR TECHNOLOGY TO MAINTAIN OUR COMPETITIVE
ADVANTAGE.
The banking industry is undergoing rapid technological changes with
frequent introductions of new technology-driven products and services. In
addition to serving customers better, the effective use of technology increases
efficiency and enables financial institutions to reduce costs. Our future
success will depend in part upon our ability to address the needs of our
customers by using technology to provide products and services that will satisfy
customer demands for convenience as well as create additional efficiencies in
our operations. Some of our competitors have substantially greater resources to
invest in technological improvements. There can be no assurance that we will be
able to effectively implement new technology-driven products and services or be
successful in marketing such products and services to our customers.
WE OPERATE IN A HIGHLY REGULATED ENVIRONMENT.
We and the bank operate in a highly regulated environment and are subject
to supervision and examination by various federal and state regulatory agencies.
As a bank holding company, we are subject to regulation and supervision by the
Federal Reserve. As a Colorado banking corporation and a member of the Federal
Reserve, the bank is subject to regulation and supervision by the Colorado
Division of Banking and the Federal Reserve. In addition, as a result of the
insurance the bank has on its deposits, the FDIC has regulatory authority over
the bank.
12
<PAGE> 17
Federal and Colorado laws and regulations govern numerous matters,
including:
- adequate capital and financial condition;
- permissible types, amounts and terms of extensions of credit and
investments;
- permissible nonbanking activities; and
- restrictions on dividend payments.
The federal and state regulators have extensive discretion and power to
prevent or remedy unsafe or unsound practices or violations of law by banks and
bank holding companies. We and the bank undergo periodic examinations by one or
more regulatory agencies. Following such examinations, we may be required, among
other things, to change our asset valuations or the amounts of required loss
allowances or to restrict our operations. Such actions would result from the
regulators' judgments based on information available to them at the time of
their examination. In addition, we are required to serve as a source of
financial strength to the bank, which could result in a decrease of available
funds for dividends to our stockholders and cash flow to securities ranking
senior to our common stock. The bank's operations are also subject to a wide
variety of state and federal consumer protection and similar statutes and
regulations. Such federal and state regulatory restrictions limit the manner in
which we and the bank may conduct business and obtain financing. Those laws and
regulations can and do change significantly from time to time, and any such
change could adversely affect our business. See "Supervision and Regulation."
OUR MANAGEMENT WILL HAVE BROAD DISCRETION TO USE THE OFFERING PROCEEDS FOR
GENERAL CORPORATE PURPOSES WHICH MAY NOT RESULT IN THE MAXIMUM RETURN OR BE IN
YOUR BEST INTERESTS.
We will receive approximately $ in net proceeds from the sale of
debentures, after deducting estimated underwriting commissions and offering
expenses. After repayment of our existing indebtedness, our management will have
broad discretion to allocate the net proceeds to uses it believes are
appropriate, such as working capital to support our growth. The amount and
timing of any allocation will depend on a number of factors, including our
capital requirements and those of the bank. Such uses could have a direct effect
on our ability to make payments on the debentures. In addition, we will be the
beneficial owner of all the common stock of the trust and therefore will have
substantial control over management of the trust. See "Use of Proceeds."
OUR MANAGEMENT OWNS A CONTROLLING INTEREST IN OUR COMPANY.
Our executive officers and directors beneficially own approximately 48.1%
of our issued and outstanding common stock. Accordingly, these executive
officers and directors are able to influence, to a significant extent, the
outcome of all matters required to be submitted to our stockholders for
approval, including decisions relating to the election of our directors, the
determination of our corporate and management policies and other significant
transactions.
FORWARD-LOOKING INFORMATION
Statements and financial discussion and analysis contained in this
prospectus that are not historical facts are forward-looking statements.
Forward-looking statements describe our future plans, strategies and
expectations, are based on assumptions and involve a number of risks and
uncertainties, many of which are beyond our control. In addition to each of the
factors listed in the "Risk Factors" section of this prospectus, the important
factors that could cause actual results to differ materially from the
forward-looking statements include, without limitation:
- changes in interest rates and market prices, which could reduce our net
interest margins, asset valuations and expense expectations;
- changes in the levels of loan prepayments and the resulting effects on
the value of our loan portfolio;
13
<PAGE> 18
- changes in local economic and business conditions which adversely affect
our customers and their ability to transact profitable business with us,
including the ability of our borrowers to repay their loans according to
their terms or a change in the value of the related collateral;
- increased competition for deposits and loans adversely affecting rates
and terms;
- increased credit risk in our assets and increased operating risk caused
by a material change in commercial, consumer and/or real estate loans as
a percentage of the total loan portfolio;
- the failure of assumptions underlying the establishment of and provisions
made to the allowance for loan losses;
- changes in the availability of funds resulting in increased costs or
reduced liquidity;
- increased asset levels and changes in the composition of assets and the
resulting impact on our capital levels and regulatory capital ratios;
- our ability to acquire, operate and maintain cost effective and efficient
systems without incurring unexpectedly difficult or expensive but
necessary technological changes;
- the loss of senior management or operating personnel and the potential
inability to hire qualified personnel at reasonable compensation levels;
- the bank's inability to pay sufficient dividends to us;
- our ability to obtain appropriate additional financing if necessary for
our growth or operations; and
- changes in statutes and government regulations or their interpretations
applicable to bank holding companies and our present and future banking
and other subsidiaries, including changes in tax requirements and tax
rates.
We undertake no obligation to publicly update or otherwise revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. In light of these risks, uncertainties and assumptions, the
events discussed in any forward-looking statements in this prospectus might not
occur.
USE OF PROCEEDS
The trust will invest all the proceeds from the sale of the trust preferred
securities in the debentures. We will use the net proceeds we receive from the
sale of the debentures, which we estimate to be approximately $ , for debt
repayment, general corporate purposes (including investments in the bank to
support growth and to finance possible new branch openings) and for working
capital. Upon completion of the offering, it is our intent to inject into the
bank sufficient capital so that the bank will be categorized as
"well-capitalized" as that term is defined under applicable federal banking
regulations. Approximately $2.78 million of the net proceeds will constitute
Tier 1 capital as defined under applicable regulatory definitions.
As noted above, a portion of the proceeds will be used to satisfy certain
outstanding obligations, such as payment of existing debt with an aggregate
balance at March 31, 2000 of $3,712,000, including:
- a revolving line of credit with a balance at March 31, 2000 of $2,270,000
and a maximum draw amount of $2,700,000 payable to Bankers' Bank, bearing
interest at the prime rate and maturing on October 5, 2000; and
- term loans payable to certain of our stockholders in the aggregate
principal amount of $1,442,000 bearing interest at the prime rate and
maturing at various times within the next three years, to the extent such
stockholders agree to prepayment of these loans. In the event a
stockholder does not agree to prepayment, the loan from that stockholder
will be paid at its maturity. Four of these loans are payable to certain
of our directors, their immediate family members or their related
interests as described in "Interests of Management and Others in Certain
Transactions."
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<PAGE> 19
ACCOUNTING TREATMENT
The trust will be treated, for financial reporting purposes, as our
subsidiary and, accordingly, the accounts of the trust will be included in our
consolidated financial statements. The trust preferred securities will be
presented as a separate line item in our consolidated balance sheet under the
caption "Company Obligated Mandatorily Redeemable Preferred Securities of
Subsidiary Trust Holding Solely Subordinated Debentures," and appropriate
disclosures about the trust preferred securities, the guarantee and the
debentures will be included in the notes to consolidated financial statements.
For financial reporting purposes, we will record distributions payable on the
trust preferred securities as interest expense in our Consolidated Statements of
Income.
Our future reports filed under the Securities Exchange Act of 1934, as
amended, will include a footnote to the consolidated financial statements
stating that:
- the trust is wholly owned;
- the sole assets of the trust are the debentures and specifying the
debentures' principal amount, interest rate and maturity date; and
- our obligations described in this prospectus, in the aggregate,
constitute a full, irrevocable and unconditional guarantee on a
subordinated basis by us of the obligations of the trust under the trust
preferred securities.
15
<PAGE> 20
CAPITALIZATION
The following table sets forth our indebtedness and capitalization
(including deposits) at March 31, 2000 on a historical basis and as adjusted to
give effect to the issuance of the trust preferred securities in this offering
and the use of estimated net proceeds. This data should be read in conjunction
with the "Selected Consolidated Financial Data" and the consolidated financial
statements and notes thereto, included elsewhere in this prospectus.
<TABLE>
<CAPTION>
MARCH 31, 2000
-----------------------
ACTUAL AS ADJUSTED
-------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Deposits.................................................... $149,640 $149,640
======== ========
Federal funds purchased..................................... $ 5,775 $ 5,775
Other borrowed funds
Advances from the Federal Home Loan Bank.................. 18,210 18,210
Notes payable............................................. 3,712 --
-------- --------
Total other borrowed funds........................ $ 21,922 $ 18,210
======== ========
Company obligated mandatory redeemable preferred securities
of subsidiary trust holding solely subordinated
debentures(1)............................................. $ -- $ 15,000
Stockholders' equity:
Preferred stock, $.001 par value, 100,000,000 shares
authorized, 10,500 shares issued and outstanding....... -- --
Common stock, no par value, 200,000,000 shares authorized,
1,327,744 shares issued and outstanding................ 1 1
Capital surplus........................................... 4,616 4,616
Retained earnings......................................... 3,859 3,859
Unrealized (loss) gain on securities available for sale,
net of taxes........................................... (667) (667)
-------- --------
Total stockholders' equity........................ $ 7,809 $ 7,809
======== ========
Consolidated regulatory capital ratios:
Total risk-based capital.................................. 6.22% 17.51%
Tier 1 capital(2)......................................... 5.28 7.04
Leverage ratio(2)......................................... 4.73 5.95
</TABLE>
---------------
(1) Front Range Capital Trust I, our wholly owned subsidiary, will hold, as its
sole asset, $15,000,000 in principal amount of subordinated debentures.
(2) The trust preferred securities have been structured to qualify as Tier 1
capital. However, Federal Reserve guidelines limit the aggregate amount of
trust preferred securities which can be included in Tier 1 capital to 25% of
our total Tier 1 capital. As adjusted for this offering, our Tier 1 capital
as of March 31, 2000 would have been $11.1 million, of which $2.78 million
would have been attributable to the trust preferred securities. Any future
increases in other elements of our Tier 1 capital, including retained
earnings, would allow us to include greater portions of the trust preferred
securities in Tier 1 capital.
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<PAGE> 21
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data for, and as of the end
of, each of the years in the three year period ended December 31, 1999 are
derived from our consolidated financial statements. The consolidated financial
statements as of December 31, 1999 and 1998 and for each of the years in the two
year period ended December 31, 1999, and the report thereon of Fortner, Bayens,
Levkulich and Co., P.C., are included elsewhere in this prospectus. The
consolidated financial data as of and for each of the three months ended March
31, 2000 and 1999 are derived from unaudited consolidated financial statements
included elsewhere in this prospectus, and, in the opinion of management,
contain all adjustments (consisting of normal recurring adjustments) necessary
to present fairly our financial position and results of operations as of such
dates and for such periods. The results of operations for past periods and the
three months ended March 31, 2000 are not necessarily indicative of the results
of operations that may be expected for the year ended December 31, 2000 or for
any future periods.
<TABLE>
<CAPTION>
AS OF AND FOR THE THREE AS OF AND FOR THE YEAR ENDED
MONTHS ENDED MARCH 31, DECEMBER 31,
----------------------- ------------------------------------
2000 1999 1999 1998 1997
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Interest income................ $ 3,951 $ 2,889 $ 13,228 $ 9,512 $ 7,246
Interest expense............... 1,641 1,105 5,088 3,783 2,815
---------- ---------- ---------- ---------- ----------
Net interest income......... 2,310 1,784 8,140 5,729 4,431
Provision for loan losses...... 72 121 402 421 318
---------- ---------- ---------- ---------- ----------
Net interest income after
provision for loan
losses.................... 2,238 1,663 7,738 5,308 4,113
Noninterest income............. 270 207 969 811 477
Noninterest expense............ 2,044 1,604 6,772 5,450 3,520
---------- ---------- ---------- ---------- ----------
Income before income
taxes..................... 464 266 1,935 669 1,070
Income tax expense............. 142 77 573 155 405
---------- ---------- ---------- ---------- ----------
Net income.................. $ 322 $ 189 $ 1,362 $ 514 $ 665
========== ========== ========== ========== ==========
COMMON SHARE DATA:
Earnings per common share
(basic)..................... $ 0.24 $ 0.14 $ 1.03 $ 0.42 $ 0.06
Earnings per common share
(diluted)................... 0.24 0.14 1.02 0.42 0.06
Book value per common share.... 5.88 5.22 5.62 5.18 0.39
Tangible book value per common
share....................... 5.78 5.12 5.52 5.07 0.38
Cash dividends per common
share....................... 0.00 0.00 0.00 0.00 0.00
Weighted average common shares
outstanding (basic)......... 1,327,744 1,325,744 1,326,906 1,225,391 1,178,619
Weighted average common shares
outstanding (diluted)....... 1,338,244 1,336,244 1,337,406 1,235,891 1,189,119
End of period common shares
outstanding................. 1,327,744 1,325,744 1,327,744 1,325,744 1,186,477
</TABLE>
17
<PAGE> 22
<TABLE>
<CAPTION>
AS OF AND FOR THE THREE AS OF AND FOR THE YEAR ENDED
MONTHS ENDED MARCH 31, DECEMBER 31,
----------------------- -----------------------------
2000 1999 1999 1998 1997
---------- ---------- -------- -------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AT PERIOD END):
Total assets........................... $186,608 $140,204 $172,690 $131,745 $90,739
Investment securities.................. 25,451 24,580 22,193 23,236 12,184
Loans, net of unearned income.......... 138,724 101,818 130,708 91,793 59,284
Allowance for loan losses.............. 1,484 1,207 1,411 1,097 754
Deposits............................... 149,640 118,166 141,926 114,933 84,138
Federal funds purchased................ 5,775 3,500 9,200 -- --
Borrowed funds......................... 21,922 10,275 12,627 8,937 1,122
Stockholders' equity................... 7,809 6,925 7,462 6,861 4,636
PERFORMANCE RATIOS:
Return on average assets............... 0.73% 0.57% 0.92% 0.49% 0.87%
Return on average stockholders'
equity.............................. 17.57 11.55 22.22 10.24 15.90
Net interest margin.................... 6.04 6.08 6.30 6.16 6.59
Operating efficiency ratio(1).......... 79.22 80.56 74.34 83.33 71.72
Stockholders' equity to total assets... 4.18 4.94 4.32 5.21 5.11
Loan to deposit ratio.................. 91.71 85.57 91.10 78.91 69.56
ASSET QUALITY RATIOS(2):
Nonperforming assets to total
assets(3)........................... 0.08% 0.03% 0.10% 0.83% 0.65%
Nonperforming loans to total
loans(4)............................ 0.02 0.05 0.05 0.93 0.96
Net loan charge-offs to average total
loans............................... 0.00 0.03 0.08 0.11 0.46
Allowance for loan losses to total
loans............................... 1.07 1.18 1.08 1.20 1.27
Allowance for loan losses to
nonperforming loans................. 6,183.33 2,463.27 2,391.53 128.76 132.51
CAPITAL RATIOS (AT PERIOD END)(5):
Leverage ratio......................... 4.73% 4.65% 4.87% 7.06% 5.49%
Tier 1 risk-based capital ratio........ 5.28 5.55 5.47 8.22 6.29
Total risk-based capital ratio......... 6.22 6.63 6.43 9.28 7.36
</TABLE>
---------------
(1) Calculated by dividing total noninterest expenses, excluding intangible
asset amortization, by net interest income plus noninterest income.
(2) At period end, except for net loan charge-offs to average total loans, which
is for periods ended on such dates.
(3) Nonperforming assets consist of nonaccrual loans, loans past due 90 days or
more, restructured loans and other real estate owned.
(4) Nonperforming loans consist of nonaccrual loans, loans past due 90 days or
more and restructured loans.
(5) The leverage and risk-based capital ratios are defined in "Supervision and
Regulation."
18
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations analyzes the major elements of our balance sheets and statements of
income. This section should be read in conjunction with our financial statements
and accompanying notes and other detailed information appearing elsewhere in
this prospectus.
RESULTS OF OPERATIONS
Overview
In the first three months of 2000, our net income increased $133,000 or
70.4% over the first three months of 1999. For this period, diluted earnings per
share were $0.24 compared with $0.14 for the first three months of 1999. For the
year ended December 31, 1999, we recorded net income of $1.4 million or $1.02
per share versus net income of $514,000 or $0.42 per share for the year ended
December 31, 1998. Our earnings performance reflects positive growth trends in
both total assets and loans and the income generated as a result of this growth
offset our increased noninterest expenses, including additional staffing costs.
We experienced significant asset growth in all comparison periods. During
the first three months of 2000, our total assets increased $13.9 million or 8.1%
over total assets at December 31, 1999. During 1999 and 1998, our total assets
increased by 31.1% and 45.2%, respectively. As a result of increased loan
demand, gross loans increased $38.9 million or 42.4% during 1999 and $32.5
million or 54.8% during 1998. Although deposits increased by 23.5% during 1999,
additional borrowed funds were necessary to support loan growth. At December 31,
1999, total borrowed funds, including federal funds purchased, were $21.8
million, an increase of $12.9 million or 144.2% over total borrowed funds
outstanding at December 31, 1998. Total borrowed funds at March 31, 2000
increased to $27.7 million or 26.9% from total borrowed funds at December 31,
1999.
Our return on average stockholders' equity was 17.57% for the first three
months of 2000 compared with 11.55% for the first three months of 1999. Our
return on average total assets for the first three months of 2000 was 0.73%
compared with 0.57% for the first three months of 1999. Our return on average
stockholders' equity was 22.22% for 1999 compared with 10.24% for 1998 and our
return on average total assets for 1999 was 0.92% compared with 0.49% for 1998.
Net Interest Income
Our primary source of operating income is net interest income, which is the
difference between interest income and interest expense. Net interest margin is
net interest income expressed as a percentage of average earning assets.
Significant factors affecting net interest income include the amount of
interest-earning assets and interest-bearing liabilities, the types of
interest-earning assets and interest-bearing liabilities and their sensitivity
to changes in interest rates. Net interest income, expressed as a percentage of
average earning assets, was 6.04% (annualized) for the first three months ended
March 31, 2000, 6.30% for the year ended December 31, 1999 and 6.16% for the
year ended December 31, 1998.
Interest Income
Our total interest income was $4.0 million during the first three months of
2000, a $1.1 million or 36.8% increase compared with total interest income for
the first three months of 1999. Total interest income in 1999 was $13.2 million,
a 39.1% increase compared with total interest income of $9.5 million in 1998.
While our principal sources of interest income are loans and investment
securities, most of these increases resulted from growth in loans.
19
<PAGE> 24
Interest Expense
Total interest expense was $1.6 million for the first three months of 2000
compared with $1.1 million for the first three months of 1999, an increase of
48.5%. The increase is attributable largely to increases in borrowed funds and
certificates of deposit, and to increased interest rates on borrowed funds and
interest-bearing demand accounts. Total interest expense was $5.1 million in
1999, an increase of $1.3 million or 34.5% compared with $3.8 million in 1998.
The increase in interest expense from 1998 to 1999 was primarily due to
increases in interest-bearing liabilities.
The following table presents for the periods indicated the total dollar
amount of average balances, interest income from average interest-earning assets
and the resultant yields, as well as the interest expense on average
interest-bearing liabilities, expressed both in dollars and rates. All average
balances are daily average balances. Nonaccrual loans are included in the table
as loans carrying a zero yield.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31,
--------------------------------------------------------------- ------------------------------
2000 1999 1999
------------------------------ ------------------------------ ------------------------------
INTEREST AVERAGE INTEREST AVERAGE INTEREST AVERAGE
AVERAGE EARNED YIELD OR AVERAGE EARNED YIELD OR AVERAGE EARNED YIELD OR
BALANCE OR PAID RATE(3) BALANCE OR PAID RATE(3) BALANCE OR PAID RATE
-------- -------- -------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Federal funds sold........... $ 88 $ -- --% $ 830 $ 3 1.54% $ 470 $ 9 1.91%
Investment securities
Taxable.................... 16,661 265 6.35 14,834 230 6.19 15,484 962 6.21
Tax exempt(1).............. 8,387 150 7.14 8,913 147 6.60 8,846 607 6.86
Loans(2)..................... 132,447 3,587 10.83 97,186 2,560 10.54 109,015 11,856 10.88
Allowance for loan losses..... (1,423) -- (1,133) -- (1,234) --
-------- ------ -------- ------ -------- -------
Total interest-earning
assets................ 156,160 4,002 10.25% 120,630 2,940 9.75% 132,581 13,434 10.13%
Noninterest-earning assets.... 19,874 12,803 15,666
-------- -------- --------
Total assets........... $176,034 $133,433 $148,247
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing deposits
Demand, interest-bearing... $ 62,241 $ 618 3.97% $ 46,773 $ 370 3.16% $ 53,137 $ 1,895 3.57%
Savings.................... 9,306 55 2.37 7,980 48 2.40 8,569 209 2.44
Certificates of deposit.... 42,823 563 5.26 37,580 504 5.36 39,902 2,120 5.31
-------- ------ -------- ------ -------- -------
Total interest-bearing
deposits.............. 114,370 1,236 4.32 92,333 922 3.99 101,608 4,224 4.16
Federal funds purchased...... 8,253 125 6.06 2,985 39 5.25 3,827 207 5.41
Other borrowed funds......... 17,833 280 6.29 9,882 145 5.86 11,435 657 5.75
-------- ------ -------- ------ -------- -------
Total interest-bearing
liabilities........... 140,456 1,641 4.67% 105,200 1,106 4.20% 116,870 5,088 4.35%
------ ------ -------
Noninterest-bearing
liabilities.................. 28,245 21,689 25,247
-------- -------- --------
Total liabilities...... 168,701 126,889 142,117
-------- -------- --------
Stockholders' equity.......... 7,332 6,544 6,131
-------- -------- --------
Total liabilities and
stockholders'
equity................ $176,033 $133,433 $148,248
======== ======== ========
Net interest income........... $2,361 $1,834 $ 8,346
====== ====== =======
Net interest margin........... 6.04% 6.08% 6.30%
Net interest spread........... 5.57 5.55 5.78
Ratio of average
interest-earning assets to
average interest-bearing
liabilities.................. 111.18% 114.67% 113.44%
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1998
------------------------------
INTEREST AVERAGE
AVERAGE EARNED YIELD OR
BALANCE OR PAID RATE
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Interest-earning assets:
Federal funds sold........... $ 3,020 $ 122 4.04%
Investment securities
Taxable.................... 14,906 951 6.38
Tax exempt(1).............. 4,759 322 6.77
Loans(2)..................... 72,943 8,226 11.28
Allowance for loan losses..... (888) --
-------- ------
Total interest-earning
assets................ 94,740 9,621 10.16%
Noninterest-earning assets.... 11,186
--------
Total assets........... $105,926
========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Interest-bearing liabilities:
Interest-bearing deposits
Demand, interest-bearing... $ 39,377 $1,480 3.76%
Savings.................... 6,755 187 2.77
Certificates of deposit.... 32,441 1,877 5.79
-------- ------
Total interest-bearing
deposits.............. 78,573 3,544 4.51
Federal funds purchased...... 636 37 5.82
Other borrowed funds......... 3,025 202 6.68
-------- ------
Total interest-bearing
liabilities........... 82,234 3,783 4.67%
------
Noninterest-bearing
liabilities.................. 18,672
--------
Total liabilities...... 100,906
--------
Stockholders' equity.......... 5,020
--------
Total liabilities and
stockholders'
equity................ $105,926
========
Net interest income........... $5,838
======
Net interest margin........... 6.16%
Net interest spread........... 5.55
Ratio of average
interest-earning assets to
average interest-bearing
liabilities.................. 115.21%
</TABLE>
---------------
(1) Yields are calculated using tax-equivalent rates.
(2) Loans are net of unearned discount. Nonaccrual loans are included in average
loans outstanding.
(3) Annualized.
20
<PAGE> 25
The following table presents the dollar amount of changes in interest
income and interest expense for the major components of interest-earning assets
and interest-bearing liabilities and distinguishes between the increase
(decrease) related to outstanding balances and the volatility of interest rates
for the periods indicated. For purposes of this table, changes attributable to
both rate and volume which cannot be segregated have been allocated to volume.
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED YEAR ENDED
MARCH 31, DECEMBER 31, DECEMBER 31,
---------------------- ----------------------- -----------------------
2000 VS. 1999 1999 VS. 1998 1998 VS. 1997
---------------------- ----------------------- -----------------------
CHANGE DUE TO CHANGE DUE TO CHANGE DUE TO
------------- -------------- --------------
VOLUME RATE TOTAL VOLUME RATE TOTAL VOLUME RATE TOTAL
------ ---- ------ ------ ----- ------ ------ ----- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Federal funds sold................... $ (3) $ -- $ (3) $(103) $ (10) $ (113) $ 33 $ (3) $ 30
Investment securities
Taxable............................ 28 7 35 37 (26) 11 504 (13) 491
Tax exempt......................... (9) 12 3 277 8 285 179 (1) 178
Loans................................ 929 98 1,027 4,068 (438) 3,630 1,805 (178) 1,627
---- ---- ------ ------ ----- ------ ------ ----- ------
Total increase (decrease) in
interest income.............. 945 117 1,062 4,279 (466) 3,813 2,521 (195) 2,326
---- ---- ------ ------ ----- ------ ------ ----- ------
Interest-bearing liabilities:
Interest-bearing deposits
Demand, interest-bearing........... 122 126 248 517 (102) 415 646 (94) 552
Savings............................ 8 (1) 7 50 (28) 22 33 (15) 18
Certificates of deposit............ 70 (11) 59 432 (189) 243 225 48 273
Federal funds purchased.............. 69 17 86 186 (16) 170 15 1 16
Other borrowed funds................. 117 18 135 562 (107) 455 158 (49) 109
---- ---- ------ ------ ----- ------ ------ ----- ------
Total increase (decrease) in
interest expense............. 386 149 535 1,747 (442) 1,305 1,077 (109) 968
---- ---- ------ ------ ----- ------ ------ ----- ------
Increase (decrease) in net interest
income............................... $559 $(32) $ 527 $2,532 $ (24) $2,508 $1,444 $ (86) $1,358
==== ==== ====== ====== ===== ====== ====== ===== ======
</TABLE>
Average loans outstanding during the first three months of 2000 were $132.4
million compared with $97.2 million outstanding for the first three months of
1999, a 36.3% increase. At December 31, 1999, the average balance of loans
outstanding was $109.0 million, 49.5% greater than the average at December 31,
1998. Average loans were 73.5% of average total assets in 1999, compared with
68.9% in 1998. The greater volume of loans outstanding during 1999 resulted in
an increase of $4.0 million in interest income in 1999 over 1998. The average
yield on loans in 1999 was 10.88% compared with 11.28% in 1998, which resulted
in a decrease in loan interest income of $438,000. The net effect of these two
factors was to increase interest income earned on loans by $3.6 million in 1999.
The average amount of nonaccrual loans also affects the average yield
earned on all outstanding loans. The average amount of nonaccrual loans for the
first three months of 2000 and for the years ended December 31, 1999 and 1998
were minimal, and, therefore, did not have a significant effect on the average
loan yield.
Provision for Loan Losses
Our provision for loan losses is established through charges to income in
the form of the provision in order to bring the total allowance for loan losses
to a level deemed appropriate by our management based on the factors discussed
under "-- Financial Condition -- Allowance for Loan Losses." During the first
three months of 2000, we made a provision for loan losses of $72,000, which was
$49,000 less than the provision made for the first three months of 1999. We had
net recoveries of $1,000 for the first three months of 2000, compared with net
charge-offs of $11,000 for the same period in 1999. Although total loans
increased during 1999 and the first three months of 2000, the overall
improvement in the quality of our loan portfolio enabled us to decrease our
provision, which management believes was appropriate given the current economic
conditions in our market area.
21
<PAGE> 26
Because of overall improvement in the quality of our loan portfolio, we
made a provision for loan losses of $402,000 during the year ended December 31,
1999, which was $19,000 less than the $421,000 provision made during the year
ended December 31, 1998. Net charge-offs totaled $88,000 for the year ended
December 31, 1999 compared with net charge-offs of $78,000 for the year ended
December 31, 1998.
Noninterest Income
The following table sets forth our noninterest income for the periods
indicated:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
------------- -------------
2000 1999 1999 1998
----- ----- ----- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Service charges.......................................... $ 45 $ 36 $150 $149
NSF and returned check charges........................... 154 126 582 421
(Loss) gain on sale of investment securities............. -- (1) 7 8
Other.................................................... 71 46 230 233
---- ---- ---- ----
Total noninterest income....................... $270 $207 $969 $811
==== ==== ==== ====
</TABLE>
Noninterest income generated for the three months ended March 31, 2000
increased $63,000 or 30.4% to $270,000 compared with $207,000 for the same
period in 1999. Noninterest income for the year ended December 31, 1999
increased $158,000 or 19.5% to $969,000 compared with $811,000 in 1998. The
increase in both periods was primarily due to an increase in NSF and returned
check charges resulting from increased volume of account activity.
Noninterest Expense
The following table sets forth our noninterest expense for the periods
indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
------------------ ---------------
2000 1999 1999 1998
------- ------- ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Salaries and benefits............................. $1,113 $ 861 $3,663 $2,647
Occupancy......................................... 173 118 519 500
Furniture and equipment........................... 145 116 497 366
Supplies and printing............................. 68 55 20 179
Marketing and promotions.......................... 78 43 208 202
Data processing................................... 110 87 389 288
Other............................................. 357 324 1,476 1,268
------ ------ ------ ------
Total noninterest expense............... $2,044 $1,604 $6,772 $5,450
====== ====== ====== ======
</TABLE>
Salary and benefits expense increased by $252,000 or 29.3% during the first
three months of 2000 compared with the first three months of 1999. This increase
reflects pay range adjustments and additional staff needed for our new branches.
Salary and benefits expense increased by $1,016,000 or 38.4% for the year ended
December 31, 1999 compared with the year ended December 31, 1998. This increase
resulted from normal salary increases, a 33.0% increase in the cost of benefits
and the addition of approximately 17 full-time equivalent employees.
During the first three months of 2000, operating expenses other than
salaries and benefits increased $188,000 or 25.3%. These increased costs were
related in part to greater depreciation expenses, occupancy expenses and
marketing expenses. For the year ended December 31, 1999, operating expenses
other than salaries and benefits increased $306,000 or 10.9% compared with the
year ended December 31, 1998.
22
<PAGE> 27
Provision for Income Taxes
Total income tax expense was approximately $142,000 for the first three
months of 2000 compared with $77,000 for the first three months of 1999, and
$573,000 and $155,000 for the years ended December 31, 1999 and 1998,
respectively. Our effective income tax rates for the first three months of 2000
and 1999 and the years ended December 31, 1999 and 1998 were 30.6%, 28.9%, 29.6%
and 23.2%, respectively.
Return on Average Assets and Stockholders' Equity
The following table sets forth certain ratios for the first three months of
2000 and 1999 and the years ended December 31, 1999 and 1998 (using average
balance sheet data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
------------------ -------------
2000 1999 1999 1998
------ ------ ----- -----
<S> <C> <C> <C> <C>
Return on average assets............................ 0.73% 0.57% 0.92% 0.49%
Return on average stockholders' equity.............. 17.57 11.55 22.22 10.24
Stockholders' equity to average assets.............. 4.18 4.94 4.32 5.21
Stockholders' dividend payout ratio................. -- -- -- --
</TABLE>
Return on average assets increased 16 basis points to 0.73% for the first
three months of 2000 compared with the 0.57% return recorded for the first three
months of 1999. Return on average assets increased 43 basis points to 0.92% in
1999 compared with the 0.49% recorded in 1998.
Return on average stockholders' equity increased to 17.57% in the first
three months of 2000 compared with the 11.55% recorded for the first three
months of 1999. Return on average stockholders' equity for the year ended
December 31, 1999 was 22.22%, up 117.0% from 10.24% in 1998.
FINANCIAL CONDITION
Loan Portfolio
Total loans were $138.7 million at March 31, 2000, an increase of $8.0
million or 6.1% since December 31, 1999. Loan growth occurred primarily in real
estate-construction loans. Total loans at December 31, 1999 were $130.7 million,
an increase of $38.9 million or 42.4% compared with total loans at December 31,
1998. Loan growth during this period occurred primarily in commercial and
residential real estate loans.
The following table summarizes our loan portfolio by type of loan at the
dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
MARCH 31, 2000 1999 1998
------------------ ------------------ -----------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
-------- ------- -------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Real
estate -- construction.... $ 33,545 24.1% $ 29,684 22.6% $22,853 24.8%
Real estate -- commercial... 37,347 26.8 36,203 27.6 20,068 21.8
Real
estate -- residential..... 37,460 26.9 35,804 27.3 23,137 25.1
Commercial.................. 25,278 18.0 24,110 18.3 20,975 22.6
Consumer.................... 5,833 4.2 5,525 4.2 5,217 5.7
-------- ----- -------- ----- ------- -----
$139,463 100.0% $131,326 100.0% $92,250 100.0%
===== ===== =====
Less unearned income...... (739) (618) (457)
-------- -------- -------
Net Loans................. $138,724 $130,708 $91,793
======== ======== =======
</TABLE>
We concentrate our lending activities in five principal areas: commercial,
real estate-construction, real estate-commercial, real estate-residential and
consumer loans. The interest rates charged for the loans we make vary with the
perceived degree of risk (both credit risk and interest rate risk), the size and
maturity of the loans and the borrower's relationship with us.
23
<PAGE> 28
Our underwriting standards are set forth by our board of directors in our
loan policy. The board reviews the loan policy at least annually to ensure that
standard banking practices are being utilized. All underwriting decisions
examine (1) the purpose for the loan, (2) the character of the borrower, (3) the
sources of repayment of the loan (with emphasis on historical and projected cash
flows), (4) the collateral for the loan and (5) the potential borrower's credit
history. We do not employ a specific formula for our underwriting standards, but
rather evaluate the merits of each loan request individually based on the above
criteria.
The majority of our loans are direct loans made to individuals and small to
medium-sized businesses. We rely substantially on local promotional activities
and personal contact by officers, directors and employees to compete with other
financial institutions. We make loans to borrowers whose applications include a
sound purpose, a viable repayment source and a plan of repayment established at
inception and are generally backed by a secondary source of repayment.
Our management is charged with accepting and processing creditworthy loan
applications. Upon approval of a loan, we utilize an automated loan system that
standardizes the loan product for all commercial and consumer loans, and assists
in ensuring that we remain in compliance with all applicable state and federal
laws and regulations.
Commercial loans are generally secured and are structured as credit lines,
term loans, or occasionally as time notes. Credit lines and time notes are
usually secured by general business assets and mature in one year or less. Term
loans are usually secured by equipment and/or real property and mature in one to
seven years. The primary emphasis in underwriting commercial loans is on cash
flow and collateral values while personal guarantees are of secondary
importance. Although recent losses have been minimal, these loans have a
relatively higher risk profile in that they are generally for large amounts and
repayment depends largely upon the business success of the borrower. Our loan
policy limits equipment and commercial real property loans to 80% of the lesser
of cost or market value of the collateral, subject to compensating factors. The
amounts and terms of loans secured by accounts receivable and inventory are
determined according to a formula which values the collateral based on currency
and/or degree of completion.
Consumer loans may be secured or unsecured, but the largest growth in our
consumer loan portfolio is in loans secured by automobiles, boats and
recreational vehicles. Most consumer loans mature in four years, although our
loan policy permits consumer loans that mature in five years and home
improvement loans secured by second mortgages on real property that mature in
ten years. Most of these loans are made by individual loan officers within their
assigned lending limits. Historically, net charge-offs for our consumer loans
have generally been quite modest and there are no discernible negative trends.
Residential mortgage loans are generally made in accordance with the
standards required by the secondary market. The loans mature in up to 30 years,
and may have either fixed or adjustable interest rates. We generally sell those
residential mortgages that mature in 15 or more years. Residential real estate
loans which we intend to retain in our portfolio generally have adjustable rates
and/or maturities of five years or less.
The loan portfolio in general is subject to the risk of an economic
downturn, although a downturn would likely have a more adverse effect on the
commercial portfolio than on any of the other portfolios. In addition, rising
interest rates have a stronger negative effect on the commercial portfolio than
on the other portfolios because commercial loans frequently have variable
interest rates and as the cost of credit increases, the risk of default also
increases. Loans secured by real estate are subject to a greater risk of a
decline in real estate values than are unsecured loans and loans secured by
personal property. Consumer loans are subject to the risks of consumer
bankruptcies and other personal circumstances.
Our loan policy permits the sale of loans by participation for purposes of
asset/liability and liquidity management, diversification of risk and prevention
of overlines. The loan policy also allows us to purchase loans by participation
for purposes of asset/liability management and diversification of risk. Such
loans must be of high quality and meet our own underwriting criteria. We analyze
the suitability of all institutions with which we participate in loans, whether
by sale or purchase.
24
<PAGE> 29
The following tables present the maturities and sensitivity to changes in
interest rates of loans at March 31, 2000 and December 31, 1999. Variable rate
loans comprised 44.0% of our loan portfolio at March 31, 2000 and 43.0% at
December 31, 1999.
<TABLE>
<CAPTION>
MARCH 31, 2000
-------------------------------------------------------------
OVER ONE YEAR
THROUGH FIVE YEARS OVER FIVE YEARS
------------------ ------------------
ONE YEAR FIXED FLOATING FIXED FLOATING
OR LESS RATE RATE RATE RATE TOTAL
-------- ------- -------- ------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Real estate -- construction......... $24,740 $ 1,666 $ 5,158 $ 1,905 $ 76 $ 33,545
Real estate -- commercial........... 4,817 5,249 5,641 20,305 1,335 37,347
Real estate -- residential.......... 13,759 6,613 3,378 13,030 680 37,460
Commercial.......................... 14,658 4,135 5,366 88 1,031 25,278
Consumer............................ 716 4,596 -- 521 -- 5,833
------- ------- ------- ------- ------ --------
Total loans(1)............ $58,690 $22,259 $19,543 $35,849 $3,122 $139,463
======= ======= ======= ======= ====== ========
</TABLE>
---------------
(1) Total loans excludes $739,000 of unearned loan income. Net of unearned loan
income, total loans equaled $138.7 million.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-------------------------------------------------------------
OVER ONE YEAR
THROUGH FIVE YEARS OVER FIVE YEARS
------------------ ------------------
ONE YEAR FIXED FLOATING FIXED FLOATING
OR LESS RATE RATE RATE RATE TOTAL
-------- ------- -------- ------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Real estate -- construction......... $26,263 $ 764 $ 1,539 $ 1,038 $ 80 $ 29,684
Real estate -- commercial........... 4,209 6,825 5,570 17,883 1,716 36,203
Real estate -- residential.......... 12,723 6,278 2,881 12,788 1,134 35,804
Commercial.......................... 14,836 3,929 4,371 55 919 24,110
Consumer............................ 2,187 2,848 -- 490 -- 5,525
------- ------- ------- ------- ------ --------
Total loans(1)............ $60,218 $20,644 $14,361 $32,254 $3,849 $131,326
======= ======= ======= ======= ====== ========
</TABLE>
---------------
(1) Total loans excludes $618,000 of unearned loan income. Net of unearned loan
income, total loans equaled $130.7 million.
Nonperforming Assets
Nonperforming loans, defined as nonaccrual loans, accruing loans 90 days or
more past due and restructured loans, totaled $24,000 at March 31, 2000, a 59.3%
decrease since December 31, 1999. Nonperforming loans decreased $793,000 or
93.1% from December 31,1998 to December 31, 1999. The significant difference in
total nonperforming loans for 1998 and 1999 was primarily due to three
nonperforming loans in 1998, which were repaid or otherwise resolved in 1999.
We generally place a loan on nonaccrual status and cease accruing interest
when, in management's opinion, there is an indication the borrower may be unable
to make payments when they become due. Although interest income is not accrued
on loans reclassified to nonaccrual status, interest income may be recognized on
a cash basis if management expects collection in full of principal and interest.
When a loan is placed on nonaccrual status, any previously accrued but unpaid
interest is reversed. Loans for which the accrual of interest has been
discontinued amounted to $24,000 at March 31, 2000, and $35,000 and $393,000 at
December 31, 1999 and 1998, respectively. Of the amount of nonaccrual loans at
December 31, 1998, $390,000 was related to three borrowers.
Nonperforming assets include nonperforming loans and other real estate
owned ("OREO"). Delinquent real estate loans are not reclassified as OREO until
we take title to the property, either through foreclosure or upon receipt of a
deed in lieu of foreclosure. In such situations, the secured loan is
reclassified on the balance
25
<PAGE> 30
sheet as OREO at the lesser of the fair value of the underlying collateral less
estimated selling costs, or the recorded amount of the loan.
Management considers both the adequacy of the collateral and the other
resources of the borrower in determining the steps to be taken to collect
nonaccrual and charged-off loans. Alternatives for collection that are
considered include foreclosure, collecting on guarantees, restructuring the loan
or filing suit.
The following table sets forth the amount of our nonperforming assets as of
the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, --------------
2000 1999 1998
--------- ----- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Nonaccrual loans........................................... $ 24 $ 35 $ 393
Other loans 90 days or more past due....................... -- 24 459
Other real estate.......................................... 121 118 243
----- ----- ------
Total nonperforming assets....................... $ 145 $ 177 $1,095
===== ===== ======
Nonperforming and other loans 90 days or more past due to
total loans.............................................. 0.02% 0.05% 0.93%
Nonperforming assets to total loans plus other real
estate................................................... 0.10 0.14 1.19
Nonperforming assets to total assets....................... 0.08 0.10 0.83
</TABLE>
At March 31, 2000, the OREO balance of $121,000 was attributable to one
commercial property located in Montana.
Allowance for Loan Losses
The allowance for loan losses is established through charges to earnings in
the form of a provision for loan losses. Management has established an allowance
for loan losses which it believes is adequate for estimated losses inherent in
our loan portfolio. Based on an evaluation of the loan portfolio, management
presents a review of the allowance for loan losses to the bank's board of
directors, indicating any change in the allowance since the last review and any
recommendations as to adjustments in the allowance. In making its evaluation,
management considers factors such as our historical loan loss experience, the
amount of nonperforming loans and related collateral, volume, growth and
composition of the loan portfolio, current economic conditions that may affect
the borrower's ability to pay and the value of collateral, the evaluation of our
loan portfolio through our internal loan review process and other relevant
factors. Charge-offs occur when management deems that loans are uncollectible in
whole or in part.
During the first three months of 2000, we increased our allowance for loan
losses by $72,000, plus net recoveries of $1,000, for a balance at March 31,
2000 of $1.5 million. The total allowance for loan losses was $1.4 million at
December 31, 1999, an increase of $314,000 from December 31, 1998. Management
believes the increase in the allowance for loan losses is necessary to the
overall growth in the loan portfolio.
We follow a loan review program whereby we grade each loan and assign to it
a risk grade. We subsequently regrade such loan if necessary when new
information becomes available. Our grading procedure is based on six
classifications, ranging from Grade 1 (representing no significant risk) up to
Grade 6 (representing an anticipated 100% loss). Grading guidelines can be
influenced by many factors, including the quality of the collateral and
evaluation of key financial information of the borrower.
We maintain a classified loan list which includes Grade 3 through Grade 6
loans. Loans graded as "substandard" loans (Grade 4) are characterized by the
borrower's likely inability to meet present payment terms, increased operating
losses or reduced cash flows. "Doubtful" loans (Grade 5) are similar to
substandard loans and have deficient collateral. "Loss" loans (Grade 6) are
loans in the process of being charged-off. We also grade some loans as
"specially mentioned" (Grade 3). While specially mentioned do not have all the
characteristics of a substandard or doubtful loan, they include sufficient
weakness to warrant special attention. Classified loans require more frequent
monitoring than non-classified loans. Based on the above factors, specific
allowances are provided for classified loans. For example, Grade 3 loans are
allocated
26
<PAGE> 31
a 3% allowance, Grade 4 loans are allocated a 15% allowance, Grade 5 loans are
allocated a 50% allowance and Grade 6 loans are allocated a 100% allowance.
The following table summarizes, for the periods indicated, the activity in
the allowance for loan losses and other related data:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
THREE MONTHS ENDED -------------------
MARCH 31, 2000 1999 1998
------------------ --------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Average loans outstanding...................... $132,447 $ 109,015 $72,943
======== ========= =======
Total loans outstanding at end of period....... $138,724 $ 130,708 $91,793
======== ========= =======
Allowance for loan losses at beginning of
period....................................... $ 1,411 $ 1,097 $ 754
Charge-offs:
Commercial................................... -- 33 32
Real estate -- construction.................. -- -- --
Real estate -- commercial.................... -- -- --
Real estate -- residential................... -- 24 29
Consumer..................................... 3 35 24
-------- --------- -------
Total charge-offs.................... 3 92 85
Recoveries:
Commercial................................... -- 1 1
Real estate -- construction.................. -- -- --
Real estate -- commercial.................... -- -- --
Real estate -- residential................... -- -- --
Consumer..................................... 4 3 6
-------- --------- -------
Total recoveries..................... 4 4 7
Net (recoveries) charge-offs................... (1) 88 78
Provision for loan losses...................... 72 402 421
-------- --------- -------
Allowance for loan losses at end of period..... $ 1,484 $ 1,411 $ 1,097
======== ========= =======
Ratio of net charge-offs (recoveries) to
average loans................................ 0.00% 0.08% 0.11%
Ratio of allowance to end of period total
loans........................................ 1.07 1.08 1.20
Ratio of allowance to end of period
nonperforming loans.......................... 6,183.33 2,391.53 128.76
</TABLE>
27
<PAGE> 32
The following table summarizes, for the periods indicated, the allocation
of the allowance for loan losses among various categories of loans and certain
other information at March 31, 2000 and December 31, 1999 and 1998. The
allocation is made for analytical purposes and is not necessarily indicative of
the categories in which future losses may occur. The total allowance is
available to absorb losses from any segment of loans.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------
MARCH 31, 2000 1999 1998
---------------------- ---------------------- ----------------------
PERCENTAGE PERCENTAGE PERCENTAGE
OF LOANS OF LOANS OF LOANS
AMOUNT OF TO TOTAL AMOUNT OF TO TOTAL AMOUNT OF TO TOTAL
ALLOWANCE LOANS ALLOWANCE LOANS ALLOWANCE LOANS
--------- ---------- --------- ---------- --------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance of allowance for loan
losses applicable to:
Commercial.................. $ 366 17.7% $ 407 21.5% $ 369 18.0%
Real
estate -- construction... 328 24.2 298 23.3 201 22.7
Real estate -- commercial... 366 26.9 275 21.5 246 27.7
Real
estate -- residential.... 367 27.0 364 28.5 243 27.4
Consumer.................... 57 4.2 67 5.2 38 4.2
------ ----- ------ ----- ------ -----
Total allowance for
loan losses....... $1,484 100.0% $1,411 100.0% $1,097 100.0%
====== ===== ====== ===== ====== =====
</TABLE>
Management believes that the allowance for loan losses at March 31, 2000 is
adequate to cover losses inherent in the loan portfolio at such date. No
assurance can be given, however, that adverse economic conditions or other
circumstances will not result in increased losses in the portfolio.
Investment Portfolio
Our investment policy is designed to ensure liquidity for cash flow
requirements, to help manage interest rate risk, to ensure collateral is
available for public deposits, to manage asset quality diversification and to
maximize yield. Investments are managed centrally to maximize compliance and
effectiveness of overall investing activities. Ongoing review of the performance
of the investment portfolio, market values, market conditions, current economic
conditions, profitability, capital ratios, liquidity needs and other matters
related to investing activities is performed by the Executive Committee and
Asset Liability Committee and reviewed by our board of directors.
The following table summarizes the amortized cost and the distributions of
our securities held as of the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, -------------------------------------
2000 1999 1998
----------------- ----------------- -----------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Available for sale securities
U.S. Treasury securities.............. $ 499 1.9% $ 1,099 4.7% $ 2,804 12.1%
U.S. government agency securities..... 7,629 28.8 6,679 28.7 6,515 28.2
State and municipal securities........ 10,024 37.8 9,012 38.7 8,856 38.4
Mortgage-backed securities............ 6,772 25.5 4,928 21.2 3,371 14.6
Corporate securities.................. 1,170 4.4 1,172 5.0 1,178 5.1
Equity securities..................... 421 1.6 407 1.7 364 1.6
------- ----- ------- ----- ------- -----
Total......................... $26,515 100.0% $23,297 100.0% $23,088 100.0%
======= ===== ======= ===== ======= =====
</TABLE>
As of March 31, 2000, the entire investment portfolio is designated
"available for sale." As of March 31, 2000, the amortized cost of our total
investment portfolio was $26.5 million, an increase of 13.8%
28
<PAGE> 33
from December 31, 1999. The amortized cost of the total investment portfolio was
$23.3 million at December 31, 1999, an increase of $209,000 from December 31,
1998.
The following table summarizes the contractual maturity of investment
securities and their weighted average yields at March 31, 2000:
<TABLE>
<CAPTION>
AFTER ONE BUT AFTER FIVE BUT
WITHIN ONE WITHIN FIVE WITHIN TEN
YEAR YEARS YEARS AFTER TEN YEARS TOTAL
-------------- -------------- -------------- --------------- ---------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------ ----- ------ ----- ------ ----- ------- ----- ------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury
securities.............. $ -- --% $ 499 5.28% $ -- --% $ -- --% $ 499 5.28%
U.S. government agency
securities.............. -- -- 6,352 6.08 1,277 6.24 -- -- 7,629 6.12
State and municipal
securities.............. 415 6.27 459 6.71 1,640 6.30 7,510 6.83 10,024 6.72
Mortgage-backed
securities.............. -- -- 353 5.78 391 5.66 6,028 6.54 6,772 6.45
Corporate securities...... -- -- 625 5.14 545 6.10 -- -- 1,170 5.59
Equity securities(1)...... -- -- -- -- -- -- 421 6.00 421 6.00
---- ------ ------ ------- -------
Total available
for sale
securities..... $415 6.27% $8,288 5.99% $3,853 6.18% $13,959 6.68% $26,515 6.38%
==== ====== ====== ======= =======
</TABLE>
---------------
(1) Equity securities do not have stated maturities.
Interest on investment securities increased during the first three months
of 2000 as existing lower-yielding investments were repriced at current higher
rates. The tax equivalent average yield for the first three months of 2000 was
6.63% compared with 6.35% for the first three months of 1999. Interest on
investment securities increased by $296,000 or 23.3% in 1999 compared with 1998.
Because the average balance of securities increased by $4.7 million in 1999 over
1998, and the average rate declined from 6.47% to 6.45%, we enjoyed higher
interest income in 1999.
We have adopted Statement of Financial Accounting Standards ("SFAS") No.
115, Accounting for Certain Investments in Debt and Equity Securities. At the
date of purchase, we are required to classify debt and equity securities into
one of three categories: held to maturity, trading or available for sale. At
each reporting date, the appropriateness of the classification is reassessed.
Investments in debt securities are classified as held to maturity and measured
at amortized cost in the financial statements only if management has the
positive intent and ability to hold those securities to maturity. Securities
that are bought and held principally for the purpose of selling them in the near
term are classified as trading and measured at fair value in the financial
statements with unrealized gains and losses included in earnings. Investments
not classified as either held to maturity or trading are classified as available
for sale and measured at fair value in the financial statement with unrealized
gains and losses reported, net of tax, in a separate component of stockholders'
equity until realized.
Deposits
Our primary source of funds has historically been customer deposits. Total
deposits increased to $149.6 million at March 31, 2000 from $141.9 million at
December 31, 1999 and $114.9 million at December 31, 1998. These increases are
primarily a result of the opening of two branches in February 2000, one branch
in 1999, three branches in 1998 and one branch in 1997.
Noninterest-bearing deposits of $27.5 million at March 31, 2000 represented
an increase of $921,000 or 3.5% from $26.6 million at December 31, 1999.
Noninterest-bearing deposits at December 31, 1999 increased $4.1 million or
18.5% from $22.4 million at December 31, 1998. Interest-bearing deposits at
March 31, 2000 were $122.2 million, an increase of $6.8 million or 5.9% from
$115.4 million at December 31, 1999. Interest-bearing deposits were $115.4
million at December 31, 1999, an increase of $22.8 million or 24.7% from $92.5
million at December 31, 1998.
29
<PAGE> 34
The following table sets forth the distribution of our deposits by type as
of the date indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ---------------------------------------
2000 1999 1998
------------------ ------------------ ------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
-------- ------- -------- ------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Demand, noninterest-bearing
deposits........................... $ 27,487 18.3% $ 26,566 18.7% $ 22,419 19.4%
Demand, interest-bearing deposits.... 68,829 46.0 62,962 44.4 48,120 41.9
Savings.............................. 9,513 6.4 9,398 6.6 7,759 6.8
Time, $100,000 and over.............. 20,001 13.4 19,352 13.6 13,110 11.4
Other time........................... 23,810 15.9 23,648 16.7 23,525 20.5
-------- ----- -------- ----- -------- -----
Total deposits............. $149,640 100.0% $141,926 100.0% $114,933 100.0%
======== ===== ======== ===== ======== =====
</TABLE>
The following table presents the daily average balances for each major
category of deposits and the weighted average interest rate paid on
interest-bearing deposits for each of the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
THREE MONTHS ENDED --------------------------------------
MARCH 31, 2000 1999 1998
------------------ ------------------ -----------------
AMOUNT RATE AMOUNT RATE AMOUNT RATE
-------- ------- -------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Demand, interest-bearing deposits..... $ 62,241 3.97% $ 53,137 3.57% $39,377 3.76%
Savings............................... 9,306 2.37 8,569 2.44 6,755 2.77
Time, $100,000 and over............... 19,195 5.34 15,883 5.32 11,444 5.81
Other Time............................ 23,628 5.17 24,019 5.30 20,997 5.77
-------- -------- -------
Total interest-bearing
deposits.................. 114,370 4.32 101,608 4.16 78,573 4.51
Noninterest-bearing deposits.......... 26,765 23,733 17,320
-------- -------- -------
Total deposits.............. $141,135 3.50% $125,341 3.37% $95,893 3.70%
======== ======== =======
</TABLE>
The following table sets forth the amounts and maturity of certificates of
deposit that had balances of $100,000 or more at March 31, 2000:
<TABLE>
<CAPTION>
MARCH 31, 2000
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Remaining maturity
Less than three months.................................. $ 7,410
Three months up to six months........................... 7,476
Six months up to twelve months.......................... 4,379
Twelve months and over.................................. 736
-------
Total........................................... $20,001
=======
</TABLE>
Federal Funds Purchased and Other Borrowed Funds
Federal funds purchased averaged $8.3 million during the first three months
of 2000 compared with $3.0 million during the first three months of 1999. This
176.7% increase was necessary to meet increased loan demand. Federal funds
purchased averaged $3.8 million in 1999, a 501.7% increase over 1998. The
average rate paid on federal funds decreased to 5.41% in 1999 compared with
5.82% in 1998. Total interest paid on short-term borrowed funds increased by
$170,000 or 459.5% in 1999 compared with 1998 as the result of the increase in
federal funds purchased and the decrease in average rates. Leveraging the
balance sheet through the use of borrowed funds during the past several years
has had a significantly favorable effect on our net interest income as a result
of the positive spread between the yield on earning assets and cost of borrowed
funds.
30
<PAGE> 35
During the three months ended March 31, 2000, we began to utilize
short-term advances from the Federal Home Loan Bank as an additional source of
funds. At March 31, 2000, we had $10.0 million of these advances outstanding.
Long-term borrowed funds include fixed rate Federal Home Loan Bank
advances, a note payable to an unaffiliated bank and unsecured loans from
stockholders. Long-term debt averaged $17.8 million during the first three
months of 2000 compared with $9.9 million during the first three months of 1999.
This 79.8% increase was necessary to meet loan demand and to provide the bank
with additional capital. Long-term debt averaged $11.4 million in 1999, a 278.0%
increase over 1998, and the average rate paid decreased to 5.75% in 1999
compared with 6.68% in 1998. Based on these factors, interest expense on
long-term debt increased by $455,000 or 225.2% in 1999 compared with 1998.
The following table sets forth certain information regarding total borrowed
funds for the dates indicated:
<TABLE>
<CAPTION>
AT OR FOR THE PERIOD ENDED
----------------------------
DECEMBER 31,
MARCH 31, ----------------
2000 1999 1998
--------- ------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Average balance outstanding............................... $26,086 $15,262 $3,661
Maximum amount outstanding at any month-end during the
period.................................................. 27,697 21,827 8,937
Balance outstanding at end of period...................... 27,697 21,827 8,937
Weighted average interest rate during the period.......... 6.21% 5.66% 6.53%
</TABLE>
Liquidity
Our liquidity policy provides management with guidelines to ensure that
funds are available as needed to support asset growth or to reduce assets to
meet deposit withdrawals and other payment obligations, to maintain reserve
requirements and otherwise to operate on an ongoing basis. Due to the potential
for unexpected fluctuation in deposits and loans, active management of our
liquidity is critical. In order to respond to these circumstances, sources of
both on and off-balance sheet funding are in place.
Traditionally, we have relied on such sources as cash on hand and loan and
investment maturities to fund liquidity needs. Within the past two years, we
have chosen to expand our sources to include lines of credit and advances with
the Federal Home Loan Bank and other correspondent banks.
To enhance our ability to manage liquidity, and in accordance with SFAS No.
115, Accounting for Certain Investment and Debt and Equity Securities, all
investments are accounted for as available for sale. At March 31, 2000, these
securities plus cash and due from banks totaled $34.8 million, which was 18.7%
of total assets.
Generally, investment securities which mature within one year can be
converted to cash for liquidity needs at amounts which approximate their book
value. Securities with maturities greater than one year are more sensitive to
changes in interest rates and, therefore, their liquidation value would tend to
be more volatile relative to their book value.
Capital Resources
Stockholders' equity increased to $7.8 million at March 31, 2000 from $7.5
million at December 31, 1999, an increase of $347,000 or 4.7%. This increase was
primarily the result of net income for the period. During the year ended
December 31, 1999, stockholders' equity increased by $601,000 or 8.8% from $6.9
million at December 31, 1998. This increase was due to net income of $1.4
million, offset by an unrealized loss on available for sale securities of
$800,000.
31
<PAGE> 36
The following table provides a comparison of the leverage and risk weighted
capital ratios of us and the bank as of March 31, 2000 and December 31, 1999 to
the minimum and well-capitalized regulatory standards:
<TABLE>
<CAPTION>
TO BE WELL
MINIMUM CAPITALIZED
REQUIRED FOR UNDER PROMPT
CAPITAL ADEQUACY CORRECTIVE ACTION ACTUAL RATIO AT ACTUAL RATIO AT
PURPOSES PROVISIONS MARCH 31, 2000 DECEMBER 31, 1999
---------------- ----------------- --------------- -----------------
<S> <C> <C> <C> <C>
Front Range Capital
Corporation
Leverage ratio............ 4.00%(1) N/A 4.73% 4.87%
Tier 1 risk-based capital
ratio.................. 4.00 N/A 5.28 5.47
Risk-based capital
ratio.................. 8.00 N/A 6.22 6.43
Heritage Bank
Leverage ratio............ 4.00%(1) 5.00% 6.80% 6.91%
Tier 1 risk-based capital
ratio.................. 4.00 6.00 7.67 7.77
Risk-based capital
ratio.................. 8.00 10.00 8.62 8.73
</TABLE>
---------------
(1) The Federal Reserve may require us and/or the bank to maintain a leverage
ratio of up to 100 basis points above the required minimum.
Interest Rate Sensitivity
Our asset liability management policy provides management with the
necessary guidelines for managing the volume and mix of our assets and other
funding sources and we have established a system for monitoring our net interest
rate sensitivity position.
Interest rate is managed by the bank's Asset Liability Committee ("ALCO"),
which is comprised of our senior officers, in accordance with policies approved
by our board of directors. The ALCO formulates strategies based on appropriate
levels of interest rate risk. In determining the appropriate level of interest
rate risk, the ALCO considers the impact on earnings, capital levels and general
economic conditions.
Interest rate risk management involves the maintenance of an appropriate
balance between interest sensitive assets and interest sensitive liabilities to
reduce interest rate risk exposure while also providing liquidity to satisfy the
cash flow requirements of operations and to meet customers' fluctuating demands
for funds, either in terms of loan requests or deposit withdrawals.
Interest-earning assets and interest-bearing liabilities are those which
have yields or rates which are subject to change within a future time period due
to maturity of the instrument or changes in the rate environment. "GAP" refers
to the difference between interest-earning assets and interest-bearing
liabilities repricing within given time frames. As a result, major fluctuations
in net interest income and net earnings could occur due to imbalances between
the amounts of interest-earning assets and interest-bearing liabilities, as well
as different repricing characteristics. GAP management seeks to protect earnings
by maintaining an appropriate balance between interest-earning assets and
interest-bearing liabilities in order to minimize fluctuations in the net
interest margin and net earnings in periods of volatile interest rates.
We use a net interest income simulation model to estimate near-term (next
twelve months) risk due to changes in interest rates. The model, which is
updated quarterly, incorporates substantially all of our assets and liabilities
together with forecasted changes in the balance sheet and assumptions that
reflect the current interest rate environment. Balance sheet changes are based
on expected prepayments of loans and securities. ALCO uses the model to simulate
the effect of immediate and sustained parallel shifts in the yield curve of 100
and 200 basis points. The results from the simulation are reviewed by ALCO
quarterly and are used to guide ALCO's asset liability strategy. ALCO guidelines
approved by our board of directors generally limit the estimated change in net
interest margin over the succeeding 12 months to 25 basis points of the
forecasted net interest margin given a 200 basis points change in interest
rates. At March 31, 2000, the estimated effect of an immediate 200 basis point
increase in rate was a decrease in forecasted net interest
32
<PAGE> 37
margin for 12 months of 28 basis points, which would result in a decrease in net
interest income of $529,000. The estimated effect of an immediate 200 basis
point decrease in rate was an increase in forecasted net interest margin for 12
months of 18 basis points, which would result in an increase in net interest
income of $328,000.
The following table summarizes our interest rate sensitivity analysis at
March 31, 2000:
<TABLE>
<CAPTION>
VOLUMES SUBJECT TO REPRICING WITHIN
----------------------------------------------------------
OVER THREE OVER ONE
THREE MONTHS YEAR
MONTHS THROUGH THROUGH OVER
OR LESS ONE YEAR FIVE YEARS FIVE YEARS TOTAL
-------- ---------- ---------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Federal funds sold.............. $ -- $ -- $ -- $ -- $ --
Investment securities........... -- 415 8,643 16,393 25,451
Loans........................... 70,686 9,930 22,259 35,849 138,724
-------- -------- -------- ------- --------
Total interest-earning
assets................ 70,686 10,345 30,902 52,242 164,175
-------- -------- -------- ------- --------
Interest-bearing liabilities:
Deposits
Demand, interest-bearing..... 68,829 -- -- -- 68,829
Savings...................... 9,513 -- -- -- 9,513
Certificates of deposit...... 12,661 27,375 3,775 -- 43,811
Federal funds purchased......... 5,775 -- -- -- 5,775
Other short-term borrowings..... 10,000 -- -- -- 10,000
Long-term debt.................. -- 3,016 4,527 4,379 11,922
-------- -------- -------- ------- --------
Total interest-bearing
liabilities........... $106,778 $ 30,391 $ 8,302 $ 4,379 $149,850
======== ======== ======== ======= ========
Period gap........................ $(36,092) $(20,046) $ 22,600 $47,863 $ 14,325
======== ======== ======== ======= ========
Cumulative period gap............. $(36,092) $(56,138) $(33,538) $14,325
======== ======== ======== =======
Cumulative period gap to total
assets.......................... (19.34)% (30.08)% (17.97)% 7.68%
</TABLE>
Certain shortcomings are inherent in the method of analysis presented in
the foregoing table. For example, although certain assets and liabilities may
have similar maturities or periods to repricing, they may react in different
degrees to changes in market interest rates. Also, the interest rates on certain
types of assets and liabilities may fluctuate in advance of changes in market
interest rates, while interest rates on other types may lag behind and over the
life of the asset. Further, in the event of a change in interest rates,
prepayment and early withdrawal levels would likely deviate significantly from
those assumed in calculating the table.
Availability of Dividends
Our principal cash requirement at the holding company level is the
repayment of debt. We are dependent upon the payment of cash dividends by the
bank to service such commitments.
We, as the sole stockholder of the bank, are entitled to the dividends when
and as declared by the bank's board of directors, out of funds legally available
therefor, subject to the restrictions imposed by banking regulations. Generally,
a Colorado-chartered banking corporation which is a member of the Federal
Reserve may make quarterly distributions provided they do not exceed the lesser
of: (1) the bank's retained earnings or (2) the bank's net income for the last
three fiscal years (including the current year), less the amount of any
distributions made by the bank to its stockholders during such period. The
regulators may order a bank to refrain from making a proposed distribution when,
in the regulators' opinions, the payment of such would be an unsafe or unsound
practice. As of March 31, 2000, and subject to the limitations and restrictions
under applicable law, the bank had $2.5 million available for dividends.
We expect that the cash dividends paid by the bank to us will be sufficient
to meet our cash requirements, although there is no assurance that dividends
will be paid at any time in any amount.
33
<PAGE> 38
BUSINESS
GENERAL
We are a bank holding company headquartered in Louisville, Colorado, which
is located southeast of Boulder along the Denver-Boulder business corridor. We
derive substantially all of our income from, and our principal asset is, all of
the common stock of the bank. We have 11 full-service branches in the Denver-
Boulder metropolitan area.
We operate under a community banking philosophy. We develop broad customer
relationships based on responsive, individualized service provided by our
experienced officers and staff. We offer our customers, including local
residents and small to medium-sized businesses, a variety of traditional loan
and deposit products from our attractive, convenient locations.
HISTORY OF THE COMPANY
In March of 1985, we acquired our wholly owned subsidiary, Heritage Bank,
then operating under the name Lafayette First Industrial Bank. After the
acquisition, we converted Lafayette First into a state-chartered commercial bank
named Bank VII. In 1990, Robert L. and Claudia A. Beauprez acquired a
significant ownership interest in us and thereupon instituted significant
changes in order to enable us to more effectively serve the needs of local small
to medium-sized business and individual customers. To reflect these changes, the
name of the bank was changed in 1991 to Lafayette State Bank. Since 1990, the
bank has enjoyed steady growth in deposits and in commercial and consumer loans.
The bank began its geographic expansion in 1995, with the establishment of
branches in Boulder and Louisville (which subsequently became our main banking
office). We then opened branches in Erie (1997); Broomfield, Denver and
Louisville (Main Street) (1998); Longmont (1999); and downtown Boulder,
Lafayette (95th Street) and Niwot (2000). This geographic expansion gives us a
significant presence throughout the diverse and growing economic and population
base in the Denver-Boulder metropolitan area. On June 1, 1998, the bank again
changed its name to Heritage Bank to better reflect its expanding geographic
presence.
BUSINESS STRATEGIES
The Denver-Boulder metropolitan area in which we operate enjoys strong
economic growth, an expanding population and an array of diverse industries. Our
principal objective is to serve the individual and business needs of our market
while achieving an acceptable rate of return for our stockholders. To achieve
this objective, we have focused on the following strategies:
Emphasizing community banking relationships and a strong customer service
culture. We enjoy an excellent reputation in our market area for our strong
service culture. Starting with our Chairman of the Board and President, Robert
L. Beauprez, who has lived and worked in our market area all of his life, and
his wife, Claudia, who has lived in Colorado since 1964, our officers and staff
are dedicated to providing responsive, individualized service to our business
and individual customers. We encourage our board members, branch presidents,
branch managers and officers to become actively involved in civic and public
service affairs in their communities. As a result of this community interaction,
we are better able to understand the specific needs of local customers and
provide the responsiveness to local concerns expected of a community bank. Our
management team is talented, deep and stable. We have experienced very little
management turnover, which promotes a continuity of service to our customers.
Several of our branch presidents formerly ran other banking organizations and
have chosen to join us and be a part of our service-oriented team. We believe
our banking offices are conveniently located in our market areas. Most of our
locations are designed to make the customer feel "at home" and resemble a family
home atmosphere more than a corporate office. All of our locations, such as our
branches in the "LODO" section of downtown Denver and in downtown Boulder, are
designed to fit in aesthetically with their surroundings. This combination of
service-oriented management and staff and attractive, accessible locations
enables us to provide outstanding service to our customers.
34
<PAGE> 39
Expanding market share and increasing efficiency through internal
growth. We have grown significantly through our branching activities. We believe
that our current locations provide us with the necessary platform to expand our
services within our existing market area and that we have the infrastructure and
systems in place to accommodate substantial additional market penetration. We
believe that as we continue to expand our business from our current locations,
we can absorb many of the overhead costs incurred in the creation of our branch
network. As a result, our efficiency ratio should decrease and our net earnings
should increase. We will continue to look for appropriate opportunities to grow
by opening additional branches within our existing markets or in new markets
offering growth potential.
Enhancing use of technology to provide competitive products and
services. We provide a wide range of the usual and customary commercial and
consumer banking products and services in all of the communities in which we
serve. Our use of advanced technology also allows us to offer our customers the
ability to bank through their personal computer from their home or business.
These services allow customers the flexibility of monitoring their loan and
account activity and conducting banking transactions 24 hours a day. Telephone
access enables customers to receive real-time account balances, deposit status,
checks paid, withdrawals made, loan status, loan payments due and other
specifics related to services we provide. In addition, our customers can access
their accounts at our ATM locations and at ATM locations worldwide through
agreements with other banks and ATM networks.
Maintaining strong asset quality. As a result of our strong credit
underwriting and loan administration, we have maintained excellent asset quality
despite the rapid expansion of our loan portfolio. Our total assets have grown
from $5.6 million at December 31, 1990 to $186.6 million at March 31, 2000. Over
this same period, total loans increased from $3.7 million to $138.7 million and
total deposits have risen from $4.9 million to $149.6 million. Over the past two
calendar years, total assets have grown from $90.7 million at December 31, 1997
to $172.7 million at December 31, 1999, total loans have increased from $59.3
million to $130.7 million and total deposits have risen from $84.1 million to
$141.9 million. Despite this growth, our ratio of nonperforming assets to total
assets at March 31, 2000 was 0.08%. We intend to continue to maintain our sound
asset quality and adhere to the policies and practices that contribute to this
result.
COMPETITION
The banking business is highly competitive, and our profitability depends
principally upon our ability to compete in the markets in which our branch
operations are located. Consolidation in the financial services industry has
reduced the number of independent banks. We compete with other commercial banks,
savings banks, savings and loan associations, credit unions, finance companies,
mutual funds, insurance companies, asset-based non-bank lenders and certain
other nonfinancial institutions, including retail stores which may maintain
their own credit programs and certain governmental organizations which may offer
more favorable financing than we offer. Some of our competitors enjoy
significant financial resources, are well-recognized and have more offices than
we do, and in some cases, are not subject to the same regulations and
restrictions that we are subject to.
Nevertheless, we have been able to effectively compete by emphasizing
customer service, technology and responsive decision-making by establishing
long-term customer relationships and building customer loyalty as well as by
providing products and services designed to meet the specific needs of our
customers. We believe our competitive strengths, including our reputation for
developing and continuing banking relationships, responsiveness to customer
needs, individualized customer service and maintenance of skilled and
resourceful personnel, will enable us to continue to successfully compete in the
communities we serve.
Although we consider our principal competition to be those banks and other
financial institutions with offices in our current market area, under the
Gramm-Leach-Bliley Act, effective March 11, 2000, securities firms and insurance
companies that elect to become financial holding companies may acquire banks and
other financial institutions. These financial holding companies will be able to
offer banking, insurance and securities brokerage products to their customers.
The Gramm-Leach-Bliley Act may significantly change the competitive environment
in which we operate. In addition, other federal legislation has had the effect
of easing
35
<PAGE> 40
membership limits on credit unions and increasing the ability of credit unions
to compete with us for deposits and loans in the communities we serve.
FACILITIES AND PROPERTIES
We conduct business at 11 full-service branch locations, including branches
in Boulder, Longmont, Lafayette, Louisville, Broomfield, Denver, Erie and Niwot,
Colorado. We own five of the facilities that house our branches and lease the
remaining facilities under various terms.
The following table sets forth certain information regarding our
facilities:
<TABLE>
<CAPTION>
OWNED/LEASED AND IN OPERATION DEPOSITS AS OF
LOCATION ADDRESS LEASE TERMS(1) SINCE MARCH 31, 2000
-------- ------- ---------------- ------------ --------------
<S> <C> <C> <C> <C>
Boulder -- Pearl Street 2775 Pearl Street, Leased: 5 year term ending February 1995 $30,392,110
Boulder, September 30, 2004
Colorado 80302
Boulder -- West End 1900 Ninth Street, Leased: 5 year term ending February 2000 $ 967,434
Boulder, July 31, 2004
Colorado 80302
Broomfield 5720 W. 120th Avenue, Owned January 1998 $11,059,457
Broomfield, Colorado 80020
Denver -- LODO 1543 Wazee Street, Denver, Owned October 1998 $ 4,315,434
Colorado 80202
Erie 785 Cheesman, Erie, Owned June 1997 $11,287,791
Colorado 80516
Lafayette 811 S. Public Road, Owned April 1987 $47,697,113
Lafayette, Colorado 80026
Lafayette -- 95th Street 2695 North Park Drive, Leased: 5 year term ending February 2000 $ 7,276,927
Suite 101, Lafayette, January 14, 2005
Colorado 80026
Longmont 2333 N. Main Street, Suite Leased: 62 month term March 1999 $ 5,261,281
E, Longmont, Colorado ending March 21, 2004
80501
Louisville 1020 Century Drive, Suite Owned July 1995 $24,703,571
202, Louisville,
Colorado 80027
Louisville -- Main 801 Main Street, Suite Leased: 5 year term ending August 1998 $ 6,696,998
Street 130, Louisville, Colorado March 31, 2003
80027
Niwot(2) 6800 N. 79th Street, Leased: 5 year term ending (2) --
Niwot, Colorado 80503 February 28, 2005
</TABLE>
---------------
(1) The lease terms do not include renewal option periods which may be
available.
(2) Expected to open for business on July 1, 2000.
EMPLOYEES
As of March 31, 2000, we employ 92 persons on a full-time or equivalent
basis. We are not a party to any collective bargaining agreement and we have
good relations with our employees. We provide customary insurance benefits to
our employees. None of our officers is employed pursuant to an employment
contract.
LEGAL PROCEEDINGS
We are periodically party to or otherwise involved in legal proceedings
arising in the normal course of our business, such as claims to enforce liens,
claims involving the making and servicing of real property loans, and other
issues incident to our business. Management does not believe that there is any
pending or threatened proceeding against us which, if determined adversely,
would have a material effect on our business, results of operations or financial
condition.
36
<PAGE> 41
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to our
executive officers and directors and the executive officers and directors of the
bank:
<TABLE>
<CAPTION>
POSITION WITH FRONT RANGE
NAME AGE CAPITAL CORPORATION POSITION WITH HERITAGE BANK
---- --- ------------------------- ---------------------------
<S> <C> <C> <C>
Robert L. Beauprez.... 51 Chairman of the Board; President Chairman of the Board; Chief
Executive Officer and President
Claudia A. Beauprez... 50 Director; Secretary and Treasurer Director; Secretary
Alice M. Bier......... 47 Chief Financial Officer Chief Operating Officer
Victor Fruehauf....... 64 Director Director
Larry W. Gibson....... 60 Director Director; Senior Vice President
William G. Hofgard.... 68 Director Director
Donald E. Imel........ 68 Director Director
W. Bruce Joss......... 50 Director Director
Robert W. Lathrop..... 61 Director Director
William A. Mitchell... 41 Vice President Executive Vice President
</TABLE>
The eight directors that serve on our board of directors also comprise the
board of directors of the bank. Each of our executive officers and each
executive officer of the bank serves at the discretion of the respective board
of directors. All directors hold office until the next annual meeting of
stockholders or until their successors are elected and qualified or until their
death, resignation or removal. Officers are appointed by the board of directors
and hold office until their successors are duly elected or qualified or until
their death, resignation or removal.
Robert and Claudia Beauprez are husband and wife. There are no family
relationships among any other of our directors and executive officers or those
of the bank.
Robert L. Beauprez has been the President and a director of the company
since 1990. He was elected Chairman of the Board in July 1993. He has served as
Chief Executive Officer of the bank since 1995. Prior to that, he was an
operating partner in his family's dairy farming operations in Lafayette,
Colorado. He also served as a director for Affiliated National Bank of
Louisville (now known as Bank One-Louisville Center) for 13 years prior to 1990.
Mr. Beauprez presently serves as Chairman for the Colorado Republican Party
and previously served as chairman of his county party and congressional
district. He currently serves on the Boulder Community Hospital Foundation
Finance Committee and the Boulder Community Hospital Association Board. He has
also served as Chairman of the Board of the Independent Bankers of Colorado and
as vice chairman of the Independent Bankers of America Policy Development
Committee. Mr. Beauprez' other community activities include work with the St.
Louis Church Finance Committee, Long's Peak Council Boy Scouts of America,
Student Venture, Boulder County Advisory Council, St. Louis School Board and
several other community organizations.
Claudia A. Beauprez has been Secretary, Treasurer and a director of the
company since 1991 and a director of the bank since 1990. She is a part-time
employee of the bank, serving as an administrative assistant. Mrs. Beauprez also
is a licensed real estate agent and was active in the family dairy farming
business in Lafayette, Colorado prior to joining the company.
Alice M. Bier became Chief Financial Officer of the company in 2000, Chief
Operating Officer of the bank in 1997 and vice president and cashier of the bank
in 1996. Prior to her tenure at the bank, she served for several years as an
employee and officer in several operations and lending capacities at The Bank of
37
<PAGE> 42
Louisville, including director from 1984 to 1996, president from 1995 to 1996,
executive vice president and cashier from early in 1994 to August 1995, and vice
president and cashier for ten years prior to 1994. She also served as corporate
secretary of Financial Holdings, Inc., the holding company for The Bank of
Louisville from 1984 to 1995. Ms. Bier has worked in the banking industry since
1971. Ms. Bier has been an active member in several community organizations,
including Coal Creek Rotary, Louisville Chamber of Commerce, Louisville Downtown
Business Association, Leadership Louisville Program, Lafayette Chamber of
Commerce and the Louisville Labor Day Parade Committee. She is also a board
member of the Independent Bankers' Network.
Victor Fruehauf has been a director of the company since 1995 and a
director of the bank since 1994. He is the Chief Executive Officer and a
director of Fruehauf Plant and Garden Center, a privately-owned company in
Boulder, Colorado that sells plants, flowers, giftware, outdoor furniture,
nursery stock and other related products. Mr. Fruehauf also is the general
partner of a family limited partnership that develops, owns and operates a small
shopping mall in Boulder, Colorado. Prior to his experience with Fruehauf Plant
and Garden Center, Mr. Fruehauf served in various personnel and labor relations
capacities with Dow Chemical Company. He previously served for seven years on
the board of directors of Colorado National Bank - Boulder. Four of those years,
he served as Chairman of the Board.
Larry W. Gibson has been a director of the company and the bank since 1992.
He served as vice president of the bank from 1990 to 1997 and currently serves
as Senior Vice President. Mr. Gibson has served in lending officer positions at
various financial institutions for more than 30 years.
William G. Hofgard has been a director of the company since 1995 and a
director of the bank since 1994. For over forty years, he has been Chairman of
the Board of Hofgard & Company, Inc., a privately owned employee benefits
consulting and insurance brokerage firm in Boulder, Colorado. He also served as
President of Hofgard & Company, Inc. for over 25 years until 1997. Mr. Hofgard
is a chartered life underwriter and a chartered financial consultant.
Donald E. Imel was a founder of Lafayette First Industrial Bank, the
predecessor to the bank. He has served as a director of both the company and the
bank, or its predecessors, since 1987, serving as Chairman of the Board of the
company from 1987 to 1993. Mr. Imel was a principal in a family-owned business
for 37 years. He also manages various commercial and residential real estate
investments in local communities.
W. Bruce Joss has been a director of the company and the bank since 1991.
He is a stockholder in the Louisville law firm of Rautenstraus and Joss, P.C.,
specializing in commercial law. He has maintained a private practice since 1974
and has previously served as Louisville City Attorney and Prosecutor. Mr. Joss
previously served as a director of Affiliated First National Bank in Louisville
(now known as Bank One-Louisville Center). Mr. Joss' law firm currently serves
as legal counsel for the company and the bank.
Robert W. Lathrop was elected to the board of directors of the company and
the bank in 1993. Mr. Lathrop was the owner, President and Chief Executive
Officer of Rental Center of Louisville, Inc., from 1986 until 1998. He served on
the Louisville city council for eight years and the Louisville planning
commission for two years. Mr. Lathrop served as a director of Affiliated First
National Bank in Louisville from 1989 to 1990.
William A. Mitchell became Vice President of the company in 2000 and
Executive Vice President of the bank in 1998. He manages the bank's loan and
investment functions as well as the branch presidents and branch managers. Prior
to joining the bank, Mr. Mitchell served as President and a director of First
Community Industrial Bank, a Washington Mutual company in Denver, managing a
$275 million banking organization with 11 branch locations in three states. In
addition, he supervised a $200 million home equity company based in California
for Washington Mutual. Prior to that, he worked for six years as a branch
manager for Chrysler First Financial Services in Aurora, Colorado, where he
managed a $50 million branch consumer finance institution. Mr. Mitchell has
served as director of the Colorado State Banking Board and currently serves as a
director of Independent Bankers of Colorado (IBC). He also serves as a director
of the Boulder Adopt a School program and of Colorado Microcredit, Inc., a part
of the Colorado Alliance for Micro-Enterprise Initiative, both nonprofit
organizations.
38
<PAGE> 43
OPERATION OF OUR BOARD OF DIRECTORS
Our board of directors has established a compensation committee and the
bank has established an audit committee. The purpose of the bank's audit
committee is to review the general scope of the audit conducted by our
independent auditors and matters relating to our internal control systems. In
performing this function, the audit committee reviews reports from our
independent auditors and meets separately with representatives of senior
management. The audit committee is comprised of Messrs. Joss, Lathrop and
Hofgard, each of whom is an outside director. The compensation committee has the
limited role of making recommendations to the board of directors with respect to
the compensation of our executive officers, particularly our president. The
compensation committee is comprised of Messrs. Fruehauf, Lathrop and Imel, each
of whom is an outside director.
INDEMNIFICATION, INSURANCE AND LIMITATION OF LIABILITY
In accordance with our articles of incorporation and bylaws, we have
provided for indemnification, to the maximum extent permitted by law, of any
person who is or was a director, officer, agent, fiduciary or employee of the
company or the bank against any claim, liability or expense arising against him
or her because he or she is or was a director, officer, agent fiduciary or
employee or was serving another entity as a director, officer, partner, trustee,
employee or fiduciary at the bank's or the company's request. We also maintain
director and officer insurance on behalf of any individual who is or was a
director, officer, employee, fiduciary or agent against any claims or liability
asserted against him or her arising out of his or her capacity or status as
such. We have also provided for the limitation of personal liability of any
director for breach of fiduciary duty unless the director (1) breaches his duty
of loyalty; (2) engages in intentional misconduct or knowing violation of law;
(3) votes for a distribution in violation of Colorado law if the director did
not perform his or her duties in compliance with Colorado law or (4) engages in
any transaction from which the director directly or indirectly derives an
improper personal benefit.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
company or the trust pursuant to the foregoing provisions, or otherwise, the
company and the trust have been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
company or the trust of expenses incurred or paid by a director, officer, or
controlling person of the company or the trust in the successful defense of any
action, suite or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, each of
the company and the trust 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 Act and will be governed by the final adjudication of
such issue.
EMPLOYMENT AGREEMENTS
We have not entered into any employment agreements with any executive
officers or directors of the company or the bank.
DIRECTOR COMPENSATION
Our directors receive no compensation for their services. However,
directors of the bank, who are not also officers, receive $600 per month ($7,200
annually) for their service on the board and attendance at board meetings. No
additional compensation is paid for serving on a committee. Directors of the
bank, who are also officers, receive no additional compensation for their role
as directors. Mr. Imel receives additional compensation for inspecting and
verifying the value of collateral that secures loans.
39
<PAGE> 44
EXECUTIVE COMPENSATION
The following table provides certain summary information concerning
compensation we paid to or accrued on behalf of our President and our other
executive officers of the bank who earned more than $100,000 in salary and
bonuses for the fiscal year 1999:
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS ALL OTHER COMPENSATION
--------------------------- ---- -------- ------- ----------------------
<S> <C> <C> <C> <C>
Robert L. Beauprez.................... 1999 $125,000 $28,000 $21,098(1)
President of the company; Chief
Executive Officer and President of
the bank
William A. Mitchell................... 1999 $ 87,500 $17,500 $ 5,961(2)
Executive Vice President of the bank
</TABLE>
---------------
(1) Consists of contributions by us of $3,750 to our 401(k) plan, $17,087 to our
Non-qualifying Employee Retirement Plan ("NQERP") and $260 reportable as
income for income tax purposes paid pursuant to our Split Dollar Life
Insurance Plan.
(2) Consists of contributions by us of $5,819 to our NQERP and $142 reportable
as income for income tax purposes paid pursuant to our Split Dollar Life
Insurance Plan.
STOCK OPTION PLANS
We have no stock option plans for any of our officers, directors or other
employees at this time, although management may consider submitting such a plan
to a vote of our stockholders in the future.
BENEFIT PLAN
In 1995 we established a contributory pension benefit plan pursuant to
Section 401(k) of the Internal Revenue Code covering all eligible employees. A
participating employee may contribute up to 20% of total compensation in a given
year and may make rollover contributions from other qualified plans. We match
our employees' contributions up to 3% of such employee's total compensation. The
benefit plan includes a "safe harbor" which allows us to make a voluntary
contribution of up to 3% of our eligible employees' compensation, even if the
employee does not also make a contribution. Benefits are payable upon retirement
and participants are subject to vesting requirements. The benefit plan files
Form 5500-C with the Internal Revenue Service. The bank contributed $46,000 and
$34,000 into the plan in 1999 and 1998, respectively.
NON-QUALIFYING EMPLOYEE RETIREMENT PLAN
The bank has established an Executive Retirement Plan and an Index Plan for
certain employees who are selected to participate by a committee whose sole
function is to select those officers to be given the opportunity to become
participants under either or both of the plans.
Executive Retirement Plan. The bank maintains an Executive Retirement Plan
for certain executive officers. Pursuant to the retirement plan, Robert Beauprez
will receive $4,750 per month for a period of 180 months upon retirement, unless
Mr. Beauprez' benefits have not fully vested, in which case a certain percentage
of the benefits will be nonforfeitable in accordance with Mr. Beauprez' years of
service. Mr. Beauprez' benefits will be fully vested after ten years of service.
There are currently five participants in the retirement plan including Mr.
Beauprez. The benefits payable to the five participants will aggregate $16,362
per month. The benefits payable to any given participant will be paid for a
period of 180 months following such participant's retirement.
Indexed Salary Continuation Plan. The bank established an Indexed Salary
Continuation Plan in 1998. The index plan provides supplemental retirement
benefits to certain of the bank's executive officers, including Messrs.
Beauprez, Mitchell and Gibson and Ms. Bier. Pursuant to the terms of the index
plan and a related Split Dollar Plan, the bank purchased life insurance policies
for the benefit of each participant and excess
40
<PAGE> 45
earnings from such policies are paid to the respective participant over the ten
year period following such person's retirement from the bank.
INTERESTS OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
The bank leases the Pearl Street branch in Boulder from Fruehauf
Investments, Ltd., in which Victor Fruehauf, a director of the company and the
bank, is a principal. The lease is for a ten-year term beginning on October 1,
1994, with one five-year extension option. The monthly rent for the year 2000 is
$9,843, subject to annual increases.
We employ the law firm of Rautenstraus and Joss, P.C. from time to time. W.
Bruce Joss, a director of the company and the bank, is a principal of
Rautenstraus and Joss.
Further, some of our directors, executive officers and principal
stockholders (i.e., those who own 10% or more of the common stock) and their
associates, which include corporations, partnerships and other organizations in
which they are officers or partners or in which they or their immediate families
have at least a 5% interest, are our customers. During 1999 and the three months
ended March 31, 2000, we made loans in the ordinary course of business to many
of our directors, executive officers and principal stockholders and their
associates, all of which were on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions with persons unaffiliated with us and did not involve more than the
normal risk of collectability or present other unfavorable features. Loans to
our directors, executive officers and principal stockholders are subject to
limitations contained in the Federal Reserve Act, the principal effect of which
is to require that extensions of credit by us to executive officers, directors
and principal stockholders satisfy the foregoing standards. We expect to have
such transactions or transactions on a similar basis with our directors,
executive officers and principal stockholders and their associates in the
future.
In addition, we have borrowed money from several of our directors or their
immediate family members. Specifically, we are indebted to (1) Robert W. and
Carol D. Lathrop in the amount of $100,000, maturing December 31, 2000; (2)
Carol Ann Imel, the wife of Donald Imel, in the amounts of $100,000 and $85,000,
maturing December 31, 2000 and 2001, respectively; (3) Joe C. and Marie
Beauprez, parents of Robert L. Beauprez, in the amount of $132,000, maturing
December 31, 2000; (4) the Estate of Nyle Barlow, a deceased director of the
company and the bank, in the amount of $100,000, maturing December 31, 2000. We
pay interest on these loans quarterly at the prime rate.
41
<PAGE> 46
BENEFICIAL OWNERSHIP OF COMMON STOCK BY
MANAGEMENT AND PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of our common stock as of March 31, 2000, by (i) each of our directors
and executive officers, (ii) each stockholder whom we know to own beneficially
5% or more of the common stock and (iii) all of our directors and executive
officers as a group. Unless otherwise indicated, based on information furnished
by such stockholders, management believes that each person has sole voting and
dispositive power over their shares and the address of each stockholder is the
same as our address. There are no arrangements which upon operation at a
subsequent date would result in a change of control of the company or the bank.
<TABLE>
<CAPTION>
SHARES PERCENTAGE
BENEFICIALLY BENEFICIALLY
NAME OWNED(1) OWNED(1)
---- ------------ ------------
<S> <C> <C>
Robert L. Beauprez.......................................... 312,376(2) 23.5%
Claudia A. Beauprez......................................... 170,399(3) 12.8%
Alice M. Bier............................................... 1,500 *
Estate of Nyle E. Barlow.................................... 125,795(4) 9.4%
Victor Fruehauf............................................. 20,000 1.5%
Larry W. Gibson............................................. 25,760 1.9%
William G. Hofgard.......................................... 26,667(5) 2.0%
Donald Imel................................................. 109,960(6) 8.3%
W. Bruce Joss............................................... 6,000(7) *
Robert W. Lathrop........................................... 6,000(8) *
William A. Mitchell......................................... 5,000(9) *
Directors and executive officers as a group (11 persons).... 642,823 48.1%
</TABLE>
---------------
* Indicates ownership which does not exceed 1.0%.
(1) The percentage beneficially owned was calculated based on 1,327,744 shares
of common stock issued and outstanding. However, with respect to each
stockholder who holds shares of preferred stock and the directors and
executive officers as a group, this percentage assumes the conversion by
such stockholder or group of all shares of preferred stock which are
convertible into shares of common stock within 60 days at a rate of
one-for-one.
(2) Includes 166,634 shares held of record jointly by Robert L. Beauprez and his
wife. This total does not include 3,765 shares owned solely by Claudia A.
Beauprez, to which Mr. Beauprez disclaims any beneficial ownership. This
total also does not include 121,379 shares of common stock and 4,416 shares
of preferred stock held of record by the Estate of Nyle E. Barlow to which
Robert and Claudia Beauprez jointly have an option to purchase. There are no
contingencies related to the exercise of the option, however, the
beneficiary of the Estate of Nyle E. Barlow has challenged the
enforceability of the exercise price. In the event Robert and Claudia
Beauprez acquire such shares, they would own or control 441,936 shares or
33.2% of the total issued and outstanding shares of common stock. In the
event Robert and Claudia Beauprez do not acquire the shares, we have the
option to acquire the shares upon substantially similar terms.
(3) Includes 166,634 shares held jointly by Robert and Claudia Beauprez. This
total does not include 145,742 shares owned solely by Mr. Beauprez to which
Mrs. Beauprez disclaims any beneficial ownership.
(4) Includes 4,416 shares of preferred stock, which are convertible into shares
of common stock on a one-to-one basis within 60 days.
(5) Includes 16,667 shares held of record by Resources Trust Co. for the benefit
of William G. Hofgard.
(6) Includes 6,500 shares held of record by the Imel Family LLC, of which Mr.
Imel is a principal and 4,417 shares of preferred stock, which are
convertible into shares of common stock on a one-to-one basis within 60
days.
(7) Consists of 5,500 shares held of record jointly by Mr. Joss and his wife and
500 shares held of record by Mr. Joss' wife.
(8) Includes 3,000 shares held of record by Smith Barney Shearson as IRA
Custodian for the benefit of Robert W. Lathrop. Also includes 1,000 shares
held of record by Edward Jones as Custodian for the benefit of Mr. Lathrop's
wife.
(9) These shares are held of record jointly by Mr. Mitchell and his wife, Leigh
Ann Mitchell.
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<PAGE> 47
SUPERVISION AND REGULATION
The supervision and regulation of bank holding companies and their
subsidiaries is intended primarily for the protection of depositors, the deposit
insurance funds of the FDIC and the banking system as a whole, and not for the
protection of the bank holding company stockholders or creditors. The banking
agencies have broad enforcement power over bank holding companies and banks
including the power to impose substantial fines and other penalties for
violations of laws and regulations.
The following description summarizes some of the laws to which we and the
bank are subject. References herein to applicable statutes and regulations are
brief summaries thereof, do not purport to be complete, and are qualified in
their entirety by reference to the statutes and regulations themselves. We
believe that we are in compliance in all material respects with these laws and
regulations.
FRONT RANGE CAPITAL CORPORATION
We are a bank holding company registered under the Bank Holding Company Act
of 1956, as amended ("BHCA"), and are therefore subject to supervision,
regulation and examination by the Federal Reserve.
Restrictions on Dividends. It is the policy of the Federal Reserve that
bank holding companies pay cash dividends on common stock only out of income
available over the past year and only if prospective earnings retention is
consistent with the organization's expected future needs and financial
condition. The policy provides that bank holding companies should not maintain a
level of cash dividends that undermines the bank holding company's ability to
serve as a source of strength to its banking subsidiaries.
Source of Strength. Under Federal Reserve policy, a bank holding company is
expected to act as a source of financial strength to each of its banking
subsidiaries and commit resources to their support. Such support may be required
at times when, absent this Federal Reserve policy, a holding company may not be
inclined to provide it. As discussed below, a bank holding company in certain
circumstances could be required to guarantee the capital plan of an
undercapitalized banking subsidiary.
Bankruptcy. In the event of a bank holding company's bankruptcy under
Chapter 11 of the U.S. Bankruptcy Code, the trustee will be deemed to have
assumed and is required to cure immediately any deficit under any commitment by
the debtor holding company to any of the federal banking agencies to maintain
the capital of an insured depository institution, and any claim for breach of
such obligation will generally have priority over most other unsecured claims.
Holding Company Activities and Financial Modernization. The BHCA prohibits
a bank holding company, with certain limited exceptions, from acquiring direct
or indirect ownership or control of any voting shares of any company which is
not a bank or from engaging in any activities other than those of banking,
managing or controlling banks and certain other subsidiaries, or furnishing
services to or performing services for its subsidiaries. One principal exception
to these prohibitions allows the acquisition of interests in companies whose
activities are found by the Federal Reserve, by order or regulation, to be so
closely related to banking or managing or controlling banks, as to be a proper
incident thereto. Some of the activities that have been determined by regulation
to be closely related to banking are making or servicing loans, performing
certain data processing services, acting as an investment or financial advisor
to certain investment trusts and investment companies, and providing securities
brokerage services. Other activities approved by the Federal Reserve include
consumer financial counseling, tax planning and tax preparation, futures and
options advisory services, check guaranty services, collection agency and credit
bureau services, and personal property appraisals.
However, on November 12, 1999, President Clinton signed into law the
Gramm-Leach-Bliley Act that eliminated the barriers to affiliations among banks,
securities firms, insurance companies and other financial service providers. The
Gramm-Leach-Bliley Act, effective March 11, 2000, permits bank holding companies
to become financial holding companies and thereby affiliate with securities
firms and insurance companies and engage in other activities that are financial
in nature. No regulatory approval will be required for a financial holding
company to acquire a company, other than a bank or savings association, engaged
in
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<PAGE> 48
activities that are financial in nature or incidental to activities that are
financial in nature, as determined by the Federal Reserve.
Under the Gramm-Leach-Bliley Act, a bank holding company may become a
financial holding company if each of its subsidiary banks is well-capitalized
under the Federal Deposit Insurance Corporation Improvement Act ("FDICIA")
prompt corrective action provisions, is well managed, and has at least a
satisfactory rating under the Community Reinvestment Act of 1977 ("CRA") by
filing a declaration that the bank holding company wishes to become a financial
holding company. The Gramm-Leach-Bliley Act defines "financial in nature" to
include securities underwriting, dealing and market making; sponsoring mutual
funds and investment companies; insurance underwriting and agency; merchant
banking activities and activities that the Federal Reserve has determined to be
closely related to banking, as described in the preceding paragraph. Subsidiary
banks of a financial holding company must remain well-capitalized and well
managed in order to continue to engage in activities that are financial in
nature without regulatory actions or restrictions, which could include
divestiture of the financial in nature subsidiary or subsidiaries. In addition,
a financial holding company may not acquire a company that is engaged in
activities that are financial in nature unless each of its subsidiary banks has
a CRA rating of satisfactory or better.
While the Federal Reserve will serve as the "umbrella" regulator for
financial holding companies and has the power to examine banking organizations
engaged in new activities, regulation and supervision of activities which are
financial in nature or determined to be incidental to such financial activities
will be handled along functional lines. Accordingly, activities of subsidiaries
of a financial holding company will be regulated by the agency or authorities
with the most experience regulating that activity as it is conducted in a
financial holding company.
Safe and Sound Banking Practices. Bank holding companies are not permitted
to engage in unsafe and unsound banking practices. The Federal Reserve's
Regulation Y, for example, generally requires a holding company to give the
Federal Reserve prior notice of any redemption or repurchase of its own equity
securities, if the consideration to be paid, together with the consideration
paid for any repurchases or redemptions in the preceding year, is equal to 10%
or more of its consolidated net worth. The Federal Reserve may oppose the
transaction if it believes that the transaction would constitute an unsafe or
unsound practice or would violate any law or regulation. Depending upon the
circumstances, the Federal Reserve could take the position that paying a
dividend would constitute an unsafe or unsound banking practice.
The Federal Reserve has broad authority to prohibit activities of bank
holding companies and their nonbanking subsidiaries which represent unsafe and
unsound banking practices or which constitute violations of laws or regulations,
and can assess civil money penalties for certain activities conducted on a
knowing and reckless basis, if those activities caused a substantial loss to a
depository institution. The penalties can be as high as $1.0 million for each
day the activity continues.
Anti-Tying Restrictions. Bank holding companies and their affiliates are
prohibited from tying the provision of certain services, such as extensions of
credit, to other nonbanking services offered by a holding company or its
affiliates.
Capital Adequacy Requirements. The Federal Reserve has adopted a system
using risk-based capital guidelines to evaluate the capital adequacy of bank
holding companies. These regulations establish minimum capital standards in
relation to assets and off-balance sheet exposures as adjusted for credit risk.
The capital adequacy standards include consideration of interest rate risk in
the overall determination of the capital ratio, thus institutions with greater
interest rate risk must maintain greater capital. Under the guidelines, specific
categories of assets 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. The
guidelines require a minimum total risk-based capital ratio of 8.0%, of which at
least 4.0% is required to consist of Tier 1 capital elements. Tier 1 capital
generally consists of common equity, minority interests in equity accounts of
consolidated subsidiaries and certain perpetual preferred stock, including the
trust preferred securities up to certain limits, less intangibles, but does not
include unrecognized gains and losses on securities. Tier 2 capital, also known
as supplementary capital, includes allowance for loan losses (so long as the
allowance does not exceed 1.25% of weighted risk assets); certain perpetual
preferred stock
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<PAGE> 49
and subordinated non-convertible debt and some intermediate perpetual preferred
stock. Total capital is the sum of Tier 1 and Tier 2 capital. As of March 31,
2000, our ratio of Tier 1 capital to total risk-weighted assets was 5.28% and
our ratio of total capital to total risk-weighted assets was 6.22%.
In addition to the risk-based capital guidelines, the Federal Reserve uses
a leverage ratio as an additional tool to evaluate the capital adequacy of bank
holding companies. The leverage ratio is a company's Tier 1 capital divided by
its average total consolidated assets. Certain highly-rated bank holding
companies that are not experiencing substantial growth may maintain a minimum
leverage ratio of 3.0%, but other bank holding companies are required to
maintain a leverage ratio of at least 4.0%. As of March 31, 2000, our leverage
ratio was 4.73%.
The federal banking agencies' risk-based and leverage ratios are minimum
supervisory ratios generally applicable to banking organizations that meet
certain specified criteria. The federal bank regulatory agencies may set capital
requirements for a particular banking organization that are higher than the
minimum ratios when circumstances warrant. Federal Reserve guidelines also
provide that banking organizations experiencing internal growth or making
acquisitions will be expected to maintain strong capital positions substantially
above the minimum supervisory levels, without significant reliance on intangible
assets.
Imposition of Liability for Undercapitalized Subsidiaries. Bank regulators
are required to take "prompt corrective action" to resolve problems associated
with insured depository institutions whose capital declines below certain
levels. In the event an institution becomes "undercapitalized," as that term is
defined in the regulations, it must submit a capital restoration plan. The
capital restoration plan will not be accepted by the regulators unless each
company having control of the undercapitalized institution guarantees the
subsidiary's compliance with the capital restoration plan up to a certain
specified amount. Any such guarantee from a depository institution's holding
company is entitled to a priority of payment in bankruptcy.
The aggregate liability of the holding company of an undercapitalized bank
is limited to the lesser of 5% of the institution's assets at the time it became
undercapitalized or the amount necessary to cause the institution to be
"adequately capitalized." The bank regulators have greater power in situations
where an institution becomes "significantly" or "critically" undercapitalized or
fails to submit a capital restoration plan. For example, a bank holding company
controlling such an institution can be required to obtain prior Federal Reserve
approval of proposed dividends, or might be required to consent to a
consolidation or to divest the troubled institution or other affiliates.
Acquisitions by Bank Holding Companies. The BHCA requires every bank
holding company to obtain the prior approval of the Federal Reserve before it
may acquire all or substantially all of the assets of any bank, or ownership or
control of any voting shares of any bank, if after such acquisition it would own
or control, directly or indirectly, more than 5% of the voting shares of such
bank. In addition, a bank holding company is generally prohibited from engaging
in, or acquiring, direct or indirect control of the voting shares of any company
engaged in non-banking activities other than activities so closely related to
banking as to be a proper incident thereto. In approving bank acquisitions by
bank holding companies, the Federal Reserve is required to consider the
financial and managerial resources and future prospects of the bank holding
company and the banks concerned, the convenience and needs of the communities to
be served and various competitive factors.
Control Acquisitions. The Change in Bank Control Act prohibits a person or
group of persons from acquiring "control" of a bank holding company unless the
Federal Reserve has been notified and has not objected to the transaction. Under
a rebuttable presumption established by the Federal Reserve, the acquisition of
10% or more of a class of voting stock of a bank holding company with a class of
securities registered under Section 12 of the Exchange Act, would, under the
circumstances set forth in the presumption, constitute acquisition of control.
In addition, any entity is required to obtain the approval of the Federal
Reserve under the BHCA before acquiring 25% (5% in the case of an acquirer that
is a bank holding company) or more of our outstanding common stock, or otherwise
obtaining control or a "controlling influence" over us.
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<PAGE> 50
HERITAGE BANK
The bank is a Colorado-chartered banking corporation, the deposits of which
are insured by the Bank Insurance Fund ("BIF") of the FDIC. The bank is a member
of the Federal Reserve and the FDIC and accordingly is subject to supervision
and regulation by the Federal Reserve, the FDIC and the Colorado Division of
Banking ("CDB"). These regulations subject the bank to special restrictions,
requirements, potential enforcement actions and periodic examination by the
Federal Reserve and the CDB.
In addition to federal regulation, the bank must also register with the and
file periodic information with the CDB. The CDB requires information with
respect to, among other matters, the financial condition, operations, management
and intercompany relationships of us and our subsidiaries. The CDB may also
require such other information as is necessary to assess whether we are in
compliance with the provisions of Colorado law and the regulations, rules and
orders promulgated or issued thereunder. The CDB may also conduct examinations
of us and our subsidiaries.
Equivalence to National Bank Powers. In general, a Colorado-chartered bank
has the same rights and privileges that are or may be granted to national banks
domiciled in Colorado. The Federal Deposit Insurance Corporation Improvement Act
("FDICIA") has limited the extent to which Colorado law and regulations may
allow state-chartered banks to engage in a broader range of activities than
national banks. FDICIA provides that no state bank or subsidiary thereof may
engage as principal in any activity not permitted for national banks, unless the
institution complies with applicable capital requirements and the FDIC
determines that the activity poses no significant risk to the insurance fund. In
general, statutory restrictions on the activities of banks are aimed at
protecting the safety and soundness of depository institutions.
Financial Modernization. Under the Gramm-Leach-Bliley Act, a national bank
may establish a financial subsidiary and engage, subject to limitations on
investment, in activities that are financial in nature, other than insurance
underwriting, insurance company portfolio investment, real estate development,
real estate investment, annuity issuance and merchant banking activities. To do
so, a bank must be well-capitalized, well-managed and have a CRA rating of
satisfactory or better. National banks with financial subsidiaries must remain
well-capitalized and well-managed in order to continue to engage in activities
that are financial in nature without regulatory actions or restrictions which
could include divestiture of the financial in nature subsidiary or subsidiaries.
In addition, a bank may not acquire a company that is engaged in activities that
are financial in nature unless the bank has a CRA rating of satisfactory or
better.
Although the powers of state-chartered banks are not specifically addressed
in the Gramm-Leach-Bliley Act, a Colorado chartered bank will have the same
powers as national banks through the parity provisions contained in Colorado's
banking laws.
Branching. Colorado law provides that a Colorado-chartered bank can
establish a branch anywhere in Colorado provided that the branch is approved in
advance by the CDB. The branch must also be approved by the Federal Reserve,
which will consider a number of factors, including financial history, capital
adequacy, earnings prospects, character of management, needs of the community
and consistency with corporate powers.
Restrictions on Transactions with Affiliates and Insiders. Transactions
between the bank and its nonbanking affiliates, including us and any of our
nonbanking subsidiaries, are subject to Section 23A of the Federal Reserve Act,
which limits the amount of such transactions, and also requires certain levels
of collateral for loans to affiliated parties. It also limits the amount of
advances to third parties which are collateralized by our securities or
obligations or the securities or obligations of any of our nonbanking
subsidiaries.
Section 23B of the Federal Reserve Act also generally requires that certain
transactions between the bank and its affiliates be on terms substantially the
same, or at least as favorable to the bank, as those prevailing at the time for
comparable transactions with or involving other nonaffiliated persons.
The restrictions on loans to directors, executive officers, principal
stockholders and their related interests (collectively referred to herein as
"insiders") contained in the Federal Reserve Act and Federal Reserve Regulation
O apply to all insured institutions and their subsidiaries and holding
companies. These restrictions
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<PAGE> 51
include limits on loans to one borrower and conditions that must be met before
such a loan can be made. There is also an aggregate limitation on all loans to
insiders and their related interests. These loans cannot exceed the
institution's total unimpaired capital and surplus, and the Federal Reserve may
determine that a lesser amount is appropriate. Insiders are subject to
enforcement actions for knowingly accepting loans in violation of applicable
restrictions.
Restrictions on Distribution of Subsidiary Bank Dividends and Assets. Most,
if not all, of our revenues are derived from dividends paid to us by the bank
and for the foreseeable future it is anticipated that such dividends will
continue to be our principal source of operating funds, including funds used to
pay dividends on the trust preferred securities. Certain statutory and
regulatory requirements apply to the bank's payment of dividends. Capital
adequacy requirements serve to limit the amount of dividends that may be paid by
the bank. Under federal law, the bank cannot pay a dividend if, after paying the
dividend, the bank will be "undercapitalized." The Federal Reserve may declare a
dividend payment to be unsafe and unsound even though the bank would continue to
meet its capital requirements after the dividend. Approval by the Federal
Reserve and CDB is required if the total of all dividends declared by a state
bank exceeds the total of its net profits for the year combined with its
retained net profits of the preceding two years.
Because we are a legal entity separate and distinct from our subsidiaries,
our right to participate in the distribution of assets of any subsidiary upon
the subsidiary's liquidation or reorganization will be subject to the prior
claims of the subsidiary's creditors. In the event of a liquidation or other
resolution of an insured depository institution, the claims of depositors and
other general or subordinated creditors are entitled to a priority of payment
over the claims of holders of any obligation of the institution to its
stockholders, including any depository institution holding company (such as us)
or any stockholder or creditor thereof.
Examinations. The Federal Reserve periodically examines and evaluates the
bank. Based on such an evaluation, the Federal Reserve may revalue the assets of
the institution and require that it establish specific reserves to compensate
for the difference between the Federal Reserve-determined value and the book
value of such assets. The CDB also conducts examinations of state banks but may
accept the results of a federal examination in lieu of conducting an independent
examination.
Capital Adequacy Requirements. A state-chartered bank is subject to the
same capital adequacy requirements as a bank holding company is subject to,
including the requirement of a total risk-based capital ratio of 8.0%, 4.0% of
which is required to consist of Tier 1 capital elements. See "-- Front Range
Capital Corporation -- Capital Adequacy Requirements." To be categorized as
"well-capitalized" under prompt corrective action regulations, Tier 1 capital to
risk-based assets must be 6%; total capital to risk-based assets must be 10%;
and the leverage ratio must be 3%. Please see the discussion of capital adequacy
requirements set forth on page . However, in the event a bank does not meet or
maintain capital adequacy requirements, it may be subject to "prompt corrective
action" measures as set forth below.
Corrective Measures for Capital Deficiencies. The federal banking
regulators are required to take "prompt corrective action" with respect to
capital-deficient institutions. Agency regulations define, for each capital
category, the levels at which institutions are "well-capitalized,"
"adequately-capitalized," "undercapitalized," "significantly undercapitalized"
and "critically undercapitalized." A "well-capitalized" bank has a total
risk-based capital ratio of 10.0% or higher; a Tier 1 risk-based capital ratio
of 6.0% or higher; a leverage ratio of 5.0% or higher; and is not subject to any
written agreement, order or directive requiring it to maintain a specific
capital level for any capital measure. An "adequately-capitalized" bank has a
total risk-based capital ratio of 8.0% or higher; a Tier 1 risk-based capital
ratio of 4.0% or higher; a leverage ratio of 4.0% or higher (3.0% or higher if
the bank was rated a composite 1 in its most recent examination report and is
not experiencing significant growth); and does not meet the criteria for a well-
capitalized bank. A bank is "undercapitalized" if it fails to meet any one of
the ratios required to be adequately capitalized. A bank is "significantly
undercapitalized" if it has a total risk-based capital ratio of under 6.0%, a
Tier 1 risk-based ratio of under 3.0% and a leverage ratio of under 3.0%. A
"critically undercapitalized" institution has a leverage ratio of 2.0% or less.
In addition to requiring undercapitalized institutions to submit a capital
restoration plan, agency regulations contain broad restrictions on certain
activities of undercapitalized institutions including asset
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<PAGE> 52
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.
As an institution's capital decreases, the Federal Reserve's enforcement
powers become more severe. A significantly undercapitalized institution is
subject to mandated capital raising activities, restrictions on interest rates
paid and transactions with affiliates, removal of management and other
restrictions. The Federal Reserve has only very limited discretion in dealing
with a critically undercapitalized institution and is virtually required to
appoint a receiver or conservator.
Banks with risk-based capital and leverage ratios below the required
minimums may also be subject to certain administrative actions, including the
termination of deposit insurance upon notice and hearing, or a temporary
suspension of insurance without a hearing in the event the institution has no
tangible capital.
The bank currently is classified as "adequately capitalized" for purposes
of the Federal Reserve's prompt corrective action regulations. At March 31,
2000, the bank's Tier 1 capital to risk-based assets ratio was 7.67%, total
capital to risk-based assets ratio was 8.62% and its leverage ratio was 6.8%.
Deposit Insurance Assessments. The bank must pay assessments to the FDIC
for federal deposit insurance protection. The FDIC has adopted a risk-based
assessment system as required by FDICIA. Under this system, FDIC-insured
depository institutions pay insurance premiums at rates based on their risk
classification. Institutions assigned to higher risk classifications (that is,
institutions that pose a greater risk of loss to their respective deposit
insurance funds) pay assessments at higher rates than institutions that pose a
lower risk. An institution's risk classification is assigned based on its
capital levels and the level of supervisory concern the institution poses to the
regulators. In addition, the FDIC can impose special assessments in certain
instances. The current range of BIF assessments is between 0% for healthy banks
and 0.27% of deposits for he riskiest banks.
The FDIC established a process for raising or lowering all rates for
insured institutions semi-annually if conditions warrant a change. Under this
system, the FDIC has the flexibility to adjust the assessment rate schedule
twice a year without seeking prior public comment, but only within a range of
five cents per $100 above or below the premium schedule adopted. Changes in the
rate schedule outside the five cent range above or below the current schedule
can be made by the FDIC only after a full rulemaking with opportunity for public
comment.
On September 30, 1996, President Clinton signed into law an act that
contained a comprehensive approach to recapitalizing the Savings Association
Insurance Fund ("SAIF") and to assure the payment of the Financing Corporation's
("FICO") bond obligations. Under this new act, banks insured under the BIF are
required to pay a portion of the interest due on bonds that were issued by FICO
to help shore up the ailing Federal Savings and Loan Insurance Corporation in
1987. The BIF rate was required to equal one-fifth of the SAIF rate through
year-end 1999, or until the insurance funds are merged, whichever occurred
first. Thereafter BIF and SAIF payers will be assessed pro rata for the FICO
bond obligations. With regard to the assessment for the FICO obligation, for the
first quarter of 2000, both the BIF and SAIF rate was .02120% of deposits.
Enforcement Powers. The FDIC and the other federal banking agencies have
broad enforcement powers, including the power to terminate deposit insurance,
impose substantial fines and other civil and criminal penalties and appoint a
conservator or receiver. Failure to comply with applicable laws, regulations and
supervisory agreements could subject us or our banking subsidiaries, as well as
officers, directors and other institution-affiliated parties of these
organizations, to administrative sanctions and potentially substantial civil
money penalties. The appropriate federal banking agency may appoint the FDIC as
conservator or receiver for a banking institution (or the FDIC may appoint
itself, under certain circumstances) if any one or more of a number of
circumstances exist, including, without limitation, the fact that the banking
institution is undercapitalized and has no reasonable prospect of becoming
adequately capitalized; fails to become adequately capitalized when required to
do so; fails to submit a timely and acceptable capital restoration plan;
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<PAGE> 53
or materially fails to implement an accepted capital restoration plan. The
Federal Reserve and the CDB also have broad enforcement powers over the bank,
including the power to impose orders, remove officers and directors, impose
fines and appoint supervisors and conservators.
Community Reinvestment Act. The CRA and the regulations issued thereunder
are intended to encourage banks to help meet the credit needs of their service
area, including low and moderate income neighborhoods, consistent with the safe
and sound operations of the banks. These regulations also provide for regulatory
assessment of a bank's record in meeting the needs of its service area when
considering applications to establish branches, merger applications and
applications to acquire the assets and assume the liabilities of another bank.
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") requires federal banking agencies to make public a rating of a bank's
performance under the CRA. In the case of a bank holding company, the CRA
performance record of the banks involved in the transaction are reviewed in
connection with the filing of an application to acquire ownership or control of
shares or assets of a bank or to merge with any other bank holding company. An
unsatisfactory record can substantially delay or block the transaction.
Consumer Laws and Regulations. In addition to the laws and regulations
discussed herein, the bank is also subject to certain consumer laws and
regulations that are designed to protect consumers in transactions with banks.
While the list set forth herein is not exhaustive, these laws and regulations
include the Truth in Lending Act, the Truth in Savings Act, the Electronic Funds
Transfer Act, the Expedited Funds Availability Act, the Equal Credit Opportunity
Act, and the Fair Housing Act, among others. These laws and regulations mandate
certain disclosure requirements and regulate the manner in which financial
institutions must deal with customers when taking deposits or making loans to
such customers. The bank must comply with the applicable provisions of these
consumer protection laws and regulations as part of its ongoing customer
relations.
INSTABILITY AND REGULATORY STRUCTURE
Various legislation, such as the Gramm-Leach-Bliley Act, which expanded the
powers of financial institutions, and proposals to overhaul the bank regulatory
system and limit the investments that a depository institution may make with
insured funds, is from time to time introduced in Congress. Such legislation may
change banking statutes and the environment in which we and the bank operate in
substantial and unpredictable ways. We cannot predict the ultimate effect that
the Gramm-Leach-Bliley Act will have or that potential legislation, if enacted,
or implementing regulations with respect thereto, would have upon ours or the
bank's financial condition or results of operations.
EXPANDING ENFORCEMENT AUTHORITY
One of the major additional burdens imposed on the banking industry by
FDICIA is the increased ability of banking regulators to monitor the activities
of banks and their holding companies. In addition, the Federal Reserve and FDIC
are possessed of extensive authority to police unsafe or unsound practices and
violations of applicable laws and regulations by depository institutions and
their holding companies. For example, the FDIC may terminate the deposit
insurance of any institution which it determines has engaged in an unsafe or
unsound practice. The agencies can also assess civil money penalties, issue
cease and desist or removal orders, seek injunctions, and publicly disclose such
actions. FDICIA, FIRREA and other laws have expanded the agencies' authority in
recent years, and the agencies have not yet fully tested the limits of their
powers.
EFFECT ON ECONOMIC ENVIRONMENT
The policies of regulatory authorities, including the monetary policy of
the Federal Reserve, have a significant effect on the operating results of bank
holding companies and their subsidiaries. Among the means available to the
Federal Reserve to affect the money supply are open market operations 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
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distribution of bank loans, investments and deposits, and their use may affect
interest rates charged on loans or paid for deposits.
Federal Reserve monetary policies have materially affected the operating
results of commercial banks in the past and are expected to continue to do so in
the future. In view of the changing conditions in the national economy and in
the money markets, as well as the effect of actions by monetary and fiscal
authorities, including future monetary policies, the impact of such policies on
our and our subsidiaries' business and earnings cannot be predicted.
DESCRIPTION OF THE TRUST
The trust is a statutory business trust formed pursuant to the Delaware
Business Trust Act under a trust agreement executed by us, as sponsor for the
trust, and the trustees named therein, and a certificate of trust filed with the
Delaware Secretary of State. The trust agreement will be amended and restated in
its entirety in the form filed as an exhibit to the registration statement of
which this prospectus is a part, as of the date the trust preferred securities
are initially issued. The trust agreement will be qualified under the Trust
Indenture Act of 1939.
Upon issuance of the trust preferred securities, the holders thereof will
own all of the issued and outstanding trust preferred securities. We will
acquire common securities in an amount equal to at least 3% of the total capital
of the trust and will own, directly or indirectly, all of the issued and
outstanding common securities (together with the trust preferred securities, the
"trust securities"). The trust exists for the purposes of:
- issuing the trust preferred securities to the public for cash;
- issuing its common securities to us in exchange for our capitalization of
the trust;
- investing the proceeds from the sale of the trust securities in an
equivalent amount of debentures; and
- engaging in other activities that are incidental to those listed above.
The rights of the holders of the trust securities are as set forth in the
trust agreement, the Delaware Business Trust Act and the Trust Indenture Act.
The trust agreement does not permit the trust to borrow money or make any
investment other than in the debentures. Other than with respect to the trust
securities, we have agreed to pay for all debts and obligations and all costs
and expenses of the trust and the offering of the trust preferred securities,
including the fees and expenses of the trustees and any income taxes, duties and
other governmental charges, and all costs and expenses related to these charges,
to which the trust may become subject, except for United States withholding
taxes that are properly withheld.
Pursuant to the amended and restated trust agreement, the number of
trustees of the trust will initially be five. Three of the trustees will be
persons who are our employees or officers or who are affiliated with us (the
"administrative trustees"). The fourth trustee will be Wilmington Trust Company,
a Delaware banking corporation ("Wilmington Trust") unaffiliated with us, with
its principal place of business in the State of Delaware (the "Delaware
trustee"). Wilmington Trust will also serve as property trustee under the trust
agreement, for the purposes of compliance with the provisions of the Trust
Indenture Act (the "property trustee"), and the Delaware Trustee for purposes of
compliance with the Delaware Business Trust Act. For the purpose of compliance
with the provisions of the Trust Indenture Act, Wilmington Trust will also act
as guarantee trustee under the guarantee agreement and indenture trustee under
the indenture. We, as holder of all of the common securities, will have the
right to appoint, remove or replace any trustee unless an event of default under
the indenture shall have occurred and be continuing, in which case only the
holders of the trust preferred securities may remove the indenture trustee or
the property trustee. The trust has a term of approximately 31 years but may
terminate earlier as provided in the trust agreement.
The property trustee will hold the debentures for the benefit of the
holders of the trust securities and will have the power to exercise all rights,
powers and privileges under the indenture as the holder of the debentures. In
addition, the property trustee will maintain exclusive control of a segregated
noninterest-
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bearing "property account" to hold all payments made in respect of the
debentures for the benefit of the holders of the trust securities. The property
trustee will make payments of distributions and payments on liquidation,
redemption and otherwise to the holders of the trust securities out of funds
from the property account. The guarantee trustee will hold the guarantee for the
benefit of the holders of the trust preferred securities. The administrative
trustees shall be authorized to exercise all rights powers and privileges on
behalf of the trust as are set forth in the trust agreement.
DESCRIPTION OF THE TRUST PREFERRED SECURITIES
The trust preferred securities will be issued pursuant to the trust
agreement, which will be qualified as an indenture under the Trust Indenture
Act. Wilmington Trust will act as property trustee for the trust preferred
securities under the trust agreement for purposes of complying with the
provisions of the Trust Indenture Act. The terms of the trust preferred
securities will include those stated in the trust agreement and those made part
of the trust agreement by the Trust Indenture Act. The following is a summary of
the material terms and provisions of the trust preferred securities and the
trust agreement. A form of the trust agreement has been filed as an exhibit to
the Registration Statement of which this prospectus forms a part.
GENERAL
The trust agreement authorizes the administrative trustees, on behalf of
the trust, to issue the trust securities, which are comprised of the trust
preferred securities to be sold to the public and the common securities. We will
own all of the common securities issued by the trust. The trust preferred
securities will represent preferred undivided beneficial interests in the assets
of the trust, and the holders of the trust preferred securities will be entitled
to a preference upon an event of default with respect to distributions and
amounts payable on redemption or liquidation over the common securities. The
trust is not permitted to issue any securities other than the trust securities
or incur any other indebtedness.
The trust preferred securities will rank equally, and payments on the trust
preferred securities will be made proportionally, with the common securities,
except as described under "Subordination of Common Securities" below.
The property trustee will hold legal title to the debentures in trust for
the benefit of the holders of the trust securities. We guarantee the payment of
distributions out of money held by the trust, and payments upon redemption of
the trust preferred securities or liquidation of the trust, to the extent
described under "Description of the Guarantee." The guarantee agreement does not
cover the payment of any distribution or the liquidation amount when the trust
does not have sufficient funds available to make these payments.
DISTRIBUTIONS
Source of Distributions. The funds of the trust available for distribution
to holders of the trust preferred securities will be limited to payments made
under the debentures, which the trust will purchase with the proceeds from the
sale of the trust securities. Distributions will be paid through the property
trustee, who will hold the amounts received from our interest payments on the
debentures in the property account for the benefit of the holders of the trust
preferred securities. If we do not make interest payments on the debentures, the
property trustee will not have funds available to pay distributions on the trust
preferred securities.
Payment of Distributions. Distributions on the trust preferred securities
will be payable at the annual rate of % of the $25 stated liquidation amount,
payable quarterly on March 31, June 30, September 30, and December 31 of each
year, to the holders of the trust preferred securities on the relevant record
dates. The record date will be the business day immediately preceding the
relevant distribution date. The first distribution date for the trust preferred
securities will be September 30, 2000.
Distributions will accumulate from the date of issuance, and the amount
payable for any period will be computed on the basis of a 360-day year of twelve
30-day months. If the distribution date is not a business day, then payment of
the distributions will be made on the next day that is a business day, without
any additional interest or other payment in respect of the delay. However, if
the next business day is in the next
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calendar year, payment of the distribution will be made on the immediately
preceding business day. The term "business day" means any day other than a
Saturday, a Sunday, a day on which banking institutions in Wilmington, Delaware
are authorized or required by law or executive order to remain closed or a day
on which the corporate trust office of the property trustee or the indenture
trustee is closed for business.
Extension Period. As long as no event of default under the indenture has
occurred and is continuing, we have the right to defer the payment of interest
on the debentures at any time for a period not exceeding 20 consecutive
quarters. However, no extension period may extend beyond , 2030 or
end on a date other than an interest payment date, which dates are the same as
the distribution dates. If we defer the payment of interest, quarterly
distributions on the trust preferred securities will also be deferred during any
such extension period. Any deferred distributions under the trust preferred
securities will accumulate additional amounts at the annual rate of %,
compounded quarterly from the relevant distribution date. The term
"distributions" as used in this prospectus includes those accumulated amounts.
During an extension period, we may not:
- declare or pay any dividends or distributions on, or redeem, purchase,
acquire or make a liquidation payment with respect to, any of our capital
stock (other than the reclassification of any class of our capital stock
into another class of capital stock) or allow any of our subsidiaries to
do the same with respect to their capital stock (other than the payment
of dividends or distributions to us);
- make any payment of principal, interest or premium on or repay,
repurchase or redeem any debt securities that rank equally with or junior
in interest to the debentures or allow any of our subsidiaries to do the
same;
- make any guarantee payments with respect to any other guarantee by us of
any other debt securities of any of our subsidiaries if the guarantee
ranks equally with or junior to the debentures other than payments under
the guarantee; or
- redeem, purchase or acquire less than all of the debentures or any of the
trust preferred securities.
After the termination of any extension period and the payment of all
amounts then due, we may elect to begin a new extension period, subject to the
above requirements.
We have no current intention of exercising our right to defer distributions
on the trust preferred securities by extending the interest payment period on
the debentures.
REDEMPTION OR EXCHANGE
Subject to the prior approval of the Federal Reserve, if required, we may
redeem the debentures prior to maturity:
- in whole at any time, or in part from time to time, on or after
, 2005;
- in whole, but not in part, at any time within 90 days following the
occurrence of a Tax Event, an Investment Company Event or a Capital
Treatment Event as defined below; or
- at any time, to the extent the trust repurchases any trust preferred
securities.
Mandatory Redemption. Upon our repayment or redemption, in whole or in
part, of any debentures, whether on , 2030 or earlier, the property
trustee will apply the proceeds to redeem a like amount of the trust securities,
upon not less than 30 days nor more than 60 days notice, at the redemption
price. The redemption price will equal 100% of the aggregate liquidation amount
of the trust securities plus accumulated but unpaid distributions and Additional
Interest (as defined below) to the date of redemption. If less than all of the
debentures are to be repaid or redeemed on a date of redemption, then the
proceeds from such repayment or redemption will be allocated to redemption of
the trust preferred securities and the common securities proportionally.
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"Additional Interest" means the additional amounts as may be necessary to
be paid by us in order that the amount of distributions then due and payable by
the trust on the outstanding trust securities will not be reduced as a result of
any additional taxes, duties and other governmental charges to which the trust
has become subject.
Distribution of Debentures. Upon prior approval of the Federal Reserve, if
required, we will have the right at any time to dissolve, wind-up or terminate
the trust and, after satisfaction of the liabilities of creditors of the trust
as provided by applicable law, including, without limitation, amounts due and
owing the trustees of the trust, cause the debentures to be distributed directly
to the holders of trust securities in liquidation of the trust. See "Liquidation
Distribution Upon Termination."
After the liquidation date fixed for any distribution of debentures in
exchange for trust preferred securities:
- those trust preferred securities will no longer be deemed to be
outstanding; and
- any certificates representing trust preferred securities will be deemed
to represent debentures with a principal amount equal to the liquidation
amount of those trust preferred securities, and bearing accrued and
unpaid interest in an amount equal to the accumulated and unpaid
distributions on the trust preferred securities until the certificates
are presented to the administrative trustees or their agent for transfer
or reissuance.
There can be no assurance as to the market prices for the trust preferred
securities or the debentures that may be distributed if a dissolution and
liquidation of the trust were to occur. The trust preferred securities that an
investor may purchase, or the debentures that an investor may receive on
dissolution and liquidation of the trust, may trade at a discount to the price
that the investor paid to purchase the trust preferred securities.
Redemption Upon a Tax Event, Investment Company Event or Capital Treatment
Event. If a Tax Event, an Investment Company Event or a Capital Treatment Event
(each as defined below) occurs, we have the right to redeem the debentures in
whole and thereby cause a mandatory redemption of the trust securities in whole
at the redemption price. If one of these events occurs and we do not elect to
redeem the debentures, or to dissolve the trust and cause the debentures to be
distributed to holders of the trust securities, then the trust preferred
securities will remain outstanding and Additional Interest may be payable on the
debentures. See "Description of Debentures -- Redemption or Exchange."
"Tax Event" means the receipt by the trust and us of an opinion of counsel
experienced in such matters stating that there is more than an insubstantial
risk that:
- interest payable by us on the debentures is not, or within 90 days of the
date of the opinion will not be, deductible by us, in whole or in part,
for federal income tax purposes;
- the trust is, or will be within 90 days after the date of the opinion,
subject to federal income tax with respect to income received or accrued
on the debentures; or
- the trust is, or will be within 90 days after the date of opinion,
subject to more than an immaterial amount of other taxes, duties,
assessments or other governmental charges, as a result of any amendment
to any tax laws or regulations.
"Investment Company Event" means the receipt by the trust and us of an
opinion of counsel experienced in such matters to the effect that the trust is
or will be considered an "investment company" that is required to be registered
under the Investment Company Act, as a result of the occurrence of a change in
law or regulation or a change in interpretation or application of law or
regulation.
"Capital Treatment Event" means the receipt by the trust and us of an
opinion of counsel experienced in such matters to the effect that there is more
than an insubstantial risk of impairment of our ability to treat the trust
preferred securities as Tier 1 capital for purposes of the current capital
adequacy guidelines of the Federal Reserve, as a result of any amendment to any
laws or any regulations.
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For all of the events described above, we or the trust must request and
receive an opinion of counsel with regard to the event within a reasonable
period of time after we became aware of the possible occurrence of an event of
this kind.
REDEMPTION PROCEDURES
Trust preferred securities may be redeemed at the redemption price with the
applicable proceeds from our contemporaneous redemption of the debentures.
Redemptions of the trust preferred securities will be made and the redemption
price will be payable on each date of redemption only to the extent that the
trust has funds available for the payment of the redemption price. See
"-- Subordination of Common Securities."
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the date of redemption to each holder of trust securities to be
redeemed at its registered address. Unless we default in payment of the
redemption price on the debentures, interest will cease to accrue on those
debentures called for redemption on and after the redemption date.
If the trust gives notice of redemption of its trust securities, then the
property trustee, to the extent it actually has received and holds such funds,
will irrevocably deposit with the depositary for the trust securities funds
sufficient to pay the aggregate redemption price and will give the depositary
for the trust securities irrevocable instructions and authority to pay the
redemption price to the holders upon surrender of their certificates evidencing
the trust securities. See "Book-Entry Issuance." If the trust preferred
securities are no longer in book-entry form, the property trustee, to the extent
it actually has received and holds such funds, will deposit with the designated
paying agent for such trust preferred securities funds sufficient to pay the
aggregate redemption price and will give the paying agent irrevocable
instructions and authority to pay the redemption price to the holders upon
surrender of their certificates evidencing the trust preferred securities.
Notwithstanding the foregoing, distributions payable on or prior to the date of
redemption for any trust securities called for redemption will be payable to the
holders of the trust securities on the relevant record dates for the related
distribution dates.
If notice of redemption has been given and we have deposited funds as
required, then on the date of the deposit all rights of the holders of the trust
securities called for redemption will cease, except the right to receive the
redemption price, but without interest on such redemption price after the date
of redemption. The trust securities will also cease to be outstanding on the
date of the deposit. If any date fixed for redemption of trust securities is not
a business day, then payment of the redemption price payable on that date will
be made on the next day that is a business day without any additional interest
or other payment in respect of the delay. However, if the next business day is
in the next succeeding calendar year, payment of the interest will be made on
the immediately preceding business day.
If payment of the redemption price in respect of trust securities called
for redemption is improperly withheld or refused and not paid by the trust, or
by us pursuant to the guarantee, distributions on the trust securities will
continue to accumulate at the applicable rate from the date of redemption
originally established by the trust for the trust securities to the date the
redemption price is actually paid. In this case, the actual payment date will be
considered the date fixed for redemption for purposes of calculating the
redemption price. See "Description of the Guarantee."
Payment of the redemption price on the trust preferred securities and any
distribution of debentures to holders of trust preferred securities will be made
to the applicable recordholders as they appear on the register for the trust
preferred securities on the relevant record date. The record date will be the
business day immediately preceding the date of redemption or liquidation date,
as applicable.
If less than all of the trust securities are to be redeemed, then the
aggregate liquidation amount of the trust securities to be redeemed will be
allocated proportionately between the common securities and the trust preferred
securities based upon the relative liquidation amounts. The particular trust
preferred securities to be redeemed will be selected by the property trustee
from the outstanding trust preferred securities not previously called for
redemption by a method the property trustee deems fair and appropriate. This
method may provide for the redemption of portions equal to $25 or an integral
multiple of $25 of the liquidation
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amount of the trust preferred securities. The property trustee will promptly
notify the registrar for the trust preferred securities in writing of the trust
preferred securities selected for redemption and, in the case of any trust
preferred securities selected for partial redemption, the liquidation amount to
be redeemed. For all purposes of the trust agreement, unless the context
otherwise requires, all provisions relating to the redemption of trust preferred
securities will relate to the portion of the aggregate liquidation amount of
trust preferred securities which has been or is to be redeemed.
Subject to applicable law, and if we are not exercising our right to defer
interest payments on the debentures, we may, at any time, purchase outstanding
trust preferred securities.
SUBORDINATION OF COMMON SECURITIES
Payment of distributions on, and the redemption price of, the trust
preferred securities and common securities will be made based on the liquidation
amount of these securities. However, if an event of default under the indenture
has occurred and is continuing, no distributions on or redemption of the common
securities may be made. Further, no payments may be made on the common
securities unless payment in full in cash of all accumulated and unpaid
distributions (including Additional Interest, if any is required) on all of the
outstanding trust preferred securities for all distribution periods terminating
on or before that time, or in the case of payment of the redemption price,
payment of the full amount of the redemption price on all of the outstanding
trust preferred securities then called for redemption, has been made or
provided. All funds available to the property trustee will first be applied to
the payment in full in cash of all distributions (including Additional Interest,
if any is required) on, or the redemption price of, the trust preferred
securities then due and payable.
In the case of the occurrence and continuance of any event of default under
the trust agreement resulting from an event of default under the indenture, we,
as holder of the common securities, will be deemed to have waived any right to
act with respect to that event of default under the trust agreement until the
effect of the event of default has been cured, waived or otherwise eliminated.
Until the event of default under the trust agreement has been so cured, waived
or otherwise eliminated, the property trustee will act solely on behalf of the
holders of the trust preferred securities and not on our behalf, and only the
holders of the trust preferred securities will have the right to direct the
property trustee to act on their behalf.
LIQUIDATION DISTRIBUTION UPON TERMINATION
We will have the right at any time to dissolve, wind-up or terminate the
trust and cause the debentures to be distributed to the holders of the trust
preferred securities. This right is subject, however, to our receiving approval
of the Federal Reserve, if required.
In addition, the trust will automatically terminate upon expiration of its
term and will terminate earlier on the first to occur of:
- our bankruptcy, dissolution or liquidation;
- the distribution of a like amount of the debentures to the holders of the
trust securities, if we have given written direction to the property
trustee to terminate the trust;
- redemption of all of the trust preferred securities as described under
"Redemption or Exchange -- Mandatory Redemption;" or
- the entry of an order for the dissolution of the trust by a court of
competent jurisdiction.
With the exception of a redemption as described under "Redemption or
Exchange -- Mandatory Redemption," if an early termination occurs, the trust
will be liquidated by the administrative trustees as expeditiously as they
determine to be possible. After satisfaction of liabilities to creditors of the
trust as provided by applicable law, the trustees will distribute to the holders
of trust securities debentures:
- in an aggregate stated principal amount equal to the aggregate stated
liquidation amount of the trust securities;
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- with an interest rate identical to the distribution rate on the trust
securities; and
- with accrued and unpaid interest equal to accumulated and unpaid
distributions on the trust securities.
However, if the property trustee determines that the distribution is not
practical, then the holders will be entitled to receive a proportionate amount
of the liquidation distribution. The liquidation distribution will be the amount
equal to the aggregate of the liquidation amount plus accumulated and unpaid
distributions to the date of payment. If the liquidation distribution can be
paid only in part because the trust has insufficient assets available to pay in
full the aggregate liquidation distribution, then the amounts payable directly
by the trust on the trust securities will be paid to us, as the holder of the
common securities, and the holders of the trust preferred securities on a
proportional basis based on liquidation amounts. However, if an event of default
under the indenture has occurred and is continuing, the trust preferred
securities will have a priority over the common securities. See "Subordination
of Common Securities."
Under current United States federal income tax law and interpretations and
assuming that the trust is treated as a grantor trust, as is expected, a
distribution of the debentures should not be a taxable event to holders of the
trust preferred securities. Should there be a change in law, a change in legal
interpretation, a Tax Event or another circumstance, however, the distribution
could be a taxable event to holders of the trust preferred securities. See
"Federal Income Tax Consequences -- Receipt of Debentures or Cash Upon
Liquidation of the Trust." If we do not elect to redeem the debentures prior to
maturity or to liquidate the trust and distribute the debentures to holders of
the trust preferred securities, the trust preferred securities will remain
outstanding until the repayment of the debentures.
If we elect to dissolve the trust and thus cause the debentures to be
distributed to holders of the trust preferred securities in liquidation of the
trust, we will continue to have the right to shorten the maturity of the
debentures. See "Description of the Debentures -- General."
LIQUIDATION VALUE
The amount of the liquidation distribution payable on the trust preferred
securities in the event of any liquidation of the trust is $25 per trust
preferred security plus accumulated and unpaid distributions to the date of
payment, which may be in the form of a distribution of debentures having a
liquidation value and accrued interest of an equal amount. See "Liquidation
Distribution Upon Termination."
EVENTS OF DEFAULT; NOTICE
Any one of the following events constitutes an event of default under the
trust agreement with respect to the trust preferred securities:
- the occurrence of an event of default under the indenture (see
"Description of the Debentures -- Debenture Events of Default");
- a default by the trust in the payment of any distribution when it becomes
due and payable, and continuation of the default for a period of 30 days;
- a default by the trust in the payment of any redemption price of any of
the trust securities when it becomes due and payable;
- a default in the performance, or breach, in any material respect, of any
covenant or warranty of the trust in the trust agreement, other than
those defaults covered in the previous two points, and continuation of
the default or breach for a period of 60 days after there has been given,
by registered or certified mail, to the trustee(s) by the holders of at
least 25% in aggregate liquidation amount of the outstanding trust
preferred securities, a written notice specifying the default or breach
and requiring it to be remedied and stating that the notice is a "Notice
of Default" under the trust agreement; or
- the occurrence of events of bankruptcy or insolvency with respect to the
property trustee and our failure to appoint a successor property trustee
within 60 days following our receipt of written notice of or an
administrative trustee's actual knowledge of such events of bankruptcy or
insolvency.
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Within five business days after the property trustee has actual knowledge
of the occurrence of any event of default, the property trustee will transmit
notice of the event of default to the holders of the trust preferred securities,
the administrative trustees and to us, unless the event of default has been
cured or waived. We and the administrative trustees are required to file
annually with the property trustee a certificate as to whether or not we are
each in compliance with all the conditions and covenants applicable to us and
the administrative trustees, respectively, under the trust agreement.
If an event of default under the indenture has occurred and is continuing,
the trust preferred securities will have preference over the common securities
upon termination of the trust. See "Subordination of Common Securities" and
"Liquidation Distribution Upon Termination." The existence of an event of
default under the trust agreement does not entitle the holders of trust
preferred securities to accelerate the maturity thereof, unless the event of
default is caused by the occurrence of an event of default under the indenture
and both the indenture trustee and holders of at least 25% in principal amount
of the debentures fail to accelerate the maturity thereof.
REMOVAL OF THE TRUSTEES
Unless an event of default under the indenture has occurred and is
continuing, we may remove any trustee at any time. If an event of default under
the indenture has occurred and is continuing, only the holders of a majority in
liquidation amount of the outstanding trust preferred securities may remove the
property trustee or the Delaware trustee. The holders of the trust preferred
securities have no right to vote to appoint, remove or replace the
administrative trustees. These rights are vested exclusively with us as the
holder of the common securities. No resignation or removal of a trustee and no
appointment of a successor trustee will be effective until the successor trustee
accepts the appointment in accordance with the trust agreement.
CO-TRUSTEES AND SEPARATE PROPERTY TRUSTEE
Unless an event of default under the indenture has occurred and is
continuing, for the purpose of meeting the legal requirements of the Trust
Indenture Act or of any jurisdiction in which any part of the trust property may
at the time be located, we will have the power to appoint at any time or times,
and upon written request of the property trustee, we will appoint, one or more
persons or entities either (i) to act as a co-trustee, jointly with the property
trustee, of all or any part of the trust property, or (ii) to act as separate
trustee of any trust property. In either case these trustees will have the
powers that may be provided in the instrument of appointment, and will have
vested in them any property, title, right or power deemed necessary or
desirable, subject to the provisions of the trust agreement. In case an event of
default under the indenture has occurred and is continuing, the property trustee
alone will have power to make the appointment.
MERGER OR CONSOLIDATION OF TRUSTEES
Generally, any person or successor to any of the trustees may be a
successor trustee to any of the trustees, including a successor resulting from a
merger or consolidation. However, any successor trustee must meet all of the
qualifications and eligibility standards to act as a trustee.
MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF THE TRUST
The trust may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any corporation or other person, except as
described below. The trust may, at our request, with the consent of the
administrative trustees and without the consent of the holders of the trust
preferred securities, the property trustee or the Delaware trustee, undertake a
transaction listed above if the following conditions are met:
- the successor entity either (a) expressly assumes all of the obligations
of the trust with respect to the trust preferred securities, or (b)
substitutes for the trust preferred securities other securities having
substantially the same terms as the trust preferred securities (referred
to as "successor securities") so long as the successor securities rank
the same in priority as the trust preferred securities with respect to
distributions and payments upon liquidation, redemption and otherwise;
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- we expressly appoint a trustee of the successor entity possessing
substantially the same powers and duties as the property trustee in its
capacity as the holder of the debentures;
- the successor securities are listed or will be listed upon notification
of issuance, on any national securities exchange or other organization on
which the trust preferred securities are then listed, if any;
- the merger, consolidation, amalgamation, replacement, conveyance,
transfer or lease does not adversely affect the rights, preferences and
privileges of the holders of the trust preferred securities (including
any successor securities) in any material respect;
- the successor entity has a purpose substantially identical to that of the
trust;
- prior to the merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease, we have received an opinion from
independent counsel to the effect that (a) any transaction of this kind
does not adversely affect the rights, preferences and privileges of the
holders of the trust preferred securities (including any successor
securities) in any material respect, and (b) following the transaction,
neither the trust nor the successor entity will be required to register
as an "investment company" under the Investment Company Act; and
- we own all of the common securities of the successor entity and guarantee
the obligations of the successor entity under the successor securities at
least to the extent provided by the guarantee.
Notwithstanding the foregoing, the trust may not, except with the consent
of holders of 100% in liquidation amount of the trust preferred securities,
enter into any transaction of this kind or permit any other person to
consolidate, amalgamate, merge with or into, or replace the trust if the
transaction would cause the trust or the successor entity to be classified as
other than a grantor trust for United States federal income tax purposes.
VOTING RIGHTS; AMENDMENT OF TRUST AGREEMENT
Except as provided below and under "Description of the
Guarantee -- Amendments and Assignment" and as otherwise required by the Trust
Indenture Act and the trust agreement, the holders of the trust preferred
securities will have no voting rights.
The trust agreement may be amended from time to time by us and the
trustees, without the consent of the holders of the trust preferred securities,
in the following circumstances:
- with respect to acceptance of appointment by a successor trustee;
- to cure any ambiguity, correct or supplement any provisions in the trust
agreement that may be inconsistent with any other provision, or to make
any other provisions with respect to matters or questions arising under
the trust agreement, as long as the amendment is not inconsistent with
the other provisions of the trust agreement and does not have a material
adverse effect on the interests of any holder of trust securities; or
- to modify, eliminate or add to any provisions of the trust agreement if
necessary to ensure that the trust will be classified for federal income
tax purposes as a grantor trust at all times that any trust securities
are outstanding or to ensure that the trust will not be required to
register as an "investment company" under the Investment Company Act.
With the consent of the holders of a majority of the aggregate liquidation
amount of the outstanding trust securities, we and the trustees may amend the
trust agreement if the trustees receive an opinion of counsel to the effect that
the amendment or the exercise of any power granted to the trustees in accordance
with the amendment will not affect the trust's status as a grantor trust for
federal income tax purposes or the trust's exemption from status as an
"investment company" under the Investment Company Act. However, without the
consent of each holder of trust securities, the trust agreement may not be
amended to (i) change the amount or timing of any distribution on the trust
securities or otherwise adversely affect the amount of any
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distribution required to be made in respect of the trust securities as of a
specified date, or (ii) restrict the right of a holder of trust securities to
institute suit for the enforcement of the payment on or after that date.
As long as the property trustee holds any debentures, the trustees will
not:
- direct the time, method and place of conducting any proceeding for any
remedy available to the indenture trustee, or executing any trust or
power conferred on the property trustee with respect to the debentures;
- waive any past default that is waivable under the indenture;
- exercise any right to rescind or annul a declaration that the principal
of all the debentures will be due and payable; or
- consent to any amendment, modification or termination of the indenture or
the debentures, where the consent is required, without obtaining the
prior approval of the holders of a majority in aggregate liquidation
amount of all outstanding trust securities. However, where a consent
under the indenture requires the consent of each holder of the affected
debentures, no consent will be given by the property trustee without the
prior consent of each holder of the trust securities.
The trustees may not revoke any action previously authorized or approved by
a vote of the holders of the trust securities except by subsequent vote of the
holders of the trust securities. The property trustee will notify each holder of
record of trust securities of any notice of default it receives with respect to
the debentures. In addition to obtaining the foregoing approvals of the holders
of the trust securities, prior to taking any of the foregoing actions the
trustees must obtain an opinion of counsel experienced in these matters to the
effect that the trust will not be classified as an association taxable as a
corporation for federal income tax purposes on account of the action.
Any required approval of holders of trust securities may be given at a
meeting of holders of the trust securities convened for the purpose or pursuant
to written consent. The property trustee will cause a notice of any meeting at
which holders of the trust securities are entitled to vote, or of any matter
upon which action by written consent of the holders is to be taken, to be given
to each holder of record of trust securities.
No vote or consent of the holders of trust preferred securities will be
required for the trust to redeem and cancel its trust preferred securities in
accordance with the trust agreement.
Notwithstanding the fact that holders of trust preferred securities are
entitled to vote or consent under any of the circumstances described above, any
of the trust preferred securities that are owned by us, the trustees or any
affiliate of us or any trustee, will, for purposes of the vote or consent, be
treated as if they were not outstanding.
GLOBAL TRUST PREFERRED SECURITIES
The trust preferred securities will be represented by one or more global
trust preferred securities registered in the name of The Depository Trust
Company, New York, New York ("DTC") or its nominee. A global trust preferred
security is a security representing interests of more than one beneficial
holder. Beneficial interests in the global trust preferred securities will be
shown on, and transfers will be effected only through, records maintained by
participants. Participants are brokers, dealers, or others with accounts with
DTC. Except as described below, trust preferred securities in definitive form
will not be issued in exchange for the global trust preferred securities. See
"Book-Entry Issuance."
No global trust preferred security may be exchanged for trust preferred
securities registered in the names of persons other than DTC or its nominee
unless:
- DTC notifies the indenture trustee that it is unwilling or unable to
continue as a depositary for the global trust preferred security and we
are unable to locate a qualified successor depositary;
- we execute and deliver to the indenture trustee a written order stating
that we elect to terminate the book-entry system through DTC; or
- there shall have occurred and be continuing an event of default under the
indenture.
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Any global trust preferred security that is exchangeable pursuant to the
preceding sentence shall be exchangeable for definitive certificates registered
in the names as DTC shall direct. It is expected that the instructions will be
based upon directions received by DTC with respect to ownership of beneficial
interests in the global trust preferred security. If trust preferred securities
are issued in definitive form, the trust preferred securities will be in
denominations of $25 and integral multiples of $25 and may be transferred or
exchanged at the offices described below.
Unless and until it is exchanged in whole or in part for the individual
trust preferred securities represented thereby, a global trust preferred
security may not be transferred except as a whole by DTC to a nominee of DTC, by
a nominee of DTC to DTC or another nominee of DTC or by DTC or any nominee to a
successor depositary or any nominee of the successor.
Payments on global trust preferred securities will be made to DTC, as the
depositary for the global trust preferred securities. If the trust preferred
securities are issued in definitive form, distributions will be payable, the
transfer of the trust preferred securities will be registrable, and trust
preferred securities will be exchangeable, for trust preferred securities of
other denominations of a like aggregate liquidation amount, at the corporate
office of the property trustee, or at the offices of any paying agent or
transfer agent appointed by the administrative trustees. However, payment of any
distribution may be made at the option of the administrative trustees by check
mailed to the address of record of the persons entitled to the distribution or
by wire transfer. In addition, with respect to trust preferred securities that
are issued in definitive form, the record dates for payment of distributions
will be the 15th day of the month in which the relevant distribution date
occurs. For a description of the terms of DTC arrangements relating to payments,
transfers, voting rights, redemptions and other notices and other matters, see
"Book-Entry Issuance."
Upon the issuance of one or more global trust preferred securities, and the
deposit of the global trust preferred security with or on behalf of DTC or its
nominee, DTC or its nominee will credit, on its book-entry registration and
transfer system, the respective aggregate liquidation amounts of the individual
trust preferred securities represented by the global trust preferred security to
the accounts of persons that have accounts with DTC. These accounts shall be
designated by the dealers, underwriters or agents with respect to the trust
preferred securities. Ownership of beneficial interests in a global trust
preferred security will be limited to persons or entities with an account with
DTC or who may hold interest through any person or entity with an account that
may hold interests through participants. With respect to interests of any person
or entity with an account with DTC, ownership of beneficial interests in a
global trust preferred security will be shown on, and the transfer of that
ownership will be effected only through, records maintained by the applicable
depositary or its nominee. With respect to persons or entities who hold an
interest in a global trust preferred security through a participant, the
interest and any transfer of the interest will be shown on the participant's
records. The laws of some states require that certain purchasers of securities
take physical delivery of these securities in definitive form. These laws may
impair the ability to transfer beneficial interests in a global trust preferred
security.
So long as DTC or another depositary, or its nominee, is the registered
owner of the global trust preferred security, such depositary or such nominee,
as the case may be, will be considered the sole owner or holder of the trust
preferred securities represented by the global trust preferred security for all
purposes under the trust agreement. Except as described in this prospectus,
owners of beneficial interests in a global trust preferred security will not be
entitled to have any of the individual trust preferred securities represented by
the global trust preferred security registered in their names, will not receive
or be entitled to receive physical delivery of any of the trust preferred
securities in definitive form and will not be considered the owners or holders
of the trust preferred securities under the trust agreement.
None of us, the property trustee, any paying agent or the securities
registrar for the trust preferred securities will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interests of the global trust preferred security
representing the trust preferred securities or for maintaining, supervising or
reviewing any records relating to the beneficial ownership interests.
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We expect that DTC or its nominee, upon receipt of any payment of the
liquidation amount or distributions in respect of a global trust preferred
security, immediately will credit participants' accounts with payments in
amounts proportionate to their respective beneficial interest in the aggregate
liquidation amount of the global trust preferred security as shown on the
records of DTC or its nominee. We also expect that payments by participants to
owners of beneficial interests in the global trust preferred security held
through the participants will be governed by standing instructions and customary
practices, as is now the case with securities held for the accounts of customers
in bearer form or registered in "street name." The payments will be the
responsibility of the participants. See "Book-Entry Issuance."
PAYMENT AND PAYING AGENCY
Payments in respect of the trust preferred securities shall be made to DTC,
which shall credit the relevant accounts of participants on the applicable
distribution dates, or, if any of the trust preferred securities are not held by
DTC, the payments shall be made by check mailed to the address of the holder as
listed on the register of holders of the trust preferred securities. The paying
agent for the trust preferred securities will initially be the property trustee
and any co-paying agent chosen by the property trustee and acceptable to us and
the administrative trustees. The paying agent for the trust preferred securities
may resign as paying agent upon 30 days written notice to the administrative
trustees, the property trustee and us. If the property trustee no longer is the
paying agent for the trust preferred securities, the administrative trustees
will appoint a successor to act as paying agent. The successor must be a bank or
trust company acceptable to us and the property trustee.
REGISTRAR AND TRANSFER AGENT
The property trustee will act as the registrar and the transfer agent for
the trust preferred securities. Registration of transfers of trust preferred
securities will be effected without charge by or on behalf of the trust, but
upon payment of any tax or other governmental charges that may be imposed in
connection with any transfer or exchange. The trust and its registrar and
transfer agent will not be required to register or cause to be registered the
transfer of trust preferred securities after they have been called for
redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The property trustee, until the occurrence and continuance of an event of
default under the trust agreement, undertakes to perform only the duties set
forth in the trust agreement. After an event of default under the trust
agreement, the property trustee must exercise the same degree of care and skill
as a prudent person exercises or uses in the conduct of its own affairs. Subject
to this provision, the property trustee is under no obligation to exercise any
of the powers vested in it by the trust agreement at the request of any holder
of trust preferred securities unless it is offered reasonable indemnity against
the costs, expenses and liabilities that might be incurred. If no event of
default under the trust agreement has occurred and is continuing and the
property trustee is required to decide between alternative causes of action,
construe ambiguous provisions in the trust agreement or is unsure of the
application of any provision of the trust agreement, and the matter is not one
on which holders of trust preferred securities are entitled to vote upon, then
the property trustee will take the action directed in writing by us. If the
property trustee is not so directed, then it will take the action it deems
advisable and in the best interests of the holders of the trust securities and
will have no liability except for its own bad faith, negligence or willful
misconduct.
MISCELLANEOUS
The administrative trustees are authorized and directed to conduct the
affairs of and to operate the trust in such a way that:
- the trust will not be deemed to be an "investment company" required to be
registered under the Investment Company Act;
- the trust will not be classified as an association taxable as a
corporation for federal income tax purposes; and
- the debentures will be treated as our indebtedness for federal income tax
purposes.
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In this regard, we and the administrative trustees are authorized to take
any action not inconsistent with applicable law, the certificate of trust or the
trust agreement, that we and the administrative trustees determine to be
necessary or desirable for these purposes.
Holders of the trust preferred securities have no preemptive or similar
rights to subscribe for additional trust preferred securities. The trust
agreement and the trust preferred securities will be governed by Delaware law.
DESCRIPTION OF THE DEBENTURES
Concurrently with the issuance of the trust preferred securities, the trust
will invest the proceeds from the sale of the trust securities in the debentures
issued by us. The debentures will be issued as unsecured debt under the
indenture between us and Wilmington Trust, as trustee (the "indenture trustee").
The indenture will be qualified under the Trust Indenture Act.
The following discussion is subject to, and is qualified in its entirety by
reference to, the indenture and the Trust Indenture Act. We urge prospective
investors to read the form of the indenture, which is filed as an exhibit to the
Registration Statement of which this prospectus forms a part.
GENERAL
The debentures will be limited in aggregate principal amount to
$15,000,000, this amount being the sum of the aggregate stated liquidation
amounts of the trust securities. The debentures will bear interest at the annual
rate of % of the principal amount. The interest will be payable quarterly
on March 31, June 30, September 30 and December 31 of each year, beginning
September 30, 2000, to the person in whose name each debenture is registered at
the close of business on the business day immediately preceding the day interest
is due. It is anticipated that, until the liquidation of the Trust, if any, the
debentures will be held in the name of the property trustee in trust for the
benefit of the holders of the trust securities.
The amount of interest payable for any period will be computed on the basis
of a 360-day year of twelve 30-day months. If any date on which interest is
payable on the debentures is not a business day, then payment of interest will
be made on the next day that is a business day without any additional interest
or other payment in respect of the delay. However, if the next business day is
in the next calendar year, payment of the interest will be made on the
immediately preceding business day. Accrued interest that is not paid on the
applicable interest payment date will bear additional interest on the amount due
at the annual rate of %, compounded quarterly. The term "interest,"
includes quarterly interest payments, interest on quarterly interest payments
not paid on the applicable interest payment date and additional interest, as
applicable.
The debentures will mature on , 2030, the stated maturity date.
We may shorten this date once at any time to any date not earlier than
, 2005, subject to the prior approval of the Federal Reserve, if
required.
We will give notice to the indenture trustee and the holders of the
debentures no more than 180 days and no less than 90 days prior to the
effectiveness of any change in the stated maturity date. We will not have the
right to redeem the debentures from the trust until after , 2005,
except if a Tax Event, an Investment Company Event or a Capital Treatment Event
has occurred, or to the extent the Trust has repurchased trust preferred
securities.
The debentures will be unsecured and will rank junior to all of our senior
and subordinate indebtedness. Because we are a holding company, our right to
participate in any distribution of assets of any of our subsidiaries, upon any
subsidiary's liquidation or reorganization or otherwise, and thus the ability of
holders of the debentures to benefit indirectly from any distribution by a
subsidiary, is subject to the prior claim of creditors of the subsidiary, except
to the extent that we may be recognized as a creditor of the subsidiary. The
debentures will, therefore, be effectively subordinated to all existing and
future liabilities of our subsidiaries, and holders of debentures should look
only to our assets for payment. The indenture does not limit our ability to
incur or issue secured or unsecured senior and junior debt. See
"-- Subordination."
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The indenture does not contain provisions that afford holders of the
debentures protection in the event of a highly leveraged transaction or other
similar transaction involving us, nor does it require us to maintain or achieve
any financial performance levels or to obtain or maintain any credit rating on
the debentures.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
As long as no event of default under the indenture has occurred and is
continuing, we have the right under the indenture to defer the payment of
interest on the debentures at any time for a period not exceeding 20 consecutive
quarters. However, no extension period may extend beyond the stated maturity of
the debentures or end on a date other than a date interest is normally due. At
the end of an extension period, we must pay all interest then accrued and
unpaid, together with interest thereon at the annual rate of % compounded
quarterly. During an extension period, interest will continue to accrue and
holders of debentures, or the holders of trust preferred securities if they are
then outstanding, will be required to accrue and recognize as income for federal
income tax purposes the accrued but unpaid interest amounts in the year in which
such amounts accrued. See "Federal Income Tax Consequences -- Interest Payment
Period and Original Issue Discount."
During an extension period, we may not:
- declare or pay any dividends or distributions on, or redeem, purchase,
acquire or make a liquidation payment with respect to, any of our capital
stock (other than the reclassification of any class of our capital stock
into another class of capital stock) or allow any of our subsidiaries to
do the same with respect to their capital stock (other than the payment
of dividends or distributions to us);
- make any payment of principal, interest or premium on or repay,
repurchase or redeem any debt securities that rank equally with or junior
in interest to the debentures or allow any of our subsidiaries to do the
same;
- make any guarantee payments with respect to any other guarantee by us of
any other debt securities of any of our subsidiaries if the guarantee
ranks equally with or junior to the debentures other than payments under
the guarantee; or
- redeem, purchase or acquire less than all of the debentures or any of the
trust preferred securities.
Prior to the termination of any extension period, so long as no event of
default under the indenture is continuing, we may further defer the payment of
interest subject to the above stated requirements. Upon the termination of any
extension period and the payment of all amounts then due, we may elect to begin
a new extension period at any time. We have no present intention of exercising
our right to defer payments of interest on the debentures.
We must give the property trustee, the administrative trustees and the
indenture trustee notice of our election of an extension period at least two
business days prior to the earlier of (i) the next date on which distributions
on the trust securities would have been payable except for the election to begin
an extension period, or (ii) the date we are required to give notice of the
record date, or the date the distributions are payable, to the American Stock
Exchange, or other applicable self-regulatory organization, or to holders of the
trust preferred securities, but in any event at least one business day prior to
the record date.
Subject to the foregoing, there is no limitation on the number of times
that we may elect to begin an extension period.
ADDITIONAL SUMS TO BE PAID AS A RESULT OF ADDITIONAL TAXES
If the trust is required to pay any additional taxes, duties or other
governmental charges as a result of the occurrence of a Tax Event, we will pay
as additional amounts on the debentures any amounts which may be required so
that the net amounts received and retained by the trust after paying any
additional taxes, duties or other governmental charges will not be less than the
amounts the trust would have received had the additional taxes, duties or other
governmental charges not been imposed.
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REDEMPTION OR EXCHANGE
Subject to prior approval of the Federal Reserve, if required, we may
redeem the debentures prior to maturity:
- in whole at any time, or in part from time to time, on or after
, 2005;
- in whole, but not in part, at any time within 90 days following the
occurrence of a Tax Event, an Investment Company Event or a Capital
Treatment Event; or
- at any time, to the extent of any trust preferred securities the trust
repurchases.
In each case we will pay a redemption price equal to the accrued and unpaid
interest on the debentures so redeemed to the date fixed for redemption, plus
100% of the principal amount of the debentures.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each holder of debentures to be redeemed
at its registered address. Redemption of less than all outstanding debentures
shall be effected proportionately, by lot or in any other manner deemed to be
fair by the indenture trustee. Unless we default in payment of the redemption
price for the debentures, on and after the redemption date interest shall cease
to accrue on the debentures or portions thereof called for redemption.
The debentures will not be subject to any sinking fund.
DISTRIBUTION UPON LIQUIDATION
As described under "Description of the Trust Preferred
Securities -- Liquidation Distribution Upon Termination," under certain
circumstances and with the Federal Reserve's approval, the debentures may be
distributed to the holders of the trust preferred securities in liquidation of
the trust after satisfaction of liabilities to creditors of the trust. If this
occurs, we will use our best efforts to list the debentures on the American
Stock Exchange or other stock exchange or national quotation service, on which
the trust preferred securities are then listed, if any. There can be no
assurance as to the market price of any debentures that may be distributed to
the holders of trust preferred securities.
RESTRICTIONS ON PAYMENTS
We are restricted from making certain payments (as described below) if at
that time:
- an event of default is continuing under the indenture;
- we are in default with respect to our obligations under the guarantee; or
- we have given notice of our election to extend an interest payment period
with respect to the debentures and the notice has not been rescinded or
the extension period is continuing.
If any of the above events have occurred, we will not:
- declare or pay any dividends or distributions on, or redeem, purchase,
acquire, or make a liquidation payment with respect to, any of our
capital stock (other than the reclassification of any class of our
capital stock into another class of capital stock) or allow any of our
subsidiaries to do the same with respect to their capital stock (other
than the payment of dividends or distributions to us);
- make any payment of principal, interest or premium on, or repay or
repurchase or redeem any of our debt securities that rank equally with or
junior to the debentures or allow any of our subsidiaries to do the same;
- make any guarantee payments with respect to any guarantee by us of the
debt securities of any of our subsidiaries if the guarantee ranks equally
with or junior to the debentures other than payments under the guarantee;
or
- redeem, purchase or acquire less than all of the debentures or any of the
trust preferred securities.
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SUBORDINATION
Under the indenture, the debentures are subordinated and junior in right of
payment to all of our senior and subordinated debt. Upon any payment or
distribution of assets to our creditors upon any liquidation, dissolution,
winding up, reorganization, assignment for the benefit of creditors, marshaling
of assets or any bankruptcy, insolvency, debt restructuring or similar
proceedings in connection with any insolvency or bankruptcy proceedings of Front
Range Capital Corporation, the holders of senior and subordinated debt will
first be entitled to receive payment in full of principal (and premium, if any)
and interest before the holders of debentures will be entitled to receive or
retain any payment in respect of the debentures.
In the event of the acceleration of the maturity of any debentures, the
holders of all of our senior and subordinated debt outstanding at the time of
the acceleration will also be entitled to first receive payment in full of all
amounts due, including any amounts due upon acceleration, before the holders of
the debentures will be entitled to receive or retain any payment in respect of
the principal of or interest on the debentures.
No payments of principal or interest in respect of the debentures may be
made if there has occurred and is continuing a default in any payment with
respect to any of our senior or subordinated debt or an event of default with
respect to any of our senior or subordinated debt resulting in the acceleration
of the maturity of the debentures, or if any judicial proceeding is pending with
respect to any default.
The term "debt" means, with respect to any entity, whether recourse is to
all or a portion of the assets of an entity and whether or not contingent:
- every obligation of the entity for money borrowed;
- every obligation of the entity evidenced by bonds, debentures, notes or
other similar instruments, including obligations incurred in connection
with the acquisition of property, assets or businesses;
- every reimbursement obligation of the entity with respect to letters of
credit, bankers' acceptances or similar facilities issued for the account
of the entity;
- every obligation of the entity issued or assumed as the deferred purchase
price of property or services, excluding trade accounts payable or
accrued liabilities arising in the ordinary course of business;
- every capital lease obligation of the entity; and
- every obligation of the type referred to in the first five points of
another person and all dividends of another person the payment of which,
in either case, the entity has guaranteed or is responsible or liable,
directly or indirectly, as obligor or otherwise.
The term "senior debt" means, with respect to us, the principal of and
premium and interest, including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to us whether or not a
claim for post-petition interest is allowed in the proceeding, on debt, whether
incurred on or prior to the date of the indenture or incurred after the date.
Senior debt also includes all indebtedness, whether incurred on or prior to the
date of the indenture or thereafter incurred, for claims in respect of
derivative products such as interest and foreign exchange rate contracts,
commodity contracts and similar arrangements. However, senior debt will be
deemed not to include:
- any debt where it is provided in the instrument creating the debt that
the obligations are not superior in right of payment to the debentures or
to other debt which is equal with, or subordinated to, the debentures;
- any of our debt that when incurred and without respect to any election
under the federal bankruptcy laws was without recourse to us;
- any debt of ours to any of our subsidiaries;
- any debt to any of our employees;
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- any debt that by its terms is subordinated to trade accounts payable or
accrued liabilities arising in the ordinary course of business to the
extent that payments made to the holders of the debt by the holders of
the debentures as a result of the subordination provisions of the
indenture would be greater than they otherwise would have been as a
result of any obligation of the holders to pay amounts over to the
obligees on the trade accounts payable or accrued liabilities arising in
the ordinary course of business as a result of subordination provisions
to which the debt is subject; and
- debt which constitutes subordinated debt.
The term "subordinated debt" means, with respect to us, the principal of,
premium and interest, including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to us whether or not the
claim for post-petition interest is allowed in the proceeding, on debt.
Subordinated debt includes debt incurred on or prior to the date of the
indenture or thereafter incurred, which is by its terms expressly provided to be
junior and subordinate to other debt of ours, other than the debentures.
However, subordinated debt will be deemed not to include:
- any of our debt which when incurred and without respect to any election
under the federal bankruptcy laws, was without recourse to us;
- any debt of ours to any of our subsidiaries;
- any debt to any of our employees;
- any debt which by its terms is subordinated to trade accounts payable or
accrued liabilities arising in the ordinary course of business to the
extent that payments made to the holders of the debt by the holders of
the debentures as a result of the subordination provisions of the
indenture would be greater than they otherwise would have been as a
result of any obligation of the holders to pay amounts over to the
obligees on the trade accounts payable or accrued liabilities arising in
the ordinary course of business as a result of subordination provisions
to which the debt is subject;
- debt which constitutes senior debt; and
- any debt of ours under debt securities (and guarantees in respect of
these debt securities) initially issued to any trust, or a trustee of a
trust, partnership or other entity affiliated with us that is, directly
or indirectly, a financing vehicle of ours in connection with the
issuance by that entity of preferred securities or other securities which
are intended to qualify for "Tier 1" capital treatment.
We expect from time to time to incur additional indebtedness, and there is
no limitation on the amount we may incur. At March 31, 2000, we had consolidated
senior debt and subordinated debt of approximately $3,710,000.
PAYMENT AND PAYING AGENTS
Generally, payment of principal of and any interest on the debentures will
be made at the office of the indenture trustee in Wilmington, Delaware. However,
we have the option to make payment of any interest by (i) check mailed to the
address of the person entitled to payment at the address listed in the register
of holders of the debentures, or (ii) transfer to an account maintained by the
person entitled thereto as specified in the register of holders of the
debentures, provided that proper transfer instructions have been received by the
regular record date. Payment of any interest on debentures will be made to the
person in whose name the debenture is registered at the close of business on the
regular record date for the interest payment, except in the case of defaulted
interest. We may at any time designate additional paying agents for the
debentures or rescind the designation of any paying agent for the debentures.
However, we will at all times be required to maintain a paying agent in
Wilmington, Delaware, and each place of payment for the debentures.
Any moneys deposited with the indenture trustee or any paying agent for the
debentures, or then held by us in trust, for the payment of the principal of or
interest on the debentures and remaining unclaimed for two years after the
principal or interest has become due and payable, will be repaid to us on May 31
of each
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year. If we hold any of this money in trust, then it will be discharged from the
trust to us and the holder of the debenture will thereafter look, as a general
unsecured creditor, only to us for payment.
REGISTRAR AND TRANSFER AGENT
The indenture trustee will act as the registrar and the transfer agent for
the debentures. Debentures may be presented for registration of transfer, with
the form of transfer endorsed thereon, or a satisfactory written instrument of
transfer, duly executed, at the office of the registrar. Provided that we
maintain a transfer agent in Wilmington, Delaware, we may rescind the
designation of any transfer agent or approve a change in the location through
which any transfer agent acts. We may at any time designate additional transfer
agents with respect to the debentures.
In the event of any redemption, neither we nor the indenture trustee will
be required to (i) issue, register the transfer of or exchange debentures during
a period beginning at the opening of business 15 days before the day of
selection for redemption of debentures and ending at the close of business on
the day of mailing of the relevant notice of redemption, or (ii) transfer or
exchange any debentures so selected for redemption, except, in the case of any
debentures being redeemed in part, any portion not to be redeemed.
MODIFICATION OF INDENTURE
We and the indenture trustee may, from time to time without the consent of
the holders of the debentures, amend, waive or supplement the indenture for
purposes which do not materially adversely affect the rights of the holders of
the debentures. Other changes may be made by us and the indenture trustee with
the consent of the holders of a majority in principal amount of the outstanding
debentures. However, without the consent of the holder of each outstanding
debenture affected by the proposed modification, no modification may:
- extend the fixed maturity of the debentures;
- reduce the principal amount or the rate or extend the time of payment of
interest; or
- reduce the percentage of principal amount of debentures required to amend
the indenture.
As long as any of the trust preferred securities remain outstanding, no
modification may be made that requires the consent of the holders of the
debentures, no termination of the indenture may occur, and no waiver of any
event of default under the indenture may be effective, without the prior consent
of the holders of a majority of the aggregate liquidation amount of the trust
preferred securities.
DEBENTURE EVENTS OF DEFAULT
The indenture provides that any one or more of the following described
events with respect to the debentures that has occurred and is continuing
constitutes an event of default under the indenture:
- failure for 30 days to pay any interest on the debentures when due,
subject to deferral of any due date in the case of an extension period;
- failure to pay any principal on the debentures when due whether at
maturity, upon redemption by declaration or otherwise;
- failure to observe or perform in any material respect other covenants
contained in the indenture for 90 days after written notice to us from
the indenture trustee or the holders of at least 25% in aggregate
outstanding principal amount of the debentures; or
- our bankruptcy, insolvency or reorganization or dissolution of the trust.
The holders of a majority of the aggregate outstanding principal amount of
the debentures have the right to direct the time, method and place of conducting
any proceeding for any remedy available to the indenture trustee. The indenture
trustee, or the holders of at least 25% in aggregate outstanding principal
amount of the
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debentures, may declare the principal due and payable immediately upon an event
of default under the indenture. The holders of a majority of the outstanding
principal amount of the debentures may annul the declaration and waive the
default if the default has been cured and a sum sufficient to pay all matured
installments of interest and principal due otherwise than by acceleration, has
been deposited with the indenture trustee. The holders may not annul the
declaration and waive a default if the default is the non-payment of the
principal of the debentures which has become due solely by the acceleration.
Should the holders of the debentures fail to annul the declaration and waive the
default, the holders of at least 25% in aggregate liquidation amount of the
trust preferred securities will have this right.
If an event of default under the indenture has occurred and is continuing,
the property trustee will have the right to declare the principal of and the
interest on the debentures, and any other amounts payable under the indenture,
to be forthwith due and payable and to enforce its other rights as a creditor
with respect to the debentures.
We are required to file annually with the indenture trustee a certificate
as to whether or not we are in compliance with all of the conditions and
covenants applicable to us under the indenture.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF THE TRUST PREFERRED SECURITIES
If an event of default under the indenture has occurred and is continuing
and the event is attributable to our failure to pay interest on or principal of
the debentures on the payment date on which the payment is due and payable, then
a holder of trust preferred securities may initiate a direct action against us.
In connection with a direct action, we will have a right to counter the amount
of the direct action to the extent of any payment made by us to the holder of
trust preferred securities with respect to the direct action. We may not amend
the indenture to remove the foregoing right to bring a direct action without the
prior written consent of all of the holders of the trust preferred securities.
If the right to bring a direct action is removed, the trust may become subject
to the reporting obligations under the Securities Exchange Act of 1934.
The holders of the trust preferred securities will not be able to exercise
directly any remedies, other than those set forth in the preceding paragraph,
available to the holders of the debentures unless there has been an event of
default under the trust agreement. See "Description of the Trust Preferred
Securities -- Events of Default; Notice."
CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
We may not consolidate with or merge into any other entity or convey or
transfer our properties and assets substantially as an entirety to any entity,
and no entity may be consolidated with or merged into us or sell, convey,
transfer or otherwise dispose of its properties and assets substantially as an
entirety to us, unless:
- if we consolidate with or merge into another person or convey or transfer
our properties and assets substantially as an entirety to any person, the
successor person is organized under the laws of the United States or any
State or the District of Columbia, and the successor person expressly
assumes by supplemental indenture our obligations on the debentures, or
substitutes securities having substantially similar terms;
- immediately after giving effect, no event of default under the indenture,
and no event which, after notice or lapse of time, or both, would become
an event of default under the indenture, has occurred and is continuing;
and
- other conditions as prescribed in the indenture are met.
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SATISFACTION AND DISCHARGE
The indenture will cease to be of further effect and we will be deemed to
have satisfied and discharged the indenture when all debentures not previously
delivered to the indenture trustee for cancellation:
- have become due and payable, or
- will become due and payable at their stated maturity within one year or
are to be called for redemption within one year, and we deposit or cause
to be deposited with the indenture trustee funds, in trust, for the
purpose and in an amount sufficient to pay and discharge the entire
indebtedness on the debentures not previously delivered to the indenture
trustee for cancellation, for the principal and interest due to the date
of the deposit or to the stated maturity or redemption date, as the case
may be.
We may still be required to provide officers' certificates, opinions of
counsel and pay fees and expenses due after these events occur.
GOVERNING LAW
The indenture and the debentures will be governed by and construed in
accordance with the laws of the State of Colorado.
INFORMATION CONCERNING THE INDENTURE TRUSTEE
The indenture trustee is subject to all the duties and responsibilities
specified with respect to an indenture trustee under the Trust Indenture Act.
Subject to these provisions, the indenture trustee is under no obligation to
exercise any of the powers vested in it by the indenture at the request of any
holder of debentures, unless offered reasonable indemnity by the holder against
the costs, expenses and liabilities which might be incurred. The indenture
trustee is not required to expend or risk its own funds or otherwise incur
personal financial liability in the performance of its duties if the indenture
trustee reasonably believes that repayment or adequate indemnity is not
reasonably assured to it.
MISCELLANEOUS
We have agreed, pursuant to the indenture, for so long as trust preferred
securities remain outstanding:
- to maintain directly or indirectly 100% ownership of the common
securities of the trust except that certain successors that are permitted
pursuant to the indenture may succeed to our ownership of the common
securities;
- not to voluntarily terminate, wind up or liquidate the trust without
prior approval of the Federal Reserve, if required;
- to use our reasonable efforts to cause the trust (a) to remain a business
trust (and to avoid involuntary termination, winding up or liquidation),
except in connection with a distribution of debentures, the redemption of
all of the trust securities of the trust or mergers, consolidations or
amalgamations, each as permitted by the trust agreement; and (b) to
otherwise continue not to be treated as an association taxable as a
corporation or partnership for federal income tax purposes; and
- to use our reasonable efforts to cause each holder of trust securities to
be treated as owning an individual beneficial interest in the debentures.
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BOOK-ENTRY ISSUANCE
GENERAL
DTC will act as securities depositary for the trust preferred securities
and may act as securities depositary for all of the debentures in the event of
the distribution of the debentures to the holders of trust preferred securities.
Except as described, the trust preferred securities will be issued only as
registered securities in the name of Cede & Co. (DTC's nominee). One or more
global trust preferred securities will be issued for the trust preferred
securities and will be deposited with DTC or held by a custodian for DTC.
DTC is a limited purpose trust company organized under New York banking
law, a "banking organization" within the meaning of the New York banking law, a
member of the Federal Reserve, a "clearing corporation" within the meaning of
the New York Uniform Commercial Code, and a "clearing agency" registered
pursuant to Section 17A of the Securities Exchange Act of 1934. DTC holds
securities that its participants deposit with DTC. DTC also facilitates the
settlement among participants of securities transactions, such as transfers and
pledges, in deposited securities through electronic computerized book-entry
changes in participants' accounts, thereby eliminating the need for physical
movement of securities certificates. Direct participants include securities
brokers and dealers, banks, trust companies, clearing corporations and certain
other organizations. DTC is owned by a number of its direct participants and by
the New York Stock Exchange, Inc., the American Stock Exchange, Inc. and the
National Association of Securities Dealers, Inc. Access to the DTC system is
also available to indirect participants, such as securities brokers and dealers,
banks and trust companies that clear through or maintain custodial relationships
with direct participants, either directly or indirectly. The rules applicable to
DTC and its participants are on file with the SEC.
Purchases of trust preferred securities within the DTC system must be made
by or through direct participants, which will receive a credit for the trust
preferred securities on DTC's records. The ownership interest of each actual
purchaser of each trust preferred security ("beneficial owner") is in turn to be
recorded on the direct and indirect participant's records. Beneficial owners
will not receive written confirmation from DTC of their purchases, but
beneficial owners are expected to receive written confirmations providing
details of the transactions, as well as periodic statements of their holdings,
from the direct or indirect participants through which the beneficial owners
purchased trust preferred securities. Transfers of ownership interests in the
trust preferred securities are to be accomplished by entries made on the books
of participants acting on behalf of beneficial owners. Beneficial owners will
not receive certificates representing their ownership interest in trust
preferred securities, except if use of the book-entry system for the trust
preferred securities is discontinued.
DTC will have no knowledge of the actual beneficial owners of the trust
preferred securities; DTC's records reflect only the identity of the direct
participants to whose accounts the trust preferred securities are credited,
which may or may not be the beneficial owners. The participants will remain
responsible for keeping account of their holdings on behalf of their customers.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that we believe to be accurate, but we and the
trust assume no responsibility for the accuracy thereof. Neither we nor the
trust have any responsibility for the performance by DTC or its participants of
their respective obligations as described in this prospectus or under the rules
and procedures governing their respective operations.
NOTICES AND VOTING
Conveyance of notices and other communications by DTC to direct
participants, by direct participants to indirect participants, and by direct and
indirect participants to beneficial owners will be governed by arrangements
among them, subject to any statutory or regulatory requirements as may be in
effect from time to time.
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Redemption notices will be sent to Cede & Co. as the registered holder of
the trust preferred securities. If less than all of the trust preferred
securities are being redeemed, the amount to be redeemed will be determined in
accordance with the trust agreement.
Although voting with respect to the trust preferred securities is limited
to the holders of record of the trust preferred securities, in those instances
in which a vote is required, neither DTC nor Cede & Co. will itself consent or
vote with respect to trust preferred securities. Under its usual procedures, DTC
would mail an omnibus proxy to the property trustee as soon as possible after
the record date. The omnibus proxy assigns Cede & Co.'s consenting or voting
rights to those direct participants to whose accounts the trust preferred
securities are credited on the record date.
DISTRIBUTION FUNDS
The property trustee will make distribution payments on the trust preferred
securities to DTC. DTC's practice is to credit direct participants' accounts on
the relevant payment date in accordance with their respective holdings shown on
DTC's records unless DTC has reason to believe that it will not receive payments
on the payment date. Payments by participants to beneficial owners will be
governed by standing instructions and customary practices and will be the
responsibility of the participant and not of DTC, the property trustee, the
trust or us, subject to any statutory or regulatory requirements as may be in
effect from time to time. Payment of distributions to DTC is the responsibility
of the property trustee, disbursement of the payments to direct participants is
the responsibility of DTC, and disbursements of the payments to the beneficial
owners is the responsibility of direct and indirect participants.
SUCCESSOR DEPOSITORIES AND TERMINATION OF BOOK-ENTRY SYSTEM
DTC may discontinue providing its services with respect to any of the trust
preferred securities at any time by giving reasonable notice to the property
trustee and us. If no successor securities depositary is obtained, definitive
trust preferred securities representing the trust preferred securities are
required to be printed and delivered. We also have the option to discontinue use
of the system of book-entry transfers through DTC (or a successor depositary).
After an event of default under the indenture, the holders of a majority in
liquidation amount of trust preferred securities may determine to discontinue
the system of book-entry transfers through DTC. In these events, definitive
certificates for the trust preferred securities will be printed and delivered.
DESCRIPTION OF THE GUARANTEE
The trust preferred securities guarantee agreement will be executed and
delivered by us concurrently with the issuance of the trust preferred securities
for the benefit of the holders of the trust preferred securities. The guarantee
agreement will be qualified as an indenture under the Trust Indenture Act.
Wilmington Trust, the trust preferred guarantee trustee, will act as trustee for
purposes of complying with the provisions of the Trust Indenture Act, and will
also hold the guarantee for the benefit of the holders of the trust preferred
securities. Prospective investors are urged to read the form of the trust
preferred securities guarantee agreement, which has been filed as an exhibit to
the Registration Statement of which this prospectus forms a part.
GENERAL
We agree to pay in full on a subordinated basis, to the extent described in
the trust preferred securities guarantee agreement, the guarantee payments (as
defined below) to the holders of the trust preferred securities, as and when
due, regardless of any defense or counterclaim that the trust may have or assert
other than the defense of payment.
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The following payments with respect to the trust preferred securities are
called the "guarantee payments" and, to the extent not paid or made by the trust
and to the extent that the trust has funds available for those distributions,
will be subject to the guarantee:
- any accumulated and unpaid distributions required to be paid on the trust
preferred securities;
- with respect to any trust preferred securities called for redemption, the
redemption price; and
- upon a voluntary or involuntary dissolution, winding up or liquidation of
the trust (other than in connection with the distribution of debentures
to the holders of trust preferred securities or a redemption of all of
the trust preferred securities), the lesser of:
(a) the amount of the liquidation distribution; or
(b) the amount of assets of the trust remaining available for
distribution to holders of trust preferred securities in liquidation of
the trust.
We may satisfy our obligations to make a guarantee payment by making a
direct payment of the required amounts to the holders of the trust preferred
securities or by causing the trust to pay the amounts to the holders.
The trust preferred securities guarantee agreement is a guarantee, on a
subordinated basis, of the guarantee payments, but the guarantee only applies to
the extent the trust has funds available for those distributions. If we do not
make interest payments on the debentures purchased by the trust, the trust will
not have funds available to make the distributions and will not pay
distributions on the trust preferred securities.
STATUS OF THE GUARANTEE
The guarantee constitutes our unsecured obligation that ranks junior in
right of payment to all of our senior and subordinated debt in the same manner
as the debentures. We expect to incur additional indebtedness in the future,
although we have no specific plans in this regard presently, and neither the
indenture nor the trust agreement limits the amounts of the obligations that we
may incur.
The guarantee constitutes a guarantee of payment and not of collection. If
we fail to make guarantee payments when required, holders of trust preferred
securities may institute a legal proceeding directly against us to enforce their
rights under the guarantee without first instituting a legal proceeding against
any other person or entity.
The guarantee will not be discharged except by payment of the guarantee
payments in full to the extent not paid by the trust or upon distribution of the
debentures to the holders of the trust preferred securities. Because we are a
holding company, our right to participate in any distribution of assets of any
subsidiary upon the subsidiary's liquidation or reorganization or otherwise is
subject to the prior claims of creditors of that subsidiary, except to the
extent we may be recognized as a creditor of that subsidiary. Our obligations
under the guarantee, therefore, will be effectively subordinated to all existing
and future liabilities of our subsidiaries, and claimants should look only to
our assets for payments under the guarantee.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes that do not materially adversely affect
the rights of holders of the trust preferred securities, in which case no vote
will be required, the guarantee may be amended only with the prior approval of
the holders of a majority of the aggregate liquidation amount of the outstanding
trust preferred securities. However, any amendments to the guarantee that affect
the rights of the trust preferred guarantee trustee must be approved by the
trust preferred guarantee trustee. See "Description of the Trust Preferred
Securities -- Voting Rights; Amendment of Trust Agreement."
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EVENTS OF DEFAULT; REMEDIES
An event of default under the trust preferred guarantee agreement will
occur upon our failure to make any required guarantee payments or to perform any
other obligations under the guarantee. The holders of a majority in aggregate
liquidation amount of the trust preferred securities have the right to direct
the time, method and place of conducting any proceeding for any remedy available
to the trust preferred guarantee trustee in respect of the guarantee and may
direct the exercise of any power conferred upon the trust preferred guarantee
trustee under the trust preferred securities guarantee agreement.
Any holder of trust preferred securities may initiate a legal proceeding
directly against us to enforce its rights under the guarantee without first
instituting a legal proceeding against the trust, the trust preferred guarantee
trustee or any other person or entity.
We are required to provide to the trust preferred guarantee trustee
annually a certificate as to whether or not we are in compliance with all of the
conditions and covenants applicable to us under the trust preferred securities
guarantee agreement.
TERMINATION OF THE GUARANTEE
The guarantee will terminate and be of no further force and effect upon:
- full payment of the redemption price of the trust preferred securities;
- full payment of the amounts payable upon liquidation of the trust; or
- distribution of the debentures to the holders of the trust preferred
securities.
If at any time any holder of the trust preferred securities must restore
payment of any sums paid under the trust preferred securities or the guarantee,
the guarantee will continue to be effective or will be reinstated with respect
to such amounts.
INFORMATION CONCERNING THE TRUST PREFERRED GUARANTEE TRUSTEE
The trust preferred guarantee trustee, other than during the occurrence and
continuance of our default in performance of the guarantee, undertakes to
perform only those duties as are specifically set forth in the guarantee. When
an event of default has occurred and is continuing, the trust preferred
guarantee trustee must exercise the same degree of care and skill as a prudent
person would exercise or use in the conduct of his or her own affairs. Subject
to those provisions, the trust preferred guarantee trustee is under no
obligation to exercise any of the powers vested in it by the guarantee at the
request of any holder of any trust preferred securities unless it is offered
reasonable indemnity against the costs, expenses and liabilities that might be
incurred thereby.
EXPENSE AGREEMENT
We will, pursuant to the Agreement as to Expenses and Liabilities entered
into by us and the trust under the trust agreement, irrevocably and
unconditionally guarantee to each person or entity to whom the trust becomes
indebted or liable, the full payment of any costs, expenses or liabilities of
the trust, other than obligations of the trust to pay to the holders of the
trust preferred securities or other similar interests in the trust of the
amounts due to the holders pursuant to the terms of the trust preferred
securities or other similar interests, as the case may be. Third party creditors
of the trust may proceed directly against us under the expense agreement,
regardless of whether they had notice of the expense agreement.
GOVERNING LAW
The guarantee will be governed by the laws of the State of Colorado.
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RELATIONSHIP AMONG THE TRUST PREFERRED SECURITIES,
THE DEBENTURES AND THE GUARANTEE
FULL AND UNCONDITIONAL GUARANTEE
We irrevocably guarantee, as and to the extent described in this
prospectus, payments of distributions and other amounts due on the trust
preferred securities, to the extent the trust has funds available for the
payment of these amounts. We and the trust believe that, taken together, our
obligations under the debentures, the indenture, the trust agreement, the
expense agreement and the guarantee agreement provide, in the aggregate, a full,
irrevocable and unconditional guarantee, on a subordinated basis, of payment of
distributions and other amounts due on the trust preferred securities. No single
document standing alone or operating in conjunction with fewer than all of the
other documents constitutes a guarantee. It is only the combined operation of
these documents that has the effect of providing a full, irrevocable and
unconditional guarantee of the obligations of the trust under the trust
preferred securities.
If and to the extent that we do not make payments on the debentures, the
trust will not pay distributions or other amounts due on the trust preferred
securities. The guarantee does not cover payment of distributions when the trust
does not have sufficient funds to pay the distributions. In this event, the
remedy of a holder of trust preferred securities is to institute a legal
proceeding directly against us for enforcement of payment of the distributions
to the holder. Our obligations under the guarantee are subordinate and junior in
right of payment to all of our other indebtedness.
SUFFICIENCY OF PAYMENTS
As long as payments of interest and other payments are made when due on the
debentures, these payments will be sufficient to cover distributions and other
payments due on the trust preferred securities, primarily because:
- the aggregate principal amount of the debentures will be equal to the sum
of the aggregate stated liquidation amount of the trust securities;
- the interest rate and interest and other payment dates on the debentures
will match the distribution rate and distribution and other payment dates
for the trust preferred securities;
- we will pay for any and all costs, expenses and liabilities of the trust,
except the obligations of the trust to pay to holders of the trust
preferred securities the amounts due to the holders pursuant to the terms
of the trust preferred securities; and
- the trust will not engage in any activity that is not consistent with the
limited purposes of the trust.
ENFORCEMENT RIGHTS OF HOLDERS OF TRUST PREFERRED SECURITIES
A holder of any trust preferred security may institute a legal proceeding
directly against us to enforce its rights under the guarantee without first
instituting a legal proceeding against the guarantee trustee, the trust or any
other person. A default or event of default under any of our senior or
subordinated debt would not constitute a default or event of default under the
trust agreement. In the event, however, of payment defaults under, or
acceleration of, our senior or subordinated debt, the subordination provisions
of the indenture provide that no payments may be made in respect of the
debentures until the obligations have been paid in full or any payment default
has been cured or waived. Failure to make required payments on the debentures
would constitute an event of default under the trust agreement.
LIMITED PURPOSE OF THE TRUST
The trust preferred securities evidence preferred undivided beneficial
interests in the assets of the trust. The trust exists for the exclusive
purposes of issuing the trust securities, investing the proceeds thereof in
debentures and engaging in only those other activities necessary, advisable or
incidental thereto. A principal difference between the rights of a holder of a
trust preferred security and the rights of a holder of a debenture
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is that a holder of a debenture is entitled to receive from us the principal
amount of and interest accrued on debentures held, while a holder of trust
preferred securities is entitled to receive distributions from the trust (or
from us under the guarantee) if and to the extent the trust has funds available
for the payment of the distributions.
RIGHTS UPON TERMINATION
Upon any voluntary or involuntary termination, winding-up or liquidation of
the trust involving the liquidation of the debentures, the holders of the trust
preferred securities will be entitled to receive, out of assets held by the
trust, the liquidation distribution in cash. See "Description of the Trust
Preferred Securities -- Liquidation Distribution Upon Termination."
Upon our voluntary or involuntary liquidation or bankruptcy, the property
trustee, as holder of the debentures, would be a subordinated creditor of ours.
Therefore, the property trustee would be subordinated in right of payment to all
of our senior and subordinated debt, but is entitled to receive payment in full
of principal and interest before any of our stockholders receive payments or
distributions. Since we are the guarantor under the guarantee and have agreed to
pay for all costs, expenses and liabilities of the trust other than the
obligations of the trust to pay to holders of the trust preferred securities the
amounts due to the holders pursuant to the terms of the trust preferred
securities, the positions of a holder of the trust preferred securities and a
holder of the debentures relative to our other creditors and to our stockholders
in the event of liquidation or bankruptcy are expected to be substantially the
same.
FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following summary of the material federal income tax considerations
that may be relevant to the purchasers of trust preferred securities represents
the opinion of Rothgerber, Johnson & Lyons LLP, counsel to us and the trust
insofar as it relates to matters of law and legal conclusions. The conclusions
expressed herein are based upon current provisions of the Internal Revenue Code
of 1986, regulations thereunder and current administrative rulings and court
decisions, all of which are subject to change at any time, with possible
retroactive effect. Subsequent changes may cause tax consequences to vary
substantially from the consequences described below. Furthermore, the
authorities on which the following summary is based are subject to various
interpretations, and it is therefore possible that the federal income tax
treatment of the purchase, ownership and disposition of trust preferred
securities may differ from the treatment described below. In rendering its
opinion, Rothgerber, Johnson & Lyons LLP has not sought a ruling from the
Internal Revenue Service as to any tax consequences, and its opinion is not
binding on the Internal Revenue Service.
No attempt has been made in the following discussion to comment on all
federal income tax matters affecting purchasers of trust preferred securities.
Moreover, the discussion generally focuses on holders of trust preferred
securities who are individual citizens or residents of the United States and who
acquire trust preferred securities on their original issue at their offering
price and hold trust preferred securities as capital assets. The discussion has
only limited application to dealers in securities, corporations, estates, trusts
or nonresident aliens and does not address all the tax consequences that may be
relevant to holders who may be subject to special tax treatment, such as, for
example, banks, thrifts, real estate investment trusts, regulated investment
companies, insurance companies, dealers in securities or currencies, tax-exempt
investors or persons that will hold the trust preferred securities as a position
in a "straddle," as part of a "synthetic security" or "hedge," as part of a
"conversion transaction" or other integrated investment, or as other than a
capital asset. The following summary also does not address the tax consequences
to persons that have a functional currency other than the U.S. dollar or the tax
consequences to stockholders, partners or beneficiaries of a holder of trust
preferred securities. Further, it does not include any description of any
alternative minimum tax consequences or the tax laws of any state or local
government or of any foreign government that may be applicable to the trust
preferred securities. Accordingly, each prospective investor
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should consult, and should rely exclusively on, the investor's own tax advisors
in analyzing the federal, state, local and foreign tax consequences of the
purchase, ownership or disposition of trust preferred securities.
CLASSIFICATION OF THE DEBENTURES
In accordance with the opinion of Rothgerber, Johnson & Lyons, LLP, we
intend to take the position that the debentures will be classified for federal
income tax purposes as our indebtedness under current law, and, by acceptance of
a trust preferred security, each holder covenants to treat the debentures as
indebtedness and the trust preferred securities as evidence of an indirect
beneficial ownership interest in the debentures. No assurance can be given,
however, that this position will not be challenged by the Internal Revenue
Service or, if challenged, that it will not be successful. The remainder of this
discussion assumes that the debentures will be classified for federal income tax
purposes as our indebtedness.
CLASSIFICATION OF THE TRUST
With respect to the trust preferred securities, Rothgerber, Johnson &
Lyons, LLP has rendered its opinion generally to the effect that, assuming full
compliance with the terms of the trust agreement and indenture, the trust will
be classified for federal income tax purposes as a grantor trust and not as an
association taxable as a corporation. Accordingly, for federal income tax
purposes, each holder of trust preferred securities generally will be treated as
owning an undivided beneficial interest in the debentures, and each holder will
be required to include in its gross income any interest with respect to the
debentures at the time such interest is accrued or is received, in accordance
with the holder's method of accounting. If the debentures were determined to be
subject to the original issue discount ("OID") rules, each holder would instead
be required to include in its gross income any OID accrued with respect to its
allocable share of the debentures whether or not cash were actually distributed
to the holder.
INTEREST PAYMENT PERIOD AND ORIGINAL ISSUE DISCOUNT
United States persons (including cash basis taxpayers) that hold debt
instruments issued with OID must generally include such OID in income as it
accrues on a constant yield method even if there is not a corresponding receipt
of cash attributable to such income. Debt instruments such as the debentures
will generally be treated as issued with OID if the stated interest on the
instrument does not constitute "qualified stated interest." Qualified stated
interest is generally any one of a series of stated interest payments on an
instrument that are unconditionally payable at least annually at a single fixed
rate. In determining whether stated interest on an instrument is unconditionally
payable and thus constitutes qualified stated interest, remote contingencies as
to the timely payment of stated interest are ignored. In the case of the
debentures, we have concluded that the likelihood of exercising our option to
defer payments of interest is remote.
If the option to defer any payment of interest was determined not to be
"remote" or if we actually exercise our option to defer the payment of interest,
the debentures would be treated as issued with OID at the time of issuance or at
the time of such exercise, as the case may be, and all stated interest would
thereafter be treated as OID as long as the debentures remained outstanding. In
such event, all of a United States person's taxable interest income in respect
of the debentures would constitute OID that would have to be included in income
on a constant yield method before the receipt of the cash attributable to such
income, regardless of such person's method of tax accounting, and actual
distributions of stated interest would not be reported as taxable income.
Consequently, a holder of trust preferred securities would be required to
include such OID in gross income even though we would not make any actual cash
payments during an extension period.
Because income on the trust preferred securities will constitute interest,
corporate holders of trust preferred securities will not be entitled to a
dividends-received deduction with respect to any income recognized with respect
to the trust preferred securities.
76
<PAGE> 81
MARKET DISCOUNT AND ACQUISITION PREMIUM
Holders of trust preferred securities other than holders who purchased the
trust preferred securities upon original issuance may be considered to have
acquired their undivided interests in the debentures with "market discount" or
"acquisition premium" as these phrases are defined for federal income tax
purposes. Such holders are advised to consult their tax advisors as to the
income tax consequences of the acquisition, ownership and disposition of the
trust preferred securities.
RECEIPT OF DEBENTURES OR CASH UPON LIQUIDATION OF THE TRUST
Under the circumstances described under "Description of the Trust Preferred
Securities -- Redemption or Exchange" and "Liquidation Distribution Upon
Termination," the debentures may be distributed to holders of trust preferred
securities upon a liquidation of the trust. Under current federal income tax
law, such a distribution would be treated as a nontaxable event to the holder
and would result in the holder having an aggregate tax basis in the debentures
received in the liquidation equal to the holder's aggregate tax basis in the
trust preferred securities immediately before the distribution. A holder's
holding period in debentures received in liquidation of the trust would include
the period for which the holder held the trust preferred securities.
If, however, a Tax Event occurs which results in the trust being treated as
an association taxable as a corporation, the distribution would likely
constitute a taxable event to holders of the trust preferred securities. Under
certain circumstances described herein, the debentures may be redeemed for cash
and the proceeds of the redemption distributed to holders in redemption of their
trust preferred securities. Under current law, such a redemption should, to the
extent that it constitutes a complete redemption, constitute a taxable
disposition of the redeemed trust preferred securities, and a holder for federal
income tax purposes, should recognize gain or loss as if the holder sold the
trust preferred securities for cash.
DISPOSITION OF TRUST PREFERRED SECURITIES
A holder that sells trust preferred securities will recognize gain or loss
equal to the difference between the amount realized on the sale of the trust
preferred securities and the holder's adjusted tax basis in the trust preferred
securities. A holder's adjusted tax basis in the trust preferred securities
generally will be its initial purchase price increased by OID previously
includable in the holder's gross income to the date of disposition and decreased
by payments received on the trust preferred securities to the date of
disposition. A gain or loss of this kind will generally be a capital gain or
loss and will be a long-term capital gain or loss if the trust preferred
securities have been held for more than one year at the time of sale.
The trust preferred securities may trade at a price that does not
accurately reflect the value of accrued but unpaid interest with respect to the
underlying debentures. A holder that disposes of its trust preferred securities
between record dates for payments of distributions thereon will be required to
include accrued but unpaid interest on the debentures through the date of
disposition in income as ordinary income, and to add the amount to its adjusted
tax basis in its proportionate share of the underlying debentures deemed
disposed of. To the extent the selling price is less than the holder's adjusted
tax basis a holder will recognize a capital loss. The adjusted basis would
include, in the form of OID, all accrued but unpaid interest. Subject to certain
limited exceptions, capital losses cannot be applied to offset ordinary income
for federal income tax purposes.
EFFECT OF POSSIBLE CHANGES IN TAX LAWS
Congress and the Clinton Administration have considered certain proposed
tax law changes in the past that would, among other things, generally deny
corporate issuers a deduction for interest in respect of certain debt
obligations if the debt obligations have a maximum term in excess of 15 years
and are not shown as indebtedness on the issuer's applicable consolidated
balance sheet. Other proposed tax law changes would have denied interest
deductions if the term was in excess of 20 years. Although these proposed tax
law changes have not been enacted into law, there can be no assurance that tax
law changes will not be reintroduced into future legislation which, if enacted
after the date hereof, may adversely affect the federal income tax deductibility
of interest payable on the debentures. Accordingly, there can be no assurance
that a
77
<PAGE> 82
Tax Event will not occur. A Tax Event would permit us, upon approval of the
Federal Reserve if then required, to cause a redemption of the trust preferred
securities before, as well as after, November 17, 2004. See "Description of the
Debentures -- Redemption or Exchange" and "Description of the Trust Preferred
Securities -- Redemption or Exchange -- Redemption upon a Tax Event, Investment
Company Event or Capital Treatment Event."
BACKUP WITHHOLDING AND INFORMATION REPORTING
The amount of qualified stated interest, or, if applicable, OID, accrued on
the trust preferred securities held of record by individual citizens or
residents of the United States, or certain trusts, estates and partnerships,
will be reported to the Internal Revenue Service on Forms 1099-INT, or, where
applicable, forms 1099-OID, which forms should be mailed to the holders by
January 31 following each calendar year. Payments made on, and proceeds from the
sale of, the trust preferred securities may be subject to a "backup" withholding
tax (currently at 31%) unless the holder complies with certain identification
and other requirements. Any amounts withheld under the backup withholding rules
will be allowed as a credit against the holder's federal income tax liability,
provided the required information is provided to the Internal Revenue Service.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON THE PARTICULAR
SITUATION OF A HOLDER OF TRUST PREFERRED SECURITIES. HOLDERS OF TRUST PREFERRED
SECURITIES SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE TRUST
PREFERRED SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN
AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX
LAWS.
ERISA CONSIDERATIONS
Employee benefit plans that are subject to the Employee Retirement Income
Security Act of 1974, or Section 4975 of the Internal Revenue Code, generally
may purchase trust preferred securities, subject to the investing fiduciary's
determination that the investment in trust preferred securities satisfies
ERISA's fiduciary standards and other requirements applicable to investments by
the plan.
In any case, we and/or any of our affiliates may be considered a "party in
interest" (within the meaning of ERISA) or a "disqualified person" (within the
meaning of Section 4975 of the Internal Revenue Code) with respect to certain
plans. These plans generally include plans maintained or sponsored by, or
contributed to by, any such persons with respect to which we or any of our
affiliates are a fiduciary or plans for which we or any of our affiliates
provide services. The acquisition and ownership of trust preferred securities by
a plan (or by an individual retirement arrangement or other plans described in
Section 4975(e)(1) of the Internal Revenue Code) with respect to which we or any
of our affiliates are considered a party in interest or a disqualified person
may constitute or result in a prohibited transaction under ERISA or Section 4975
of the Internal Revenue Code, unless the trust preferred securities are acquired
pursuant to and in accordance with an applicable exemption.
As a result, plans with respect to which we or any of our affiliates or any
of its affiliates is a party in interest or a disqualified person should not
acquire trust preferred securities unless the trust preferred securities are
acquired pursuant to and in accordance with an applicable exemption. Any other
plans or other entities whose assets include plan assets subject to ERISA or
Section 4975 of the Internal Revenue Code proposing to acquire trust preferred
securities should consult with their own counsel.
78
<PAGE> 83
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement among us,
the trust and the underwriters listed in the table below for whom Hoefer &
Arnett, Incorporated is acting as representative, the underwriters have
severally agreed to purchase from the trust an aggregate of 600,000 trust
preferred securities in the amounts set forth opposite their respective names.
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF TRUST PREFERRED SECURITIES
------------ ------------------------------------
<S> <C>
Hoefer & Arnett, Incorporated...............................
Total............................................. 600,000
</TABLE>
The underwriting agreement requires the underwriters to accept and pay for
all of the trust preferred securities, if any are taken. In addition, the
underwriting agreement sets forth customary conditions that we and the trust
must satisfy before the underwriters are obligated to purchase the trust
preferred securities. These conditions include the accuracy of specific
representations and warranties and the receipt of opinions of counsel and
reports from accountants as to our status and the status of the trust and the
trust preferred securities.
The table below shows the price and proceeds on a per security and
aggregate basis:
<TABLE>
<CAPTION>
PER TRUST
PREFERRED
SECURITY TOTAL
--------- -----------
<S> <C> <C>
Public offering price....................................... $25.00 $15,000,000
Underwriting fees to be paid by Front Range Capital
Corporation............................................... 0.875 $ 525,000
Proceeds to the trust....................................... $25.00 $15,000,000
</TABLE>
The proceeds we will receive as shown in the table above do not reflect
estimated expenses of $
payable by us.
All of the proceeds to the trust will be used to purchase the debentures
from us. We have agreed to pay the underwriters 3.5% of the public offering
price per trust preferred security for an aggregate of $525,000, for arranging
the sale of the trust preferred securities and the subsequent investment in the
debentures.
The underwriters propose to offer the trust preferred securities in part
directly to the public at the initial public offering price set forth above, and
in part to securities dealers at this price less a concession not in excess of
$ per trust preferred security. The underwriters may allow, and the dealers
may reallow, a concession not in excess of $ per trust preferred security to
brokers and dealers. After the trust preferred securities are released for sale
to the public, the offering price and other selling terms may from time to time
be varied by the underwriters.
We and the trust have agreed to indemnify the underwriters against several
liabilities, including liabilities under the Securities Act of 1933. Generally,
the indemnification provisions in the underwriting agreement provide for full
indemnification of the underwriters in actions related to the disclosure in this
prospectus unless such disclosure was provided by the underwriters specifically
for use in this prospectus.
In connection with the offering, the underwriters may purchase and sell the
trust preferred securities in the open market. These transactions may include
stabilizing transactions and purchases to cover syndicate short positions
created in connection with the offering. Stabilizing transactions consist of
bids or purchases for the purpose of preventing or retarding a decline in the
market price of the trust preferred securities; and syndicate short positions
involve the sale by the underwriters of a greater number of securities than they
are required to purchase from us in the offering. The underwriters also may
impose a penalty bid, whereby selling concessions allowed to syndicate members
or other broker-dealers in respect of the securities sold in the offering for
their own account may be reclaimed by the syndicate if the trust preferred
securities are repurchased by the syndicate in stabilizing or covering
transactions. These activities may stabilize, maintain or
79
<PAGE> 84
otherwise affect the market price of the trust preferred securities, which may
be higher than the price that might otherwise prevail in the open market. These
activities, if commenced, may be discontinued at any time. These transactions
may be effected in the over-the-counter market or otherwise.
The underwriters have advised the trust that they do not intend to confirm
any sales of trust preferred securities to any discretionary accounts. In
connection with the offer and sale of the trust preferred securities, the
underwriters will comply with Rule 2810 under the NASD Conduct Rules.
LEGAL MATTERS
Certain legal matters, including matters relating to federal income tax
considerations, for us and the trust will be passed upon by Rothgerber Johnson &
Lyons LLP, counsel to us and the trust. Certain legal matters will be passed
upon for the underwriters by Bracewell & Patterson, L.L.P., Houston, Texas.
Certain matters of Delaware law relating to the validity of the trust preferred
securities will be passed upon on behalf of us and the trust by Morris, James,
Hitchens & Williams, LLP, special Delaware counsel to the trust and us.
EXPERTS
The consolidated financial statements of the company as of December 31,
1999 and for each of the two years in the period ended December 31, 1999,
included in this prospectus, have been audited by Fortner, Bayens, Levkulich and
Co., P.C., independent auditors, as stated in their report appearing herein, and
are included in reliance upon such report given upon their authority as experts
in accounting and auditing. No expert or counsel is receiving any interest in
our stock or other securities in connection with this offering.
We have not had any significant disagreement or difference of opinion with
our independent accountants in the past two years, and such independent
accountants have not resigned, declined to stand for re-election or been
dismissed.
WHERE YOU CAN FIND INFORMATION
This prospectus is a part of a Registration Statement on Form SB-2 filed by
us and the trust with the Securities and Exchange Commission under the
Securities Act, with respect to the trust preferred securities, the debentures
and the guarantee. This prospectus does not contain all the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the SEC. For further information
with respect to us and the securities offered by this prospectus, reference is
made to the Registration Statement, including the exhibits to the Registration
Statement. Statements contained in this prospectus concerning the provisions of
such documents are necessarily summaries of such documents and each such
statement is qualified in its entirety by reference to the copy of the
applicable document filed with the SEC.
As a result of this offering, we will be required to file periodic reports,
proxy statements and other information with the SEC. Our filings will be
available to the public over the Internet at the SEC's web site. The address of
that site is http://www.sec.gov. You may also inspect and copy these materials
at the public reference facilities of the SEC at 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549, as well as at 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661, and 75 Park Place, Room 1400, New York, New York 10007.
Copies of such material can be obtained at prescribed rates from the Public
Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549.
Please call the SEC at 1-800-SEC-0330 for further information.
The trust is not currently subject to the information reporting
requirements of the Securities Exchange Act of 1934 and although the trust will
become subject to such requirements upon the effectiveness of the Registration
Statement, it is not expected that the trust will be required to file separate
reports under the Securities Exchange Act of 1934.
We have not included separate financial statements of the trust in this
prospectus. We do not consider that separate financial statements would be
material to holders of trust preferred securities because we will own all of the
trust's voting securities, the trust has no independent operations and we
guarantee the payments on the trust preferred securities to the extent described
in this prospectus.
80
<PAGE> 85
FRONT RANGE CAPITAL CORPORATION AND SUBSIDIARY
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report on the Consolidated Financial
Statements................................................ F-2
Consolidated Balance Sheets as of March 31, 2000 (Unaudited)
and December 31, 1999..................................... F-3
Consolidated Statements of Income for the Three Months Ended
March 31, 2000 and 1999 (Unaudited) and the Years Ended
December 31, 1999 and 1998................................ F-4
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1999 and 1998 and the Three
Months Ended March 31, 2000 (Unaudited)................... F-5
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 2000 and 1999 (Unaudited) and the Years
Ended December 31, 1999 and 1998.......................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 86
INDEPENDENT AUDITORS' REPORT
Board of Directors
Front Range Capital Corporation and Subsidiary
Louisville, Colorado
We have audited the accompanying consolidated balance sheet of Front Range
Capital Corporation and Subsidiary as of December 31, 1999 and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the two years in the period ended December 31, 1999. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Front Range
Capital Corporation and Subsidiary at December 31, 1999 and the consolidated
results of their operations and consolidated cash flows for each of the two
years in the period ended December 31, 1999, in conformity with generally
accepted accounting principles.
Denver, Colorado
February 15, 2000
F-2
<PAGE> 87
FRONT RANGE CAPITAL CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and due from banks..................................... $ 9,263 $ 7,782
Interest-bearing deposits in banks.......................... 127 99
-------- --------
Cash and cash equivalents................................. 9,390 7,881
Securities available for sale............................... 25,451 22,193
Federal Home Loan Bank stock, at cost....................... 1,186 724
Loans, net of unearned income............................... 138,724 130,708
Less allowance for loan losses.............................. (1,484) (1,411)
-------- --------
Net loans................................................. 137,240 129,297
Premises and equipment, net................................. 7,740 7,092
Accrued interest receivable................................. 1,014 871
Deferred income taxes....................................... 589 1,001
Other assets................................................ 3,998 3,631
-------- --------
$186,608 $172,690
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing.................................... $ 27,487 $ 26,566
Interest-bearing....................................... 122,153 115,360
-------- --------
Total deposits.................................... 149,640 141,926
Federal funds purchased................................... 5,775 9,200
Other short-term funds borrowed........................... 10,000 --
Income taxes payable...................................... 215 135
Long-term debt............................................ 11,922 12,627
Accrued interest payable.................................. 299 396
Other liabilities......................................... 948 944
-------- --------
Total liabilities................................. 178,799 165,228
Commitments and contingencies (notes H, J and K)
Stockholders' equity
Preferred stock, authorized 100,000,000 shares of $.001
par value; issued 10,500 shares........................ -- --
Common stock, authorized 200,000,000 shares of $.001 par
value; 1,327,744 shares issued and outstanding......... 1 1
Capital surplus........................................... 4,616 4,616
Retained earnings......................................... 3,859 3,537
Accumulated other comprehensive loss...................... (667) (692)
-------- --------
7,809 7,462
-------- --------
$186,608 $172,690
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 88
FRONT RANGE CAPITAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEARS ENDED
MARCH 31, DECEMBER 31,
------------------- ----------------
2000 1999 1999 1998
-------- -------- ------- ------
(UNAUDITED)
<S> <C> <C> <C> <C>
Interest
Interest and fees on loans.............................. $3,588 $2,559 $11,856 $8,226
Interest on investment securities
Taxable.............................................. 264 230 962 951
Exempt from federal income tax....................... 99 97 401 213
Other interest income................................... -- 3 9 122
------ ------ ------- ------
Total interest income........................... 3,951 2,889 13,228 9,512
Interest expense
Interest on deposits.................................... 1,236 921 4,224 3,544
Federal funds purchased................................. 125 39 207 37
Other short-term funds borrowed......................... 77 -- -- --
Long-term debt.......................................... 203 145 657 202
------ ------ ------- ------
Total interest expense.......................... 1,641 1,105 5,088 3,783
------ ------ ------- ------
Net interest income....................................... 2,310 1,784 8,140 5,729
Provision for loan losses................................. 72 121 402 421
------ ------ ------- ------
Net interest income after provision for loan losses....... 2,238 1,663 7,738 5,308
Noninterest income
Service charges on deposit accounts..................... 199 162 732 570
Gain (loss) on sale of investment securities............ -- (1) 7 8
Other................................................... 71 46 230 233
------ ------ ------- ------
Total noninterest income........................ 270 207 969 811
Noninterest expense
Salaries and benefits................................... 1,113 861 3,663 2,647
Occupancy expense....................................... 173 118 519 500
Furniture and equipment................................. 145 116 497 366
Data processing......................................... 110 87 389 288
Other................................................... 503 422 1,704 1,649
------ ------ ------- ------
Total noninterest expense....................... 2,044 1,604 6,772 5,450
------ ------ ------- ------
Income before income taxes................................ 464 266 1,935 669
Income tax expense........................................ 142 77 573 155
------ ------ ------- ------
NET INCOME................................................ $ 322 $ 189 $ 1,362 $ 514
====== ====== ======= ======
EARNINGS PER SHARE
Basic................................................... $ 0.24 $ 0.14 $ 1.03 $ 0.42
====== ====== ======= ======
Diluted................................................. $ 0.24 $ 0.14 $ 1.02 $ 0.42
====== ====== ======= ======
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 89
FRONT RANGE CAPITAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999 AND 1998
AND THREE MONTHS ENDED MARCH 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
PREFERRED COMMON CAPITAL RETAINED COMPREHENSIVE
STOCK STOCK SURPLUS EARNINGS INCOME (LOSS) TOTAL
--------- ------ ------- -------- ------------- ------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1998........ $ -- $ 1 $2,927 $1,661 $ 47 $4,636
Sale of common stock.............. -- -- 1,665 -- -- 1,665
Comprehensive income
Net income...................... -- -- -- 514 -- 514
Change in net unrealized gain
(loss) on securities
available for sale, net of
taxes........................ -- -- -- -- 47 47
------
Total comprehensive
income................ 561
------ ------ ------ ------ ----- ------
BALANCE AT DECEMBER 31, 1998...... -- 1 4,592 2,175 94 6,862
Sale of common stock.............. -- -- 24 -- -- 24
Comprehensive income
Net income...................... -- -- -- 1,362 -- 1,362
Change in net unrealized gain
(loss) on securities
available for sale, net of
taxes........................ -- -- -- -- (786) (786)
------
Total comprehensive
income................ 576
------ ------ ------ ------ ----- ------
BALANCE AT DECEMBER 31, 1999...... -- 1 4,616 3,537 (692) 7,462
Comprehensive income
Net income (unaudited).......... -- -- -- 322 -- 322
Change in net unrealized gain
(loss) on securities
available for sale, net of
taxes (unaudited)............ -- -- -- -- 25 25
------
Total comprehensive
income (unaudited).... 347
------ ------ ------ ------ ----- ------
BALANCE AT MARCH 31, 2000
(UNAUDITED)..................... $ -- $ 1 $4,616 $3,859 $(667) $7,809
====== ====== ====== ====== ===== ======
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 90
FRONT RANGE CAPITAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEARS ENDED
MARCH 31, DECEMBER 31,
------------------- -------------------
2000 1999 1999 1998
-------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.......................................... $ 322 $ 189 $ 1,362 $ 514
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization..................... 144 122 564 426
Net amortization of securities.................... 11 16 36 26
Stock dividends received.......................... (476) (70) (97) (21)
Provision for loan losses......................... 72 121 402 421
Deferred income taxes............................. 397 250 (130) (170)
(Gain) Loss on sales of securities, net........... -- 1 (7) (8)
Loss on sale of foreclosed assets................. -- -- -- 45
(Gain) loss on disposal of equipment.............. (6) -- -- 17
Changes in deferrals and accruals:
Accrued interest receivable.................... (143) (123) (127) (191)
Other assets................................... (367) (573) (1,621) (1,025)
Income taxes payable........................... 80 (128) 134 (132)
Accrued interest payable....................... (97) (12) 121 51
Other liabilities.............................. 4 464 207 166
-------- -------- -------- --------
NET CASH (USED IN) PROVIDED BY OPERATING
ACTIVITIES.............................. (59) 257 844 119
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the sale of securities available for
sale.............................................. -- 360 3,200 7,725
Proceeds from the maturities of securities available
for sale.......................................... 789 512 3,034 5,004
Purchase of securities available for sale........... (4,004) (2,414) (6,752) (23,769)
Increase in loans................................... (8,016) (10,037) (39,120) (32,804)
Purchase of premises and equipment, net............. (785) (163) (2,684) (1,057)
Proceeds from sale of foreclosed assets............. -- -- 243 --
-------- -------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES..... (12,016) (11,742) (42,079) (44,901)
CASH FLOWS FROM FINANCING ACTIVITIES
Net cash provided by (used in)
Deposits.......................................... 7,714 3,233 26,992 30,795
Federal funds purchased........................... (3,425) 3,500 9,200 --
Short-term borrowings............................. 10,000 -- -- --
Proceeds from long-term borrowings.................. 310 1,338 4,335 9,450
Payments on long-term borrowings.................... (1,015) -- (645) (1,550)
Sales of common stock............................... -- -- 24 1,665
-------- -------- -------- --------
NET CASH PROVIDED BY FINANCING
ACTIVITIES.............................. 13,584 8,071 39,906 40,360
-------- -------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS....................................... 1,509 (3,414) (1,329) (4,422)
CASH AND CASH EQUIVALENTS -- BEGINNING OF PERIOD.... 7,881 9,210 9,210 13,632
-------- -------- -------- --------
CASH AND CASH EQUIVALENTS -- END OF PERIOD.......... $ 9,390 $ 5,796 $ 7,881 $ 9,210
======== ======== ======== ========
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest....................................... $ 1,738 $ 1,117 $ 4,968 $ 3,732
Income taxes................................... 90 -- 600 456
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 91
FRONT RANGE CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 2000 IS UNAUDITED)
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Front Range Capital Corporation (the "Company") was incorporated for the
purpose of owning shares of and acting as parent holding company for Heritage
Bank (the "Bank"). The Bank provides a full range of banking and mortgage
services to individual and corporate customers principally in the Denver-Boulder
metropolitan area. A majority of the Bank's loans are related to real estate and
commercial activities. Borrowers' abilities to honor their loans are dependent
upon the continued economic viability of the area. The Bank is subject to
competition from other financial institutions for loans and deposit accounts.
The Company and the Bank are also subject to regulation by certain governmental
agencies and undergo periodic examinations by those regulatory agencies.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiary. All significant intercompany balances and transactions have
been eliminated in consolidation.
Basis of Financial Statement Presentation
The financial statements have been prepared in conformity with generally
accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the date of the balance sheet
and revenues and expenses for the period. Actual results could differ
significantly from those estimates.
Material estimates that are particularly susceptible to significant change
in the near-term relate to the determination of the allowance for loan losses.
In connection with the determination of the allowance for loan losses,
management obtains independent appraisals for significant properties and
assesses estimated future cash flows from borrowers' operations and the
liquidation of loan collateral.
Management believes that the allowance for loan losses is adequate. While
management uses available information to recognize losses on loans and
foreclosed assets, changes in economic conditions may necessitate revisions in
future years. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Company's allowance for loan
losses and valuation of foreclosed real estate. Such agencies may require the
Company to recognize additional losses based on their judgments about
information available to them at the time of their examination.
Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows, cash and cash
equivalents include cash and balances due from banks and federal funds sold, all
of which mature within ninety days.
Investment Securities
Debt securities that management has the positive intent and ability to hold
to maturity are classified as "held to maturity" and recorded at amortized cost.
Securities not classified as held to maturity or trading, including equity
securities with readily determinable fair values, are classified as "available
for sale" and recorded at fair value, with unrealized gains and losses excluded
from earnings and reported in other comprehensive income. The Company has
designated all securities as available for sale.
Purchase premiums and discounts are recognized in interest income using the
interest method over the terms of the securities. Declines in fair value of held
to maturity and available for sale securities below their cost that are deemed
to be other than temporary are reflected in earnings as realized losses. Gains
and losses
F-7
<PAGE> 92
FRONT RANGE CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
on the sale of securities are recorded on the trade date and are determined
using the specific identification method.
Loans
Loans are reported net of unearned income. Interest income is accrued on
the unpaid principal balances as earned. Loan and commitment fees are deferred
and recognized over the life of the loan and/or commitment period as yield
adjustments.
The Company grants real estate, commercial and consumer loans to customers.
A substantial portion of the loan portfolio is represented by real estate and
commercial loans throughout the Denver-Boulder metropolitan area. The ability of
the Company's borrowers to honor their contracts is dependent upon the real
estate and general economic conditions in this area.
Loans that management has the intent and ability to hold for the
foreseeable future or until maturity or pay-off generally are reported at their
outstanding unpaid principal balances adjusted for charge-offs, the allowance
for loan losses, and any deferred fees or costs on originated loans. Interest
income is accrued on the unpaid principal balance. Loan origination fees, net of
certain direct origination costs, are deferred and recognized as an adjustment
of the related loan yield using the interest method.
The accrual of interest on loans is discontinued at the time the loan is 90
days delinquent unless the credit is well-secured and in process of collection.
In all cases, loans are placed on nonaccrual or charged-off at an earlier date
if collection of principal or interest is considered doubtful.
All interest accrued but not collected for loans that are placed on
nonaccrual or charged-off is reversed against interest income. The interest on
these loans is accounted for on the cash-basis method, until qualifying for
return to accrual. Loans are returned to accrual status when all the principal
and interest amounts contractually due are brought current and future payments
are reasonably assured.
The allowance for loan losses is established as losses are estimated to
have occurred through a provision for loan losses charged to earnings. Loan
losses are charged against the allowance when management believes the
uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any,
are credited to the allowance.
The allowance for loan losses is evaluated on a regular basis by management
and is based upon management's periodic review of the collectibility of the
loans in light of historical experience, the nature and volume of the loan
portfolio, adverse situations that may affect the borrower's ability to repay,
estimated value of any underlying collateral and prevailing economic conditions.
This evaluation is inherently subjective as it requires estimates that are
susceptible to significant revision as more information becomes available.
A loan is considered impaired when, based on current information and
events, it is probable that the Company will be unable to collect the scheduled
payments of principal or interest when due according to the contractual terms of
the loan agreement. Factors considered by management in determining impairment
include payment status, collateral value, and the probability of collecting
scheduled principal and interest payments when due. Loans that experience
insignificant payment delays and payment shortfalls generally are not classified
as impaired. Management determines the significance of payment delays and
payment shortfalls on a case-by-case basis, taking into consideration all of the
circumstances surrounding the loan and the borrower, including the length of the
delay, the reasons for the delay, the borrower's prior payment record, and the
amount of the shortfall in relation to the principal and interest owed.
Impairment is measured on a loan by loan basis for commercial loans by either
the present value of expected future cash flows discounted at the loan's
effective interest rate, the loan's obtainable market price, or the fair value
of the collateral if the loan is collateral dependent.
F-8
<PAGE> 93
FRONT RANGE CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Large groups of smaller balance homogenous loans are collectively evaluated
for impairment. Accordingly, the Company does not separately identify individual
consumer and residential loans for impairment disclosures.
Premises and Equipment
Company premises and equipment are stated at cost, less accumulated
depreciation. Depreciation is computed generally on the straight-line method
over the assets useful lives. Land is carried at cost.
Foreclosed Assets
Foreclosed assets, which are included in other assets, are assets acquired
through, or in lieu of, loan foreclosure and are held for sale. These assets are
initially recorded at the lower of cost basis or fair value at the date of
foreclosure. Subsequent to foreclosure, valuations are periodically performed by
management and the assets are carried at the lower of carrying amount or fair
value less cost to sell. Revenue and expenses from operations and changes in the
valuation allowance are included in net expenses from foreclosed assets.
Goodwill
Goodwill is amortized on a straight-line basis over twenty-five years.
Other assets include goodwill of $136,000 at December 31, 1999.
Income Taxes
Deferred income tax assets and liabilities are determined using the
liability (or balance sheet) method. Under this method, the net deferred tax
asset or liability is determined based on the tax effects of the temporary
differences between the book and tax bases of the various balance sheet assets
and liabilities and gives current recognition to changes in tax rates and laws.
Preferred Stock
Preferred stock consists of 5,000 shares of 1987 Series A 8% non-cumulative
convertible preferred stock of the Company ("1987 Preferred Stock") outstanding,
and 5,500 shares of 1988 Series A 8% non-cumulative convertible non-voting
preferred stock of the Company ("1988 Preferred Stock") outstanding. The Company
has no other classes of capital stock. Each share of the 1987 Preferred Stock
and each share of the 1988 Preferred Stock is convertible into one share of
common stock.
Comprehensive Income
The Company has adopted SFAS No. 130, Reporting Comprehensive Income.
Accounting principles generally require that recognized revenue, expenses, gains
and losses be included in net income. Although certain changes in assets and
liabilities, such as unrealized gains and losses on available-for-sale
securities, are reported as a separate component of the equity section of the
balance sheet, such items, along with net income, are components of
comprehensive income. The adoption of SFAS 130 had no effect on the Company's
net income or stockholders' equity.
The Company discloses comprehensive income in the Statement of
Stockholders' Equity.
Earnings per Share
The Company computes earnings per share in accordance with SFAS No. 128,
Earnings per Share. Basic earnings per share is based on the weighted average
number of common shares outstanding during each period. Diluted earnings per
share is computed by dividing net income by the weighted average number of
F-9
<PAGE> 94
FRONT RANGE CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
common shares outstanding during the period plus dilutive securities. Common
shares used in the determination of basic and diluted earnings per share follow:
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEARS ENDED
MARCH 31, DECEMBER 31,
--------------------- ---------------------
2000 1999 1999 1998
--------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Basic
Weighted average common shares
outstanding........................... 1,327,744 1,325,744 1,326,906 1,225,391
Effect of dilutive securities convertible
preferred stock....................... 10,500 10,500 10,500 10,500
--------- --------- --------- ---------
Diluted.................................... 1,338,244 1,336,244 1,337,406 1,235,891
========= ========= ========= =========
</TABLE>
Recently Issued Accounting Standards
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,
establishes accounting and reporting standards for derivative instruments and
requires that an entity recognize all derivatives as either assets or
liabilities in the balance sheet and measure those instruments at fair value.
This statement is effective for periods beginning after June 15, 2000.
Management believes the implementation of this pronouncement will not have a
material effect on the Company's financial statements.
Interim Financial Information (Unaudited)
The unaudited interim financial statements have been prepared in conformity
with generally accepted accounting principles and include all adjustments which
are, in the opinion of management, normal and recurring in nature and necessary
to a fair presentation of the interim periods presented. Results of operations
for the three months ended March 31, 2000 are not necessarily indicative of the
results to be expected for the full year.
NOTE B -- CASH AND DUE FROM BANKS
The Bank is required by the Federal Reserve Bank to maintain an average
reserve balance. "Cash and due from banks" in the consolidated balance sheet at
December 31, 1999 includes amounts so restricted of approximately $1,049,000.
NOTE C -- INVESTMENT SECURITIES
At December 31, 1999, the Company had securities with the following
amortized cost and estimated fair market values (in thousands):
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Securities available for sale
U.S. Treasury securities.................... $ 1,099 $-- $ (5) $ 1,094
U.S. government agency securities........... 6,679 11 (125) 6,565
Mortgage-backed securities.................. 4,928 -- (251) 4,677
State and municipal securities.............. 9,012 1 (664) 8,349
Corporate securities........................ 1,172 -- (41) 1,131
Equity securities........................... 407 -- (30) 377
------- --- ------- -------
Total............................. $23,297 $12 $(1,116) $22,193
======= === ======= =======
</TABLE>
F-10
<PAGE> 95
FRONT RANGE CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The amortized cost and estimated market value of debt securities at
December 31, 1999 by contractual maturity are shown below (in thousands).
Expected maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations without call or prepayment
penalties.
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED MARKET
COST VALUE
--------- ---------
<S> <C> <C>
Due in one year or less..................................... $ 1,016 $ 1,017
Due after one year through five years....................... 7,257 7,150
Due after five years through ten years...................... 2,938 2,805
Due after ten years......................................... 7,158 6,544
------- -------
18,369 17,516
Mortgage-backed securities.................................. 4,928 4,677
------- -------
$23,297 $22,193
======= =======
</TABLE>
Securities with carrying amount of approximately $9,447,000 at December 31,
1999 were pledged as collateral for public deposits and for other purposes as
required or permitted by law.
Available for sale securities were sold in 1999 for a gross gain $7,690.
Gross realized losses amounted to $1,144.
NOTE D -- LOANS AND ALLOWANCE FOR LOAN LOSSES
The components of the loan portfolio are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
----------- ------------
(UNAUDITED)
<S> <C> <C>
Real estate -- construction................................. $ 33,545 $ 29,684
Real estate -- commercial................................... 37,347 36,203
Real estate -- residential.................................. 37,460 35,804
Commercial.................................................. 25,278 24,110
Consumer.................................................... 5,833 5,525
-------- --------
139,463 131,326
Less unearned income........................................ (739) (618)
-------- --------
$138,724 $130,708
======== ========
</TABLE>
Transactions in the allowance for loan losses are as follows (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED
THREE MONTHS ENDED DECEMBER 31,
MARCH 31, ---------------
2000 1999 1998
------------------ ------ ------
(UNAUDITED)
<S> <C> <C> <C>
Balance at beginning of year...................... $1,411 $1,097 $ 754
Provision for loan losses......................... 72 402 421
Loans charged off................................. (3) (92) (85)
Recoveries........................................ 4 4 7
------ ------ ------
Balance at end of period.......................... $1,484 $1,411 $1,097
====== ====== ======
</TABLE>
F-11
<PAGE> 96
FRONT RANGE CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a summary of information pertaining to impaired loans (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------
1999 1998
----- -----
<S> <C> <C>
Total impaired loans........................................ $ 35 $393
Valuation allowance related to impaired loans............... 402 421
Average investment in impaired loans........................ 251 314
</TABLE>
Interest income on impaired loans was not significant.
NOTE E -- PREMISES AND EQUIPMENT
At December 31, 1999, premises and equipment, less accumulated depreciation
and amortization, consisted of the following (in thousands):
<TABLE>
<S> <C>
Land........................................................ $1,008
Buildings................................................... 3,577
Furniture and equipment..................................... 1,876
Construction in progress.................................... 2,191
------
8,652
Less accumulated depreciation and amortization.............. (1,560)
------
$7,092
======
</TABLE>
NOTE F -- TIME DEPOSITS
At December 31, 1999, the aggregate amount of time deposits of $100,000 or
more was $19,352,000. Interest expense on these deposits was $845,000 for the
year ended December 31, 1999.
At December 31, 1999, the scheduled maturities of time deposits (in
thousands) are as follows:
<TABLE>
<S> <C>
2000...................................................... $39,033
2001...................................................... 3,947
2002...................................................... --
2003...................................................... 20
-------
$43,000
=======
</TABLE>
NOTE G -- LONG-TERM DEBT
Long-term debt (debt with original maturities of more than one year) at
December 31, 1999 consisted of the following (in thousands):
<TABLE>
<S> <C>
FRONT RANGE CAPITAL CORPORATION
Note payable to bank...................................... $ 1,960
Loans from stockholders (unsecured)....................... 1,442
-------
3,402
HERITAGE BANK
Federal Home Loan Bank fixed-rate advances................ 9,225
-------
$12,627
=======
</TABLE>
F-12
<PAGE> 97
FRONT RANGE CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The note payable to bank is a secured note due October 5, 2000 and is
collateralized by the common stock of Heritage Bank. The available line of
credit on this note is $3,000,000 and the interest rate is adjustable to prime
which was 8.5% at December 31, 1999. The loans to stockholders are all unsecured
notes payable with interest adjustable to prime and various maturity dates.
The Federal Home Loan Bank fixed-rate advances are secured by investment
securities and loans. At December 31, 1999 the interest rates ranged from 5.27%
to 7.42%.
Maturities of long-term debt outstanding at December 31, 1999 were as
follows (in thousands):
<TABLE>
<CAPTION>
PARENT
CONSOLIDATED COMPANY
------------ -------
<S> <C> <C>
2000........................................................ $ 3,722 $2,392
2001........................................................ 1,039 710
2002........................................................ 1,329 --
2003........................................................ 1,829 300
2004........................................................ 329 --
Thereafter.................................................. 4,379 --
------- ------
Total............................................. $12,627 $3,402
======= ======
</TABLE>
NOTE H -- COMMITMENTS
At December 31, 1999, four of the Company's facilities were leased under
operating leases which expire at various dates through the year 2005.
The total future minimum rental commitments at December 31, 1999 are as
follows (in thousands):
<TABLE>
<S> <C>
2000....................................................... $ 370
2001....................................................... 385
2002....................................................... 377
2003....................................................... 377
2004....................................................... 284
Thereafter................................................. 19
------
$1,812
======
</TABLE>
Rental expense was $224,000 and $155,000 in 1999 and 1998, respectively,
and includes certain contingent rental amounts such as increases in property
taxes.
F-13
<PAGE> 98
FRONT RANGE CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE I -- INCOME TAXES
Following is an analysis of income taxes included in the statements of
income as of December 31 (in thousands):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Current
Federal................................................... $633 $310
State..................................................... 70 15
---- ----
703 325
Deferred
Federal................................................... (113) (147)
State..................................................... (17) (23)
---- ----
(130) (170)
---- ----
$573 $155
==== ====
</TABLE>
The reasons for the differences between the statutory federal income tax
rate and the effective tax rates are summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------
1999 1998
---- -----
<S> <C> <C>
Statutory federal tax rate.................................. 34.0% 34.0%
Increase (decrease) resulting from
State taxes, net of federal tax benefit................... 2.4 1.5
Tax exempt income......................................... (7.0) (10.5)
Other, net................................................ .2 (1.5)
---- -----
Effective tax rates......................................... 29.6% 23.5%
==== =====
</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
reporting and tax purposes.
Listed below are the components of the net deferred income taxes at
December 31, 1999 (in thousands):
<TABLE>
<S> <C>
Deferred tax assets
Allowance for loan losses................................ $ 447
Net unrealized loss on securities available-for-sale..... 412
Nonqualified employee retirement plan.................... 159
Depreciation............................................. 19
------
Total deferred tax assets........................ 1,037
Deferred tax liabilities
Federal Home Loan Bank stock dividends................... (36)
------
Total deferred tax liabilities................... (36)
------
Net deferred tax asset..................................... $1,001
======
</TABLE>
NOTE J -- FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Company is a party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and stand-by
letters of credit.
F-14
<PAGE> 99
FRONT RANGE CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Those instruments involve, to a varying degree, elements of credit risk in
excess of the amount recognized in the statement of financial position. The
contract amounts of those instruments reflect the extent of involvement the
Company has in particular classes of financial instruments. The Company uses the
same credit policies in making commitments and conditional obligations as it
does for on-balance sheet instruments.
The following financial instruments were outstanding whose contract amounts
represent credit risk (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
<S> <C> <C>
Commitments to extend credit................................ $41,905 $29,545
Stand-by letters of credit.................................. 1,746 1,829
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each customer's
credit-worthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Company upon extension of credit, is based on
management's credit evaluation. Collateral held varies, but may include accounts
receivable, inventory, property, plant and equipment and income-producing
commercial properties.
Stand-by letters of credit are conditional commitments issued by the
Company to guarantee the performance of a customer to a third party. The credit
risk involved in issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers.
NOTE K -- LEGAL CONTINGENCIES
Various legal claims also arise from time to time in the normal course of
business which, in the opinion of management, will have no material effect on
the Company's consolidated financial statements.
NOTE L -- REGULATORY MATTERS
The Company (on a consolidated basis) 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 and Bank's financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Company and Bank must meet specific capital
guidelines that involve quantitative measures of the Bank's assets, liabilities,
and certain off-balance sheet items as calculated under regulatory accounting
practices. The 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 1 capital (as defined in the
regulations) to risk weighted assets (as defined), and of Tier 1 capital (as
defined) to average assets (as defined).
As of December 31, 1999, the most recent notification from the Federal
Reserve categorized the Bank as adequately capitalized under the regulatory
framework for prompt corrective action. Accordingly, the Bank is not permitted
to accept brokered or high rate deposits, as defined, without prior regulatory
approval. Whereas
F-15
<PAGE> 100
FRONT RANGE CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the Bank has not relied on these funding sources in the past, this restriction
is not anticipated to have an impact on the Bank's operations.
At December 31, 1999, the Company's consolidated capital amounts and ratios
were less than those required for capital adequacy purposes. The Company is
considering various strategies for bringing the capital amounts and ratios into
compliance with regulatory guidelines, including, but not limited to, the
issuance of trust preferred securities.
To be categorized as well capitalized the Bank must maintain minimum total
risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the
table. Capital ratios as of December 31, 1999, are as follows:
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
--------------- ----------------- -----------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------- ----- -------- ------ -------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Total capital to risk weighted
assets
Consolidated................... $ 9,398 6.4% $11,764 2/38.0% N/A N/A
Bank........................... 12,756 8.7% 11,684 2/38.0% $14,605 10.0%
Tier 1 capital to risk weighted
assets
Consolidated................... 7,987 5.4% 5,882 2/34.0% N/A N/A
Bank........................... 11,345 7.8% 5,842 2/34.0% 8,763 6.0%
Tier 1 capital to average assets
Consolidated................... 7,987 4.9% 6,559 2/34.0% N/A N/A
Bank........................... 11,345 6.9% 6,564 2/34.0% 8,205 5.0%
</TABLE>
NOTE M -- EMPLOYEE BENEFIT PLAN
The Company has established a defined contribution pension plan covering
substantially all employees. The plan allows employees to make salary deferrals
and allows the Company to make discretionary matching and profit sharing
contributions. Salaries and benefits expense includes $46,000 and $34,000 for
this plan in 1999 and 1998, respectively.
The Company also has deferred compensation agreements with key employees.
Vesting is based upon age and years of service. Life insurance contracts have
been purchased which may be used to fund these agreements. The cash surrender
value of the life insurance contracts totals $3,106,000 at December 31, 1999 and
is included in other assets. The 1999 and 1998 expenses related to the life
insurance policies were $105,000 and $102,000, respectively.
NOTE N -- RELATED PARTY TRANSACTIONS
In the ordinary course of business, certain directors and executive
officers of the Company and the Bank were borrowers of the Bank. All loans were
made on substantially the same terms, including interest rates and collateral,
as those prevailing at the time for comparable loans with other persons and did
not involve more than the normal risk of collectibility. At December 31, 1999,
these loans receivable aggregated $1,037,000.
NOTE O -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The following summary presents the methodologies and assumptions used to
estimate the fair value of the Company's financial instruments. The Company
operates as a going concern and except for its investment portfolio, no active
market exists for its financial instruments. Much of the information used to
determine fair
F-16
<PAGE> 101
FRONT RANGE CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
value is highly subjective and judgmental in nature and, therefore, the results
may not be precise. The subjective factors include, among other things,
estimates of cash flows, risk characteristics, credit quality and interest
rates, all of which are subject to change. Since the fair value is estimated as
of the balance sheet date, the amounts which will actually be realized or paid
upon settlement or maturity of the various financial instruments could be
significantly different.
Cash and Cash Equivalents
For these short-term instruments, the carrying amount approximates fair
value.
Investments
For securities held as investments, fair value equals quoted market price,
if available. If a quoted market price is not available, fair value is estimated
using quoted market prices for similar securities. The carrying amount of
accrued interest receivable approximates its fair value.
Loans
The fair value of fixed rate loans 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. For
variable rate loans, the carrying amount is a reasonable estimate of fair value.
For loans where collection of principal is in doubt, an allowance for losses has
been estimated. Loans with similar characteristics were aggregated for purposes
of the calculations. The carrying amount of accrued interest approximates its
fair value.
Deposits
The fair value of demand deposits, savings accounts, NOW accounts, and
certain money market deposits is the amount payable on demand at the reporting
date (i.e. their carrying amount). The fair value of fixed maturity time
deposits is estimated using a discounted cash flow calculation that applies the
rates currently offered for deposits of similar remaining maturities. The
carrying amount of accrued interest payable approximates its fair value.
Commitments to Extend Credit, Standby Letters of Credit and Lines of Credit
The fair value of commitments is estimated using the fees currently charged
to enter into similar agreements, taking into account the remaining terms of the
agreements and the present credit worthiness of the counterparts. For fixed-rate
loan commitments, fair value also considers the difference between current
levels of interest rates and the committed rates. The fair value of letters of
credit and lines of credit is based on fees currently charged for similar
agreements or on the estimated cost to terminate them or otherwise settle the
obligations with the counterparts at the reporting date. There is no material
difference between the notional amount and the estimated fair value of loan
commitments and letters of credit. In addition, fees collected from these
arrangements are considered to be immaterial.
F-17
<PAGE> 102
FRONT RANGE CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table presents estimated fair values of the Company's
financial instruments as of December 31, 1999:
<TABLE>
<CAPTION>
CARRYING
AMOUNT FAIR VALUE
-------- ----------
(IN THOUSANDS)
<S> <C> <C>
Financial assets
Cash and due from banks................................... $ 7,782 $ 7,782
Interest bearing deposits................................. 99 99
Securities available for sale............................. 22,193 22,193
Federal Home Loan Bank stock.............................. 724 724
Loans, less allowance for loan losses..................... 129,297 127,926
Accrued interest receivable............................... 871 871
Financial liabilities
Deposits.................................................. 141,926 141,904
Federal funds purchased................................... 9,200 9,200
Long-term debt............................................ 12,627 12,627
Accrued interest payable.................................. 396 396
</TABLE>
NOTE P -- PARENT COMPANY FINANCIAL INFORMATION
Following are summarized balance sheets and income statements of the
Company on a parent company only basis at the periods indicated.
FRONT RANGE CAPITAL CORPORATION
BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash........................................................ $ 18 $ 58
Investment in subsidiary bank............................... 11,322 10,684
Due from subsidiary......................................... 46 16
Goodwill, net of amortization............................... 135 136
------- -------
$11,521 $10,894
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accrued interest payable.................................. $ -- $ 30
Notes payable............................................. 3,712 3,402
------- -------
Total liabilities................................. 3,712 3,432
Stockholders' equity
Preferred stock........................................... -- --
Common stock.............................................. 1 1
Capital surplus........................................... 4,616 4,616
Retained earnings......................................... 3,859 3,537
Accumulated other comprehensive loss...................... (667) (692)
------- -------
7,809 7,462
------- -------
$11,521 $10,894
======= =======
</TABLE>
F-18
<PAGE> 103
FRONT RANGE CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FRONT RANGE CAPITAL CORPORATION
STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEARS ENDED
MARCH 31, DECEMBER 31,
------------- --------------
2000 1999 1999 1998
----- ----- ------ -----
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenue
Dividends from bank.................................. $ -- $ -- $ -- $ 38
Total revenue................................ -- -- -- 38
Expenses
Professional fees.................................... 8 -- 10 4
Other................................................ 2 2 8 7
Interest............................................. 74 40 201 149
---- ---- ------ -----
Total operating expenses..................... 84 42 219 160
Net operating loss..................................... (84) (42) (219) (122)
Income tax benefit (expense)........................... 28 -- 80 58
---- ---- ------ -----
Loss before equity in undistributed of subsidiary.... (56) (42) (139) (64)
Equity in undistributed net income of subsidiary....... 378 231 1,501 578
---- ---- ------ -----
NET INCOME........................................... $322 $189 $1,362 $ 514
==== ==== ====== =====
</TABLE>
F-19
<PAGE> 104
FRONT RANGE CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FRONT RANGE CAPITAL CORPORATION
STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS YEARS ENDED
ENDED MARCH 31, DECEMBER 31,
--------------- -----------------
2000 1999 1999 1998
------ ------ ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income......................................... $ 322 $ 189 $ 1,362 $ 514
Adjustments to reconcile net income to net cash
provided by operating activities
Equity in undistributed earnings of
subsidiaries.................................. (378) (231) (1,501) (578)
Amortization of goodwill......................... 1 2 6 5
Changes in deferrals and accruals
Accrued interest payable.................... (30) -- 30 (10)
Amount due from subsidiaries................ (30) 105 115 (57)
----- ----- ------- -------
NET CASH (USED IN) PROVIDED BY OPERATING
ACTIVITIES............................. (115) 65 12 (126)
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in subsidiary bank...................... (235) (351) (1,300) (2,513)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term borrowings................. 310 325 1,315 2,515
Payments on long-term borrowing.................... -- -- -- (1,550)
Sale of common stock............................... -- -- 24 1,665
----- ----- ------- -------
NET CASH PROVIDED BY FINANCING
ACTIVITIES............................. 310 325 1,339 2,630
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS...................................... (40) 39 51 (9)
CASH AND CASH EQUIVALENTS -- BEGINNING OF PERIOD... 58 7 7 16
----- ----- ------- -------
CASH AND CASH EQUIVALENTS -- END OF PERIOD......... $ 18 $ 46 $ 58 $ 7
===== ===== ======= =======
</TABLE>
F-20
<PAGE> 105
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
600,000 TRUST PREFERRED SECURITIES
FRONT RANGE CAPITAL TRUST I
% CUMULATIVE TRUST PREFERRED SECURITIES
(LIQUIDATION AMOUNT $25 PER TRUST PREFERRED SECURITY)
FULLY, IRREVOCABLY AND UNCONDITIONALLY GUARANTEED BY
FRONT RANGE CAPITAL CORPORATION
------------------------
HOEFER & ARNETT
INCORPORATED
------------------------
, 2000
------------------------
UNTIL [25 DAYS AFTER THE DATE OF THIS PROSPECTUS], ALL DEALERS THAT EFFECT
TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS
OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE> 106
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Articles of Incorporation of Front Range Capital Corporation (the
"company" or "Front Range") require it to its indemnify officers, directors,
agents and fiduciaries to the fullest extent permitted under the Colorado
Business Corporations Act from and against any claim, liability or expense
arising against him or her because he or she is or was a director, officer,
agent or fiduciary or was serving another entity as a director, officer, agent,
trustee, employee or fiduciary at the company's or the bank's request. Under
Colorado law, a corporation may indemnify a director if the director 1)
conducted himself or herself in good faith; 2) reasonably believed that his or
her conduct was in the best interests of the corporation or at least was not
opposed to the best interests of the corporation and 3) in the case of a
criminal proceeding, the director had no reasonable cause to believe that his or
her conduct was unlawful. In addition, under Colorado law, unless limited by the
articles of incorporation, a corporation must indemnify a director wholly
successful on the merits or otherwise, in the defense of a proceeding to which
the director was a party because he or she is or was a director, against
reasonable expenses incurred by the director in connection with the proceeding.
Front Range's Articles of Incorporation and Bylaws provide that none of its
directors will be liable to the company for monetary damages for any act or
omission in the director's capacity as a director, except to the extent not
permitted by law. Colorado law does not permit exculpation of liability in the
case of 1) a breach of the director's duty of loyalty to the company or its
shareholders; 2) acts or omissions not in good faith that involve intentional
misconduct or a knowing violation of law; 3) a transaction from which a director
received an improper personal benefit, whether or not the benefit resulted from
an action taken within the scope of the director's office; or 4) an act related
to an unlawful distribution of corporate assets.
Pursuant to the Underwriting Agreement, a form of which is filed as Exhibit
1.1 to this Registration Statement, the Underwriter has agreed to indemnify the
directors, officers and controlling persons of the company against certain civil
liabilities that may be incurred in connection with this Offering, including
certain liabilities under the Securities Act.
Front Range may provide liability insurance for each director and officer
for certain losses arising from claims or charges made against them while acting
in their capacities as directors or officers of Front Range, whether or not
Front Range would have the power to indemnify such person against such
liability, as permitted by law.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated fees and expenses incurred by the Registrants in connection
with the sale and distribution of the securities being registered are as
follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 3,360
American Stock Exchange listing fee......................... $ 15,000
National Association of Securities Dealers, Inc. filing
fee....................................................... $ 2,000
Printing and mailing expenses............................... $100,000
Legal fees and expenses of counsel for the Registrants...... $125,000
Accounting fees and expenses................................ 30,000
Blue Sky filing fees and expenses (includes legal fees and
expenses)................................................. 1,000
Transfer Agent fees......................................... 5,000
Trustee fees and expenses................................... 15,000
Miscellaneous expenses...................................... 18,640
--------
Total............................................. 315,000
========
</TABLE>
II-1
<PAGE> 107
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
In July of 1998, we issued 139,267 shares of our common stock to certain
individuals at $12.00 per share in a private placement. Each sale was for cash
and was made pursuant to the registration exemption provided by Section 4(2) of
the Securities Act of 1933, as amended (the "Act"), and Regulation D promulgated
thereunder.
On June 14, 1999, we issued 2,000 shares of our common stock to a single
individual at $12.00 per share. This transaction was for cash and was made
pursuant to the registration exemption provided by Section 4(2) of the Act.
ITEM 27. EXHIBITS
The following documents are filed as exhibits to this Registration
Statement:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1.1 * -- Form of Underwriting Agreement for the Trust Preferred
Securities
3.1 -- Articles of Incorporation of Front Range Capital
Corporation
3.2 -- Bylaws of Front Range Capital Corporation
4.1 -- Form of Indenture by and between Front Range Capital
Corporation and Wilmington Trust Company
4.2 -- Form of Subordinated Debenture (included as an exhibit to
Exhibit 4.1)
4.3 -- Certificate of Trust
4.4 -- Trust Agreement
4.5 -- Form of Amended and Restated Trust Agreement between
Front Range Capital Corporation and Wilmington Trust
Company
4.6 -- Form of Trust Preferred Securities Certificate (included
as an exhibit to Exhibit 4.5)
4.7 -- Form of Trust Preferred Securities Guarantee Agreement
4.8 -- Form of Agreement of Expenses and Liabilities (included
as an exhibit to Exhibit 4.5)
5.1 * -- Opinion of Rothgerber, Johnson & Lyons LLP as to the
legality of the securities being offered
5.2 * -- Opinion of Morris, James, Hitchens & Williams LLP as to
matters of Delaware law
8.1 * -- Opinion of Rothgerber, Johnson & Lyons LLP as to certain
tax matters
10.1 -- Lease Agreement between Lafayette State Bank and Fruehauf
Investments Ltd.
10.2 -- Lease Agreement between Heritage Bank and 901 Walnut
Street, LLC
10.3 -- Loan Agreement between Front Range Capital Corporation
and Bankers' Bank of the West
10.4 -- Promissory Note by Front Range Capital Corporation
payable to Robert W. and Carol D. Lathrop
10.5 -- Promissory Note by Front Range Capital Corporation
payable to Bankers' Bank of the West
10.6 -- Promissory Note by Front Range Capital Corporation
payable to Carol Ann Imel
10.7 * -- Executive Retirement Plan of Front Range Capital
Corporation
10.8 * -- Indexed Salary Continuation Plan of Heritage Bank
10.9 * -- Split Dollar Life Insurance Plan of Heritage Bank
21.1 -- List of Subsidiaries of Front Range Capital Corporation
23.1 -- Consent of Fortner, Bayens, Levkulich and Co., P.C.
</TABLE>
II-2
<PAGE> 108
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
23.2 * -- Consent of Rothgerber, Johnson & Lyons LLP (included in
the opinion to be filed as Exhibit 5.1 hereto)
23.3 * -- Consent of Morris, James, Hitchens & Williams LLP
(included in the opinion to be filed as Exhibit 5.2
hereto)
23.4 * -- Consent of Rothgerber, Johnson & Lyons LLP (included in
the opinion to be filed as Exhibit 8.1 hereto)
24.1 -- Power of Attorney (included as part of Signature pages)
25.1 -- T-1 Statement of Eligibility under the Trust Indenture
Act of 1939, as amended, of Wilmington Trust Company, as
Trustee under the Trust Preferred Securities Guarantee
25.2 -- T-1 Statement of Eligibility under the Trust Indenture
Act of 1939, as amended, of Wilmington Trust Company, as
trustee under the Indenture
25.3 -- T-1 Statement of Eligibility under the Trust Indenture
Act of 1939, as amended, of Wilmington Trust Company, as
trustee for the Trust Preferred Securities
</TABLE>
---------------
* To be filed by amendment.
ITEM 28. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons of
the Registrants pursuant to the foregoing provisions, or otherwise, the
Registrants have been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrants of expenses
incurred or paid by a director, officer or controlling person of the Registrants
in the successful defense of any action, suit or proceeding) is asserted by such
officer, director or controlling person in connection with the securities being
registered, the Registrants 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 Act and will be governed by the final
adjudication of such issue.
(b) The undersigned Registrants hereby undertake that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 403A and contained in
a form of prospectus filed by the Registrants pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act of 1933 shall be deemed to be part
of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, 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 the initial bona fide offering thereof.
(c) The undersigned Registrants hereby undertake to file and application
for the purpose of determining the eligibility of the trustee to act under
subsection (a) of Section 310 of the Trust Indenture Act in accordance with the
rules and regulations prescribed by the Commission under section 305(b)(2) of
the Act.
II-3
<PAGE> 109
SIGNATURES
Front Range Capital Corporation. Pursuant to the requirements of the
Securities Act of 1933, as amended, Front Range Capital Corporation has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Louisville, Colorado on
the 23rd day of June, 2000.
FRONT RANGE CAPITAL CORPORATION
(Registrant)
By: /s/ ROBERT L. BEAUPREZ
----------------------------------
Robert L. Beauprez
Chairman of the Board and
President
Front Range Capital Trust I. Pursuant to the requirements of the Securities
Act of 1933, as amended, Front Range Capital Trust I has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Louisville, Colorado on the 23rd day of June,
2000.
FRONT RANGE CAPITAL TRUST I
(Registrant)
By: /s/ ROBERT L. BEAUPREZ
----------------------------------
Robert L. Beauprez
Trustee
By: /s/ WILLIAM A. MITCHELL
----------------------------------
William A. Mitchell
Trustee
By: /s/ ALICE M. BIER
----------------------------------
Alice M. Bier
Trustee
II-4
<PAGE> 110
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Robert L. Beauprez, William A. Mitchell and Alice M. Bier, with full power to
each of them to act without the other, the undersigned's true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for the undersigned and in the undersigned's name, place and stead, in any and
all capacities (until revoked in writing), to sign this Registration Statement
and any and all amendments (including post-effective amendments) thereto, to
file the same, together with all exhibits thereto and documents in connection
therewith, with the Securities and Exchange Commission, to sign any and all
applications, registration statements, notices and other documents necessary or
advisable to comply with the applicable state securities authorities, granting
unto said attorney-in-fact and agent, or his or their substitute or substitutes,
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 in order to
effectuate the same as fully to all intents and purposes as the undersigned
might or could do if personally present, thereby ratifying and confirming all
that said attorneys-in-fact and agents, or his or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT WAS SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES
INDICATED AND ON THE 23RD DAY OF JUNE, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ ROBERT L. BEAUPREZ Chairman of the Board and President (principal
----------------------------------------------------- executive officer)
Robert L. Beauprez
/s/ ALICE M. BIER Chief Financial Officer (principal financial
----------------------------------------------------- officer)
Alice M. Bier
/s/ CLAUDIA A. BEAUPREZ Director, Treasurer and Secretary
-----------------------------------------------------
Claudia A. Beauprez
/s/ LARRY W. GIBSON Director
-----------------------------------------------------
Larry W. Gibson
/s/ VICTOR FREUHAUF Director
-----------------------------------------------------
Victor Freuhauf
/s/ WILLIAM G. HOFGARD Director
-----------------------------------------------------
William G. Hofgard
/s/ DONALD E. IMEL Director
-----------------------------------------------------
Donald E. Imel
/s/ W. BRUCE JOSS Director
-----------------------------------------------------
W. Bruce Joss
/s/ ROBERT W. LATHROP Director
-----------------------------------------------------
Robert W. Lathrop
</TABLE>
II-5
<PAGE> 111
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1.1 * -- Form of Underwriting Agreement for the Trust Preferred
Securities
3.1 -- Articles of Incorporation of Front Range Capital
Corporation
3.2 -- Bylaws of Front Range Capital Corporation
4.1 -- Form of Indenture by and between Front Range Capital
Corporation and Wilmington Trust Company
4.2 -- Form of Subordinated Debenture (included as an exhibit to
Exhibit 4.1)
4.3 -- Certificate of Trust
4.4 -- Trust Agreement
4.5 -- Form of Amended and Restated Trust Agreement between
Front Range Capital Corporation and Wilmington Trust
Company
4.6 -- Form of Trust Preferred Securities Certificate (included
as an exhibit to Exhibit 4.5)
4.7 -- Form of Trust Preferred Securities Guarantee Agreement
4.8 -- Form of Agreement of Expenses and Liabilities (included
as an exhibit to Exhibit 4.5)
5.1 * -- Opinion of Rothgerber, Johnson & Lyons LLP as to the
legality of the securities being offered
5.2 * -- Opinion of Morris, James, Hitchens & Williams LLP as to
matters of Delaware law
8.1 * -- Opinion of Rothgerber, Johnson & Lyons LLP as to certain
tax matters
10.1 -- Lease Agreement between Lafayette State Bank and Fruehauf
Investments Ltd.
10.2 -- Lease Agreement between Heritage Bank and 901 Walnut
Street, LLC
10.3 -- Loan Agreement between Front Range Capital Corporation
and Bankers' Bank of the West
10.4 -- Promissory Note by Front Range Capital Corporation
payable to Robert W. and Carol D. Lathrop
10.5 -- Promissory Note by Front Range Capital Corporation
payable to Bankers' Bank of the West
10.6 -- Promissory Note by Front Range Capital Corporation
payable to Carol Ann Imel
10.7 * -- Executive Retirement Plan of Front Range Capital
Corporation
10.8 * -- Indexed Salary Continuation Plan of Heritage Bank
10.9 * -- Split Dollar Life Insurance Plan of Heritage Bank
21.1 -- List of Subsidiaries of Front Range Capital Corporation
23.1 -- Consent of Fortner, Bayens, Levkulich and Co., P.C.
23.2 * -- Consent of Rothgerber, Johnson & Lyons LLP (included in
the opinion to be filed as Exhibit 5.1 hereto)
23.3 * -- Consent of Morris, James Hitchens & Williams LLP
(included in the opinion to be filed as Exhibit 5.2
hereto)
23.4 * -- Consent of Rothgerber, Johnson & Lyons LLP (included in
the opinion to be filed as Exhibit 8.1 hereto)
24.1 -- Power of Attorney (included as part of Signature pages)
25.1 -- T-1 Statement of Eligibility under the Trust Indenture
Act of 1939, as amended, of Wilmington Trust Company, as
Trustee under the Trust Preferred Securities Guarantee
25.2 -- T-1 Statement of Eligibility under the Trust Indenture
Act of 1939, as amended, of Wilmington Trust Company, as
trustee under the Indenture
25.3 -- T-1 Statement of Eligibility under the Trust Indenture
Act of 1939, as amended, of Wilmington Trust Company, as
trustee for the Trust Preferred Securities
</TABLE>
---------------
* To be filed by amendment.
