<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 4, 1996
REGISTRATION NO. 333-3248
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM S-4
AMENDMENT NO. 3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
VECTRA BANKING CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
COLORADO 6022 84-1087703
(State or other jurisdiction of (Primary standard industrial (I.R.S. Employer
incorporation or organization) classification code number) Identification No.)
</TABLE>
1650 SOUTH COLORADO BOULEVARD, SUITE 320
DENVER, COLORADO 80222
(303) 782-7440
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
---------------------
GARY S. JUDD, PRESIDENT
1650 SOUTH COLORADO BOULEVARD, SUITE 320
DENVER, COLORADO 80222
(303) 782-7440
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
---------------------
COPIES TO:
<TABLE>
<S> <C>
REID A. GODBOLT, ESQ. THOMAS H. MAXFIELD, ESQ.
JONES & KELLER, P.C. BAKER & HOSTETLER
1625 BROADWAY, SUITE 1600 303 EAST 17TH AVENUE, SUITE 1100
DENVER, COLORADO 80202 DENVER, COLORADO 80203
(303) 573-1600 (303) 861-0600
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this Registration
Statement. If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
CALCULATION OF REGISTRATION FEE
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=======================================================================================================
PROPOSED PROPOSED
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER SECURITY OFFERING PRICE REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$100 Series A Convertible Preferred 111,000
Stock, $.10 par value................ shares(1) $100.00 $7,228,861(2) $2,493
- -------------------------------------------------------------------------------------------------------
Common Stock Underlying Convertible
Preferred Stock...................... 837,736 -- -- --
- -------------------------------------------------------------------------------------------------------
Contingent Warrants to Purchase Shares
of Common Stock...................... 111,000 -- -- --
- -------------------------------------------------------------------------------------------------------
Common Stock Underlying Contingent
Warrants............................. 240,000 12.50 3,000,000(3) 1,035
- -------------------------------------------------------------------------------------------------------
Total......................... $3,528(3)
=======================================================================================================
</TABLE>
(1) Represents the maximum number of securities to be issued in connection with
the mergers described herein.
(2) Estimated pursuant to Rule 457(f)(2) using book value of securities to be
acquired, solely for the purpose of calculating the registration fee.
(3) Estimated pursuant to Rule 457.
(4) Of this amount, $2,493 has been paid previously.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
VECTRA BANKING CORPORATION
CROSS-REFERENCE SHEET
FOR
REGISTRATION STATEMENT ON FORM S-4 AND PROSPECTUS/JOINT PROXY STATEMENT
<TABLE>
<CAPTION>
FORM S-4
ITEM NO. ITEM CAPTION HEADING IN PROSPECTUS
- -------- ----------------------------------------- -----------------------------------------
<C> <S> <C>
1 Forepart of Registration Statement and
Outside Front Cover Page of Prospectus... Outside Front Cover
2 Inside Front and Outside Back Cover Pages
of Prospectus............................ Inside Front Cover; Available
Information; Table of Contents
3 Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information............ Summary of Prospectus/Joint Proxy
Statement; Risk Factors; Special Meetings
of Bank Land, the Bank and VBC
Shareholders; The Mergers; Unaudited Pro
Forma Condensed Combined Financial
Statements and Selected Comparative and
Pro Forma Financial Data; Selected Pro
Forma Financial Data; Selected
Consolidated Financial Data of VBC;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations of VBC; Supervision and
Regulation of VBC; Management's
Discussion and Analysis of Financial
Condition and Results of Operations of
Bank Land and the Bank
4 Terms of the Transaction................. Summary of Prospectus/Joint Proxy
Statement; Special Meetings of Bank Land,
the Bank and VBC Shareholders; The
Mergers; Description of VBC 1996 Series A
Preferred Stock; Description of VBC
Contingent Warrants; Description of Other
VBC Capital Stock; Comparative Rights of
Bank Land, the Bank and VBC Shareholders
5.... Pro Forma Financial Information.......... Unaudited Pro Forma Condensed Combined
Financial Statements and Selected
Comparative and Pro Forma Financial Data;
Selected Pro Forma Financial Data
6 Material Contracts with the Company Being
Acquired................................. Summary of Prospectus/Joint Proxy
Statement; The Mergers; Business of Bank
Land and the Bank
7 Additional Information Required for
Reoffering by Persons and Parties Deemed
to be Underwriters....................... Not applicable
8 Interests of Named Experts and Counsel... Not applicable
9 Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.............................. Management of VBC
10 Information with Respect to S-3
Registrants.............................. Not applicable
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
FORM S-4
ITEM NO. ITEM CAPTION HEADING IN PROSPECTUS
- -------- ----------------------------------------- -----------------------------------------
<C> <S> <C>
11 Incorporation of Certain Information by
Reference................................ Not applicable
12 Information with Respect to S-2 or S-3
Registrants.............................. Not applicable
13 Incorporation of Certain Information by
Reference................................ Not applicable
14 Information with Respect to Registrants
Other Than S-2 or S-3 Registrants........ Summary of Prospectus/Joint Proxy
Statement; Selected Consolidated
Financial Data of VBC; Management's
Discussion and Analysis of Financial
Condition and Results of Operations of
VBC; Business of VBC; Management of VBC;
Supervision and Regulation of VBC;
Principal Shareholders of VBC; Financial
Statements
15 Information with Respect to S-3
Companies................................ Not applicable
16 Information with Respect to S-2 or S-3
Companies................................ Not applicable
17 Information with Respect to Companies
Other than S-2 or S-3 Companies.......... Summary of Prospectus/Joint Proxy
Statement; Statement; Management's
Discussion and Analysis of Financial
Condition and Results of Operations of
Bank Land and the Bank; Business of Bank
Land and the Bank; Financial Statements
18 Information if Proxies, Consents or
Authorizations are to be Solicited....... Summary of Prospectus/Joint Proxy
Statement; The Special Meetings; The
Mergers; Management of VBC; Principal
Shareholders of VBC; Business of Bank
Land and the Bank; Principal Shareholders
of Bank Land and the Bank
19 Information if Proxies, Consents or
Authorizations Are Not To Be Solicited or
in an Exchange Offer..................... Not applicable
</TABLE>
<PAGE> 4
VECTRA BANKING CORPORATION
1650 SOUTH COLORADO BOULEVARD, SUITE 320
DENVER, COLORADO 80222
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 18, 1996
To the Shareholders of Vectra Banking Corporation:
Notice is hereby given that a special meeting of shareholders (the "VBC
Special Meeting") of Vectra Banking Corporation ("VBC") will be held on Tuesday,
June 18, 1996, at 8:00 a.m. Mountain Time at 1650 South Colorado Boulevard,
Denver, Colorado, to consider and to act upon the following:
1. A proposal to approve the issuance of VBC securities pursuant to
the Agreement and Plan of Merger dated December 26, 1995, as amended on
April 3, 1996 and May 22, 1996, under which Bank Land Co. and Southwest
State Bank will merge with and into Vectra Bank, a Colorado banking
corporation, wholly owned by VBC, under which shareholders of Bank Land Co.
and Southwest State Bank will receive $100 Series A Convertible Preferred
Stock of VBC, VBC Contingent Warrants to purchase VBC Common Stock, and
cash, all as described in the accompanying Prospectus/Joint Proxy
Statement. VBC shareholders will not receive any new securities nor be
asked to exchange their shares for any other securities; and
2. To transact such other business as may properly come before the VBC
Special Meeting or any adjournment thereof.
Only shareholders of record of VBC Common Stock as of the close of business
on May 17, 1996 will be entitled to vote at the VBC Special Meeting.
Shareholders are cordially invited to attend the VBC Special Meeting.
Whether or not you intend to attend the VBC Special Meeting, please fill in,
date, sign and return promptly the enclosed proxy card in the enclosed
postage-paid envelope so that your shares may be voted at the VBC Special
Meeting if you are unable to attend in person. The giving of a proxy will not
affect your right to vote in person if you attend the VBC Special Meeting.
By Order of the Board of Directors
/s/ RAY L. NASH
Ray L. Nash, Secretary
Denver, Colorado
June 4, 1996
<PAGE> 5
BANK LAND CO.
1380 SOUTH FEDERAL BOULEVARD
DENVER, COLORADO 80219
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 18, 1996
To the Shareholders of Bank Land Co.:
Notice is hereby given that a special meeting of shareholders (the "Bank
Land Special Meeting") of Bank Land Co. ("Bank Land") will be held on Tuesday,
June 18, 1996, at 9:00 a.m. Mountain Time at 1380 South Federal Boulevard,
Denver, Colorado, to consider and to act upon the following:
1. A proposal to approve and adopt the Agreement and Plan of Merger
dated December 26, 1995, as amended on April 3, 1996 and May 22, 1996,
under which Bank Land will merge with and into Vectra Bank, a Colorado
banking corporation ("Vectra"), wholly owned by Vectra Banking Corporation
("VBC") (the "Bank Land Merger"), under which shareholders of Bank Land
will receive $100 Series A Convertible Preferred Stock of VBC, VBC
Contingent Warrants to purchase VBC Common Stock, and cash, all as
described in the accompanying Prospectus/Joint Proxy Statement; and
2. To transact such other business as may properly come before the
Bank Land Special Meeting or any adjournment thereof.
Only shareholders of record of Bank Land Class A Common Stock, Bank Land
Class B Common Stock and Bank Land Preferred Stock as of the close of business
on June 3, 1996 will be entitled to vote at the Bank Land Special Meeting.
Bank Land shareholders may dissent from the Bank Land Merger and obtain
payment for their shares, as described in the accompanying Prospectus/Joint
Proxy Statement. A copy of Article 113 of the Colorado Business Corporation Act,
which sets forth the rights of dissenters, is attached to the Prospectus/Joint
Proxy Statement as Appendix B.
Shareholders are cordially invited to attend the Bank Land Special Meeting.
Whether or not you intend to attend the Bank Land Special Meeting, please fill
in, date, sign and return promptly the enclosed proxy card in the enclosed
postage-paid envelope so that your shares may be voted at the Bank Land Special
Meeting if you are unable to attend in person. The giving of a proxy will not
affect your right to vote in person if you attend the Bank Land Special Meeting.
By Order of the Board of Directors
/s/ GARY A. MOSKO
Gary A. Mosko, Secretary
Denver, Colorado
June 4, 1996
<PAGE> 6
SOUTHWEST STATE BANK
1380 SOUTH FEDERAL BOULEVARD
DENVER, COLORADO 80219
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 18, 1996
To the Shareholders of Southwest State Bank:
Notice is hereby given that a special meeting of shareholders (the "Bank
Special Meeting") of Southwest State Bank (the "Bank") will be held on Tuesday,
June 18, 1996, at 10:30 a.m. Mountain Time at 1380 South Federal Boulevard,
Denver, Colorado, to consider and to act upon the following:
1. A proposal to approve and adopt the Agreement and Plan of Merger
dated December 26, 1995, as amended on April 3, 1996 and May 22, 1996,
under which the Bank will merge with and into Vectra Bank, a Colorado
banking corporation ("Vectra"), wholly owned by Vectra Banking Corporation
("VBC") (the "Bank Merger"), under which shareholders of the Bank will
receive $100 Series A Convertible Preferred Stock of VBC, VBC Contingent
Warrants to purchase VBC Common Stock, and cash, all as described in the
accompanying Prospectus/Joint Proxy Statement; and
2. To transact such other business as may properly come before the
Bank Special Meeting or any adjournment thereof.
Only shareholders of record of the Bank Common Stock as of the close of
business on June 3, 1996 will be entitled to vote at the Bank Special Meeting.
The Bank shareholders may dissent from the Bank Merger and obtain payment
for their shares, as described in the accompanying Prospectus/Joint Proxy
Statement. A copy of Section 11-4-105 of the Colorado Banking Code of 1957, as
amended, which sets forth the rights of dissenters of shareholders of Colorado
banking corporations, is attached to the Prospectus/Joint Proxy Statement as
Appendix C.
Shareholders are cordially invited to attend the Bank Special Meeting.
Whether or not you intend to attend the Bank Special Meeting, please fill in,
date, sign and return promptly the enclosed proxy card in the enclosed
postage-paid envelope so that your shares may be voted at the Bank Special
Meeting if you are unable to attend in person. The giving of a proxy will not
affect your right to vote in person if you attend the Bank Special Meeting.
By Order of the Board of Directors
/s/ CHESS R. MARTIN
Chess R. Martin, Secretary
Denver, Colorado
June 4, 1996
<PAGE> 7
VECTRA BANKING CORPORATION
PROSPECTUS
111,000 SHARES OF $100 SERIES A CONVERTIBLE PREFERRED STOCK AND 837,736 SHARES
OF
COMMON STOCK UNDERLYING THE $100 SERIES A CONVERTIBLE PREFERRED STOCK
111,000 CONTINGENT WARRANTS
AND 240,000 SHARES OF COMMON STOCK UNDERLYING THE CONTINGENT WARRANTS
---------------------
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<S> <C> <C>
BANK LAND CO. SOUTHWEST STATE BANK VECTRA BANKING CORPORATION
PROXY STATEMENT FOR SPECIAL PROXY STATEMENT FOR SPECIAL PROXY STATEMENT FOR SPECIAL
MEETING OF SHAREHOLDERS MEETING OF SHAREHOLDERS MEETING OF SHAREHOLDERS
TO BE HELD JUNE 18, 1996 TO BE HELD JUNE 18, 1996 TO BE HELD JUNE 18, 1996
</TABLE>
This Prospectus/Joint Proxy Statement is furnished by the directors of Bank
Land Co. ("Bank Land"), the directors of Southwest State Bank (the "Bank") and
the directors of Vectra Banking Corporation ("VBC") in connection with the votes
sought from the respective holders of stock of Bank Land, the Bank and VBC on
the proposed mergers of Bank Land and Bank with and into Vectra Bank, a Colorado
banking corporation ("Vectra") and wholly-owned subsidiary of VBC (individually,
the "Bank Land Merger" and the "Bank Merger" and collectively the "Mergers"),
pursuant to an Agreement and Plan of Merger dated December 26, 1995, and amended
on April 3, 1996 and May 22, 1996 (the "Merger Agreement"), attached hereto as
Appendix A. The votes will be taken at Special Meetings of the three
corporations' shareholders, and at any adjournments thereof. Upon consummation
of the Bank Land Merger and the Bank Merger, each outstanding share of capital
stock of Bank Land and Bank other than shares as to which dissenters' rights
have been perfected, will be converted into shares of VBC $100 Series A
Convertible Preferred Stock (the "1996 Series A Preferred Stock"), VBC
Contingent Warrants to purchase VBC Common Stock, and cash as described in this
Prospectus/Joint Proxy Statement. At present, the directors of Bank Land, the
Bank and VBC know of no other matters to be presented at the Special Meetings.
---------------------
This Prospectus/Joint Proxy Statement also constitutes a Prospectus of VBC,
filed with the Securities and Exchange Commission as part of a Registration
Statement on Form S-4 under the Securities Act of 1933, as amended
("Registration Statement"), with respect to the above securities of VBC. Bank
Land and the Bank have supplied all the information contained herein with
respect each of themselves, and VBC has supplied all the information contained
herein with respect to itself and Vectra Bank.
---------------------
INVESTMENT IN THE SECURITIES BEING OFFERED HEREBY INVOLVES CERTAIN RISKS. SEE
"RISK FACTORS" ON PAGE 20.
---------------------
The principal executive offices of both Bank Land and the Bank are located
at 1380 South Federal Boulevard, Denver, Colorado 80219. The telephone number of
the Bank is (303) 934-5511. Bank Land does not have a separate phone number.
The principal executive offices of both VBC and Vectra are located at 1650
South Colorado Boulevard, Suite 320, Denver, Colorado 80222, and their telephone
number at that address is (303) 782-7440.
---------------------
This Prospectus/Joint Proxy Statement is first being mailed to holders of
stock of Bank Land, the Bank and VBC on or about June 4, 1996.
---------------------
No person is authorized to give any information or to make any
representation not contained in this Prospectus/Joint Proxy Statement, and if
given or made, such information or representation should not be relied upon as
having been authorized. This Prospectus/Joint Proxy Statement does not
constitute an offer to exchange or sell, or a solicitation of an offer to
exchange or purchase, the securities offered by this Prospectus/Joint Proxy
Statement, or the solicitation of a proxy, in any jurisdiction to or from any
person to whom it is unlawful to make such offer or solicitation in such
jurisdiction. Neither the delivery of this Prospectus/Joint Proxy Statement nor
any distribution of the securities to which this Prospectus/Joint Proxy
Statement relates shall, under any circumstances, create any implication that
there has been no change in the affairs of VBC, Vectra, Bank Land or the Bank
since the date of this Prospectus/Joint Proxy Statement.
---------------------
This Prospectus/Joint Proxy Statement does not cover any resales of shares
of the securities offered hereby to be received by shareholders of Bank Land and
the Bank upon consummation of the Merger Agreement. No person is authorized to
use this Prospectus/Joint Proxy Statement in connection with such resales,
although such securities may be traded without use of this Prospectus/Joint
Proxy Statement by those shareholders of Bank Land and the Bank who are not
deemed to be "affiliates" of Bank Land, the Bank or VBC.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS/JOINT PROXY
STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
---------------------
THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR OTHER
OBLIGATIONS OF ANY BANK OR SAVINGS ASSOCIATION AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, BANK INSURANCE FUND, SAVINGS
ASSOCIATION INSURANCE FUND OR ANY OTHER GOVERNMENTAL AGENCY, NOR HAS
THE FAIRNESS OF THE PROPOSED TRANSACTION BEEN PASSED UPON BY ANY
FEDERAL OR STATE BANKING AUTHORITY OR REGULATION.
---------------------
The date of this Prospectus/Joint Proxy Statement is June 4, 1996.
<PAGE> 8
AVAILABLE INFORMATION
This Joint Proxy Statement is also a prospectus of VBC delivered in
compliance with the Securities Act. A Registration Statement on Form S-4
together with all amendments and exhibits thereto (the "Registration
Statement"), under the Securities Act, including this Prospectus/Joint Proxy
Statement, has been filed with the SEC with respect to the 1996 Series A
Preferred Stock to be issued in connection with the Merger Agreement, but as
permitted by the rules and regulations of the SEC, this Prospectus/Joint Proxy
Statement omits certain information contained in the Registration Statement.
Copies of that information may be obtained from the Public Reference Section of
the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, upon payment of the
prescribed fees.
VBC is subject to the informational requirements of the Exchange Act, and
in accordance therewith, files reports, proxy statements, and other information
with the SEC. Such reports, proxy statements, and other information can be
inspected and copied at the offices of the SEC at Room 1024, 450 Fifth Street,
N.W., Judiciary Plaza, Washington, D.C. 20549, at Public Reference Facilities in
the Chicago Regional Office, Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511, and the New York Regional
Office, 7 World Trade Center, 13th Floor, New York, New York 10048. Copies of
such material can be obtained from the Public Reference Section of the SEC at
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
---------------------
Statements contained herein as to the contents of agreements and other
documents represent summaries of relevant portions thereof. Where such
agreements or documents are filed as exhibits to the Registration Statement,
reference is made to such exhibits.
i
<PAGE> 9
TABLE OF CONTENTS
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PAGE
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AVAILABLE INFORMATION................................................................. i
GLOSSARY.............................................................................. 1
SUMMARY OF PROSPECTUS/JOINT PROXY STATEMENT........................................... 4
Special Meetings of Bank Land Shareholders, the Bank Shareholders and VBC
Shareholders..................................................................... 4
Bank Land........................................................................ 4
The Bank......................................................................... 4
VBC.............................................................................. 4
Quorum and Voting Rights............................................................ 4
Bank Land........................................................................ 4
The Bank......................................................................... 5
VBC.............................................................................. 5
The Parties......................................................................... 5
VBC and Vectra................................................................... 5
Bank Land and the Bank........................................................... 6
Share Prices........................................................................ 6
VBC.............................................................................. 6
Bank Land and the Bank........................................................... 7
Summary of the Consideration to be Received in the Mergers.......................... 7
The Final Purchase Price......................................................... 7
Allocation of the Purchase Price................................................. 7
Conversion Ratios................................................................ 8
Effect of the Merger Agreement; Effective Time...................................... 9
Recommendation of Bank Land, the Bank and VBC Boards; Bank Land's and the Bank's
Reasons for the Mergers.......................................................... 9
Bank Land Board.................................................................. 9
Bank Board....................................................................... 10
Bank Land's and the Bank's Reasons for the Mergers............................... 10
VBC Board........................................................................ 10
VBC's Reasons for the Mergers.................................................... 10
Fairness Opinions of Bank Land and Bank Financial Advisor........................... 10
Interests of President and Chairman of the Board of Bank Land and Bank.............. 11
Regulatory Approvals................................................................ 11
Conditions of the Mergers........................................................... 11
Bank Land/VBC Stock Option Agreement................................................ 12
Bank Land Shareholders' Dissenters' Rights.......................................... 12
Bank Shareholders' Dissenters' Rights............................................... 13
Summary of Federal Income Tax Considerations........................................ 13
Tax Consequences of Bank Land Merger............................................. 13
Tax Consequences of the Bank Merger.............................................. 13
Summary of VBC 1996 Series A Preferred Stock........................................ 14
Summary of VBC Contingent Warrants.................................................. 15
Resales of Securities Received in the Mergers....................................... 18
Accounting Treatment................................................................ 18
Operations of Bank Land and the Bank After the Mergers.............................. 18
Financial Information............................................................... 19
RISK FACTORS.......................................................................... 20
SPECIAL MEETINGS OF BANK LAND, THE BANK AND VBC SHAREHOLDERS.......................... 23
General............................................................................. 23
Purpose of Special Meetings......................................................... 23
Bank Land Special Meeting........................................................ 23
</TABLE>
ii
<PAGE> 10
<TABLE>
<CAPTION>
PAGE
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Bank Special Meeting............................................................. 24
VBC Special Meeting.............................................................. 24
Quorum and Voting Rights............................................................ 24
Bank Land Special Meeting........................................................ 24
Bank Special Meeting............................................................. 25
VBC Special Meeting.............................................................. 26
Recommendations of Bank Land, the Bank and VBC Boards............................... 26
Bank Land Board.................................................................. 26
Bank Board....................................................................... 27
VBC Board........................................................................ 27
THE MERGERS........................................................................... 27
Background of and Reasons for the Mergers........................................... 27
Recommendation of the VBC Board..................................................... 29
Allocation of the Final Purchase Price.............................................. 30
Fairness Opinions of Bank Land and the Bank Financial Advisor....................... 31
Summary of Wallach Financial Analysis of Offering Price.......................... 33
Pricing Multiples Implied by Final Purchase Price................................ 33
Analysis of 1996 Series A Preferred Stock........................................ 33
Comparison of Offers............................................................. 33
Comparable Merger Analysis....................................................... 33
Public Comparable Analysis and Stock Trading History............................. 34
Conclusion....................................................................... 34
Conversion Ratios................................................................... 35
Bank Land........................................................................ 35
The Bank......................................................................... 36
Stock Certificate Exchange.......................................................... 37
Interests of Chairman of the Board and President of Bank Land and the Bank in the
Mergers.......................................................................... 38
Conditions of the Mergers........................................................... 39
Regulatory Approvals................................................................ 41
Effective Time and Consummation of the Mergers...................................... 41
Conduct of Business Pending the Mergers............................................. 41
Waiver and Amendment; Termination................................................... 42
Resales of Securities Received in the Mergers....................................... 43
Accounting Treatment................................................................ 43
Operations of Bank Land and the Bank After the Mergers.............................. 43
Certain Federal Income Tax Considerations........................................... 43
Rights of Bank Land and the Bank Dissenting Shareholders............................ 45
Bank Land........................................................................ 45
The Bank......................................................................... 47
Bank Land/VBC Stock Option Agreement................................................ 48
Expenses............................................................................ 49
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS AND SELECTED COMPARATIVE
AND PRO FORMA FINANCIAL DATA........................................................ 50
PRO FORMA COMBINED BALANCE SHEET.................................................... 51
Pro Forma Adjustments............................................................ 52
PRO FORMA COMBINED STATEMENT OF OPERATIONS.......................................... 53
PRO FORMA COMBINED STATEMENT OF OPERATIONS.......................................... 54
Pro Forma Adjustments............................................................ 55
SELECTED PRO FORMA FINANCIAL DATA..................................................... 56
SELECTED CONSOLIDATED FINANCIAL DATA OF VBC........................................... 57
</TABLE>
iii
<PAGE> 11
<TABLE>
<CAPTION>
PAGE
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<S> <C>
SELECTED PER SHARE INFORMATION FOR BANK LAND CO. AND SOUTHWEST STATE BANK............. 59
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF VBC.............................................................................. 60
Overview............................................................................ 60
Net Interest Income................................................................. 61
Asset/Liability Management.......................................................... 62
Investing Activities................................................................ 65
Comparison of Balance Sheets........................................................ 69
Results of Operations............................................................... 70
Three months ended March 31, 1996 compared to three months ended March 31,
1995............................................................................ 70
1995 compared to 1994............................................................ 71
1994 compared to 1993............................................................ 73
Allowance for Loan Losses........................................................... 75
Effects of Inflation and Changing Prices............................................ 75
New Accounting Pronouncements....................................................... 75
BUSINESS OF VBC....................................................................... 77
General............................................................................. 77
Market Area Served.................................................................. 77
Growth Strategy..................................................................... 77
Operating Strategy.................................................................. 78
Marketing........................................................................... 79
Consumer Products................................................................... 79
Commercial Products................................................................. 79
Loans............................................................................... 80
Nonperforming Assets................................................................ 82
Analysis of Allowance for Loan Losses............................................... 83
Investments......................................................................... 84
Deposits............................................................................ 88
FHLB Borrowings..................................................................... 89
Competition......................................................................... 90
Properties.......................................................................... 90
Legal Proceedings................................................................... 90
Employees........................................................................... 91
MANAGEMENT OF VBC..................................................................... 91
Executive Officers and Directors.................................................... 91
Executive Compensation.............................................................. 93
Summary Compensation Table....................................................... 93
Incentive Plans..................................................................... 93
Certain Transactions................................................................ 96
Indemnification..................................................................... 96
SUPERVISION AND REGULATION OF VBC..................................................... 97
VBC................................................................................. 97
Vectra.............................................................................. 98
Changing Regulatory Structure....................................................... 102
Effect on Economic Environment...................................................... 102
PRINCIPAL SHAREHOLDERS OF VBC......................................................... 103
DESCRIPTION OF VBC 1996 SERIES A PREFERRED STOCK...................................... 105
DESCRIPTION OF VBC CONTINGENT WARRANTS................................................ 111
DESCRIPTION OF OTHER VBC CAPITAL STOCK................................................ 112
VBC Common Stock.................................................................... 112
</TABLE>
iv
<PAGE> 12
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Preferred Stock..................................................................... 113
VBC 1994 Preferred Stock............................................................ 113
Transfer Agent and Registrar........................................................ 115
SHARES OF VBC ELIGIBLE FOR FUTURE SALE................................................ 115
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF BANK LAND AND THE BANK........................................................... 116
Analysis of Net Interest Income..................................................... 116
Asset/Liability Management.......................................................... 118
Results of Operations............................................................... 120
Three Months Ended March 31, 1996 Compared to Three Months Ended March 31,
1995............................................................................ 120
1995 Compared to 1994............................................................ 121
New Accounting Pronouncements.................................................... 122
BUSINESS OF BANK LAND AND THE BANK.................................................... 123
General............................................................................. 123
Market Areas Served................................................................. 123
Operating and Business Strategies................................................... 123
Loans............................................................................... 124
Non-Performing Assets............................................................... 125
Analysis of Allowance for Loan Losses............................................... 126
Investment Securities............................................................... 128
Deposits............................................................................ 129
Return on the Bank Equity and Assets................................................ 129
Competition......................................................................... 130
The Bank Facility................................................................... 130
Legal Proceedings................................................................... 130
Employees........................................................................... 130
Information Concerning the President and Chairman of the Board of Bank Land and the
Bank............................................................................. 130
PRINCIPAL SHAREHOLDERS OF BANK LAND AND THE BANK...................................... 132
Bank Land........................................................................... 132
The Bank............................................................................ 133
COMPARATIVE RIGHTS OF BANK LAND AND BANK SHAREHOLDERS................................. 133
Authorized Capital Stock............................................................ 133
Voting Requirements; Cumulative Voting; Preemptive Rights; and Limitation on
Director Liability............................................................... 134
DEADLINE FOR VBC SHAREHOLDER PROPOSALS................................................ 134
LEGAL MATTERS......................................................................... 134
EXPERTS............................................................................... 135
VECTRA BANKING CORPORATION AND SUBSIDIARIES -- INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS March 31, 1996 and December 31, 1995, 1994 and 1993...................... F-1
BANK LAND COMPANY AND SUBSIDIARY -- INDEX TO CONSOLIDATED FINANCIAL STATEMENTS March
31, 1996 and December 31, 1995 and 1994............................................. F-29
SOUTHWEST STATE BANK -- INDEX TO FINANCIAL STATEMENTS March 31, 1996 and December 31,
1995 and 1994....................................................................... F-49
</TABLE>
<TABLE>
<S> <C>
APPENDIX A -- Agreement and Plan of Merger Dated as of the 26th day of December, 1995,
as amended on April 3, 1996, and May 22, 1996, among Vectra Banking
Corporation, Vectra Bank, Bank Land Co. and Southwest State Bank
APPENDIX B -- Article 113 of the Colorado Business Corporation Act governing rights of
dissenting shareholders of Bank Land Co.
APPENDIX C -- Section 11-4-105 of the Colorado Banking Code of 1957, as amended,
governing rights of dissenting shareholders of Southwest State Bank
</TABLE>
v
<PAGE> 13
<TABLE>
<S> <C>
APPENDIX D -- Fairness Opinion of The Wallach Company, Inc. regarding Bank Land Co.
APPENDIX E -- Fairness Opinion of The Wallach Company, Inc. regarding Southwest State
Bank
APPENDIX F -- Statement Establishing Vectra Banking Corporation Series of $100 Series A
Convertible Preferred Stock
APPENDIX G -- Form of VBC Contingent Warrant to Receive Vectra Banking Corporation
Common Stock
APPENDIX H -- Form of Affiliate Letter -- Bank Land Co. and Southwest State Bank
</TABLE>
vi
<PAGE> 14
GLOSSARY
As used in this Prospectus/Joint Proxy Statement, the following are the
meanings for the terms set forth below:
"Adjusted Bank Land Final Purchase Price" means the Bank Land Final
Purchase Price less the Bank Land Preferred Stock Payment.
"Allocation Percentage" is used to allocate the Final Purchase Price
between the Bank and Bank Land and shall equal: [[[[Final Purchase Price -
Parent Value] X .9214] + Parent Value] + Final Purchase Price].
"Bank" means Southwest State Bank.
"Bank Board" means the Board of Directors of the Bank.
"Bank Common Stock" means the shares of common stock, $10.00 par value, of
the Bank outstanding as of the Effective Time.
"Bank Dissenting Shareholder" means a Bank Shareholder that has voted
against approval of the Bank Merger at the Bank Special Meeting and has not
waived the right to dissent under Section 11-4-105 of the CBC as of the
Effective Time.
"Bank Final Purchase Price" means the [Final Purchase Price times (one
minus the Allocation Percentage)] less the sum of (a) the Wallach Bank
Transaction Fee and (b) a pro rata portion, based on the Bank's Allocation
Percentage, of (i) any excess expenses of the Mergers payable by the Bank and
Bank Land Shareholders under the terms of Section 9.1(b) of the Merger
Agreement, and (ii) any excess payments to Wallach payable by the Bank and Bank
Land Shareholders under the terms of Section 9.1(b) of the Merger Agreement.
"Bank Merger" means the merger of the Bank with and into Vectra, pursuant
to Section 11-4-102 of the CBC.
"Bank Merger Consideration" means the 1996 Series A Preferred Stock and
cash into which the Bank Common Stock is converted pursuant to the Bank Merger.
"Bank Non-Dissenting Shareholders" means all Bank Shareholders as of the
Effective Time other than Bank Dissenting Shareholders.
"Bank Record Date" means June 3, 1996.
"Bank Shareholders" means all holders of the Bank Common Stock as of the
Effective Time, and "Bank Shareholder" means one holder of Bank Common Stock.
"Bank Special Meeting" means the June 18, 1996 special meeting of Bank
Shareholders to be held for the purpose of approving the Merger Agreement and
the Bank Merger contemplated thereby.
"Bank Land" means Bank Land Co.
"Bank Land Board" means the Board of Directors of Bank Land.
"Bank Land Common Stock" means the shares of Class A and Class B Common
Stock, no par value, of Bank Land outstanding as of the Effective Time.
"Bank Land Dissenting Shareholder" means a shareholder of Bank Land Common
Stock that did not vote in favor of the Bank Land Merger at the Bank Land
Special Meeting and submitted a written notice of intent to demand payment
pursuant to Section 7-113-202 of the CBCA and, as of the Effective Time, has not
withdrawn or lost such right to demand payment pursuant to Section 7-113-204(1)
of the CBCA.
"Bank Land Final Purchase Price" means the [Final Purchase Price times the
Allocation Percentage], less the sum of (a) the Wallach Bank Land Transaction
Fee and (b) a pro rata portion, based on Bank Land's Allocation Percentage, of
(i) any excess expenses of the Mergers payable by the Bank and Bank Land
1
<PAGE> 15
Shareholders under the terms of Section 9.1(b) of the Merger Agreement and (ii)
any excess payments to Wallach payable by Bank and Bank Land Shareholders under
the terms of Section 9.1(b) of the Merger Agreement.
"Bank Land Merger" means the merger of Bank Land with and into Vectra,
pursuant to Section 7-111-101 of the CBCA and Section 11-4-102 of the CBC.
"Bank Land Merger Consideration" means the 1996 Series A Preferred Stock
and cash into which the Bank Land Common Stock and Bank Land Preferred Stock is
converted pursuant to the Bank Land Merger.
"Bank Land Non-Dissenting Shareholders" means all holders of Bank Land
Common Stock other than Bank Land Dissenting Shareholders.
"Bank Land Preferred Stock" means the Preferred Stock of Bank Land
outstanding as of the Effective Time, 100% of which is currently owned by, and
as of the Effective Time will be owned by, Gary A. Mosko.
"Bank Land Preferred Stock Payment" means an amount equal to the product of
.075 times the Bank Land Final Purchase Price, which amount will be rounded up
or down to nearest whole dollar.
"Bank Land Preferred Stock Shareholder" means Gary A. Mosko.
"Bank Land Shareholders" means all holders of Bank Land Common Stock and
Bank Land Preferred Stock and "Bank Land Shareholder" means one holder of Bank
Land Common Stock or Bank Land Preferred Stock as of the Effective Time.
"Bank Land Record Date" means June 3, 1996.
"Bank Land Special Meeting" means the June 18, 1996 special meeting of Bank
Land Shareholders to be held for the purpose of approving the Merger Agreement
and the Bank Land Merger contemplated thereby.
"Base Purchase Price" means Twenty-One Million Six Hundred Thousand Dollars
($21,600,000).
"BHC Act" means the Banking Holding Company Act of 1956, as amended.
"Board of Governors" means Board of Governors of the Federal Reserve
System.
"CBC" means the Colorado Banking Code of 1957, as amended.
"CBCA" means the Colorado Business Corporation Act.
"Closing" means the closing of the Mergers.
"Closing Date" means the date the Closing occurs.
"Code" means the Internal Revenue Code of 1986, as amended.
"Effective Time" means the time and date the Bank Land Merger and the Bank
Merger become effective as set forth in the Articles of Merger duly executed by
the parties thereto and filed with the Secretary of State of the State of
Colorado.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Agent" means American Securities Transfer, Inc. or such other
person designated by VBC to perform the duties of exchange agent provided for in
the Merger Agreement.
"FDIC" means the Federal Deposit Insurance Corporation.
"FHLB" means the Federal Home Loan Bank of Topeka.
"Final Purchase Price" means the Base Purchase Price plus 7% per annum
times the Base Purchase Price commencing on the date of the Merger Agreement
(December 26, 1995) and ending on the Effective Time.
"GAAP" means generally accepted accounting principles.
2
<PAGE> 16
"IRS" means the Internal Revenue Service.
"Merger Agreement" means the Agreement and Plan of Merger dated December
26, 1995, among VBC, Vectra, Bank Land and the Bank, as amended dated April 3,
1996 and May 22, 1996.
"Mergers" means the Bank Merger and the Bank Land Merger, collectively.
"Month End" means the last day of the month preceding the month in which
the Closing occurs.
"Parent Value" means the shareholders' equity as set forth on the Bank Land
balance sheet prepared as of Month End and prepared in accordance with GAAP
except that (i) the value of Bank Land's investment in the Bank will be excluded
from such balance sheet and (ii) Bank Land's investment in land and improvements
will be reflected at $1,250,000 rather than at book value.
"Registration Statement" means the registration statement of VBC on Form
S-4 (of which this Prospectus/Joint Proxy Statement is a part) filed with the
SEC under the Securities Act with respect to the 1996 Series A Preferred Stock
and VBC Contingent Warrants issuable in connection with the Mergers.
"SBA" means the United States Small Business Administration.
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Special Meetings" means the Bank Land Special Meeting, the Bank Special
Meeting and the VBC Special Meeting, collectively.
"Wallach" means The Wallach Company, Inc., outside financial advisor to
both Bank Land and the Bank.
"Wallach Bank Transaction Fee" means the Transaction Fee payable to
Wallach, as such Transaction Fee is defined in the Letter Agreement dated
January 4, 1996, between Wallach and the Bank, such fee to be paid in cash.
"Wallach Bank Land Transaction Fee" means the Transaction Fee payable to
Wallach, as such Transaction Fee is defined in the Letter Agreement dated
February 7, 1995 between Wallach and Bank Land, which fee shall be net of the
monthly payments and expense reimbursements paid by Bank Land to the extent
permitted under Section 9.1(b)(ii) of the Merger Agreement, such fee to be paid
in cash.
"VBC" means Vectra Banking Corporation.
"VBC Board" means the Board of Directors of VBC.
"VBC Common Stock" means the Common Stock, $.01 par value per share of VBC.
"VBC Contingent Warrants" means the VBC contingent warrants to receive
shares of VBC Common Stock as set forth in Appendix G.
"VBC Record Date" means May 17, 1996.
"VBC Shareholders" means all holders of VBC Common Stock.
"VBC Special Meeting" means the June 18, 1996 special meeting of VBC
shareholders to be held for the purpose of approving the issuance of VBC
securities pursuant to the Merger Agreement.
"Vectra" means Vectra Bank.
"1996 Series A Preferred Stock" means the $100 1996 Series A Convertible
Preferred Stock of VBC, $.10 par value.
3
<PAGE> 17
SUMMARY OF PROSPECTUS/JOINT PROXY STATEMENT
The following is a summary of certain information contained in this
Prospectus/Joint Proxy Statement. This summary is qualified in its entirety by
the more detailed information appearing elsewhere in this Prospectus/Joint Proxy
Statement and the Appendices hereto. Shareholders of Bank Land, the Bank and VBC
are urged to read carefully this Prospectus/Joint Proxy Statement and the
attached Appendices in their entirety.
SPECIAL MEETINGS OF BANK LAND SHAREHOLDERS, THE BANK SHAREHOLDERS AND VBC
SHAREHOLDERS
BANK LAND. The Bank Land Special Meeting will be held at 1380 South Federal
Boulevard, Denver, Colorado, on June 18, 1996, at 9:00 a.m., Mountain Time, to
consider and to vote upon a proposal to approve and adopt the Merger Agreement
and the related Bank Land Merger contemplated thereby and such other matters as
may properly be brought before the Bank Land Special Meeting. See "Special
Meetings of Bank Land, the Bank and VBC Shareholders."
THE BANK. The Bank Special Meeting will be held at 1380 South Federal
Boulevard, Denver, Colorado, on June 18, 1996, at 10:30 a.m., Mountain Time, to
consider and vote upon a proposal to approve and adopt the Merger Agreement and
the Bank Merger contemplated thereby and such other matters as may properly be
brought before the Bank Special Meeting. See "Special Meetings of Bank Land, the
Bank and VBC Shareholders."
VBC. The VBC Special Meeting will be held at 1650 South Colorado Boulevard,
Denver, Colorado, on June 18, 1996, at 8:00 a.m., Mountain Time, to consider and
vote upon a proposal to approve the issuance of VBC securities pursuant to the
Merger Agreement and such other matters as may properly be brought before the
VBC Special Meeting. See "Special Meetings of Bank Land, the Bank and VBC
Shareholders."
QUORUM AND VOTING RIGHTS
BANK LAND. The presence, in person or by proxy, of the holders of a
majority of the Bank Land Class A Common Stock, Class B Common Stock, and
Preferred Stock is necessary to constitute a quorum at the Bank Land Special
Meeting. The Bank Land Record Date for determining shareholders entitled to
notice of, and to vote at, the Bank Land Special Meeting is the close of
business on June 3, 1996. As of the Bank Land Record Date, the following three
classes of Bank Land capital stock were issued and outstanding: (i) 334,833
shares of Class A Common Stock, (ii) 10,000 shares of Class B Common Stock, and
(iii) 100,000 shares of Bank Land Preferred Stock. Each of such classes is
entitled to vote separately on the Merger Agreement and each share within each
class is entitled to one vote. The affirmative vote of the holders of two-thirds
of the outstanding shares of Bank Land Class A Common Stock, Class B Common
Stock and Preferred Stock, each voting separately as a class, is required to
approve the Merger Agreement and the related Bank Land Merger. See "Special
Meetings of Bank Land, the Bank and VBC Shareholders -- Quorum and Voting
Rights."
Bank Land believes that the two-thirds vote on the Merger Agreement and the
related Bank Land Merger is virtually assured. Bank Land's two Board members,
Gary A. Mosko and James A. Lustig, beneficially own a total of 154,654 shares
(46.2%) of the outstanding shares of the Class A Common Stock and Mr. Mosko owns
all of the outstanding shares of the Class B Common Stock and the Bank Land
Preferred Stock. Mr. Mosko and Mr. Lustig have each agreed as a part of the
Merger Agreement to vote all shares of Bank Land capital stock beneficially
owned by them in favor of the Merger Agreement and the Bank Land Merger. In
addition, the two sisters of Mr. Mosko, the two sisters of Mr. Lustig and Elliot
and Ruth Handler, as trustees of the Elliot and Ruth Handler Living Trust UTD,
collectively owning an aggregate of 128,435 shares (38.4%) of the outstanding
shares of Class A Common Stock, have shown a strong inclination to vote in favor
of the Merger Agreement and the Bank Land Merger. See "Principal Shareholders of
Bank Land and the Bank -- Bank Land."
Notwithstanding the virtual certainty that the two-thirds vote requirement
for approval of the Merger Agreement and the related Bank Land Merger will be
satisfied at the Bank Land Special Meeting and that, therefore, the favorable
vote by the holders of the remaining outstanding shares of Class A Common Stock
4
<PAGE> 18
will not be necessary for approval of the proposal, such Bank Land Shareholders
will have the opportunity to vote on the proposal. As noted under "The
Mergers -- Rights of Bank Land and the Bank Dissenting Shareholders -- Bank
Land," Bank Land Shareholders may dissent from the Bank Land Merger and obtain
payment of the fair value of their shares under Article 113 of the CBCA, if and
when the Bank Land Merger is effectuated. Any Bank Land Shareholder who votes
his or her shares of Bank Land Class A Common Stock in favor of the Merger
Agreement and the related Bank Land Merger will not be entitled to demand
payment for his or her shares under Article 113 and may later be prevented from
bringing legal action in opposition to the transaction.
THE BANK. The presence, in person or by proxy, of the holders of a majority
of the outstanding Bank Common Stock is necessary to constitute a quorum at the
Bank Special Meeting. The Bank Record Date for determining shareholders entitled
to notice of and to vote at the Bank Special Meeting is the close of business on
June 3, 1996. As of such date there were issued and outstanding 150,000 shares
of Bank Common Stock, each of which is entitled to one vote. The affirmative
vote of the holders of two-thirds of the outstanding shares of Bank Common Stock
is required to approve the Merger Agreement and the related Bank Merger. See
"Special Meetings of Bank Land, the Bank and VBC Shareholders -- Quorum and
Voting Rights."
The two-thirds vote on the Merger Agreement and the Bank Merger is
virtually assured. Bank Land owns 138,211.96 shares (92.14%) of the outstanding
shares of Bank Common Stock. Bank Land intends to vote all of those shares in
favor of the Merger Agreement and the related Bank Merger. Gary A. Mosko and
James A. Lustig and family trusts controlled by them collectively own an
additional 1,354.74 shares (.9%) of the outstanding shares of Bank Common Stock.
These shares will also be voted in favor of the proposal.
Notwithstanding the certainty that the two-thirds vote requirement for
approval of the Merger Agreement and the related Bank Merger will be satisfied
at the Bank Special Meeting and that, therefore, the favorable vote by the
holders of the remaining outstanding shares of the Bank Common Stock will not be
necessary for approval of the proposal, such Bank Shareholders will have the
opportunity to vote on the proposal at the Bank Special Meeting. As noted under
"The Mergers -- Rights of Bank Land and the Bank Dissenting Shareholders -- the
Bank," Bank Shareholders will be entitled to receive the value of their shares
of Bank Common Stock if and when the Bank Merger becomes effective subject to
compliance with Section 11-4-105 of the CBCA. Any Bank Shareholder who does not
vote against the Merger Agreement and the related Bank Merger at the Bank
Special Meeting will not be entitled to exercise those rights and may later be
prevented from bringing legal action in opposition to the transaction.
VBC. The presence, in person or by proxy, of the holders of a majority of
the outstanding VBC Common Stock is necessary to constitute a quorum at the VBC
Special Meeting. The VBC Record Date for determining shareholders entitled to
notice of and to vote at the VBC Special Meeting is the close of business on May
18, 1996. As of such date there were issued and outstanding 3,195,279 shares of
VBC Common Stock, each of which is entitled to one vote. The affirmative vote of
the holders of a majority of a quorum of VBC Common Stock is required to approve
the issuance of VBC securities pursuant to the Merger Agreement. See "The
Mergers -- Special Meetings of Bank Land, the Bank and VBC
Shareholders -- Quorum and Voting Rights."
THE PARTIES
VBC AND VECTRA. VBC, with a total of 11 banking locations, is the third
largest independent Colorado-based bank holding company. VBC was founded in 1988
by two senior banking executives who, together with a small group of investors,
provided $9.8 million in initial capital to VBC. VBC's initial objective was to
acquire several strategically located but underperforming banks and transform
them into a banking system that would provide a broad package of products and
services to its customers and growth potential to its shareholders. In 1989, VBC
acquired its initial eight locations having total assets of $156 million, and in
1991 acquired a ninth location with total assets of $6 million. In early 1994,
VBC completed a public offering of 923,770 shares of VBC Common Stock and
805,000 shares of VBC 1994 preferred stock, with net proceeds totaling
approximately $11.6 million. In November 1995, VBC acquired First Denver
Corporation, a bank holding company whose primary operation was First National
Bank of Denver, which is now VBC's eleventh
5
<PAGE> 19
banking location. At March 31, 1996, VBC had total consolidated assets of
approximately $419 million and shareholders' equity of approximately $31.0
million.
VBC intends to continue to pursue a growth strategy, with the goal of
maintaining and expanding a well-capitalized, customer-focused financial
institution. Management believes that the executive management team,
distribution network and operational systems support are in place to achieve
this goal. VBC expects to continue its growth strategy during the next few years
through a combination of internal growth and acquisitions. Management of Vectra
also believes that increased consolidation and regulatory burdens are likely to
lead owners of community banks, such as the Bank, to explore the possibility of
a combination with a broader-based bank holding company such as VBC.
VBC's operating strategy is to continue to build a growing, profitable
community banking network. The principal elements of this strategy are (i)
focusing on the financial service needs of consumers and small-to-medium-size
businesses by combining the elements of service traditionally found in community
banks with product lines typically found in large banks, (ii) emphasizing high
quality customer service in all aspects of operations, (iii) maintaining high
asset quality and (iv) achieving efficiencies through centralized administrative
and support functions.
Vectra is a Colorado banking corporation which is wholly-owned by VBC.
Vectra is VBC's only bank subsidiary. See "Business of VBC." Neither VBC, Vectra
nor any of its officers, directors and principal shareholders is affiliated with
Bank Land, the Bank or their affiliates. Gary A. Mosko, the President and
Chairman of the Board of Bank Land and the Bank, owns 2,000 shares of VBC Common
Stock.
BANK LAND AND THE BANK. Bank Land is a bank holding company whose sole
activity is the ownership and operation of the Bank. Bank Land has no other
subsidiaries. Bank Land's principal assets consist of its 92.14% interest in the
Bank. Bank Land acquired this interest in 1967. The remaining 7.86% interest in
the Bank is owned by approximately 30 shareholders, substantially all of whom
were shareholders of the Bank prior to Bank Land's purchase of its interest in
the Bank. As of March 31, 1996, Bank Land had total consolidated assets of
approximately $111 million and shareholders' equity of approximately $13.7
million.
The Bank was organized as a Colorado state bank in 1959 and has operated in
its current location on South Federal Boulevard since 1961. The Bank offers
general commercial banking services to its customers. See "Business of Bank Land
and the Bank." Neither Bank Land, the Bank nor any of its officers, directors
and principal shareholders is affiliated with VBC, Vectra or their affiliates.
SHARE PRICES
VBC. The following table sets forth, for the periods indicated, the high
and low closing prices per share of VBC Common Stock as reported on the Nasdaq
National Market. Vectra Common Stock began trading on the Nasdaq National Market
on March 24, 1994. These quotations represent the prices between dealers and do
not include retail mark ups, mark downs or commissions and may not represent
actual transactions.
<TABLE>
<CAPTION>
1994 HIGH LOW
----------------------------------------------------------- ------ ------
<S> <C> <C>
First Quarter............................................ $ 9.00 $ 8.50
Second Quarter........................................... 10.75 8.50
Third Quarter............................................ 13.25 10.63
Fourth Quarter........................................... 13.25 9.88
</TABLE>
<TABLE>
<CAPTION>
1995 HIGH LOW
----------------------------------------------------------- ------ ------
<S> <C> <C>
First Quarter............................................ $10.63 $ 9.00
Second Quarter........................................... 10.50 9.50
Third Quarter............................................ 12.00 10.25
Fourth Quarter........................................... 12.25 10.13
</TABLE>
<TABLE>
<CAPTION>
1996 HIGH LOW
----------------------------------------------------------- ------ ------
<S> <C> <C>
First Quarter............................................ $13.25 $11.00
</TABLE>
6
<PAGE> 20
On December 22, 1995, the last trading day before the announcement of the
planned Mergers, the closing price of the VBC Common Stock as reported on the
Nasdaq National Market was $10.50 per share. On May 22, 1996, the closing price
of VBC Common Stock as reported on the Nasdaq National Market was $12.25 per
share.
VBC's policy is to retain its earnings to support the growth of its
business. The VBC board of directors has never declared cash dividends on the
VBC Common Stock and does not plan to do so in the foreseeable future. Further,
the ability of VBC to pay cash dividends largely depends on the amount of cash
dividends paid to it by Vectra. Capital distributions, including dividends, by
Vectra are subject to federal and state regulatory restrictions tied to each
institution's earnings and capital. See "Supervision and Regulation of VBC --
Vectra." See "Description of VBC 1996 Series A Preferred Stock" for information
regarding the dividend rights of the holders of VBC 1996 Series A Preferred
Stock" and "Description of Other VBC Capital Stock -- VBC 1994 Preferred Stock"
for information regarding the dividend rights of the holders of VBC's 1994
Preferred Stock.
Bank Land and Bank Shareholders are advised to obtain current market
quotations for the VBC Common Stock. No assurance can be given concerning the
market price of the VBC Common Stock before or after the Closing. The market
price of the VBC Common Stock will fluctuate between the date of this
Prospectus/Joint Proxy Statement and the date of the Closing.
BANK LAND AND THE BANK. There is no trading market for Bank Land or the
Bank Common Stock. Neither Bank Land nor the Bank is aware of any trades in its
Common Stock for at least the past several years. Accordingly neither Bank Land
nor the Bank is aware of any information with respect to trading prices for its
securities.
SUMMARY OF THE CONSIDERATION TO BE RECEIVED IN THE MERGERS
THE FINAL PURCHASE PRICE
The Final Purchase Price consists of $21,600,000 plus 7% per year times
such amount between December 26, 1995 (the date of the Merger Agreement) and
actual Closing.
The Final Purchase Price, assuming that the Closing occurs on June 30,
1996, is estimated at $22,356,000, for 100% of Bank Land Common Stock and
Preferred Stock and 100% of the Bank Common Stock. The Final Purchase Price will
be more or less than the estimated amount depending upon the actual Closing
Date. It is currently expected that the closing will be between June 15 and June
30, 1996. If the closing were to be on June 30, 1996 and if the total of the
Wallach Bank Land and Bank Transaction Fees and other costs, if any, to be
deducted from the Final Purchase Price were $327,000 then the sum of the Bank
and Bank Land Final Purchase Prices would be approximately $22,029,000 with
$11,037,000 (50.1%) payable in the form of 110,370 shares of 1996 Series A
Preferred Stock and $10,992,000 (49.9%) payable in cash. See "The
Mergers -- Conversion Ratios."
ALLOCATION OF THE PURCHASE PRICE
The shareholders of Bank Land and the Bank will be receiving the same form
of consideration for their securities in the Mergers. For each non-dissenting
shareholder, 50.1% of the consideration will be 1996 Series A Preferred Stock
and 49.9% of the consideration will be cash. Most of the consideration is
attributable to the Bank, which constitutes substantially all of the
consolidated assets of Bank Land. Consequently, the allocation of the Final
Purchase Price is principally based on the pro rata allocation, between the Bank
Land Shareholders, who indirectly own 92.14% of the Bank, and the Bank
Shareholders (other than Bank Land) who own the remaining 7.86%. However, an
adjustment has been made to provide an additional allocation to the Bank Land
Shareholders for the value of the other assets owned by Bank Land ("Other
Assets"). The Other Assets owned by Bank Land are composed of cash, receivables,
and a building and land occupied by the Bank. The cash and receivables have been
valued at book value ($652,000 as of March 31, 1996), and the building and land
have been valued at appraised value ($1,360,000 as of May 10, 1996, the latest
appraisal date). The only reason the consideration is apportioned differently
between the Bank Land Shareholders and
7
<PAGE> 21
the Bank Shareholders from their respective pro rata share ownership of the Bank
is because of the Other Assets owned by Bank Land, which have an aggregate value
of approximately $2,012,000. See ". . . Conversion Ratios" immediately below for
distribution values to Bank Land and the Bank Shareholders.
Assuming the closing assumptions set forth in ". . . The Final Purchase
Price" above, the Final Purchase Price allocated to Bank Land Shareholders and
Bank Shareholders (other than Bank Land) will be $20,448,000 and $1,581,000,
respectively. See "The Mergers -- Allocation of the Final Purchase Price."
As noted above, the actual Final Purchase Price to Bank Land Shareholders
and Bank Shareholders will depend upon the amount of appreciation accrued on the
$21,600,000 Base Purchase Price up to Closing. The actual allocation of the
Final Purchase Price will depend upon the appraised value at that time of the
building and land owned by Bank Land, because the other factors pertaining to
the allocation will not change.
CONVERSION RATIOS
By virtue of the Bank Land Merger and the Bank Merger each share of Bank
Land stock, and each share of the Bank stock, issued and outstanding at the
Effective Time (other than shares which dissent to the Mergers) will be
converted into shares of 1996 Series A Preferred Stock and cash in the following
manner:
Bank Land. The Bank Land Preferred Stock Shareholders will receive the Bank
Land Preferred Stock Payment, and the holders of Bank Land Common Stock will
receive the Adjusted Bank Land Final Purchase Price, in each case, payable 50.1%
in 1996 Series A Preferred Stock (valued at $100 per share) and 49.9% in cash.
Distribution of the Bank Land Final Purchase Price between the Preferred
Shareholder and Common Shareholders (assuming there are no dissenting
shareholders) will be as follows:
<TABLE>
<CAPTION>
1996 SERIES A
PREFERRED STOCK
(ASSUMED VALUE OF
$100 PER SHARE)
----------------------
TOTAL SHARES VALUE CASH
----------- ------- ---------- ----------
<S> <C> <C> <C> <C>
Bank Land Final Purchase Price..... $20,448,000
Bank Land Preferred Stock Payment
at 7.5% of Bank Land Final
Purchase Price................... $ 1,533,600 7,683 $ 768,300 $ 765,300
Per share of Bank Land Preferred
Stock based on 100,000 shares
outstanding................... $ 15.33 .076830 $ 7.68 $ 7.65
Adjusted Bank Land Final Purchase
Price............................ $18,914,400 94,761 $9,476,100 $9,438,300
Per share of Bank Land Common
Stock based on 344,833 shares
outstanding................... $ 54.85 .274803 $ 27.48 $ 27.37
</TABLE>
To the extent there are Bank Land Dissenting Shareholders, the 1996 Series
A Preferred Stock equal to 50.1% of the Adjusted Bank Land Final Purchase Price
will be apportioned among the Bank Land Non-Dissenting Shareholders based on
their respective percentage ownership. As a result, if there are Bank Land
Dissenting Shareholders, Bank Land Non-Dissenting Shareholders will receive
proportionately more 1996 Series A Preferred Stock and less cash.
Bank Land Dissenting Shareholders will receive all cash for their shares.
See "The Mergers -- Conversion Ratios" and "Rights of Bank Land and Bank
Dissenting Shareholders -- Bank Land."
The Bank. The Bank Shareholders (other than Bank Land) as of the Effective
Time will receive in the aggregate the Bank Final Purchase Price comprised of
50.1% in 1996 Series A Preferred Stock (valued at $100 per share) and 49.9% in
cash.
8
<PAGE> 22
Such 1996 Series A Preferred Stock and cash will be distributed to the Bank
Shareholders (other than Bank Land) as follows:
<TABLE>
<CAPTION>
1996 SERIES A
PREFERRED STOCK
(ASSUMED VALUE OF
$100 PER SHARE)
--------------------
TOTAL SHARES VALUE CASH
---------- ------- -------- --------
<S> <C> <C> <C> <C>
Bank Final Purchase Price.............. $1,581,000 7,921 $792,100 $788,900
Per share of Bank Common Stock based on
11,788.04 shares outstanding......... $ 134.12 .671952 $ 67.20 $ 66.92
</TABLE>
To the extent there are Bank Dissenting Shareholders, the 1996 Series A
Preferred Stock equal to 50.1% of the Bank Final Purchase Price will be
apportioned among the Bank Non-Dissenting Shareholders based on their respective
percentage ownership. As a result, if there are Bank Dissenting Shareholders,
Bank Non-Dissenting Shareholders will receive proportionately more 1996 Series A
Preferred Stock and less cash.
Any Bank Dissenting Shareholder who withdraws or loses his or her right to
dissent to the Bank Merger following the Effective Time will receive his or her
individual share of the Bank Final Purchase Price in the form of 1996 Series A
Preferred Stock (50.1%) and cash (49.9%). Any Bank Dissenting Shareholder who
perfects his or her dissenter's rights will receive all cash for his or her
shares of the Bank Common Stock. See "The Mergers -- Rights of Dissenting Bank
Land and Bank Shareholders -- the Bank."
EFFECT OF THE MERGER AGREEMENT; EFFECTIVE TIME
Pursuant to the terms of the Merger Agreement, subject to the satisfaction
or waiver (where permissible) of certain conditions, including, among other
things, the receipt of all necessary regulatory approvals, the expiration of all
waiting periods in respect thereof, and the approval of the Merger Agreement by
the Bank Land Shareholders and Bank Shareholders, upon consummation of the
Mergers, both Bank Land and the Bank will cease to exist as separate entities,
and Bank Land Shareholders and Bank Shareholders will become holders of the 1996
Series A Preferred Stock, VBC Contingent Warrants and receive cash. The terms of
and conditions to the Mergers are contained in the Merger Agreement, a copy of
which is attached to this Prospectus/Joint Proxy Statement as Appendix A and
incorporated herein by reference. The description in this Prospectus/Joint Proxy
Statement of the terms of the Merger Agreement is qualified in its entirety by,
and made subject to, the text of the Merger Agreement. Bank Land Shareholders,
the Bank Shareholders and VBC Shareholders are encouraged to read the Merger
Agreement in its entirety.
The Effective Time of the Mergers will occur upon filing articles of merger
with the Secretary of State of Colorado with respect to the Mergers. The Merger
Agreement provides that the parties thereto will cause articles of merger to be
filed as soon as practicable after each of the conditions to consummation of the
Mergers has been satisfied or waived, but in no event later than three business
days following the Closing. See "The Mergers -- Conditions of the Mergers" and
"-- Regulatory Approvals." The Mergers cannot become effective until the
shareholders of Bank Land and the Bank have approved and adopted the Merger
Agreement, all required regulatory approvals and actions have been obtained and
taken and all statutory waiting periods have expired. See "The
Mergers -- Effective Time and Consummation of the Mergers."
RECOMMENDATION OF BANK LAND, THE BANK AND VBC BOARDS; BANK LAND, THE BANK AND
VBC REASONS FOR THE MERGERS
BANK LAND BOARD. The Bank Land Board (consisting of two members, Gary A.
Mosko and James A. Lustig) has unanimously approved the Merger Agreement and has
determined that the Bank Land Merger is fair to, and in the best interests of,
the Bank Land Shareholders. The Bank Land Board, including Mr. Mosko, therefore,
recommends that the Bank Land Shareholders vote FOR approval of the Merger
Agreement and the Bank Land Merger. See "The Mergers -- Background of and
Reasons for the Mergers" and "Fairness Opinions of Bank Land and Bank Financial
Advisor." Also see "-- Interests of President and Chairman of the
9
<PAGE> 23
Board of Bank Land and the Bank" for information concerning the personal
interests of Mr. Mosko in the Merger Agreement and the related Mergers.
BANK BOARD. The Bank Board (consisting of five members, including Gary A.
Mosko and James A. Lustig) has unanimously approved the Merger Agreement and has
determined that the Bank Merger is fair to, and in the best interests of, the
Bank Shareholders. The Bank Board, including Mr. Mosko, therefore, recommends
that the Bank Shareholders vote FOR approval of the Merger Agreement and the
Bank Merger. See "The Mergers -- Background of and Reasons for the Mergers" and
"Fairness Opinions of Bank Land and Bank Financial Advisor." Also see
"-- Interests of President and Chairman of the Board of Bank Land and the Bank"
for information concerning the personal interests of Mr. Mosko in the Merger
Agreement and the related Mergers.
BANK LAND'S AND THE BANK'S REASONS FOR THE MERGERS. After careful
consideration and review, the Bank Land Board and the Bank Board reached their
respective decisions based on an analysis of following critical factors: With
the rapidly changing environment in the banking industry, Bank Land and the Bank
would benefit from an association with a larger banking organization; a business
combination with a larger bank holding company would likely be the most
advantageous method for maximizing respective shareholder values; Vectra's offer
provides greater economic value to Bank Land Shareholders and Bank Shareholders
than Bank Land and the Bank would likely be able to generate in the foreseeable
future by remaining independent; the present market and price being paid for
bank stocks as a whole; the business, financial condition, results of
operations, and prospects of the Bank on a stand-alone basis and a pro forma
basis, assuming a combination of Bank Land and the Bank with Vectra; the Vectra
offer involves a sale on a partial tax deferred basis, giving Bank Land
Shareholders and Bank Shareholders the option to the extent of the stock portion
of the Vectra offer of either continuing to participate as shareholders in a
larger banking organization or liquidating their investment by selling their
1996 Series A Preferred Stock or by converting such stock into VBC Common Stock;
the VBC Common Stock is publicly traded in the Nasdaq National Market, unlike
Bank Land or the Bank Common Stock for which there is no trading market; VBC and
Vectra's management abilities, and the compatibility of the Bank's and VBC's and
Vectra's operating philosophies; and the respective fairness opinions of Wallach
to Bank Land and the Bank, the terms of the Merger Agreement and other factors.
VBC BOARD. The VBC Board has unanimously approved the Merger Agreement and
has determined that the proposed mergers are fair to, and in the best interests
of, the VBC Shareholders. The VBC Board, therefore, recommends that the VBC
Shareholders vote FOR approval of the issuance of VBC securities pursuant to the
Merger Agreement. See "The Mergers -- Background of and Reasons for the
Mergers."
VBC'S REASONS FOR THE MERGERS. After careful consideration and review, the
VBC Board reached its decision based on an analysis of following critical
factors: VBC believes that its growth strategy will be enhanced by the proposed
transactions; VBC will also benefit from another well-established location to
its banking network; the business, financial condition, results of operations,
and prospects of VBC on a stand-alone basis and a pro forma basis, assuming a
combination of Bank Land and the Bank with Vectra; VBC's and the Bank's
management abilities, and the compatibility of the Bank's, VBC's and Vectra's
operating philosophies; and the terms of the Merger Agreement and other factors.
See "The Mergers -- Recommendation of the VBC Board."
FAIRNESS OPINIONS OF BANK LAND AND BANK FINANCIAL ADVISOR
The Wallach Company, Inc., Denver, Colorado ("Wallach") has served as
financial advisor to both Bank Land and to the Bank in connection with the
Mergers and has rendered an opinion to the Bank Land Board that the Bank Land
Merger Consideration is fair to Bank Land Shareholders from a financial point of
view and has rendered a separate opinion to the Bank Board that the Bank Merger
Consideration is fair to Bank Shareholders from a financial point of view. The
respective fairness opinions of Wallach are attached as Appendices D and E to
this Prospectus/Joint Proxy Statement. Bank Land Shareholders and Bank
Shareholders are urged to read the respective fairness opinions in their
entirety for descriptions of the procedures followed, matters considered and
limitations on the reviews undertaken in connection therewith.
10
<PAGE> 24
See "The Mergers -- Fairness Opinions of Bank Land and Bank Financial Advisor."
VBC has determined that it will not seek a fairness opinion with regard to the
proposal to its shareholders to approve the issuance of VBC securities pursuant
to the Mergers.
INTERESTS OF PRESIDENT AND CHAIRMAN OF THE BOARD OF BANK LAND AND BANK
In considering the recommendation of the Bank Land Board and the Bank Board
with respect to the Merger Agreement, the Bank Land Shareholders and Bank
Shareholders should be aware that Gary A. Mosko, President and Chairman of the
Board of Bank Land and the Bank, has interests in the Mergers that are in
addition to the interests of the Bank Land Shareholders and Bank Shareholders
generally. On the Closing Date of the Mergers, Mr. Mosko will enter into a
three-year employment agreement with Vectra providing for an annual salary of
not less than $125,000. Mr. Mosko will serve as an Executive Vice President of
Vectra and will also be elected to the VBC board of directors and Vectra
effective on the Closing Date. Mr. Mosko will also enter into a four-year
covenant not to compete ("Covenant Not to Compete") with Vectra on the Closing
Date in consideration for which Mr. Mosko will receive a total payment of
$540,000, payable in equal quarterly installments of $33,750. The Covenant Not
to Compete covers a 50-mile radius of Vectra and provides that, in the event
there is a change in control of VBC during the term of the Covenant Not to
Compete, Mr. Mosko may terminate the Covenant Not to Compete on the date of such
change in control, in which event Vectra must pay to Mr. Mosko the unpaid
balance of the $540,000. Also, in February 1994, Bank Land issued a total of
100,000 shares of Bank Land Preferred Stock to Mr. Mosko. The terms of the Bank
Land Preferred Stock provide that in the event of a sale of Bank Land, Mr.
Mosko, as the holder of the Bank Land Preferred Stock, will receive 7 1/2% of
the net proceeds resulting from the sale. For this purpose, net proceeds means
the net amount received in consideration of the sale of Bank Land's stock after
payment of commissions and expenses of sale. The Bank Land Merger constitutes a
sale for purposes of the provisions of the Bank Land Preferred Stock. The
estimated amount of the Bank Land Preferred Stock Payment to Mr. Mosko is
approximately $1,535,000 and will be paid 50.1% in 1996 Series A Preferred Stock
(approximately 7,690 shares valued at approximately $769,000) and 49.9% in cash
(approximately $766,000). See "The Mergers -- Interests of Chairman of the Board
and President of Bank Land and the Bank in the Mergers."
The Bank Land Preferred Stock was issued to Mr. Mosko in February 1994
(effective January 1, 1994) pursuant to the terms of an agreement between Mr.
Mosko and Bank Land (the "1994 Agreement"). The principal terms of the Bank Land
Preferred Stock, i.e., the payment of 7.5% of the net proceeds resulting from a
sale of Bank Land, were agreed to in July 1989 pursuant to the terms of a letter
agreement (the "1989 Letter Agreement") among Mr. Mosko and the heads of the
three families directly or indirectly owing substantially all of Bank Land's
capital stock. The 1989 Letter Agreement provided that the payment was to be in
recognition of Mr. Mosko's then 16 years of service to the Bank. The 1994
Agreement by its terms replaced the 1989 Letter Agreement and provided that the
Bank Land Preferred Stock was to be issued to Mr. Mosko in recognition of his
prior services. The Bank Land Preferred Stock was issued to Mr. Mosko at or
about the time Bank Land was negotiating the sale of Bank Land to another bank
holding company unrelated to VBC. (This proposed sale was subsequently
terminated by mutual agreement.) The Bank Land Preferred Stock was created
pursuant to an amendment to Bank Land's Articles of Incorporation approved by
the Bank Land Shareholders in February 1994.
REGULATORY APPROVALS
The Mergers are subject to prior approval of the Board of Governors and the
FDIC. Approval from both authorities has been obtained. The Bank Merger is also
subject to the approval by the Banking Board for the Division of Banking for the
State of Colorado, which has been obtained. See "The Mergers -- Conditions of
the Mergers."
CONDITIONS OF THE MERGERS
The respective obligations of the parties to consummate the Mergers are
subject to the satisfaction of certain conditions, including, among others, (i)
receipt of all required regulatory approvals with regard to the
11
<PAGE> 25
Mergers (which, to the knowledge of VBC, have been obtained), (ii) no adverse
pending or threatened litigation with regard to the Mergers, (iii) receipt of a
satisfactory tax opinion regarding the Mergers, (iv) receipt of fairness
opinions from Wallach relating to Bank Land Shareholders and Bank Shareholders
and (v) certain other conditions customary in transactions of this kind. A
failure of such conditions to be satisfied, if not waived, would prevent
consummation of the Mergers.
If the Mergers are not effected on or before October 31, 1996, the Merger
Agreement may be terminated, and the Mergers abandoned by any party upon written
notice to the other parties. The parties intend to consummate the Mergers as
soon as practicable after all conditions have been met or waived. See "The
Mergers -- Conditions of the Mergers -- Effective Time and Consummation of the
Mergers."
BANK LAND/VBC STOCK OPTION AGREEMENT
As an inducement and a condition to VBC's entering into the Merger
Agreement, VBC and Bank Land also entered into a Stock Option Agreement, dated
December 26, 1995 (the "Bank Land/VBC Stock Option Agreement"), pursuant to
which VBC has an option (the "Option"), upon the occurrence of certain events
(none of which has yet occurred to the best of VBC and Bank Land's knowledge),
to purchase up to 19.9% of the shares of Bank Common Stock held by Bank Land, at
a price equal to the lesser of (i) the sales price of Bank Land Common Stock in
the event shares of Bank Common Stock are sold by Bank Land or (ii) the price
for Bank Land Common Stock provided for in the Merger Agreement in the event
Bank Land Common Stock is sold, subject to termination within certain periods.
The Bank Land/VBC Stock Option Agreement may discourage competing offers to the
Mergers and is intended to increase the likelihood that the Mergers will be
consummated in accordance with the terms of the Merger Agreement.
In the event that Bank Land Shareholders fail to approve the Merger
Agreement, either Bank Land or VBC may terminate the Merger Agreement in
accordance with its terms. See "The Mergers -- Waiver and Amendment;
Termination." If no Initial Triggering Event (as defined in the Bank Land/VBC
Stock Option Agreement) has occurred prior to such termination or any other
Exercise Termination Event (as defined in the Bank Land/VBC Stock Option
Agreement), the Bank Land/VBC Stock Option Agreement will automatically
terminate at such time. If any Initial Triggering Event and a Subsequent
Triggering Event (as defined in the Bank Land/VBC Stock Option Agreement) occurs
prior to the Exercise Termination Event, then VBC will be entitled to exercise
the Option in accordance with its terms. See "The Mergers -- Bank Land/VBC Stock
Option Agreement."
BANK LAND SHAREHOLDERS' DISSENTERS' RIGHTS
Bank Land Shareholders who file the required notice prior to the vote at
the Bank Land Special Meeting and who do not vote in favor of the Bank Land
Merger will have the right to demand payment for their shares of Bank Land
Common Stock and to receive cash, if the Bank Land Merger is consummated, equal
to the fair value of their shares of Bank Land Common Stock as determined by the
procedures set out in Article 113 of the CBCA. Failure to provide the required
notice and to otherwise comply with the requirements of the CBCA will, however,
result in the loss of appraisal rights to such Bank Land Shareholder. A copy of
the provisions of Article 113 of the CBCA dealing with dissenters' rights is
attached as Appendix B. The obligations of Vectra under the Merger Agreement are
conditioned upon, among other things, that no more than 10.0% of the outstanding
shares of Bank Land shall have dissented to the Merger Agreement in accordance
with Article 113 of the CBCA. In addition, a Bank Land Shareholder who does not
demand payment and deposit his or her Bank Land share certificates as required
by the date or dates set forth in the dissenters' notice will not be entitled to
demand payment for his or her Bank Land shares under Article 113 of the CBCA, in
which case, pursuant to the Merger Agreement, he or she will receive all cash
consideration for his or her Bank Land shares in an amount equal to his or her
share of the Adjusted Bank Land Final Purchase Price. See "The Mergers -- Rights
of Bank Land and the Bank Dissenting Shareholders -- Bank Land."
12
<PAGE> 26
BANK SHAREHOLDERS' DISSENTERS' RIGHTS
Vectra has conditioned the Mergers on, subject to its right to waive, and
has reserved the right to abandon the Merger Agreement in the event that holders
of greater than 45% of the outstanding shares of the Bank Common Stock (other
than shares held by Bank Land and Vectra) dissent from the Bank Merger and seek
payment for their shares. The CBC provides that the owners of shares of the Bank
Common Stock which are voted against the Bank Merger are entitled to receive
their value in cash if and when the Bank Merger becomes effective, upon written
demand made to Vectra at any time within 30 days after the Effective Time
accompanied by the surrender of stock certificates. The value of the shares will
be determined as of the date of the Bank Special Meeting by three appraisers.
One appraiser will be selected by the owners of two-thirds of the dissenting
shares, one appraiser will be selected by the board of directors of Vectra and
the third appraiser will be chosen by the other two appraisers. The valuation
agreed upon by any two appraisers will govern. If the appraisal is not completed
within 90 days after the Effective Time, the Colorado State Banking Commissioner
will cause an appraisal to be made. The expenses of appraisal will be paid by
Vectra. Vectra may fix an amount which it considers to be not more than the fair
market value of the shares of the Bank at the time of the Bank Special Meeting,
which Vectra will pay to the Bank Dissenting Shareholders entitled to payment in
cash.
A Bank Shareholder who does not both vote against the Bank Merger and
surrender his or her Bank shares to the Bank as provided above will not be
entitled to receive payment for such shares under the CBC, in which case he or
she will receive his or her share of the Bank Final Purchase Price, payable
50.1% in 1996 Series A Preferred Stock and 49.9% in cash. See "The
Mergers -- Rights of Bank Land and the Bank Dissenting Shareholders -- The
Bank."
SUMMARY OF FEDERAL INCOME TAX CONSIDERATIONS
TAX CONSEQUENCES OF BANK LAND MERGER
Freeborn & Peters has opined to Bank Land that the Bank Land Merger into
Vectra will qualify as a reorganization within the meaning of Section
368(a)(2)(D) of the Code, and thus:
i. A Bank Land Shareholder exchanging his or her Bank Land stock for a
combination of 1996 Series A Preferred Stock, VBC Contingent Warrants and
cash pursuant to the Bank Land Merger will recognize gain, if any, not in
excess of the amount of cash received by such Bank Land Shareholder. Such
recognized gain generally will be treated as capital gain, but under some
circumstances could be treated as dividend income.
ii. Immediately after the Bank Land Merger, the tax basis of 1996
Series A Preferred Stock issued to a Bank Land Shareholder pursuant to the
Bank Land Merger will be the same as that shareholder's basis in Bank Land
stock surrendered in exchange therefor, decreased by the amount of cash
received, and increased by the amount of any gain recognized (including the
portion of any gain treated as a dividend), by such shareholder pursuant to
the Bank Land Merger.
iii. The holding period of the 1996 Series A Preferred Stock received
by a Bank Land Shareholder pursuant to the Bank Land Merger will include
the period during which such shareholder held the Bank Land stock
surrendered in exchange therefor, provided that such shareholder held the
Bank Land stock as a capital asset at the Effective Time. See "The
Mergers -- Certain Federal Income Tax Consequences."
TAX CONSEQUENCES OF THE BANK MERGER
Freeborn & Peters has opined to the Bank that the Bank Merger into Vectra
will qualify as either a reorganization within the meaning of Section
368(a)(2)(D) of the Code or a liquidation under Section 332 of the Code, and
thus:
i. A Bank Shareholder exchanging his or her Bank stock for a
combination of 1996 Series A Preferred Stock, VBC Contingent Warrants and
cash pursuant to the Bank Merger will recognize gain, if any, not in excess
of the amount of cash received by such Bank Shareholder. Such recognized
gain
13
<PAGE> 27
generally will be treated as capital gain, but under some circumstances
could be treated as dividend income.
ii. Immediately after the Bank Merger, the tax basis of 1996 Series A
Preferred Stock issued to a Bank Shareholder pursuant to the Bank Merger
will be the same as that shareholder's basis in the Bank stock surrendered
in exchange therefor, decreased by the amount of cash received, and
increased by the amount of any gain recognized (including the portion of
any gain treated as dividend), by such shareholder pursuant to the Bank
Merger.
iii. The holding period of the 1996 Series A Preferred Stock received
by a Bank Shareholder pursuant to the Bank Merger will include the period
during which such shareholder held the Bank stock surrendered in exchange
therefor, provided that such shareholder held the Bank stock as a capital
asset at the Effective Time.
No ruling related to any of the matters discussed above will be sought from
the IRS. However, receipt of opinions of counsel from Freeborn & Peters,
satisfactory to counsel to Bank Land and the Bank, is a precondition to
consummation of the Mergers. See "The Mergers -- Certain Federal Income Tax
Consequences."
SUMMARY OF VBC 1996 SERIES A PREFERRED STOCK
Bank Land and Bank Shareholders are encouraged to read Appendix F,
Statement Establishing Vectra Banking Corporation Series of $100 Series A
Convertible Preferred Stock, and "Description of VBC 1996 Series A Preferred
Stock." No active trading market is anticipated for the VBC 1996 Series A
Preferred Stock. See "Risk Factors -- Limited Trading Market for 1996 Series A
Preferred Stock." Thus, owners of the VBC 1996 Series A Preferred Stock may find
it difficult to sell or buy such stock. In light of the specific terms of the
1996 Series A Preferred Stock, including the dividend yield, the conversion
premium and the call provisions, the Vectra Board believes that, at issuance the
1996 Series A Preferred Stock should be valued at $100 per share, or at its par
value. The Bank Land Board and the Bank Board are of the same belief as the
Vectra Board, based upon the analysis of Wallach set forth in "The
Mergers -- Fairness Opinions of Bank Land and the Bank Financial
Advisor -- Summary of Wallach Financial Analysis of Offering Price." See also
"Description VBC 1996 Series A Preferred Stock." The actual trading value of the
1996 Series A Preferred Stock, once issued, may be less or more than $100 per
share. Bank Land and Bank Shareholders are advised, however, that if they were
to convert their shares of 1996 Series A Preferred Stock into VBC Common Stock,
the actual trading value at the time of conversion may be more or less than
$13.25 per common share of VBC. To date the highest market price for VBC Common
Stock has been $13.25 per share. See " ...Share Prices -- VBC." For example,
based upon the closing price of VBC Common Stock at May 22, 1996 of $12.25 per
share, a conversion of one share of 1996 Series A Preferred Stock would result
in the issuance of approximately 7.55 shares of VBC Common Stock with an
aggregate market value of $92.45 or a decrease in value of $7.55 per share of
1996 Series A Preferred Stock.
1996 Series A Preferred
Stock anticipated maximum
number of shares to be
outstanding after the
Mergers: 111,000 shares.
Dividends: Cash dividends accrue from the date of issue and
are payable quarterly in arrears, commencing on the
last day of the calendar quarter in which the
Closing occurs, at an annual rate of $7.00 per
share. Dividends are not cumulative, and must be
declared by the VBC Board of Directors before they
are payable. However, once per year, the right to
receive only unpaid dividends for the immediately
preceding year will be terminated, whether or not
such dividends were declared. Shareholders will
thereafter be able to obtain VBC Common Stock with
a value approximately equal to the terminated
dividends, as provided by the VBC Contingent
14
<PAGE> 28
Warrants. See Appendix G and "Description of VBC
Contingent Warrants."
Maturity: Perpetual.
Redemption: Beginning three years after issuance; redeemable
thereafter in whole or in part, at the option of
VBC subject to prior approval of the Board of
Governors at $103.50 per share in year four,
$103.00 per share in year five, $102.50 per share
in year six, $102.00 per share in year seven,
$101.50 per share in year eight, $101.00 per share
in year nine, $100.50 per share in year 10, and
$100.00 per share in year 11 and thereafter. In
addition, a condition precedent of VBC's right to
redeem during the fourth year and before the sixth
year is that the average of the closing prices for
the VBC Common Stock prior to redemption must be at
least $13.72 per share. Also, the preferred shares
are subject to redemption if a change of control
occurs, including the sale of 80% or more of VBC's
assets or a merger, unless VBC is a surviving
corporation in the merger and its shareholders
continue to hold the voting power to elect a
majority of the board of directors. Accumulated and
unpaid dividends are payable upon redemption.
Conversion: At the option of the shareholder into VBC Common
Stock at a conversion price of $13.25 per common
share. Also, for a period of 30 days beginning on
the fifth year after issuance the holder will have
the right to request VBC to convert at a value per
share of $90 plus all accumulated but unpaid
dividends into VBC Common Stock. In the event VBC
agrees to the request, it will convert the 1996
Series A Preferred Stock into its Common Stock on a
per share basis valued at the higher of (i) the
average of the closing prices for the VBC Common
Stock on the Nasdaq National Market for the 10
trading days ending on the fifth business day
before VBC receives initial notice from the
shareholder or (ii) $8.50; provided, however, VBC
at its option may elect to offer to redeem for cash
at $90 per share plus accumulated but unpaid
dividends, in which case the holder may reject such
alternative.
Voting: Non-voting, except that in certain events holders
of the 1996 Series A Preferred Stock will have the
right to elect two members of the board of
directors.
Liquidation Preference: $100.00 per share plus declared but unpaid
dividends.
Relation to VBC Contingent
Warrants: Each certificate will have attached to it a VBC
Contingent Warrant, which is attached as Appendix G
to this Prospectus/Joint Proxy Statement. The terms
of the 1996 Series A Preferred Stock and the
Preferred Stock Statement are not affected by
whether the VBC Contingent Warrant remains attached
to the certificate for the preferred shares or
whether the VBC Contingent Warrant is terminated or
remains valid. However, to transfer the VBC
Contingent Warrant, it must be attached to the
certificate.
SUMMARY OF VBC CONTINGENT WARRANTS
Bank Land and Bank Shareholders are encouraged to read Appendix G, Form of
Contingent Warrant to receive Vectra Banking Corporation Common Stock, and
"Description of VBC Contingent Warrants."
15
<PAGE> 29
General: The purpose of the VBC Contingent Warrants is to
give the holders of the 1996 Series A Preferred
Stock the right to receive VBC Common Stock to
compensate for dividends on the 1996 Series A
Preferred Stock if they are not declared and paid
in cash.
Each VBC Contingent Warrant provides that the
Warrantholder may be entitled to receive shares of
VBC Common Stock for no additional consideration.
The shares will automatically be issued by VBC to
the Warrantholder, under certain terms and
conditions, without any action on his or her part.
VBC has registered the potential issuance of
240,000 shares of VBC Common Stock, referred to as
"Stated Shares," to be used initially in the event
its common shares become issuable under terms of
the VBC Contingent Warrant.
The "Additional Shares" will be issuable in the
event that all of the Stated Shares have been
issued. There is no limit on the number of
Additional Shares which may be issued. Prior to the
issuance of Additional Shares, VBC would be
required to register the issuance of such shares
with the SEC.
For successive periods of one year ending on a
certain date (a "Dividend Year") VBC will determine
whether, under the terms in the VBC Contingent
Warrant, shares of its Common Stock are issuable.
For each Dividend Year, dividends on the 1996
Series A Preferred Stock which have not been
declared and paid will be terminated (the "Canceled
Dividends"), and in turn, the Warrantholder will
receive a number of Stated Shares or Additional
Shares with a value approximately equal to the
Canceled Dividends. The number of Stated Shares or
Additional Shares issuable to Warrantholders would
equal the amount of the dividends not declared and
paid divided by 97% of the average price of VBC
Common Stock as of the last day of a year in which
dividends may be declared (the "Dividend
Anniversary Date"). The average price of VBC Common
Stock is defined as the average of the closing
prices of the stock on the Nasdaq National Market
for the 20 trading days ending on the fifth
business day before the Dividend Anniversary Date.
See "Conditions and Procedures for Issuance of
Shares" immediately below for information
concerning how the value of the VBC Common Stock
will be determined.
Bank Land Shareholders and Bank Shareholders should
not perceive the VBC Contingent Warrants as
additional "value" to be received in the Mergers.
Rather, VBC management believes that the VBC
Contingent Warrants will serve as a replacement for
the payment of dividends in the event that they are
not declared and paid on the 1996 Series A
Preferred Stock. VBC management also believes that
the issuance of shares of VBC Common Stock pursuant
to the VBC Contingent Warrants is remote for the
foreseeable future, because VBC intends to declare
and pay cash dividends on the 1996 Series A
Preferred Stock.
Each VBC Contingent Warrant will relate directly to
a specific number of shares of 1996 Series A
Preferred Stock (the "Preferred Shares"),
originally issued pursuant to a particular,
identified certificate (the "Preferred
Certificate"). The VBC Contingent Warrant will be
attached to and made part of the Preferred
Certificate and cannot be detached or transferred
separate from the Preferred Certificate. The
Canceled Divi-
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<PAGE> 30
dends for a VBC Contingent Warrant will be the
dividends which accrue on the outstanding number of
Preferred Shares and, at the end of a Dividend
Year, are terminated. Any number of the Preferred
Shares may be redeemed or converted into VBC Common
Stock and thus cease to be outstanding in
accordance with the terms of the Preferred Stock
Statement. Because dividends will cease to accrue
on any of such redeemed or converted Preferred
Shares, the Warrantholder thereafter will not be
entitled to obtain Stated Shares or Additional
Shares relating to the redeemed or converted
Preferred Shares. All rights to receive any Stated
Shares and Additional Shares will terminate as of
the 50th Dividend Anniversary Date.
Conditions and Procedures for
Issuance of Shares: The Stated Shares will be issued and a VBC
Contingent Warrant will be exercisable for the
Additional Shares only if dividends which accrue on
the Preferred Shares to which the VBC Contingent
Warrant relates, are not declared and paid by the
VBC Board as of a Dividend Anniversary Date.
Additional Shares may be issued only after all of
the Stated Shares have been issued. VBC will send
to the Warrantholder certificates for any Stated
Shares and Additional Shares to which the
Warrantholder is entitled and a written notice
containing:
(1) The dollar amount of the Canceled Dividends;
(2) The average of the closing prices of the VBC
Common Stock on the Nasdaq National Market for the
20 trading days ending on the fifth business day
before such Dividend Anniversary Date (the "Common
Stock Price");
(3) The "Calculation Price," which will be
determined by multiplying the Common Stock Price by
.97;
(4) The number of Stated Shares or Additional
Shares the Warrantholder is receiving. The Canceled
Dividends, divided by the Calculation Price,
rounded up for half of a fractional share or more
and down for less than half of a fractional share,
will equal the number of Stated Shares or
Additional Shares; and
(5) If any Stated Shares are being issued, a
statement disclosing prior issuances of Stated
Shares, the number presently being issued, and the
number unissued.
The issuance of any Additional Shares can only be
made pursuant to a registration statement under the
Securities Act and pursuant to any other
registrations required under any applicable state
laws. These registrations may delay the issuance of
Additional Shares, although VBC is obligated to use
its best efforts to cause such registrations to
become effective.
It is not possible to illustrate and qualify all
the possible scenarios under which Stated or
Additional Shares may become issuable but the
following is provided to illustrate a few examples:
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<PAGE> 31
<TABLE>
<S> <C>
Estimated maximum annual dividend requirement for
the 1996 Series A Preferred Stock...........$780,000
Range of per share trading prices for VBC Common
Stock from March 24, 1994, the date public trading
commenced on Nasdaq, through May 7, 1996:
High..........................................$13.25
Low.............................................8.50
Trading range from May 1 to
May 17, 1996........................12.00 to 12.50
</TABLE>
Example One: If VBC were to not pay any cash
dividends on the 1996 Series A Preferred Stock for
one year and at the end of that year the average
price of VBC Common Stock were $8.50 per share,
then approximately 94,603 ($780,000 divided by [.97
times $8.50]) shares of VBC Common Stock would be
issued under terms of the VBC Contingent Warrant.
If this were to occur, and it was the first
occasion under which shares were issued under terms
of the VBC Contingent Warrant, then the number of
Stated Shares available for possible future
issuance would be reduced to 145,397 (240,000 less
94,603).
Example Two: If VBC did not pay any cash dividends
on the 1996 Series A Preferred Stock for two years
and the average price of VBC Common Stock were
$5.00 per share at the end of the first year and
$7.00 per share at the end of the second year, then
under terms of the VBC Contingent Warrant,
approximately 160,825 ($780,000 divided by [.97
times $5.00]) shares of VBC Common Stock would be
issued after the first year and approximately
114,875 ($780,000 divided by [.97 times $7.00])
shares of VBC Common Stock would be issued after
the second year. If no shares had been previously
issued under the terms of the VBC Contingent
Warrant, then VBC would be required to register at
least 35,700 ([160,825 plus 114,875] less 240,000
Stated Shares) Additional Shares to meet the
requirement of the VBC Contingent Warrant in the
second year.
Under terms of the VBC Contingent Warrant, if VBC
anticipates in advance of a Dividend Anniversary
Date that Warrantholders will be entitled to
Additional Shares, then VBC will use its reasonable
efforts to file with the SEC and have declared
effective before such date a registration statement
required to register the Additional Shares.
Any shares issued under terms of the VBC Contingent
Warrant would be apportioned to Warrantholders in
the same proportions as their related holdings of
shares of 1996 Series A Preferred Stock bore to the
total number of such shares outstanding.
RESALES OF SECURITIES RECEIVED IN THE MERGERS
The shares of VBC 1996 Series A Preferred Stock to be issued in the
Mergers, any shares of VBC Common Stock acquired upon conversion of such stock,
the VBC Contingent Warrants and any Stated Shares (defined above) received under
the VBC Contingent Warrants, collectively referred to herein as the "VBC
Securities," will be freely transferable under the Securities Act, except for
shares issued to any Bank Land or the Bank shareholder who may be deemed to be
an "affiliate" of either company for purposes of Rule 145 under the Securities
Act at the time of the Bank Land Special Meeting or the Bank Special Meeting, as
the case may be. Such affiliates may not sell their VBC Securities except
pursuant to an effective registration
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<PAGE> 32
statement under the Securities Act covering such securities or in compliance
with Rule 145 or another applicable exemption from the registration requirements
of the Securities Act. Persons who may be deemed to be affiliates of Bank Land
or the Bank generally will include individuals or entities that control, are
controlled by or are under common control with Bank Land or the Bank, and will
likely include the executive officers and directors of Bank Land or the Bank as
well as each Bank Land Shareholder owning 10% or more of the Bank Land Common
Stock.
Bank Land Shareholders and Bank Shareholders who are "affiliates" (for
purposes of Rule 145) of Bank Land or the Bank, as the case may be, must deliver
to VBC a written agreement intended to ensure compliance with the Securities Act
as a condition to the Mergers. A copy of the form of written agreement, referred
to as an "Affiliate Letter," is attached hereto as Appendix H.
ACCOUNTING TREATMENT
The Mergers will be treated as a "purchase" under GAAP for financial
reporting purposes. The unaudited Pro Forma Condensed Combined Financial
Information for VBC and Bank Land contained in this Prospectus/Joint Proxy
Statement has been prepared using the purchase method of accounting.
OPERATIONS OF BANK LAND AND THE BANK AFTER THE MERGERS
Following the Mergers, Bank Land and the Bank will cease to exist as
separate entities, and their assets and operations will become part of Vectra.
Although Vectra presently intends to continue the scope of business of the Bank
without substantial modification, Vectra will continue to evaluate the
personnel, business practices and opportunities of the Bank and may make such
changes as it deems appropriate following the Mergers.
FINANCIAL INFORMATION
For financial information relating to the combined entities see "Unaudited
Pro Forma Condensed Combined Financial Statements" and "Selected Comparative and
Pro Forma Financial Data."
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<PAGE> 33
RISK FACTORS
In addition to the other information in this Prospectus/Joint Proxy
Statement the following factors with respect to VBC should be considered
carefully in connection with the proposed Mergers.
GROWTH AND ACQUISITION STRATEGIES
VBC has pursued and intends to continue to pursue a growth strategy, the
success of which will depend primarily on generating an increasing level of
loans and deposits at acceptable risk levels and terms without proportionate
increases in noninterest expenses. There can be no assurance that VBC will be
successful in implementing its internal growth strategy. In addition, VBC may
seek to grow by acquiring other financial institutions. Any acquisitions will be
subject to regulatory approval, and there can be no assurance that VBC will
obtain such approvals. Other than the Mergers, VBC is not currently pursuing a
particular acquisition beyond initial, preliminary discussions with other
financial institutions, and VBC may not be successful in identifying further
acquisition candidates, integrating acquired institutions or preventing deposit
erosion at acquired institutions. Competition for acquisitions in VBC's market
area has become intensively competitive over the past few years, and VBC may not
be able to acquire other institutions on attractive terms. Furthermore, the
success of the growth strategy of VBC will depend on maintaining sufficient
regulatory capital levels and on continued favorable economic conditions in the
Denver/ Boulder area. See "Business of VBC -- Growth Strategy."
LIMITED TRADING MARKET FOR 1996 SERIES A PREFERRED STOCK
The 1996 Series A Preferred Stock offered hereby is being offered and sold
to a small number of shareholders of Bank Land and the Bank. It is contemplated
that there will be no active trading market for the 1996 Series A Preferred
Stock, although it may trade from time to time in isolated transactions effected
through broker-dealers. Therefore, there can be no assurance as to the liquidity
for the 1996 Series A Preferred Stock. Because there may be such a limited
market for the 1996 Series A Preferred Stock, any such isolated or limited
trades could be at substantial discounts. Future prices of the 1996 Series A
Preferred Stock will depend upon many factors, including, among other things,
the market price of VBC Common Stock, prevailing interest rates, the operating
results of VBC and the market for similar securities.
DECLINE IN MARKET VALUE OF INVESTMENTS
VBC designated substantially all of its securities investment portfolio as
available-for-sale when it implemented Statement of Financial Accounting
Standards No. 115 ("SFAS 115") relating to accounting for investments. SFAS 115
requires that unrealized gains and losses in the estimated value of the
available-for-sale portfolio (net of tax) be "marked-to-market" and reflected as
a separate item in shareholders' equity.
The bond market was unusually volatile during 1994 as a result of several
interest rate increases initiated by the Federal Reserve Board. VBC's investment
portfolio of mortgage-related securities and government agency bonds, nearly all
of which are issued by United States government sponsored entities, experienced
unrealized declines in market value due to the declines in the bond market. In
1995, the bond market was not as volatile. At March 31, 1996, the estimated
unrealized loss in the market value of the investments before tax effect totaled
$5.9 million or 3.3% of VBC's available-for-sale investment portfolio. This
valuation resulted in a $3.7 million after tax adjustment against VBC's
shareholders' equity or a reduction of 11.8% of its equity before such charge.
Management believes that several factors will affect the market values of
VBC's investment portfolio in the future. These include, but are not limited to,
further changes in interest rates or expectations of changes, the degree of
volatility in the market, inflation rates or expectations of inflation and the
slope of the interest rate yield curve. (The yield curve refers to the
differences between longer-term and shorter-term interest rates. A positively
sloped yield curve means shorter-term rates are lower than longer-term rates.)
Also the passage of time will affect the market values of the securities in that
the closer they are to maturing the closer the market price should be to par
value. In addition to the foregoing, there are other factors that impact
specific categories of the portfolio differently.
20
<PAGE> 34
VBC has chosen to maintain the flexibility to sell any or all of its
portfolio before it matures. During 1995, Vectra sold more than $60 million of
the securities it held at December 31, 1994 as part of its objective of reducing
the size and potential market value volatility of its investment portfolio.
These sales were completed with a total net loss on sales of approximately
$20,000. Management intends to continue its restructuring efforts to optimize
the structure of VBC's investment portfolio. Management believes that the
capital and liquidity of VBC are adequate to allow it to hold its portfolio and
continue its restructuring efforts into the foreseeable future. Shareholders'
equity will continue to reflect the unrealized gains and losses (net of tax) of
these investments. There can be no assurance that the market value of VBC's
investment portfolio will not decline, causing a corresponding decline in
shareholders' equity. See "The Mergers -- Conditions of the
Mergers -- Conditions to Obligations of Bank Land and the Bank," "Management's
Discussion and Analysis of Financial Condition and Results of Operations of VBC"
and "Business of VBC -- Investments."
INTEREST RATE CEILINGS ON VARIABLE RATE SECURITIES
Substantially all of the variable rate securities in the investment
portfolio of VBC are subject to interest rate ceilings. At March 31, 1996 the
excess of the rate ceilings over the current coupon rates varied from a low of
2.0% to a high of 9.7% (excluding FHLB notes) with most of these securities with
ceilings in the 3% to 6.5% range over the current coupon rates. The market
values of these securities would likely decline, causing a corresponding decline
in shareholders' equity, if the coupon rates increased to the ceiling levels or
higher, which would also likely negatively impact net interest income depending
on corresponding changes in the cost of deposits and other liabilities. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of VBC -- Investing Activities," and "Impact of Interest Rates and
Economic Conditions."
HISTORY OF OPERATIONS
Although VBC has been profitable for each of the last four years, there can
be no assurance that VBC will continue to be profitable. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
VBC."
ALLOWANCE FOR LOAN LOSSES
Inability of borrowers to repay loans can erode earnings and capital of
banks. Like all banks, Vectra maintains an allowance for loan losses to provide
for loan defaults and nonperformance. The allowance is based on prior experience
with loan losses, as well as an evaluation of the risks in the current
portfolio, and is maintained at a level considered adequate by management to
absorb anticipated losses. The amount of future losses is susceptible to changes
in economic, operating and other conditions, including changes in interest
rates, that may be beyond management control, and such losses may exceed current
estimates. At March 31, 1996, Vectra had nonperforming loans of $1.367 million
and an allowance for loan losses of $2.596 million or 1.26% of total loans and
190% of nonperforming loans. There can be no assurance that Vectra's allowance
for loan losses will be adequate to cover actual losses. Future provisions for
loan losses could materially and adversely affect results of operations of
Vectra. See "Business of VBC -- Nonperforming Assets" and "-- Analysis of
Allowance for Loan Losses."
ECONOMIC CONDITIONS AND IMPACT OF INTEREST RATES
Results of operations for financial institutions, including Vectra, may be
materially and adversely affected by changes in prevailing economic conditions,
including declines in real estate values, rapid changes in interest rates and
the monetary and fiscal policies of the federal government. The profitability of
VBC is in part a function of the spread between the interest rates earned on
assets and the interest rates paid on deposits and other interest-bearing
liabilities, including advances from the FHLB. See "Business of VBC -- FHLB
Borrowings." A decrease in interest rate spreads would have a negative effect on
the net interest income and profitability of VBC, and there can be no assurance
that this spread will not decrease. Although economic conditions in the market
area of VBC have been generally stronger than those in many other regions of the
country, there can be no assurance that such conditions will continue to
prevail. Moreover, substantially all of
21
<PAGE> 35
the loans of Vectra are to individuals and businesses in the Denver/Boulder
area, and any decline in the economy of this market area could have an adverse
impact on Vectra, and in turn, VBC. There can be no assurance that positive
trends or developments discussed herein will continue or that negative trends or
developments will not have a material adverse effect on VBC. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
VBC -- Asset/Liability Management."
Vectra has regularly used FHLB borrowings to fund a portion of its
investment portfolio. See "Business of VBC -- FHLB Borrowings." Investments of
Vectra funded with FHLB borrowings have principally been adjustable rate
securities, with coupon rates, which generally reset monthly, tied to several
indices. The FHLB borrowings of Vectra generally bear interest at variable
rates, which reset daily or monthly. Net interest income derived from the
investments funded by FHLB borrowings has declined in 1995 compared to prior
years because of a flattening and inversion of the yield curve. Flattening of
the yield curve means the difference between longer-term and shorter-term rates
decreases significantly. An inverted yield curve means shorter-term rates such
as Federal Funds rates have become higher than certain longer-term rates. Net
interest income derived from the investments funded by FHLB borrowings might
decline further if the degree of yield curve inversion were to increase (i.e.,
longer-term interest rates were to decline further below shorter-term rates) or
if a significant portion of the coupon rates of the variable rate securities
portfolio of Vectra became subject to interest rate ceilings. There can be no
assurance that Vectra will be able to earn returns or avoid losses from these
investing activities in the future. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations of VBC -- Asset/Liability
Management."
COMPETITIVE BANKING ENVIRONMENT
The banking business in Colorado is highly competitive. Vectra competes for
loans and deposits with other local, regional and national commercial banks,
savings banks, savings and loan associations, finance companies, money market
funds, brokerage houses, credit unions and nonfinancial institutions, many of
which have substantially greater financial resources than Vectra. Interstate
banking is permitted in Colorado. Currently, branch banking in Colorado is
allowed on a limited basis. After a phase-in period ending July 1, 1997, full
state-wide branch banking will be permitted. As a result, management believes
that Vectra may experience greater competition in its market area. See "Business
of VBC -- Competition" and "Supervision and Regulation of VBC."
DEPENDENCE ON KEY PERSONNEL
VBC is highly dependent on the continued services of Gary S. Judd, its
President and Chief Executive Officer, Ray L. Nash, its Chief Financial Officer,
and other key management personnel. VBC does not have employment agreements with
such persons, nor does it have key person insurance on any of their lives. The
loss of the services of these persons could adversely affect VBC. See
"Management of VBC."
SOURCES OF PAYMENTS OF DIVIDENDS
VBC is a bank holding company which owns and operates one state-chartered
bank, Vectra, with a total of 11 locations. Vectra's ability to pay dividends to
VBC is restricted by state and federal regulations. Without prior regulatory
approval, Vectra cannot pay dividends during any calendar year in excess of the
sum of its earnings during that year and the two previous years (less any other
distributions during that period). VBC does not intend to pay dividends on the
VBC Common Stock but instead intends to retain earnings to support the growth of
its business.
GOVERNMENT REGULATION AND RECENT LEGISLATION
VBC and Vectra are subject to extensive federal and state legislation,
regulation and supervision which is intended primarily to protect depositors and
the Bank Insurance Fund, rather than shareholders. Recently enacted, proposed
and future legislation and regulations designed to strengthen the banking
industry have had and may continue to have a significant impact on the banking
industry. Although some of the legislative and regulatory changes may benefit
VBC and Vectra, others may increase its costs of doing business or otherwise
22
<PAGE> 36
adversely affect it and create competitive advantages for non-bank competitors.
See "Supervision and Regulation of VBC."
LIMITED MARKET HISTORY; POSSIBLE VOLATILITY OF MARKET PRICE
The VBC Common Stock has traded in the Nasdaq National Market since March
24, 1994. There can be no assurance, however, that a market for the VBC Common
Stock will be sustained or that VBC will qualify for listing in such market in
the future. VBC has a number of market makers for the VBC Common Stock; however,
such market makers are not obligated to continue to make a market for VBC Common
Stock. The market prices of the VBC Common Stock may be volatile depending on
various factors, including the general economy, stock market conditions,
announcements by VBC or its competitors and fluctuations in operating results of
VBC. There is no trading market for any of the capital stock of Bank Land or
Bank.
SHARES OF VBC COMMON STOCK ELIGIBLE FOR FUTURE SALE
Substantially all of the outstanding shares of VBC Common Stock may be sold
in the public market subject, in the case of shares owned by affiliates of VBC,
to compliance with Rule 144 under the Securities Act of 1933. Future market
sales of shares of VBC Common Stock may depress the market price of the VBC
Common Stock. See "Shares Eligible of VBC for Future Sale."
ANTI-TAKEOVER PROVISIONS; LIMITATION ON OWNERSHIP
Federal law requires the prior approval of the Board of Governors for the
acquisition of "control" of a bank holding company. In addition, the board of
directors of VBC has the authority to fix the rights and preferences of and
issue additional series of preferred stock which may affect a potential change
of control. The outstanding 1994 Series A Preferred Stock of VBC is mandatorily
redeemable, and the 1996 Series A Preferred Stock of VBC will be redeemable, at
the option of VBC, in the event of a "change of control" of VBC subject, in
either case, to the prior approval of the Board of Governors, and to the extent
not converted would require a redemption payment of approximately $19 million in
the case of a change of control. These provisions may make it more difficult for
an outside party to acquire control of VBC. See "Supervision and Regulation of
VBC" and "Description of VBC 1996 Series A Preferred Stock" and "Description of
Other VBC Capital Stock -- VBC 1994 Preferred Stock."
SPECIAL MEETINGS OF BANK LAND, THE BANK AND VBC SHAREHOLDERS
GENERAL
This Prospectus/Joint Proxy Statement is furnished in connection with the
solicitation of proxies by and on behalf of: (a) the Bank Land Board to be used
at the Bank Land Special Meeting to be held at 1380 South Federal Boulevard,
Denver, Colorado, on June 18, 1996, at 9:00 a.m., local time, and at any
adjournments or postponements thereof; (b) the Bank Board to be used at the Bank
Special Meeting to be held at 1380 South Federal Boulevard, Denver, Colorado, on
June 18, 1996, at 10:30 a.m., local time, and at any adjournments or
postponements thereof; and (c) the VBC Board to be used at the VBC Special
Meeting to be held at 1650 South Colorado Boulevard, Denver, Colorado, on June
18, 1996, at 8:00 a.m., local time, and at any adjournments or postponements
thereof. This Prospectus/Joint Proxy Statement was first mailed to the
respective Bank Land, the Bank and VBC Shareholders on or about June 4, 1996.
PURPOSE OF SPECIAL MEETINGS
BANK LAND SPECIAL MEETING. The purpose of the Bank Land Special Meeting is
to consider and to vote upon a proposal to approve and adopt the Merger
Agreement and the related Bank Land Merger contemplated thereby and such other
matters as may properly be brought before the Bank Land Special Meeting.
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<PAGE> 37
BANK SPECIAL MEETING. The purpose of the Bank Special Meeting is to
consider and vote upon a proposal to approve and adopt the Merger Agreement and
the Bank Merger contemplated thereby and such other matters as may properly be
brought before the Bank Special Meeting.
VBC SPECIAL MEETING. The purpose of the VBC Special Meeting is to consider
and vote upon a proposal to approve the issuance of VBC securities pursuant to
the Merger Agreement and such other matters as may properly be brought before
the VBC Special Meeting.
QUORUM AND VOTING RIGHTS
BANK LAND SPECIAL MEETING. The presence, in person or by proxy, of the
holders of a majority of the Bank Land Class A Common Stock, Class B Common
Stock, and Preferred Stock is necessary to constitute a quorum at the Bank Land
Special Meeting. Shares which are present in person or by proxy, but abstain
from voting with respect to one or more proposals voted upon at the Bank Land
Special Meeting, will be included for purposes of determining a quorum. The Bank
Land Record Date for determining shareholders entitled to notice of, and to vote
at, the Bank Land Special Meeting or any adjournments or postponements thereof
is the close of business on June 3, 1996. As of the Bank Land Record Date, the
following three classes of Bank Land capital stock were issued and outstanding:
(i) 334,833 shares of Class A Common Stock, (ii) 10,000 shares of Class B Common
Stock, and (iii) 100,000 shares of Bank Land Preferred Stock. Each of such
classes is entitled to vote separately on the Merger Agreement and each share
within each class is entitled to one vote. Gary A. Mosko, the President and
Chairman of the Board of Bank Land and Bank owns all of the Bank Land Class B
Common Stock and Bank Land Preferred Stock and has agreed as a part of the
Merger Agreement to vote all of his Bank and Bank Land shares in favor of the
Merger Agreement.
All shares of Bank Land Class A Common Stock represented by properly
executed proxies will, unless such proxies have been previously revoked, be
voted in accordance with the instructions indicated in such proxies. If no such
instructions are indicated, such shares will be voted FOR approval of the Merger
Agreement and in the discretion of the proxy holder as to any other matter which
may properly come before the Bank Land Special Meeting. Any Bank Land
Shareholder has the unconditional right to revoke his or her proxy at any time
prior to the voting thereof at the Bank Land Special Meeting by filing with the
Secretary of Bank Land an instrument revoking it or a duly executed proxy
bearing a later date or by voting in person at the Bank Land Special Meeting.
Attendance by a Bank Land Shareholder at the Bank Land Special Meeting will not
in itself revoke his or her proxy. Written revocations of proxy should be sent
to Bank Land at 1380 South Federal Boulevard, Denver, Colorado 80219, Attention:
Gary A. Mosko, Secretary.
Solicitations of proxies for use at the Bank Land Special Meeting may be
made in person or by mail, telephone or telegraph, by directors or officers of
Bank Land. Such persons will receive no special compensation for any
solicitation activities. The costs of preparing and mailing this
Prospectus/Joint Proxy Statement (other than printing costs which will be borne
by VBC) and all clerical and other solicitation expenses will be borne by Bank
Land and Bank.
The affirmative vote of the holders of two-thirds of the outstanding shares
of Bank Land Class A Common Stock, Class B Common Stock and Preferred Stock,
each voting separately as a class, is required to approve the Merger Agreement
and the related Bank Land Merger.
Bank Land believes that the two-thirds vote on the Merger Agreement and the
related Bank Land Merger is virtually assured. Bank Land's two Board members,
Gary A. Mosko and James A. Lustig, beneficially own a total of 154,654 shares
(46.2%) of the outstanding shares of the Class A Common Stock and Mr. Mosko owns
all of the outstanding shares of the Class B Common Stock and the Bank Land
Preferred Stock. Mr. Mosko and Mr. Lustig have each agreed as a part of the
Merger Agreement to vote all shares of Bank Land capital stock beneficially
owned by them in favor of the Merger Agreement and the Bank Land Merger. In
addition, the two sisters of Mr. Mosko, the two sisters of Mr. Lustig and Elliot
and Ruth Handler, as trustees of the Elliot and Ruth Handler Living Trust UTD,
collectively owning an aggregate of 128,435 shares (38.4%) of the outstanding
shares of Class A Common Stock, have shown a strong inclination to vote in favor
of the Merger Agreement and the Bank Land Merger. See "Principal Shareholders of
Bank Land and the Bank -- Bank Land."
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<PAGE> 38
Notwithstanding the virtual certainty that the two-thirds vote requirement
for approval of the Merger Agreement and the related Bank Land Merger will be
satisfied at the Bank Land Special Meeting and that, therefore, the favorable
vote by the holders of the remaining outstanding shares of Class A Common Stock
will not be necessary for approval of the proposal, such Bank Land Shareholders
will have the opportunity to vote on the proposal. As noted under "Rights of
Bank Land and the Bank Dissenting Shareholders -- Bank Land," Bank Land
Shareholders may dissent from the Bank Land Merger and obtain payment of the
fair value of their shares under Article 113 of the CBCA, if and when the Bank
Land Merger is effectuated. Any Bank Land Shareholder who votes his or her
shares of Bank Land Class A Common Stock in favor of the Merger Agreement and
the related Bank Land Merger will not be entitled to demand payment for his or
her shares under Article 113 and may later be prevented from bringing legal
action in opposition to the transaction.
As of the date of this Prospectus/Joint Proxy Statement, the Bank Land
Board has no knowledge of any business, other than approval of the Merger
Agreement and the related Bank Land Merger, to be presented for consideration or
action at the Bank Land Special Meeting. If any other business should properly
come before the Bank Land Special Meeting, and the enclosed form of proxy is
returned, the persons appointed therein as proxy holders will have discretionary
authority to vote such proxy as they decide.
BANK SPECIAL MEETING. The presence, in person or by proxy, of the holders
of a majority of the outstanding Bank Common Stock is necessary to constitute a
quorum at the Bank Special Meeting. Shares which are present in person or by
proxy, but abstain from voting, with respect to one or more proposals voted upon
at the Bank Special Meeting, will be included for purposes of determining a
quorum. The Bank Record Date for determining shareholders entitled to notice of
and to vote at the Bank Special Meeting or any adjournment or postponement
thereof is the close of business on June 3, 1996. As of such date there were
issued and outstanding 150,000 shares of Bank Common Stock, each of which is
entitled to one vote at the Bank Special Meeting or at any adjournments or
postponements thereof.
All shares of Bank Common Stock represented by properly executed proxies
will, unless such proxies have been previously revoked, be voted in accordance
with the instructions indicated in such proxies. If no such instructions are
indicated, such shares will be voted FOR approval of the Merger Agreement and,
in the discretion of the proxy holder, as to any other matter which may properly
come before the Bank Special Meeting. Any Bank Shareholder has the unconditional
right to revoke his or her proxy at any time prior to the voting thereof at the
Bank Special Meeting by filing with the Secretary of Bank an instrument revoking
it or a duly executed proxy bearing a later date or by voting in person at the
Bank Special Meeting. Attendance by a shareholder at the Bank Special Meeting
will not in itself revoke his or her proxy. Written revocations of proxies
should be sent to Bank at 1380 South Federal Boulevard, Denver, Colorado 80219,
Attention: Chess R. Martin, Secretary.
Solicitations of proxies for use at the Bank Special Meeting will be made
in person or by mail, telephone or telegram by directors or officers of Bank.
Such persons will receive no special compensation for any solicitation
activities. The costs of preparing and mailing this Prospectus/Joint Proxy
Statement (other than printing costs which will be borne by VBC) and all
clerical and other solicitation expenses will be borne by Bank Land and Bank.
The affirmative vote of the holders of two-thirds of the outstanding shares
of Bank Common Stock is required to approve the Merger Agreement and the related
Bank Merger.
The two-thirds vote on the Merger Agreement and the Bank Merger is assured.
Bank Land owns 138,211.96 shares (92.14%) of the outstanding shares of Bank
Common Stock. Bank Land intends to vote all of those shares in favor of the
Merger Agreement and the related Bank Merger. Gary A. Mosko and James A. Lustig
and family trusts controlled by them collectively own an additional 1,354.74
shares (.9%) of the outstanding shares of Bank Common Stock. These shares will
also be voted in favor of the proposal.
Notwithstanding the certainty that the two-thirds vote requirement for
approval of the Merger Agreement and the related Bank Merger will be satisfied
at the Bank Special Meeting and that, therefore, the favorable vote by the
holders of the remaining outstanding shares of Bank Common Stock will not be
necessary for approval of the proposal, such Bank Shareholders will have the
opportunity to vote on the proposal at the Bank Special Meeting. As noted under
"Rights of Bank Land and the Bank Dissenting
25
<PAGE> 39
Shareholders -- the Bank," Bank Shareholders will be entitled to receive the
value of their shares of Bank Common Stock if and when the Bank Merger becomes
effective subject to compliance with Section 11-4-105 of the CBCA. Any Bank
Shareholder who does not vote against the Merger Agreement and the related Bank
Merger at the Bank Special Meeting will not be entitled to exercise those rights
and may later be prevented from bringing legal action in opposition to the
transaction.
At the date of this Prospectus/Joint Proxy Statement, the Bank Board has no
knowledge of any business, other than approval of the Merger Agreement and the
related Bank Merger to be presented for consideration or action at the Bank
Special Meeting. If any other business should properly come before the Bank
Special Meeting and the enclosed form of proxy is returned, the person or
persons appointed therein as proxy holders will have discretionary authority to
vote such proxy as they decide.
VBC SPECIAL MEETING. The presence, in person or by proxy, of the holders of
a majority of the outstanding VBC Common Stock is necessary to constitute a
quorum at the VBC Special Meeting. Shares which are present in person or by
proxy, but abstain from voting, with respect to one or more proposals voted upon
at the VBC Special Meeting, will be included for purposes of determining a
quorum. The VBC Record Date for determining shareholders entitled to notice of
and to vote at the VBC Special Meeting or any adjournment or postponement
thereof is the close of business on May 17, 1996. As of such date there were
issued and outstanding 3,195,279 shares of VBC Common Stock, each of which is
entitled to one vote at the VBC Special Meeting or at any adjournments or
postponements thereof.
All shares of VBC Common Stock represented by properly executed proxies
will, unless such proxies have been previously revoked, be voted in accordance
with the instructions indicated in such proxies. If no such instructions are
indicated, such shares will be voted FOR approval of the Merger Agreement and,
in the discretion of the proxy holder, as to any other matter which may properly
come before the VBC Special Meeting. Any VBC Shareholder has the unconditional
right to revoke his or her proxy at any time prior to the voting thereof at the
VBC Special Meeting by filing with the Secretary of VBC an instrument revoking
it or a duly executed proxy bearing a later date or by voting in person at the
VBC Special Meeting. Attendance by a shareholder at the VBC Special Meeting will
not in itself revoke his or her proxy. Written revocations of proxies should be
sent to VBC at 1650 South Colorado Boulevard, Denver, Colorado 80222, Attention:
Ray L. Nash, Secretary.
Solicitations of proxies for use at the VBC Special Meeting will be made in
person or by mail, telephone or telegram by directors or officers of VBC. Such
persons will receive no special compensation for any solicitation activities.
The costs of preparing and mailing this Prospectus/Joint Proxy Statement and all
clerical and other solicitation expenses will be borne by VBC. VBC estimates
that the total expenses of soliciting the VBC Shareholders and to hold the VBC
Special Meeting, consisting primarily of printing and mailing costs, will be
approximately $40,000.
The affirmative vote of the holders of a majority of a quorum of the
outstanding shares of VBC Common Stock is required to approve the issuance of
VBC securities pursuant to the Merger Agreement. Under the bylaws of VBC, a
majority of the outstanding shares eligible to vote is the minimum number
present, in person or by proxy, is the minimum number of shares necessary to
constitute a quorum.
At the date of this Prospectus/Joint Proxy Statement, the VBC Board has no
knowledge of any business, other than approval of the Merger Agreement to be
presented for consideration or action at the VBC Special Meeting. If any other
business should properly come before the VBC Special Meeting and the enclosed
form of proxy is returned, the person or persons appointed therein as proxy
holders will have discretionary authority to vote such proxy as they decide.
RECOMMENDATIONS OF BANK LAND, THE BANK AND VBC BOARDS
BANK LAND BOARD. The Bank Land Board (consisting of two directors, Gary A.
Mosko and James A. Lustig) has unanimously approved the Merger Agreement and has
determined that the Bank Land Merger is fair to, and in the best interests of,
the Bank Land Shareholders. The Bank Land Board, including Mr. Mosko, therefore,
recommends that the Bank Land Shareholders vote FOR approval of the Merger
Agreement and
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<PAGE> 40
the Bank Land Merger. See "The Mergers -- Background of and Reasons for the
Mergers" and "Fairness Opinions of Bank Land and Bank Financial Advisor." Also
see "The Mergers -- Interests of Chairman of the Board and President of Bank
Land and the Bank in the Mergers" for information concerning the personal
interests of Mr. Mosko in the Merger Agreement and related Mergers.
BANK BOARD. The Bank Board (consisting of five directors, including Gary A.
Mosko and James A. Lustig), has unanimously approved the Merger Agreement and
has determined that the Bank Merger is fair to, and in the best interests of,
the Bank Shareholders. The Bank Board, including Mr. Mosko, therefore,
recommends that the Bank Shareholders vote FOR approval of the Merger Agreement
and the Bank Merger. See "The Mergers -- Background of and Reasons for the
Mergers" and "Fairness Opinions of Bank Land and Bank Financial Advisor." Also
see "The Mergers -- Interests of Chairman of the Board and President of Bank
Land and the Bank in the Mergers" for information concerning the personal
interests of Mr. Mosko in the Merger Agreement and related Mergers.
BANK LAND AND THE BANK SHAREHOLDERS SHOULD NOT SEND THEIR STOCK CERTIFICATES
WITH THEIR PROXIES.
VBC BOARD. The VBC Board has unanimously approved the Merger Agreement and
has determined that the issuance of VBC securities pursuant to the Mergers is
fair and in the best interests of, the VBC Shareholders. The VBC Board,
therefore, recommends that the VBC Shareholders vote FOR approval of the
issuance of VBC securities pursuant to the Merger Agreement. See "The
Mergers -- Background of and Reasons for the Mergers."
THE MERGERS
Pursuant to the terms of the Merger Agreement, subject to the satisfaction
or waiver (where permissible) of certain conditions, including, among other
things, both Bank Land and the Bank will cease to exist as separate entities,
and Bank Land Shareholders and Bank Shareholders will become holders of the 1996
Series A Preferred Stock and receive cash.
The terms of and conditions to the Mergers are contained in the Merger
Agreement, a copy of which is attached to this Prospectus/Joint Proxy Statement
as Appendix A and incorporated herein by reference. The description in this
Prospectus/Joint Proxy Statement of the terms of the Merger Agreement is
qualified in its entirety by, and made subject to, the text of the Merger
Agreement. Bank Land Shareholders and Bank Shareholders are encouraged to read
the Merger Agreement in its entirety.
BACKGROUND OF AND REASONS FOR THE MERGERS
At various meetings with senior management of Bank Land held during late
1994 and early 1995, Wallach presented its analysis and evaluation of strategic
options available to Bank Land and Bank to maximize shareholder value. On
February 7, 1995, Wallach was formally engaged by Bank Land to approach a
selected group of prospective purchasers, assist in structuring and negotiating
a possible business combination transaction, and render its opinion regarding
the fairness, from a financial point of view, of the consideration proposed to
be paid to the Bank Land Shareholders for 100% of the outstanding capital stock
of Bank Land. Wallach was formally engaged by the Bank as of January 4, 1996, to
render similar services to the Bank.
During the spring of 1995, Wallach identified potential purchasers for Bank
Land and the Bank and prepared informational packages describing each of those
entities for indications of interest in a bidding process to acquire Bank Land
and the Bank. In the summer of 1995, Wallach contacted 15 potential merger
candidates to determine their interest in Bank Land and the Bank and based on
discussions and meetings with management of Bank Land and Wallach, and review of
additional information, four parties including VBC, elected to submit
indications of interest. The terms of VBC's exchange offer consisted primarily
of consideration of 50.1% in convertible preferred stock and 49.9% in cash, and
was developed by its management based on discussions and meetings with
management of Bank Land and Wallach. Of these four parties, one subsequently
elected not to pursue further discussions with Bank Land. That party had the
highest offer price
27
<PAGE> 41
in its indication of interest. Thereafter, Wallach held discussions with each of
the other potential purchasers to determine their willingness to increase their
offers. VBC indicated its willingness to increase its offer, while the other two
bidders declined to do so. An analysis of these three remaining proposals was
presented by Wallach to members of the Bank Land Board during meetings held in
October 1995. During the course of these meetings, a comprehensive discussion
and analysis of the following factors was conducted in determining with which
merger candidate to proceed: (a) Bank Land's and the Bank's Boards obligation to
maximize the benefit to Bank Land Shareholders and Bank Shareholders; (b) the
market risk and opportunity associated with a stock-for-stock transaction, an
all cash-for-stock transaction; or VBC's part stock/part cash-for-stock
transaction; (c) VBC's indicated willingness to increase its price; (d) the
wherewithal of the various parties to complete the transaction; (e) the benefit
to the Bank Land Shareholders and Bank Shareholders of receiving convertible
preferred stock proposed by VBC versus common stock offered by one of the other
two candidates; (f) the tax consequences of the transaction to Bank Land
Shareholders and Bank Shareholders; (g) the proposed terms of a definitive
agreement; and (h) the effect of the various proposed transactions on the Bank
employees and customers and on the community.
Based on these discussions and analyses, Bank Land permitted VBC to conduct
due diligence. VBC thereafter met with Wallach, who represented Bank Land and
the Bank, to negotiate specific terms. Following submission of a revised VBC
offer, which included an increased price, Wallach and VBC met to further
negotiate revisions to the offer, including a more favorable conversion price
for the preferred stock. VBC agreed to improve its offer, resulting in the terms
set forth in the Merger Agreement.
The exchange terms between VBC and Bank Land and the Bank were negotiated
between management of VBC and Wallach. In the negotiations, VBC sought to
purchase 100% of the Bank Common Stock and the building and land owned by Bank
Land and occupied by the Bank. Therefore, VBC needed to purchase 100% of the
Bank Land Common Stock and all of the minority shares of the Bank. In its
negotiations with VBC, Wallach sought to maximize the total aggregate price to
the Bank Land and Bank Shareholders together. No allocation of the Final
Purchase Price between Bank Land and the Bank was established until after the
final combined offer was received from VBC.
In its negotiations with VBC, Bank Land and the Bank were each represented
by Wallach. The persons to whom Wallach reported at Bank Land and the Bank, and
with whom Wallach conducted active, ongoing dialogue and consultation, were Gary
A. Mosko, President and Chairman of both Bank Land and the Bank, and James A.
Lustig, Director of both Bank Land and the Bank. The allocation of the Final
Purchase Price between Bank Land and the Bank was suggested by Wallach, with the
initial approval of Messrs. Mosko and Lustig, and final approval of the Boards
of Directors of Bank Land and the Bank. There were no negotiations among any of
the parties on the allocation of the Final Purchase Price. Wallach made its
recommendation for allocation of the Final Purchase Price based on the relative
ownership of the Bank, except for the other assets owned by Bank Land. The only
other assets of Bank Land were cash, receivables and the building and land. The
cash and receivables were valued at book value and the building and land were
valued by an independent appraisal. The building and land appraisal will be
updated to a date proximate to Closing and the final proration calculations will
be based on financial data as of Month End prior to the Closing.
Following the submission of VBC's final offer the Bank Land Board
determined that of the remaining three proposals, the VBC offer would produce
the maximum benefit to the Bank Land Shareholders and Bank Shareholders, based
primarily upon (i) it being a part cash/part stock offer in which income taxes
could be deferred with respect to the stock portion of the offer and the
remaining cash portion of the offer, although taxable, would be immediately
realizable by Bank Land Shareholders and Bank Shareholders, (ii) it being the
highest value of the three proposals in nominal terms, (iii) the good prospects
for long-term growth in VBC's stock and (iv) VBC's history of completing
acquisitions. Further, the Bank Land Board felt that the proposed transaction
with VBC offered the likelihood of stability of the operations of the Bank,
thereby benefiting employees, customers and the community. After completing its
analysis the Bank Land Board elected to move forward with negotiations with VBC.
The drafting of a definitive Merger Agreement, together with detailed due
diligence then ensued. Following the approval of the Merger Agreement by the
Bank Land Board as of December 21, 1995, the Merger Agreement was executed by
Bank Land, VBC and Vectra on December 26, 1995. The Bank Board
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<PAGE> 42
met on January 9, 1996, to further analyze the Vectra proposal and following
that analysis, the Bank Board elected to approve the Merger Agreement, and the
Merger Agreement was executed by the Bank on that date. (The Bank Land Board and
the Bank Board are sometimes collectively referred to herein as the "Boards.")
The Bank Land Board and the Bank Board believe the Mergers with Vectra are
in the best interests of their respective shareholders. After careful
consideration and review, the Bank Land Board and the Bank Board reached their
respective decisions based on an analysis of following critical factors:
- With the rapidly changing environment in the banking industry, Bank Land
and the Bank would benefit from an association with a larger banking
organization and its resources.
- A business combination with a larger bank holding company would likely be
the most advantageous method for maximizing respective shareholder
values.
- Vectra's offer provides greater economic value to Bank Land Shareholders
and Bank Shareholders than Bank Land and the Bank would likely be able to
generate in the foreseeable future by remaining independent, which value
the respective Boards deemed the highest of the three offers received by
Bank Land and the Bank.
- The possible impact of the change in the Federal branch banking laws and
the likelihood of an impact of increased competition from lower cost,
noncapitalized branches operating in Bank's market.
- The present market and price being paid for bank stocks as a whole.
- The business, financial condition, results of operations, and prospects
of the Bank on a stand-alone basis and a pro forma basis, assuming a
combination of Bank Land and the Bank with VBC.
- The VBC offer involves mergers on a partial tax deferred basis, giving
Bank Land Shareholders and Bank Shareholders the option to the extent of
the stock portion of the VBC offer of either continuing to participate as
a shareholder in a larger, more geographically diverse regional banking
organization or liquidating their investment by selling their 1996 Series
A Preferred Stock or by converting such stock into VBC Common Stock. The
VBC Common Stock is publicly traded in the Nasdaq National Market, unlike
Bank Land or the Bank Common Stock for which there is no trading market.
- The combined strengths of the Bank and Vectra in servicing the needs of
the communities in the Bank's market, VBC and Vectra's management
abilities, and the compatibility of the Bank's and VBC's and Vectra's
operating philosophies.
- The current market price of VBC Common Stock, book value and recent
earnings, lack of VBC's dividend paying history, and the respective
fairness opinions of Wallach to Bank Land and the Bank, the terms of the
Merger Agreement and other factors.
Based on these factors, and without attributing relative weights to any of
the foregoing, the Bank Land Board and the Bank Board, including Gary A. Mosko,
unanimously recommends that their respective shareholders vote FOR approval of
the Mergers. See "The Mergers -- Interests of Chairman of the Board and
President of Bank Land and the Bank in the Mergers" for information concerning
the personal interests of Mr. Mosko in the Merger Agreement and related Mergers.
RECOMMENDATION OF THE VBC BOARD
The VBC Board has unanimously approved the Merger Agreement and has
determined that the issuance of VBC securities pursuant to the terms of the
Merger Agreement is fair to, and in the best interests of, the VBC Shareholders.
While approval of VBC Shareholders is not required under Colorado law, the
bylaws of the NASD require that shareholders of companies whose securities trade
in the Nasdaq National Market must receive shareholder approval in the event a
possible issuance of securities could result in the issuance of 20% or more of
the voting securities of such companies. The Vectra Board believes that it is
unlikely that, if and when converted, the 1996 Series A Preferred Stock would be
converted into VBC Common Stock such that 20% or
29
<PAGE> 43
more of VBC Common Stock would be held by the former holders of the 1996 Series
A Preferred Stock. However, it has determined to solicit VBC Shareholder
approval of the issuance of the VBC securities pursuant to the Merger Agreement
rather than engage in a potential dispute with the NASD regarding the
applicability of the above bylaw provision.
The VBC Board did not retain any person to render a fairness opinion with
respect to the VBC Shareholders, as it believes such an opinion is not necessary
or advisable in light of Vectra's history of acquisitions and that the Vectra
Shareholders will not be receiving any new securities nor do they have rights to
dissent to the Mergers under Colorado law.
After careful consideration and review, the VBC Board reached its decision
based on an analysis of following critical factors:
- VBC believes that its growth strategy will be enhanced by the proposed
transactions. As set forth in "Business of VBC," management expects to
continue VBC's growth strategy. Management believes that this strategy
will be well served by the acquisition of Bank Land and the Bank;
- VBC will also benefit from adding another well-established location to
its banking network. The Bank complements VBC's strategy of establishing
geographically dispersed locations throughout the Denver-Boulder,
Colorado area.
- The business, financial condition, results of operations, and prospects
of VBC on a stand-alone basis and a pro forma basis, assuming a
combination of Bank Land and the Bank with Vectra. The VBC Board has
analyzed the combination of VBC and Bank Land and the Bank, and believes
that the combination of the entities would be beneficial to VBC
Shareholders;
- VBC and the Bank's management abilities, and the compatibility of the
Bank's and VBC's and Vectra's operating philosophies. As set forth in
"The Mergers -- Interests of Chairman of the Board and President of Bank
Land and the Bank in the Mergers," VBC will be adding Gary A. Mosko to
the VBC Board and entering into an employment agreement with Mr. Mosko
upon the Closing. The VBC Board believes that the addition of Mr. Mosko
to VBC will be of benefit to VBC Shareholders. In addition, Bank Land and
the Bank are actively involved in the community in which the Bank is
located, which has resulted in increased customer awareness and increased
business to the Bank.
- The terms of the Merger Agreement and other factors. See "Conditions to
The Mergers."
Based on these factors, and without attributing relative weights to any of
the foregoing, the VBC Board unanimously recommends that the VBC Shareholders
vote FOR approval of the issuance of VBC securities pursuant to the Merger
Agreement.
ALLOCATION OF THE FINAL PURCHASE PRICE
Because Bank Land owns 92.14% of the Bank Common Stock and also owns 100%
of the building and land occupied by the Bank, the Final Purchase Price will be
apportioned between the Bank Land Shareholders and the Bank Shareholders (other
than Bank Land). The method used to apportion the Final Purchase Price is to
prorate the entire Final Purchase Price between the two entities based on the
ownership of the Bank except that the value of Bank Land's assets (other than
its shares of the Bank) are valued at book value or appraised value in the case
of real estate. For example, if Bank Land's non-bank assets are valued at
$1,955,000, then the remainder of the Final Purchase Price, or $20,401,000
($22,356,000 minus $1,955,000) is allocated between the Bank minority
shareholders and Bank Land based on the interest in relative ownership in the
Bank. This method of allocation was established by management of Bank Land and
the Bank with the assistance of Wallach and approved by both Boards of
Directors.
Accordingly, the value of Bank Land will be established as its net worth,
adjusted upwards based on the difference in the appraised and book value of its
building and land, and will be reduced by the book value of Bank Land's
investment in the Bank. By this method, the value of Bank Land, excluding its
investment in Bank Common Stock, was approximately $1,955,000 at March 31, 1996,
and that amount (or adjusted
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<PAGE> 44
amount, as further provided below in this paragraph) will be allocated to Bank
Land from the Final Purchase Price. The remainder of the Final Purchase Price,
estimated to be $20,401,000, will be assigned to the Bank Common Stock and will
be split between Bank Land Shareholders and Bank Shareholders (other than Bank
Land) on the following basis: $18,797,000 (92.14%) to Bank Land Shareholders and
$1,604,000 (7.86%) to the Bank Shareholders (other than Bank Land). The building
and land appraisal will be updated to a date proximate to the Closing and the
final proration calculations will be based on financial data as of the Month End
prior to the Closing.
Using an assumed Closing Date of June 30, 1996, the gross purchase price
(before deduction of the Wallach Bank Land and Bank Transaction Fees and other
costs, if any) will be allocated as set forth in the following table:
<TABLE>
<CAPTION>
CALCULATION OF ALLOCABLE ALLOCABLE TO
BANK LAND VALUE TO BANK LAND BANK MINORITY
EXCLUDING BANK TOTAL SHAREHOLDERS SHAREHOLDERS
--------------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Assumed Final Purchase Price....... $22,356,000
Calculation of Bank Land value
excluding the Bank:
Net worth at March 31, 1996...... $13,747,000
Less investment in the Bank...... (12,944,000)
Less investment in land and
building...................... (98,000)
Plus appraised value of land and
building...................... 1,250,000
---------
Value of Bank Land excluding the
Bank.......................... $ 1,955,000 1,955,000 $ 1,955,000
=========
----------
Portion of Final Purchase Price
Allocable to Bank................ $20,401,000
==========
Bank Final Purchase Price
allocation:
Bank Land Shareholders at
92.14%........................ 18,797,000
Bank minority shareholders
at 7.86%...................... $ 1,604,000
---------- ---------- ---------
Allocation of Final Purchase
Price............................ $22,356,000 $ 20,752,000 $ 1,604,000
========== ========== =========
</TABLE>
Assuming the deduction of the Wallach Bank Land and Bank Transaction Fees
and merger costs greater than $100,000, if any, the Bank Land Final Purchase
Price and the Bank Final Purchase Price are estimated as follows:
<TABLE>
<CAPTION>
ALLOCABLE ALLOCABLE TO
TO BANK LAND BANK MINORITY
TOTAL SHAREHOLDERS SHAREHOLDERS
----------- ------------ -------------
<S> <C> <C> <C>
Final Purchase Price............................... $22,356,000 $ 20,752,000 $ 1,604,000
Less: Wallach Bank Land and Bank Transaction
Fees.......................................... 327,000 304,000 23,000
Less: Merger Costs, if any, greater than
$100,000...................................... -- -- --
---------- ----------
$22,029,000
Bank Land Final Purchase Price..................... $ 20,448,000
==========
Bank Final Purchase Price.......................... $ 1,581,000
==========
</TABLE>
FAIRNESS OPINIONS OF BANK LAND AND THE BANK FINANCIAL ADVISOR
Wallach has rendered an opinion that, as of June 4, 1996, the date of this
Prospectus/Joint Proxy Statement, the Bank Land Merger Consideration to be
received by Bank Land Shareholders in the Bank Land Merger is fair to the Bank
Land Shareholders from a financial point of view. Wallach has rendered a
separate
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<PAGE> 45
opinion that, as of June 4, 1996, the Bank Merger Consideration to be received
by the Bank Shareholders (other than Bank Land) in the Bank Merger is fair to
the Bank Shareholders from a financial point of view. The full texts of the
respective fairness opinions are attached hereto as Appendix D (Bank Land) and
Appendix E (Bank) and should be read in their entirety by the Bank Land
Shareholders and Bank Shareholders, respectively. The summary of the respective
opinions is qualified in its entirety by reference to the full text of the
related opinion.
The Bank Land Board and the Bank Board retained Wallach as their financial
advisor on the basis of the firm's experience and expertise with the financial
services and banking industries and with transactions similar to the Mergers.
Wallach is familiar with Bank Land and the Bank, having provided certain
investment banking services to Bank Land during the second quarter of 1994 in
connection with the proposed acquisition of Bank Land by a locally-owned
multi-bank holding company based in the Denver metropolitan area. The proposed
acquisition was mutually terminated on June 30, 1994 due to an inability to
reach final terms.
In connection with delivering its fairness opinions, Wallach, among other
things:
(a) Reviewed certain financial statements and other financial
information of Bank Land and the Bank;
(b) Reviewed the current condition and growth prospects for Bank Land
and the Bank, including financial projections prepared by Bank Land and the
Bank management;
(c) Discussed the past and current operations and financial condition
and prospects of the Bank with management of Bank Land and the Bank;
(d) Considered the prospect for value, liquidity, dividend yield and
appreciation if the Bank were to remain independent;
(e) Evaluated the economic, banking and competitive climate in
Colorado, with special consideration given to recent transactions that may
have increased the competitive environment of the financial services and
banking industries;
(f) Reviewed the process used in marketing Bank Land and the Bank,
including a review of potential acquirors contacted and their responses
relative to a potential acquisition of Bank Land and the Bank;
(g) Compared the various offers received and not withdrawn from
interested parties and determined that the Vectra offer represented the
highest value in absolute terms;
(h) Compared the Vectra offer to recent transactions involving other
institutions in Colorado and the Denver metropolitan area;
(i) Reviewed the implications for Bank Land Shareholders and Bank
Shareholders of receiving stock of VBC with regard to prospects for
liquidity and such stock and cash with regard to taxation;
(j) Met with VBC management and reviewed certain financial statements
and reports of VBC and Vectra;
(k) Examined the pricing and terms of the 1996 Series A Preferred
Stock;
(l) Examined the price and trading activity for VBC stock;
(m) Reviewed the Merger Agreement;
(n) Analyzed the price obtainable for Bank Land Common Stock and the
Bank Common Stock at this time compared with the risks involved in possible
price available at a later time;
(o) Evaluated the future growth prospects of VBC following the
Mergers; and
(p) Evaluated the allocation of the Final Purchase Price between the
Bank and Bank Land.
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<PAGE> 46
Wallach relied without independent verification upon the accuracy and
completeness of all financial and other information reviewed by it for purposes
of the respective fairness opinions. In addition, Wallach has relied without
independent verification upon an independent appraisal of the Bank building and
land. The fairness opinions are necessarily based on information as of the date
of this Prospectus/Joint Proxy Statement. The respective fairness opinions are
directed only to the consideration to be received by Bank Land Shareholders and
Bank Shareholders for their shares if the Mergers are consummated and do not
constitute a recommendation to any Bank Land Shareholder or the Bank Shareholder
as to how such shareholder should vote at the Bank Land Special Meeting or the
Bank Special Meeting, as the case may be.
SUMMARY OF WALLACH FINANCIAL ANALYSIS OF OFFERING PRICE
PRICING MULTIPLES IMPLIED BY FINAL PURCHASE PRICE. The Final Purchase Price
consists of $21,600,000 plus 7% per annum times such amount between December 26,
1995 (the date of the Merger Agreement) and actual Closing. The Final Purchase
Price, estimated at $22,356,000, is for 100% of Bank Land Common Stock and
Preferred Stock and 100% of the Bank Common Stock. This estimate assumes that
the Closing occurs on June 30, 1996. The Final Purchase Price will be more or
less than the estimated amount depending upon the actual Closing Date.
September 30, 1995 information relating to the Bank and Bank Land was used
in the following analyses since it was the latest quarter end data available
prior to the date of the Merger Agreement and is comparable to multiple analysis
use of other companies which are also based on data before the dates of
announcements of acquisitions.
Assuming the estimated Final Purchase Price of $22,356,000 less the
estimated $1,604,000 attributable to the value of the Bank not owned by Bank
Land, the resulting value of Bank Land to be realized by Bank Land Shareholders
is $20,752,000. Based upon this value, the estimated multiple of earnings for
the twelve months ended September 30, 1995 was 11.1. The price multiple of
assets was 18.8%. The multiple of book value was 159.4%. The multiple of book
value up to 7.5% equity to assets with the excess equity assigned dollar for
dollar was 193.3%.
Assuming the estimated Final Purchase Price of $22,356,000 less the
estimated $1,955,000 attributable to the value of Bank Land, exclusive of its
Bank Common Stock, the resulting value of the Bank to be realized by Bank
Shareholders is $20,401,000. Based upon this value, the estimated multiple of
earnings for the twelve months ended September 30, 1995 was 10.2. The price
multiple of assets was 18.6%. The multiple of book value was 155.2%. The
multiple of book value up to 7.5% equity to assets with the excess equity
assigned dollar for dollar was 188.3%.
ANALYSIS OF 1996 SERIES A PREFERRED STOCK. In establishing the value of the
Final Purchase Price, Wallach reviewed the terms of the 1996 Series A Preferred
Stock and determined that its value should be treated as par value. As part of
its analysis, Wallach compared the 1996 Series A Preferred Stock with
convertible preferred stock and convertible debentures issued at par by 13 other
bank holding companies which it believed to be generally similar to VBC based on
company size, issue size and time of issue. The median dividend yield of the 13
comparable issues was 7.5% versus 7.0% for the 1996 Class A Preferred Stock. The
median conversion premium of the 13 comparable issues was 24.0% versus 20.4% for
the 1996 Series A Preferred Stock. The median years of initial call protection
of the 13 comparable issues was 3.0 years versus 3.0 years for the 1996 Series A
Preferred Stock. The median initial call protection of the 13 comparable issues
was 4.75% versus 3.5% for the 1996 Series A Preferred Stock. On the basis of its
analysis, Wallach concluded that the 1996 Series A Preferred Stock should be
valued at par value.
COMPARISON OF OFFERS. Wallach compared the Vectra offer to the other two
written offers and found the price offered by Vectra to be highest. One of the
other offers consisted of cash; the other was all common stock.
COMPARABLE MERGER ANALYSIS. Wallach reviewed publicly available information
on the five bank holding company merger and acquisition transactions known by
Wallach to have occurred since January 1, 1994 in Colorado and the Denver
metropolitan area, which Wallach believed were similar to Bank Land and the Bank
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in size, market and financial performance. Wallach compared certain percentages
and multiples implied by the Vectra offer with comparable percentages and
multiples for these five transactions. The average price offered in these
transactions as a multiple of trailing earnings was 11.9 as compared to 11.1
associated with the Vectra offer for Bank Land and 10.2 for the Bank. The
average price multiple of assets in these transactions was 13.1% versus 18.8%
associated with the Vectra offer for Bank Land and 18.6% for the Bank. The
average multiple of book value in these transactions was 188% as compared to
159% associated with the Vectra offer for Bank Land and 155% for the Bank.
Wallach noted that Bank Land and the Bank had a much higher equity to asset
ratio of 11.8% and 12.0%, respectively, versus the 6.9% average of the other
five comparable companies. Calculating the price to book value up to 6.9% equity
to assets with the excess equity assigned dollar for dollar produces a measure
which more accurately compares price to book value. Using this measurement, the
average adjusted price to book value ratio for these transactions was 195%
versus 202% associated with the Vectra offer for Bank Land and 197% for the
Bank.
Wallach's analysis of bank holding company merger and acquisition
transactions indicated the Vectra offer was similar to that received by other
comparable banking companies and supported the fairness of the transaction from
a financial point of view. Wallach is not aware of any merger or acquisition
transactions involving the sale of commercial banks since November 30, 1995,
which it believes are comparable to Bank Land and the Bank and for which
information is publicly available.
PUBLIC COMPARABLE ANALYSIS AND STOCK TRADING HISTORY. Wallach also compared
selected financial figures, percentages and multiples of Bank Land and the Bank
to the corresponding statistics for nine publicly-traded Rocky Mountain-based
financial institutions of which Union Bankshares, Ltd. and First State
Bancorporation were believed to be the most comparable. While these bank holding
companies are publicly traded, they have not been acquired. For purposes of
comparing the theoretical transactions involving these bank holding companies to
the Vectra offer, Wallach therefore increased the valuation multiples of the
public bank holding companies by 25.7% to reflect a control premium paid for
100% conveyance of a bank's common stock. The control premium is the average
premium paid nationwide for acquisitions in the banking industry during the
period January 1, 1995 through December 31, 1995. These adjustments resulted in
a theoretical average price to trailing earnings multiple of 12.9 versus 11.1
associated with the Vectra offer for Bank Land and 10.2 for the Bank. The
theoretical average price multiple of assets was 10.8% versus 18.8% associated
with the Vectra offer for Bank Land and 18.6% for the Bank. The theoretical
average price to book value ratio was 133% versus 159% associated with the
Vectra offer for Bank Land and 155% for the Bank.
Wallach noted that Bank Land and the Bank had a much higher equity to asset
ratio of 11.8% and 12.0%, respectively, versus the 8.1% average for the two
comparable publicly-traded companies. The theoretical average percentage of book
value ratio up to 8.1% equity to assets, with the excess equity assigned dollar
for dollar, was 135% versus 186% associated with the Vectra offer for Bank Land
and 182% for the Bank.
Wallach concluded that its analysis of publicly trading banking companies
indicated the Vectra offer was similar to or more attractive than theoretical
transactions involving these companies and supported the fairness of the
transaction from a financial point of view.
Wallach reviewed the stock trading history of VBC Common Stock and data
concerning relative stock price performance against certain indices and
comparable companies and VBC stock valuation data.
CONCLUSION. Wallach believes that its analyses and the summary set forth
above must be considered as a whole and that selecting portions of their
analyses and the factors considered by them could create an incomplete
understanding of the process underlying the preparation of its fairness
opinions. No company or transaction used in the company comparable transaction
analysis is identical to Bank Land/Bank, VBC/Vectra or the Mergers. Accordingly,
in its analyses, Wallach used complex considerations and judgments concerning
differences in financial and operating characteristics of the companies and
other factors that could affect the public trading value or the acquisition
value of the companies to which they are being compared.
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<PAGE> 48
The terms of the engagements of Wallach by Bank Land and by the Bank are
set forth in engagement letters dated February 7, 1995, in the case of Bank
Land, and January 4, 1996, in the case of the Bank. Pursuant to these letters,
if the Mergers are consummated, Bank Land and the Bank will pay a transaction
fee of 2% of their apportioned share of the Final Purchase Price. Wallach has
received a monthly retainer of $7,500 from Bank Land since February 7, 1995,
which amount will be credited against the transaction fee payable by Bank Land
if the Mergers are consummated. Bank Land has also agreed to reimburse Wallach
for its out-of-pocket expenses, and both Bank Land and the Bank have agreed to
indemnify Wallach against all losses or liabilities to which Wallach may become
subject in connection with the Mergers, other than losses or liabilities
resulting from Wallach's bad faith or gross negligence.
CONVERSION RATIOS
By virtue of the Bank Land Merger and the Bank Merger, automatically and
without any action on the part of the Bank Land Shareholders or the Bank
Shareholders, each share of Bank Land Class A Common Stock, Bank Land Class B
Common Stock and Bank Land Preferred Stock, and each share of the Bank Common
Stock, issued and outstanding at the Effective Time (in each case other than
shares of Bank Land Class A Common Stock or the Bank Common Stock held by Bank
Land Dissenting Shareholders or the Bank Dissenting Shareholders, as the case
may be) will become and be converted into shares of 1996 Series A Preferred
Stock and cash in the following manner:
BANK LAND
The Bank Land Preferred Stock Shareholder will receive the Bank Land
Preferred Stock Payment. The Bank Land Common Stock Shareholders will receive
the Adjusted Bank Land Final Purchase Price. In each case such shareholders will
receive 50.1% of the consideration in 1996 Series A Preferred Stock (valued at
$100 per share) and 49.9% of the consideration in cash.
The 1996 Series A Preferred Stock and cash to be distributed to the Bank
Land Shareholders will be distributed as follows:
BANK LAND PREFERRED STOCK SHAREHOLDER. The Bank Land Preferred Stock
Shareholder will receive his share of the Adjusted Bank Land Final Purchase
Price allocated between 1996 Series A Preferred Stock and cash as follows:
(i) 1996 Series A Preferred Stock equal to the Bank Land Preferred
Stock Payment multiplied by 0.501 divided by 100, rounded up or down to the
nearest whole share; and
(ii) cash equal to the Bank Land Preferred Stock Payment minus the
product of [the number of shares of 1996 Series A Preferred Stock to be
distributed to the Bank Land Preferred Stock Shareholder multiplied by
100], rounded up or down to the nearest whole cent.
Assuming a Final Purchase Price of $22,356,000 and deduction of the Wallach
Bank Land Transaction Fee, the Bank Land Preferred Stock Payment would be
$1,535,000, resulting in the payment to the Bank Land Preferred Stock
Shareholder of 7,690 shares of 1996 Series A Preferred Stock and $766,000.
HOLDERS OF BANK LAND COMMON STOCK. Each Bank Land Non-Dissenting
Shareholder who owns shares of Bank Land Common Stock (whether Class A Common
Stock or Class B Common Stock) as of the Effective Time will receive his or her
share of the Adjusted Bank Land Final Purchase Price equal to the Adjusted Bank
Land Final Purchase Price multiplied by the quotient of [the total number of
shares of Bank Land Common Stock owned by such Shareholder as of the Effective
Time divided by the total number of shares of Bank Land Common Stock owned by
all Bank Land Non-Dissenting Shareholders as of the Effective Time], rounded up
or down to the nearest whole cent. Assuming a Final Purchase Price of
$22,356,000, and after deducting the Bank Land Preferred Stock Payment, and the
Wallach Bank Land Transaction Fee, the Adjusted Bank Land Final Purchase Price
would be $18,914,000 resulting in per
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<PAGE> 49
common share sales proceeds of $54.85. Each shareholder's Adjusted Bank Land
Final Purchase Price will be allocated between 1996 Series A Preferred Stock and
cash as follows:
(i) 1996 Series A Preferred Stock equal to his or her share of the
Adjusted Bank Land Final Purchase Price multiplied by 0.501 divided by 100,
rounded up or down to the nearest whole share; and
(ii) cash equal to his or her share of the Adjusted Bank Land Final
Purchase Price minus the product of [the number of shares of 1996 Series A
Preferred Stock to be distributed to such Bank Land Non-Dissenting
Shareholder multiplied by 100], rounded up or down to the nearest whole
cent.
Assuming the shareholder owns 1,000 shares of Class A Common Stock or Class
B Common Stock and further assuming there are no Bank Land Dissenting
Shareholders, he or she would receive 275 shares of 1996 Series A Preferred
Stock and $27,350. To the extent there are Bank Land Dissenting Shareholders,
the 1996 Series A Preferred Stock equal to 50.1% of the Adjusted Bank Land Final
Purchase Price will be apportioned among the Bank Land Non-Dissenting
Shareholders based on their respective percentage ownership. As a result, if
there are Bank Land Dissenting Shareholders, Bank Land Non-Dissenting
Shareholders will get proportionately more 1996 Series A Preferred Stock and
less cash.
Bank Land Dissenting Shareholders will receive all cash for their shares.
See "The Mergers -- Rights of Bank Land and Bank Dissenting Shareholders -- Bank
Land."
THE BANK
The Bank Shareholders (other than Bank Land and Vectra) as of the Effective
Time will receive in the aggregate the Bank Final Purchase Price comprised of
50.1% in 1996 Series A Preferred Stock (valued at $100 per share) and 49.9% in
cash.
The 1996 Series A Preferred Stock and cash to be distributed to the Bank
Shareholders (other than Bank Land and Vectra) will be distributed as follows:
Each Bank Non-Dissenting Shareholder will receive his or her share of the
Bank Final Purchase Price equal to the Bank Final Purchase Price multiplied by
the quotient of [the total number of shares of the Bank Common Stock owned by
such shareholder as of the Effective Time divided by the total number of shares
of the Bank Common Stock owned by all Bank Non-Dissenting Shareholders as of the
Effective Time], rounded up or down to the nearest whole cent. Assuming a Final
Purchase Price of $22,356,000, and after deducting the Wallach Bank Transaction
Fee, the Bank Final Purchase Price would be $1,581,000 resulting in per common
share sales proceeds to each Bank Shareholder of $134.12. The Adjusted Bank
Final Purchase Price will be allocated to the shareholder between 1996 Series A
Preferred Stock and cash as follows:
(i) 1996 Series A Preferred Stock equal to his or her share of the
Adjusted Bank Final Purchase Price multiplied by 0.501 divided by 100,
rounded up or down to the nearest whole share; and
(ii) cash equal to his or her share of the Adjusted Bank Final
Purchase Price minus the product of [the number of shares of 1996 Series A
Preferred Stock to be distributed to such shareholder multiplied by 100],
rounded up or down to the nearest whole cent.
Assuming a shareholder owns 100 shares of the Bank Common Stock and further
assuming there are no Bank Dissenting Shareholders, he or she would receive 67
shares of 1996 Series A Preferred Stock and $6,712. To the extent there are Bank
Dissenting Shareholders, the 1996 Series A Preferred Stock equal to 50.1% of the
Bank Final Purchase Price will be apportioned among the Bank Non-Dissenting
Shareholders based on their respective percentage ownership. As a result, if
there are Bank Dissenting Shareholders, Bank Non-Dissenting Shareholders will
get proportionately more 1996 Series A Preferred Stock and less cash.
Any Bank Dissenting Shareholder who withdraws or loses his or her right to
dissent to the Bank Merger following the Effective Time will receive his or her
individual share of the Bank Final Purchase Price in the form of 1996 Series A
Preferred Stock (50.1%) and cash (49.9%). Any Bank Dissenting Shareholder who
perfects his or her dissenter's rights will receive all cash for his or her
shares of the Bank Common Stock. See "Rights of Dissenting Bank Land and Bank
Shareholders -- the Bank."
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No fractional shares of 1996 Series A Preferred Stock will be issued by
VBC. In lieu of the issuance of any fractional shares of 1996 Series A Preferred
Stock, VBC will round up to the next whole share of 1996 Series A Preferred
Stock and reduce the amount of cash to be distributed to such shareholder by the
dollar amount of the additional fractional share issued to such shareholder
based on a value of $100 per share.
See "Description of VBC 1996 Series A Preferred Stock" and "Comparative
Rights of Bank Land and Bank Shareholders -- Authorized Capital Stock."
STOCK CERTIFICATE EXCHANGE
At and after the Effective Time, each certificate previously representing
shares of Bank Land Class A and Class B Common Stock, Bank Land Preferred Stock
and the Bank Common Stock (other than shares of the Bank Common Stock owned by
Bank Land and Vectra and other than shares to which dissenter's rights have been
perfected) will represent the right to receive the number of whole shares of
1996 Series A Preferred Stock into which such shares of Bank Land Class A and
Class B Common Stock, Bank Land Preferred Stock and the Bank Common Stock have
been converted pursuant to the Mergers. Certificates previously representing
shares of Bank Land Class A and Class B Common Stock, the Bank Preferred Stock
and the Bank Common Stock will be exchanged only upon the surrender to VBC of
such certificates.
As of the Effective Time, VBC and Vectra shall deposit or cause to be
deposited with American Securities Transfer, Inc. (the "Exchange Agent"), for
the benefit of the holders of the Bank Land Class A and Class B Common Stock,
the Bank Land Preferred Stock and the Bank Common Stock for exchange
certificates representing the shares of 1996 Series A Preferred Stock and cash
to be issued and paid, respectively, pursuant to the Mergers (the "Exchange
Fund").
Promptly after the Effective Time, Vectra or VBC shall cause the Exchange
Agent to mail to each holder of record of Bank Land and the Bank stock the
following: (i) a letter of transmittal specifying that delivery will be
effected, and risk of loss to the certificates will pass, only upon delivery of
the certificates to the Exchange Agent; and (ii) instructions for use in
effecting the surrender of the certificates in exchange for the consideration to
be received by Bank Land and the Bank shareholders. Upon the proper surrender of
a certificate to the Exchange Agent, together with a properly completed and duly
executed letter of transmittal, the holder of such certificate will be entitled
to receive in exchange therefor the appropriate consideration in the Mergers,
and the certificate so surrendered will be canceled. No interest will be paid or
accrued on unpaid dividends and distributions, if any, payable to holders of
certificates.
In the event of a transfer of ownership of any shares of Bank Land Class A
or Class B Common Stock, Bank Land Preferred Stock or the Bank Common Stock not
registered in the transfer records of Bank Land or the Bank, as the case may be,
consideration to be paid may be delivered to the transferee only if the
certificate representing such stock is presented to the Exchange Agent,
accompanied by documents sufficient (i) to evidence and effect such transfer and
(ii) to evidence that all applicable stock transfer taxes, if any, have been
paid.
If a certificate for Bank Land or the Bank stock has been lost, stolen or
destroyed, the Exchange Agent will issue the consideration properly payable in
accordance with the Merger Agreement upon receipt of appropriate evidence as to
such loss, theft or destruction, appropriate evidence as to the ownership of
such certificate by the claimant, and appropriate and customary indemnification.
After the Effective Time, there will be no permitted transfers on the stock
transfer books of shares of stock of Bank Land and the Bank issued and
outstanding at the Effective Time. If certificates representing shares of Bank
Land or the Bank stock are presented for transfer after the Effective Time, they
will be returned to the presenter together with a form of letter of transmittal
and exchange instructions.
If any certificate for shares of 1996 Series A Preferred Stock is to be
issued in a name other than that in which the certificate surrendered in
exchange therefor is registered, the surrendered certificate must be endorsed
properly and otherwise in proper form for transfer, and the person requesting
such exchange must pay the Exchange Agent any costs incurred by reason of the
issuance of a certificate for shares of 1996
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<PAGE> 51
Series A Preferred Stock in any name other than that of the registered holder of
the certificate surrendered and pay any transfer taxes that may be payable.
SHAREHOLDERS OF BANK LAND AND THE BANK, OTHER THAN SHAREHOLDERS WHO ELECT TO
EXERCISE THEIR DISSENTERS' RIGHTS, SHOULD NOT SEND IN THEIR STOCK CERTIFICATES
UNTIL THEY RECEIVE WRITTEN INSTRUCTIONS FROM THE EXCHANGE AGENT.
INTERESTS OF CHAIRMAN OF THE BOARD AND PRESIDENT OF BANK LAND AND THE BANK IN
THE MERGERS
In considering the recommendation of the Bank Land Board and the Bank Board
with respect to the Merger Agreement, the Bank Land Shareholders and Bank
Shareholders should be aware that Gary A. Mosko, President and Chairman of the
Board of Bank Land and the Bank, has interests in the Mergers that are in
addition to the interests of the Bank Land Shareholders and Bank Shareholders
generally.
EMPLOYMENT AGREEMENT. On the Closing Date of the Mergers, Mr. Mosko will
enter into a three-year employment agreement (the "Employment Agreement") with
Vectra providing for an annual salary of not less than $125,000. Mr. Mosko will
serve as an Executive Vice President of Vectra and will also be elected to the
board of directors of VBC and Vectra effective on the Closing Date. The
Employment Agreement also provides that, on or prior to the Closing Date, (i)
the automobile currently being used by Mr. Mosko and owned by the Bank will be
transferred to Mr. Mosko in consideration for a cash payment by Mr. Mosko to the
Bank in an amount equal to the depreciated book value of that automobile as of
May 31, 1996; (ii) the Bank's memberships in Green Gables Country Club and
Metropolitan Club will be transferred to Mr. Mosko and any obligations with
respect to those memberships after the Closing Date will be paid by him; and
(iii) the Bank's season tickets, including the rights thereto, to the Colorado
Rockies, Denver Broncos, Denver Nuggets and Colorado Avalanche will be
transferred to Mr. Mosko and any obligations with respect to those season
tickets will thereafter be paid by him.
The Employment Agreement may be terminated by Mr. Mosko at any time with or
without cause upon 60 days' prior written notice to the Bank. In addition, in
the event of a material, uncorrected breach of the Employment Agreement by
Vectra, Mr. Mosko may elect to discontinue his employment, in which event Vectra
must perform all of its obligations through the remainder of the three-year
term. Vectra may terminate the Employment Agreement only for cause.
COVENANT NOT TO COMPETE. Mr. Mosko will also enter into a four-year
covenant not to compete ("Covenant Not to Compete") with Vectra on the Closing
Date in consideration for which Mr. Mosko will receive a total payment of
$540,000, payable in equal quarterly installments of $33,750. The Covenant Not
to Compete covers a 50-mile radius of Vectra and provides that, in the event
there is a change in control of VBC during the term of the Covenant Not to
Compete, Mr. Mosko may terminate the Covenant Not to Compete on the date of such
change in control in which event Vectra must pay to Mr. Mosko the unpaid balance
of the $540,000. A change of control as used in the Covenant Not to Compete
means a merger or consolidation of VBC into another entity where the VBC
shareholders prior to such merger or consolidation own less than 50% of such
entity following the merger or consolidation.
BANK LAND PREFERRED STOCK PAYMENT. In February 1994, Bank Land issued a
total of 100,000 shares of Bank Land Preferred Stock to Mr. Mosko. The terms of
the Bank Land Preferred Stock provide that in the event of a sale of Bank Land,
Mr. Mosko, as the holder of the Bank Land Preferred Stock, will receive 7 1/2%
of the net proceeds resulting from the sale. For this purpose, net proceeds
means the net amount received in consideration of the sale of Bank Land's stock
after payment of commissions and expenses of sale. The Bank Land Merger
constitutes a sale for purposes of the provisions of the Bank Land Preferred
Stock. The estimated amount of the Bank Land Preferred Stock Payment to Mr.
Mosko is approximately $1,535,000 and will be paid 50.1% in 1996 Series A
Preferred Stock (approximately 7,690 shares valued at approximately $769,000)
and 49.9% in cash (approximately $766,000).
The Bank Land Preferred Stock was issued to Mr. Mosko in February 1994
(effective January 1, 1994) pursuant to the terms of an agreement between Mr.
Mosko and Bank Land (the "1994 Agreement"). The
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<PAGE> 52
principal terms of the Bank Land Preferred Stock, i.e., the payment of 7.5% of
the net proceeds resulting from a sale of Bank Land, were agreed to in July 1989
pursuant to the terms of a letter agreement (the "1989 Letter Agreement") among
Mr. Mosko and the heads of the three families directly or indirectly owning
substantially all of Bank Land's capital stock. The 1989 Letter Agreement
provided that the payment was to be in recognition of Mr. Mosko's then 16 years
of service to the Bank. The 1994 Agreement by its terms replaced the 1989 Letter
Agreement and provided that the Bank Land Preferred Stock was to be issued to
Mr. Mosko in recognition of his prior services. The Bank Land Preferred Stock
was issued to Mr. Mosko at or about the time Bank Land was negotiating the sale
of Bank Land to another bank holding company unrelated to VBC. (This proposed
sale was subsequently terminated by mutual agreement.) The Bank Land Preferred
Stock was created pursuant to an amendment to Bank Land's Articles of
Incorporation approved by the Bank Land Shareholders in February 1994.
CONDITIONS OF THE MERGERS
CONDITIONS TO THE OBLIGATIONS OF VECTRA AND VBC. The obligations of Vectra
and VBC under the Merger Agreement are subject to the satisfaction of the
following conditions:
i. The representations and warranties made by Bank Land and the Bank
in the Merger Agreement shall have been true when made and shall be true at
the Closing in all material respects, and Bank Land and the Bank shall have
performed or complied with all covenants and conditions required by the
Merger Agreement to be performed or complied with by them prior to or at
the Closing.
ii. Vectra, VBC, Bank Land and the Bank shall have received such
approvals, orders or exemptions from such regulatory authorities as may be
necessary to enable the consummation of the Mergers.
iii. On the Closing Date, there shall not be any litigation or
proceeding pending or threatened against Vectra, VBC, Bank Land or the Bank
in or by any court or governmental agency or authority which seeks to
restrain, enjoin or prohibit consummation of the Mergers.
iv. All proceedings, corporate, judicial, administrative or other, to
be held or taken in connection with the transactions contemplated by the
Merger Agreement, and all documents incident thereto, shall be reasonably
satisfactory in form and substance to counsel of VBC.
v. The loan loss reserve of the Bank shall be equal to or the greater
of (1) $1,250,000, and (2) an adequate reserve agreed to by Bank Land and
Vectra as of the Closing Date.
vi. Vectra and VBC shall have received from counsel for Bank Land and
the Bank, an opinion, dated as of the Closing Date, with respect to certain
matters.
vii. There shall have been no material adverse change, nor shall such
a material adverse change be pending on the Closing Date, in the business,
assets, condition, financial or otherwise, or results of operation of Bank
Land or the Bank.
viii. Bank Land and the Bank shall have executed and delivered to
Vectra and VBC all agreements and documents required to be executed and
delivered by Bank Land and the Bank on or prior to the Closing Date.
ix. Vectra shall have received a tax opinion dated as of the Closing
Date from Freeborn & Peters that, for federal income tax purposes, with
respect to Vectra, VBC, Bank Land and the Bank, the Bank Land Merger should
be treated as a reorganization under Section 368(a) of the Code and the
Bank Merger should be treated either as a reorganization under Section
368(a) of the Code or a liquidation under Sections 332 and 337 of the Code.
x. Bank Land shall have furnished Vectra with an agreement from each
"affiliate" of Bank Land as defined in the rules adopted under the
Securities Act of 1933, as amended, to the effect that: (a) the affiliate
is familiar with SEC Rule 144; (b) none of the shares of 1996 Series A
Preferred Stock or VBC Common Stock acquired upon conversion of the 1996
Series A Preferred Stock obtained by the affiliate pursuant to the Merger
Agreement will be transferred by or through the affiliate in violation of
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<PAGE> 53
the federal securities laws; (c) the affiliate acknowledges that VBC is
under no obligation to register the sale, transfer, or the disposition of
1996 Series A Preferred Stock by the affiliate or take any action necessary
in order to make an exemption from registration available to the affiliate
and understands that VBC will satisfy the public information requirements
of Rules 144 and 145 during the three-year period following the Closing
Date.
xi. Not more than 10% of the outstanding shares of Bank Land Common
Stock shall have dissented, under the CBCA, to the Bank Land Merger.
xii. Not more than 45% of the outstanding shares of the Bank Common
Stock owned by the Bank shareholders (exclusive of shares owned by Bank
Land and Vectra) shall have dissented, under the CBC, to the Bank Merger.
xiii. Gary A. Mosko shall have executed and delivered to VBC and
Vectra an Employment Agreement and Covenant Not to Compete in the form as
described above under "The Mergers -- Interests of Chairman of Board and
President of Bank Land and the Bank in the Mergers."
CONDITIONS TO OBLIGATIONS OF BANK LAND AND THE BANK. The obligations of
Bank Land and the Bank under the Merger Agreement are subject to the
satisfaction of the following conditions:
i. The representations and warranties made by VBC and Vectra in the
Merger Agreement shall have been true when made and shall be true at the
Closing in all material respects. VBC and Vectra shall have performed or
complied with all covenants and conditions required by the Merger Agreement
to be performed or complied with by them prior to or at the Closing.
ii. Vectra, VBC, Bank Land and the Bank shall have received such
approvals, orders or exemptions from such regulatory authorities as may be
necessary to enable the consummation of the Mergers.
iii. On the Closing Date, there shall not be any litigation or
proceeding pending or threatened against Vectra, VBC, Bank Land or the Bank
in or by any court or governmental agency or authority which seeks to
restrain, enjoin or prohibit consummation of the Mergers.
iv. All proceedings, corporate, judicial, administrative or other, to
be held or taken in connection with the transactions contemplated by the
Merger Agreement, and all documents incident thereto, shall be reasonably
satisfactory in form and substance to counsel of Bank Land.
v. Bank Land and the Bank shall have received from counsel for Vectra
and VBC, an opinion, dated as of the Closing Date, with respect to certain
matters.
vi. There shall have been no material adverse change, nor shall such a
material adverse change be threatened on the Closing Date, in the business,
assets, condition, financial or otherwise, or results of operation of
Vectra or VBC.
vii. VBC and Vectra shall have executed and delivered to Bank Land and
the Bank all agreements and documents required to be executed and delivered
by VBC and Vectra on or prior to the Closing Date.
viii. Bank Land and the Bank shall have received the opinion of
Freeborn & Peters, dated as of the Closing Date, substantially to the
effect that, the Bank Land Merger will qualify for federal income tax
purposes as a reorganization under Section 368(a)(2)(D) of the Code, and
the Bank Merger will be treated either as a reorganization under Section
368(a)(2)(D) of the Code or a liquidation under Sections 332 or 337 of the
Code.
ix. On or prior to the Closing Date, Bank Land shall have received a
fairness opinion from Wallach to the effect that the terms of the Bank Land
Merger are fair to the Bank Land Shareholders from a financial point of
view.
x. On or prior to the Closing Date, the Bank shall have received a
fairness opinion from Wallach to the effect that the terms of the Bank
Merger are fair to the Bank Shareholders from a financial point of view.
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xi. Gary A. Mosko, Vectra and VBC shall have executed and delivered
the Employment Agreement and Covenant Not to Compete in the form as
described above under " -- Interest of Chairman of Board and President of
Bank Land and the Bank in the Mergers."
xii. Vectra and VBC shall be in compliance in all material respects
with their respective commitments to the Federal Reserve Bank of Kansas
City in connection with the approval of the Board of Governors of the
acquisition of First Denver Corporation by VBC (see "Business of
VBC -- General") set forth in the letter of the Federal Reserve Bank of
Kansas City to VBC dated October 26, 1995. Such letter, among other things,
generally requires the VBC Board to ensure that the price sensitivity of
VBC's investment portfolio is reduced by limiting maximum potential market
value depreciation as a percent of Tier 1 capital to agreed upon levels at
certain time frames, and that holdings of certain classes of collateralized
mortgage obligations ("CMOs") be reduced.
xiii. VBC shall have executed and delivered the VBC Contingent Warrant
in the form attached hereto as Appendix G, and as described below under
description of "VBC Contingent Warrants."
No assurance can be provided as to when, or whether all of the other
conditions precedent to the Mergers will be satisfied or waived by the party
permitted to do so. If the Mergers are not effected on or before October 31,
1996, the Merger Agreement may be terminated, and the Mergers abandoned by any
party upon written notice to the other parties.
REGULATORY APPROVALS
The Mergers are subject to prior approval of the Board of Governors and the
FDIC, and such approvals have been obtained.
The Bank Merger is also subject to the approval by the Banking Board for
the Division of Banking for the State of Colorado, which has been obtained.
EFFECTIVE TIME AND CONSUMMATION OF THE MERGERS
The Effective Time of the Mergers will occur upon filing articles of merger
with the Secretary of State of Colorado with respect to the Mergers. The Merger
Agreement provides that the parties thereto will cause articles of merger to be
filed as soon as practicable after each of the conditions to consummation of the
Mergers has been satisfied or waived, but in no event later than three business
days following the Closing. See "The Mergers -- Conditions of the Mergers" and
"--Regulatory Approvals." The Mergers cannot become effective until the
shareholders of Bank Land and the Bank have approved and adopted the Merger
Agreement.
CONDUCT OF BUSINESS PENDING THE MERGERS
Pursuant to the Merger Agreement, each of Bank Land and the Bank have
agreed that until the Closing, except as contemplated by the Merger Agreement or
with the prior written consent of VBC (which consent will not be unreasonably
withheld), they will:
i. not amend their articles of incorporation or bylaws;
ii. not issue or sell any shares of capital stock or options or
warrants;
iii. not enter into any contracts outside the ordinary course of
business;
iv. be managed and operated consistent with past practices;
v. not grant any increase in employee compensation inconsistent with
past practices;
vi. properly accrue sufficient reserves in accordance with generally
accepted accounting principles for payment of all taxes;
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vii. cause the Bank to accrue loan loss reserves so that as of the
Closing Date the loan loss reserve of the Bank will be equal to the greater
of (a) $1,250,000 and (b) an adequate reserve agreed to by Bank Land and
Vectra as of the Closing Date;
viii. notify VBC at least two business days in advance of the loan and
discount meetings of the Bank and allow a designated representative of VBC
to attend such meetings;
ix. not invest in securities having maturities in excess of three
years from the date of purchase;
x. not encumber, sell or dispose of assets, except in the ordinary
course of business, keep in force all insurance policies and maintain
tangible property consistent with past business practices;
xi. comply with all applicable laws;
xii. not to permit material breaches of material contracts;
xiii. file all appropriate tax returns;
xiv. cooperate fully with VBC in connection with applications to
consummate the transactions contemplated by the Merger Agreement;
xv. not renew or extend any employment contracts; and
xvi. not pay any dividends.
In addition, each of Bank Land and the Bank have agreed that from the date
of the Merger Agreement until the date that the Merger Agreement is terminated,
they, and their representatives, will not directly or indirectly solicit or
encourage the initiation of any inquiry, proposal or offer from any person or
entity (other than Vectra or VBC) relating to any acquisition transaction of
Bank Land or the Bank, except to the extent legally required for the discharge
by the members of the Bank Land Board or the Bank Board of their fiduciary
duties as advised in writing by such boards' counsel, engage in any negotiations
concerning, or provide any confidential information of Bank Land or the Bank or
provide data to, or have any discussions with, any person relating to such a
transaction, or otherwise facilitate any effort to attempt to make or implement
such a transaction. Bank Land and the Bank will notify VBC immediately if any
such inquiries or proposals are received by, any such information is requested
from, or any such negotiations or discussions are sought to be initiated or
continued with Bank Land or the Bank.
WAIVER AND AMENDMENT; TERMINATION
Any term or condition of the Merger Agreement may be waived at any time by
the party entitled to the benefit thereof, provided that any such waiver is in
writing. The Merger Agreement may be amended at any time provided that such
amendment is approved in writing by VBC, Vectra, Bank Land and the Bank. The
Merger Agreement will terminate if any regulatory agency disapproves of any of
the applications required to be filed by VBC to consummate the Mergers.
If the Closing contemplated by the Merger Agreement has not occurred on or
before October 31, 1996, either VBC or Bank Land may terminate the Merger
Agreement upon written notice to the other party. In addition, if any of the
representations, warranties, or covenants of any party are found to be untrue or
breached in any material respect, at or prior to Closing and the other party
shall not have cured such breach within 30 days after written notice has been
given of the existence of such breach, then the non-breaching party may
terminate the Merger Agreement upon written notice to the other party. The
Merger Agreement may also be terminated by the written agreement of all of VBC,
Vectra, Bank Land and the Bank.
Upon termination and abandonment of the Merger Agreement, it will be of no
further force or effect and there will be no liability or obligation of any
party under the Merger Agreement; provided, however, that the parties will hold
in confidence all the information obtained from the others pursuant to the
Merger Agreement and they will bear their own expenses incurred in connection
with the Merger Agreement, except that VBC will pay for the costs of printing
this Prospectus/Joint Proxy Statement.
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In addition, notwithstanding the provisions of the Merger Agreement, if a
party defaults under the Merger Agreement, such party shall pay all reasonable
costs and expenses incurred by the other parties in connection with actions
taken to enforce performance or observance of the Merger Agreement by the
defaulting party, whether by legal proceeding or otherwise and including,
without limitation, reasonable attorneys' fees and court costs.
RESALES OF SECURITIES RECEIVED IN THE MERGERS
The shares of VBC 1996 Series A Preferred Stock to be issued in the
Mergers, any shares of VBC Common Stock acquired upon conversion of such stock,
the VBC Contingent Warrants and any Stated Shares (as defined in the VBC
Contingent Warrant) acquired under the VBC Contingent Warrants, collectively
referred to herein as the "VBC Securities," will be freely transferable under
the Securities Act, except for shares issued to any Bank Land or the Bank
shareholder who may be deemed to be an "affiliate" of either company for
purposes of Rule 145 under the Securities Act at the time of the Bank Land
Special Meeting or the Bank Special Meeting, as the case may be. Such affiliates
may not sell their VBC Securities except pursuant to an effective registration
statement under the Securities Act covering such securities or in compliance
with Rule 145 or another applicable exemption from the registration requirements
of the Securities Act. Persons who may be deemed to be affiliates of Bank Land
or the Bank generally will include individuals or entities that control, are
controlled by or are under common control with Bank Land or the Bank, and will
likely include the executive officers and directors of Bank Land or the Bank as
well as each Bank Land Shareholder owning 10% or more of the Bank Land Common
Stock.
Bank Land Shareholders and Bank Shareholders who are "affiliates" (for
purposes of Rule 145) of Bank Land or the Bank, as the case may be, must deliver
to VBC a written agreement intended to ensure compliance with the Securities Act
as a condition to the Mergers. A copy of the form of written agreement, referred
to as an "Affiliate Letter," is attached hereto as Appendix H.
ACCOUNTING TREATMENT
The Mergers will be treated as a "purchase" under GAAP for financial
reporting purposes. The unaudited Pro Forma Condensed Combined Financial
Information for VBC and Bank Land contained in this Prospectus/Joint Proxy
Statement has been prepared using the purchase method of accounting.
OPERATIONS OF BANK LAND AND THE BANK AFTER THE MERGERS
Following the Mergers, Bank Land and the Bank will cease to exist as
separate entities, and their assets and operations will become part of Vectra.
Although Vectra presently intends to continue the scope of business of the Bank
without substantial modification, Vectra will continue to evaluate the
personnel, business practices and opportunities of the Bank and may make such
changes as it deems appropriate following the Mergers.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
THE FOLLOWING DISCUSSION SUMMARIZES CERTAIN MATERIAL FEDERAL TAX RULES
EXPECTED TO BE GENERALLY APPLICABLE TO THE SHAREHOLDERS OF BANK LAND AND BANK AS
A RESULT OF THE MERGERS, BASED UPON THE FACTS, REPRESENTATIONS AND ASSUMPTIONS
SET FORTH IN THE LEGAL OPINION OF FREEBORN & PETERS. SHAREHOLDERS OF BANK LAND
AND THE BANK ARE URGED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE SPECIFIC
FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES APPLICABLE IN THEIR OWN
PARTICULAR CIRCUMSTANCES.
The following discussion of all material federal income tax consequences of
the Bank Merger and the Bank Land Merger (collectively the "Mergers") is based
upon the provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), the Treasury Regulations thereunder, Internal Revenue Service ("IRS")
rulings and court decisions, in each case as of the date of this
Prospectus/Joint Proxy Statement. The law
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governing the tax consequences of the Mergers is subject to change at any time,
and such change could be applied retroactively. In recent months numerous tax
related proposals have been made by the President of the United States or
members of the United States Congress, and some of those proposals, if enacted
into law and made retroactively effective, could adversely effect the tax
consequences of the Bank Merger and/or the Bank Land Merger.
TAX CONSEQUENCES OF BANK LAND MERGER
Freeborn & Peters has opined to Bank Land that the Bank Land Merger into
Vectra will qualify as a reorganization within the meaning of Section
368(a)(2)(D) of the Code. If the Bank Land Merger does so qualify, then:
i. In the context of the Bank Land Merger, Vectra and VBC and Bank
Land will each be a "party to a reorganization" within the meaning of
Section 368(b) of the Code;
ii. No gain or loss will be recognized by either Vectra or VBC on the
receipt by Vectra of substantially all of Bank Land's assets in exchange
for 1996 Series A Preferred Stock, cash, and the assumption by Vectra of
Bank Land's liabilities pursuant to the Bank Land Merger.
iii. No gain or loss will be recognized by Bank Land as a result of
the transfer by Bank Land of its assets to Vectra and the assumption by
Vectra of Bank Land's liabilities pursuant to the Bank Land Merger.
iv. A Bank Land Shareholder exchanging his or her Bank Land stock for
a combination of 1996 Series A Preferred Stock, VBC Contingent Warrants and
cash pursuant to the Bank Land Merger will recognize gain, if any, in an
amount not in excess of the amount of cash received by such Bank Land
Shareholder. Such recognized gain generally will be treated as capital
gain, but under some circumstances could be treated as dividend income.
v. Immediately after the Bank Land Merger, the tax basis of 1996
Series A Preferred Stock issued to a Bank Land Shareholder pursuant to the
Bank Land Merger will be the same as that shareholder's basis in Bank Land
stock surrendered in exchange therefor, decreased by the amount of cash
received, and increased by the amount of any gain recognized (including the
portion of any gain treated as a dividend), by such shareholder pursuant to
the Bank Land Merger.
vi. The holding period of the 1996 Series A Preferred Stock received
by a Bank Land Shareholder pursuant to the Bank Land Merger will include
the period during which such shareholder held the Bank Land stock
surrendered in exchange therefor, provided that such shareholder held the
Bank Land stock as a capital asset at the Effective Time.
TAX CONSEQUENCES OF THE BANK MERGER
Freeborn & Peters has opined to the Bank that the Bank Merger into Vectra
will qualify as either a reorganization within the meaning of Section
368(a)(2)(D) of the Code or a liquidation under Section 332 of the Code. If the
Bank Merger does so qualify, then:
i. No gain or loss will be recognized by either Vectra or VBC on the
receipt by Vectra of substantially all of the Bank's assets in exchange for
1996 Series A Preferred Stock, cash, and the assumption by Vectra of the
Bank's liabilities, pursuant to the Bank Merger.
ii. No gain or loss will be recognized by the Bank as a result of the
transfer by the Bank of its assets to Vectra and the assumption by Vectra
of the Bank liabilities pursuant to the Bank Merger.
iii. A Bank Shareholder exchanging his or her Bank stock for a
combination of 1996 Series A Preferred Stock, VBC Contingent Warrants and
cash pursuant to the Bank Merger will recognize gain, if any, in an amount
not in excess of the amount of cash received by such Bank Shareholder. Such
recognized gain generally will be treated as capital gain, but under some
circumstances could be treated as dividend income.
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iv. Immediately after the Bank Merger, the tax basis of 1996 Series A
Preferred Stock issued to a Bank Shareholder pursuant to the Bank Merger
will be the same as that shareholder's basis in the Bank stock surrendered
in exchange therefor, decreased by the amount of cash received, and
increased by the amount of any gain recognized (including the portion of
any gain treated as dividend), by such shareholder pursuant to the Bank
Merger.
v. The holding period of the 1996 Series A Preferred Stock received by
a Bank Shareholder pursuant to the Bank Merger will include the period
during which such shareholder held the Bank stock surrendered in exchange
therefor, provided that such shareholder held the Bank stock as a capital
asset at the Effective Time.
No ruling related to any of the matters discussed above will be sought from
the IRS. However, receipt of opinions of counsel from Freeborn & Peters,
satisfactory to counsel to Bank Land and the Bank, is a precondition to
consummation of the Mergers. Freeborn & Peters anticipates that if the Mergers
are consummated in accordance with the terms set forth in the Agreement and Plan
of Merger, the Mergers will have the tax consequences stated above.
RIGHTS OF BANK LAND AND THE BANK DISSENTING SHAREHOLDERS
BANK LAND
The following is a summary of dissenters' rights available to Bank Land
Shareholders, which summary is not intended to be a complete statement of
applicable Colorado law and is qualified in its entirety by reference to Article
113 of the CBCA, set forth in its entirety as Appendix B.
VBC HAS CONDITIONED THE MERGERS ON, SUBJECT TO ITS RIGHT TO WAIVE, AND HAS
RESERVED THE RIGHT TO TERMINATE THE MERGER AGREEMENT IN THE EVENT THAT HOLDERS
OF GREATER THAN 10.0% OF THE OUTSTANDING SHARES OF THE BANK LAND COMMON STOCK
DISSENT FROM THE BANK LAND MERGER AND SEEK PAYMENT FOR THEIR SHARES IN
ACCORDANCE WITH THE CBCA.
RIGHT TO DISSENT. Bank Land Shareholders are entitled to dissent from the
Bank Land Merger and obtain payment of the fair value of their shares if and
when the Bank Land Merger is effectuated. Under Article 113 of the CBCA, a
shareholder entitled to dissent and obtain payment for the shares may not
challenge the corporate action creating the right to dissent unless the action
is unlawful or fraudulent with respect to the shareholder or the corporation.
Under Section 7-113-103 of the CBCA a record shareholder may assert
dissenters' rights as to fewer than all the shares registered in the record
shareholder's name only if the record shareholder dissents with respect to all
shares beneficially owned by any one person and causes the corporation to
receive written notice which states such dissent and the name, address and
federal taxpayer identification number, if any, of each person on whose behalf
the record shareholder asserts.
Section 7-113-103(2) of the CBCA provides that a beneficial shareholder may
assert dissenters' rights as to the shares held on the beneficial shareholder's
behalf only if (a) the beneficial shareholder causes the corporation to receive
the record shareholder's written consent to the dissent not later than the time
the beneficial shareholder asserts dissenters' rights and (b) that the
beneficial shareholder dissents with respect to all shares beneficially owned by
the beneficial shareholder.
Bank Land will require that, when a record shareholder dissents with
respect to the shares held by any one or more beneficial shareholders, each such
beneficial shareholder must certify to Bank Land that the beneficial shareholder
and the record shareholder or record shareholders of all shares owned
beneficially by the beneficial shareholder have asserted, or will timely assert,
dissenters' rights as to all such shares as to which there is no limitation on
the ability to exercise dissenters' rights.
PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS. The notice accompanying this
Prospectus/Joint Proxy Statement states that shareholders of Bank Land are
entitled to assert dissenters' rights under Article 113 of
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the CBCA. A Bank Land Shareholder who wishes to assert dissenters' rights shall:
(a) cause Bank Land to receive before the vote is taken on the Bank Land Merger
at the Bank Land Special Meeting, written notice of the shareholder's intention
to demand payment for the shareholder's shares if the Bank Land Merger is
effectuated; and (b) not vote the shares in favor of the Bank Land Merger. A
BANK LAND SHAREHOLDER WHO DOES NOT SATISFY THE FOREGOING REQUIREMENTS WILL NOT
BE ENTITLED TO DEMAND PAYMENT FOR HIS OR HER SHARES UNDER ARTICLE 113 OF THE
CBCA.
If the Merger Agreement is approved at the Bank Land Special Meeting, Bank
Land will send written notice to dissenters who are entitled to demand payment
for their shares. The notice required by Bank Land shall be given no later than
10 days after the Effective Time and: (a) state that the Bank Land Merger was
authorized and state the Effective Time or proposed effective date of the Bank
Land Merger; (b) set forth an address at which Bank Land will receive payment
demands and the address of a place where certificates must be deposited; (c)
supply a form for demanding payment, which form shall request a dissenter to
state an address to which payment is to be made; (d) set the date by which Bank
Land must receive the payment demand and certificates for shares, which date
shall not be less than 30 days after the date the notice is given; (e) state
that if a record Bank Land Shareholder dissents with respect to the shares held
by any one or more beneficial shareholders each such beneficial shareholder must
certify to Bank Land that the beneficial shareholder and the record shareholder
or record shareholders of all shares owned beneficially by the beneficial
shareholder have asserted, or will timely assert, dissenters' rights as to all
such shares as to which there is no limitation of the ability to exercise
dissenters' rights; and (f) be accompanied by a copy of Article 113 of the CBCA.
A shareholder who is given a dissenters' notice to assert dissenters'
rights shall, in accordance with the terms of the dissenters' notice, (a) cause
Bank Land to receive a payment demand (which may be a demand form supplied by
Bank Land and duly completed or other acceptable writing) and (b) deposit the
shareholder's stock certificates. A shareholder who demands payment in
accordance with the foregoing retains all rights of a shareholder, except the
right to transfer the shares until the Effective Time, and has only the right to
receive payment for the shares after the Effective Time. A demand for payment
and deposit of certificates is irrevocable except that if the Effective Time
does not occur within 60 days after the date set by Bank Land by which it must
receive the payment demand, Bank Land shall return the deposited certificates
and release the transfer restrictions imposed. If the Effective Time occurs more
than 60 days after the date set by Bank Land by which it must receive the
payment demand, then Bank Land shall send a new dissenters' notice. A BANK LAND
SHAREHOLDER WHO DOES NOT DEMAND PAYMENT AND DEPOSIT HIS OR HER BANK LAND SHARE
CERTIFICATES AS REQUIRED BY THE DATE OR DATES SET FORTH IN THE DISSENTERS'
NOTICE WILL NOT BE ENTITLED TO DEMAND PAYMENT FOR HIS OR HER BANK LAND SHARES
UNDER ARTICLE 113 OF THE CBCA, IN WHICH CASE, PURSUANT TO THE MERGER AGREEMENT,
HE OR SHE WILL RECEIVE ALL CASH CONSIDERATION FOR HIS OR HER BANK LAND SHARES IN
AN AMOUNT EQUAL TO HIS OR HER SHARE OF THE ADJUSTED BANK LAND FINAL PURCHASE
PRICE.
At the Effective Time or upon receipt of a payment demand, whichever is
later, Bank Land shall pay each dissenter who complied with the notice
requirements referenced in the preceding paragraph, the Bank Land estimate of
the fair value of the dissenter's shares plus accrued interest. Payment shall be
accompanied by an audited balance sheet as of the end of the most recent fiscal
year of Bank Land or, an audited income statement for that year, and, an audited
statement of changes in shareholders' equity for that year and an audited
statement of cash flow for that year, as well as the latest available financial
statements, if any, for the interim period, which interim financial statements
will be unaudited. Payment will also be accompanied by a statement of the
estimate of Bank Land of the fair value of the shares and an explanation of how
the interest was calculated, along with a statement of the dissenter's right to
demand payment and a copy of Article 113 of the CBCA.
If a dissenter disagrees with the Bank Land payment or offer, such
dissenter may give notice to Bank Land in writing of the dissenter's estimate of
fair value of the dissenter's shares and of the amount of interest due and may
demand payment of such estimate, less any payment made prior thereto, or reject
the offer of Bank Land and demand payment of the fair value of the shares and
interest due if: (a) the dissenter believes that the amount paid or offered is
less than the fair value of the shares or that the interest due was incorrectly
calculated, (b) Bank Land fails to make payment within 60 days after the date
set by Bank Land by which it
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must receive the payment demand or (c) Bank Land does not return deposited
certificates in the event the Effective Time is 60 days after the date set by
Bank Land by which the payment demand must be received by the shareholder
asserting dissenter's rights. A DISSENTER WAIVES THE RIGHT TO DEMAND PAYMENT
UNDER THIS PARAGRAPH UNLESS HE OR SHE CAUSES BANK LAND TO RECEIVE THE NOTICE
REFERENCED IN THIS PARAGRAPH WITHIN 30 DAYS AFTER BANK LAND MAKES OR OFFERS
PAYMENT FOR THE SHARES OF THE DISSENTER, IN WHICH EVENT, SUCH DISSENTER WILL
RECEIVE ALL CASH FOR HIS OR HER BANK LAND SHARES IN AN AMOUNT EQUAL TO THE
AMOUNT PAID OR OFFERED BY BANK LAND.
JUDICIAL APPRAISAL OF SHARES. If a demand for payment made by a dissenter
as set forth above is unresolved, Bank Land may, within 60 days after receiving
the payment demand, commence a proceeding and petition a court to determine the
fair value of the shares and accrued interest. If Bank Land does not commence
the proceeding within the 60 day period, it shall pay to each dissenter whose
demand remains unresolved the amount demanded. Bank Land shall commence the
proceeding described above in the District Court of the City and County of
Denver, Colorado. Bank Land shall make all dissenters whose demands remain
unresolved parties to the proceeding as in an action against their shares, and
all parties shall be served with a copy of the petition. Jurisdiction in which
the proceeding is commenced is plenary and exclusive. One or more persons may be
appointed by the court as appraisers to receive evidence and recommend a
decision on the question of fair value. The appraisers will have the powers
described in the court order appointing them. The parties to the proceeding will
be entitled to the same discovery rights as parties in other civil proceedings.
Each dissenter made a party to the proceeding will be entitled to judgment for
the amount, if any, by which the court finds the fair value of the dissenter's
shares, plus interest, to exceed the amount paid by Bank Land, or for the fair
value, plus interest, of a dissenter's shares for which Bank Land elected to
withhold payment.
The court in an appraisal proceeding shall determine all costs of the
proceeding, including the reasonable compensation and expenses of appraisers
appointed by the court. The court shall assess the costs against Bank Land;
except that the court may assess costs against all or some of the dissenters, in
the amount the court finds equitable, to the extent the court finds that
dissenters acted arbitrarily, vexatiously, or not in good faith in demanding
payment. The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable: (a) against
Bank Land and in favor of any dissenters if the court finds that Bank Land did
not substantially comply with the procedures for exercise of dissenters' rights
set forth in Article 113 of the CBCA; or (b) against either Bank Land or one or
more dissenters, in favor of any other party, if the court finds that the party
against whom the fees and expenses are assessed acted arbitrarily, vexatiously
or not in good faith with respect to the rights provided by Article 113 of the
CBCA. If the court finds that the services of counsel for any dissenter were of
substantial benefit to the other dissenters similarly situated, and that the
fees for those services should not be assessed against Bank Land, the court may
award to such counsel reasonable fees to be paid out of the amount awarded to
the dissenters who were benefitted.
ANY WRITTEN NOTICE REQUIRED TO BE SENT TO BANK LAND BY A BANK LAND
SHAREHOLDER ELECTING TO EXERCISE HIS OR HER DISSENTER'S RIGHTS UNDER ARTICLE 113
OF THE CBCA SHOULD BE TO GARY A. MOSKO AT THE OFFICES OF THE BANK, 1380 SOUTH
FEDERAL BOULEVARD, DENVER, COLORADO 80219.
THE BANK
The following is a summary of dissenters' rights available to the Bank
shareholders, which summary is not intended to be a complete statement of
applicable Colorado law and is qualified in its entirety by reference to Section
11-4-105 of the CBC, set forth in its entirety as Appendix C.
VECTRA HAS CONDITIONED THE MERGERS ON, SUBJECT TO ITS RIGHT TO WAIVE, AND
HAS RESERVED THE RIGHT TO ABANDON THE MERGER AGREEMENT IN THE EVENT THAT HOLDERS
OF GREATER THAN 45% OF THE OUTSTANDING SHARES OF THE BANK COMMON STOCK (OTHER
THAN SHARES HELD BY BANK LAND AND VECTRA) DISSENT FROM THE BANK MERGER AND SEEK
PAYMENT FOR THEIR SHARES.
The CBC provides that the owners of shares of the Bank Common Stock which
are voted against the Bank Merger are entitled to receive their value in cash if
and when the Bank Merger becomes effective, upon written demand made to Vectra
at any time within 30 days after the Effective Time accompanied by the
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surrender of stock certificates. The value of the shares will be determined as
of the date of the Bank Special Meeting by three appraisers. One appraiser will
be selected by the owners of two-thirds of the dissenting shares, one appraiser
will be selected by the board of directors of Vectra and the third appraiser
will be chosen by the other two appraisers. The valuation agreed upon by any two
appraisers will govern. If the appraisal is not completed within 90 days after
the Effective Time, the Colorado State Banking Commissioner shall cause an
appraisal to be made. The expenses of appraisal will be paid by Vectra. Vectra
may fix an amount which it considers to be not more than the fair market value
of the shares of the Bank at the time of the Bank Special Meeting, which Vectra
will pay to the Bank Dissenting Shareholders entitled to payment in cash. The
amount due under such accepted offer or under the appraisal will constitute a
debt of Vectra.
A BANK SHAREHOLDER WHO DOES NOT BOTH VOTE AGAINST THE BANK MERGER AND
SURRENDER HIS OR HER BANK SHARES TO THE BANK AS PROVIDED IN THE PRECEDING
SENTENCE WILL NOT BE ENTITLED TO RECEIVE PAYMENT FOR SUCH SHARES UNDER SECTION
105 OF THE CBC, IN WHICH CASE HE OR SHE WILL RECEIVE HIS OR HER SHARE OF THE
BANK FINAL PURCHASE PRICE, PAYABLE 50.1% IN 1996 SERIES A PREFERRED STOCK AND
49.9% IN CASH.
ANY WRITTEN NOTICE REQUIRED TO BE SENT TO THE BANK BY A BANK SHAREHOLDER
ELECTING TO EXERCISE HIS OR HER DISSENTER'S RIGHTS UNDER SECTION 11-4-105 OF THE
CBC SHOULD BE SENT TO GARY A. MOSKO AT THE OFFICES OF THE BANK, 1380 SOUTH
FEDERAL BOULEVARD, DENVER, COLORADO 80219.
BANK LAND/VBC STOCK OPTION AGREEMENT
On December 26, 1996, VBC and Bank Land entered into a Stock Option
Agreement (referred to herein as the "Bank Land/VBC Stock Option Agreement") as
an inducement and a condition to VBC entering into the Merger Agreement. The
following summary description of the Bank Land/VBC Stock Option Agreement is
qualified in its entirety by reference to the complete text of the Bank Land/VBC
Stock Option Agreement.
The Bank Land/VBC Stock Option Agreement may discourage competing offers to
the Mergers and is intended to increase the likelihood that the Mergers will be
consummated in accordance with the terms of the Merger Agreement. VBC and Bank
Land believe that the exercise of the Option would likely prohibit any acquiror
from accounting for an acquisition of, or merger with, Bank Land/the Bank using
the pooling-of-interests accounting method for a period of up to two years.
Under the terms of the Bank Land/VBC Stock Option Agreement, VBC has an
option (the "Option") to purchase from Bank Land, upon the occurrence of certain
events (none of which has yet occurred to the best of VBC's and Bank Land's
knowledge), up to 19.9% of the shares of the Bank Common Stock outstanding on
(i) December 26, 1995, (ii) the Exercise Termination Event (as defined below),
(iii) the date of the Initial Triggering Event (as defined below), and (iv) the
date of the Subsequent Triggering Event (as defined below). The share price of
the Bank Common Stock underlying the Option will be the lesser of the share
price of the Bank Common Stock paid as a part of the Initial Triggering Event
(if applicable) and the Subsequent Triggering Event; provided, however, that in
the event that shares of Bank Land Common Stock (and not shares or assets of the
Bank) are acquired in the Triggering Event, the share price of Bank Land Common
Stock will be as set forth in the Merger Agreement, payable in cash.
Subject to applicable law and regulatory restrictions, VBC may exercise the
Option, in whole or in part, if, but only if, both an Initial Triggering Event
and a Subsequent Triggering Event occur prior to the occurrence of an Exercise
Termination Event, provided that VBC sends written notice to Bank Land of such
exercise within 30 days following such Subsequent Triggering Event or such later
period as provided in the Bank Land/VBC Stock Option Agreement.
As defined in the Bank Land/VBC Stock Option Agreement:
"Initial Triggering Event" means (a) the entry by Bank Land, without
having received VBC's prior written consent, into an agreement to engage in
a Merger Transaction (other than with VBC or Vectra) or the Bank Land Board
or the Bank Board recommends that the Bank Shareholders or Bank Land
Shareholders approve or accept a Merger Transaction other than as
contemplated by the Merger Agreement; (b) the Bank Land Board or the Bank
Board does not recommend that Bank Land Shareholders or the Bank
Shareholders approve the Merger Agreement; (c) any person other than
48
<PAGE> 62
Vectra or VBC acquires beneficial ownership of 10% or more of the
outstanding voting stock of the Bank or Bank Land; (d) any person other
than VBC or Vectra makes a public offer to the Bank or Bank Land or their
shareholders to engage in a Merger Transaction; (e) following any such
offer, the Bank or Bank Land breaches the Merger Agreement, and such breach
(i) entitles VBC or Vectra to terminate the Merger Agreement and (ii) has
not been cured prior to written notice to the Bank or Bank Land of VBC's
exercise of the Option; or (f) any person other than VBC or Vectra, other
than in connection with the transaction to which VBC or Vectra has given
its prior written consent, files an application or notice with the Board of
Governors or other governmental or regulatory authority for approval to
engage in a Merger Transaction. "Merger Transaction" is defined to include
the acquisition by way of merger, share exchange or otherwise of 10% of
more of the voting stock of Bank Land or the Bank.
"Subsequent Triggering Event" means either (i) the acquisition by any
person of beneficial ownership of 20% or more of the outstanding shares of
any class of Bank Land capital stock other than by a current owner of more
than 20% of such class; or (ii) the occurrence of the Initial Triggering
Event described in (a) above, except that the 10% referred to therein will
be 20%.
"Exercise Termination Event" means (i) the Effective Time of the
Mergers; (ii) termination of the Merger Agreement by the Bank or Bank Land
due to a material, uncorrected breach thereof by VBC or Vectra; (iii)
termination of the Merger Agreement in accordance with Section 3.2 of the
Merger Agreement if such termination occurs prior to the occurrence of an
Initial Triggering Event; or (iv) nine months after termination of the
Merger Agreement if such termination following the occurrence of an Initial
Triggering Event (provided that if an Initial Triggering Event continues or
another Initial Triggering Event occurs beyond such termination, the
Exercise Termination Event will be nine months after the expiration of the
Last Triggering Event, but in no event more than 18 months after such
termination). The "Last Triggering Event" means the last Initial Triggering
Event to occur.
Under the BHC Act, VBC may not acquire 5% or more of the outstanding shares
of the Bank Common Stock without the prior approval of the Board of Governors
under the BHC Act. Certain other regulatory approvals may also be required
before such an acquisition could be completed.
The Option may not be assigned by Bank Land or VBC without the written
consent of the other party, except that VBC may assign its rights and
obligations under the Bank Land/VBC Stock Option Agreement to Vectra.
Bank Land has agreed that it will not by amendment of its Articles of
Incorporation or Bylaws or through reorganization or merger or by any other
voluntary act avoid or seek to avoid the performance of any of its agreements to
be performed by it under the Bank Land/VBC Stock Option Agreement and has
further agreed to take all action necessary to permit VBC to exercise the
Option.
EXPENSES
Each party to the Merger Agreement will bear its own costs and expenses,
including attorneys' and accountants' fees incurred in connection with the
Merger Agreement, whether or not the transactions contemplated are consummated
or the Merger Agreement is terminated; provided, however, that VBC will pay for
the printing costs of this Prospectus/Joint Proxy Statement, which is estimated
by management to be approximately $10,000. In addition, the Merger Agreement
provides that the costs and expenses paid by the Bank and Bank Land, including
attorneys', accountants' and audit fees relating to the audited financial
statements of the Bank and Bank Land that are required for the preparation of
this Prospectus/Joint Proxy Statement, may not exceed $100,000 in the aggregate,
exclusive of amounts paid to Wallach. See "Fairness Opinions of Bank Land and
the Bank Financial Advisor" for information on amounts Bank Land and the Bank
are required to pay to Wallach if the Mergers are consummated. Any such sums in
excess of $100,000 will be paid by the Bank and Bank Land Shareholders at
Closing. The Merger Agreement further provides that the Bank and Bank Land will
not make payments to Wallach in excess of $7,500 per month or expense
reimbursements in excess of $100 per month at any time after November 15, 1995,
and Bank Land Shareholders will be solely responsible for any and all of the
fees, costs and expenses and other charges incurred by Bank Land and the Bank in
excess of those amounts.
49
<PAGE> 63
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
AND SELECTED COMPARATIVE AND PRO FORMA FINANCIAL DATA
On December 26, 1995, VBC entered into the Merger Agreement to acquire all
of the outstanding stock of Bank Land and the Bank for a Base Purchase Price of
$21.6 million. As is indicated elsewhere herein, the Base Purchase Price will
increase with the passage of time between the date of the Merger Agreement and
Closing. However, for purposes of the accompanying pro forma combined financial
statements, which are as of March 31, 1996, and for the three months then ended
and the year ended December 31, 1995, the Final Purchase Price is assumed to be
$22.0 million, which equals the approximate total consideration if the Closing
would have been on March 31, 1996. The Final Purchase Price will be comprised of
50.1% or $11.022 million of 1996 Series A Preferred Stock and 49.9% or $10.978
million in cash based on the assumed Final Purchase Price of $22.0 million. The
Mergers will be accounted for using the purchase method of accounting.
The following table set forth a reconciliation of the purchase price to the
net assets to be acquired based on estimated fair values at March 31, 1996 (in
thousands):
<TABLE>
<S> <C>
Purchase price:
1996 Series A Preferred Stock........................................... $ 11,022
Cash payable to sellers................................................. 10,978
Acquisition costs....................................................... 200
--------
Total purchase price............................................ 22,200
--------
Estimated fair value of net assets acquired:
Cash, securities and federal funds sold................................. 35,292
Net loans............................................................... 73,587
Premises and equipment.................................................. 2,134
Other assets............................................................ 965
Deferred taxes.......................................................... (285)
Deposits................................................................ (95,589)
Other liabilities....................................................... (1,074)
--------
Total fair value of net assets acquired......................... 15,030
--------
Goodwill -- excess of purchase price over fair value of net assets
acquired............................................................. $ 7,170
========
</TABLE>
The following unaudited pro forma combined balance sheet assumes that the
Bank Merger and the Bank Land Merger occurred on March 31, 1996 and includes the
historical consolidated balance sheets of VBC and Bank Land adjusted for the pro
forma effects of the Mergers. The adjustments represent VBC's current estimates
of the fair values of the consolidated assets and liabilities of Bank Land and
the Bank. Such adjustments will be reviewed and adjusted based on information
available as of the date of Closing and may differ from the adjustments included
herein. The following unaudited pro forma combined statements of operations for
the three months ended March 31, 1996 and the year ended December 31, 1995
assume that the Bank Land Merger and the Bank Merger occurred on or prior to
December 31, 1994 and include the historical consolidated statements of
operations of VBC and Bank Land, adjusted for the pro forma effects of the
Mergers.
The unaudited pro forma combined statements of operations are not
necessarily indicative of the results of operations that would actually have
occurred if the Mergers had been consummated on or prior to December 31, 1994.
These statements should be read in conjunction with the historical consolidated
financial statements and related notes of VBC included elsewhere herein.
50
<PAGE> 64
PRO FORMA COMBINED BALANCE SHEET
AT MARCH 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
VBC BANK LAND TOTAL ADJUSTMENTS NOTES TOTAL
-------- --------- -------- ----------- ----- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks.......... $ 17,235 $ 7,773 $ 25,008 $ (200) (1) $ 24,808
Securities available for sale, at
market value................... 175,686 2,373 178,059 -- 178,059
Securities held to maturity, at
cost........................... 535 15,546 16,081 -- (10) 16,081
Investment in Federal Home Loan
Bank stock..................... 3,873 -- 3,873 -- 3,873
Federal funds sold............... -- 9,601 9,601 (7,978) (2) 1,623
Loans............................ 206,393 74,492 280,885 -- 280,885
Less allowance for loan
losses...................... (2,596) (905 ) (3,501) -- (3,501)
-------- --------- -------- ------- ---------
Net loans........................ 203,797 73,587 277,384 -- (11) 277,384
Accrued interest receivable...... 2,252 683 2,935 -- 2,935
Real estate acquired by
foreclosure, net............... 942 211 1,153 -- 1,153
Premises and equipment, net...... 10,439 984 11,423 1,150 (4) 12,573
Intangible asset, net............ 259 -- 259 7,170 (6) 7,429
Deferred income taxes, net....... 2,505 145 2,650 (430) (4) 2,220
Other assets..................... 1,873 71 1,944 -- 1,944
-------- --------- -------- ------- ---------
Total assets........... $419,396 $110,974 $530,370 $ (288) $ 530,082
======== ======== ======== ======= =========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Deposits:
Demand......................... $ 81,994 $ 23,929 $105,923 $ -- $ 105,923
NOW and money market........... 64,301 22,865 87,166 -- 87,166
Savings........................ 106,664 20,166 126,830 -- 126,830
Time deposits under $100,000... 47,644 17,773 65,417 -- 65,417
Time deposits $100,000 and
over........................ 13,948 10,856 24,804 -- 24,804
-------- --------- -------- ------- ---------
Total deposits......... 314,551 95,589 410,140 -- 410,140
Advances from the Federal
Home Loan Bank and federal
funds purchased................ 65,500 -- 65,500 -- 65,500
Securities and loans sold under
agreements to repurchase....... 5,403 -- 5,403 -- 5,403
Notes payable.................... 1,046 -- 1,046 3,000 (3) 4,046
Accounts payable and other
liabilities.................... 1,926 534 2,460 540 (5) 3,000
-------- --------- -------- ------- ---------
Total liabilities...... 388,426 96,123 484,549 3,540 488,089
-------- --------- -------- ------- ---------
Shareholders' equity
Preferred stock................ 8,050 266 8,316 10,756 (7) 19,072
Common stock................... 25,610 2,609 28,219 (2,609) (8) 25,610
Retained earnings.............. 974 11,975 12,949 (11,975) (8) 974
-------- --------- -------- ------- ---------
Realized shareholders' equity.... 34,634 14,850 49,484 (3,828) (9) 45,656
Unrealized loss on investment
securities available for
sale........................ (3,664) 1 (3,663) -- (3,663)
-------- --------- -------- ------- ---------
Total shareholders'
equity............... 30,970 14,851 45,821 (3,828) 41,993
-------- --------- -------- ------- ---------
Total liabilities and
shareholders'
equity............... $419,396 $110,974 $530,370 $ (288) $ 530,082
======== ======== ======== ======= =========
</TABLE>
51
<PAGE> 65
PRO FORMA ADJUSTMENTS
(A) The following pro forma adjustments have been made to the combined balance
sheets of VBC and Bank Land as of March 31, 1996:
(1) To record cash used to pay acquisition costs with a corresponding
adjustment to intangible asset.
(2) To record the reduction in federal funds sold equal to the portion
of the cash purchase price payable that exceeds the $3 million net new
borrowings referred to in (3) below.
(3) To record a bank stock loan in the amount of $3 million, the
proceeds of which will be used to pay the remaining portion of the cash
purchase price.
(4) To adjust the carrying value of the land and building owned by
Bank Land and occupied by the Bank to estimated fair value based on an
independent appraisal and to record the corresponding deferred tax
liability.
(5) To record a liability for the covenant not to compete portion of
the Merger Agreement.
(6) To record net goodwill resulting from the application of purchase
accounting to the Mergers.
(7) To record the issuance of $11.02 million of 1996 Series A
Preferred Stock to the Bank and Bank Land Shareholders and to eliminate the
preferred equity of Bank Land.
(8) To eliminate the remaining equity of Bank Land.
(9) For purposes of the pro forma balance sheet, the minority interest
in the Bank is included in shareholders' equity since such interest is also
being acquired by VBC as part of the transaction.
(10) As of March 31, 1996 the market value of Bank Land's securities
held-to-maturity approximates carrying value; therefore, no adjustment is
shown herein. Any difference between market value and carrying value at
Closing will be included in the purchase accounting adjustments.
(11) The estimated fair value of loans approximates carrying value.
Therefore, no purchase adjustment is included herein.
52
<PAGE> 66
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
VBC BANK LEND TOTAL ADJUSTMENTS NOTES TOTAL
--------- --------- ------ ----------- ----- ---------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans......................... $ 5,306 $ 1,836 $7,142 $ -- $ 7,142
Interest on investments.......................... 2,572 287 2,859 -- 2,859
Interest on federal funds sold................... 9 110 119 (111) (1) 8
--------- -------- ------ ----- ---------
Total interest income.................... 7,887 2,233 10,120 (111) 10,009
--------- -------- ------ ----- ---------
INTEREST EXPENSE:
Interest on deposits:
NOW, money market and savings accounts........ 1,521 361 1,882 -- 1,882
Time deposits under $100,000.................. 681 153 834 -- 834
Time deposits of $100,000 and over............ 201 161 362 -- 362
Advances from the Federal Home Loan Bank......... 920 -- 920 -- 920
Securities and loans sold under agreements to
repurchase....................................... 71 -- 71 -- 71
Notes payable...................................... 24 -- 24 58 (2) 82
--------- -------- ------ ----- ---------
Total interest expense................... 3,418 675 4,093 58 4,151
--------- -------- ------ ----- ---------
NET INTEREST INCOME................................ 4,469 1,558 6,027 (169) 5,858
PROVISION FOR LOAN LOSSES.......................... 179 71 250 -- 250
--------- -------- ------ ----- ---------
NET INTEREST INCOME AFTER PROVISION FOR LOAN
LOSSES........................................... 4,290 1,487 5,777 (169) 5,608
--------- -------- ------ ----- ---------
OTHER INCOME:
Service fees on deposit accounts................. 706 209 915 -- 915
Net gain on sales of loans....................... 390 -- 390 -- 390
Net loss on sale of securities................... -- (1) (1) -- (1)
Other............................................ 47 102 149 -- 149
--------- -------- ------ ----- ---------
Total other income....................... 1,143 310 1,453 -- 1,453
--------- -------- ------ ----- ---------
OTHER EXPENSES:
Salaries and employee benefits..................... 2,267 526 2,793 (90) (3) 2,703
Occupancy, net................................... 633 131 764 35 (4) 799
Marketing and promotion.......................... 271 87 358 (6) (5) 352
Professional services............................ 114 104 218 (73) (6) 145
Printing, supplies and postage................... 164 54 218 -- 218
Credit quality including write downs of real
estate acquired by foreclosure................ 154 17 171 -- 171
Data Processing.................................. 115 60 175 (30) (7) 145
FDIC and state bank assessments.................. 13 1 14 -- 14
Telephone........................................ 101 8 109 -- 109
Amortization of intangible assets................ 14 -- 14 72 (8) 86
Other............................................ 188 149 337 (9) 328
--------- -------- ------ ----- ---------
Total other expenses..................... 4,034 1,137 5,171 (101) 5,070
--------- -------- ------ ----- ---------
Earnings before income taxes....................... 1,399 660 2,059 (68) 1,991
Income tax expense................................. 410 240 650 1 (9) 651
--------- -------- ------ ----- ---------
Net earnings............................. 989 420 1,409 (69) 1,340
Preferred stock dividends.......................... 185 -- 185 193 (10) 378
--------- -------- ------ ----- ---------
NET EARNINGS AVAILABLE TO COMMON SHAREHOLDERS...... $ 804 $ 420 $1,224 $(262) (12) $ 962
========= ======= ====== ====== =========
EARNINGS PER COMMON SHARE.......................... $ 0.25 (11) $ 0.30
========= =========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING...................................... 3,195,279 (11) 3,195,279
========= =========
</TABLE>
53
<PAGE> 67
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
VBC BANK LAND TOTAL ADJUSTMENTS NOTES TOTAL
--------- --------- ------- ----------- ----- ---------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans............................. $ 20,133 $ 7,798 $27,931 $ -- $ 27,931
Interest on investments................................ 14,007 1,402 15,409 -- 15,409
Interest on federal funds sold......................... 113 229 342 (485) (1) (143)
--------- ------- ------- ----- ---------
Total interest income........................... 34,253 9,429 43,682 (485) 43,197
--------- ------- ------- ----- ---------
INTEREST EXPENSE:
Interest on deposits:
NOW, money market and savings accounts............... 5,567 1,254 6,821 -- 6,821
Time deposits under $100,000......................... 2,305 823 3,128 -- 3,128
Time deposits of $100,000 and over................... 638 652 1,290 -- 1,290
Advances from the Federal Home Loan Bank............... 7,483 -- 7,483 -- 7,483
Securities and loans sold under agreements to
repurchase........................................... 240 -- 240 -- 240
Notes payable.......................................... 97 -- 97 248 (2) 345
--------- ------- ------- ----- ---------
Total interest expense.......................... 16,330 2,729 19,059 248 19,307
--------- ------- ------- ----- ---------
NET INTEREST INCOME...................................... 17,923 6,700 24,623 (733) 23,890
PROVISION FOR LOAN LOSSES................................ 795 135 930 -- 930
--------- ------- ------- ----- ---------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES...... 17,128 6,565 23,693 (733) 22,960
--------- ------- ------- ----- ---------
OTHER INCOME:
Service fees on deposit accounts....................... 2,615 861 3,476 -- 3,476
Net gain on sales of loans............................. 1,004 -- 1,004 -- 1,004
Net loss on sale of securities......................... (20) -- (20) -- (20)
Other.................................................. 221 468 689 -- 689
--------- ------- ------- ----- ---------
Total other income.............................. 3,820 1,329 5,149 -- 5,149
--------- ------- ------- ----- ---------
OTHER EXPENSES:
Salaries and employee benefits......................... 8,444 2,438 10,882 (354) (3) 10,528
Occupancy, net......................................... 2,349 499 2,848 135 (4) 2,983
Marketing and promotion................................ 1,205 348 1,553 (25) (5) 1,528
Professional services.................................. 747 561 1,308 (438) (6) 870
Printing, supplies and postage......................... 656 251 907 -- 907
Credit quality including write downs of real estate
acquired by foreclosure.............................. 533 58 591 -- 591
Data Processing........................................ 492 234 726 (112) (7) 614
FDIC and state bank assessments........................ 383 114 497 -- 497
Telephone.............................................. 326 37 363 -- 363
Amortization of intangible assets...................... 29 -- 29 287 (8) 316
Other.................................................. 707 458 1,165 (35) 1,130
--------- ------- ------- ----- ---------
Total other expenses............................ 15,871 4,998 20,869 (542) 20,327
--------- ------- ------- ----- ---------
Earnings before income taxes............................. 5,077 2,896 7,973 (191) 7,782
Income tax expense....................................... 1,774 1,024 2,798 34 (9) 2,832
--------- ------- ------- ----- ---------
Net earnings........................................... 3,303 1,872 5,175 (225) 4,950
Preferred stock dividends................................ 765 -- 765 772 (10) 1,537
--------- ------- ------- ----- ---------
NET EARNINGS AVAILABLE TO COMMON SHAREHOLDERS............ $ 2,538 $ 1,872 $ 4,410 $(997) (12) $ 3,413
========= ======= ======= ===== =========
EARNINGS PER COMMON SHARE................................ $ 0.79 (11) $ 1.07
========= =========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING..... 3,195,279 (11) 3,195,279
========= =========
</TABLE>
54
<PAGE> 68
PRO FORMA ADJUSTMENTS
(B) The following pro forma adjustments have been made to the combined statement
of operations of VBC and Bank Land for the three months ended March 31, 1996
and year ended December 31, 1995:
(1) To record a decrease in interest income resulting from the
reduction in federal funds sold to fund the cash portion of the purchase
price. Decrease is based on yields on federal funds sold during 1996 and
1995.
(2) To record additional interest on a bank stock loan at an assumed
interest rate of .5% under prime, or 7.75% for 1996 and 8.25% for 1995.
(3) To record a decrease in salaries and employee benefits due to the
estimated reduction in personnel expenses to be achieved primarily by
combining staffs and departments. The decrease represents approximately a
15% reduction in the Bank's 1995 historical compensation expense.
(4) To record additional depreciation expense on the increased
carrying value of the building plus $100,000 of annual additional
maintenance to the building.
(5) To record a decrease in public relations expense based upon
combination and estimated reduction of redundant activities.
(6) To record a decrease in professional fees resulting from the
elimination of Bank Land management fees, directors fees, legal, accounting
and other duplicative expenses.
(7) To record a decrease in data processing expense resulting from
conversion of Bank Land from a service bureau to VBC's in-house data
processing system.
(8) To record additional amortization expense for increase in
intangible asset resulting from the Bank Land Merger and the Bank Merger.
Amortization is calculated on a straight line basis over 25 years.
(9) To record an additional income tax provision at the effective
income tax rate applicable to Bank Land applied to the adjustments to
earnings before income taxes. In recording this adjustment it is assumed
that the amortization of goodwill is not tax deductible.
(10) To record the dividend on the 1996 Series A Preferred Stock at an
assumed 7% rate.
(11) The 1996 Series A Preferred Stock would not have been considered
a Common Stock equivalent and, therefore, was not included in weighted
average number of common shares outstanding.
(12) For purposes of the pro forma combined statement of operations,
Bank Land net earnings before minority interest is included since such
interest is being acquired by VBC as part of the Mergers.
55
<PAGE> 69
SELECTED PRO FORMA FINANCIAL DATA
The selected pro forma financial data presented below should be read in
conjunction with and are qualified by the more detailed Pro Forma Combined
Balance Sheet and Statements of Operations and Consolidated Financial Statements
and Notes thereto of VBC, Bank Land and the Bank included herein.
<TABLE>
<CAPTION>
AT OR FOR THE
--------------------------------
THREE MONTHS YEAR ENDED
ENDED MARCH 31, DECEMBER 31,
1996 1995
--------------- ------------
(DOLLARS IN THOUSANDS,
EXCEPTSHARE AND PER SHARE DATA)
<S> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Interest income................................................ $ 10,009 $ 43,197
Interest expense............................................... (4,151) 19,307
----------- ----------
Net interest income............................................ 5,858 23,890
Provision for loan losses...................................... (250) (930)
----------- ----------
Net interest income after provision for loan losses............ 5,608 22,960
Other income................................................... 1,453 5,149
Other expenses................................................. (5,070) (20,327)
----------- ----------
Earnings before income taxes................................... 1,991 7,782
Income tax expense............................................. (651) 2,832
----------- ----------
Net earnings................................................... 1,340 4,950
Preferred stock dividends...................................... 378 1,537
----------- ----------
Net earnings available to common shareholders.................. $ 962 $ 3,413
=========== ==========
Earnings (loss) per common share............................... $ 0.30 $ 1.07
=========== ==========
Weighted average common shares outstanding..................... 3,195,279 3,195,279
=========== ==========
BALANCE SHEET DATA:
Total assets................................................... $ 530,082
Net loans...................................................... 277,384
Securities available for sale and held to maturity(6).......... 194,140
Real estate acquired by foreclosure, net....................... 1,153
Deposits....................................................... 410,140
Advances from the Federal Home Loan Bank and federal funds
purchased................................................... 65,500
Realized shareholders' equity.................................. 45,656
Unrealized loss on securities available for sale, net of tax
effect...................................................... (3,663)
Shareholders' equity........................................... 41,993
-----------
Realized shareholders' equity per common share................. $ 8.32
===========
Book value per common share outstanding........................ $ 7.17
===========
Common shares outstanding end of period........................ 3,195,279
===========
KEY RATIOS:
Net interest margin............................................ 4.97% 4.78%
Net interest spread............................................ 4.08 3.95
Return on average assets....................................... 1.03 0.90
Return on average common equity................................ 17.09 20.60
Shareholders' equity to total assets........................... 7.92
Nonperforming assets to total assets........................... 0.82
Nonperforming loans to total loans............................. 1.11
Allowance for loan losses to total loans....................... 1.25
Allowance for loan losses to nonperforming loans............... 1.12
</TABLE>
56
<PAGE> 70
SELECTED CONSOLIDATED FINANCIAL DATA OF VBC(1)
The selected consolidated financial data presented below should be read in
conjunction with and are qualified by the more detailed Consolidated Financial
Statements and Notes thereto of VBC included herein.
<TABLE>
<CAPTION>
AT OR FOR THE THREE
MONTHS ENDED
MARCH 31, 1996 AT OR FOR THE YEAR ENDED DECEMBER 31,
------------------------- ----------------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
STATEMENTS OF OPERATIONS
DATA:
Interest income.......... $ 7,887 $ 8,713 $ 34,253 $ 28,543 $ 18,700 $ 17,385 $ 16,884
Interest expense......... (3,418) (4,161) (16,330) (11,172) (5,912) (6,044) (8,036)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income...... 4,469 4,552 17,923 17,371 12,788 11,341 8,848
Provision for loan
losses................. (179) (200) (795) (794) (283) (363) (583)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income after
provision for loan
losses................. 4,290 4,352 17,128 16,577 12,505 10,978 8,265
Other income............. 1,143 728 3,820 3,507 4,001 3,988 4,199
Other expenses........... (4,034) 3,752 (15,871) (15,052) (14,752) (13,421) (13,353)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Earnings (loss) before
income taxes and
cumulative effects of
changes in accounting
and extraordinary
item................... 1,399 1,328 5,077 5,032 1,754 1,545 (889)
Income tax expense....... (410) (463) (1,774) (820) (617) (734) --
Cumulative effect of
change in accounting
for income taxes(3).... -- -- -- -- 1,273 -- --
Cumulative effect of
change in accounting
for goodwill(4)........ -- -- -- (1,537) -- -- --
Extraordinary item --
utilization of net
operating loss
carryforwards(5)..... -- -- -- -- -- 707 --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net earnings (loss)...... $ 989 $ 865 $ 3,303 $ 2,675 $ 2,410 $ 1,518 $ (889)
Preferred stock
dividends.............. 185 185 765 579 6 20 5
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net earnings (loss)
available to common
shareholders........... $ 804 $ 680 $ 2,538 $ 2,096 $ 2,404 $ 1,498 $ (894)
========== ========== ========== ========== ========== ========== ==========
Earnings (loss) per
common share........... $ 0.25 $ 0.21 $ 0.79 $ 0.69 $ 0.95 $ 0.63 $ (0.41)
========== ========== ========== ========== ========== ========== ==========
Weighted average common
shares outstanding..... 3,195,279 3,195,279 3,195,279 3,023,385 2,538,469 2,363,873 2,185,229
========== ========== ========== ========== ========== ========== ==========
BALANCE SHEET DATA:
Total assets............. $ 419,396 $ 417,806 $ 462,314 $ 293,700 $ 262,625 $ 219,344
Net loans................ 203,797 204,171 179,766 140,750 125,316 116,209
Securities available for
sale and held to
maturity(6)............ 176,221 171,198 235,086 112,277 93,182 60,835
Real estate acquired by
foreclosure, net....... 942 919 1,265 1,153 2,048 3,562
Deposits................. 314,551 307,085 268,184 250,111 205,097 182,233
Advances from the Federal
Home Loan Bank and
federal funds
purchased.............. 65,500 70,345 162,190 19,500 34,650 18,007
Realized shareholders'
equity................. 34,634 33,824 31,260 17,529 15,048 10,794
Unrealized loss on
securities available
for sale, net of tax
effect................. (3,664) (3,639) (7,667) (176) -- --
---------- ---------- ---------- ---------- ---------- ----------
Shareholders' equity..... 30,970 30,185 23,593 17,353 15,048 10,794
Realized shareholders'
equity per common
share.................. $ 8.32 $ 8.07 $ 7.26 $ 6.72 $ 5.75 $ 4.91
========== ========== ========== ========== ========== ==========
Book value per common
share outstanding...... $ 7.17 $ 6.93 $ 4.86 $ 6.65 $ 5.75 $ 4.91
========== ========== ========== ========== ========== ==========
Common shares outstanding
end of period.......... 3,195,279 3,195,279 3,195,279 2,538,469 2,537,103 2,099,848
========== ========== ========== ========== ========== ==========
KEY RATIOS:
Net interest margin...... 4.72% 4.36% 4.42% 4.66% 5.30% 5.71% 4.39%
Net interest spread...... 3.79 3.58 3.57 3.95 4.68 5.04 3.67
Return on average
assets................. 0.96 0.77 0.75 0.66 0.88 0.65 -- 0.44
Return on average common
equity................. 14.19 16.98 13.41 12.65 15.37 11.61 -- 7.56
Shareholders' equity to
total assets........... 7.38 7.22 5.10 5.91 5.73 4.92
Nonperforming assets to
total assets........... 0.56 0.57 0.54 1.05 2.03 3.64
Nonperforming loans to
total loans............ 0.66 0.67 0.62 1.34 2.52 3.55
Allowance for loan losses
to total loans......... 1.26 1.21 1.10 1.62 1.63 1.75
Allowance for loan losses
to nonperforming
loans.................. 189.90 181.31 176.75 121.42 64.68 49.19
</TABLE>
57
<PAGE> 71
- ---------------
(1) Effective November 13, 1995, VBC acquired all of the outstanding common
stock of First Denver Corporation ("FDC") in exchange for 508,899 shares of
VBC Common Stock. The combination has been accounted for as a pooling of
interests and, accordingly, the consolidated financial statements have been
restated to reflect the combined financial condition, results of operations
and cash flows of VBC and FDC as of and for all periods presented. In
addition, shares issued in connection with the combination have been
included as issued and outstanding in all years presented.
(2) The pro forma information is presented as if the proposed business
combination with Bank Land and the Bank had been consummated on January 1,
1995 for purposes of the Statement of Operations Data and as if it were
completed on March 31, 1996 for purposes of the Balance Sheet Data. The
unaudited pro forma Statement of Operations Data is not necessarily
indicative of the results of operations that would actually have occurred if
the Mergers had been consummated on January 1, 1995.
(3) Effective January 1, 1993, Vectra adopted the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." The
cumulative effect of such adoption was an increase in net income of $1.3
million, which represented primarily the recognition of the tax benefit of
net operating loss carryforwards. See Note 12 of Notes to Consolidated
Financial Statements.
(4) As discussed in Note 1 of Notes to Consolidated Financial Statements of VBC,
FDC, which was acquired by VBC in a business combination accounted for as a
pooling of interests, changed its method of accounting for goodwill during
1994 as a result of the adoption of the provisions of Statement of Financial
Accounting Standards No. 72, "Accounting for Certain Acquisitions of Banking
or Thrift Institutions." The cumulative effect of this change in accounting
was a decrease in net earnings of $1.5 million.
(5) During 1992, VBC utilized net operating loss carryforwards to offset income
tax expense and increase net income by $707,000.
(6) Effective December 31, 1993, VBC adopted the provisions of Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities" and classified substantially its entire
securities portfolio as securities available for sale. See Note 1 of Notes
to Consolidated Financial Statements of VBC.
58
<PAGE> 72
SELECTED PER SHARE INFORMATION FOR BANK LAND CO.
AND SOUTHWEST STATE BANK
<TABLE>
<CAPTION>
BANK LAND CO. SOUTHWEST STATE BANK
------------------------------- -------------------------------
AS OF AND AS OF AND
AS OF AND FOR FOR AS OF AND FOR FOR
THE THREE THE YEAR THE THREE THE YEAR
MONTH PERIOD ENDED MONTH PERIOD ENDED
ENDED MARCH 31, DECEMBER 31, ENDED MARCH 31, DECEMBER 31,
1996 1995 1996 1995
--------------- ------------ --------------- ------------
<S> <C> <C> <C> <C>
Book value per common share............ $ 39.09 $37.98 $ 93.66 $90.79
Cash dividends declared per common
share................................ -- .75 -- --
Income per share from continuing
operations........................... 1.12 4.98 2.89 13.13
</TABLE>
59
<PAGE> 73
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF VBC
OVERVIEW
As is set forth in Note 2 of Notes to Consolidated Financial Statements,
effective November 13, 1995, VBC acquired the outstanding common stock of First
Denver Corporation and its subsidiary, First National Bank of Denver, in
exchange for shares of VBC Common Stock. The combination has been accounted for
as a pooling of interests and, accordingly, the accompanying consolidated
financial statements and other financial schedules and information have been
restated to reflect the combined financial condition, results of operations and
cash flows of VBC and First Denver Corporation as of and for all periods
presented.
VBC's net income is derived primarily from net interest income. Net
interest income is the difference between interest income, principally from
loans and investment securities, and interest expense, principally on customer
deposits and borrowings. Changes in net interest income result from changes in
volume, net interest spread and net interest margin. Volume refers to the
average dollar levels of interest-earning assets and interest-bearing
liabilities. Net interest margin refers to net interest income divided by
average interest-earning assets and is influenced by the level and relative mix
of interest-earning assets and interest-bearing liabilities. Net interest spread
refers to the difference between the average yield on interest earning assets
and the average cost of interest-bearing liabilities.
One of VBC's strategies has been to leverage its capital to maximize
earnings capacity. In executing this strategy, VBC has borrowed from the Federal
Home Loan Bank ("FHLB"). These borrowings, with interest rates which generally
adjust monthly, have been used in part to fund loan growth but to a larger
extent to fund the purchase of adjustable rate securities, which also generally
adjust monthly, semiannually or annually. VBC substantially expanded these
investing activities during 1994 and decreased such activities during 1995.
VBC's balance sheet objectives are to replace much of the FHLB borrowings
with lower costing deposits, to replace much of the investment portfolio with
higher earning loans, to structure and manage assets and liabilities so as to
minimize the fluctuations in earnings that may result from changes in interest
rates and to structure its investment portfolio so as to minimize potential
undesired volatility in performance and market value changes. The use of the
excess liquidity of assets from First National Bank of Denver after its
acquisition, the increase in loans, the increase in deposits and the sale of
investments have allowed for the reduction of FHLB borrowings in 1995 and the
achievement of progress towards these objectives.
60
<PAGE> 74
NET INTEREST INCOME
The following tables set forth information for the periods indicated with
regard to average balances of assets and liabilities, as well as the total
dollar amounts of interest income from interest-earning assets and interest
expense on interest-bearing liabilities, resultant yields or costs, net interest
income, net interest spread, net interest margin and the ratio of average
interest-earning assets to interest-bearing liabilities for VBC. These schedules
include no adjustments related to tax-exempt interest as such interest has not
been significant.
<TABLE>
<CAPTION>
AS OF AND FOR THE
YEAR ENDED DECEMBER
AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 31,
------------------------------------------------------------- -------------------
1996 1995 1995
----------------------------- ----------------------------- -------------------
INTEREST AVERAGE INTEREST AVERAGE INTEREST
AVERAGE EARNED YIELD AVERAGE EARNED YIELD AVERAGE EARNED
BALANCE OR PAID OR COST BALANCE OR PAID OR COST BALANCE OR PAID
-------- -------- ------- -------- -------- ------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Federal funds sold.......................... $ 255 2 3.15% $ 1,389 19 5.55% $ 1,846 $ 133
Investments................................. 171,341 2,506 5.88% 233,602 3,852 6.69% 211,153 13,579
Investment in stock of the Federal Home Loan
Bank...................................... 4,874 73 6.02% 8,847 131 6.01% 7,003 428
Loans(1).................................... 204,171 5,306 10.45% 179,578 4,711 10.64% 187,637 20,133
Allowance for loan losses................... (2,547) (2,081) (2,282)
-------- -------- -------- -------- -------- --------
Total interest-earning assets....... 378,094 7,887 8.39% 421,335 8,713 8.39% 405,357 34,253
Noninterest-earning assets
Cash and due from banks................... 16,829 15,749 15,549
Other..................................... 17,848 19,842 19,283
-------- -------- --------
Total assets........................ $412,771 $456,926 $440,189
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
NOW and money market accounts............. $ 63,929 393 2.47% $ 68,965 436 2.56% $ 65,715 1,721
Savings................................... 102,878 1,128 4.41% 81,198 803 4.01% 87,072 3,846
Certificates of deposit:
Under $100,000.......................... 48,202 681 5.68% 28,956 327 4.58% 41,445 2,305
$100,000 and over....................... 14,152 201 5.71% 8,782 104 4.80% 11,345 638
-------- -------- -------- -------- -------- --------
Total interest-bearing deposits..... 229,161 2,403 4.22% 187,901 1,670 3.60% 205,577 8,510
Advances from the Federal Home Loan Bank and
federal funds purchased................... 66,527 920 5.56% 161,765 2,422 6.07% 123,083 7,483
Securities and loans sold under agreements
to repurchase............................. 6,026 71 4.74% 3,693 43 4.72% 4,899 240
Notes payable............................... 1,049 24 9.20% 1,106 26 9.53% 1,076 97
-------- -------- -------- -------- -------- --------
Total interest-bearing
liabilities....................... 302,763 3,418 4.54% 354,465 4,161 4.76% 334,635 16,330
Noninterest-bearing demand accounts......... 76,912 76,261 76,072
-------- -------- --------
Total deposits and interest-bearing
liabilities............................... 379,675 430,726 410,707
Other noninterest-bearing liabilities....... 2,404 2,000 2,499
-------- -------- --------
Total liabilities................... 382,079 432,726 413,206
Shareholders' equity........................ 30,696 24,200 26,983
-------- -------- --------
Total liabilities and shareholders'
equity............................ $412,771 $456,926 $440,189
======== ======== ========
Net interest income......................... $4,469 $4,552 $ 17,923
======= ======= ========
Net interest spread......................... 3.95% 3.63%
======= =======
Net interest margin......................... 4.72% 4.36%
======= =======
Ratio of average interest-earning assets to
average interest-bearing liabilities...... 126% 119% 121%
<CAPTION>
AS OF AND FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------
1994 1993
--------------------------------------- -----------------------------
AVERAGE INTEREST AVERAGE INTEREST AVERAGE
YIELD AVERAGE EARNED YIELD AVERAGE EARNED YIELD
OR COST BALANCE OR PAID OR COST BALANCE OR PAID OR COST
------- -------- -------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Federal funds sold.......................... 6.12% $ 2,424 $ 98 4.05% $ 3,688 $ 103 2.80%
Investments................................. 6.43% 205,060 12,004 5.85% 98,946 5,225 5.28%
Investment in stock of the Federal Home Loan
Bank...................................... 6.11% 6,765 398 5.88% 3,908 279 7.13%
Loans(1).................................... 10.73% 160,944 16,043 9.97% 136,836 13,093 9.57%
Allowance for loan losses................... (2,145) (2,254)
-------- -------- -------- --------
Total interest-earning assets....... 8.45% 373,048 28,543 7.65% 241,124 18,700 7.76%
Noninterest-earning assets
Cash and due from banks................... 16,268 15,658
Other..................................... 16,885 17,908
-------- --------
Total assets........................ $406,201 $274,690
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
NOW and money market accounts............. 2.62% $ 70,884 1,553 2.19% $ 69,182 1,601 2.31%
Savings................................... 4.42% 83,521 2,979 3.57% 56,079 1,963 3.50%
Certificates of deposit:
Under $100,000.......................... 5.56% 19,996 695 3.48% 21,568 757 3.51%
$100,000 and over....................... 5.62% 7,669 289 3.77% 10,710 388 3.62%
-------- -------- -------- --------
Total interest-bearing deposits..... 4.14% 182,070 5,516 3.03% 157,539 4,709 2.99%
Advances from the Federal Home Loan Bank and
federal funds purchased................... 6.08% 114,989 5,420 4.71% 29,605 952 3.22%
Securities and loans sold under agreements
to repurchase............................. 4.90% 3,333 116 3.48% 2,742 60 2.19%
Notes payable............................... 9.01% 1,357 120 8.84% 2,252 191 8.46%
-------- -------- -------- --------
Total interest-bearing
liabilities....................... 4.88% 301,749 11,172 3.70% 192,138 5,912 3.08%
Noninterest-bearing demand accounts......... 77,733 65,046
-------- --------
Total deposits and interest-bearing
liabilities............................... 379,482 257,184
Other noninterest-bearing liabilities....... 2,099 1,390
-------- --------
Total liabilities................... 381,581 258,574
Shareholders' equity........................ 24,620 16,116
-------- --------
Total liabilities and shareholders'
equity............................ $406,201 $274,690
======== ========
Net interest income......................... $ 17,371 $ 12,788
======= =======
Net interest spread......................... 3.57% 3.95% 4.68%
======= ======= =======
Net interest margin......................... 4.42% 4.66% 5.30%
======= ======= =======
Ratio of average interest-earning assets to
average interest-bearing liabilities...... 124% 125%
</TABLE>
- ---------------
(1) Loans are net of unearned discount. Non accruals are included in average
loans outstanding. Loan fees are included in interest income as follows for
the three months ended March 31, 1996 and 1995, $284,000 and $251,000,
respectively, and for the annual periods: 1995 -- $1,225,000;
1994 -- $1,156,000; 1993 -- $1,095,000.
61
<PAGE> 75
The following table illustrates, for the periods indicated, the changes in
VBC's net interest income due to changes in volume and changes in interest rate.
Changes in net interest income due to both volume and rate have been included in
the changes due to rate.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31, 1996 COMPARED TO 1995 COMPARED TO 1994: 1994 COMPARED TO 1993:
1995: INCREASE (DECREASE) INCREASE (DECREASE) IN INCREASE (DECREASE) IN
IN NET INTEREST INCOME DUE NET INTEREST INCOME NET INTEREST INCOME
TO CHANGES IN DUE TO CHANGES IN DUE TO CHANGES IN
--------------------------- ----------------------------- -----------------------------
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........... $ (15) $ (2) $ (17) $ (23) $ 38 $ 15 $ (35) $ 30 $ (5)
Investments.................. (1,002) (344) (1,346) 357 1,218 1,575 5,604 1,175 6,779
Investment in stock of the
Federal Home Loan Bank..... (58) (58) 14 16 30 203 (84) 119
Loans........................ 703 (108) 595 2,661 1,429 4,090 2,307 643 2,950
------ ---- ------- ------ ------- ------- ------ ------- -------
Total Interest-earning
assets............... (372) (454) (826) 3,009 2,701 5,710 8,079 1,764 9,843
------ ---- ------- ------ ------- ------- ------ ------- -------
Interest-bearing liabilities
NOW and money market
accounts................... 28 15 43 113 (281) (168) (39) 87 48
Savings...................... (227) (98) (325) (127) (740) (867) (960) (56) (1,016)
Certificates of deposit:
Under $100,000............. (225) (129) (354) (746) (864) (1,610) 55 7 62
$100,000 and over.......... (66) (31) (97) (139) (210) (349) 110 (11) 99
Advances from the Federal
Home Loan Bank and federal
funds purchased............ 1,416 86 1,502 (382) (1,681) (2,063) (2,746) (1,722) (4,468)
Securities and loans sold
under agreements to
repurchase................. (28) (28) (55) (69) (124) (13) (43) (56)
Notes payable................ 1 1 2 25 (2) 23 76 (5) 71
------ ---- ------- ------ ------- ------- ------ ------- -------
Total interest-bearing
liabilities.......... 899 (156) 743 (1,311) (3,847) (5,158) (3,517) (1,743) (5,260)
------ ---- ------- ------ ------- ------- ------ ------- -------
Net Increase (decrease)
in net interest
income............... $ 527 $(610) $ (83) $1,698 $(1,146) $ 552 $4,562 $ 21 $ 4,583
====== ===== ======= ====== ======= ======= ====== ======= =======
</TABLE>
ASSET/LIABILITY MANAGEMENT
VBC's liquidity management objective is to ensure its ability to satisfy
the cash flow requirements of depositors and borrowers and allow VBC to meet its
own cash flow needs. VBC has two basic sources of liquidity. The first is its
retail deposit market served by its banking offices. VBC has successfully
increased core deposits through its retail network by implementing new deposit
programs and through promotions directed at existing and potential customers.
Average deposits increased by $21.8 million or 8.4% in 1995.
The second source of liquidity is from borrowings, primarily from the FHLB.
This source is used regularly in the cash management function both to fund a
portion of the investment portfolio and to manage the day-to-day fluctuations in
liquidity resulting from needs of depositors and borrowers. At March 31, 1996,
VBC had available approximately $108 million of unused borrowing capacity,
principally from the FHLB, up from approximately $98 million at December 31,
1995 and $28 million one year earlier. The borrowing lines from the FHLB are
collateralized by investments and loans. The sources of borrowing other than the
FHLB include unsecured federal funds purchase lines from three banks. Regular
use of the FHLB as a liquidity management tool has enabled VBC to hold federal
funds sold to a low level without impairing its ability to manage liquidity
adequately. VBC anticipates that it will continue to rely primarily upon
customer deposits, FHLB borrowings, loan repayments, loan sales and earnings to
provide liquidity, and will use funds so provided primarily to make loans and to
purchase investment securities.
The mismatch between maturities and interest rate sensitivities of assets
and liabilities results in interest rate risk. Rising and falling interest rate
environments can have various impacts on net interest income,
62
<PAGE> 76
depending on the difference between the repricing of interest-earning assets and
interest-bearing liabilities, unscheduled repayments of loans and investments,
early withdrawals of deposits and other factors. The factor of most potential
significance is basis risk which is the degree to which yields on assets and
costs of liabilities may adjust differently over time and in relation to other
interest rate changes.
VBC has focused on maintaining a balance between interest rate sensitive
assets and liabilities and repricing frequencies. An important element of this
focus has been to emphasize variable rate loans and investments funded by
deposits and FHLB borrowings which also mature or reprice over short time
periods.
The following tables set forth the estimated maturity or repricing, and the
resulting interest rate gap, of VBC's interest-earning assets and
interest-bearing liabilities at March 31, 1996 and December 31, 1995. All
amounts in the tables are based on contractual repricing schedules except for
fixed-rate mortgage-related securities for which maturities are estimated based
upon recent prepayment experience and assumed future prepayment rates. Actual
prepayment and withdrawal experience may vary significantly from the assumptions
reflected in the tables. Investment securities are shown at amortized cost
rather than market value.
<TABLE>
<CAPTION>
ESTIMATED MATURITY OR REPRICING AT MARCH 31, 1996
--------------------------------------------------------------------
THREE MONTHS
LESS THAN TO LESS THAN ONE TO OVER
THREE MONTHS ONE YEAR FIVE YEARS FIVE YEARS TOTAL
------------ ------------ ---------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Fixed-rate commercial loans......................... $ 4,458 $ 10,102 $ 18,973 $ 4,584 $ 38,117
Fixed-rate consumer loans........................... 1,672 7,783 21,181 15,576 46,212
Variable-rate commercial loans...................... 97,789 -- -- -- 97,789
Variable-rate consumer loans........................ 24,275 -- -- -- 24,275
Investment securities............................... 140,869 25,705 15,817 3,575 185,966
-------- -------- -------- -------- --------
Total interest-earning assets................. 269,063 43,590 55,971 23,735 392,359
Interest-bearing liabilities:
NOW and MMA......................................... 64,301 -- -- -- 64,301
Savings............................................. 106,664 -- -- -- 106,664
Certificates of deposit under $100,000.............. 9,675 23,451 14,506 12 47,644
Certificates of deposit $100,000 and over........... 3,317 7,753 2,878 -- 13,948
Advances from the Federal Home Loan Bank and federal
funds purchased................................... 65,500 -- -- -- 65,500
Other interest-bearing liabilities.................. 5,403 -- -- 1,046 6,449
-------- -------- -------- -------- --------
Total interest-bearing liabilities............ 254,860 31,204 17,384 1,058 304,506
Interest rate gap..................................... $ 14,203 $ 12,386 $ 38,587 $ 22,677 $ 87,853
======== ======== ======== ======== ========
Cumulative interest rate gap at March 31, 1996........ $ 14,203 $ 26,589 $ 65,176 $ 87,852
======== ======== ======== ========
Cumulative interest rate gap to total assets.......... 3.4% 6.3% 15.5% 20.9%
</TABLE>
63
<PAGE> 77
<TABLE>
<CAPTION>
ESTIMATED MATURITY OR REPRICING AT DECEMBER 31, 1995
--------------------------------------------------------------------
THREE MONTHS
LESS THAN TO LESS THAN ONE TO OVER
THREE MONTHS ONE YEAR FIVE YEARS FIVE YEARS TOTAL
------------ ------------ ---------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Fixed-rate commercial loans......................... $ 3,434 $ 10,354 $ 21,569 $ 5,141 $ 40,498
Fixed-rate consumer loans........................... 1,589 4,828 23,049 14,876 44,342
Variable-rate commercial loans...................... 96,706 -- -- -- 96,706
Variable-rate consumer loans........................ 23,916 187 1,015 -- 25,118
Investment securities............................... 141,132 23,526 18,048 1,496 184,202
-------- -------- -------- -------- --------
Total interest-earning assets................. 266,777 38,895 63,681 21,513 390,866
Interest-bearing liabilities:
NOW and MMA......................................... 63,704 -- -- -- 63,704
Savings............................................. 99,254 -- -- -- 99,254
Certificates of deposit under $100,000.............. 11,741 21,887 15,871 12 49,511
Certificates of deposit $100,000 and over........... 2,544 9,139 2,875 -- 14,558
Advances from the Federal Home Loan Bank and federal
funds purchased................................... 70,345 -- -- -- 70,345
Other interest-bearing liabilities.................. 7,429 -- -- 1,051 8,480
-------- -------- -------- -------- --------
Total interest-bearing liabilities............ 255,017 31,026 18,746 1,063 305,852
Interest rate gap..................................... $ 11,760 $ 7,869 $ 44,935 $ 20,450 $ 85,014
======== ======== ======== ======== ========
Cumulative interest rate gap at December 31, 1995..... $ 11,760 $ 19,629 $ 64,564 $ 85,014
======== ======== ======== ========
Cumulative interest rate gap to total assets.......... 2.8% 4.7% 15.5% 20.3%
</TABLE>
The following tables present at March 31, 1996 and December 31, 1995, loans
by maturity in each major category of Vectra's portfolio. Actual maturities may
differ from the contractual maturities shown below as a result of renewals and
prepayments. Loan renewals are evaluated in the same manner as new credit
applications.
<TABLE>
<CAPTION>
MARCH 31, 1996
----------------------------------------------------
LESS THAN ONE TO OVER
ONE YEAR FIVE YEARS FIVE YEARS TOTAL
--------- ---------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial............................... $26,530 $ 25,175 $ 4,983 $ 56,688
Real estate -- mortgage.................. 21,019 30,416 49,600 101,035
Real estate -- construction.............. 21,243 1,358 3 22,604
Installment and revolving lines of
credit................................. 4,589 14,746 571 19,906
Loans held for sale...................... 6,471 -- -- 6,471
------- --------- --------- --------
Total face amount of loans..... $79,852 $ 71,695 $ 55,157 206,704
Deferred loans fees, discounts and costs,
net.................................... (311)
--------
Total loans.................... $206,393
========
</TABLE>
64
<PAGE> 78
Of the $126.9 million of loans at March 31, 1996, that mature after one
year, a total of $60.3 million are fixed rate loans and $66.6 million are
variable rate loans.
<TABLE>
<CAPTION>
DECEMBER 31, 1995
----------------------------------------------------
LESS THAN ONE TO OVER
ONE YEAR FIVE YEARS FIVE YEARS TOTAL
--------- ---------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial............................... $24,648 $ 27,571 $ 6,053 $ 58,272
Real estate -- mortgage.................. 21,716 30,726 49,156 101,598
Real estate -- construction.............. 21,090 725 3 21,818
Installment and revolving lines of
credit................................. 7,874 13,243 335 21,452
Loans held for sale...................... 3,916 -- -- 3,916
------- --------- --------- --------
Total face amount of loans..... $79,244 $ 72,265 $ 55,547 207,056
======= ========= =========
Deferred loans fees, discounts and costs,
net.................................... (392)
--------
Total loans.................... $206,664
========
</TABLE>
Of the $127.8 million of loans at December 31, 1995, that mature after one
year, a total of $64.6 million are fixed rate loans and $63.2 million are
variable rate loans.
In addition to reviewing its gap position, VBC uses an interest rate risk
model to evaluate the potential impact that changes in interest rates might have
on earnings. VBC has adopted profitability, liquidity and market valuation
parameters and objectives against which modeled results are measured. Management
utilizes the modeled results in making plans to mitigate or minimize identified
risks.
At March 31, 1996, VBC had approximately $130.8 million of assets
(substantially all of its floating rate loans and $8.7 million of its
investments) and $70.9 million of liabilities (advances from FHLB and securities
and loans sold under agreements to repurchase) on which interest rates have
adjusted during 1994, 1995 and 1996, generally within 30 days, in the direction
of and by the approximate magnitude of all changes in the federal funds rate.
Such assets and liabilities are indexed to or closely tied to the prime rate or
other short-term indices. Management expects these assets and liabilities to
continue to adjust in reaction to future changes in the federal funds rate
except that it is possible, as has sometimes occurred in previous cycles of
changing interest rates, that the prime rate may not change by the magnitude of
all changes in the federal funds rate. If the prime rate were to rise by a
lesser amount or fall by a greater amount than the amount of changes in the
federal funds rate, VBC's net interest income would likely be negatively
impacted at least temporarily.
Competitive pressures are significant in determining the rates paid on
interest-bearing deposits. During 1995, the average cost of deposits increased
by a larger percentage than the increase in average yield on interest-earning
assets. The levels, mix and cost of deposits are significant factors impacting
overall net interest income.
Net interest income is also impacted significantly by the levels and
maturities of fixed rate securities and loans and the levels of non-interest
bearing deposits. VBC's average non-interest bearing deposits declined by $1.7
million or 2% at year end 1995 compared to December 31, 1994. At December 31,
1995, fixed rate loans and investments expected to mature within one year
totaled approximately $30 million. As these loans and investments mature, they
can either be replaced with current market rate loans or securities or the
proceeds can be used to reduce borrowings from the FHLB.
INVESTING ACTIVITIES
VBC's strategy to leverage its capital to maximize earnings capacity has
been accomplished with borrowing from the FHLB. These borrowings, which
generally adjust monthly, were used as a wholesale funding source for the
purchase of additional adjustable rate securities, which also generally adjust
monthly, semiannually or annually. During 1994, VBC substantially expanded these
activities. In 1995, the level of such activities was reduced consistent with
VBC's objective of replacing investments with higher yielding loans and
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<PAGE> 79
replacing borrowings with customer deposits. Average FHLB advances in 1995 of
$123 million were up $8 million from 1994 averages; however, at December 31,
1995 the borrowings were reduced to $70 million from $162 million one year
earlier. The significant flattening of the interest rate yield curve during 1995
reduced the profitability of these investing activities compared to prior years.
The $5.3 million increase in securities available for sale to $175.7
million at March 31, 1996 from $170.4 million at December 31, 1995 consisted of
$12.0 million in purchases, principally of variable rate mortgage backed
securities, offset by sales of $4.6 million of variable rate collaterized
mortgage obligations and $2.1 million of maturities.
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<PAGE> 80
The following table summarizes certain information about VBC's available
for sale investment portfolio:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
------------------------------------------------------ -------------------------------------------------------
EXCESS OF EXCESS OF
UNREALIZED INTEREST RATE UNREALIZED INTEREST RATE
INDEX TO WHICH MARKET CAPS OVER ESTIMATED MARKET CAPS OVER ESTIMATED
COUPON ON AMORTIZED VALUE CURRENT AVERAGE AMORTIZED VALUE CURRENT AVERAGE
DESCRIPTION SECURITY IS TIED COST ADJUSTMENTS COUPONS LIVES COST ADJUSTMENTS COUPONS LIVES
- ----------- ---------------- --------- ----------- ------------- ---------- --------- ----------- ------------- ----------
(DOLLARS IN MILLIONS) (IN YEARS) (DOLLARS IN MILLIONS) (IN YEARS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CMO-Floating
rate... COFI $ 44.3 (1.1) 3.2% 10.6 $ 59.1 (4.5) 4.1% 17.9
CMO-Floating
rate... 10 yr CMT 76.5 (3.5) 4.3% 13.5 76.5 (3.0) 2.2% 18.4
CMO-Floating
rate... 7 yr CMT 8.9 (0.1) 4.8% 5.7 8.9 (0.4) 2.6% 11.0
CMO-Floating
rate... 1 mo LIBOR 4.7 (0.1) 3.0% 2.8 6.7 (0.1) 2.7% 19.2
CMO-Fixed
rate... N.A. 13.1 (0.3) N.A. 1.7 13.6 (2.0) N.A. 6.4
MBS-Adjustable
rate... 6 mo LIBOR -- -- -- -- 23.1 (0.1) 5.6% 11.5
MBS-Adjustable
rate... 1 yr CMT 2.4 0.1 4.0% 5.0 12.3 (0.3) 5.2% 10.8
FHLB
Dual
Indexed
Notes... (1) 5.8 (0.7) N.M. 7.5 5.8 (1.2) N.M. 8.5
FHLB
Inverse
Floating
Note... 3 mo LIBOR 5.0 (0.3) N.M. 2.8 5.0 (0.6) N.M. 3.8
U.S.
Treasuries... N.A. 5.0 0.0 N.A. 1.5 4.1 0.0 N.A. 1.6
SBA
Guaranteed... Prime 4.3 0.1 N.A. 3.4 1.3 0.0 N.A. 5.3
Other... 6.2 0.1 N.A. N.A. 5.4 (0.1) N.A. N.A.
------- ---- ------- -----
Total
portfolio... $ 176.2 (5.8) $ 221.8 (12.3)
======= ==== ======= =====
</TABLE>
The adjustable rate portion of VBC's investment portfolio at December 31,
1995 is distributed as follows:
<TABLE>
<CAPTION>
BY INDEX BY ADJUSTMENT FREQUENCY LEGEND OF TERMS
- ----------------------- ----------------------------- -------------------------------------------------------
<S> <C> <C> <C> <C>
10 yr CMT.............. 49% Monthly 87% CMO -- Collateralized Mortgage Obligation
COFI................... 28% Quarterly 7% COFI -- FHLB 11th District cost-of-funds index
CMT -- Index of constant maturing U.S. Treasury
7 yr CMT............... 5% Semi-annually 4% securities
Dual Index............. 4% Annually 2% MBS -- Mortgage Backed Securities
----
1 mo LIBOR............. 3% Total 100% LIBOR -- London Interbank Offered Rate Index
====
3 mo LIBOR............. 3% N.M. -- Not meaningful
Prime.................. 3% N.A. -- Not applicable
1 yr CMT............... 1%
Other.................. 4%
----
Total.................. 100%
====
</TABLE>
- ---------------
(1) The coupon on these securities is set at the 10 year CMT less the six month
LIBOR plus 4.75%.
Movements in COFI historically lag movements in other indices. For example,
the 10 year CMT and the six month LIBOR were at or near cyclical lows in October
of 1993 and reached cyclical highs in late 1994. In contrast, COFI reached a
cyclical low in March of 1994 and a cyclical high in June of 1995. As a result
of the lagging character of COFI, the CMOs indexed to it produced lower yields
when interest rates were rising in 1994 than did other floating rate securities.
The lower yields combined with the longer average lives, which resulted from
slower mortgage prepayments, contributed to the decline in market values of
these securities at December 31, 1994. After peaking in late 1994, many other
indices declined throughout 1995. COFI, however, after peaking in June of 1995
declined only 0.12% during the last half of 1995. This has resulted in the COFI
floating rate CMOs providing higher yields than other segments of floating rate
CMOs in VBC's portfolio at December 31, 1995. The market values of COFI indexed
CMOs also increased significantly during 1995. It is likely that COFI will
continue to lag other indices and that during times of falling interest rates it
may provide higher yields than other floating rate CMOs. Despite its lagging
nature, movements in COFI correspond reasonably well with changes in VBC's cost
of deposits. The 1994 average yield for COFI was 0.33% below the 1993 level.
This compares to an overall increase in 1994 average investment yields of 0.57%
over 1993. The 1995 average yield for COFI was 1.13% higher than the 1994 level.
This compares to an overall increase in 1995 average investment yields of 0.58%
over 1994. To reduce the potential market value and yield volatility in its
portfolio, VBC sold approximately $15 million of COFI indexed CMOs in 1995.
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<PAGE> 81
Yields on VBC's CMOs indexed to the seven and 10 year CMT indices increased
in 1994 with the rise in interest rates and declined during 1995 as interest
rates declined. The relative contribution of these securities to net interest
income will generally depend on the slope of the yield curve and their yields
relative to the cost of funds. Throughout 1995 there was relatively little
change in the federal funds rates but the seven and 10 year CMT indices declined
significantly. This resulted in a very flat or inverted yield curve compared to
historical norms and resulted in decreases in the contributions to net interest
income from these two classes of CMOs. More information on the impact on net
interest income of a flat yield curve is included in "Results of Operations"
below. As a result of their lower relative yields, the market values of the CMOs
indexed to the seven and 10 year CMT declined during 1995. Historically, periods
of flat or inverted yield curves do not persist for prolonged periods. If the
yield curve were to return to a more historically positive slope, management
believes that net interest income would be positively impacted and that the
market values of these CMOs would increase.
All of VBC's CMOs are collateralized by fixed rate mortgages and mortgage
backed securities. The average lives of the CMOs fluctuate based on the
prepayment rates of the underlying mortgages. The increase in interest rates in
1994 substantially reduced mortgage prepayment rates which resulted in
significant extensions in the expected average lives of most of the CMOs. The
reduction in the expected average lives as of December 31, 1995 is due in part
to the passage of time but more importantly to the decline in mortgage interest
rates during 1995, which has increased actual and expected future mortgage
prepayment rates, thereby shortening the expected average lives of the CMOs.
Most of the current holdings of CMOs were purchased during 1993 and through
the first several months of 1994. The average yields earned on the major classes
of CMOs through December 31, 1995 have been approximately 6.1% for those indexed
to the 10 year CMT, approximately 5.5% for those indexed to COFI and
approximately 5.3% for fixed rate CMOs. Yields on Treasury securities fluctuated
during that time frame but, for comparison purposes, using the average Treasury
yields from June 30, 1993 through April 30, 1994 when the majority of the CMOs
were purchased, investments in two, five or 10 year Treasury securities, if
purchased at the average yields available during such period, would have yielded
approximately 4.3%, 5.25% or 5.9% respectively.
VBC's investment portfolio includes $10.75 million face value of notes
issued by the FHLB which were purchased in 1993. VBC purchased these notes
because at the time of purchase they offered excellent yields, and being United
States agency securities, they provided VBC with needed qualifying collateral to
pledge for public deposits. With the increases in interest rates beginning in
1994, the market value of these securities declined significantly as did their
yields. The liquidity of these instruments also decreased with there being
little trading of such securities in the secondary bond markets. Management has
concluded, however, that it is in the best interest of VBC to continue to hold
these securities.
Of these notes, $5.75 million represent floating rate dual-indexed notes.
The coupon on these notes resets every six months to a rate equal to the 10 year
CMT less the six month LIBOR plus 4.75%. The coupon rate was 7.50% when issued,
5.82% at December 31, 1994 and 4.94% at December 31, 1995. A Treasury security
of approximately the same maturity was priced to yield 5.54% at December 31,
1995. The coupon rate on these bonds decreases when the yield curve flattens or
becomes inverted and increases when the yield curve steepens. At December 31,
1995 the yield curve was very flat with the difference between the 10 year CMT
and the six month LIBOR being only 0.08% compared to a 1.20% average difference
for the last 10 years. If the yield curve returned to the normal shape of the
last 10 years, these bonds would have approximately a 5.95% coupon. These bonds
perform best in both yield and market value when interest rates are low and the
yield curve is steep. VBC's interest income from these bonds compared to the
interest income it would have received if it had purchased a Treasury security
at the same time in 1993 with the same final maturity date was $46,000 higher in
1993, $56,000 higher in 1994 and $29,000 lower in 1995. Cumulative through
December 31, 1995, the income from these notes was $73,000 higher than it would
have been by buying a Treasury security.
The other $5 million investment in FHLB notes was purchased in September
1993 and matures in September 1998. These notes yielded 5.375% during their
first year which ended in September 1994. Thereafter the coupon resets
quarterly. For the second and third years, the coupon rate is set at 9% minus
the
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<PAGE> 82
3 month LIBOR. In years four (which starts in September 1996) and five the
coupon rate increases to 11% minus the three month LIBOR. These notes may be
called by FHLB at any quarterly interest payment date. The likelihood of them
being called would increase significantly after the step up in coupon rate in
September 1996. As a result of the increase in interest rates in 1994, the
coupon rate and market value of these bonds declined significantly. At December
31, 1993 the coupon rate was 2.635%. It increased to 3.313% at December 31,
1995. VBC's interest income from these bonds compared to the interest income it
would have received if it had purchased a Treasury security at the same time in
1993 with the same final maturity date was $9,000 higher in 1993, $13,000 higher
in 1994 and $91,000 lower in 1995. Cumulative through December 31, 1995, the
income from these bonds was $69,000 lower than it would have been by buying a
Treasury security.
As indicated in the preceding table, substantially all of VBC's variable
rate investments are subject to interest rate caps. To the extent interest rates
on securities increased to or above the level of the caps, net interest income
would likely be negatively impacted depending on corresponding changes in the
cost of deposits and other liabilities.
Basis risk in the structure of VBC's assets and liabilities reduced net
interest margins during 1995 as a result of the significant flattening of the
yield curve. VBC's focus in 1995 has been to purchase investments indexed to
shorter-term indices with less potential average life extension and to sell
certain investments that would reduce basis risk and market valuation risk.
Management believes its focus on holding variable rate assets and on maintaining
a balanced gap position is in VBC's best long-term interest.
Substantially all of VBC's investment portfolio is held in the
available-for-sale classification. As a result, VBC reflects a mark-to-market
adjustment on its entire portfolio (net of taxes) in shareholders' equity.
Because of the series of interest rate increases in 1994, the bond market
suffered its most volatile year in decades. This contributed to a substantial
decline in the market values of VBC's investments at December 31, 1994 compared
to December 31, 1993. During 1995, market values improved and the unrealized
losses on securities available for sale decreased from 5.5% of the portfolio or
a $7.7 million decrease in equity at December 31, 1994 to 3.3% of the portfolio
or a $3.6 million decrease in equity at December 31, 1995. Management believes
that VBC's capital and liquidity are more than adequate to allow it to continue
to hold its investment portfolio. It also expects that the passage of time and
further restructuring of the portfolio will reduce exposure to market value and
basis risk.
COMPARISON OF BALANCE SHEETS
ASSETS. The total assets of VBC increased $1.6 million to $419.4 million at
March 31, 1996 from $417.8 million at December 31, 1995. Securities available
for sale increased $5.3 million to $175.7 million at March 31, 1996 from $170.4
million at December 31, 1995. There were no other material changes in asset
balances.
LIABILITIES. Total deposits increased $7.5 million, or 2.4%, to $314.6
million at March 31, 1996 from $307.1 million at December 31, 1995. FHLB
advances and federal funds purchased decreased $4.8 million to $65.5 million at
March 31, 1996 from $70.3 million at December 31, 1995.
SHAREHOLDERS' EQUITY. VBC Shareholders' equity increased approximately
$785,000 during the quarter, principally as a result of earnings. VBC has chosen
to designate substantially all of its securities investment portfolio as
available-for-sale portfolio. Accounting standards require that unrealized gains
and losses in the estimated value of the available-for-sale portfolio (net of
tax) be "marked-to-market" and reflected as a separate item in the shareholders'
equity section of the balance sheet. This results in fluctuations in equity
(both increases and decreases) resulting from changes in the market value of the
entire securities portfolio. There was substantially no change in unrealized
loss on securities available for sale at March 31, 1996 from the balance at
December 31, 1995.
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<PAGE> 83
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected
operating data and changes in such data.
<TABLE>
<CAPTION>
FOR THE FOR THE
THREE THREE
MONTHS ENDED MONTHS ENDED YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 CHANGE 1995 1995 CHANGE 1994 CHANGE 1993
------------ ------ ------------ ------------ ------- ------------ -------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income........... $ 7,887 $(826) $ 8,713 $ 34,253 $ 5,710 $ 28,543 $ 9,843 $ 18,700
Interest expense.......... (3,418) 743 (4,161) (16,330) (5,158) (11,172) (5,260) (5,912)
------- ----- ------- -------- ------- -------- ------- -------
Net interest income....... 4,469 (83) 4,552 17,923 552 17,371 4,583 12,788
Provision for loan
losses.................. (179) 21 (200) (795) (1) (794) (511) (283)
------- ----- ------- -------- ------- -------- ------- -------
Net interest income after
provision for loan
losses.................. 4,290 (62) 4,352 17,128 551 16,577 4,072 12,505
Other income.............. 1,143 415 728 3,820 313 3,507 (494) 4,001
Other expenses............ (4,034) (282) (3,752) (15,871) (819) (15,052) (300) (14,752)
------- ----- ------- -------- ------- -------- ------- -------
Income before income taxes
and cumulative effect of
changes in accounting... 1,399 71 1,328 5,077 45 5,032 3,278 1,754
Income tax expense (410) 53 (463) (1,774) (954) (820) (203) (617)
------- ----- ------- -------- ------- -------- ------- -------
Income before cumulative
effect of changes in
accounting.............. -- -- -- 3,303 (909) 4,212 3,075 1,137
Cumulative effect of a
change in accounting for
income taxes............ -- -- -- -- -- -- (1,273) 1,273
Cumulative effect of a
change in accounting for
goodwill................ -- -- -- -- 1,537 (1,537) (1,537) --
-------- ----- -------- -------- ------- -------- -------- --------
Net earnings.............. $ 989 $ 124 $ 865 $ 3,303 $ 628 $ 2,675 $ 265 $ 2,410
======== ===== ======== ======== ======= ======== ======== ========
</TABLE>
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31,
1995
INTEREST INCOME. Interest income decreased $826,000 to $7.9 million in the
first quarter of 1996 from $8.7 million in the same quarter of 1995. The
decrease was primarily a result of asset mix change with average loans
increasing by $24.6 million while average investments declined by $62.3 million.
These changes are consistent with management's desire to continue the expansion
of the loan portfolio while allowing investments to decline as a percent of
total assets. In addition to the volume changes, lower average interest rates in
the first quarter of 1996 compared to 1995 also contributed to the increase in
interest income. Management continues to focus on loan growth. Most of VBC's
investments are in floating rate securities tied to a variety of indices. The
yield on investments in the first quarter of 1996 decreased 0.81% compared to
the same period in 1995, due to declines in the indices to which the variable
rate securities are tied.
INTEREST EXPENSE. Interest expense decreased $743,000 to $3.4 million in
the first quarter of 1996 from $4.2 million in the same period of 1995. This
decrease was primarily a result of a $95.2 million decrease in average FHLB
borrowings which together with a 0.51% decline in the average cost of such
borrowings contributed $1.5 million to the decline in interest expense.
Partially offsetting the decline related to FHLB borrowings was a $41.3 million
increase in average interest-bearing deposits which, when combined with a 0.62%
increase in average cost of such deposits, contributed a $733,000 increase in
interest expense. During 1995 and continuing in the first quarter of 1996, VBC
focused on replacing FHLB borrowings with deposits which have a lower average
cost. Expansion of the depositor base also provides added customer cross selling
opportunities. VBC expects, however, to continue to supplement its deposit
funding with borrowed funds to fund loan demand and to finance its investment
portfolio.
NET INTEREST INCOME. Net interest income decreased $83,000 in the first
quarter of 1996 compared to the same period in 1995. The decrease in net
interest income resulted from the $43.2 million decrease in average
interest-earning assets partially offset by the increase in the net interest
margin. Net interest margin increased to 4.72% in 1996 from 4.36% in 1995. The
principal reasons for the increase in net interest margin relate to changes in
the mix of assets and liabilities. Higher yielding loans have increased while
lower yielding
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<PAGE> 84
investments have declined and higher costing FHLB borrowings have declined and
been replaced in part by lower costing deposits.
OTHER INCOME. Other income increased $415,000 to $1.1 million in the first
quarter of 1996 from $728,000 in the same period of 1995, principally as a
result of a $311,000 increase in gain on sales of loans. VBC's purchase of
MacWest Mortgage Company on June 30, 1995, which substantially increased VBC's
mortgage lending capacity, resulted in an increase in gain on sales of mortgage
loans by $211,000 to $223,000 in the first quarter of 1996 compared to $12,000
in the same quarter of 1995. A $100,000 increase in gain on sales of SBA loans
to $167,000 from $67,000 in the corresponding period accounted for the remainder
of the increase. The remainder of the increase in other income was from a
$73,000 increase in service fees on deposit accounts.
OTHER EXPENSES. Other expenses increased $282,000 to $4.0 million in the
first quarter of 1996 from $3.7 million in the same period of 1995. The increase
consisted of a $279,000 increase in salaries and employee benefits, a $94,000
increase in net occupancy and a $91,000 decrease in other miscellaneous
expenses. The increase in the mortgage lending staff caused $155,000 of the
increase in salaries and employee benefits with merit increases and other
changes accounting for the remainder. The increases in net occupancy related
primarily to depreciation of new computer hardware and software. A decrease in
FDIC premiums was the primary contributor to the decrease in other miscellaneous
expenses.
INCOME TAX EXPENSE. Income tax expense for the quarter ended March 31, 1996
declined $53,000 to $410,000 or 29.3% of earnings before income taxes, from
$463,000, or 34.9% of earnings before income taxes for the three months ended
March 31, 1995. Note 12 of Notes to Consolidated Financial Statements provides a
reconciliation of the actual income tax expense to the expected expense based on
statutory rates. Expected combined federal and state income tax expense for the
first quarter of 1996 exceeded actual expense by $111,000. The excess was
primarily due to the recognition of $63,000 in state tax benefits arising from
the 1995 merger with First Denver Corporation and a $42,000 decrease in the
valuation allowance on deferred taxes.
1995 COMPARED TO 1994
INTEREST INCOME. Interest income increased to $34.3 million in 1995 from
$28.5 million in 1994. This increase resulted primarily from an increase of
$32.3 million in average interest-earning assets to $405.3 million in 1995 from
$373.0 million in 1994 combined with an overall increase in asset yields
resulting from interest rate increases. A shift in the mix of assets toward
larger loan balances as a percent of total interest-earning assets also
contributed to the increase. Average loans increased $26.7 million to $187.6
million in 1995 from $160.9 million in 1994 while average investments increased
$6.1 million to $211.2 million in 1995 from $205.1 million in 1994. These
changes are consistent with management's desire to expand the loan portfolio
while allowing investments to decline as a percent of total assets. In addition
to the volume changes, higher average interest rates in 1995 compared to 1994
also contributed to the increase in interest income. Management continues to
focus on loan growth.
Most of VBC's investments are in floating rate securities tied to a variety
of indices. The yield on investments in 1995 increased only 0.58% compared to
1994 versus a 0.76% increase in loan yields. Despite increases in short-term
interest rates resulting from increases in the federal funds rate, some of the
longer-term interest indices declined. VBC's investments include approximately
$85 million of floating rate mortgage backed securities indexed to the seven and
10 year U. S. Treasury indices (CMT). The improvement in the bond market during
most of 1995 resulted in declines in Treasury yields and in these two indices
from 1994 levels. The average of the 10 year CMT index declined to 6.57% in 1995
from 7.08% in 1994. The seven year CMT index declined by a similar amount. This
resulted in a decline in the average yield on these securities by approximately
0.5% which partially offset increases in the yields of other investments
resulting in the aforementioned 0.58% overall yield increase.
INTEREST EXPENSE. Interest expense increased to $16.3 million in 1995 from
$11.2 million in 1994. This increase was the combined effect of an increase in
the average cost of such liabilities to 4.88% in 1995 from 3.70% in 1994, and a
$32.9 million increase in average interest-bearing liabilities to $334.6 million
in 1995
71
<PAGE> 85
from $301.7 million in 1994. Changes in the relative mix of average
interest-bearing liabilities included an $8.1 million increase in average
advances from the FHLB and an increase in average interest-bearing deposits of
$23.5 million. The cost of VBC's borrowings from the FHLB generally moves in
direct relationship to movements in the federal funds rate. The series of
increases in the federal funds rate during 1994 through early 1995 resulted in
an average federal funds rate of 5.85% in 1995 compared to 4.24% in 1994. This
1.61% increase in the federal funds rate is the primary reason for the 1.37%
year-to-year increase in the cost of FHLB borrowings. During 1995, VBC replaced
FHLB borrowings with deposits which have a lower average cost. Year-end 1995
FHLB borrowings decreased to $70.3 million from $162.2 million at the end of
1994. Expansion of the depositor base also provides added customer cross selling
opportunities. VBC expects to continue to supplement its deposit funding with
borrowed funds to fund loan demand and to finance its investment portfolio.
NET INTEREST INCOME. Net interest income increased $552,000 in 1995
compared to 1994. Net interest margin decreased to 4.42% in 1995 from 4.66% in
1994. The increase in net interest income resulted from the increase in
interest-earning assets offset in part by the decline in the net interest
margin. The principal reason for the decline in net interest margin was the cost
of interest-bearing liabilities increasing more than the yield on average
interest-earning assets. Competition for deposits and higher general interest
rates drove up the cost of interest-bearing deposits in 1995. The flattening of
the interest rate yield curve in 1995 compared to 1994 significantly reduced net
interest income from investing activities. The yield curve refers to the
difference between interest yields on longer-term instruments (principally U. S.
Treasury securities) and the yields on shorter-term instruments. A flattening of
the curve occurs when the difference between such rates declines as it has from
1994 to 1995. At December 31, 1995, the yield curve was very flat by historical
norms with the difference between the 10 year CMT index and the targeted federal
funds rate being only 0.08% compared to 2.32% at December 31, 1994 and
approximately 1.50% over the last 10 years. A further flattening of the yield
curve would likely contribute to lower net interest income while a steepening of
the yield curve would likely increase net interest income. If VBC can continue
to increase deposits at rates lower than FHLB borrowings and/or increase loan
balances, which yield more than investments, net interest income would likely
increase.
PROVISION FOR LOAN LOSSES. The 1995 provision for loan losses is intended
to reflect general growth in the loan portfolio and management's commitment to
maintain an adequate allowance for loan losses. There was essentially no change
from 1994 in this provision.
OTHER INCOME. Other income increased to $3.8 million in 1995 from $3.5
million in 1994, as a result of a $422,000 increase in gain on sales of loans.
VBC's purchase of MacWest Mortgage Company on June 30, 1995, which substantially
increased mortgage lending capacity, resulted in an increase in gain on sales of
mortgage loans by $402,000 to $594,000 in 1995 compared to $192,000 in 1994. A
$34,000 increase in gain on sales of SBA loans to $410,000 in 1995 from $376,000
in 1994 accounted for substantially all the remaining increase in gain on sales
of loans. With the increased mortgage lending capacity, management expects
continued higher levels of gains from sales of mortgages.
OTHER EXPENSES. Other expenses increased $819,000 to $15.9 million in 1995
from $15.1 million in 1994. This increase consisted of increases of $675,000 in
salaries and employee benefits, $353,000 in marketing and promotion, $178,000 in
professional fees and $214,000 of other net increases partially offset by
decreases of $319,000 in amortization of intangible assets and $282,000 in FDIC
premiums. The increase in salaries and employee benefits was primarily due to
certain positions added to support the increased mortgage lending activities and
asset growth, salary increases and increased benefits expenses. The increases in
marketing and promotion related largely to promotions aimed at increasing
deposit balances and promotions of loan products. Professional fees in 1995
include approximately $260,000 in legal expenses which First Denver Corporation
incurred related to litigation which was decided in its favor prior to the
acquisition. During 1994 VBC completed the amortization of intangible assets
acquired in connection with acquisitions in 1989. The 1995 amortization relates
to intangible assets arising from the acquisition of MacWest Mortgage Company.
INCOME TAX EXPENSE. Income tax expense for 1995 of $1.8 million is
approximately $121,000 less than the amount expected based on the combined
federal and state tax rate of 37.3%. This difference is primarily due to a
decrease in the valuation allowance against deferred tax assets and interest
income from certain loans and
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<PAGE> 86
life insurance policies that is not subject to income taxes net of the tax
effect of the surrender and cancellation of certain life insurance policies.
Compared to 1994, income tax expense increased $954,000. The increase
attributable to increased pre tax earnings is only approximately $17,000. The
majority of the increase is a result of a decrease in 1994 of $1 million in the
valuation allowances held against deferred tax assets relating to the
realization of net operating loss carryforwards.
ASSET AND LIABILITY GROWTH. Total assets at December 31, 1995 of $418
million were 9.6% or $44.5 million lower than at December 31, 1994, primarily as
a result of a $67.6 million reduction in investments partially offset by a $24.4
million increase in net loans. The increase in loans not only reflects the
strong local economy but also VBC's success in adding to its customer base. At
December 31, 1995, deposits had increased 14.5% to $307 million from $268
million one year earlier. These changes allowed VBC to reduce borrowings from
the FHLB to $70 million at December 31, 1995 from $162 million one year earlier.
Net earnings and a $4 million improvement in the unrealized loss on securities
available for sale resulted in a $6.6 million or 28% increase in total
shareholders' equity to $30.2 million at December 31, 1995 from $23.6 million
one year earlier.
1994 COMPARED TO 1993
INTEREST INCOME. Interest income increased to $28.5 million in 1994 from
$18.7 million in 1993. This increase resulted primarily from an increase of
$131.9 million in average interest-earning assets to $373.0 million in 1994 from
$241.1 million in 1993 offset in part by a 0.11% decrease in asset yields. A
significant shift in the mix of assets occurred with a $106.1 million increase
in average investments (which yielded 4.12% less than loans) and only a $24.1
million increase in average loans. This shift was the primary reason for the
decline in yield on interest-earning assets. The increase in investments was
part of VBC's strategy to leverage its capital to maximize earnings capacity.
The significant increases in investments followed the increase in capital from
the initial public offering completed in March 1994.
Most of VBC's investments are in floating rate securities tied to a variety
of indices. The yield on investments in 1994 increased 0.57% compared to 1993
versus a 0.40% increase in loan yields.
INTEREST EXPENSE. Interest expense increased to $11.2 million in 1994 from
$5.9 million in 1993. This increase was the combined effect of a $109.6 million
increase in average interest-bearing liabilities to $301.7 million in 1994 from
$192.1 million in 1993 and an increase in the average cost of such liabilities
to 3.70% in 1994 from 3.08% in 1993. Changes in the relative mix of average
interest-bearing liabilities included an $85.4 million increase in average
advances from the FHLB and an increase in average interest-bearing deposits of
$24.5 million. The cost of VBC's borrowings from the FHLB generally moves in
direct relationship to movements in the federal funds rate. The series of
increases in the federal funds rate during 1994 resulted in an average federal
funds rate of 4.24% in 1994 compared to 3.02% in 1993. This 1.22% increase in
the federal funds rate is the primary reason for the 1.49% increase in the cost
of FHLB borrowings between years. During 1994, VBC substantially increased its
leveraged investing activities.
NET INTEREST INCOME. Net interest income increased $4.6 million in 1994
compared to 1993. Net interest margin decreased to 4.66% in 1994 from 5.30% in
1993. The increase in net interest income resulted primarily from the increase
in interest-earning assets largely offset by the decline in the net interest
margin. The principal reason for the decline in net interest margin was the
shift in the mix of interest-earning assets to proportionately more investments
which yield significantly less than loans combined with the increase in
borrowings from the FHLB which cost more than deposits.
PROVISION FOR LOAN LOSSES. The $511,000 increase in provision for loan
losses in 1994 to $794,000 from $283,000 in 1993 reflects general growth in the
loan portfolio, the $917,000 increase in charge offs in 1994 over the 1993 level
and the higher level of recoveries in 1993 ($341,000 compared to $173,000 in
1994) which allowed VBC to increase its allowance for loan losses in 1993 with a
lesser charge to provision for loan losses.
OTHER INCOME. Other income decreased to $3.5 million in 1994 from $4.0
million in 1993. The $495,000 decrease consisted of a $256,000 decrease in gain
on sales of investments, a $169,000 decrease in service fees on deposit
accounts, a $168,000 decrease in gain on sales of loans and a $99,000 other
increase. The reduction
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<PAGE> 87
in gain on sale of securities reflected the changes in the bond market from 1993
to 1994 and management's decisions to sell fewer investments in 1994. The
decline in service fees was primarily in the service charges on commercial
accounts which receive an earnings credit for average collected balances which
offsets the amount of service charges. With the increase in federal funds rates
the earnings credits increased resulting in lower net service charges. The
decrease in gain on sales of loans consisted primarily of a $120,000 decline in
gain on SBA loans to $376,000 in 1994 from $496,000 in 1993 and a $62,000
decrease in gain on sales of mortgages to $192,000 in 1994 from $254,000 in
1993. The decrease in SBA gains reflected an increase in competition and lower
prices received in the higher interest rate environment. The decrease in
mortgage gains was due to decreased volumes as a result of higher interest
rates.
OTHER EXPENSES. Other expenses increased $300,000 to $15.1 million in 1994
from $14.8 million in 1993. This increase consisted of an increase of $751,000
in salaries and employee benefits, decreases of $247,000 in credit quality
expense and $202,000 in amortization of intangible assets and other net
decreases of $2,000. The increase in salaries and employee benefits was
primarily due to certain positions added to support the asset growth, pay
increases and increased benefits expenses. The decrease in credit quality
expense was primarily a result of the substantial completion in 1994 of the
collection effort and expense related to a single large non performing loan.
During 1994 VBC completed the amortization of intangible assets acquired in
connection with acquisitions in 1989.
INCOME TAX EXPENSE. Income tax expense for 1993 of $820,000 is
approximately $1.1 million less than the amount expected based on the combined
federal and state tax rate of 37.3%. A tax credit of $1 million from the
reversal of valuation allowances held against deferred tax assets relating to
the realization of net operating loss carryforwards represents the majority of
the difference. The remaining $65,000 difference relates to certain non taxable
income and to other lesser items. There were no significant differences between
expected and actual income tax expense in 1993.
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING FOR GOODWILL. As is set forth
in Note 1 of Notes to Consolidated Financial Statements, First Denver
Corporation -- which was acquired by VBC in November 1995 in a transaction
accounted for as a pooling of interests -- (see Note 2 of Notes to Consolidated
Financial Statements) changed its method of accounting for goodwill. The
cumulative effect of this change in accounting, which was applied as of January
1, 1994, was a decrease in net earnings of $1.5 million.
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING FOR INCOME TAXES. Effective
January 1, 1993, VBC adopted the provisions of SFAS No. 109, "Accounting for
Income Taxes," and changed its method of accounting for income taxes. The
cumulative effect of the change was an increase in net income of $1.3 million in
1993, which represents the partial realization of the tax benefit relating to
VBC's net operating loss carryforwards.
INITIAL PUBLIC OFFERING OF STOCK. The increase in shareholders' equity,
excluding the unrealized loss on investment securities available for sale, at
December 31, 1994 was principally a result of VBC's initial public offering of
923,770 new shares of common stock and 805,000 shares of $.95 Series A
Cumulative Preferred Stock which was substantially completed in late March 1994.
The majority of the proceeds has been used to support operations and growth. As
required conditions for completing the initial public offering, a portion of the
proceeds were also used to redeem common stock and 1989 Series A Preferred Stock
($2.9 million) and to prepay a note payable ($940,000).
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<PAGE> 88
ALLOWANCE FOR LOAN LOSSES
VBC maintains its allowance for loan losses at a level considered by
management to be adequate to cover the risk of loss in the loan portfolio at a
particular point in time. Management's judgment as to whether additional amounts
should be added to the allowance in excess of the amount of loan losses takes
into consideration a number of factors, including loss experience in relation to
outstanding loans and the existing level of the allowance for losses, a
continuing review of problem loans and overall portfolio quality, regular
examinations of loan portfolios conducted by VBC's staff, external loan review
personnel and by state and federal supervisory authorities, and economic
conditions.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER
FOR THE THREE 31,
MONTHS ENDED MARCH -----------------------------
31, 1996 1995 1994 1993
------------------ ------ ------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Allowance for losses:
Beginning balance...................... $2,493 1,999 $ 2,324 $2,075
Provisions for loan losses............. 179 795 794 283
Recoveries............................. 33 259 173 341
Charge offs............................ (109) (560) (1,292) (375)
------ ------ ------- ------
Ending balance................. $2,596 $2,493 $ 1,999 $2,324
====== ====== ======= ======
</TABLE>
Charge offs during 1995 totaled $560,000 or 0.30% of average loans compared
to $1.3 million, or 0.80% of average loans in 1994 and $375,000 or .27% of
average loans in 1993. Included in the 1994 charge offs were two individual
loans totaling $669,000 or 52% of total charge offs. The circumstances relating
to these two loans did not, in management's opinion, represent a trend or
indicate increased charge offs in the future. Rather, management believes, that
the charge offs were isolated in their cause and occurrence. Excluding these two
loans, the remaining increase in charge offs, in management's opinion, reflects
the significant growth in the loan portfolio over the past several years and not
an adverse credit quality trend.
The increase in the allowance for loan losses is directly related to the
increase in the total loan portfolio. The decline in total allowance for loan
losses in 1994 resulted from the higher charge offs explained above. Despite the
decrease in 1994, the ratio of allowance for loan losses to total nonperforming
loans increased from 121% at December 31, 1993 to 177% at December 31, 1994 and
181% at December 31, 1995.
EFFECTS OF INFLATION AND CHANGING PRICES
Unlike most industrial companies, virtually all of the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates generally have a more significant impact on a financial
institution's performance than inflation. Although interest rates do not
necessarily move in the same direction or to the same extent as the prices of
goods and services, increases in inflation generally have resulted in increased
interest rates. Over short periods of time interest rates may not move in the
direction or magnitude as inflation.
NEW ACCOUNTING PRONOUNCEMENTS
VBC adopted Financial Accounting Standards (SFAS) No. 114, Accounting by
Creditors for Impairment of a Loan, and SFAS No. 118, Accounting by Creditors
for Impairment of a Loan -- Income Recognition and Disclosures, (collectively
referred to as SFAS 114) effective January 1, 1995. SFAS 114 requires that
certain impaired loans be measured based on the present value of expected cash
flows discounted at the loan's original effective interest rate. The adoption of
this pronouncement did not have a material impact on VBC. See Note 1 of Notes to
Consolidated Financial Statements.
In 1994, the Financial Accounting Standards Board adopted SFAS No. 119,
Disclosure about Derivative Financial Instruments and Fair Value of Financial
Instruments. This Statement requires disclosures about derivative financial
instruments -- futures, forward, swap, and option contracts, and other financial
instru-
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<PAGE> 89
ments with similar characteristics. VBC adopted the provisions of SFAS No. 119
for its 1994 year-end financial statements. See Note 5 of Notes to Consolidated
Financial Statements.
In March 1995, the Financial Accounting Standards Board adopted SFAS No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of. This Statement established accounting standards for
the impairment of long-lived assets, certain identifiable intangibles, and
goodwill related to those assets to be held and used and for long-lived assets
and certain identifiable intangibles to be disposed of. This Statement requires
that long-lived assets be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. This Statement was adopted by VBC effective January 1, 1996 and did
not have a material impact on VBC's financial statements.
In October 1995, the Financial Accounting Standards Board adopted SFAS No.
123, Accounting for Stock-Based Compensation. This Statement establishes
financial accounting and reporting standards for stock-based employee
compensation plans. This Statement defines a fair value based method of
accounting for an employee stock option or similar equity instrument and
encourages all entities to adopt that method of accounting for all of their
employee stock compensation plans. However, it also allows an entity to continue
to measure compensation cost for those plans using the intrinsic value based
method of accounting prescribed by APB Opinion No. 25, Accounting for Stock
Issued to Employees. This Statement requires that an employer's financial
statements include certain disclosures about stock-based employee compensation
arrangements regardless of the method used to account for them. VBC will
continue to follow the provisions of APB Opinion No. 25 in accounting for
stock-based compensation but will provide the new disclosures in the 1996 Annual
Report to Shareholders on Form 10-K.
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<PAGE> 90
BUSINESS OF VBC
GENERAL
VBC was founded in 1988 with the objective of acquiring several
strategically located, but underperforming Denver/Boulder area banks and
transforming them into a banking system capable of providing a broad package of
products and services to its customers and growth potential to its shareholders.
In late 1988 and early 1989, VBC raised approximately $9.8 million in
capital from private sources. In 1989, VBC acquired eight banks to provide the
core of its banking network. In 1991, VBC acquired a ninth bank. VBC's tenth
banking location was opened in Boulder in 1992. On November 13, 1995 VBC
acquired First Denver Corporation, a bank holding company whose primary asset
and operation was First National Bank of Denver, which is now VBC's eleventh
banking location. The following table summarizes VBC's bank acquisitions.
<TABLE>
<CAPTION>
ASSETS AT
DATE OF
DATE OF ACQUISITION
THE BANK ACQUISITION ----------------------
------------------------------------------------- -------------- (DOLLARS IN THOUSANDS)
<S> <C> <C>
Bank of Lakewood, N.A............................ April 1989 $ 8,500
International Bank............................... August 1989 49,900
International Bank -- Englewood.................. August 1989 20,600
International Bank -- North...................... August 1989 12,000
International Bank of Wheat Ridge................ August 1989 12,700
National Bank of the Rockies, Boulder............ December 1989 24,000
National Bank of the Rockies, Denver............. December 1989 18,100
Citywide Bank of Thornton........................ December 1989 10,000
Columbine Valley Bank and Trust Co............... April 1991 6,500
First National Bank of Denver.................... November 1995 44,000
--------
Total.................................. $206,300
========
</TABLE>
Subsequent to the 1989 acquisitions, VBC focused on transforming the banks
acquired into a single organization and implementing its operating strategy. VBC
strives to combine the elements of service traditionally found in community
banks with product lines traditionally found in larger banks. Of the remaining
independent bank holding companies based in Colorado and serving the
Denver/Boulder area, VBC ranks third in asset size and in number of banking
locations.
The disclosure below primarily includes information as of December 31,
1995; unless otherwise noted, such information has not changed materially since
that date.
MARKET AREA SERVED
VBC's market area is the Denver/Boulder area, which is the most densely
populated area in the Rocky Mountain region. Total population exceeds two
million and the area has experienced net immigration of over 50,000 persons per
year since 1990. Employment in the Denver/Boulder area has become increasingly
diversified across the manufacturing, financial services, tourism,
transportation, technology, cable, retail trade, services and government
sectors.
GROWTH STRATEGY
VBC's goal is to maintain and expand a well-capitalized, customer-focused
financial institution. Management believes that the executive management team,
distribution network and operational systems support are in place to achieve
this goal. There can be no assurance, however, that VBC will achieve its growth
objectives. See "Risk Factors -- Growth and Acquisition Strategies."
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<PAGE> 91
VBC expects to continue its growth strategy during the next few years
through a combination of internal growth and acquisitions. The Colorado banking
market is dominated by three large regional financial institutions: Norwest
Corporation, First Bank Systems, Inc., and Banc One Corporation. This dominance
was achieved through the purchase of Colorado-based holding companies, which
resulted in a significant consolidation of the Colorado banking industry.
Management believes that this consolidation has created gaps in the ability of
the large banks to serve certain customers. See "Business of
VBC -- Competition." Management believes that small and medium size businesses
often are not of sufficient size to be of interest to these large banks and that
individuals frequently have difficulty in finding banking services which meet
their needs. Many of these customers have sought, and management believes will
continue to seek, a banking relationship with a smaller and more
service-oriented community banking organization. Through its emphasis on
customer service, management's experience in business and consumer banking and
VBC's broad product line, VBC will continue to focus on attracting these
customers in order to achieve internal growth. Management also believes that the
economic expansion in VBC's market area will contribute to internal growth.
In addition to internal growth, there may be attractive opportunities to
grow through the acquisition of financial institutions or their branches.
Management believes that the consolidation in the banking industry, the recent
introduction of branch banking in Colorado and increased regulatory burdens are
likely to lead owners of community banks to explore the possibility of sale or
combination with a broader-based holding company such as VBC. Other than as
contemplated by the Merger Agreement, no acquisition negotiations currently are
in progress, nor does VBC have any agreements, either written or oral, for
acquisitions.
VBC also intends to analyze opportunities to expand through de novo
branching. In some cases, multiple acquisitions by other institutions have
resulted in significant overlap in the market areas served by different banks
owned by the same holding company. In order to eliminate this internal
competition and redundancy of sites, multiple banking locations may be
consolidated, creating market opportunities for other institutions such as VBC
to establish new locations.
Management has considered and intends to consider a variety of criteria
when evaluating potential acquisition candidates or branching opportunities.
These include (i) the geographic market location of the potential acquisition
target or branch, (ii) the financial soundness of a potential acquisition
target, (iii) opportunities to improve the efficiency and/or asset quality of an
acquisition target through merger, (iv) the effect of the acquisition on
earnings per share, (v) whether VBC has sufficient management and other
resources to integrate or add the operations of the target or branch and (vi)
the investment required for, and opportunity costs of, the acquisition or
branch.
OPERATING STRATEGY
VBC's objective is to continue to build a growing, profitable community
banking network. The principal elements of VBC's operating strategy are:
FOCUS ON THE FINANCIAL SERVICE NEEDS OF BOTH CONSUMERS AND COMMUNITY
BUSINESSES. VBC strives to combine the elements of service traditionally
found in community banks with product lines typically found only in large
banks. Its banking products were designed to be responsive to the needs of
community businesses and individual customers. VBC's operational systems
have been designed to support fully its products, which are varied enough
to meet diverse needs of customers, yet simple to understand.
EMPHASIZE HIGH QUALITY CUSTOMER SERVICE. Management believes that
service is a critical competitive factor in the VBC market area. Customer
service is emphasized in all aspects of its operations and is an integral
component of all employee training programs. Management believes the VBC
banking locations are small enough to facilitate personalized services and
decision-making, yet of sufficient size to meet most customers' needs.
MAINTAIN HIGH ASSET QUALITY. VBC seeks to maintain high asset quality
through a program which includes regular reviews of loans by senior credit
policy officers, professional independent loan reviews, training and
supervision of lending officers and prompt and strict adherence to
established credit policies.
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<PAGE> 92
Management believes these practices have resulted in significant
improvements in asset quality since the loan and investment portfolios were
acquired.
ACHIEVE EFFICIENCIES THROUGH CENTRALIZED ADMINISTRATIVE AND SUPPORT
FUNCTIONS. VBC seeks to maximize operational and support efficiencies
consistent with maintaining high quality customer service. It has
consolidated various management and administrative functions, including
consumer credit administration and lending, investment management and
accounting, to enable branch personnel to better focus on customer service
and sales. Management believes these changes will simplify the integration
of any financial institutions that may be acquired in the future into the
VBC operating systems and management structure.
MARKETING
The VBC marketing strategy reflects management's significant prior product
development and distribution experience. In establishing a banking network,
management focused on identifying and developing a family of products and
services that satisfy customer needs while simultaneously increasing community
knowledge, acceptance and use of the banking products of its bank subsidiary,
Vectra. Vectra invested significantly in its initial years in developing and
introducing its products and achieving name recognition in its market.
Today, the Vectra marketing programs utilize direct mail, print and radio
advertising, as well as promotional materials in each location. During the last
three years, Vectra has also focused on selling multiple products to new
customers and additional products to existing customers, a practice known as
"cross selling."
CONSUMER PRODUCTS
VBC, through Vectra, offers a wide range of consumer deposit products
including regular checking, checking with interest, budget checking, money
market accounts, regular savings and IRAs. Management believes Vectra was the
first to introduce certain deposit products to the Denver/Boulder marketplace,
such as its Vectra One and Peak Interest Savings products. Vectra One is a
relationship account that provides significant benefits, including waiver of
service charges and reduced fees and rates on loans as well as a single monthly
statement which summarizes the essentials of all activity and balances for each
month. To become a Vectra One customer, an individual first needs to open a
checking account and either a savings account, money market account, IRA or CD
and maintain one combined minimum balance. VBC's Peak Interest Savings product,
offered periodically since 1991, provides a combination of higher yields and
immediate liquidity for depositors. This program has provided a stable source of
deposits for Vectra since its introduction.
Vectra offers consumers a broad menu of loan products which have enabled it
to increase significantly its consumer loan balances over the past few years.
Management believes Vectra has been a leader in introducing new loan products to
the Denver/Boulder marketplace, including the VBC Equity 100 program and the VBC
SmartLoan. With the introduction of the Equity 100 program in 1991, Vectra was
the first in its market to offer qualified borrowers the opportunity to borrow
up to 100% of the equity in their homes. VBC SmartLoan is a relationship-based
program that allows borrowers who agree to have their payments automatically
deducted from a Vectra checking account to pay reduced interest on their
consumer loans and, depending on the loan balance, to receive waiver of service
charges on their checking accounts.
COMMERCIAL PRODUCTS
Vectra is dedicated to meeting the varied banking needs of
small-to-medium-size businesses in the Denver/Boulder area. See "Loans." To
provide convenience, expedited cash flow and workplace efficiency to its
business customers, Vectra introduced a new line of commercial services in 1992
and 1993 under the name Vectra Business Solutions, Helping Your Business
Grow(TM). Products include: Bonded Courier Service, which allows for non-cash
deposits to be picked up at a customer's location; Direct Deposit Payroll, a
time-saving convenient payroll processing system; Express Check Deposit, a
lockbox payment processing service which facilitates and expedites account
receivable collections for customers; and Desk Top Banking, which allows
customers to access their account information and transact certain banking
business using a personal
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<PAGE> 93
computer. In addition, Vectra offers businesses VBC Advantage, a package of
benefits which entitles their employees to various group discounts on consumer
deposit and loan products.
LOANS
GENERAL. Vectra provides a broad range of commercial and retail lending
services, including commercial business loans, residential and commercial real
estate construction loans, consumer loans, revolving lines of credit and letters
of credit. Vectra follows a uniform credit policy which sets forth underwriting
and loan administration criteria, including levels of loan commitment, loan
types, credit criteria, concentration limits, loan administration, loan review
and grading and related matters. In addition, Vectra provides ongoing loan
officer training and review, obtains outside independent loan reviews, operates
a centralized processing, underwriting and servicing center for consumer loans
and manages problem assets centrally and independently from the originating loan
officers. At December 31, 1995, substantially all loans outstanding were to
customers within Vectra's market area.
Vectra follows a no-loan-committee approach to commercial lending which it
believes yields positive results in both responsiveness to customer needs and
asset quality. Rather than using loan committees, which management believes do
not always achieve adequate accountability, Vectra requires the individual
review and approval of multiple lending officers for each loan. With this
approach, loan officers have ready access to individuals with credit approval
authority and do not experience delays in waiting for a scheduled loan committee
meeting.
Interest rates charged on loans vary with the degree of risk, maturity,
underwriting and servicing costs, loan amount, and extent of other banking
relationships maintained with customers, and are further subject to competitive
pressures, money market rates, availability of funds and government regulations.
Approximately 59% of the loans in Vectra's portfolio at December 31, 1995 had
interest rates that float with Vectra's base rate or some other reference rate.
In the ordinary course of business, VBC enters into various types of
transactions that include commitments to extend credit. See Note 14 of Notes to
Consolidated Financial Statements. VBC applies the same credit standards to
these commitments as it uses in all its lending activities and has included
these commitments in its lending risk evaluations. VBC's exposure to credit loss
under commitments to extend credit is represented by the amount of these
commitments. Under applicable federal and state law, permissible loans to one
borrower was limited to an aggregate of $4.7 million for VBC at December 31,
1995.
A relatively small but growing component of Vectra's lending has been U.S.
Small Business Administration ("SBA") guaranteed loans. Vectra emphasizes this
program because it is particularly attractive to many of the
small-to-medium-size businesses that Vectra serves. The Vectra commitment to SBA
lending was recognized by the SBA's designation of Vectra as a preferred lender,
the highest of the SBA's three lender categories. Vectra is Colorado's only
locally headquartered bank to be named a preferred SBA lender. As an SBA
preferred lender, Vectra can provide better, faster service to its business
customers than without such designation.
Vectra also originates first mortgage loans through its Vectra Mortgage
Group which was expanded during the second half of 1995 with the purchase of the
assets of MacWest Mortgage. The mortgage operations are an added source of fee
income from the origination and sale of mortgage loans into the secondary
market. Total originations increased from $17.8 million in 1994 to $27.9 million
in 1995.
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<PAGE> 94
LOAN PORTFOLIO COMPOSITION. The following table sets forth the composition
of the Vectra loan portfolio by type of loan at the dates indicated.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------------------------------------
MARCH 31, 1996 1995 1994 1993 1992 1991
---------------- ---------------- ---------------- ---------------- ---------------- ----------------
AMOUNT % AMOUNT % AMOUNT % AMOUNT % AMOUNT % AMOUNT %
-------- ----- -------- ----- -------- ----- -------- ----- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial....... $ 56,688 27.8 $ 58,272 28.5 $ 47,652 26.5 $ 43,815 31.1 $ 40,052 32.0 $ 54,689 47.1
Real estate --
mortgage....... 101,035 49.6 101,598 49.8 94,759 52.7 64,112 45.6 54,462 43.4 41,516 35.7
Real estate --
construction... 22,604 11.1 21,818 10.7 17,309 9.6 13,478 9.6 10,370 8.3 5,370 4.6
Installment and
revolving lines
of credit...... 19,906 9.8 21,452 10.5 19,875 11.1 19,422 13.8 21,256 17.0 17,179 14.8
Loans held
for sale....... 6,471 3.2 3,916 1.9 2,705 1.5 2,821 2.0 1,812 1.4 429 .4
Deferred loan
fees,
discounts, and
costs, net..... (311) (.2) (392) (.2) (535) (.3) (574) (.4) (561) (.4) (910) (.8)
-------- ----- -------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Loans............ 206,393 101.3 206,664 101.2 181,765 101.1 143,074 101.7 127,391 101.7 118,273 101.8
Less allowance
for loan
losses......... (2,596) (1.3) (2,493) (1.2) (1,999) (1.1) (2,324) (1.7) (2,075) (1.7) (2,064) (1.8)
-------- ----- -------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Net loans........ $203,797 100.0 $204,171 100.0 $179,766 100.0 $140,750 100.0 $125,316 100.0 $116,209 100.0
======== ===== ======== ===== ======== ===== ======== ===== ======== ===== ======== =====
</TABLE>
COMMERCIAL LOANS. Commercial loans consist primarily of loans to businesses
for various purposes, including revolving lines of credit, equipment financing
loans and letters of credit. These loans generally mature within one year, have
adjustable interest rates and are secured by inventory, accounts receivable and
other commercial assets. The primary repayment risk is the failure of the
borrower's business due to economic or financial factors.
REAL ESTATE MORTGAGE LOANS. These loans include various types of loans for
which Vectra holds real property as collateral. Of the $102 million of real
estate mortgage loans at December 31, 1995, approximately $52 million were loans
made to commercial customers where the collateral for the loan is, among other
things, the real estate owned by the business or its owners. It is the practice
of Vectra in making commercial loans to receive real estate as collateral in
addition to other appropriate collateral. Therefore, many loans categorized as
real estate mortgage loans can be characterized as commercial loans which are
secured by real estate. The remaining $50 million of real estate mortgage loans
consist of $23 million of outstanding balances under consumer home equity lines
of credit and $27 million of consumer first and second mortgage loans.
Commercial loans (other than SBA loans) secured by real estate typically mature
annually and have adjustable interest rates. SBA loans used to finance real
estate typically have terms of 15 to 20 years and adjustable interest rates.
Most home equity lines of credit have terms of 10 to 15 years, adjustable
interest rates and require minimum monthly payments. First and second mortgages
are generally fixed rate installment loans with terms up to 15 years. The
primary risks of real estate mortgage loans include the borrower's inability to
pay and deterioration in value of real estate that is held as collateral.
REAL ESTATE CONSTRUCTION LOANS. Construction loans are principally made to
builders to construct single family residences. These loans typically have
maturities of six to 12 months and adjustable interest rates. Fees on such loans
are usually charged on the total loan commitment. Terms vary somewhat depending
on Vectra's experience with the individual builders; however, a ratio of two or
three presold homes to every home not presold is generally required for all
builders. The builders are also required to invest a minimum of 10% of
construction costs. To ensure adequate quality control over construction
lending, monthly inspections of all construction sites by independent inspectors
are required and disbursements of draws against loan commitments are made
directly to subcontractors. A variety of risks are present in construction
loans, including the failure of the contractor to complete the work and the
borrower's inability to pay.
INSTALLMENT AND REVOLVING LINES OF CREDIT. Installment and revolving lines
of credit include installment loans to individuals which are not secured by real
estate, generally have terms of two to five years and bear
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<PAGE> 95
interest at fixed rates. Revolving lines of credit to individuals generally are
for business purposes, mature annually and have adjustable interest rates. These
loans usually are secured by motor vehicles, equipment, receivables, inventory,
investment securities or other personal assets, but in some instances are
unsecured. The primary risk of consumer lending relates to the personal
circumstances of the borrower.
LOANS HELD FOR SALE. Loans held for sale consist of mortgage loans and
guaranteed portions of Small Business Administration ("SBA") guaranteed loans
which are generally sold within 30 days. Market value equals or exceeds carrying
value for these loans.
NONPERFORMING ASSETS
The following table sets forth information concerning the nonperforming
assets of VBC at the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, --------------------------------------------------
1996 1995 1994 1993 1992 1991
--------- ------ ------ ------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Nonperforming loans:
Loans 90 days or more delinquent and still accruing
interest............................................ $ 90 $ 83 $ 302 $ 159 $ 558 $ 504
Nonaccrual loans...................................... 1,277 1,292 829 1,580 1,836 2,928
Restructured loans.................................... -- -- -- 175 814 764
------- ------ ------ ------ ------ ------
Total nonperforming loans....................... 1,367 1,375 1,131 1,914 3,208 4,196
Real estate acquired by foreclosure..................... 942 919 1,265 1,153 2,048 3,562
Other assets acquired by foreclosure.................... 60 75 81 10 67 229
------- ------ ------ ------ ------ ------
Total nonperforming assets...................... $ 2,369 $2,369 $2,477 $3,077 $5,323 $7,987
======= ====== ====== ====== ====== ======
Allowance for loan losses............................... $ 2,596 $2,493 $1,999 $2,324 $2,075 $2,064
======= ====== ====== ====== ====== ======
Ratio of total nonperforming assets to total assets..... 0.6% 0.6% 0.5% 1.0% 2.0% 3.6%
Ratio of total nonperforming loans to total loans....... 0.7 0.7 0.6 1.3 2.5 3.6
Ratio of allowance for loan losses to total loans....... 1.3 1.2 1.1 1.6 1.6 1.8
Ratio of allowance for loan losses to total
nonperforming loans................................... 189.9 181.3 176.7 121.4 64.7 49.2
</TABLE>
NONPERFORMING LOANS. The nonperforming loans of Vectra consist of loans 90
days or more delinquent and still accruing interest, nonaccrual loans and
restructured loans. Management believes that the decrease in nonperforming loans
from December 31, 1991 to March 31, 1996 is primarily a result of adherence to
Vectra's credit policy combined with active management of nonperforming loans.
The decline resulted partially from loan charge-offs and was assisted by the
improved economy in Vectra's market. At March 31, 1996, Vectra's nonperforming
loans consisted of 35 loans, three of which had balances in excess of $100,000.
The largest two nonperforming loans had principal balances of $556,000 and
$305,000. The $556,000 loan is well secured and is expected to be paid in full
or return to accrual status in 1996. The $305,000 loan is a construction loan
currently in the process of foreclosure.
When, in the opinion of management, a reasonable doubt exists as to the
collectibility of interest, regardless of the delinquency status of a loan, the
accrual of interest income is discontinued and interest accrued during the
current year is reversed through a charge to current year's earnings. Prior
years' accrued interest is charged to the allowance for loan losses. While the
loan is on nonaccrual status, interest income is recognized only upon receipt
and then only if, in the judgment of management, there is no reasonable doubt as
to the collectibility of the principal balance. Loans 90 days or more delinquent
are changed to nonaccrual status unless the loan is in the process of collection
and management determines that full collection of principal and accrued interest
is probable.
Restructured loans are those for which concessions, including the reduction
of interest rates below a rate otherwise available to the borrower or the
deferral of interest or principal, have been granted due to the borrower's
weakened financial condition. Interest on restructured loans is accrued at the
restructured rates when it is anticipated that no loss of original principal
will occur.
As of December 31, 1995, there was no significant balance of loans excluded
from nonperforming loans set forth above, where known information about possible
credit problems of borrowers causes management to
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<PAGE> 96
have serious doubts as to the ability of such borrowers to comply with the
present loan repayment terms and which may result in such loans becoming
nonperforming.
REAL ESTATE ACQUIRED BY FORECLOSURE. Real estate acquired by foreclosure
includes property acquired in foreclosure proceedings or under agreements with
delinquent borrowers. At December 31, 1995, Vectra's real estate acquired by
foreclosure consisted of two parcels of land zoned for commercial use, one of
which was zoned for multi-use and one of which was a bakery.
Real estate acquired by foreclosure is appraised annually and is carried at
the lower of fair market value less anticipated selling costs or the balance of
the related loan. At December 31, 1995, Vectra's interest in appraised fair
values of these properties was $1.1 million.
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses represents management's recognition of the
risks of extending credit and its evaluation of the quality of the loan
portfolio and is maintained at a level considered adequate to provide for
anticipated loan losses based on management's assessment of various factors
affecting the loan portfolio, including a review of problem loans, business
conditions, historical loss experience, evaluation of the quality of the
underlying collateral and holding and disposal costs. The allowance is increased
by additional charges to operating income and reduced by loans charged off, net
of recoveries.
The following table sets forth information regarding changes in the
allowance for loan losses of Vectra for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
MARCH 31, ----------------------------------------------------
1996 1995 1994 1993 1992 1991
--------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance of allowance for loan losses at beginning of
period.................................................. $ 2,493 $ 1,999 $ 2,324 $ 2,075 $ 2,064 $ 1,899
--------- -------- -------- -------- -------- --------
Charge offs:
Commercial.............................................. (64) (98) (1,148) (233) (413) (627)
Real Estate -- mortgage................................. -- (311) -- (2) -- (6)
Real Estate -- construction............................. -- (2) -- -- (38) (53)
Installment and revolving lines of credit............... (45) (149) (133) (102) (117) (142)
Other................................................... -- -- (11) (38) (29) (23)
--------- -------- -------- -------- -------- --------
Total charge offs................................. (109) (560) (1,292) (375) (597) (851)
--------- -------- -------- -------- -------- --------
Recoveries:
Commercial.............................................. 16 215 146 297 173 398
Real Estate -- mortgage................................. 10 16 3 -- -- --
Real Estate -- construction............................. -- -- -- -- 5 2
Installment and revolving lines of credit............... 7 28 20 22 39 32
Other................................................... -- -- 4 22 29 1
--------- -------- -------- -------- -------- --------
Total recoveries.................................. 33 259 173 341 246 433
--------- -------- -------- -------- -------- --------
Net (charge offs) recoveries.............................. (76) (301) (1,119) (34) (351) (418)
Provisions for loan losses charged to operations.......... 179 795 794 283 362 583
--------- -------- -------- -------- -------- --------
Balance of allowance for losses at end of period.......... $ 2,596 $ 2,493 $ 1,999 $ 2,324 $ 2,075 $ 2,064
========= ======== ======== ======== ======== ========
Ratio of net charge offs to average loans................. .04% .16% .70% .02% .29% .38%
========= ======== ======== ======== ======== ========
Average loans outstanding during the period............... $ 204,171 $187,637 $160,944 $136,836 $122,992 $111,047
========= ======== ======== ======== ======== ========
</TABLE>
The Vectra lending personnel are responsible for continuous monitoring of
the quality of loan portfolios. The loan portfolios are also monitored monthly
and examined by loan review personnel of VBC and by independent loan reviewers.
These reviews assist in the identification of potential and probable losses, and
also in the determination of the level of the allowance for loan losses. The
allowance for loan losses is based primarily on management's estimates of
possible loan losses from the foregoing processes and historical experience.
These estimates involve ongoing judgments and may be adjusted in the future
depending on economic conditions and changing historical experience. At December
31, 1995, the allowance for loan losses equaled 1.22% of total loans and 181.3%
of non-performing loans.
Charge offs during 1995 totaled $560,000 or 0.30% of average loans compared
to $1.3 million, or 0.80% of average loans in 1994 and $375,000 or 0.27% of
average loans in 1993. Included in the 1994 charge offs were two individual
loans totaling $669,000 or 52% of total charge offs. The circumstances relating
to these two
83
<PAGE> 97
loans did not, in management's opinion, represent a trend or indicate increased
charge offs in the future. Rather, Vectra believes, that they were isolated in
their cause and occurrence. Excluding these two loans, the remaining increase in
charge offs, in management's opinion, reflects the significant growth in the
loan portfolio over the past several years and not an adverse credit quality
trend.
The increase in the allowance for loan losses is directly related to the
increase in the total loan portfolio. The decline in allowance for loan losses
in 1994 resulted from the larger charge offs explained above. Despite the
decrease in 1994, the ratio of allowance for loan losses to total nonperforming
loans increased from 121% at December 31, 1993 to 177% at December 31, 1994 and
181% at December 31, 1995.
State and federal regulatory agencies, as an integral part of their
examination process, review loans of Vectra and its allowance for loan losses.
Management believes that the allowance for loan losses of Vectra is adequate to
cover anticipated losses. There can be no assurance, however, that management
will not determine a need to increase the allowance for loan losses or that
regulators, when reviewing Vectra's loan portfolios in the future, will not
request Vectra to increase such allowance, either of which could adversely
affect VBC's earnings. Further, there can be no assurance that Vectra's actual
loan losses will not exceed its allowance for loan losses.
The following table sets forth an allocation of the allowance for loan
losses by loan category as of the dates indicated. Management believes that any
allocation of the allowance into categories lends an appearance of precision
which does not exist. Portions of the allowance have been allocated to
categories based on analysis of the status of particular loans; however, the
majority of the allowance is utilized as a single unallocated allowance
available for all loans. The following allocation table should not be
interpreted as an indication of the specific amounts of the relative proportion
of future expected charges to the allowance. Such a table is primarily a useful
device for assessing the adequacy of the allowance as a whole. The following
allocation table has been derived in part by applying historical loan loss
ratios to both internally classified loans and the portfolio as a whole in
determining the allocation of the loan losses attributable to each category of
loans.
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------------------------
MARCH 31,
1996 1995 1994 1993 1992
--------------------- ------------------ ------------------ ------------------ ------------------
LOANS IN LOANS IN LOANS IN LOANS IN LOANS IN
CATEGORY CATEGORY CATEGORY CATEGORY CATEGORY
AS A AS A AS A AS A AS A
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
OF OF OF OF OF OF OF OF OF OF
ALLOWANCE ALLOWANCE LOANS ALLOWANCE LOANS ALLOWANCE LOANS ALLOWANCE LOANS ALLOWANCE
--------- --------- ------ --------- ------ --------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Commercial......... $ 1,593 27.2% $1,563 28.0% $1,379 25.8% $1,755 30.1% $1,462 31.0%
Real estate --
mortgage......... 428 49.1% 419 49.2% 264 52.3% 214 44.9% 210 42.8%
Real estate --
construction..... 328 11.0% 250 10.5% 154 9.5% 136 9.4% 121 8.1%
Installment and
revolving lines
of credit........ 247 9.6% 261 10.4% 202 10.9% 219 13.6% 282 16.7%
Loans held for
sale............. -- 3.1% -- 1.9% -- 1.5% -- 2.0% -- 1.4%
------- ------- ------ ------- ------ -------- ------ -------- ------ -------
Total.......... $ 2,596 100.0% $2,493 100.0% $1,999 100.0% $2,324 100.0% $2,075 100.0%
======= ======= ====== ======= ====== ======== ======= ======== ====== =======
<CAPTION>
DECEMBER 31,
-------------------
1991
-------------------
LOANS IN
CATEGORY
AS A
PERCENTAGE
AMOUNT OF TOTAL
OF OF
LOANS ALLOWANCE
------ ----------
<S> <C> <C>
Commercial......... $1,717 45.4%
Real estate --
mortgage......... 118 35.2%
Real estate --
construction..... 44 4.5%
Installment and
revolving lines
of credit........ 185 14.5%
Loans held for
sale............. -- .4%
------ -------
Total.......... $2,064 100.0%
====== =======
</TABLE>
INVESTMENTS
The investment policy of Vectra is designed to enhance net income and
return on equity through prudent management of risk; to ensure liquidity for
cash-flow requirements; to help manage interest rate risk; to ensure collateral
is available for public deposits, FHLB advances and repurchase agreements; and
to manage asset quality diversification. Investments are managed centrally to
maximize compliance and effectiveness of overall investing activities.
Vectra's Investment Committee, which consists of the Chief Financial
Officer, the Chief Executive Officer and an outside director, is responsible for
implementing investment strategy. The Investment Committee meets at least
monthly to review the performance of the investment portfolio, market values,
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<PAGE> 98
market conditions, current economic conditions, profitability, capital ratios,
liquidity needs, collateral position with the FHLB and other matters related to
investing activities. Based on its review of this information the Investment
Committee considers the need to alter investment strategies.
The following table sets forth the book value of the securities in Vectra's
investment portfolio by type at the dates indicated.
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ----------------------------------
1996 1995 1994 1993
--------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury securities........................ $ 5,020 $ 5,032 $ 22,673 $ 17,120
U.S. government-sponsored entities.............. 15,885 16,667 13,500 13,120
Collateralized mortgage obligations............. 143,652 147,508 164,720 64,588
Mortgage backed securities...................... 16,177 6,183 39,687 12,204
Other........................................... 1,359 1,639 6,792 5,527
Unrealized loss on securities available for
sale.......................................... (5,872) (5,831) (12,286) (282)
--------- -------- -------- --------
Total................................. $ 176,221 $171,198 $235,086 $112,277
========= ======== ======== ========
</TABLE>
85
<PAGE> 99
The following table sets forth the book value and approximate yield of the
securities in the investment portfolio of Vectra by type and maturity at
December 31, 1995 and 1994.
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
------------------ ------------------
TYPE AND MATURITY AMOUNT YIELD AMOUNT YIELD
- ----------------------------------------------------- -------- ----- -------- -----
(DOLLARS IN (DOLLARS IN
THOUSANDS) THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury securities HTM:
One year or less................................... -- 0.0% $ 3,534 3.97%
Over one through five years........................ -- 0.0% 15,138 5.62%
Over five through 10 years......................... -- 0.0% -- 0.00%
--------
Total...................................... -- 0.0% $ 18,672 5.30%
========
U.S. Treasury securities AFS:
One year or less................................... $ 1,526 4.51% $ -- 0.00%
Over one through five years........................ 3,506 5.27% 4,001 6.20%
Over five through 10 years......................... 0 0.00% -- 0.00%
-------- --------
Total...................................... $ 5,032 5.04% $ 4,001 6.20%
======== ========
U.S. Government agencies:
One year or less................................... $ 1,732 7.15% $ 1,004 7.10%
Over one through five years........................ 8,345 4.87% 6,746 3.65%
Over five through 10 years......................... 6,590 5.28% 5,750 5.83%
-------- --------
Total...................................... $ 16,667 5.27% $ 13,500 4.84%
======== ========
Collateralized mortgage obligations:
One year or less................................... $ 20,876 5.99% $ 2,281 5.59%
Over one through five years........................ 23,427 5.64% 2,571 5.37%
Over five through 10 years......................... 21,895 5.59% 18,317 6.54%
Over 10 years...................................... 81,310 5.64% 141,551 6.54%
-------- --------
Total...................................... $147,508 5.68% $164,720 6.50%
======== ========
Mortgage-backed securities:
One year or less................................... $ 993 7.02% $ 3,417 5.75%
Over one through five years........................ 2,418 6.92% 9,998 5.80%
Over five through 10 years......................... 1,025 6.71% 7,606 5.80%
Over 10 years...................................... 1,747 6.78% 18,667 5.73%
-------- --------
Total...................................... $ 6,183 6.86% $ 39,688 5.76%
======== ========
Other:
One year or less................................... $ 560 6.83% $ 2,177 6.46%
Over one through five years........................ 54 7.00% 1,134 6.86%
Over five through 10 years......................... -- 0.00% 616 7.13%
Over 10 years...................................... 1,025 6.26% 2,864 5.22%
-------- --------
Total...................................... $ 1,639 6.48% $ 6,791 6.06%
======== ========
Total investment in securities:
One year or less................................... $ 25,687 6.03% $ 12,413 4.32%
Over one through five years........................ 37,750 5.52% 39,588 3.26%
Over five through 10 years......................... 29,510 5.56% 32,289 6.25%
Over 10 years...................................... 84,082 5.68% 163,082 6.42%
Unrealized loss on securities available for sale... (5,831) (12,286)
-------- --------
Total...................................... $171,198 5.87% $235,086 6.09%
======== ========
</TABLE>
The preceding schedule includes $814,000 of securities in the "Other"
category which are classified as held-to-maturity at December 31, 1995. In
addition to the $18.7 million of U.S. Treasury securities classified
86
<PAGE> 100
as held to maturity there were approximately $6.9 million of securities in other
categories also classified as held to maturity at December 31, 1994.
In connection with the pooling of interests with First Denver Corporation
("FDC") (see Notes 1 and 2 of Notes to Consolidated Financial Statements), VBC
transferred all securities classified by FDC as held to maturity to available
for sale in 1995, consistent with VBC's existing policies. The amortized cost
and unrealized gain on these securities at the date of VBC's acquisition of FDC
totaled approximately $22,258,000 and $210,000, respectively.
A substantial portion of Vectra's investments are collateralized mortgage
obligations (CMOs) and mortgage backed securities. These investments are usually
purchased at a premium or discount to their stated or par value. The yield on
these investments may be impacted by changes in the prepayment rates of the
mortgages underlying the securities.
The following table summarizes certain information about VBC's available
for sale investment portfolio:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
--------------------------------------------------- ---------------------------------------------------
EXCESS OF EXCESS OF
INDEX TO UNREALIZED INTEREST RATE UNREALIZED INTEREST RATE
WHICH COUPON MARKET CAPS OVER ESTIMATED MARKET CAPS OVER ESTIMATED
ON SECURITY AMORTIZED VALUE CURRENT AVERAGE AMORTIZED VALUE CURRENT AVERAGE
DESCRIPTION IS TIED COST ADJUSTMENTS COUPONS LIVES COST ADJUSTMENTS COUPONS LIVES
- ----------- ------------ --------- ----------- ------------- --------- --------- ----------- ------------- ---------
(DOLLARS IN MILLIONS) (IN YEARS) (DOLLARS IN MILLIONS) (IN YEARS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CMO-Floating
rate... COFI $ 44.3 (1.1) 3.2% 10.6 $ 59.1 (4.5) 4.1% 17.9
CMO-Floating
rate... 10 yr CMT 76.5 (3.5) 4.3% 13.5 76.5 (3.0) 2.2% 18.4
CMO-Floating
rate... 7 yr CMT 8.9 (0.1) 4.8% 5.7 8.9 (0.4) 2.6% 11.0
CMO-Floating
rate... 1 mo LIBOR 4.7 (0.1) 3.0% 2.8 6.7 (0.1) 2.7% 19.2
CMO-Fixed
rate... N.A. 13.1 (0.3) N.A. 1.7 13.6 (2.0) N.A. 6.4
MBS-Adjustable
rate... 6 mo LIBOR -- -- -- -- 23.1 (0.1) 5.6% 11.5
MBS-Adjustable
rate... 1 yr CMT 2.4 0.1 4.0% 5.0 12.3 (0.3) 5.2% 10.8
FHLB Dual
Indexed
Notes... (1) 5.8 (0.7) N.M. 7.5 5.8 (1.2) N.M. 8.5
FHLB
Inverse
Floating
Note... 3 mo LIBOR 5.0 (0.3) N.M. 2.8 5.0 (0.6) N.M. 3.8
U.S.
Treasuries... N.A. 5.0 0.0 N.A. 1.5 4.1 0.0 N.A. 1.6
SBA
Guaranteed... Prime 4.3 0.1 N.A. 3.4 1.3 0.0 N.A. 5.3
Other.... 6.2 0.1 N.A. N.A. 5.4 (0.1) N.A. N.A.
------- ---- ------- ----
Total
portfolio... $ 176.2 (5.8) $ 221.8 (12.3)
======= ==== ======= =====
</TABLE>
The adjustable rate portion of VBC's investment portfolio at December 31,
1995 is distributed as follows:
<TABLE>
<CAPTION>
BY INDEX BY ADJUSTMENT FREQUENCY LEGEND OF TERMS
- --------------- ------------------------- -----------------------------------------------------------
<S> <C> <C> <C> <C>
10 yr CMT...... 49% Monthly 87% CMO -- Collateralized Mortgage Obligation
COFI........... 28% Quarterly 7% COFI -- FHLB 11th District cost-of-funds index
7 yr CMT....... 5% Semi-annually 4% CMT -- Index of constant maturing U.S. Treasury securities
Dual Index..... 4% Annually 2% MBS -- Mortgage Backed Securities
-----
1 mo LIBOR..... 3% Total 100% LIBOR -- London Interbank Offered Rate Index
=====
3 mo LIBOR..... 3% N.M. -- Not meaningful
Prime.......... 3% N.A. -- Not applicable
1 yr CMT....... 1%
Other.......... 4%
-----
Total.......... 100%
=====
</TABLE>
- ---------------
(1) The coupon on these securities is set at the 10 year CMT less the six month
LIBOR plus 4.75%.
The average lives or maturities of most of Vectra's mortgage related
securities are impacted by mortgage prepayment rates which are significantly
affected by changes in interest rates. The increases in interest rates during
1994 resulted in significant slowing of mortgage prepayment rates and extensions
of estimated average lives of most of Vectra's mortgage related securities. In
1994, the extension of average lives in combination with the interest rate caps,
uncertainties on the part of investors as to further increases in interest rates
and
87
<PAGE> 101
other factors contributed to declines in the market value of the investment
portfolio. Declining interest rates, a reduction in expected average lives,
reduced concern about interest rate caps and other factors contributed to
increase in the market valued in 1995. There can be no assurance that market
values of securities will not decline further.
See the "Investing Activities" section of "Management's Discussion and
Analysis of Financial Condition and Results of Operation" for further discussion
about the structure and performance of individual segments of the Vectra's
investments portfolio. Also see Note 5 of Notes to Consolidated Financial
Statements for disclosures regarding three securities which are considered
derivative financial instruments, all of which have a combined face value of
$10.75 million.
Substantially all of Vectra's investment portfolio is held in the
available-for-sale classification. As a result, Vectra reflects a mark-to-market
adjustment on its entire portfolio (net of taxes) in shareholders' equity.
Because of the series of interest rate increases in 1994, the bond market
suffered its most volatile year in decades. This contributed to a substantial
decline in the market values of Vectra's investments during 1994. During 1995,
market values improved and the unrealized losses on securities available for
sale decreased from 5.5% of the portfolio or a $7.7 million adjustment against
equity at December 31, 1994 to 3.3% of the portfolio or a $3.6 million
adjustment against equity at December 31, 1995. Management believes that
Vectra's capital and liquidity are more than adequate to allow it to continue to
hold its investment portfolio. Management also expects that the passage of time
and further restructuring of the portfolio will reduce its exposure to market
value and basis risk.
Vectra holds two securities (issued by other than a U.S. government
sponsored entity) that total more than 10% of its shareholders' equity. They are
both variable rate CMOs. Information on these securities is as follows at
December 31, 1995:
<TABLE>
<CAPTION>
ISSUER BOOK VALUE MARKET VALUE
------------------------------------------------------------ ---------- ------------
<S> <C> <C>
Structured Asset Securities Corporation ("SASC")............ $4,523,000 $4,455,000
Capstead Securities Corporation IV ("CSC").................. $2,924,000 $2,936,000
</TABLE>
The SASC security is rated Aaa by Moodys and AAA by Standard & Poors. It is
100% collateralized by Governmental National Mortgage Association single family
MBS which themselves carry a full faith guarantee of the U.S. Government. The
CSC security is rated Aaa by Moodys, AAA by Standard & Poors and AAA by Fitch.
Credit enhancements for this security include: (i) mortgage pool insurance from
GEMICO; (ii) primary mortgage insurance; (iii) special hazard insurance; (iv)
bankruptcy account. Based on the structure, enhancements, ratings and collateral
of these two securities, management assumes there is remote credit risk in them.
Market value estimates for all securities are obtained from multiple
dealers monthly, including the dealers from whom securities have been purchased,
but independent valuation estimates are always obtained from other dealers as
well.
DEPOSITS
Vectra's primary source of funds has historically been customer deposits.
Vectra focuses on maintaining a high percentage of noninterest-bearing deposits,
which provide low cost funds and result in higher interest margins. At December
31, 1995, noninterest-bearing deposits comprised 26.1% of total deposits. Vectra
has not sought brokered deposits and does not intend to do so in the future.
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<PAGE> 102
The following tables present the average balances for each major category
of deposits and the weighted average interest rates paid for interest-bearing
deposits for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
THREE MONTHS ENDED ---------------------------------------------------------------
MARCH 31, 1996 1995 1994 1993
------------------- ------------------- ------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
AVERAGE INTEREST AVERAGE INTEREST AVERAGE INTEREST AVERAGE INTEREST
BALANCE RATE BALANCE RATE BALANCE RATE BALANCE RATE
-------- -------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NOW and money market accounts.............. $ 63,929 2.47% $ 65,715 2.62% $ 70,884 2.19% $ 69,182 2.31%
Savings.................................... 102,878 4.41% 87,072 4.42% 83,521 3.57% 56,07 93.50%
Time certificates of deposit under
$100,000................................. 48,202 5.68% 41,445 5.56% 19,996 3.48% 21,568 3.51%
Time certificates of deposit $100,000 and
over..................................... 14,152 5.71% 11,345 5.62% 7,669 3.77% 10,710 3.62%
-------- -------- -------- --------
Total interest being demand
deposits......................... 229,161 4.22% 205,577 4.14% 182,070 3.03% 157,539 2.99%
Noninterest bearing demand deposits........ 76,912 76,072 77,733 65,046
-------- -------- -------- --------
Total Deposits..................... $306,073 3.16% $281,649 3.02% $259,803 2.12% $222,585 2.12%
======== ======== ======== ========
</TABLE>
The following tables set forth the amount and maturity of CDs that had
balances of more than $100,000 at March 31, 1996 and December 31, 1995.
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
REMAINING MATURITY 1996 1995
-------------------------------------------------------------- --------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Less than three months........................................ $ 3,317 $ 2,544
Three months up to six months................................. 4,022 4,124
Six months up to one year..................................... 3,733 5,015
One year and over............................................. 2,876 2,875
------- --------
Total............................................... $13,948 $ 14,558
======= ========
</TABLE>
FHLB BORROWINGS
Vectra is a member of the FHLB of Topeka, which is one of 12 regional
Federal Home Loan Banks. The FHLB system functions as a central bank providing
credit for members. As a member of the FHLB, Vectra is entitled to borrow funds
from the FHLB and is required to own FHLB stock in an amount determined by
formula based upon Vectra's holdings of mortgage related assets and its FHLB
borrowings. Vectra relies on FHLB borrowings to supplement deposits as a source
of funds. At December 31, 1995 Vectra's total available and unused borrowing
capacity with the FHLB was $86.5 million, which was available through a line of
credit and term advances. FHLB borrowings are collateralized by Vectra's FHLB
stock, other investment securities and certain loans.
Vectra can choose from a variety of terms and maturities when it borrows
from the FHLB. Maturities available range generally from one day to 10 years.
Interest rates can be either fixed or variable and prepayment options are
available if desired. The FHLB offers both amortizing and nonamortizing
advances. To date, FHLB stock has been redeemable at par value, but there can be
no assurance that this will continue to be the case.
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<PAGE> 103
The table below sets forth information relating to Vectra's FHLB
borrowings.
<TABLE>
<CAPTION>
AS OF OR FOR YEAR ENDED DECEMBER
AS OF OR FOR THE 31,
THREE MONTHS ENDED ---------------------------------
MARCH 31, 1996 1995 1994 1993
------------------ -------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Due within one year:
FHLB borrowings........................... $ 50,000 $ 58,000 $136,000 $13,000
FHLB line of credit and other
borrowings............................. 15,500 12,345 26,190 6,500
-------- -------- -------- -------
Total borrowings.................. $ 65,500 $ 70,345 $162,190 $19,500
======== ======== ======== =======
Weighted average rate at end of period...... 5.42% 6.00% 6.24% 3.13%
======== ======== ======== =======
Average borrowings outstanding for the
period.................................... $ 66,527 $123,083 $114,986 $29,605
======== ======== ======== =======
Weighted average interest rate for the
period.................................... 5.56% 6.08% 4.71% 3.22%
======== ======== ======== =======
Maximum borrowings outstanding at any month-
end during the period..................... $ 68,400 $167,500 $175,250 $49,050
======== ======== ======== =======
</TABLE>
COMPETITION
Vectra faces a high degree of competition from other local, regional and
national providers of financial services. In its marketplace, there are numerous
small banks and a few larger banking groups with assets in excess of $1.0
billion, including Norwest Bank, Colorado National Bank (a subsidiary of First
Bank Systems of Minneapolis), Banc One, First Interstate Bancorp, FirstBank
Holding Company of Colorado and First Federal Bank of Colorado. Also, World
Savings and Commercial Federal Savings, both owned by large out-of-state holding
companies, operate numerous branches in the Denver/Boulder area. Vectra also
competes with insurance companies, savings and loan associations, credit unions,
leasing companies, mortgage companies, and other financial service providers.
Many of the banks and other financial institutions with which Vectra competes
have capital resources and legal lending limits substantially in excess of the
capital resources and legal lending limits of Vectra.
Vectra competes for loans and deposits principally based on the range and
quality of services provided, interest rates, loan fees and office locations.
Vectra actively solicits deposit customers and competes by offering them
attractive products and personal and professional service. Over the past few
years, competition has increased as a result of changes in Colorado banking laws
that permit limited statewide branching and allow out-of-state holding companies
to acquire Colorado-based financial institutions. Vectra believes its customer
service, broad product line and banking network enable it to compete in its
market area.
PROPERTIES
VBC owns six of its banking facilities which aggregate approximately 83,000
square feet of building area, of which approximately 59,000 square feet are used
for banking services. Substantially all of the space not used by VBC was leased
to third parties at December 31, 1995. One facility is encumbered by a mortgage
of $1.1 million. See Note 10 of Notes to Consolidated Financial Statements. VBC
leases its other five banking facilities, which total approximately 18,800
square feet. VBC also leases a 4,150 square foot service facility for its back
office support systems. VBC believes that its existing facilities are in good
condition and are adequate to meet its current and future needs at such
locations.
LEGAL PROCEEDINGS
Periodically and in the ordinary course of business, various claims and
lawsuits which are incidental to the business of VBC are brought against or by
VBC. In the opinion of management, the ultimate liability, if any, resulting
from such claims or lawsuits will not have a material adverse effect on the
financial position or results of operations of VBC.
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<PAGE> 104
EMPLOYEES
At March 31, 1996, VBC had approximately 240 full-time equivalent
employees. VBC places a high priority on staff development, including customer
service training. New employees are selected on the basis of both technical
skills and customer service capabilities. Staff development involves intensive
training in customer service, marketing and regulatory compliance. None of the
employees of VBC is covered by a collective bargaining agreement and management
believes that its relationship with its employees is good.
MANAGEMENT OF VBC
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of VBC are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ --- ------------------------------------------------------
<S> <C> <C>
Gary S. Judd.................. 55 President, Chief Executive Officer and Director of VBC
and President of Vectra
Robert C. Barton.............. 44 Regional President of Vectra
J. Patrick McDuff............. 47 Regional President of Vectra
Michael Y. Meganck............ 44 Senior Credit Policy Officer
Ray L. Nash................... 44 Chief Financial Officer
Robert A. Silverberg.......... 60 Executive Vice President and Director
Joseph J. Wolf................ 40 Regional President of Vectra
Mary Gittings Cronin.......... 57 Director
Robert D. Greene.............. 55 Director
James L. Rumsey............... 63 Director
W. James Tozer, Jr............ 55 Director
Richard B. Tucker............. 66 Director
</TABLE>
There are no family relationships among any of the directors and executive
officers of VBC. All directors hold office until the next meeting of
shareholders or until their successors are elected and qualified.
GARY S. JUDD has been President, Chief Executive Officer and a director of
VBC since he and Mr. Tozer founded it in March 1988. Mr. Judd has been President
of Vectra since July 1992. Mr. Judd's previous experience includes over 16 years
of employment with Citicorp and Citibank, N.A. in a broad range of senior
managerial positions both internationally and in the United States.
ROBERT C. BARTON has served as Regional President or Consumer Business
Sector Head since June 1989. From 1974 through May 1989, Mr. Barton was employed
by Citicorp in various positions, ending his tenure as Senior Vice President of
the origination and industrial bank operations for Citicorp Mortgage in the
western United States.
J. PATRICK MCDUFF has been President of Vectra Bank of Boulder or Regional
President of Vectra since July 1987. Mr. McDuff serves as a director of Black
Hawk Gaming & Development Company, Inc., a company with a class of equity
securities registered under the Exchange Act.
MICHAEL Y. MEGANCK as been Senior Credit Policy Officer since May 1989. He
was self employed as a business consultant from 1986 until joining VBC. Mr.
Meganck worked with Crocker National Bank and Wells Fargo in various capacities
from 1978 to 1986.
RAY L. NASH has been Chief Financial Officer since July 1989. From March
1984 through June 1989, Mr. Nash was employed by WestAmerica Mortgage Company as
Vice President and Controller.
ROBERT A. SILVERBERG has been Executive Vice President of VBC since
November 1995. From 1981 until joining VBC he was Chairman of the Board of First
Denver Corporation and First National Bank of Denver. He is also a director of
Vanguard Cellular Systems, Inc., a corporation with a class of equity securities
registered under the Exchange Act.
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<PAGE> 105
JOSEPH J. WOLF has served as Regional President of Vectra since December
1993. Mr. Wolf served as President of Vectra Bank of Denver from December 1991
until it was merged into Vectra in November 1993, and as Vice President of
Vectra from February 1990 through December 1991. From November 1981 through
January 1990, he was employed by United Banks, Denver, Colorado, ending his
employment as Vice President and Manager of Commercial Lending.
MARY GITTINGS CRONIN has been a director of VBC since November 1995. She
has been the Executive Director of The Piton Foundation, Denver, Colorado since
1988.
ROBERT D. GREENE has been a director since October 1989. Mr. Greene is a
business consultant. Mr. Greene retired from Safeway Foods in June 1993, ending
his 37-year tenure with that company as Senior Vice President and Division
Manager.
JAMES L. RUMSEY has been a director since October 1989. Mr. Rumsey has been
an independent financial and management consultant since May 1990, and presently
is a General Partner of Cheesman Realty Association, Ltd. and Evans Investment
Association Ltd. and is Manager of Creede-Golden Crown Mining, LLC. From
November 1985 through April 1990 Mr. Rumsey was President and Chief Executive
Officer of Scott Capital Corporation, Denver, Colorado, a private holding
company. Prior thereto, Mr. Rumsey held senior management positions with
Spectrum Oil and Gas Company, Outdoor Sports Industries, Inc. and Rio Grande
Industries, Inc.
W. JAMES TOZER, JR. was a director from March 1988 through August 1989, and
has been a director since April 1991. For the last five years, Mr. Tozer has
been managing director of Vectra Management Group, an organization unrelated to
Vectra which is involved in real estate development and management of private
investments. From April 1993 to December 1994, Mr. Tozer was President, Chief
Executive Officer and a director of Lincolnshire Management, Inc., a New York
based investment firm. From July 1990 through March 1993 he served as an advisor
to financial institutions and managed private investments. Mr. Tozer's previous
financial service industry experience includes 20 years of senior management
positions at Marine Midland Bank, Prudential Securities, Inc. and
Citicorp/Citibank. Mr. Tozer serves as trustee of the Citizens Budget
Commission. Mr. Tozer was also a director of Cobra Industries, Inc., from 1993
through October 1995. Cobra Industries filed for reorganization under federal
bankruptcy laws in October 1995 and was liquidated in late 1995. Cobra completed
an initial public offering of its securities in November 1993 and was a
defendant in several class action lawsuits which sought damages for violations
of the Securities Act of 1933 and the Securities Exchange Act of 1934 relating
to that offering. Mr. Tozer and all of the other Cobra Industries directors are
also named defendants in these suits. Vectra has no relationship or affiliation
with Cobra Industries, and management does not believe that this litigation has
any impact on Mr. Tozer's ability to serve as a director of Vectra or otherwise
impact Vectra in any manner.
RICHARD B. TUCKER has been a director since August 1989. Mr. Tucker has
been Chairman of Custom Envelope Corporation, Denver, Colorado since 1990 after
serving as its President from 1980 to 1989. From 1950 through 1977, Mr. Tucker
was employed by PakWell Corp., ending his tenure as President. Mr. Tucker is a
board member of several civic organizations, including Allied Jewish Federation,
National Jewish Hospital, the Rose Foundation, Colorado Ocean Journey and Shalom
Park.
Each director who is not an employee of VBC or any of its subsidiaries is
paid a director's fee of $5,000 per year and fees of $125 for each board or
committee meeting attended. In addition, the chairman of the Audit Committee is
paid $1,000 per year. Directors are reimbursed for expenses incurred in
attending board and committee meetings.
The board of directors held 14 meetings during 1995. Each director's
attendance at the Board meetings and meetings of the Committees on which he or
she served was at least 75%.
VBC's board of directors has two committees: an Audit Committee and a
Compensation Committee. The Audit Committee is responsible for making
recommendations to the board of directors concerning the engagement of
independent public accountants, reviewing the overall scope and results of the
annual audit of VBC and performing such other functions as may be prescribed by
the board of directors. The members of the Audit Committee are elected annually
by the directors. The Audit Committee met twice in 1995.
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<PAGE> 106
The Compensation Committee is authorized to review the compensation of the
officers of VBC and its subsidiaries and to make recommendations to the board of
directors concerning officers' salaries, stock options and any other forms of
compensation, to review recommendations to the board of directors concerning the
compensation of the directors and to perform such other functions as the board
of directors may direct. The members of the Compensation Committee are elected
annually by the directors. The Compensation Committee met once in 1995.
The members of each committee are as follows:
<TABLE>
<CAPTION>
AUDIT COMPENSATION
--------------------------------------------------- ----------------------------------
<S> <C>
James L. Rumsey (Chairman)......................... Richard B . Tucker (Chairman)
W. James Tozer, Jr................................. Robert D. Greene
Gary S. Judd (ex officio member)
</TABLE>
Based solely upon a review of Forms 3, 4 and 5 and amendments thereto
furnished to VBC during the year ended December 31, 1995, VBC is not aware of
any officers or directors who failed to file reports required by Section 16 of
the Securities Exchange Act of 1934 on a timely basis.
EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid by VBC to its
chief executive officer and each of its executive officers who received
compensation in excess of $100,000 for each year ended December 31, 1995, 1994
and 1993.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
AWARDS
ANNUAL COMPENSATION RESTRICTED --------------------------
NAME AND FISCAL ------------------------ STOCK ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS AWARDS OPTIONS COMPENSATION(1)
- --------------------------- ------ -------- ------------ ---------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Gary S. Judd............... 1995 $151,440 -- -- -- $ 3,029
President and Chief 1994 $151,440 -- -- 45,000 $ 3,029
Executive Officer 1993 $150,000 -- -- -- $ 3,511
Robert C. Barton........... 1995 $110,001 -- (3) 2,500 $ 1,101
Regional President 1994 $105,298 $ 10,000(2) -- 5,000 $ 1,053
1993 $100,000 $ 5,000 -- -- $ 1,203
</TABLE>
- ---------------
(1) Represents VBC's matching contribution to its Section 401(k) Retirement
Savings Plan.
(2) While this bonus was earned in 1994, no amount was paid in 1994 and 50% was
paid in 1995. It is scheduled for remaining payment in increments of 25% in
each of 1996 and 1997. The 1996 and 1997 payments will be forfeited if the
officer is no longer employed by VBC as of January of the year in which the
payment is scheduled to be made.
(3) As of December 31, 1995, Mr. Barton held 7,500 shares of Common Stock under
VBC's Restricted Stock Program all of which vest in 1996. If these shares
were vested, they would have a value (based upon the market value of the
Common Stock at December 31, 1995) of $80,625. Dividends, if any, paid by
VBC would be for the benefit of the holder of the restricted Common Stock.
In 1995, the board of directors adopted a plan whereunder a limited number
of key employees of VBC, including Mr. Barton but excluding Mr. Judd, would
receive payments equal to one year's base salary upon a change in control of VBC
if they were not offered comparable employment with the successor.
INCENTIVE PLANS
VBC has adopted various incentive plans for its employees and directors.
The board of directors has adopted a policy that the total number of shares of
Common Stock subject to grants and awards will not
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<PAGE> 107
exceed 7.5% of the outstanding number of shares of Common Stock at the date of
grant or award. This limitation does not apply to the Restricted Stock Program,
which has a limit of 30,000 shares. At December 31, 1995, options were
outstanding under the incentive plans for a total of 180,000 shares of Common
Stock and 26,500 shares of Common Stock were outstanding under the Restricted
Stock Program. All of the grants have vesting conditions as described below.
EMPLOYEES EQUITY INCENTIVE PLAN. VBC has adopted an Employees' Equity
Incentive Plan (the "Employees' Plan") to provide long-term incentives to its
key employees, including officers and Directors who are employees of VBC. The
Employees' Plan provides for an authorization of up to 450,000 shares of VBC
Common Stock for issuance thereunder. Under the Employees' Plan, VBC may grant
employees stock options, performance awards or restricted stock, or any
combination thereof.
Upon a change in control of VBC, stock options outstanding under the
Employees' Plan immediately become fully vested and exercisable, and the board
of directors may make other adjustments and take certain actions with respect to
the terms of outstanding options, restricted stock and performance awards. Also,
in the event of a merger or consolidation in which VBC is not the surviving
corporation, the sale of all or substantially all of VBC's assets, the
acquisition of more than 50% of VBC's outstanding voting stock, certain
reorganizations or the liquidation of VBC, the board of directors of the
corporation succeeding to VBC's obligations may set the terms and conditions for
the exercise or modification of any outstanding stock options, performance
awards entitling the participant to Common Stock and restricted stock. Such
options became exercisable one-third on the date of grant and one-third on each
of the first two yearly anniversary dates after the date of grants. These
options expire 10 years from the date of grant.
OUTSIDE DIRECTORS' STOCK OPTION PLAN. Under the Nonemployee Directors'
Stock Option Plan (the "Outside Directors' Plan"), an aggregate of 75,000 shares
of Common Stock are reserved for issuance to directors who are not employees of
VBC. Outside Directors are automatically granted options to purchase 1,500
shares on March 24, and each anniversary date of service as a Director. Each
option granted under the Outside Directors' Plan is immediately exercisable for
one-third of the shares and becomes exercisable for an additional one-third of
the shares on each of the first two anniversaries of the date of grant. The
options expire five years from the date of grant. The options become immediately
exercisable in the event of a change in control of VBC or a merger or
consolidation in which it is not the survivor.
AMENDMENT. The board of directors may amend the Employees' Plan and the
Outside Directors' Plan at any time or may terminate either Plan without the
approval of the shareholders, except that shareholder approval is required for
any amendment which increases the number of shares for which options may be
granted, changes the designation of the class of persons eligible to participate
or changes in any material respect the limitations or provisions of the options.
No action by the board of directors or shareholders may alter or impair any
option previously granted without the consent of the option holder.
1989 STOCK OPTION PLAN. In June 1989, the board of directors adopted a
stock option plan (the "1989 Plan"). In 1990 and 1992, options were granted to
purchase 69,250 shares of VBC Common Stock, 46,500 of which remained outstanding
at December 31, 1995. These options were originally scheduled to vest on June
30, 1994, but were repriced from $10.00 per share to $6.60 per share in May 1993
with the condition that they vest 20% on June 30, 1994, and an additional 20% on
each June 30 thereafter until the options are fully vested on June 30, 1998. The
options will vest fully in the event of a change of control of VBC. In addition,
in 1993, options were granted under the 1989 Plan to purchase 3,030 shares of
VBC Common Stock at an exercise price of $6.60 per share. These 3,030 options
were exercised in 1994. Although the 1989 Plan has been terminated, existing
options thereunder continue in effect until they expire or are earlier
exercised.
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<PAGE> 108
The following table sets forth options granted by VBC during 1995 to
certain of its executive officers.
OPTION GRANTS IN 1995
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------------------
PERCENTAGE
NUMBER OF TOTAL POTENTIAL
OF SECURITIES OPTIONS REALIZABLE VALUE
UNDERLYING GRANTED TO EXERCISE OR AT ASSUMED ANNUAL
OPTIONS EMPLOYEES BASE PRICE RATE OF STOCK
NAME GRANTED(#)(1) IN 1995 ($PER SHARE) EXPIRATION DATE PRICE APPRECIATION
- --------------------------------------------- ------------- ------------- ------------------ FOR OPTION TERM
------------------
5% 10%
<S> <C> <C> <C> <C> <C> <C>
Gary S. Judd.................... -- 0.0% -- --
Robert C. Barton................ 2,500 8.2% $11.375 September 20, 2005 $17,884 $45,321
</TABLE>
- ---------------
(1) The options represent incentive stock options issued pursuant to VBC's
Employees' Equity Incentive Plan.
The following table sets forth the aggregate options held by certain
executive officers of VBC along with values of in-the-money options at December
31, 1995.
AGGREGATE OPTION EXERCISES IN 1995
AND 1995 OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR END(#) AT FISCAL YEAR END($)
----------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Gary S. Judd -- 1995....................................... 30,000 15,000 $67,500 $33,750(1)
Robert C. Barton -- 1995................................... 11,167 13,833 $36,551 $47,326(1)
</TABLE>
- ---------------
(1) Based upon the market price per share of Common Stock at December 31, 1995
of $10.75 per share.
RESTRICTED STOCK PROGRAM. In 1992, VBC adopted a Restricted Stock Program
(the "Program") to provide long-term incentives to its key employees, including
officers who are employees of VBC. Under the Program, VBC has issued 30,000
shares of Common Stock to key employees, other than Gary S. Judd, President and
Chief Executive Officer, at a price of $.01 per share. The shares are fully
vested.
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<PAGE> 109
CERTAIN TRANSACTIONS
The officers, directors and principal shareholders of VBC and members of
their immediate families and businesses in which they hold controlling interests
are customers of Vectra. Credit transactions with these parties are subject to
review by VBC's and Vectra's board of directors. All outstanding loans and
extensions of credit by Vectra to these parties were made in the ordinary course
of business on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
other persons, and in the opinion of management did not involve more than the
normal risk of collectibility or present other unfavorable features. At December
31, 1995, the aggregate balance of loans and advances under existing lines of
credit to these parties was approximately $1,099,000 or .53% of Vectra's total
loans.
At December 31, 1995 Vectra had two loans outstanding to a company of which
Mr. Tucker is Chairman of the Board and a principal shareholder. The amounts of
loan principal were (i) $99,000 (for equipment financing), and (ii) $860,000
(secured by a first deed of trust on property occupied by the borrower). These
loans were made under similar terms as would be made to other borrowers with
like credit histories and financial resources.
In December 1994, Mr. Tucker purchased a $375,000 participation interest in
a loan of Vectra that had previously been in nonaccrual status. In April 1995,
Vectra repurchased the participation interest from Mr. Tucker and simultaneously
resold such interest to an independent third party. The borrower paid the entire
debt in June 1995.
INDEMNIFICATION
VBC's Articles of Incorporation and bylaws provide that VBC will indemnify
its directors and officers to the fullest extent now or hereafter permitted by
Colorado law. Generally under such provisions, any director or officer who is
made or threatened to be made a party to any suit or proceeding will be
indemnified if such director or officer acted in good faith and had no
reasonable basis to believe that (i) in the case of conduct in an official
capacity with VBC, his or her conduct was in VBC's best interests; and (ii) in
all other cases, his or her conduct was at least not opposed to the best
interests of VBC; and, with respect to any criminal proceeding, he or she had no
reasonable cause to believe his or her conduct was unlawful. VBC's Articles of
Incorporation and Bylaws and Colorado law further provide that such
indemnification is not exclusive of any other rights to which such individuals
may be entitled under VBC's Articles of Incorporation and Bylaws, any agreement,
insurance policies, vote of shareholders or disinterested directors or
otherwise.
In addition, VBC's Articles of Incorporation provide that to the fullest
extent now or hereafter permitted by Colorado law, VBC's directors will not be
liable for monetary damages for breach of the directors' fiduciary duty of care
to VBC and its shareholders. This provision in the Articles of Incorporation
does not eliminate the directors' fiduciary duty of care, and in appropriate
circumstances, equitable remedies such as an injunction or other forms of
non-monetary relief would remain available under Colorado law. Each director
will continue to be subject to liability for breach of the director's duty of
loyalty to VBC and its shareholders, for acts or omissions not in good faith or
involving intentional misconduct or knowing violations of law, for certain
activities prohibited by Colorado law (relating primarily to the unlawful
payment of dividends or repurchase of stock) or for any transaction from which
the director derived an improper personal benefit. This provision also does not
affect a director's responsibilities under any other laws, such as the federal
securities laws or state or federal environmental laws.
There is no pending litigation or proceeding involving a director, officer,
employee or other agent of VBC as to which indemnification is being sought. VBC
is not aware of any other threatened litigation that may result in claims for
indemnification by any director, officer, employee or other agent.
VBC maintains directors' and officers' liability insurance in the amount of
$5.0 million. There can be no assurance that coverage will continue to be
available at a cost that VBC considers reasonable.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling VBC pursuant to
the foregoing provisions, VBC has been informed that in the
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<PAGE> 110
opinion of the SEC such indemnification is against public policy as expressed in
the Securities Act and is therefore unenforceable.
SUPERVISION AND REGULATION OF VBC
VBC and Vectra are extensively regulated under federal and Colorado law.
These laws and regulations are primarily intended to protect depositors and the
deposit insurance fund of the FDIC, not shareholders of VBC. The following
information is qualified in its entirety by reference to the particular
statutory and regulatory provisions. Any change in applicable laws, regulations
or regulatory policies may have a material effect on the business, operations
and prospects of VBC and Vectra. VBC is unable to predict the nature or extent
of the effects that fiscal or monetary policies, economic controls or new
federal or state legislation may have on its business and earnings in the
future.
VBC
GENERAL. VBC is a bank holding company registered under the Bank Holding
Company Act, and is subject to regulation, supervision and examination by the
Board of Governors. VBC is required to file an annual report and such other
reports as the Board of Governors now requires or may require.
ACQUISITIONS. As a bank holding company, VBC is required to obtain the
prior approval of the Board of Governors before acquiring direct or indirect
ownership or control of more than 5% of the voting shares of a bank or bank
holding company. The Board of Governors will not approve any acquisition, merger
or consolidation that would have a substantial anti-competitive result, unless
the anti-competitive effects of the proposed transaction are outweighed by a
greater public interest in meeting the needs and convenience of the public. The
Board of Governors also considers managerial, capital and other financial
factors in acting on acquisition or merger applications.
PERMISSIBLE ACTIVITIES. A bank holding company may not engage in, or
acquire direct or indirect control of more than 5% of the voting shares of any
company engaged in a non-banking activity, unless such activity has been
determined by the Board of Governors to be closely related to banking or
managing banks. The Board of Governors has identified specific non-banking
activities in which a bank holding company may engage with notice to, or prior
approval by, the Board of Governors.
CAPITAL ADEQUACY. The Board of Governors monitors the capital adequacy of
bank holding companies. As discussed below, Vectra is also subject to the
capital adequacy requirements of the Board of Governors and the Division of
Banking for the State of Colorado. The Board of Governors uses a combination of
risk-based guidelines and leverage ratios to evaluate capital adequacy.
The Board of Governors has adopted a system using risk-based capital
adequacy guidelines to evaluate the capital adequacy of bank holding companies
on a consolidated basis. Under the risk-based capital guidelines, different
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. Certain
off balance sheet items, such as loan commitments in excess of one year,
mortgage loans sold with recourse and letters of credit, are added to the
risk-weighted asset base by converting them to a balance sheet equivalent and
assigning to them the appropriate risk weight. For purposes of the risk-based
capital guidelines, total capital is defined as the sum of "Tier 1" and "Tier 2"
capital elements, with Tier 2 being limited to 100% of Tier 1. For bank holding
companies, Tier 1 capital includes, with certain restrictions, common
shareholders' equity, perpetual preferred stock (no more than 25% of Tier 1
capital being comprised of cumulative preferred stock) and minority interests in
consolidated subsidiaries. Tier 2 capital includes, with certain limitations,
certain forms of perpetual preferred stock, as well as maturing capital
instruments and the allowance for loan losses (limited to 1.25% of risk-weighted
assets). The regulatory guidelines require a minimum ratio of total capital to
risk-weighted assets of 8% (of which at least 4% should be in the form of Tier 1
capital).
The VBC 1994 Preferred Stock (the "1994 Preferred Stock") is perpetual
preferred stock (i.e. stock that VBC is never required to redeem) in order to
comply with the requirements for Tier 1 capital. However,
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because the 1994 Preferred Stock contains provisions for cumulative dividends,
it cannot be used to make up more than 25% of VBC's total Tier 1 capital. At
December 31, 1995, VBC's Tier 1 capital was $33.6 million. This results in all
of the 1994 Preferred Stock being classified as Tier 1 capital at December 31,
1995.
In addition to the risk-based capital guidelines, the Board of Governors
and the FDIC use a leverage ratio as an additional tool to evaluate the capital
adequacy of banks and bank holding companies. The leverage ratio is defined to
be a company's Tier 1 capital divided by its tangible assets. Based upon the
current capital status of VBC, the applicable minimum required leverage ratio is
estimated to be 5%.
The tables below set forth ratios of (i) total capital to risk-weighted
assets, (ii) Tier 1 capital to risk-weighted assets and (iii) Tier 1 capital to
tangible assets, at March 31, 1996 and December 31, 1995.
<TABLE>
<CAPTION>
AT DECEMBER 31,
AT MARCH 31, 1996 1995
----------------- -----------------
MINIMUM MINIMUM
RATIO ACTUAL REQUIRED ACTUAL REQUIRED
-------------------------------------------------- ------ ------- ------ -------
<S> <C> <C> <C> <C>
VBC
Total capital to risk-weighted assets........... 13.9% 8.0% 13.7% 8.0%
Tier 1 capital to risk-weighted assets.......... 12.9% 4.0% 12.7% 4.0%
Tier 1 capital to tangible assets............... 7.8% 5.0% 7.7% 5.0%
</TABLE>
Failure to meet the capital guidelines may result in the initiation by the
Board of Governors of appropriate supervisory or enforcement actions. As
discussed below, Vectra is also subject to capital adequacy requirements. Under
the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICA"), VBC
could be required to guarantee the capital restoration plan of Vectra, should
Vectra become undercapitalized. VBC's maximum liability under any such guarantee
would be the lesser of 5% of Vectra's total assets at the time it became
undercapitalized or the amount necessary to bring Vectra into compliance with
the capital plan.
SAFE AND SOUND BANKING PRACTICES. Bank holding companies are not permitted
to engage in unsafe and unsound banking practices. For example, Regulation Y
under the BHC Act requires a holding company to give the Board of Governors
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 12 months, equal 10% or more of the
company's consolidated net worth. The Board of Governors may oppose the
transaction if it would constitute an unsafe or unsound practice or would
violate any law or regulation. As another example, a holding company could not
impair its subsidiary bank's soundness by causing it to make funds available to
nonbanking subsidiaries or its customers when it might not be prudent to do so.
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") expanded the Board of Governors 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. Notably, FIRREA increased the amount of civil money penalties which
the Board of Governors can assess for certain activities conducted on a knowing
and reckless basis, if those activities caused a substantial loss to a
depository institution. FIRREA also expanded the scope of individuals and
entities against which such penalties may be assessed.
VECTRA
GENERAL. Vectra is a Colorado banking corporation, the deposits of which
are insured by the FDIC, and are subject to supervision and regulation by the
Board of Governors and the Colorado Division of Banking.
PERMISSIBLE ACTIVITIES. Under FDICIA, no state bank may engage 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. This limitation does not now affect
Vectra, since it is not presently involved in the types of transactions covered
by this limitation.
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BRANCHING. The Colorado Revised Statutes were amended in 1991 to phase in
branch banking over a six-year period. Colorado law also provides a phase-in
schedule for the conversion of affiliate banks into branch banks. Banks desiring
to establish a de novo branch bank may do so after January 1, 1993, though only
one branch may be created for each existing bank. After July 1, 1997, no
limitations are placed on the number of branches a bank may establish, and any
bank which has had its charter approved or conditionally or preliminarily
approved on or after April 1, 1991 may, upon 30 days' written notice to the
board or commissioner, be converted to a branch of any bank. As of December 31,
1995, VBC had the right, subject to regulatory approval, to establish up to
three de novo branches, including one related to a predecessor bank.
COMMUNITY REINVESTMENT ACT. Enacted in 1977, the federal Community
Reinvestment Act ("CRA") has become increasingly important to financial
institutions, including their holding companies. The CRA currently allows
regulators to turn down an applicant seeking to make an acquisition or establish
a branch unless it has performed satisfactorily under the CRA. Satisfactory
performance means meeting adequately the credit needs of the communities the
applicant serves. The applicable federal regulators now regularly conduct CRA
examinations to assess the performance of financial institutions. During the
last examination, Vectra received a satisfactory rating. As a result, management
believes that Vectra's performance under CRA will not impede regulatory
approvals of proposed acquisitions or branching opportunities.
TRANSACTIONS WITH AFFILIATES. Vectra is subject to certain Board of
Governors restrictions on transactions among related parties. Section 23A of the
Federal Reserve Act limits the amount of loans to and investments in affiliates
of Vectra, requires certain levels of collateral for such loans, and limits the
amount of advances to third parties which are collateralized by the securities
or obligations of VBC or its subsidiaries, unless the subsidiaries are at least
80% owned by VBC. If 80% or greater ownership exists, the subsidiaries are
exempt from these restrictions except as to "low quality" assets as defined in
the Act. Section 23B of the Federal Reserve Act requires that certain
transactions between Vectra and its affiliates must be on substantially the same
terms, or at least as favorable to Vectra, as those prevailing at the time for
comparable transactions with or involving nonaffiliated companies or, in the
absence of comparable transactions, on terms and under circumstances, including
credit standards, that in good faith would be offered to or would apply to
nonaffiliated companies. The aggregate amount of an institution's loans to
officers, directors and principal shareholders (or their affiliates) is limited
to the amount of its unimpaired capital and surplus, unless the FDIC determines
that a lesser amount is appropriate. A violation of these restrictions may
result in the assessment of civil monetary penalties on a bank or a person
participating in the conduct of the affairs of such bank or the imposition of an
order to cease and desist.
CROSS-GUARANTEE. Under the Financial Institutions Reform, Recovery and
Enforcement Act of 1989 ("FIRREA"), a depository institution insured by the FDIC
can be held liable for any loss incurred by, or reasonably expected to be
incurred by, the FDIC in connection with (i) the default of a commonly
controlled FDIC-insured depository institution or (ii) any assistance provided
by the FDIC to a commonly controlled FDIC-insured institution in danger of
default. "Default" is defined generally as the appointment of a conservator or
receiver and "in danger of default" is defined generally as the existence of
certain conditions indicating that a "default" is likely to occur in the absence
of regulatory assistance.
DIVIDEND RESTRICTIONS. Dividends paid by Vectra provide substantially all
of the cash flow of VBC. Under Colorado law and Board of Governors policies, the
approval of the principal regulator is required prior to the declaration of any
dividend by a bank, if the total of all dividends declared in any calendar year
exceed the total of its net profits of that year combined with its retained net
profits for the preceding two years. In addition, FDICIA provides that a bank
cannot pay a dividend if it will cause the bank to be "undercapitalized." At
December 31, 1995, Vectra could pay total dividends to VBC of approximately $2.5
million, without prior regulatory approval.
EXAMINATIONS. The Board of Governors periodically examines and evaluates
state-chartered banks that are members of the Federal Reserve System. Based upon
such an evaluation, the examining regulator may revalue the assets of an insured
institution and require that it establish specific reserves to compensate for
the difference between the value determined by the regulator and the book value
of such assets.
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The Colorado Division of Banking also conducts examinations of the
state-chartered banks. The Division may accept the results of a federal
examination in lieu of conducting an independent examination. The Colorado
Division of Banking also has the authority to revalue the assets of a state
chartered institution and require it to establish reserves.
CAPITAL ADEQUACY. The Board of Governors has adopted regulations
establishing minimum requirements for the capital adequacy of insured
institutions. The requirements address both risk-based capital and leverage
capital, with risk-based assets and Tier 1 and Tier 2 capital being determined
in basically the same manner as described above for bank holding companies. The
Board of Governors may establish higher minimum requirements if, for example, a
bank has previously received special attention or has a high susceptibility to
interest rate risk.
The Board of Governors risk-based capital guidelines require state banks to
have a ratio of Tier 1 or core capital to total risk-weighted assets of 4% and a
ratio of total capital to total risk-weighted assets of 8%.
The Board of Governors leverage capital guidelines require that state banks
maintain Tier 1 capital of no less than 3% and up to 5% of total tangible
assets. Based on the current capital status of Vectra, the applicable guideline
is estimated to be 5%. Banks with capital ratios below the required minimum are
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 tables below set forth Vectra's capital ratios at March 31, 1996 and
December 31, 1995.
<TABLE>
<CAPTION>
AT DECEMBER 31,
AT MARCH 31, 1996 1995*
-------------------- --------------------
MINIMUM MINIMUM
RATIO ACTUAL REQUIRED ACTUAL REQUIRED
- ------------------------------------------------- ------ ------- ------ -------
<S> <C> <C> <C> <C>
Vectra
Total capital to risk-weighted assets.......... 13.6% 8.0% 13.4% 8.0%
Tier 1 capital to risk-weighted assets......... 12.6% 4.0% 12.4% 4.0%
Tier 1 capital to tangible assets.............. 7.6% 5.0% 7.5% 5.0%
</TABLE>
- ---------------
* Vectra and Vectra Bank of Boulder were merged on February 29, 1996. The table
assumes the merger occurred on December 31, 1995.
Pursuant to FDICIA, regulations were adopted defining five capital levels:
well capitalized, adequately capitalized, undercapitalized, severely
undercapitalized and critically undercapitalized. An institution is critically
undercapitalized if it has a tangible equity to total assets ratio that is equal
to or less than 2%. An institution is well capitalized if it has a total
risk-based capital ratio of 10% or greater, a Tier 1 risk-based capital ratio of
6% or greater, and a Tier 1 leverage ratio of 5% or greater, and the institution
is not subject to an order, written agreement, capital directive, or prompt
corrective action directive to meet and maintain a specific capital level for
any capital measure. An institution is adequately capitalized if it has a total
risk-based capital ratio of less than 10% but not less than 8%, a Tier 1
risk-based capital ratio of less than 6% but not less than 4% and a leverage
ratio of less than 5% but not less than 4%. Under these regulations, as of
December 31, 1995, Vectra was well capitalized.
FDICIA requires the federal banking regulators to take "prompt corrective
action" with respect to capital-deficient institutions. In addition to requiring
the submission of a capital restoration plan, FDICIA contains broad restrictions
on certain activities of undercapitalized institutions involving asset growth,
acquisitions, branch establishment, and expansion into new lines of business.
With certain exceptions, an insured depository institution is prohibited from
making capital distributions, including dividends, and is prohibited from paying
management fees to control persons if the institution would be undercapitalized
after any such distribution or payment.
As an institution's capital decreases, the powers of the federal regulators
become greater. 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
regulators have very
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limited discretion in dealing with a critically undercapitalized institution and
are virtually required to appoint a receiver or conservator if the capital
deficiency is not corrected promptly.
INTERNAL OPERATING REQUIREMENTS. The FDIC has proposed regulations
promoting the safety and soundness of individual institutions by specifically
addressing, among other things: (1) internal controls, information systems and
internal audit systems; (2) loan documentation; (3) credit underwriting; (4)
interest rate exposure; (5) asset growth; (6) ratio of classified assets to
capital; (7) minimum earnings; and (8) compensation and benefit standards for
management officials. As proposed, if regulators determine that an institution
has failed to satisfy the safety and soundness standards enumerated above, then
the institution must submit an acceptable compliance plan and implement it.
Failure to submit or implement the compliance plan could cause the regulators to
issue orders requiring the institution to take corrective measures. Enforcement
of orders may be obtained through administrative orders, civil penalties,
judicial action or any other proceeding authorized by law. Management expects
that these regulations will add further to the cost of compliance and impose
increased record keeping requirements.
REAL ESTATE LENDING EVALUATIONS. The federal regulators have adopted
uniform standards for evaluations of loans secured by real estate or made to
finance improvements to real estate. Banks are required to establish and
maintain written internal real estate lending policies consistent with safe and
sound banking practices and appropriate to the size of the institution and the
nature and scope of its operations. The regulations establish loan to value
ratio limitations on real estate loans, which are equal to or higher than the
loan to value limitations established by Vectra.
DEPOSIT INSURANCE PREMIUMS. On August 8, 1995, the FDIC amended its
regulations on insurance assessments to establish a new assessment rate schedule
of 4 to 31 cents per $100 of insured deposits in replacement of the previous
schedule of 23 to 31 cents (based on each institution's assigned risk
classification) per $100 of insured deposits for institutions whose deposits are
subject to assessment by the Bank Insurance Fund ("BIF"). The new BIF schedule
became effective on June 1, 1995, the first day of the month after the month in
which BIF reached its "designed reserve ratio" of 1.25% of total estimated
insured deposits. Assessments collected under the previous assessment schedule
in excess of the amount due under the new schedule were refunded, with interest,
from the effective date of the new schedule. An institution's risk
classification is based on an assignment of the institution by the FDIC to one
of three capital groups and to one of three supervisory subgroups. The capital
groups are "well capitalized," "adequately capitalized" and "undercapitalized."
The three supervisory subgroups are Group "A" (for financially solid
institutions with only a few minor weaknesses), Group "B" (for those
institutions with weaknesses which, if uncorrected, could cause substantial
deterioration of the institution and increase the risk to the deposit insurance
fund) and Group "C" (for those institutions with a substantial probability of
loss to the fund absent effective corrective action). The board of directors of
the FDIC have since approved a further reduction in the assessment schedule for
BIF deposits. Effective January 1, 1996, the assessment schedule will range from
0 to 27 cents per $100 of deposits subject to BIF assessments, based on each
institution's risk classification with a minimum of $1,000 per annum for each
bank. Vectra's insured deposits are subject to assessment payable to BIF.
INTERSTATE BANKING LEGISLATION. On September 29, 1994, the Riegle-Neal
Interstate Banking and Branching Efficiency Act of 1994 (the "Interstate Act")
was enacted into Federal Law. Under the Interstate Act, commencing on September
29, 1995, bank holding companies will be permitted to acquire banks located in
any state regardless of the state law in effect at the time. The Interstate Act
also provides for the nationwide interstate branching of banks. Under the
Interstate Act, both national and state chartered banks will be permitted to
merge across state lines (and to thereby create interstate branches) commencing
June 1, 1997. States are permitted to "opt-out" of the interstate branching
authority by taking action prior to the commencement date. States may also
"opt-in" early (i.e., prior to June 1, 1997) to the interstate branching
provisions. VBC does not currently have any plans generally to take any actions
permitted by the Interstate Act.
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CHANGING REGULATORY STRUCTURE
The laws and regulations affecting banks and bank holding companies are in
a state of flux. The rules and the regulatory agencies in this area have changed
significantly over recent years, and there is reason to expect that similar
changes will continue in the future. It is difficult to predict the outcome of
these changes.
One of the major additional burdens imposed on the banking industry by
FDICIA is the increased authority of federal agencies to regulate the activities
of federal and state banks and their holding companies. The Board of Governors,
OCC and FDIC have extensive authority to police unsafe or unsound practices and
violations of applicable laws and regulations by depository institutions and
their holding companies. These agencies can assess civil 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. In addition, the Colorado Division of Banking possesses certain
enforcement powers particularly to address violations of the Colorado Banking
Code by Colorado state-chartered banks.
EFFECT ON ECONOMIC ENVIRONMENT
The policies of regulatory authorities, including the monetary policy of
the Board of Governors, have a significant effect on the operating results of
bank holding companies and their subsidiaries. Among the means available to the
Board of Governors 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 distribution of
bank loans, investments and deposits, and their use may affect interest rates
charged on loans or paid on deposits.
Board of Governors 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. The nature of future monetary policies and the effect of such
policies on the business and earnings of VBC and its subsidiaries cannot be
predicted.
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PRINCIPAL SHAREHOLDERS OF VBC
The following table sets forth certain information regarding beneficial
ownership of Common Stock, as of May 17, 1996, by (i) each shareholder known by
VBC to be the beneficial owner of more than 5% of the outstanding Common Stock
and (ii) each director of VBC and certain executive officers and (iii) all
directors and executive officers as a group. Unless otherwise indicated, based
on information furnished by such owners, management believes that the
shareholders listed below have sole investment and voting power with respect to
their shares.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE
SHARES OF SHARES
BENEFICIAL OWNER OWNED OWNED
- --------------------------------------------------------------------- --------- ----------
<S> <C> <C>
Directors and Certain Officers
W. James Tozer, Jr................................................... 258,000(2)(3) 8.1%
1112 Park Avenue
New York, New York 10128
Gary S. Judd......................................................... 118,213(4) 3.7%
1650 S. Colorado Blvd., Suite 320
Denver, Colorado 80222
Richard B. Tucker.................................................... 51,630(2)(5) 1.6%
3885 Forest Street
Denver, Colorado 80207
James L. Rumsey...................................................... 3,700(2) (1)
4505 South Yosemite, #356
Denver, Colorado 8012100
Robert D. Greene..................................................... 34,900(2) 1.1%
6529 S. Adams Court
Littleton, Colorado 80121
Robert C . Barton.................................................... 30,821(6) (1)
1650 S. Colorado Blvd., Suite 320
Denver, Colorado 80222
Ray L. Nash.......................................................... 29,970(7) (1)
1650 S. Colorado Blvd., Suite 320
Denver, Colorado 80222
Michael Y. Meganck................................................... 14,193(8) (1)
1650 S. Colorado Blvd., Suite 320
Denver, Colorado 80222
Joseph J. Wolf....................................................... 8,766(9) (1)
1650 S. Colorado Blvd., Suite 320
Denver, Colorado 80222
J. Patrick McDuff.................................................... 9,236(10) (1)
1375 Walnut Street
Boulder, Colorado 80302
Robert A. Silverberg................................................. 88,951 2.3%
300 South Federal Boulevard
Denver, Colorado 80219
Mary Gittings Cronin................................................. -- (1)
370 17th Street
Denver, Colorado 80202
All executive officers and nominees as a group (12 persons).......... 648,385(11) 19.8%
Other principal shareholders
Lawrence, Tyrell, Ortale & Smith..................................... 301,800 9.5%
515 Madison Avenue
New York, New York 10022
B. John Barry........................................................ 250,000 7.8%
1128 Red Mountain Road
Aspen, Colorado 81612
</TABLE>
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- ---------------
(1) Less than 1%.
(2) Includes 2,500 shares which are presently exercisable pursuant to options
granted under VBC's Non-Employee Directors' Stock Option Plan.
(3) Includes 32,000 shares held in the name of Mr. Tozer's wife. He disclaims
beneficial ownership of these shares.
(4) Includes 30,000 shares which are presently exercisable pursuant to options
granted under VBC's Employees' Equity Incentive Plan.
(5) Includes 19,310 shares over which Mr. Tucker may be deemed to have
beneficial ownership as trustee of a trust for the benefit of certain
members of his family.
(6) Includes 11,166 shares which are presently exercisable pursuant to options
granted under VBC's Employees' Equity Incentive Plan and Non-Statutory
Stock Option Plan.
(7) Includes 12,500 shares which are presently exercisable pursuant to options
granted under VBC's Employees' Equity Incentive Plan and Non-Statutory
Stock Option Plan and 570 shares held for the benefit of dependent
children.
(8) Includes 6,033 shares which are presently exercisable pursuant to options
granted under VBC's Employees' Equity Incentive Plan and Non-Statutory
Stock Option Plan.
(9) Includes 5,767 shares which are presently exercisable pursuant to options
granted under VBC's Employees' Equity Incentive Plan and Non-Statutory
Stock Option Plan.
(10) Includes 5,366 shares which are presently exercisable pursuant to options
granted under VBC's Employees' Equity Incentive Plan and Non-Statutory
Stock Option Plan.
(11) See notes 1 through 10 above.
VBC knows of no arrangements which may result in a change of control of
VBC.
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DESCRIPTION OF VBC 1996 SERIES A PREFERRED STOCK
The following discussion of the material terms of the VBC $100 Series A
Convertible Preferred Stock ("1996 Series A Preferred Stock") is qualified in
its entirety by reference to the Articles of Incorporation of VBC, including the
Statement Establishing Series of Preferred Stock for the 1996 Series A Preferred
Stock (the "Preferred Stock Statement"), which is attached hereto as Appendix F
and incorporated herein by reference. The description in this Prospectus/Joint
Proxy Statement of the material terms of the Preferred Stock Statement is
qualified in its entirety by, and made subject to, the text of the Preferred
Stock Statement. Bank Land Shareholders and Bank Shareholders are encouraged to
read the Preferred Stock Statement in its entirety.
GENERAL. The rights of the holders of 1996 Series A Preferred Stock are
subordinate to the rights of the general creditors of VBC. The 1996 Series A
Preferred Stock has no preemptive rights.
RELATION TO VBC CONTINGENT WARRANTS. Each certificate for shares of the
1996 Series A Preferred Stock will, when issued, have attached to it a VBC
Contingent Warrant, which is attached as Appendix G to this Prospectus/Joint
Proxy Statement and incorporated herein by reference. The terms of the 1996
Series A Preferred Stock and the Preferred Stock Statement are not affected by
whether the VBC Contingent Warrant remains attached to the certificate for the
preferred shares or whether the VBC Contingent Warrant is terminated or remains
valid. However, to transfer or exercise the VBC Contingent Warrant, the VBC
Contingent Warrant must be attached to the certificate.
RANK. The 1996 Series A Preferred Stock ranks, with respect to dividend
rights and rights on liquidation, prior to the VBC Common Stock and all other
classes and series of VBC stock now or hereafter authorized (the VBC Common
Stock and such other classes and series of equity securities are collectively
referred to as "Junior Stock"), other than any class or series ranking by its
terms on a parity with the 1996 Series A Preferred Stock ("Parity Stock"). The
1994 Preferred Stock is the only class and series of Parity Stock outstanding as
of the date of this Prospectus/Joint Proxy Statement. See "Description of Other
VBC Capital Stock -- 1994 Preferred Stock." The 1996 Series A Preferred Stock is
subject to the creation of Parity Stock and Junior Stock without a vote or other
consent of the holders of the 1996 Series A Preferred Stock. VBC has no other
plans at present to issue any other series of its Preferred Stock, although it
may do so in the future under conditions deemed in its best interests by the VBC
Board. However, the approval of at least a majority of the 1996 Series A
Preferred Stock will be required for the creation or any increase in the number
of authorized shares of any class or series of equity securities ranking senior
to the 1996 Series A Preferred Stock as to dividends rights or rights on
liquidation.
DIVIDEND RIGHTS. Holders of the 1996 Series A Preferred Stock are entitled
to receive, out of funds of VBC legally available therefor, quarterly cash
dividends, but only as the VBC Board shall declare out of funds legally
available therefor, at the annual rate of $7.00 per share, in preference to and
in priority over any dividends with respect to Junior Stock. Such dividends will
begin to accrue on the Effective Date, but are not cumulative, and the rights of
holders to receive payment of such dividends are annually subject to
termination, as discussed below. Dividends, if declared, are payable for and at
the end of each calendar quarter on March 31, June 30, September 30 and December
31 of each year (each of such dates is referred to as a "Dividend Payment
Date").
The rights of the holders of the 1996 Series A Preferred Stock to receive
any accumulated dividends will not be considered as cumulative in nature. The
amount of dividends accrued with respect to a full quarterly dividend period on
outstanding shares of 1996 Series A Preferred Stock will be computed by dividing
the annual dividend rate by four and the amount of dividends payable for any
period shorter than a full calendar quarter will be computed on the basis of
30-day months, a 360-day year and the actual number of days elapsed in the
period.
The date one year after the first Dividend Payment Date and each
anniversary thereafter is referred to as a "Dividend Anniversary Date." Each
dividend will be payable, if declared by the VBC Board, to the holders of record
as they appear on the stock books of VBC at the close of business on the record
dates, not more than 30 nor less than 10 days preceding the respective Dividend
Payment Dates. With respect to any four
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consecutive calendar quarters ending on a Dividend Anniversary Date, if the VBC
Board fails to declare and pay accrued dividends for any such quarter by the
Dividend Anniversary Date, including dividends for partial quarters as provided
by the Preferred Stock Statement, the rights of the holders of the 1996 Series A
Preferred Stock to receive such dividends will terminate on such Dividend
Anniversary Date. See "Description of VBC Contingent Warrants" for information
concerning the issuance of VBC Common Stock under VBC Contingent Warrants in
lieu of the payment of dividends undeclared by VBC's board of directors as of
each Dividend Anniversary Date. As a result of the foregoing provision,
dividends "in arrears" or dividends "accumulated" for the 1996 Series A
Preferred Stock are only those dividends (i) declared but unpaid as of the
Dividend Payment Date for the quarter to which such dividends are applicable or
(ii) declared for a period less than a full quarter and accumulated as of a date
other than the Dividend Payment Date, but excluding dividends as to which the
rights of the holders of the 1996 Series A Preferred Stock to receive such
dividends is terminated. The foregoing meanings of "dividends in arrears" and
"dividends accumulated" for the 1996 Series A Preferred Stock differs from the
customary meaning of such terms with respect to preferred stock in general.
If (i) VBC is in default or in arrears with regard to payment of declared
dividends on the 1996 Series A Preferred Stock or with regard to the payment of
dividends on any other VBC stock other than Junior Stock or (ii) VBC is in
default or in arrears in the redemption or other acquisition, retirement or
other requirement of the 1996 Series A Preferred Stock or any other class or
series of VBC stock other than Junior Stock, then in such event VBC and any
corporation or entity controlled by VBC may not (a) declare, pay or set apart
for payment any dividends on any shares of VBC Common Stock or other Junior
Stock, (b) make any payment on account of, or set apart payment for, the
purchase, redemption or retirement of any shares of VBC Common Stock or other
Junior Stock, (c) make any distribution in respect of any VBC Common Stock or
other Junior Stock, other than dividends or distributions of Junior Stock or
rights for Junior Stock, or (d) permit any corporation or other entity
controlled by VBC to purchase or otherwise acquire or redeem any shares of VBC
Common Stock or other Junior Stock or any rights for Junior Stock. For any
quarter after the 50th Dividend Anniversary Date, until and unless VBC declares
and pays all dividends accrued on the 1996 Series A Preferred Stock during such
quarter, VBC may not (i) declare or pay any dividends or make any distribution
relating to such quarter on any Common Stock or other Junior Stock or (ii) make
any payment relating to such quarter with respect to any redemption, acquisition
or repurchase of any Common Stock or other Junior Stock.
Dividends with respect to the outstanding shares of 1996 Series A Preferred
Stock may be declared, paid or set apart for payment at any time and from time
to time, without reference to any regular Dividend Payment Date. If any shares
of Parity Stock are outstanding, and if the payment of declared dividends on any
shares of the 1996 Series A Preferred Stock or any dividends on the Parity Stock
is in arrears, VBC in making any dividend payment on account of any shares of
the 1996 Series A Preferred Stock or Parity Stock, will make such payment
ratably upon all outstanding shares of the 1996 Series A Preferred Stock and
Parity Stock in proportion to the respective amounts of accumulated dividends in
arrears for the respective series or classes of Parity Stock. Holders of any
shares of 1996 Series A Preferred Stock will not be entitled to any dividends,
whether payable in cash, obligations or securities of VBC or other property, in
excess of the accumulated dividends on shares of 1996 Series A Preferred Stock.
No interest will be payable for any dividend or other payments with respect to
the 1996 Series A Preferred Stock which are not paid when due. All dividends
paid with respect to the 1996 Series A Preferred Stock will be paid pro rata to
the holders entitled thereto except for dividends paid in conjunction with the
provisions for conversion or redemption of the 1996 Series A Preferred Stock. As
noted above, the meanings of dividends "in arrears" and dividends "accumulated"
for the 1996 Series A Preferred Stock differ from the customary meanings of such
terms with respect to preferred stock in general.
LIQUIDATION PREFERENCE. In the event of any liquidation of VBC, the holders
of the 1996 Series A Preferred Stock will be entitled to receive out of the
assets of VBC available for distribution to shareholders, before any
distribution of assets is made to the holders of VBC Common Stock or other
Junior Stock, but on a pari passu basis with the 1994 Preferred Stock and any
other Parity Stock, $100 per share plus an amount equal to all accumulated and
unpaid dividends thereon. After payment of the full liquidation preference, the
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holders of the 1996 Series A Preferred Stock will be entitled to no further
participation in any liquidating distribution by VBC. Neither the voluntary
sale, conveyance, exchange or transfer of all or any part of the property or
assets of VBC, nor the consolidation, merger or other business combination of
VBC with or into any other corporation will be considered a liquidation of VBC.
Because VBC is a holding company, its rights and the rights of holders of
its securities, including the holders of the 1996 Series A Preferred Stock, to
participate in the assets of any subsidiary upon its liquidation or
recapitalization will be subject to the prior claims of that subsidiary's
creditors.
VOTING RIGHTS. Except as indicated below and except as required by
applicable law, the holders of the 1996 Series A Preferred Stock are not
entitled to vote for any purpose.
The affirmative vote of the holders of at least a majority of the then
outstanding shares of the 1996 Series A Preferred Stock, voting separately as
one class, at a duly held meeting, will be necessary to create or increase the
number of authorized shares of any class or series of stock of VBC ranking prior
to the 1996 Series A Preferred Stock as to dividend rights or rights upon
liquidation, or which possess rights to vote as one class with the 1996 Series A
Preferred Stock on a basis of more than one vote for each $100 of stated
liquidation preference. However, with respect to the right to elect one or two
directors as discussed below, in no event will any other class or series of
stock be permitted to vote with the 1996 Series A Preferred Stock. A majority
vote also will be required to repeal, amend or otherwise change any of the
provisions of the Articles of Incorporation in any manner which adversely
affects the rights or preferences of the 1996 Series A Preferred Stock. However,
no change in the number of shares of Junior Stock or Parity Stock, or in the
number of shares of preferred stock that the board of directors of VBC is
authorized to divide into series, will be deemed to adversely affect the 1996
Series A Preferred Stock.
If at any time (i) the payment of declared dividends aggregating an amount
at least equal to four full quarterly dividends, whether or not consecutive, on
the then outstanding shares of 1996 Series A Preferred Stock or (ii) dividends
aggregating an amount at least equal to four full quarterly dividends, whether
or not consecutive, on any then outstanding other Parity Stock shall be in
arrears or in default, the number of members of the VBC Board will, without
further action, be increased by two directors. The holders of the outstanding
1996 Series A Preferred Stock will have the exclusive right, voting separately
as one class, to fill such newly created directorships at each meeting of
shareholders duly held for the purpose of electing such directors, and the first
such meeting must be held within 60 days after such right arose. However, for so
long as any officer of Bank Land or the Bank, as provided in the Merger
Agreement, is elected as and remains a member of the VBC Board, and until each
such person has for any length of time, no matter how brief, ceased being a
member of the VBC Board, the holders of the 1996 Series A Preferred Stock voting
separately as a class shall have the right to elect only one member, rather than
two members, of the VBC Board. If one of the directorships becomes vacant, the
remaining directors may appoint a successor. This right of the holders of 1996
Series A Preferred Stock to elect directors will continue until such time as VBC
no longer is in arrears or in default in respect of the dividend payments on the
1996 Series A Preferred Stock and any Parity Stock, at which time the voting
rights of the holders of the 1996 Series A Preferred Stock will, without further
action, terminate, subject to revesting in the event of any subsequent failure
of VBC to pay such dividends for the requisite number of periods as described
above. At such time, the term of office of any such directors will terminate and
the number of directors of VBC will be reduced accordingly.
OPTIONAL REDEMPTION. Except as otherwise prohibited or restricted by the
Preferred Stock Statement or applicable law, VBC may require the redemption of
the 1996 Series A Preferred Stock as follows, in whole or in part, at any time
and from time to time, on or after the date which is three years from the
Effective Time (the "Third Anniversary"). The date four years after the
Effective Time is referred to as the "Fourth Anniversary," the date five years
after the Effective Time is referred to as the "Fifth Anniversary," and so on,
for each date which is twelve months after the last preceding Anniversary date.
The shares will be redeemable
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at the following prices per share, plus accumulated and unpaid dividends (as
defined above), if redeemed during the twelve-month period beginning on and
following each of the following Anniversaries:
<TABLE>
<CAPTION>
PRICE PER SHARE
---------------
<S> <C>
Third Anniversary.............................................. $103.50
Fourth Anniversary............................................. 103.00
Fifth Anniversary.............................................. 102.50
Sixth Anniversary.............................................. 102.00
Seventh Anniversary............................................ 101.50
Eighth Anniversary............................................. 101.00
Ninth Anniversary.............................................. 100.50
Tenth Anniversary and thereafter 100.00
</TABLE>
A condition precedent to the above right of VBC to redeem the 1996 Series A
Preferred Stock on or after the Third Anniversary and before the Fifth
Anniversary is that the average of the closing prices for the VBC Common Stock
on the Nasdaq National Market for the 20 trading days ending on the fifth
business day before Vectra gives notice of its intent to require the redemption,
must be at least $13.72 per share. If VBC subdivides or combines its outstanding
shares of Common Stock or makes a distribution of its Common Stock to the
holders of the outstanding Common Stock such that immediately thereafter a
greater or lesser number of shares of Common Stock is outstanding, then the
amount of $13.72 will be proportionately adjusted. Whenever the amount of $13.72
is adjusted pursuant to the foregoing provisions, VBC will deliver to the
holders of the 1996 Series A Preferred Stock an officer's certificate describing
in reasonable detail the adjustment and the method of calculation.
Subject to prior approval by the Board of Governors, if a Change in Control
(as defined below) takes place before the Fifth Anniversary, VBC may redeem the
1996 Series A Preferred Stock, in whole or in part, for a redemption price per
share of 1996 Series A Preferred Stock of (i) $103.50 if the date set for
redemption occurs before the Third Anniversary, or (ii) the prices set forth in
the above table if the date set for redemption occurs on or after the Third
Anniversary and before the Fifth Anniversary, plus an amount equal to
accumulated and unpaid dividends. VBC will give notice of such a redemption
within 10 days after the later of (i) the effective date of the Change in
Control or (ii) the receipt by VBC of the approval from the Board of Governors.
"Change in Control" means (x) any sale or issuance or series of sales and/or
issuances of VBC Common Stock or any holders thereof which results in any person
or group of affiliated persons (other than the owners of VBC Common Stock
immediately prior to the initial issuance of the 1996 Series A Preferred Stock
and their affiliates and associates) owning more than 50% of the VBC Common
Stock outstanding at the time of such sale or issuance or the last of such
series of sales and/or issuances, (y) a sale or transfer of more than 80% of the
assets of VBC (measured by the lesser of book value in accordance with generally
accepted accounting principles consistently applied or fair market value
determined in the reasonable good faith judgment of the VBC Board) in any
transaction or series of related transactions or (z) any merger or consolidation
to which VBC is a party, except for a merger in which VBC is the surviving
corporation and, after giving effect to such merger, the holders of the
outstanding capital stock possessing the voting power (under ordinary
circumstances) to elect a majority of the board of directors immediately prior
to the merger shall own capital stock possessing the voting power (under
ordinary circumstances) to elect a majority of the board of directors. VBC will
redeem no shares of 1996 Series A Preferred Stock except for those numbers of
shares for which such redemption is lawful, as to which VBC fully possesses
adequate assets and resources to promptly pay the full redemption price, plus
all accumulated but unpaid dividends.
VBC will mail written notice of redemption to each holder of record of 1996
Series A Preferred Stock to be redeemed as the holders appear on the stock books
of VBC at the close of business on a date not less than 30 nor more than 50
calendar days prior to the date fixed for redemption, as determined by the board
of directors. Each such notice shall specify (i) the number of shares to be
redeemed from such holder, (ii) the certificate numbers for the shares being
redeemed and the number of shares represented by each such certificate, (iii)
the date fixed for redemption, (iv) the redemption price per share, (v) the
places and times at which certificates may be surrendered and payment may be
obtained and (vii) that dividends on the shares to
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be redeemed shall cease to accrue on the date fixed for such redemption. The
redemption will become binding on the holder upon the holder's receipt of such
notice. Following receipt of certificates for the shares of 1996 Series A
Preferred Stock duly endorsed for transfer to VBC, VBC promptly shall pay the
required amounts of cash, except as such payment or delivery may be delayed or
restricted as provided herein or as required by law. No interest shall be
accrued or paid in respect of any delay in a cash payment.
Notwithstanding the foregoing, each holder of the 1996 Series A Preferred
Stock as to which VBC exercises rights to redeem, shall have 30 days following
receipt of notice in which to give VBC notice of election to instead convert
such shares into Common Stock as provided below.
In the event that fewer than all of the outstanding shares of 1996 Series A
Preferred Stock are to be redeemed, the number of shares to be redeemed shall be
determined by lot, pro rata or by any other method as may be determined by the
VBC Board to be equitable, except that the VBC Board may choose to redeem the
entire holdings of persons who, either before or after the redemption, own 10 or
less shares of 1996 Series A Preferred Stock.
RIGHTS OF CONVERSION. The holders of the 1996 Series A Preferred Stock may,
at their option, convert all or any part of their 1996 Series A Preferred Stock
into the VBC Common Stock at a conversion price of $13.25 per common share;
provided, however, that a record holder may give such notice of the exercise of
such conversion rights only once during any 60-day period. To exercise such
conversion rights, the shareholder must deliver to the Secretary of VBC a
written notice (i) stating the shareholder's intent to convert all or a portion
of the shareholder's 1996 Series A Preferred Stock into VBC Common Stock, (ii)
specifying the number of shares of the 1996 Series A Preferred Stock which are
being converted, and (iii) stating the certificate numbers for the shares being
converted and the number of shares represented by each such certificate. The
notice must be accompanied by the certificates for the shares to be converted,
duly endorsed for transfer to VBC. The numbers of common shares to be issued
under this conversion right shall be the numbers of shares of the 1996 Series A
Preferred Stock to be converted multiplied by $100.00 and divided by $13.25.
If VBC subdivides or combines its outstanding shares of Common Stock or
makes a distribution of its Common Stock to the holders of the outstanding
Common Stock such that immediately thereafter a greater or lesser number of
shares of Common Stock is outstanding, then the $13.25 conversion price will be
proportionately adjusted. Whenever the conversion price is adjusted pursuant to
the foregoing provisions, VBC shall deliver to the holders of the 1996 Series A
Preferred Stock an officer's certificate describing the adjustment and the
method of calculation. Except as otherwise prohibited or restricted by the
Preferred Stock Statement or applicable law, if VBC shall promptly deliver the
Common Stock and pay all accumulated (only dividends declared and not
terminated) but unpaid dividends on the shares of 1996 Series A Preferred Stock
being converted. VBC will not issue fractional shares of the Common Stock, but
rather, will pay cash for any such fractional share at the rate of $13.25 per
share. No interest will accrue with respect to any delay by VBC in delivering
the Common Stock or dividends in connection with such conversion.
ONE-TIME RIGHT OF 1996 SERIES A PREFERRED STOCKHOLDERS TO REQUEST
CONVERSION. Any holder of the 1996 Series A Preferred Stock will have the right
(the "One-Time Right"), for a period of 30 days beginning on the Fifth
Anniversary, to deliver written notice to VBC that such holder requests VBC to
convert all or any part of such holder's 1996 Series A Preferred Stock at a
value per share of $90.00 plus all accumulated but unpaid dividends into Common
Stock, subject to VBC's right to offer cash instead of converting the preferred
shares into Common Stock, as discussed below. If, during the 30 day period, the
holder receives notice of VBC's election to redeem any of the preferred shares,
the holder nonetheless shall be entitled to exercise the One-Time Right. As
further discussed below, the conversion price will be the higher of the then
average trading price per share of VBC Common Stock or $8.50 (as may be adjusted
from time to time).
The notice must (i) state the shareholder's intent to request VBC to
convert pursuant to this provision, (ii) state the certificate numbers for the
shares to be converted by VBC and the number of shares represented by each such
certificate, and (iii) specify the number of shares of 1996 Series A Preferred
Stock to be converted. Notwithstanding the foregoing, VBC, at its option, may
elect to redeem for cash such 1996 Series A Preferred Stock at $90.00 per share
plus accumulated but unpaid dividends. By the fifteenth business
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day after receiving notice from the shareholder, VBC must make a written offer
either to redeem the shares for cash or to convert such stock into a certain
number of shares of Common Stock.
The shareholder will have until the fifteenth business day after receipt of
VBC's written offer to deliver, and for VBC to receive, the shareholder's
written acceptance of VBC's offer, and if the shareholder fails to provide such
acceptance to VBC, the shareholder will forfeit the right to require VBC to
convert the offered shares of 1996 Series A Preferred Stock under this
provision. The notice of the shareholder's acceptance of VBC's written offer
must be accompanied by the certificates for the shares to be purchased or
converted, duly endorsed for transfer to VBC. Following receipt of certificates
for the shares of 1996 Series A Preferred Stock by VBC, VBC promptly will pay
and deliver the purchase price in cash or issue the shares of its Common Stock,
plus any payment for a fractional share. No interest will be accrued or paid in
respect of any delay in a cash payment or delivery of Common Stock provided in
connection with such conversion or redemption.
In case of a written offer to convert, the number of common shares to be
issued shall be calculated by multiplying the number of shares of 1996 Series A
Preferred Stock times $90.00, adding the accumulated but unpaid dividends, and
dividing the sum by the below-determined price per common share. The price per
common share will be the higher of (i) the average price per share on the Nasdaq
National Market for the 10 trading days ending on the fifth day before VBC
receives the above notice from the shareholder or (ii) $8.50. If VBC subdivides
or combines its outstanding shares of Common Stock or makes a distribution of
its Common Stock to the holders of the outstanding Common Stock such that
immediately thereafter a greater or lesser number of shares of Common Stock is
outstanding, then the amount of $8.50 will be proportionately adjusted. Whenever
the amount of $8.50 is so adjusted, VBC will send to the holders of the 1996
Series A Preferred Stock an officer's certificate describing the adjustment and
the method of calculation. If the record date for any such subdivision,
distribution or combination of the outstanding Common Stock occurs at any time
after the first day of the above 10-trading day period and on or before the
transfer, on the books of VBC, of any shares of Common Stock to the shareholder,
then for each of the above 10 trading days preceding the record date, the
closing price shall be proportionately decreased or increased as provided and in
the same manner as above for the amount of $8.50. VBC will not issue fractional
shares of Common Stock, but rather will pay cash for any such fractional share
at the above-determined price per common share.
GENERAL PROVISIONS REGARDING REDEMPTION AND CONVERSION. If any cash
payments to be made to shareholders upon redemption or conversion of the
preferred shares into common shares are restricted because dividend payments are
in arrears, then such cash amounts will be withheld and paid, in whole or in
part, without interest, as soon as and to the full extent payment by VBC is
permitted and practicable, recognizing, however, that ultimately less than the
full cash payments otherwise payable might be paid to the shareholders in such
events as bankruptcy, involuntary reorganization, or liquidation and dissolution
of VBC.
From and after the date fixed for redemption or conversion (unless VBC
defaults in providing for the payment of the redemption price or delivery of the
Common Stock plus accumulated and unpaid dividends) (i) dividends will cease to
accrue on the shares of the 1996 Series A Preferred Stock to be converted or
redeemed, (ii) such shares of 1996 Series A Preferred Stock will no longer be
deemed to be outstanding and will not have the status of 1996 Series A Preferred
Stock, and (iii) all rights of the holders thereof (except the right to receive
the redemption price or delivery of the Common Stock plus accumulated and unpaid
dividends and payments for fractional shares, without interest) will cease with
respect to such shares.
During any time that the payment of any dividends on shares of the 1996
Series A Preferred Stock or any Parity Stock is in arrears, no shares of the
1996 Series A Preferred Stock or Parity Stock may be redeemed (whether on
optional redemption or pursuant to the one-time right discussed above in
"-- One-Time Right of 1996 Series A Preferred Stockholders to Request
Conversion") by VBC unless all such shares are simultaneously redeemed, and VBC
and any corporation or entity controlled by VBC may not make any payment on
account of, or set apart payment for, the purchase, redemption or retirement of
the 1996 Series A Preferred Stock or any Parity Stock or any warrants, rights,
calls or options exercisable or exchangeable for or convertible into Parity
Stock.
Notwithstanding any of the provisions above, VBC will not be required or
permitted to redeem or acquire any shares of 1996 Series A Preferred Stock,
convert any shares of 1996 Series A Preferred Stock into
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Common Stock, or make any cash payment in respect of any such redemption or
conversion unless such redemption, conversion or cash payment has been approved
by the Board of Governors, if such approval is required.
DESCRIPTION OF VBC CONTINGENT WARRANTS
The terms of and conditions of the VBC Contingent Warrants are contained in
the VBC Contingent Warrant, which is attached as Appendix G to this
Prospectus/Joint Proxy Statement and incorporated herein by reference. The
description in this Prospectus/Joint Proxy Statement of the terms of the VBC
Contingent Warrants is qualified in its entirety by, and made subject to, the
text of Appendix G and Appendix F, the Statement Establishing the 1996 Series A
Preferred Stock. Bank Land Shareholders and Bank Shareholders are encouraged to
read both Appendix F and Appendix G in their entirety. Any capitalized terms not
defined in the description below have the meanings set forth in the VBC
Contingent Warrant and Preferred Stock Statement.
GENERAL. The purpose of the VBC Contingent Warrants is to give the holders
of the 1996 Series A Preferred Stock the right to receive VBC Common Stock to
compensate for dividends on the 1996 Series A Preferred Stock if they are not
declared and paid. Each VBC Contingent Warrant provides that the warrantholder
may be entitled, subject to the conditions and terms of the VBC Contingent
Warrant, to receive shares of VBC Common Stock, which will be issued to the
warrantholder, under certain terms and conditions, without any action on his or
her part. VBC has registered under the Securities Act the potential issuance of
240,000 shares of VBC Common Stock, referred to as "Stated Shares," which may be
issued pursuant to the VBC Contingent Warrants. The "Additional Shares" will
only be issuable in the event that all of the Stated Shares (240,000) are issued
(which, for the foreseeable future, VBC management believes is unlikely), but
only after VBC has first registered the Additional Shares under the Securities
Act. There is no specific number of Additional Shares which may be issued.
Under the mechanism described in further detail below, for successive
periods of one year (a "Dividend Year") ending on a certain date (a "Dividend
Anniversary Date") VBC will determine whether, under the terms in the VBC
Contingent Warrant, shares of its Common Stock are issuable. As of each Dividend
Anniversary Date, dividends on the 1996 Series A Preferred Stock which have not
been declared and paid for the Dividend Year will be terminated (the "Canceled
Dividends"), and in turn, the warrantholder will be entitled to receive a number
of Stated Shares or Additional Shares with a value approximately equal to the
Canceled Dividends. Thus, Bank Land Shareholders and Bank Shareholders should
not perceive the VBC Contingent Warrants as additional "value" to be received in
the Mergers. Rather, VBC management believes that the VBC Contingent Warrants
will serve as a replacement for the payment of dividends in the event that they
are not declared and paid on the 1996 Series A Preferred Stock. VBC management
also believes that the issuance of shares of VBC Common Stock pursuant to the
VBC Contingent Warrants is remote for the foreseeable future, because VBC
intends (although it is not required to do so) to declare and pay cash dividends
on the 1996 Series A Preferred Stock.
Each VBC Contingent Warrant will relate directly to a certain number of
specific shares of 1996 Series A Preferred Stock (the "Preferred Shares"),
originally issued pursuant to a particular, identified certificate (the
"Preferred Certificate") and will not be detachable from the Preferred
Certificate. The Canceled Dividends with respect to any given VBC Contingent
Warrant will be the dividends which accrue on the outstanding number of
Preferred Shares and, at the end of a Dividend Year, are terminated.
Each VBC Contingent Warrant will be attached to and made part of a
Preferred Certificate. The terms of the 1996 Series A Preferred Stock and the
Preferred Stock Statement will not in any way be affected by the VBC Contingent
Warrant.
It should be noted that any number of the Preferred Shares may be redeemed
or converted into Common Stock and thus cease to be outstanding. Because
dividends will cease to accrue on any of such redeemed or converted Preferred
Shares, a warrantholder thereafter will not be entitled to obtain Stated Shares
or Additional Shares relating to the redeemed or converted Preferred Shares.
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CONDITIONS AND PROCEDURES FOR ISSUANCE OF SHARES. The Stated Shares and
Additional Shares will be issued only if dividends which accrue on the Preferred
Shares to which the VBC Contingent Warrants relate, are not declared and paid by
the VBC Board as of a Dividend Anniversary Date. Additional Shares may be issued
only after all of the Stated Shares have been issued. VBC will send to each
warrantholder certificates for any Stated Shares or Additional Shares to which
the warrantholder is entitled and a written notice containing the following:
(1) The dollar amount of the Canceled Dividends, which are those
dividends accrued as of such Dividend Anniversary Date for the immediately
preceding Dividend Year which have not been declared and paid upon the
number of Preferred Shares outstanding at any time during the Dividend
Year.
(2) The average of the closing prices of the Common Stock of VBC on
the Nasdaq National Market for the 20 trading days ending on the fifth
business day before such Dividend Anniversary Date (the "Common Stock
Price").
(3) The "Calculation Price," which will be determined by multiplying
the Common Stock Price by .97.
(4) The number of Stated Shares or Additional Shares the warrantholder
is receiving, as the case may be. The Canceled Dividends, divided by the
Calculation Price, rounded up for half of a fractional share or more and
down for less than half of a fractional share, will equal the number of
Stated Shares or Additional Shares. Any offer, sale and issuance of any
Additional Shares will first be accomplished pursuant to a registration
statement under the Securities Act and pursuant to any other registrations
required under the laws of states in which any Additional Shares may be
offered. Such procedure may have the effect of delaying receipt of the
Additional Shares, although VBC is obligated to use its best efforts to
cause such a registration statement to become effective.
(5) If any Stated Shares are being issued, a statement showing the
numbers and dates of prior issuances of Stated Shares, the number of Stated
Shares presently being issued, and the remaining number of unissued Stated
Shares.
OTHER PROVISIONS. For any Dividend Year in which, with respect to a VBC
Contingent Warrant, there were no Canceled Dividends and any Preferred Shares
with respect to the VBC Contingent Warrant were outstanding during the Dividend
Year, VBC will provide written notice to the warrantholder that he or she will
not receive any Stated Shares or Additional Shares for such Dividend Year.
All rights to receive any Stated Shares or Additional Shares will terminate
as of the 50th Dividend Anniversary Date.
VBC will not, by amendment or restatement of its Articles of Incorporation
or through any reorganization, transfer of assets, consolidation, merger,
issuance or sale of securities or otherwise, avoid or take any action which
would have the effect of avoiding the performance of any of the terms of the VBC
Contingent Warrants to be performed by VBC.
DESCRIPTION OF OTHER VBC CAPITAL STOCK
The authorized capital stock of VBC consists of 7,000,000 shares of VBC
Common Stock with a par value of $.01 per share and 1,000,000 shares of
preferred stock with a par value of $.10 per share.
VBC COMMON STOCK
Holders of shares of VBC Common Stock are entitled to one vote per share on
all matters submitted to a vote of shareholders. All shares of VBC Common Stock
are entitled to receive cash dividends on an equal basis when and if declared by
the board of directors. Shareholders do not have cumulative voting rights, which
means that the holders of more than 50% of the voting rights attributable to the
shares of VBC Common Stock voting for the election of directors can elect all of
the directors of VBC. Upon any liquidation, dissolution or winding up of VBC,
holders of shares of VBC Common Stock are entitled to receive, on a pro
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rata basis, all of the assets of VBC available for distribution to shareholders
subject to such prior rights as may be established to holders of preferred
stock. The shares of VBC Common Stock are nonassessable and no holders of shares
of VBC Common Stock have preemptive, conversion or redemption rights.
PREFERRED STOCK
The preferred stock of VBC may be issued in one or more series as may be
determined from time to time by VBC's board of directors. The board of directors
has authority, without a vote or other action by the shareholders, to fix the
rights and preferences of each series of preferred stock, including dividend
rights and preferences, rights and preferences upon liquidation, voting rights,
conversion rights and rights relating to the redemption of shares. The board of
directors of VBC has flexibility to create and issue preferred stock for proper
corporate purposes, including deterring takeover bids determined by the board
not to be in the best interests of VBC and its shareholders. VBC currently has
two series of preferred stock: 1994 Preferred Stock (see below) and 1996 Series
A Preferred Stock (see "Description of VBC 1996 Series A Preferred Stock.").
VBC 1994 PREFERRED STOCK
The following discussion of the material terms of the 1994 Preferred Stock
is qualified in its entirety by reference to the Articles of Incorporation of
Vectra, including the Statement Establishing the 1994 Preferred Stock.
GENERAL. The 1994 Preferred Stock has no preemptive rights. The rights of
the holders of 1994 Preferred Stock are subordinate to the rights of Vectra's
general creditors.
RANK. The 1994 Preferred Stock ranks, with respect to dividend rights and
rights on liquidation, prior to the Vectra Common Stock and all other classes
and series of Vectra stock now or hereafter authorized (the Vectra Common Stock
and such other classes and series of equity securities are collectively referred
to herein as "Junior Stock"), other than any class or series ranking by its
terms on a parity with the 1994 Preferred Stock ("Parity Stock"). The 1996
Series A Preferred Stock is on parity with the 1994 Preferred Stock. The 1994
Preferred Stock is subject to the creation of Parity Stock and Junior Stock
without a vote or other consent of the holders of 1994 Preferred Stock.
DIVIDEND RIGHTS. Holders of the 1994 Preferred Stock are entitled to
receive, out of funds of VBC legally available therefor, cumulative quarterly
cash dividends at the annual rate of $.95 per share, in preference to and in
priority over any dividends with respect to Junior Stock. Dividends are payable
in arrears on March 31, June 30, September 30 and December 31 of each year (each
of such dates a "Dividend Payment Date").
If (i) VBC is in default or in arrears in payment of dividends on the 1994
Preferred Stock or any other VBC stock other than Junior Stock or (ii) VBC is in
default or in arrears in the redemption or other acquisition, retirement or
other requirement of the 1994 Preferred Stock or any other class or series of
VBC stock other than Junior Stock, VBC may not (a) declare, pay or set apart for
payment any dividends on any shares of VBC Common Stock or other Junior Stock,
(b) make any payment on account of, or set apart payment for, the purchase,
redemption or other retirement of, or with respect to, any sinking fund or
agreement for the purchase, redemption or other retirement of, any shares of VBC
Common Stock or other Junior Stock, (c) make any distribution in respect of any
VBC Common Stock or other Junior Stock, other than dividends or distributions of
Junior Stock which is neither convertible into, nor exchangeable or exercisable
for, any securities of VBC other than Junior Stock or rights exercisable or
exchangeable for or convertible into Junior Stock or (d) permit any corporation
or other entity controlled by VBC to purchase or otherwise acquire or redeem any
shares of VBC Common Stock or other Junior Stock or any rights exercisable or
exchangeable for or convertible into shares of VBC Common Stock or other Junior
Stock.
LIQUIDATION PREFERENCE. In the event of any liquidation of VBC, the holders
of the 1994 Preferred Stock will be entitled to receive out of the assets of VBC
available for distribution to shareholders, before any distribution of assets is
made to the holders of VBC Common Stock or other Junior Stock, $10.00 per share
plus an amount equal to all accumulated and unpaid dividends thereon. After
payment of the full liquidation preference, the holders of the 1994 Preferred
Stock will be entitled to no further participation in any
113
<PAGE> 127
liquidating distribution by VBC. Neither the voluntary sale, conveyance,
exchange or transfer of all or any part of the property or assets of VBC, nor
the consolidation, merger or other business combination of VBC with or into any
other corporation will be considered a liquidation of VBC.
Because VBC is a holding company, its rights and the rights of holders of
its securities, including the holders of the 1994 Preferred Stock, to
participate in the assets of any subsidiary upon its liquidation or
recapitalization will be subject to the prior claims of that subsidiary's
creditors.
VOTING RIGHTS. Except as indicated below and except as required by
applicable law, the holders of the 1994 Preferred Stock are not be entitled to
vote for any purpose.
The affirmative vote of the holders of at least a majority of the votes
entitled to be cast with respect to the then outstanding shares of the 1994
Preferred Stock, voting separately as one class, at a meeting duly held for that
purpose, is necessary (i) to authorize, create or increase the authorized shares
of any class or series of stock of VBC ranking prior to the 1994 Preferred Stock
as to dividend rights or rights upon liquidation, or which possess rights to
vote separately as one class with the 1994 Preferred Stock, other than with
respect to the election of directors (as described below) on a basis of one vote
or less for each $10.00 of stated liquidation preference thereof, or (ii) to
repeal, amend or otherwise change any of the provisions of the Articles of
Incorporation in any manner which adversely affects the rights or preferences of
the 1994 Preferred Stock. For that purpose, no change in the number of shares of
Junior Stock or Parity Stock, or in the number of shares of Preferred Stock that
the board of directors of VBC is authorized to divide into series, will be
deemed to adversely affect the 1994 Preferred Stock.
If at any time the payment of dividends aggregating an amount at least
equal to four full quarterly dividends, whether or not consecutive (or if
dividends are payable other than on a quarterly basis, a number of dividend
periods, whether or not consecutive, containing in the aggregate not less than
365 calendar days), on the then outstanding shares of 1994 Preferred Stock or
any Parity Stock which by its terms provides for the holders thereof to vote
with the holders of 1994 Preferred Stock as one class for the election of
directors ("Voting Parity Stock") is in arrears or in default, the number of
members of the VBC Board will, without further action, be increased by two
directors. The holders of the outstanding 1994 Preferred Stock together with the
holders of any Voting Parity Stock will have the exclusive right, voting
separately as one class, to fill such newly created directorships at each
meeting of shareholders duly held for the purpose of electing directors, such a
meeting to be held within 60 days after the dividend payment date on which such
right arose. The 1996 Series A Preferred Stock is Parity Stock, but is not
Voting Parity Stock for purposes of voting with the 1994 Preferred Stock.
The right of the holders of 1994 Preferred Stock to elect directors as
discussed above will continue until such time as VBC no longer is in arrears or
in default in respect of the payment of dividends on the 1994 Preferred Stock
and any Voting Parity Stock, at which time the voting right of the holders of
the 1994 Preferred Stock and any Voting Parity Stock will, without further
action, terminate, subject to revesting in the event of any subsequent failure
of VBC to pay such dividends for the requisite number of periods as described
above.
Upon the termination of this voting right in accordance with the foregoing
provisions, the term of office of all directors elected by the holders of the
1994 Preferred Stock and the Voting Parity Stock then in office will, without
further action, thereupon terminate unless otherwise required by law. Upon such
termination the number of directors constituting the board of directors of VBC
will, without further action, be reduced by two, subject always to the increase
of the number of directors pursuant to the foregoing provisions in case of the
future right of such holders of the 1994 Preferred Stock and the Voting Parity
Stock to elect directors as described above.
114
<PAGE> 128
OPTIONAL REDEMPTION. The 1994 Preferred Stock is not redeemable before
March 31, 1997, except as described below. On or after March 31, 1997, the 1994
Preferred Stock will be redeemable at the option of VBC, subject to the prior
approval of the Board of Governors, for cash, in whole or in part, at any time
and from time to time, at the following redemption prices per share, plus, in
each case an amount equal to accumulated and unpaid dividends, whether or not
declared, to but excluding the date fixed for redemption, if redeemed during the
12-month period ending on and including March 30 in each of the following years:
<TABLE>
<CAPTION>
REDEMPTION PRICE PER SHARE
OF 1994 PREFERRED STOCK
--------------------------
<S> <C>
1998.......................................................... $10.30
1999.......................................................... 10.15
2000 and thereafter........................................... 10.00
</TABLE>
MANDATORY REDEMPTION. Subject to the prior approval of the Board of
Governors as described below, upon any change in control, VBC will redeem all of
the shares of 1994 Preferred Stock outstanding for a redemption price equal to
$10.00 per share plus an amount equal to accumulated and unpaid dividends,
whether or not declared, to but excluding the date fixed for redemption. VBC
will give notice of such redemption within 10 days after the later of (i) the
Effective Time of the change in control or (ii) the receipt by VBC of the
approval of the Board of Governors. For this purpose, "change in control" means
(x) any sale or issuance or series of sales and/or issuances of VBC Common Stock
by VBC or any holders thereof which results in any person or group of affiliated
persons (other than the owners of VBC Common Stock as of the date of the initial
issuance of the 1994 Preferred Stock and their affiliates and associates) owning
more than 50% of the VBC Common Stock outstanding at the time of such sale or
issuance or the last of such series of sales and/or issuances, (y) a sale or
transfer of more than 80% of the assets of VBC (measured by the lesser of book
value in accordance with generally accepted accounting principles consistently
applied or fair market value determined in the reasonable good faith judgment of
the board of directors) in any transaction or series of related transactions or
(z) any merger or consolidation to which VBC is a party, except for a merger in
which VBC is the surviving corporation and, after giving effect to such merger,
the holders of VBC's outstanding capital stock possessing the voting power
(under ordinary circumstances) to elect a majority of the board of directors
immediately prior to the Merger own VBC's outstanding capital stock possessing
the voting power (under ordinary circumstances) to elect a majority of the board
of directors.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the VBC Common Stock, the 1996 Series
A Preferred Stock and the 1994 Preferred Stock is American Securities Transfer,
Inc., Denver, Colorado.
SHARES OF VBC ELIGIBLE FOR FUTURE SALE
VBC has 3,195,279 shares of VBC Common Stock outstanding. Substantially all
of the shares are freely transferable without restriction under the Securities
Act or eligible for sale in the public market, subject to compliance by
affiliates with Rule 144 under the Securities Act.
In general, under Rule 144 as currently in effect, if at least two years
have elapsed since shares of VBC Common Stock that constitute restricted
securities were last acquired from VBC or an affiliate of VBC, the holder is
entitled to sell within any three-month period a number of shares that does not
exceed the greater of one percent of the total shares of VBC Common Stock then
outstanding or the average weekly trading volume of the VBC Common Stock in the
over-the-counter market during the four calendar weeks preceding the date on
which notice of the sale is filed with the SEC. Sales under Rule 144 are subject
to certain manner of sale provisions, notice requirements and the availability
of current public information about VBC. If at least three years have elapsed
since the shares were last acquired from VBC or an affiliate, a person who has
not been an affiliate of VBC at any time during the three months preceding the
sale is entitled to sell such shares under Rule 144 without regard to volume
limitations, manner of sale provisions, notice requirements or the availability
of current public information concerning VBC.
115
<PAGE> 129
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF BANK LAND AND THE BANK
The following analysis of Bank Land's financial condition and results of
operations as of and for the three month periods ended March 31, 1996 and 1995,
and the years ended December 31, 1995 and 1994, should be read in conjunction
with the consolidated financial statements of Bank Land and statistical data
presented elsewhere herein. Bank Land does not engage in any substantial
business activity other than as a bank holding company that holds 92.14% of the
issued and outstanding stock of the Bank, its principal asset. Unless otherwise
noted, the following discussion relates to Bank Land and the Bank on a
consolidated basis.
ANALYSIS OF NET INTEREST INCOME
The following tables set forth information for the periods indicated with
regard to average balances of assets and liabilities, as well as the total
dollar amounts of interest income from interest-earning assets and interest
expense on interest-bearing liabilities, resultant yields or costs, net interest
income, net interest spread, net interest margin and the ratio of average
interest-earning assets to interest-bearing liabilities for Bank Land. Those
schedules include no adjustments related to tax-exempt interest as such interest
has not been significant.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
-------------------------------------------------------------
1996 1995
----------------------------- -----------------------------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE EARNED YIELD AVERAGE EARNED YIELD
BALANCE OR PAID OR COST BALANCE OR PAID OR COST
-------- -------- ------- -------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Federal funds sold.................................. $ 8,512 $ 111 5.22% $ 1,469 $ 26 7.01%
Investments......................................... 19,818 287 5.79 30,417 438 5.76
Loans(1)............................................ 76,221 1,836 9.64 72,026 1,869 10.37
Allowance for loan losses........................... (915) -- (991) --
-------- ------ -------- ------
Total interest-earning assets.............. 103,636 2,234 8.62 102,921 2,333 9.06
Noninterest-earning assets:
Cash and due from banks........................... 5,823 6,403
Other............................................. 2,068 2,081
-------- --------
Total assets............................... $111,527 $111,405
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
NOW and money market accounts..................... $ 23,119 $ 163 2.82% $ 24,255 $ 181 2.98%
Savings........................................... 19,929 134 2.69 20,652 137 2.65
Certificates of deposit
Under $100,000.................................. 17,912 217 4.85 17,937 183 4.08
$100,000 and over............................... 11,403 161 5.65 12,224 167 5.46
-------- ------ -------- ------
Total interest-bearing deposits............ 72,363 675 3.73 75,068 668 3.56
Noninterest-bearing demand accounts................. 23,983 22,962
-------- --------
Total deposits............................. 96,346 98,030
Other noninterest-bearing liabilities............... 1,617 1,506
-------- --------
Total liabilities.......................... 97,963 99,536
Shareholders' equity................................ 13,564 11,869
-------- --------
Total liabilities and shareholders'
equity................................... $111,527 $111,405
======== ========
Net interest income................................. $1,559 $1,665
====== ======
Net interest spread................................. 4.89% 5.50%
==== ====
Net interest margin................................. 6.02% 6.47%
==== ====
Ratio of average interest-earning assets to average
interest-bearing liabilities...................... 143% 137%
</TABLE>
- ---------------
(1) Loans are net of unearned discount. Nonaccruals are included in average
loans outstanding. Loan fees are included in interest income as follows:
1996 -- $34,980; 1995 -- $86,450.
116
<PAGE> 130
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1995 1994
----------------------------- -----------------------------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE EARNED YIELD AVERAGE EARNED YIELD
BALANCE OR PAID OR COST BALANCE OR PAID OR COST
-------- -------- ------- -------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Federal funds sold.................................. $ 3,908 $ 229 5.85% $ 6,773 $ 277 4.09%
Investments......................................... 23,637 1,402 5.93 23,881 1,193 5.00
Loans(1)............................................ 76,011 7,798 10.39 73,690 6,879 9.47
Allowance for loan losses........................... (973) -- (1,030) --
-------- ------ -------- ------
Total interest-earning assets.............. 102,583 9,429 9.19 103,314 8,349 8.08
Noninterest-earning assets:
Cash and due from banks........................... 6,426 6,009
Other............................................. 2,201 2,081
-------- --------
Total assets............................... $111,210 111,404
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
NOW and money market accounts..................... $ 23,904 $ 709 2.96% 26,849 $ 681 2.53%
Savings........................................... 20,266 546 2.69 21,057 566 2.69
Certificates of deposit
Under $100,000.................................. 18,097 822 4.54 18,295 666 3.64
$100,000 and over............................... 11,547 652 5.65 8,758 347 3.96
-------- ------ -------- ------
Total interest-bearing deposits............ 73,814 2,729 3.70 74,959 2,260 3.01
Noninterest-bearing demand accounts................. 23,317 23,998
-------- --------
Total deposits............................. 97,131 98,957
Other noninterest-bearing liabilities............... 1,512 1,364
-------- --------
Total liabilities.......................... 98,643 100,321
Shareholders' equity................................ 12,567 11,083
-------- --------
Total liabilities and shareholders'
equity................................... $111,210 111,404
======== ========
Net interest income................................. $6,700 $6,089
====== ======
Net interest spread................................. 5.49% 5.07%
==== ====
Net interest margin................................. 6.53% 5.89%
==== ====
Ratio of average interest-earning assets to average
interest-bearing liabilities...................... 139% 138%
</TABLE>
- ---------------
(1) Loans are net of unearned discount. Nonaccruals are included in average
loans outstanding. Loan fees are included in interest income as follows:
1995 -- $229,025; 1994 -- $183,416.
117
<PAGE> 131
The following table illustrates the changes in Bank Land's net interest
income due to changes in volume and changes in interest rate. Changes in net
interest income due to both volume and rate have been included in the changes
due to rate.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH
31, 1996 COMPARED TO 1995: 1995 COMPARED TO 1994:
INCREASE (DECREASE) IN NET INTEREST INCREASE (DECREASE) IN NET INTEREST
INCOME DUE TO CHANGE IN INCOME DUE TO CHANGE IN
----------------------------------- -----------------------------------
TOTAL TOTAL
CHANGE VOLUME RATE CHANGE VOLUME RATE
--------- --------- --------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Federal funds sold........ $ 84,961 $ 123,508 $ (38,547) $ (48,047) $(117,064) $ 69,017
U.S. Treasuries........... (106,492) (112,285) 5,793 109,614 (30,056) 139,670
U.S. Agencies............. (26,510) (22,191) (4,319) 89,247 61,388 27,859
Municipal obligations..... (7,163) (5,332) (1,831) 28,645 154 28,491
Other investments......... (10,531) (8,153) (2,378) (19,329) (39,290) 19,961
Loans..................... (32,916) 112,333 (145,249) 919,568 225,130 694,438
--------- --------- --------- ---------- --------- --------
Total............. (98,651) 87,880 (186,531) 1,079,698 100,262 979,436
--------- --------- --------- ---------- --------- --------
Interest-bearing
liabilities:
Deposits
Interest-bearing....... 723 1,514 (791) (598) 142 (740)
MMDA................... (17,705) (12,533) (5,172) 28,917 (82,402) 111,319
Savings................ (3,308) (4,789) 1,481 (20,580) (21,282) 702
CDs over $100,000...... (5,803) (11,220) 5,417 (13,768) (245,663) 231,895
Certificates of
deposit.............. 33,199 (249) 33,448 475,217 370,103 105,114
--------- --------- --------- ---------- --------- --------
Total............. 7,106 (27,277) 34,383 469,188 20,898 448,290
--------- --------- --------- ---------- --------- --------
$(105,757) $ 115,157 $(220,914) $ 610,510 $ 79,364 $531,146
========= ========= ========= ========== ========= ========
</TABLE>
ASSET/LIABILITY MANAGEMENT
Bank Land's liquidity management objective is to ensure its ability to
satisfy the cash flow requirements of depositors and borrowers and allow it to
meet its own cash flow needs.
The mismatch between maturities and interest rate sensitivities of assets
and liabilities results in interest rate risk. Rising and falling interest rate
environments can have various impacts on net interest income, depending on the
difference between the repricing of interest-earning assets and interest-bearing
liabilities, unscheduled repayments of loans and investments, early withdrawals
of deposits and other factors.
118
<PAGE> 132
The following tables set forth the estimated maturity or repricing, and the
resulting interest rate gap of Bank Land's interest-earning assets and
interest-bearing liabilities at December 31, 1995. All amounts in the tables are
based on contractual repricing schedules. Actual prepayment and withdrawal
experience may vary significantly from the assumptions reflected in the tables.
Investment securities are shown at carrying value.
<TABLE>
<CAPTION>
ESTIMATED MATURITY OR REPRICING
DECEMBER 31, 1995
--------------------------------------------------------------------
LESS THAN THREE MONTHS OVER ONE TO OVER
THREE MONTHS TO ONE YEAR FIVE YEARS FIVE YEARS TOTAL
------------ ------------ ----------- ---------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest-earning assets
Loans................................ $ 36,927 $ 4,633 $30,611 $ 5,203 $77,374
Investment securities................ 4,897 8,019 4,691 987 18,594
Other interest-bearing assets........ 8,699 967 -- -- 9,666
-------- -------- ------- --------- -------
Total interest-earning
assets..................... 50,523 13,619 35,302 6,190 105,634
-------- -------- ------- --------- -------
Interest-bearing liabilities
Savings/interest-bearing checking.... 44,002 -- -- -- 44,002
Time deposits........................ 7,451 19,745 2,170 941 30,307
-------- -------- ------- --------- -------
Total Interest-bearing
liabilities................ 51,453 19,745 2,170 941 74,309
-------- -------- ------- --------- -------
Interest rate gap...................... $ (930) $ (6,126) $33,132 $ 5,249 $31,325
======== ======== ======= ========= =======
Cumulative interest rate gap at
December 31, 1995.................... $ (930) $ (7,056) $26,076 $ 31,325
======== ======== ======= =========
Cumulative interest rate gap to total
assets............................... (.8%) (6.2%) 22.9% 27.6%
</TABLE>
The above information has not changed materially from December 31, 1995 to
March 31, 1996.
The following table presents at December 31, 1995, loans by maturity in
each major category of Bank Land's portfolio. The Bank's computerized accounting
system does not provide a more detailed breakout for the loan categories in the
tables. Actual maturities may differ from the contractual maturities shown below
as a result of renewals and prepayments. Loan renewals are evaluated in the same
manner as new credit applications. The Bank's computerized accounting system
does not provide a more detailed breakdown of the loan categories set forth in
the table.
<TABLE>
<CAPTION>
DECEMBER 31, 1995
--------------------------------------------------------------------
LESS THAN THREE MONTHS OVER ONE TO OVER
THREE MONTHS TO ONE YEAR FIVE YEARS FIVE YEARS TOTAL
------------ ------------ ----------- ---------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Loan category
Commercial and real estate............ $ -- $1,359 $20,689 $4,334 $60,970
Consumer and other.................... -- 3,274 9,922 869 16,404
-------- ------ ------- ------ -------
Total loans................... $ -- $4,633 $30,611 $5,203 $77,374
======== ====== ======= ====== =======
Fixed interest rate loans............... $ 2,575 $4,633 $30,449 $5,203 $42,860
Floating interest rate loans............ 34,352 -- 162 -- 34,514
-------- ------ ------- ------ -------
Total loans................... $ 36,927 $4,633 $30,611 $5,203 $77,374
======== ====== ======= ====== =======
</TABLE>
The above information has not changed materially from December 31, 1995 to
March 31, 1996.
119
<PAGE> 133
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected
operating data and changes in such data:
<TABLE>
<CAPTION>
FOR THE THREE FOR THE THREE YEAR ENDED YEAR ENDED
MONTHS ENDED MONTHS ENDED DECEMBER 31, DECEMBER 31,
MARCH 31, 1996 CHANGE MARCH 31, 1995 1995 CHANGE 1994
-------------- ------ -------------- ------------ ------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest income................... $ 2,233 $ (99) $ 2,332 $ 9,429 $1,080 $ 8,349
Interest expense.................. (675) (7) (668) (2,729) (470) (2,259)
------- ----- ------- ------- ----- -------
Net interest income............... 1,558 (106) 1,664 6,700 610 6,090
Provision for loan losses......... (71) (71) -- (135) -- (135)
------- ----- ------- ------- ----- -------
Net interest income after
provision for loan losses....... 1,487 (177) 1,664 6,565 610 5,955
Other income...................... 309 (28) 337 1,329 (331) 1,660
Other expenses.................... (1,137) 193 (1,330) (4,998) 100 (5,098)
------- ----- ------- ------- ----- -------
Income before income taxes........ 659 (12) 671 2,896 379 2,517
Income tax expense................ (240) (5) (235) (1,024) (288) (736)
Minority interest................. (34) 2 (36) (155) (6) (149)
------- ----- ------- ------- ----- -------
Net earnings...................... $ 385 $ (15) $ 400 $ 1,717 $ 85 $ 1,632
======= ===== ======= ======= ===== =======
</TABLE>
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31,
1995
NET INCOME. Net income for the first quarter of 1996 decreased $15,000 to
$385,000 from $400,000 in the same quarter of 1995.
INTEREST INCOME. Interest income decreased $99,000 to $2,233,000 in the
first quarter of 1996 from $2,332,000 in the same quarter of 1995. The decrease
was primarily a result of lower average interest rates in the first quarter of
1996. The effect of these lower rates was partially offset by an asset mix
change with average loans increasing by $4.2 million, average federal funds sold
increasing by $7.0 million and average investments decreasing by $10.6 million.
INTEREST EXPENSE. Interest expense increased $7,000 to $675,000 in the
first quarter of 1996, from $668,000 in the same period in 1995. Decreases in
the volume of money market accounts and certificates of deposit over $100,000
were more than offset by the increase in the average rate paid on certificates
of deposit under $100,000.
NET INTEREST INCOME. Net interest income decreased $106,000 in the first
quarter of 1996 compared to the same period in 1995. The decrease in primarily
due to the .44% decline in the average rate earned on interest earning assets.
NON-INTEREST INCOME. The following table presents a summary of non-interest
income:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1996 1995
-------- --------
<S> <C> <C>
Service charges.............................................. $209,192 $216,139
Net gains on real estate..................................... -- 26,005
Other........................................................ 100,660 94,744
-------- --------
Total.............................................. $309,852 $336,888
======== ========
</TABLE>
Non-interest income decreased $27,000 to $310,000 in the first quarter of
1996 from $337,000 in the same period of 1995. The decrease was primarily
attributable to a $26,000 non-recurring gain on the sale of real estate realized
in the first quarter of 1995.
120
<PAGE> 134
NON-INTEREST EXPENSE. The following table presents a summary of
non-interest expense:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1996 1995
--------- ---------
<S> <C> <C>
Salaries and benefits..................................... $ 525,904 $ 699,770
Occupancy................................................. 40,796 36,306
Premises and equipment.................................... 89,654 67,202
Other expenses............................................ 480,349 526,559
---------- ----------
Total........................................... $1,136,703 $1,329,837
========== ==========
</TABLE>
Non-interest expenses decreased $193,000 to $1,137,000 from $1,330,000 in
the same period of 1995. The decrease consisted of a $174,000 decrease in
salaries and benefits, primarily due to a bonus paid in the first quarter of
1995, and a $54,000 decrease in FDIC insurance premiums. These decreases were
partially offset by a $22,000 increase in premises and equipment expense.
INCOME TAXES. Income tax expense for the quarter ended March 31, 1996,
increased $5,000 to $240,000 or 36.4% of earnings before income taxes, from
$235,000 or 35.1% of earnings before income taxes for the three months ended
March 31, 1995. Note F of Bank Land's financial statements provides a
reconciliation of actual income tax expense to the expected expense based on
statutory rates.
1995 COMPARED TO 1994
NET INCOME. Net income for Bank Land for 1995 was $1,717,313 an increase of
5.2% or $85,249 from the $1,632,064 earned in 1994.
INTEREST INCOME. Interest income for 1995 was $6,700,349, an increase of
10% or $610,510 over the $6,889,839 earned in 1994. This increase is mainly
attributable to an increase in the yield on the loan portfolio from 9.47% in
1994 to 10.39% in 1995.
INTEREST EXPENSE. Interest expense increased to $2,728,713 in 1995 from
$2,259,525 in 1994. This increase was the effect of an increase in the average
cost of interest-bearing deposits from 3.01% in 1994 to 3.70% in 1995.
NET INTEREST INCOME. Average interest earning assets of Bank Land were
$102,583,451 during 1995, a decrease of .7% or $730,351 compared to $103,313,802
for 1994. Bank Land's interest rate spread was 5.49% in 1995 and 5.07% in 1994.
"Interest rate spread" is the difference between the rate of interest earned on
interest earning assets and the rate of interest paid on interest bearing
liabilities. Bank Land's net interest margin was 6.53% in 1995 and 5.89% in
1994. "Net interest margin" is the difference between interest income and
interest expense expressed as a percentage of average interest earning assets.
NON-INTEREST INCOME. The following table presents a summary of non-interest
income:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1995 1994
---------- ----------
<S> <C> <C>
Service charges.............................................. $ 861,565 $ 836,700
Net gains on real estate..................................... 14,279 110,107
Other........................................................ 453,441 714,096
---------- ----------
Total.............................................. $1,329,285 $1,660,903
========== ==========
</TABLE>
Non-interest income was $1,329,285 in 1995, a decrease of 20% or $331,618
from the prior year figure of $1,660,903. Much of this decrease was attributable
to a decrease in gains realized on real estate and a one-time gain of $102,800
realized in 1994 on the sale of silver coins.
121
<PAGE> 135
NON-INTEREST EXPENSE. The following table presents a summary of
non-interest expense:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1995 1994
---------- ----------
<S> <C> <C>
Salaries and benefits....................................... $2,438,494 $2,608,069
Occupancy................................................... 168,065 161,504
Premises and equipment...................................... 330,527 259,078
Other expenses.............................................. 2,061,755 2,069,223
---------- ----------
Total............................................. $4,998,841 $5,097,874
========== ==========
</TABLE>
Non-interest expense decreased by $99,033 or 2% to $4,998,841 for the year
ended December 31, 1995, from $5,097,874 in 1994. This decrease was caused by
the higher amount of salary and benefit expense in 1994 when Bank Land's
Chairman and President received 100,000 shares of Bank Land preferred stock
valued at $265,750.
INCOME TAXES. Bank Land's income tax provision for 1995 was $1,023,639 in
1995 compared with $736,357 in 1994. The effective rates were 35.3% in 1995 and
29.2% in 1994. The lower rate realized in 1994 was due to the elimination of a
valuation reserve for deferred taxes related to an alternative minimum tax
credit carryforward.
NEW ACCOUNTING PRONOUNCEMENTS
Bank Land adopted Financial Accounting Standards ("SFAS") No. 114,
Accounting by Creditors for Impairment of a Loan, and SFAS No. 118, Accounting
by Creditors for Impairment of a Loan Income Recognition and Disclosures
(collectively referred to as "SFAS 114"), effective January 1, 1995. SFAS 114
requires that certain impaired loans be measured based on the present value of
expected cash flows discounted at the loan's original effective interest rate.
The adoption of this pronouncement did not have a material impact on Bank Land.
See note A of Notes to Consolidated Financial Statements of Bank Land and
Subsidiary.
In May 1993 the FASB issued SFAS No. 115 ("SFAS No. 115"), Accounting for
Certain Investments in Debt and Equity Securities. This statement addresses the
accounting and reporting for investments that have readily determinable fair
market values. Those investments are to be classified in three categories and
accounted for as follows:
1. Debt securities that the enterprise has the positive intent and
ability to hold to maturity are classified as held-to-maturity securities
and reported at amortized cost.
2. Debt and equity securities that are bought and held principally for
the purpose of selling them in the near term are classified as trading
securities and reported at fair market value, with unrealized gains and
losses included in earnings.
3. Debt and equity securities not classified as either
held-to-maturity securities or trading securities are classified as
available-for-sale securities and reported at fair market value, with
unrealized gains and losses excluded from earnings and reported in a
separate component of shareholders' equity.
Bank Land implemented SFAS No. 115 on January 1, 1994, by properly
classifying all securities into either held-to-maturity investment accounts or
the available-for-sale accounts. Bank Land does not maintain a trading
portfolio.
122
<PAGE> 136
BUSINESS OF BANK LAND AND THE BANK
GENERAL
Bank Land was incorporated in Colorado in 1960 and became a registered bank
holding company under the BHC Act at the time of its purchase in 1967, of the
92.14% equity interest in the Bank. The remaining 7.86% interest in the Bank is
owned by approximately 30 shareholders, substantially all of whom were
shareholders of the Bank prior to Bank Land's purchase of its interest in the
Bank. Bank Land has no other subsidiaries. Bank Land's principal assets consist
of its investment in the Bank and the land and building occupied by the Bank.
Bank Land's primary sources of income are the Bank dividends and rent payments
from the Bank on the land and building; its activities since 1967 have been
limited to ownership and operation of the Bank. As of December 31, 1995, Bank
Land had total consolidated assets of approximately $114 million and
stockholders' equity of approximately $13 million. As a registered bank holding
company, Bank Land is subject to regulation and examination by the FDIC.
Bank Land was formed by Joseph Mosko and Harold Lustig, the father and
uncle, respectively, of Gary A. Mosko, Bank Land's and the Bank's President and
Chairman of the Board. The two directors of Bank Land (Gary A. Mosko and James
A. Lustig) are members of an extended family, and such persons and their
extended families own all of the outstanding capital stock of Bank Land. Messrs.
Mosko and Lustig are also members of the Bank's five-member board.
The Bank was organized as a Colorado state bank in 1959 and has operated in
its current location on South Federal Boulevard since 1961. The Bank offers
general commercial banking services to its customers. It accepts both savings
and checking deposits and makes commercial, real estate (primarily improved) and
installment loans. The Bank also provides direct deposit and safe deposit
services and offers national credit card services (MasterCard and VISA) through
the Independent Banker's Association. The Bank has experienced steady asset
growth over much of its history. Over the five-year period 1991 through 1995,
assets grew approximately $22 million at a compound annual rate of 4.4%. At
December 31, 1995, the Bank had total assets of $113 million, total deposits of
$100 million and total stockholders' equity of $14 million. The Bank is the
largest independent bank in western metropolitan Denver and is one of only 12
banks in metropolitan Denver with assets over $100 million. The Bank is a member
of the FDIC and the Federal Reserve Bank and is subject to examination by the
Colorado Division of Banking and the FDIC.
MARKET AREAS SERVED
The Bank is located in western metropolitan Denver on Federal Boulevard, a
major arterial roadway. The Bank operates in a mature, well-developed area
populated with residential and commercial use. The community served by the Bank
is a moderate income area with a large population of Hispanics and Asians. The
Bank's primary market area consists of approximately 13 square miles. However,
because of its reputation and practice of lending to small businesses, the Bank
draws customers from across the Denver metropolitan area. The Bank's Community
Reinvestment Act ("CRA") -- Delineated Lending Area is approximately 25 square
miles and is the source of the majority of the Bank's deposits and loans.
OPERATING AND BUSINESS STRATEGIES
The Bank's operating strategy has been to build a profitable community bank
with emphasis on high-quality customer service and high asset quality. Beginning
in 1967 with Bank Land's purchase of its interest in the Bank and realizing that
a focus on small businesses and their owners would provide the Bank with
numerous customer relationships, the Bank's primary lending strategy has been to
focus its resources to create one of the leading business banks in metropolitan
Denver. The Bank believes that business lending done in compliance with strict
quality is highly profitable and also believes there is significant opportunity
to serve business customers, since many other banks have focused primarily on
serving consumer markets and have placed a low priority on serving business
customers. Accordingly, the Bank has concentrated on secured lending to small
businesses.
123
<PAGE> 137
LOANS
GENERAL. The Bank follows a uniform credit policy for its loans, which sets
forth underwriting and loan administration criteria, including levels of loan
commitments, loan types, credit criteria, concentration limits, loan
administration, loan review and grading and related matters. The Bank monitors
asset quality utilizing an internal and external loan review program.
Interest rates charged on loans vary with the degree of risk, maturity,
underwriting and servicing costs, loan amount and extent of other banking
relationships maintained with customers, and are further subject to competitive
pressures, money market rates, availability of funds and government regulations.
Approximately 45% of the Bank's loan portfolio at December 31, 1995, had
interest rates that float with the Bank's base rate or some other reference
rate.
In the ordinary course of business, the Bank enters into various types of
transactions that include commitments to extend credit and standing letters of
credit. See Note 1 of Notes to Consolidated Financial Statements of Bank Land.
The Bank uses the same credit policies to these commitments as it uses in all
its lending activities and has included these commitments in its lending risk
evaluations. The Bank's exposure to credit loss under commitments to extend
credit is represented by the amount of the commitments. Under applicable federal
and state law, permissible loans by the Bank to one borrower were limited to an
aggregate of $2,180,000 at December 31, 1995.
LOAN PORTFOLIO. The following table sets forth the classification of loans
of the Bank by major category at the dates indicated. The information presented
was obtained from the Bank's computerized accounting system, which does not
breakdown the loan categories beyond that indicated below:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, -------------------
1996 1995 1994
--------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Real estate........................................... $40,860 $43,647 $42,617
Commercial............................................ 17,134 17,323 18,015
Installment........................................... 15,709 15,662 10,911
Ready reserve and credit cards........................ 726 724 564
Overdrafts............................................ 62 18 19
------- ------- -------
Total loans................................. 74,491 77,374 72,126
Less allowance for loan and lease losses.............. (904) (933) (1,019)
------- ------- -------
Net loans................................... $73,587 $76,441 $71,107
======= ======= =======
</TABLE>
The Bank's focus has been on commercial loans for small businesses;
consequently, this category has historically represented a large percentage of
the Bank's loan portfolio. The majority of these loans have a floating rate from
prime rate plus 1% to 3% and are adjusted daily. The great majority of these
loans are written with three to five-year terms. When fixed rate loans are made,
the term is generally a maximum of three years. The Bank primarily accepts real
estate as collateral for these loans, but also accepts accounts receivable and
inventory.
The real estate loan category consists primarily of improved real estate
loans. Substantially all of these loans are written with a three to five-year
term and have a floating rate of between prime plus 1% to 3%. The Bank makes
very few real estate construction or land loans and is not actively engaged in
the origination of first mortgage loans for single-family homes.
Installment loans have grown over the past several years to represent 20%
of the Bank's loan portfolio at December 31, 1995. Approximately 54% of the
Bank's installment loan portfolio at December 31, 1995, consisted of new and
used automobile loans. Approximately 37% of that loan category consisted of
first and second mortgages and home equity loans.
124
<PAGE> 138
NON-PERFORMING ASSETS
The following table sets forth information concerning the Bank's
non-performing assets at the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ---------------
1996 1995 1994
--------- ----- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Nonperforming loans:
Loans 90 days or more delinquent and still accruing...... $ 40 $ 23 $ 76
Nonaccrual loans......................................... 1,722 561 484
Troubled debt restructurings............................. -- -- --
------- ----- ------
Total nonperforming loans........................ 1,762 584 560
Other real estate owned.................................... 191 195 --
Other assets acquired by foreclosure....................... 20 12 14
------- ----- ------
Total nonperforming assets....................... $ 1,973 $ 791 $ 574
======= ===== ======
Allowance for loan losses.................................. $ 904 $ 933 $1,019
======= ===== ======
Ratio of total nonperforming assets to total assets........ 1.78% .70% .49%
Ratio of total nonperforming loans to total loans.......... 2.64% .75% .78%
Ratio of allowance for loan losses to total loans.......... 1.21% 1.21% 1.41%
Ratio of allowance for loan losses to total nonperforming
loans.................................................... 51% 160% 182%
</TABLE>
Potential problem loans at December 31, 1995 and at March 31, 1996, were
approximately $1,038,000 and $1,109,000, respectively. Potential problem loans
are loans where the Bank management has serious doubts about the ability of the
customer to comply with present repayment terms and, therefore, may become
non-performing loans.
NON-PERFORMING LOANS. Non-performing loans consist of loans 90 days or more
delinquent and still accruing interest, nonaccrual loans and troubled debt
restructurings. At December 31, 1995, the Bank's non-performing loans consisted
of eleven loans. The largest nonperforming loan had a principal balance of
$438,000. The status of this loan was unchanged at March 31, 1996.
The increase in nonperforming loans from December 31, 1995 to March 31,
1996 is primarily due to two loans with principal balances of $804,000 and
$329,000 being placed on nonaccrual status. The $804,000 loan is well secured by
residential rental property and payment in full is expected when the property is
sold. The $329,000 loan is 85% guaranteed by the Small Business Administration
and the entire loan is well collateralized by real property with payment in full
expected. The workout situations with respect to these two loans are considered
to be isolated occurrences and not necessarily indicative of an adverse trend.
Nonaccrual loans are loans on which the accrual of interest has been
discontinued. When, in the opinion of the Bank management, a reasonable doubt
exists as to the full, timely collection of interest or principal, regardless of
the delinquency status of a loan, the accrual of interest income is discontinued
and all interest previously accrued, but not collected, is reversed against
current period interest income. While the loan is on nonaccrual status, interest
income is recognized only upon receipt and then only if, in the judgment of
management, future collection of principal is probable. Loans 90 days or more
delinquent are changed to nonaccrual status unless the loan is in the process of
collection and management determines that full collection of principal and
accrued interest is probable. Interest accruals are resumed on non-accrual loans
only when, in the judgment of the Bank management, the loans are estimated to be
fully collectible as to both principal and interest.
Troubled debt restructurings are loans that have been renegotiated to
provide a reduction or deferral of interest or principal balance because of a
deterioration in the financial position of borrower.
If nonaccrual and troubled debt restructurings had been current in
accordance with their original terms, additional interest income of $21,000
would have been recognized in 1995. Interest income of $21,500 was collected on
nonaccrual and troubled debt restructurings and was included in 1995 income.
125
<PAGE> 139
OTHER REAL ESTATE OWNED. Other real estate owned includes property acquired
in foreclosure proceedings or under agreements with delinquent borrowers. At
December 31, 1995, and March 31, 1996, the Bank's other real estate owned
consisted primarily of one residential property.
Other real estate owned is appraised annually and is carried at the lower
of fair market value, less anticipated selling costs or the balance of the
related loan. At December 31, 1995, the total appraised value of this property
was $220,000 and the Bank's interest in the aggregate book value of the property
was $195,109.
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established through charges to earnings in
the form of provisions for loan losses. Charge offs or recoveries are charged or
credited directly to the allowance. In general, the amount charged to earnings
each year by the Bank is based on the Bank management's judgment, which takes
into consideration a number of factors, including: (a) the Bank's loss
experience in relation to outstanding loans and the existing level of the
allowance; (b) a continuing review of problem loans, related uncollected
interest and overall portfolio quality; (c) regular examinations and appraisals
of loan portfolios conducted by the Bank's internal and external auditors and
state and federal supervisory authorities; and (d) current economic conditions.
126
<PAGE> 140
The following table sets forth the historical relationship between the
Bank's loan charge offs and recoveries and allowance for loan losses at the
dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
THREE MONTHS ENDED -----------------
MARCH 31, 1996 1995 1994
------------------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balance of allowance for loan losses at beginning
of period........................................ $ 933 $1,019 $1,004
Charge-offs:
Commercial and real estate....................... 76 184 137
Installment...................................... 35 60 55
Ready reserve and credit cards................... 13 28 6
------ ------ ------
Total charge-offs........................ 124 272 198
------ ------ ------
Recoveries:
Commercial and real estate....................... 20 38 56
Installment...................................... 4 12 22
Ready reserve and credit cards................... -- 1 --
------ ------ ------
Total recoveries......................... 24 51 78
------ ------ ------
Net (charge-offs) recoveries....................... (100) (221) (120)
Provision for loan losses charged to operations.... 71 135 135
------ ------ ------
Balance of allowance for loan losses at end of
period........................................... $ 904 $ 933 $1,019
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
THREE MONTHS ENDED -------------------
MARCH 31, 1996 1995 1994
------------------ ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Ratio of net charge-offs to average loans
(annualized for March 31, 1996)................ .52% .29% .16%
Average loans outstanding during the period...... $ 76,221 $76,011 $73,690
======== ======= =======
</TABLE>
The following table sets forth an allocation of the reserve for loan losses
among categories as of the dates indicated. The Bank management believes that
any allocation of the reserve for loan losses into categories lends an
appearance of precision which does not exist. The allowance is utilized as a
single unallocated allowance available for all loans. The following allocation
table should not be interpreted as an indication of the specific amounts of the
relative proportion of the future changes to the allowance. Such a table is
merely a convenient device for assessing the adequacy of the allowance as a
whole. The following allocation table has been derived by applying historical
loan loss ratios to both internally classified loans and the portfolio as a
whole in determining the allocation of the allowance for loan losses
attributable to each category of loans.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------
1995 1994
----------------------- -----------------------
LOANS IN LOANS IN
CATEGORY CATEGORY
AS A AS A
PERCENTAGE PERCENTAGE
OF TOTAL OF TOTAL
AMOUNT OF GROSS AMOUNT OF GROSS
ALLOWANCE LOANS ALLOWANCE LOANS
--------- ---------- --------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Real estate.................................. $ 544 56% $ 582 59%
Commercial................................... 178 23 236 25
Consumer..................................... 172 21 127 16
Unallocated.................................. 39 -- 73 --
----- --- ------- ---
Total.............................. $ 933 100% $ 1,019 100%
===== === ======= ===
</TABLE>
The above information has not changed materially from December 31, 1995 to
March 31, 1996.
127
<PAGE> 141
INVESTMENT SECURITIES
The following table sets forth the book value of the Bank's investment
securities by class of security at the dates indicated.
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, -------------------
1996 1995 1994
--------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
U.S. Treasury......................................... $ 5,177 $ 6,516 $ 4,078
U.S. agencies......................................... 8,397 8,338 10,612
State and municipal................................... 4,104 3,490 4,008
Mortgage-backed....................................... 221 230 336
Corporate............................................. 20 20 421
------- ------- -------
Total....................................... $17,919 $18,594 $19,455
======= ======= =======
</TABLE>
The following table sets forth the maturity of investment securities at
December 31, 1995, and the weighted average yields to maturity of such
securities on a tax equivalent adjusted basis:
<TABLE>
<CAPTION>
UNDER 1 YEAR 1 TO 5 YEARS 5 TO 10 YEARS OVER 10 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...................... $6,515 6.23% $ -- -- % $ -- -- % $ -- -- % $6,515 6.23%
U.S. agencies(1)................... 3,232 5.66% 5,190 5.51% -- -- % 147 8.08% 8,569 5.61%
State and municipal(2)............. 856 9.27% 1,804 8.39% 750 9.44% 80 7.57% 3,490 8.81%
Corporate.......................... -- -- % -- -- % 10 6.00% 10 5.50% 20 5.74%
------- ------ ---- ---- -------
Total investment
securities............... $10,603 6.30% $6,994 6.25% $760 9.39% $237 7.80% $18,594 6.43%
======= ====== ==== ==== =======
</TABLE>
- ---------------
(1) Includes mortgage-backed
(2) The taxable equivalent yields were computed by adjusting municipal
securities interest for the effect of the federal income tax rate of 34%.
The above information has not changed materially from December 31, 1995 to
March 31, 1996.
128
<PAGE> 142
DEPOSITS
The following table presents the average balances of the Bank for each
major category of deposits and the weighted average interest rate paid for
interest-bearing deposits for the years indicated:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
THREE MONTHS ENDED
MARCH 31, 1996 1995 1994
------------------ ------------------ ------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
AVERAGE INTEREST AVERAGE INTEREST AVERAGE INTEREST
BALANCE RATE BALANCE RATE BALANCE RATE
------- -------- ------- -------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
NOW and money market
accounts................... $23,119 2.82% $23,904 2.96% $26,849 2.53%
Savings...................... 19,929 2.69 20,266 2.69 21,057 2.69
Time certificates of deposit
under $100,000............. 17,912 4.85 18,097 4.54 18,295 3.64
Time certificates of deposit
$100,000 and over.......... 11,403 5.65 11,547 5.65 8,758 3.96
------- ------- -------
Total interest bearing
deposits................... 72,363 3.73 73,814 3.70 74,959 3.01
Noninterest bearing demand
deposits................... 23,983 -- 23,317 -- 23,998 --
------- ------- -------
Total deposits..... $96,346 2.80% $97,131 2.81% $98,957 2.28%
======= ==== ======= ==== ======= ====
</TABLE>
The following table sets forth the amount and maturity of certificates of
deposit with balances of more than $100,000 at December 31, 1995.
<TABLE>
<CAPTION>
(DOLLARS IN
REMAINING MATURITY THOUSANDS)
-----------------------------------------------------------------------
<S> <C>
Under 3 months.............................................. $ 3,458
3 to 6 months............................................... 4,226
6 to 12 months.............................................. 4,139
Over 12 months.............................................. 100
-------
Total............................................. $11,923
=======
</TABLE>
The above information has not changed materially from December 31, 1995 to
March 31, 1996.
RETURN ON THE BANK EQUITY AND ASSETS
The following table sets forth return on the Bank's average assets and
equity and various other ratios for the years indicated:
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED
ENDED DECEMBER 31,
MARCH 31, ------------------
1996 1995 1994
------------ ------- -------
<S> <C> <C> <C>
Return on assets(1)................................... 1.38% 1.54% 1.46%
Return on equity(2)................................... 11.37% 13.96% 15.09%
Equity to assets ratio(3)............................. 12.16% 11.30% 9.95%
Dividend payout ratio(4).............................. -- 15.06% 26.43%
</TABLE>
- ---------------
(1) Net income divided by average total assets. (Annualized for March 31, 1996)
(2) Net income divided by average stockholders' equity. (Annualized for March
31, 1996)
(3) Average total equity divided by average total assets.
(4) Dividends paid per share divided by net income per share.
129
<PAGE> 143
COMPETITION
The Bank faces active competition both in seeking deposits and in making
loans. In addition to competition from commercial banks located in its market
area, the Bank also faces competition from savings and loan associations, money
market funds, large retailers entering financial markets, out-of-state financial
institutions, thrift companies, credit unions, mortgage bankers and other
consumer and commercial lenders. By virtue of their larger capital bases for
affiliation with larger multi-bank holding companies, some of the banks with
which the Bank competes have substantially greater lending limits and perform
other functions for their customers which the Bank can offer only through
correspondence, if at all. There are four other commercial banks within the
Bank's 13-mile primary market area, including Vectra. The Bank rates second in
size to Vectra based on deposits. Within its larger CRA-delineated area of
approximately 25 square miles, there are several commercial banks or banking
groups with assets in excess of $1.0 billion, including Norwest Bank, Colorado
National Bank, Bank One, First Interstate Bank, Key Bank of Colorado, First Bank
and First Federal Savings Bank. Also, World Savings and Commercial Federal
Savings, both owned by large out-of-state holding companies, operate numerous
branches in the Denver metropolitan area.
THE BANK FACILITY
Bank Land owns the land and building occupied by the Bank at 1380 South
Federal Boulevard. This property is leased to the Bank under a lease expiring in
1998 with annual lease payments of approximately $114,000. The building is a
one-story building containing approximately 10,000 square feet and a basement
with the same square footage, a portion of which is unfinished. The building is
currently operating at capacity, but has two sources of expansion capability
without major construction, that portion of the basement that remains unfinished
and the community conference room, also located in the basement. Attached to the
building is a drive-up facility with 10 lanes, two of which are for commercial
customers. The property also contains a drive-up ATM and a walk-up ATM located
at the front of the building. The drive-up facility and the ATMs are owned by
the Bank. The Bank facility is well-maintained.
LEGAL PROCEEDINGS
A lawsuit for alleged discrimination was filed with the Civil Rights
Division of the State of Colorado against the Bank in June 1995 by a former
employee. The claimant was terminated as an employee in May 1995. Claimant
alleged she was terminated because of her sex and her pregnancy. The Civil
Rights Division dismissed the lawsuit on December 28, 1995. The claimant had a
90 day period within which to appeal the dismissal. No appeal has been filed to
date.
EMPLOYEES
Bank Land has no employees. As of December 31, 1995, the Bank had 72 full
time equivalent employees. None of the Bank's employees is covered by a
collective bargaining agreement, and the Bank management believes that its
relationship with its employees is good.
INFORMATION CONCERNING THE PRESIDENT AND CHAIRMAN OF THE BOARD OF BANK LAND AND
THE BANK
Gary A. Mosko, President and Chairman of the board of directors of Bank
Land and the Bank, will be elected to the VBC and Vectra board of directors upon
Closing of the Mergers. Mr. Mosko will also serve as Executive Vice President of
Vectra pursuant to a three-year employment agreement to be executed at Closing.
See "The Mergers -- Interest of Chairman of Board and President of Bank Land and
the Bank in the Mergers" for further information concerning the employment
agreement, a covenant not to compete agreement and other matters relating to Mr.
Mosko and the Mergers.
Mr. Mosko, age 50, has served as a director and as an executive officer of
the Bank since 1974, most recently, since 1983, as President and Chairman of the
Board. He has served as President and Chairman of the board of directors of Bank
Land since 1991. Mr. Mosko oversees all lending functions, manages the Bank's
investment portfolio and is responsible for the Bank's marketing and business
development efforts as well as any matters relating to Bank Land. His experience
prior to joining the Bank includes owning and operating a
130
<PAGE> 144
toy distribution business. Mr. Mosko is involved in many community organizations
and is currently a board member of the Colorado Banker's Association, the
Anti-Defamation League, the Jewish Community Center and Jewish Family Service.
Mr. Mosko was honored with the Humanitarian of the Year Award in 1993 by Cinco
de Mayo, the Martin Luther King, Jr. Award for Business Social Responsibilities
in January 1996, the Crown Service Award for Community Service in 1992 by the
Colorado Independent Bankers Association (first such award ever given), the
Social Responsibility and Business Ethics Award in 1993 by Colorado Business
Magazine and the Minoru Yasui Community Award in 1993, among others.
Mr. Mosko receives an annual management fee from Bank Land for his services
to Bank Land, payable in January of the following year. The amount of such fee
for each of the years in the three-year period ended December 31, 1995, was
$25,000 (1993), $50,000 (1994) and $50,000 (1995).
The total compensation paid to Mr. Mosko by the Bank for his services for
each of the years in the three-year period ended December 31, 1995, was $136,675
(1993), $466,739 (1994), including $265,750 attributable to the value of the
Bank Land Preferred Stock issued to Mr. Mosko during 1994, and $196,687 (1995).
The compensation in each instance (other than for 1994) consisted of a salary
and a one-month bonus payable under the Bank's employee bonus plan.
131
<PAGE> 145
PRINCIPAL SHAREHOLDERS OF BANK LAND AND THE BANK
BANK LAND
The following table sets forth information, as of June 3, 1996, with
respect to the beneficial ownership of Bank Land's Class A Common Stock (only
class of voting securities) by (i) each shareholder known by Bank Land to own
beneficially more than 5% of the outstanding Class A Common Stock, (ii) each
director of Bank Land and (iii) all directors and executive officers of Bank
Land as a group. Except as otherwise indicated below each of the persons named
in the table has sole voting and investment power with respect to all shares of
Class A Common Stock beneficially owned by him/her as set forth opposite his/her
name.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP(1)(2)
-----------------------------
PERCENT OF
TOTAL
NUMBER OUTSTANDING
NAME AND ADDRESS OF SHARES SHARES
- ------------------------------------------------------------------- --------- -----------
<S> <C> <C>
Directors and Executive Officers:
Gary A. Mosko
1380 South Federal Boulevard, Denver, CO 80219..................... 73,860(2)(3) 22.1%
James A. Lustig
52 Sedgwick, Englewood, CO 80110................................... 80,794(4) 24.1%
All directors (and the sole executive officer) as a group (2
persons)......................................................... 154,654 46.2%
Other Principal Shareholders:
Elliot & Ruth Handler, as Trustees of the Elliot & Ruth Handler
Living Trust UTD
12/26/74, as amended from time to time
2222 Avenue of the Stars, Apt #2803 Towers East,
Los Angeles, CA 90067............................................ 33,252 9.9%
Nancy Miller
2 Inverness Drive East, #200, Englewood, CO 80112.................. 32,905(5) 9.8%
Judy Pepper
2777 South Elmira, #17, Denver, CO 80231........................... 28,707(6) 8.6%
Gail Nelson
5919 West Colgate Avenue
Los Angeles, CA 90036.............................................. 29,776(7) 8.9%
Ellen S. Reisner
2908 Wicklow Road, Los Angeles, CA 90064........................... 36,069(8) 10.8%
</TABLE>
- ---------------
(1) Beneficial ownership includes shares over which the indicated beneficial
owner exercises voting and/or investment power.
(2) Does not include the 10,000 shares of Class B nonvoting Common Stock or the
100,000 shares of Bank Land Preferred Stock owned of record and beneficially
by Gary A. Mosko.
(3) Includes: (a) 32,000 shares (9.6%) owned by the Joseph Mosko Irrevocable
Trust; and (b) 8,085.50 shares where Mr. Mosko has shared voting and
investment powers with his sisters, Gail Nelson and Ellen S. Reisner.
(4) Includes: (a) 1,809 shares (0.5%) owned by the Betty I. Lustig Marital
Deduction Trust and 38,000 shares (11.4%) owned by The Harold V. Lustig
Irrevocable Trust where, in each instance, Mr. Lustig is the sole trustee;
(b) 16,633 shares where Mr. Lustig has shared voting and investment powers
with his wife; (c) 8,085.50 shares where Mr. Lustig has shared voting and
investment powers with his sisters, Nancy Miller and Judy Pepper; and (d)
1,700 shares owned beneficially by Mr. Lustig's wife.
(5) Includes: (a) 17,006 shares where Mrs. Miller has shared voting and
investment powers with her husband; (b) 8,085.50 shares where Mrs. Miller
has shared voting and investment powers with her brother and sister, James
A. Lustig and Judy Pepper; and (c) 1,700 shares beneficially owned by Mrs.
Miller's husband.
132
<PAGE> 146
(6) Includes: (a) 12,808 shares where Mrs. Pepper has shared voting and
investment powers with her husband; (b) 8,085.50 shares where Mrs. Pepper
has shared voting and investment powers with her brother and sister, James
A. Lustig and Nancy Miller; and (c) 1,700 shares owned by Mrs. Pepper's
husband.
(7) Includes 8,085.50 shares where Ms. Nelson has shared voting and investment
powers with her brother and sister, Gary A. Mosko and Ellen S. Reisner.
(8) Includes: (a) 12,113 shares where Mrs. Reisner has shared voting and
investment powers with her husband; and (b) 8,085.50 shares where Mrs.
Reisner has shared voting and investment powers with her brother and sister,
Gary A. Mosko and Gail Nelson.
THE BANK
Bank Land owns 138,212 shares or 92.14% of the outstanding Common Stock of
the Bank. The remaining 11,788 shares or 7.86% is owned by approximately 30
shareholders. No other shareholder owns more than 5% of the Bank's outstanding
Common Stock.
COMPARATIVE RIGHTS OF BANK LAND AND BANK SHAREHOLDERS
The current rights of the Bank Land Shareholders and Bank Shareholders are
governed by the CBCA, and the articles of incorporation and bylaws of Bank Land
and the Bank. Upon consummation of the Mergers, Bank Land and Bank Shareholders
will become shareholders of VBC, a Colorado corporation. As shareholders of VBC,
their rights will be governed by the CBCA and VBC's articles of incorporation
and bylaws. The articles of incorporation and bylaws of Bank Land and the Bank
differ from the articles of incorporation of VBC in certain respects. Although
it is not practical to compare all such differences, the following is a summary
of certain of the more significant differences.
AUTHORIZED CAPITAL STOCK
BANK LAND. Under the articles of incorporation of Bank Land, the aggregate
number of shares of capital stock which Bank Land is authorized to issue is
3,000,000 shares of capital stock, no par value, consisting of 2,000,000 shares
of Class A Common Stock, 500,000 shares of Class B Common Stock and 500,000
shares of Preferred Stock.
The Class B Common Stock has no voting privileges or voting power, except
as otherwise required by the CBCA. In all other instances the Class B Common
Stock has full rights, privileges, and power as that of Class A Common Stock.
Except as otherwise required by the CBCA, the voting power of Bank Land is
vested exclusively in the Class A Common Stock, and each share of Class A Common
Stock is entitled to one vote in person or by written proxy at all meetings of
Bank Land shareholders, or on matters in which the shareholders are entitled to
vote.
The Bank Land Preferred Stock is not be entitled to any rights in or to
Bank Land, including, but not limited to, voting (except as otherwise required
by the CBCA), dividend, liquidation, conversion, or any other preferences and
other special rights, except that upon the sale of the Bank Land stock or
assets, the holder of the Bank Land Preferred Stock, Gary A. Mosko, shall
receive 7.5% of the net proceeds. The terms "net proceeds" means the net amount
received in consideration of the sale of Bank Land's stock or assets after
payments of commission and expenses of sale.
THE BANK. Under the articles of incorporation of the Bank the aggregate
number of shares of capital stock which the Bank is authorized to issue is
150,000 shares of Common Stock, $10.00 par value per share. All shares of the
Bank Common Stock are identical in rights and have one vote per share. The
holders of the Bank Common Stock are entitled to such dividends as may be
declared from time to time by the board of directors of the Bank for funds
available therefor. The Bank Shareholders are entitled to receive pro rata all
assets of the Bank remaining after provision for liabilities upon liquidation of
the Bank.
133
<PAGE> 147
VBC. Under the articles of incorporation of VBC, the aggregate number of
shares of capital stock which VBC is authorized to issue is one million shares
of preferred stock with a par value of $.10 per share and seven million shares
of VBC Common Stock with a $.01 par value per share. Each share of VBC Common
Stock is entitled to one vote per share. The preferred stock of VBC may be
issued in one or more series as may be determined from time to time by the board
of directors. In establishing a series of preferred stock, the board of
directors shall give to it a distinctive designation so as to distinguish it
from the shares of all other series and classes, shall fix the number of shares
in such series and the preferences, rights, and restrictions thereof. All series
of preferred stock will be alike except that there may be variations as to the
following: (i) the rate of distribution; (ii) the price at and the terms and
conditions upon which shares shall be redeemed; (iii) the amount payable upon
shares for distributions of any kind; (iv) sinking fund provisions for the
redemption of shares; (v) the terms and conditions upon which shares may be
converted if the shares of any series are issued with the privilege of
conversion; and (vi) voting rights except as limited by law. See "Description of
VBC 1996 Series A Preferred Stock" with regards to the terms of one stock to be
issued to Bank Land Shareholders and Bank Shareholders at the Effective Time of
the Mergers and "Description of Other VBC Capital Stock" for the terms of VBC's
other outstanding preferred stock.
VOTING REQUIREMENTS; CUMULATIVE VOTING; PREEMPTIVE RIGHTS; AND LIMITATION ON
DIRECTOR LIABILITY
The articles of incorporation of Bank Land and the Bank require the
affirmative vote of two-thirds of the outstanding shares in connection with
extraordinary transactions such as the Mergers and amendments to articles of
incorporation. The articles of incorporation of VBC require only a majority vote
for such actions.
The articles of incorporation of Bank Land, the Bank and VBC deny
cumulative voting in connection with the election of directors.
Preemptive rights are denied by the Articles of Incorporation of Bank Land,
the Bank and VBC.
The articles of incorporation of the Bank and VBC provide that personal
liability of its directors to VBC or to shareholders for monetary damages for
breach of fiduciary duty as directors is limited to the fullest extent provided
by Colorado law. The articles of incorporation of Bank Land do not contain such
a provision. Under the CBCA, directors are entitled to the foregoing exculpatory
treatment only if the articles of incorporation so provide. The articles of
incorporation of the Bank and VBC eliminate personal liability of a director to
the respective entities and its shareholders for monetary damage for such
person's conduct as a director provided that such provision is not limited with
respect to liability: (i) for a breach of a director's duty of loyalty; (ii) for
acts or omissions not in good faith or involving intention misconduct or a
knowing violation of law; (iii) for unlawful payments of dividends and certain
stock repurchases or redemptions; or (iv) for any transaction from which the
director derived an improper personal benefit. These provisions have the effect
of protecting directors of the Bank and VBC against personal monetary liability
from breaches of their duty of care, while the articles of incorporation of Bank
Land do not contain such provisions.
DEADLINE FOR VBC SHAREHOLDER PROPOSALS
Any VBC shareholder who wishes to present a proposal for action at the 1997
Annual Meeting of the VBC shareholders must submit his or her proposal in
writing by Certified Mail -- Return Receipt Requested, to VBC Banking
Corporation, 1650 South Colorado Boulevard, Suite 320, Denver, Colorado 80222,
no later than January 15, 1997.
LEGAL MATTERS
The validity of the 1996 Series A Preferred Stock offered hereby will be
passed upon for VBC by Jones & Keller, P.C., Denver, Colorado. Freeborn &
Peters, Denver, Colorado, will be rendering a tax opinion to VBC, Vectra, Bank
Land and the Bank and with regard to certain tax consequences of the Mergers.
Baker & Hostetler, Denver, Colorado, is acting as counsel for Bank Land and the
Bank in connection with certain legal matters relating to the Merger Agreement.
134
<PAGE> 148
EXPERTS
The consolidated financial statements of VBC as of December 31, 1995 and
1994, and for each of the years in the three-year period ended December 31,
1995, have been included herein and in the registration statement in reliance
upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing. The report of KPMG Peat Marwick LLP refers
to changes in the methods of accounting for impairment of loans in 1995, for
goodwill in 1994, and for income taxes and certain investments in debt and
equity securities in 1993.
The consolidated financial statements of Bank Land as of December 31, 1995
and 1994 and for each of the two years in the period ended December 31, 1995
included in this Prospectus/Joint Proxy Statement have been audited by Fortner,
Bayens, Levkulich and Co., independent auditors, as stated in their report
appearing elsewhere herein, and has been so included in reliance upon the report
of such firm given upon their authority as experts in accounting and auditing.
135
<PAGE> 149
VECTRA BANKING CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.......................................................... F-2
Consolidated Balance Sheets -- March 31, 1996 (unaudited) and December 31, 1995 and
1994................................................................................ F-3
Consolidated Statements of Operations -- Three Months Ended March 31, 1996 and 1995
(unaudited) and Years Ended December 31, 1995, 1994 and 1993........................ F-4
Consolidated Statements of Shareholders' Equity -- Three Months Ended March 31, 1996
(unaudited) and Years Ended December 31, 1995, 1994 and 1993........................ F-5
Consolidated Condensed Statements of Cash Flows -- Three Months Ended March 31, 1996
and 1995 (unaudited)................................................................ F-6
Consolidated Statements of Cash Flows -- Years Ended December 31, 1995, 1994 and
1993................................................................................ F-7
Notes to Consolidated Financial Statements............................................ F-8
</TABLE>
F-1
<PAGE> 150
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Vectra Banking Corporation:
We have audited the accompanying consolidated balance sheets of Vectra
Banking Corporation and subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of operations, shareholders equity, and cash
flows for each of the years in the three-year period ended December 31, 1995.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Vectra
Banking Corporation and subsidiaries as of December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1995, in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the consolidated financial statements, the
Company adopted the provisions of Statements of Financial Accounting Standards
No. 114, Accounting by Creditors for Impairment of a Loan, and No. 118,
Accounting by Creditors for Impairment of a Loan -- Income Recognition and
Disclosures, as of January 1, 1995. In addition, as also discussed in Notes 1
and 12 to the consolidated financial statements, the Company adopted the
provisions of Statements of Financial Accounting Standards No. 115, Accounting
for Certain Investments in Debt and Equity Securities, as of December 31, 1993,
and No. 109, Accounting for Income Taxes, as of January 1, 1993.
As discussed in Note 1 to the consolidated financial statements, a 1995
business combination accounted for as a pooling of interests included a company
which changed its method of accounting for goodwill during 1994 as a result of
the adoption of the provisions of Statement of Financial Accounting Standards
No. 72, Accounting for Certain Acquisitions of Banking or Thrift Institutions.
KPMG Peat Marwick LLP
Denver, Colorado
February 2, 1996
F-2
<PAGE> 151
VECTRA BANKING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
MARCH 31, -------- --------
1996
-----------
(UNAUDITED)
<S> <C> <C> <C>
Cash and due from banks (note 3)............................ $ 17,235 $ 17,320 $ 17,249
Securities available for sale, at market value (notes 4, 5,
8 and 9).................................................. 175,686 170,384 209,517
Securities held to maturity, at cost (market value of $535,
$819 and $24,902 at March 31, 1996 and December 31, 1995
and 1994, respectively) (notes 1, 4 and 8)................ 535 814 25,569
Investment in Federal Home Loan Bank stock (note 8)......... 3,873 5,173 8,843
Federal funds sold.......................................... -- 2,000 810
Loans (notes 6, 8 and 9).................................... 206,393 206,664 181,765
Less allowance for loan losses............................ (2,596) (2,493) (1,999)
-------- -------- --------
Net loans......................................... 203,797 204,171 179,766
Accrued interest receivable................................. 2,252 2,127 2,740
Real estate acquired by foreclosure, net.................... 942 919 1,265
Premises and equipment, net (notes 7 and 10)................ 10,439 10,575 10,340
Deferred income taxes, net (note 12)........................ 2,505 2,422 5,161
Other assets................................................ 2,132 1,901 1,054
-------- -------- --------
Total assets...................................... $ 419,396 $417,806 $462,314
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand.................................................... $ 81,994 $ 80,058 $ 84,695
NOW and money market...................................... 64,301 63,704 59,636
Savings................................................... 106,664 99,254 89,188
Time deposits under $100,000.............................. 47,644 49,511 25,766
Time deposits of $100,000 and over........................ 13,948 14,558 8,899
-------- -------- --------
Total deposits.................................... 314,551 307,085 268,184
-------- -------- --------
Advances from the Federal Home Loan Bank and federal funds
purchased (note 8)........................................ 65,500 70,345 162,190
Securities and loans sold under agreements to repurchase
(note 9).................................................. 5,403 7,429 5,888
Notes payable (note 10)..................................... 1,046 1,051 1,109
Accounts payable and other liabilities...................... 1,926 1,711 1,350
-------- -------- --------
Total liabilities................................. 388,426 387,621 438,721
-------- -------- --------
Shareholders' equity (notes 2 and 11):
Preferred stock, $.10 par value: 1,000,000 shares
authorized; 805,000 shares of Series A cumulative
preferred issued and outstanding (liquidation
preference of $8,050).................................. 8,050 8,050 8,050
Common stock, $.01 par value: 7,000,000 shares authorized;
3,195,279 shares issued and outstanding................ 32 32 32
Capital in excess of par value............................ 25,578 25,572 25,546
Retained earnings (deficit)............................... 974 170 (2,368)
Unrealized loss on securities available for sale, net of
income tax effect of $2,208, $2,194 and $4,619 at March
31, 1996 and December 31, 1995 and 1994,
respectively........................................... (3,664) (3,639) (7,667)
-------- -------- --------
Total shareholders' equity........................ 30,970 30,185 23,593
-------- -------- --------
Commitments and contingencies (notes 2, 5 and 14)
Total liabilities and shareholders' equity........ $ 419,396 $417,806 $462,314
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 152
VECTRA BANKING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
----------------------- -------------------------------------
1996 1995 1995 1994 1993
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Interest income:
Interest and fees on loans.................................. $ 5,306 $ 4,711 $ 20,133 $ 16,042 $ 13,093
Interest on investments..................................... 2,572 3,983 14,007 12,403 5,504
Interest on federal funds sold.............................. 9 19 113 98 103
--------- --------- --------- --------- ---------
Total interest income................................. 7,887 8,713 34,253 28,543 18,700
--------- --------- --------- --------- ---------
Interest expense:
Interest on deposits:
NOW, money market and savings accounts.................... 1,521 1,239 5,567 4,532 3,564
Time deposits under $100,000.............................. 681 327 2,305 695 757
Time deposits of $100,000 and over........................ 201 104 638 289 388
Advances from the Federal Home Loan Bank.................... 920 2,422 7,483 5,420 952
Securities and loans sold under agreements to repurchase.... 71 43 240 116 60
Notes payable............................................... 24 26 97 120 191
--------- --------- --------- --------- ---------
Total interest expense................................ 3,418 4,161 16,330 11,172 5,912
--------- --------- --------- --------- ---------
Net interest income................................... 4,469 4,552 17,923 17,371 12,788
Provision for loan losses (note 6)............................ 179 200 795 794 283
--------- --------- --------- --------- ---------
Net interest income after provision for loan losses... 4,290 4,352 17,128 16,577 12,505
--------- --------- --------- --------- ---------
Other income:
Service fees on deposit accounts............................ 706 633 2,615 2,690 2,859
Net gain on sales of loans.................................. 390 79 1,004 582 750
Net gain (loss) on sale of securities....................... -- (9) (20) 6 262
Other....................................................... 47 25 221 229 130
--------- --------- --------- --------- ---------
Total other income.................................... 1,143 728 3,820 3,507 4,001
--------- --------- --------- --------- ---------
Other expenses:
Salaries and employee benefits.............................. 2,267 1,988 8,444 7,769 7,018
Occupancy, net.............................................. 633 539 2,349 2,220 2,122
Marketing and promotion..................................... 271 248 1,205 852 789
Professional services....................................... 114 154 747 569 487
Printing, supplies and postage.............................. 164 171 656 601 504
Credit quality including write downs of real estate acquired
by foreclosure............................................ 154 146 533 494 741
Data processing............................................. 115 125 492 488 434
FDIC and state bank assessments............................. 13 143 383 665 599
Telephone................................................... 101 73 326 271 219
Amortization of intangible assets........................... 14 -- 29 348 550
Other....................................................... 188 165 707 775 1,289
--------- --------- --------- --------- ---------
Total other expenses.................................. 4,034 3,752 15,871 15,052 14,752
--------- --------- --------- --------- ---------
Earnings before income taxes and cumulative effects of
changes in accounting............................... 1,399 1,328 5,077 5,032 1,754
Income tax expense (note 12).................................. 410 463 1,774 820 617
--------- --------- --------- --------- ---------
Earnings before cumulative effects of changes in
accounting.......................................... 989 865 3,303 4,212 1,137
Cumulative effect of change in accounting for goodwill (note
1).......................................................... -- -- -- (1,537) --
Cumulative effect of change in accounting for income taxes
(note 12)................................................... -- -- -- -- 1,273
--------- --------- --------- --------- ---------
Net earnings.......................................... 989 865 3,303 2,675 2,410
Preferred stock dividends..................................... 185 185 765 579 6
--------- --------- --------- --------- ---------
Net earnings available to common shareholders......... $ 804 $ 680 $ 2,538 $ 2,096 $ 2,404
========= ========= ========= ========= =========
Earnings per share:
Earnings before cumulative effects of changes in
accounting................................................ $ .25 $ .21 $ .79 $ 1.20 $ .45
Cumulative effects of changes in accounting................. -- -- -- $ (.51) $ .50
--------- --------- --------- --------- ---------
Primary earnings per common share......................... $ .25 $ .21 $ .79 $ .69 $ .95
========= ========= ========= ========= =========
Fully diluted earnings per common share................... $ .25 $ .21 $ .78 $ .69 $ .95
========= ========= ========= ========= =========
Weighted average number of common shares outstanding.......... 3,195,279 3,195,279 3,195,279 3,023,385 2,538,469
========= ========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 153
VECTRA BANKING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1996 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
PREFERRED STOCK
----------------------------------- UNREALIZED
LOSS ON TOTAL
1989 SERIES A COMMON STOCK CAPITAL IN RETAINED SECURITIES SHARE-
---------------- ---------------- ------------------ EXCESS OF EARNINGS AVAILABLE TREASURY HOLDERS'
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT PAR VALUE (DEFICIT) FOR SALE, NET STOCK EQUITY
------- ------ ------- ------ --------- ------ ---------- -------- ------------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES
AT
JANUARY
1,
1993.... 26,465 $ 477 -- $ -- 2,538,479 $ 25 $ 21,472 $(6,868 ) $ -- $(49) $15,057
Amortization
of
restricted
stock
grants... -- -- -- -- -- -- 26 -- -- -- 26
Dividends
on
preferred
stock... -- -- -- -- -- -- -- (6 ) -- -- (6)
Purchase
of
treasury
stock... -- -- -- -- -- -- -- -- -- (14) (14)
Sale of
treasury
stock... -- -- -- -- -- -- 10 -- -- 46 56
Unrealized
loss on
securities
available
for
sale,
net of
income
tax
effect... -- -- -- -- -- -- -- -- (176) -- (176)
Net
earnings... -- -- -- -- -- -- -- 2,410 -- -- 2,410
------- ----- ------- ------ --------- --- ------- ------- ------- ---- -------
BALANCES
AT
DECEMBER
31,
1993.... 26,465 477 -- -- 2,538,479 25 21,508 (4,464 ) (176) (17) 17,353
Redemption
and
cancellation
of
preferred
stock
for cash
(note
11)..... (25,080) (477 ) -- -- -- -- -- -- -- -- (477)
Common
stock
issued
for cash
in
initial
public
offering,
net of
offering
costs
(note
11)..... -- -- -- -- 923,770 9 6,412 -- -- -- 6,421
Preferred
stock
issued
for cash
in
initial
public
offering,
net of
offering
costs
(note
11)..... -- -- 805,000 8,050 -- -- -- -- -- -- 8,050
Redemption
and
cancellation
of
common
stock
for cash
(note
11)..... -- -- -- -- (270,000) (2) (2,401) -- -- -- (2,403)
Exercise
of
common
stock
options... -- -- -- -- 3,030 -- 20 -- -- -- 20
Amortization
of
restricted
stock
grants... -- -- -- -- -- -- 25 -- -- -- 25
Dividends
on
preferred
stock... -- -- -- -- -- -- -- (579 ) -- (1) (580)
Cancellation
of
treasury
stock... (1,385) -- -- -- -- -- (18) -- -- 18 --
Change in
unrealized
loss on
securities
available
for
sale,
net of
income
tax
effect... -- -- -- -- -- -- -- -- (7,491) -- (7,491)
Net
earnings... -- -- -- -- -- -- -- 2,675 -- -- 2,675
------- ----- ------- ------ --------- --- ------- ------- ------- ---- -------
BALANCES
AT
DECEMBER
31,
1994.... -- -- 805,000 8,050 3,195,279 32 25,546 (2,368 ) (7,667) -- 23,593
Amortization
of
restricted
stock
grants... -- -- -- -- -- -- 26 -- -- -- 26
Dividends
on
preferred
stock... -- -- -- -- -- -- -- (765 ) -- -- (765)
Change in
unrealized
loss on
securities
available
for
sale,
net of
income
tax
effect... -- -- -- -- -- -- -- -- 4,028 -- 4,028
Net
earnings... -- -- -- -- -- -- -- 3,303 -- -- 3,303
------- ----- ------- ------ --------- --- ------- ------- ------- ---- -------
BALANCES
AT
DECEMBER
31,
1995.... -- -- 805,000 8,050 3,195,279 32 25,572 170 (3,639) -- 30,185
Amortization
of
restricted
stock
grants... -- -- -- -- -- -- 6 -- -- -- 6
Dividends
on
preferred
stock... -- -- -- -- -- -- -- (185 ) -- -- (185)
Change in
unrealized
loss on
securities
available
for
sale,
net of
income
tax
effect... -- -- -- -- -- -- -- -- (25) -- (25)
Net
earnings... -- -- -- -- -- -- -- 989 -- -- 989
------- ----- ------- ------ --------- --- ------- ------- ------- ---- -------
BALANCES
AT MARCH
31,
1996.... -- $ -- 805,000 $8,050 3,195,279 $ 32 $ 25,578 $ 974 $(3,664) $ -- $30,970
======= ===== ======= ====== ========= === ======= ======= ======= ==== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 154
VECTRA BANKING CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1996 1995
-------- -------
(UNAUDITED)
<S> <C> <C>
Net cash provided by operating activities............................. $ 1,200 $ 1,745
-------- --------
Cash flows from investing activities:
Net decrease in loans............................................... 172 1,417
Purchase of securities available for sale........................... (12,082) (1,989)
Purchase of securities held to maturity............................. -- (1,462)
Proceeds from sales of securities available for sale................ 4,640 1,010
Proceeds from maturities of securities available for sale........... 2,133 2,020
Proceeds from maturities of securities held to maturity............. 285 1,925
Net decrease (increase) in federal funds sold....................... 2,000 (830)
Other............................................................... 1,162 23
-------- --------
Net cash provided (used) by investing activities............ (1,690) 2,114
-------- --------
Cash flows from financing activities:
Net increase (decrease) in deposits................................. 7,466 (6,131)
Net increase (decrease) in FHLB advances and federal funds
purchased........................................................ (4,845) 1,610
Repayment of notes payable.......................................... (5) (7)
Preferred stock dividend............................................ (185) (185)
Net decrease in securities and loans sold under agreements to
repurchase....................................................... (2,206) (1,568)
-------- --------
Net cash provided (used) by financing activities............ 405 (6,281)
-------- --------
Net decrease in cash and due from banks............................... (85) (2,422)
Cash and due from banks at beginning of period........................ 17,320 17,249
-------- --------
Cash and due from banks at end of period.............................. $ 17,235 $14,827
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 155
VECTRA BANKING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Interest received................................................................ $ 34,898 $ 27,311 $ 20,362
Interest paid.................................................................... (16,088) (11,109) (5,941)
Fees and other income received................................................... 2,836 2,899 2,240
Proceeds from sale of loans held for sale........................................ 21,562 20,503 25,699
Originations of loans held for sale.............................................. (21,769) (19,805) (25,958)
Payments to employees and suppliers.............................................. (15,380) (13,967) (13,188)
Income taxes paid................................................................ (1,710) (242) (136)
--------- --------- ---------
Net cash provided by operating activities.................................. 4,349 5,590 3,078
--------- --------- ---------
Cash flows from investing activities:
Net loan originations and collections............................................ (24,310) (40,353) (14,422)
Decrease (increase) in federal funds sold........................................ (1,190) 2,620 (175)
Proceeds from sale of real estate acquired by foreclosure........................ 749 246 307
Additions to real estate acquired by foreclosure................................. (47) -- --
Purchase of premises and equipment............................................... (977) (577) (621)
Purchase of securities available for sale........................................ (6,007) (164,775) --
Purchase of securities held to maturity.......................................... (3,675) (10,820) (129,316)
Purchase of Federal Home Loan Bank stock......................................... (258) (4,757) (781)
Proceeds from sale of Federal Home Loan Bank stock............................... 3,928 -- --
Proceeds from maturities of securities available for sale........................ 6,666 15,857 --
Proceeds from maturities of securities held to maturity.......................... 6,033 4,319 67,816
Proceeds from sale of securities available for sale.............................. 65,425 20,560 41,746
Proceeds from cash surrender value of life insurance policies.................... 1,838 -- --
Other............................................................................ (227) 31 52
--------- --------- ---------
Net cash provided (used) by investing activities........................... 47,948 (177,649) (35,394)
--------- --------- ---------
Cash flows from financing activities:
Net increase in deposits......................................................... 38,901 18,073 45,014
FHLB advances having maturities greater than three months........................ 90,000 85,000 13,000
Repayment of FHLB advances having maturities greater than three months........... (117,000) (13,000) (23,350)
Net increase (decrease) in other FHLB advances................................... (64,845) 70,690 (4,800)
Net increase (decrease) in securities and loans sold under agreement to
repurchase..................................................................... 1,541 2,835 (1,270)
Repayment of notes payable....................................................... (58) (968) (275)
Proceeds from issuance of common and preferred stock, net........................ -- 14,491 --
Common and preferred stock redemption............................................ -- (2,880) --
Net treasury stock transactions.................................................. -- (1) 42
Preferred stock dividends........................................................ (765) (579) (6)
--------- --------- ---------
Net cash provided (used) by financing activities........................... (52,226) 173,661 28,355
--------- --------- ---------
Net increase (decrease) in cash and due from banks......................... 71 1,602 (3,961)
Cash and due from banks at beginning of year....................................... 17,249 15,647 19,608
--------- --------- ---------
Cash and due from banks at end of year............................................. $ 17,320 $ 17,249 $ 15,647
========= ========= =========
Reconciliation of net earnings to net cash provided by operating activities:
Net earnings..................................................................... $ 3,303 $ 2,675 $ 2,410
Cumulative effect of change in accounting for income taxes....................... -- -- (1,273)
Cumulative effect of change in accounting for goodwill........................... -- 1,537 --
Provision for loan losses........................................................ 795 794 283
Net amortization of premiums and discounts on securities and loans............... 33 20 857
Depreciation and amortization of premises and equipment.......................... 923 892 784
Amortization of intangible assets................................................ 29 348 550
Deferred income tax expense...................................................... 314 501 461
Decrease (increase) in accrued interest receivable............................... 613 (1,276) 55
Decrease (increase) in loans held for sale....................................... (1,211) 116 (1,009)
Net change in other assets, accounts payable and other liabilities............... (486) 37 27
Gain on sale of securities available for sale.................................... (467) (44) (305)
Loss on sale of securities available for sale.................................... 487 38 43
Other............................................................................ 16 (48) 195
--------- --------- ---------
Net cash provided by operating activities.................................. $ 4,349 $ 5,590 $ 3,078
========= ========= =========
Supplemental schedule of noncash investing and financing activities and other
information:
Premises acquired in exchange for note payable and other liabilities............. $ 262 $ -- $ 167
========= ========= =========
Real estate acquired by foreclosure.............................................. $ 321 $ 711 $ 112
========= ========= =========
Loans to facilitate the sale of real estate acquired by foreclosure.............. $ -- $ -- $ 206
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 156
VECTRA BANKING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE
THREE MONTHS ENDED MARCH 31, 1996 AND 1995 IS UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Summarized below are the significant accounting policies followed by Vectra
Banking Corporation and subsidiaries (Vectra or the Company) in the
determination of financial position, results of operations or cash flows.
Organization and Basis of Financial Statement Presentation
Vectra was organized March 23, 1988 under the laws of the State of Colorado
and has been engaged in the management and operation of financial institutions
located in the Denver/Boulder market area. The Company offers a full range of
loan and deposit products to local consumers and commercial businesses.
The consolidated financial statements include the accounts of Vectra and
its subsidiaries. All significant intercompany accounts and transactions have
been eliminated in consolidation.
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting periods. Actual results could differ from those estimates.
Unaudited Interim Consolidated Financial Statements
The consolidated balance sheet as of March 31, 1996 and the consolidated
statements of operations and condensed cash flows for the three months ended
March 31, 1996 and 1995, and the consolidated statement of shareholders' equity
for the three months ended March 31, 1996 are unaudited. In the opinion of
management, all adjustments necessary for the fair presentation of the financial
position, results of operations and cash flows as of March 31, 1996 and for the
three months ended March 31, 1996 and 1995, consisting only of normal recurring
adjustments, have been included. The results of operations for the three months
ended March 31, 1996 and 1995 are not necessarily indicative of the results
which may be expected for the entire year.
Regulatory Environment
Vectra is subject to regulations of certain state and federal agencies,
including periodic examinations by those regulatory agencies. The Company is
also subject to minimum regulatory capital requirements. At March 31, 1996 and
December 31, 1995, Vectra's capital levels exceed minimum capital requirements,
as do the capital levels of its subsidiary banks.
Securities
The Company accounts for securities in accordance with Statement of
Financial Accounting Standards No. 115, Accounting for Certain Investments in
Debt and Equity Securities (SFAS 115). SFAS 115 addresses the accounting and
reporting for all investments in debt securities. Under SFAS 115, investments
are classified into three categories and accounted for as follows:
HELD-TO-MATURITY -- This category includes debt securities that the
Company has the positive intent and ability to hold to maturity. All
securities in this category are recorded at amortized historical cost.
TRADING SECURITIES -- These securities are purchased and sold for the
purpose of generating profits on short-term differences in market prices
and are recorded at fair value, with any unrealized gains and losses being
reflected in earnings.
F-8
<PAGE> 157
VECTRA BANKING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
AVAILABLE-FOR-SALE -- These securities do not meet the classification
criteria for Held-to-Maturity or Trading Securities and are recorded at
fair value with any unrealized gains and losses, net of income tax effect,
being reflected as a separate component of shareholders equity.
SFAS 115 does not affect the accounting for amortization of premiums and
accretion of discounts.
Effective December 31, 1993, Vectra adopted the provisions of SFAS 115. The
effect of this change in accounting was to record an unrealized loss of
$212,000, net of income tax effect, as of December 31, 1993 as a reduction of
shareholders equity.
As of March 31, 1996 and December 31, 1995, substantially all securities
are classified as available for sale, except for approximately $535,000 and
$814,000, respectively, of private placement bonds and asset-backed receivable
investments which are classified as held-to-maturity.
Securities held to maturity are recorded at cost and are adjusted for
amortization of premiums and accretion of discounts. Amortization and accretion
are computed using the estimated effective interest method. Gains or losses on
sales of securities are recognized upon disposal. The adjusted cost of specific
securities sold is used to compute realized gains or losses.
Securities available for sale are recorded at fair value based upon quotes
from brokers who actively participate in the relevant securities markets and
areas or from other pricing services.
In connection with the pooling of interests with First Denver Corporation
(FDC) (see note 2), Vectra transferred all securities classified by FDC as held
to maturity to available for sale in 1995, consistent with Vectra's existing
policies. The amortized cost and unrealized gain on these securities at the date
of the acquisition totaled approximately $22,258,000 and $210,000, respectively.
A substantial portion of Vectra's securities are collateralized mortgage
obligations and mortgage-backed securities (MBS). These investments are usually
purchased at a premium or discount to their stated or par value. The yield on
these investments is impacted by changes in the prepayments of the mortgages
underlying the securities. When prepayments accelerate, premiums and discounts
must be amortized against interest income at an accelerated rate thereby
changing the yield on the securities. A substantial portion of Vectra's
securities are guaranteed as to the payment of principal and interest (but not
premiums) by U.S. government sponsored entities.
Loans and Interest Income
Interest on loans is accrued daily on the principal balance outstanding.
Unearned income, net of direct origination costs on loans, is recognized in
interest income over the terms of the loans using a method that approximates the
effective interest method. Loans on which payments are overdue 90 days or more
are placed on nonaccrual status, unless both interest and principal are
adequately secured or the loans are in the process of normal collection or
renewal.
Loans held for sale are recorded at the lower of cost or market value.
Gains or losses on sales of loans are recognized upon disposal based on the
carrying amount or allocated basis of the specific loans sold.
Impairment of Loans and Allowance for Loan Losses
Vectra's lending personnel are responsible for the continuous monitoring of
the quality of its loan portfolio. The loan portfolios are also monitored
monthly and examined by the Company's loan review personnel. These reviews
assist in the identification of potential and probable losses, and in the
determination of the level of the allowance for loan losses. The allowance for
loan losses is based primarily on management's estimates of possible loan losses
from these procedures and historical experience. These estimates involve
F-9
<PAGE> 158
VECTRA BANKING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
judgments and a certain level of subjectivity and may be adjusted in the future
depending on economic conditions.
The Company adopted Financial Accounting Standards (SFAS) No. 114,
Accounting by Creditors for Impairment of a Loan, and SFAS No. 118, Accounting
by Creditors for Impairment of a Loan -- Income Recognition and Disclosures,
(collectively referred to as SFAS 114) effective January 1, 1995. SFAS 114
requires that certain impaired loans be measured based on the present value of
expected cash flows discounted at the loan's original effective interest rate.
As a practical expedient, impairment may be measured based on the loan's
observable market price or the fair value of the collateral if the loan is
collateral dependent. When the measure of the impaired loan is less than the
recorded investment in the loan, the impairment is recorded through a valuation
allowance.
The Company had previously measured the allowance for loan losses using
methods similar to those prescribed in SFAS 114. Accordingly, the adoption of
SFAS 114 did not result in any additional allowance for loan losses as of
January 1, 1995.
As of March 31, 1996 and December 31, 1995, the Company's recorded
investment in impaired loans was approximately $1,167,000 and $1,314,000,
respectively, and the related valuation allowance calculated under SFAS 114
totaled approximately $263,000 and $241,000, respectively. This valuation
allowance is included in the allowance for loan losses in the accompanying
consolidated balance sheet. The average recorded investment in impaired loans
for the three months ended March 31, 1996 and year ended December 31, 1995 was
$1,241,000 and $949,000, respectively.
State and federal regulatory agencies, as an integral part of their
examination process, periodically review Vectra's loans and allowance for loan
losses. Such agencies may require the Company to record additional provisions
for losses based upon their evaluation of information available at the time of
their examinations.
Real Estate and Other Assets Acquired by Foreclosure Including In-Substance
Foreclosures
Real estate and other assets acquired in satisfaction of indebtedness and
loans accounted for as in-substance foreclosures are recorded at the lower of
estimated fair value or the loan amount. Fair value is determined primarily
based on independent appraisals. Loan losses arising in connection with the
acquisition of such property are charged against the allowance for loan losses.
Subsequent declines in value are charged to operating expense.
Costs incurred in connection with improvements to the properties are
capitalized until such costs result in an amount equal to fair value. In
accordance with SFAS 114, a loan is classified as an in-substance foreclosure
only when the Company has taken possession of the collateral regardless of
whether formal repossession has taken place. At March 31, 1996 and December 31,
1995 and 1994 loans accounted for as in-substance foreclosures were not
significant.
Expenses of holding foreclosed property, including operating and selling
expenses, net of rental income, are generally charged against operations as
incurred. Gains and losses on disposition of these properties are recognized in
the year in which the sales occur.
Premises and Equipment
Land, buildings, leasehold improvements, and furniture and equipment are
recorded at cost, less accumulated depreciation and amortization. The provision
for depreciation and amortization is computed using the straight-line method
over the estimated useful lives of the assets, or the lease term for leasehold
improvements. Lives generally range from 3 to 7 years for furniture and
equipment and 25 to 30 years for buildings and improvements.
F-10
<PAGE> 159
VECTRA BANKING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Goodwill and Change in Accounting
In connection with the acquisition of First National Bank of Denver by
First Denver Corporation (FDC) (see note 2) in October 1981, goodwill in the
amount of $2,196,000 was recorded by FDC. The goodwill was primarily the result
of the fair value of liabilities assumed exceeding the fair value of
identifiable assets acquired, and was originally being amortized using the
straight-line method over 40 years. During 1994, FDC changed its method of
accounting for goodwill through the adoption of the provisions of Statement of
Financial Accounting Standards No. 72, Accounting for Certain Acquisitions of
Banking or Thrift Institutions (SFAS 72), as provided by Emerging Issues Task
Force Issue No. 89-19, Accounting for a Change in Goodwill Amortization for
Business Combinations Initiated Prior to the Effective Date of FASB Statement
No. 72. SFAS 72 requires that goodwill resulting from the fair value of
liabilities assumed exceeding the fair value of identifiable assets acquired be
amortized to expense by the interest method over a period no longer than the
discount on the long-term interest-bearing assets acquired. Accordingly, under
SFAS 72, the aforementioned goodwill would be completely amortized prior to
January 1, 1994.
The cumulative effect of this change in accounting, which was applied as of
January 1, 1994, was a decrease in net earnings of $1,537,000. The cumulative
effect of the change in accounting was not tax-effected, as the amortization of
the goodwill was not deductible for tax purposes. The effect of the change in
1994 was not significant and proforma net earnings for 1994 and 1993, assuming
the change in accounting was applied retroactively, are not significantly
different from Vectra's historical net earnings.
Income Taxes
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes (SFAS 109),
which prescribes the use of the asset and liability method of accounting for
deferred income taxes.
Shareholders' Equity and Earnings Per Common Share
Earnings per common share is computed by dividing net earnings available to
common shareholders by the weighted average number of common shares and common
stock equivalents outstanding during the period, adjusted for the shares issued
in connection with the business combination discussed in note 2. Weighted
average common shares outstanding reflect the conversion of all Class B shares
of common stock into common stock, as described in note 11. All common share
amounts have been restated, for all periods presented, to reflect the conversion
of the Class B shares to common stock.
Reclassifications
Certain 1993 and 1994 amounts have been reclassified to conform to the 1995
presentation.
(2) BUSINESS COMBINATIONS
Effective November 13, 1995, Vectra acquired all of the outstanding common
stock of First Denver Corporation (FDC) in exchange for 508,899 shares of Vectra
common stock. The combination has been accounted for as a pooling of interests
and, accordingly, the accompanying consolidated financial statements have been
restated to reflect the combined financial condition, results of operations and
cash flows of Vectra and FDC as of and for all periods presented. In addition,
shares issued in connection with the combination have been included as issued
and outstanding in 1995, 1994 and 1993.
F-11
<PAGE> 160
VECTRA BANKING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Results of operations information for Vectra and FDC for the years ended
December 31, 1994 and 1993 and the nine months ended September 30, 1995 are as
follows:
<TABLE>
<CAPTION>
NINE MONTHS YEAR ENDED DECEMBER
ENDED 31
SEPTEMBER 30, -------------------
1995 1994 1993
------------- ------- -------
<S> <C> <C> <C>
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
Net interest income:
Vectra........................................... $11,797 $15,322 $10,791
FDC.............................................. 1,632 2,049 1,997
------------- ------- -------
$13,429 $17,371 $12,788
========== ======= =======
Provision (credit) for loan losses:
Vectra........................................... $ 766 $ 915 $ 653
FDC.............................................. (108) (121) (370)
------------- ------- -------
$ 658 $ 794 $ 283
========== ======= =======
Cumulative effects of changes in accounting:
Vectra........................................... $ -- $ -- $ 1,356
FDC.............................................. -- (1,537) (83)
------------- ------- -------
$ -- $(1,537) $ 1,273
========== ======= =======
Net earnings (loss):
Vectra........................................... $ 2,135 $ 3,851 $ 1,970
FDC.............................................. 224 (1,176) 440
------------- ------- -------
$ 2,359 $ 2,675 $ 2,410
========== ======= =======
Primary earnings (loss) per share:
Vectra........................................... $ .50 $ 1.08 $ .78
FDC.............................................. .07 (.39) .17
------------- ------- -------
$ .57 $ .69 $ .95
========== ======= =======
</TABLE>
During 1995, the Company acquired the net assets of MacWest Mortgage, a
mortgage origination operation, for total cash consideration of approximately
$300,000. The acquisition was accounted for using the purchase method of
accounting.
The Company has entered into an agreement to acquire the outstanding common
stock of Bank Land Co., parent company of Southwest State Bank, for cash and
stock consideration of approximately $22 million. The acquisition, which will be
accounted for using the purchase method of accounting, is subject to Bank Land
Co. and Southwest State Bank shareholder and regulatory approval and is expected
to be completed in 1996.
(3) CASH AND DUE FROM BANKS
The Federal Reserve Board requires banks to maintain reserve balances
composed of cash on hand and balances maintained at the Federal Reserve Bank.
These reserve balances are based primarily on deposit levels and totaled
approximately $3,515,000, and $3,345,000 and $2,232,000 at March 31, 1996 and
December 31, 1995 and 1994, respectively.
F-12
<PAGE> 161
VECTRA BANKING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(4) SECURITIES
Securities classified as available for sale at March 31, 1996, including
unrealized gains and losses, are summarized as follows:
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- --------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
U.S. Treasuries............................ $ 5,020 $ -- $ (18) $ 5,002
U.S. Government sponsored entities (note
5)....................................... 12,842 1 (759) 12,084
Collateralized mortgage obligations...... 143,652 39 (5,267) 138,424
Mortgage-backed securities................. 16,177 118 (28) 16,267
SBA loan pools............................. 3,043 42 -- 3,085
Other...................................... 824 -- -- 824
-------- ---- ------- --------
$ 181,558 $200 $ (6,072) $175,686
======== ==== ======= ========
</TABLE>
Securities classified as held to maturity at March 31, 1996, which
primarily mature within one to five years, including unrealized gains and
losses, are summarized as follows:
<TABLE>
<CAPTION>
AMORTIZED COST
AND MARKET
VALUE
--------------
<S> <C>
Private placement bonds................................................ $415
Asset-backed receivables............................................... 120
----
$535
====
</TABLE>
Securities classified as available for sale at December 31, 1995, including
unrealized gains and losses, are summarized as follows:
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- --------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
U.S. Treasuries............................ $ 5,032 $ 9 $ -- $ 5,041
U.S. Government sponsored entities (note
5)....................................... 12,377 4 (969) 11,412
Collateralized mortgage obligations........ 147,508 108 (5,174) 142,442
Mortgage-backed securities................. 6,183 126 (4) 6,305
SBA loan pools............................. 4,290 69 -- 4,359
Other...................................... 825 -- -- 825
-------- ---- ------- --------
$ 176,215 $316 $ (6,147) $170,384
======== ==== ======= ========
</TABLE>
Securities classified as held to maturity at December 31, 1995, which
primarily mature within one to five years, including unrealized gains and
losses, are summarized as follows:
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Private placement bonds....................... $ 415 $ -- $ -- $415
Asset-backed receivables...................... 399 5 -- 404
-- --
---- ----
$ 814 $ 5 $ -- $819
==== == == ====
</TABLE>
F-13
<PAGE> 162
VECTRA BANKING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Securities classified as available for sale at December 31, 1994, including
unrealized gains and losses, are summarized as follows:
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasuries............................ $ 4,001 $ -- $ (86) $ 3,915
U.S. Government sponsored entities (note
5)....................................... 10,750 -- (1,850) 8,900
Collateralized mortgage obligations........ 164,720 -- (9,886) 154,834
Mortgage-backed securities................. 38,344 -- (464) 37,880
Other...................................... 3,988 -- -- 3,988
--
-------- -------- --------
$ 221,803 $ -- $ (12,286) $209,517
======== == ======== ========
</TABLE>
Securities classified as held to maturity at December 31, 1994, which
primarily mature within one to five years, including unrealized gains and
losses, are summarized as follows:
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasuries............................. $18,672 $ -- $ (580) $18,092
U.S. Government sponsored entities.......... 2,750 4 (74) 2,680
Mortgage-backed securities.................. 1,343 10 (25) 1,328
Private placement bonds..................... 1,300 1 (4) 1,297
Asset-backed receivables.................... 1,504 1 -- 1,505
------- --- ----- -------
$25,569 $ 16 $ (683) $24,902
======= === ===== =======
</TABLE>
In connection with the pooling of interests with FDC, Vectra transferred
all securities classified by FDC as held to maturity at December 31, 1994 to
available for sale in 1995 (see note 1).
Securities with a carrying value of approximately $10.7 million, $10.7
million and $8.3 million at March 31, 1996 and December 31, 1995 and 1994,
respectively, were pledged to secure public and trust deposits and securities
sold under agreements to repurchase. Securities with a carrying value of
approximately $170.1 million, $165.1 million and $210.4 million at March 31,
1996 and December 31, 1995 and 1994, respectively, were pledged to secure FHLB
advances.
The following summary of securities available for sale at December 31, 1995
provides information on expected maturities as well as the amount of fixed and
variable rate securities:
<TABLE>
<CAPTION>
AMORTIZED COST
-------------------------------
FIXED VARIABLE MARKET
RATE RATE TOTAL VALUE
------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Within one year............................. $ 9,694 $ 17,392 $ 27,086 $ 26,898
One to five years........................... 10,060 25,677 35,737 35,059
Five to ten years........................... 1,121 28,389 29,510 28,270
Over ten years.............................. 851 83,031 83,882 80,157
------- -------- -------- --------
$21,726 $154,489 $176,215 $170,384
======= ======== ======== ========
</TABLE>
The maturities of mortgage-related and other amortizing securities included
in the above schedule were estimated based on recent prepayment experience and
expected future prepayment rates. Substantially all of the Company's securities
are variable rate securities, which have interest reset dates that range from
monthly to annually with monthly being the most prevalent. Management has
emphasized the purchase of variable rate
F-14
<PAGE> 163
VECTRA BANKING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
securities in its asset/liability management practices. Expected maturities at
March 31, 1996 have not changed materially from those at December 31, 1995.
Substantially all of the Company's variable rate securities are subject to
interest rate ceilings. At March 31, 1996 and December 31, 1995, the excess of
the rate ceilings over the current rates ranged from 2% to 10%, with the
majority of the excesses being in the 3% to 6.5% range over current rates. The
market values of these securities would likely decline if the current rates
increased to the ceiling levels or higher. Accordingly, the Company may be
subject to market value risk if interest rates increase significantly. Because
substantially all of the securities are issued or backed by U.S. government
agencies, management believes that the credit risk associated with the portfolio
is minimal.
(5) DERIVATIVE FINANCIAL INSTRUMENTS
In October 1994, the Financial Accounting Standards Board issued SFAS 119,
Disclosure about Derivative Financial Instruments and Fair Value of Financial
Instruments. Under SFAS 119, a derivative is defined as a futures, forward,
interest rate swap, or option contract, or other financial instrument with
similar characteristics. Examples of other financial instruments with
characteristics similar to option contracts include interest rate caps or floors
and fixed-rate loan commitments. This definition excludes all on-balance sheet
receivables and payables, including those that derive their values or
contractually required cash flows from the price of some other security or
index, such as mortgage-backed securities, interest-only and principal-only
obligations, and indexed debt instruments. Management has identified the
following securities held at March 31, 1996 and December 31, 1995 and 1994 that
it believes qualify as derivatives, as defined in SFAS 119, as follows:
<TABLE>
<CAPTION>
1996 AND 1995 UNREALIZED UNREALIZED
- -------------------- INTEREST FREQUENCY MARKET VALUE AT LOSS AT LOSS AT
ISSUER/ PURCHASE MATURITY CURRENT UNDERLYING RATE OF INTEREST DECEMBER 31, DECEMBER 31, MARCH 31,
DESCRIPTION FACE VALUE DATE DATE COUPON INDEX CAP/FLOOR RATE CHANGES 1995 1995 1996
- ------- ----------- -------- -------- -------- ---------- --------- ------------ --------------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FHLB
structured
notes... $ 3,000,000 6/93 6/03 4.95% dual-index 24%/0% 6 months $ 2,640,000 $ (360,000 ) $(270,000)
FHLB
structured
notes... 2,750,000 6/93 6/03 4.93% dual-index 24%/0% 6 months 2,420,000 (330,000 ) (247,500 )
FHLB 3 months-
structured
notes... 5,000,000 9/93 9/98 3.31% libor 24%/0% Quarterly 4,725,000 (275,000 ) (231,250 )
----------- ---------- ----------- ---------
$10,750,000 $ 9,785,000 $ (965,000 ) $(748,750)
=========== ========== =========== =========
<CAPTION>
1994 UNREALIZED
- ------- INTEREST FREQUENCY MARKET VALUE AT LOSS AT
ISSUER/ PURCHASE MATURITY CURRENT UNDERLYING RATE OF INTEREST DECEMBER 31, DECEMBER 31,
DESCRIPTION FACE VALUE DATE DATE COUPON INDEX CAP/FLOOR RATE CHANGES 1994 1994
- ------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FHLB
structured
notes... $ 3,000,000 6/93 6/03 5.89% dual-index 24%/0% 6 months $ 2,373,750 $ (626,250 )
FHLB
structured
notes... 2,750,000 6/93 6/03 5.76% dual-index 24%/0% 6 months 2,175,937 (574,063 )
FHLB 3 months-
structured
notes... 5,000,000 9/93 9/98 2.63% libor 24%/0% Quarterly.. 4,350,000 (650,000 )
----------- ---------- -----------
$10,750,000 $ 8,899,687 $(1,850,313 )
=========== ========== ===========
</TABLE>
These securities were purchased for the purpose of providing needed
qualifying collateral to pledge for public deposits and to meet regulatory
pledging requirements, as well as to increase the Company's yield on its
securities portfolio. It is the Company's current intention to hold these notes
to maturity, unless market conditions change that would warrant sale. The
Company includes these securities as securities available for sale which are
reported at estimated market value.
F-15
<PAGE> 164
VECTRA BANKING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(6) LOANS
Loans consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, --------------------
1996 1995 1994
--------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Commercial........................................... $ 56,688 $ 58,272 $ 47,652
Real estate -- mortgage.............................. 101,035 101,598 94,759
Real estate -- construction.......................... 22,604 21,818 17,309
Installment and revolving lines of credit............ 19,906 21,452 19,875
Loans held for sale.................................. 6,471 3,916 2,705
-------- -------- --------
Total face amount of loans................. 206,704 207,056 182,300
Deferred loan fees, discounts, and costs, net........ (311) (392) (535)
-------- -------- --------
Carrying value of loans.................... 206,393 206,664 181,765
Less allowance for loan losses....................... (2,596) (2,493) (1,999)
-------- -------- --------
Net loans.................................. $ 203,797 $204,171 $179,766
======== ======== ========
</TABLE>
The principal balance of loans on which the accrual of interest had been
discontinued totaled $1,277,00, $806,000, $1,292,000, $829,000 and $1,580,000 at
March 31, 1996 and 1995 and December 31, 1995, 1994 and 1993, respectively. If
interest on these loans had been accrued, such income would have amounted to
approximately $35,000, $19,000, $85,000, $71,000 and $182,000 for the three
months ended March 31, 1996 and 1995 and years ended December 31, 1995, 1994 and
1993, respectively.
Substantially all loans are to borrowers located in Vectra's Denver/Boulder
market area. Commercial loan borrowers are generally small to medium-sized
corporations, partnerships and sole proprietors in a wide variety of businesses.
Loans to individuals are both secured and unsecured. Real estate secured loans
are fixed or variable rate and include both amortizing and revolving line of
credit loans.
Real estate mortgage loans include various types of loans for which Vectra
holds real property as collateral. Of the $101 million and $102 million of real
estate mortgage loans as of March 31, 1996 and December 31, 1995, respectively,
approximately $50 million and $52 million were loans made to commercial
customers where the collateral for the loan is, among other things, real estate
owned by the business or its owners. Accordingly, certain loans categorized as
real estate mortgage loans can be characterized as commercial loans which are
secured by real estate. As of March 31, 1996, the remaining $51 million of real
estate mortgage loans consists of $23 million of consumer home equity loans and
$28 million of consumer first and second mortgage loans. As of December 31,
1995, the remaining $50 million of real estate mortgage loans consists of $23
million of consumer home equity loans and $27 million of consumer first and
second mortgage loans.
Loans held for sale consist of mortgage loans and guaranteed portions of
Small Business Administration (SBA) guaranteed loans which are generally sold
within 30 days. Market value equals or exceeds carrying value for these loans.
Loans totaling $34,217,000, $34,033,000 and $33,878,000 at March 31, 1996
and December 31, 1995 and 1994, respectively, were pledged to secure public and
trust deposits, FHLB advances and loans sold under agreements to repurchase.
F-16
<PAGE> 165
VECTRA BANKING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Transactions in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
---------------- ---------------------------
1996 1995 1995 1994 1993
------ ------ ------ ------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Allowance for loan losses at beginning
of period.............................. $2,493 $1,999 $1,999 $ 2,324 $2,075
Provision for losses..................... 179 200 795 794 283
Loans charged off........................ (109) (141) (560) (1,292) (375)
Recoveries............................... 33 32 259 173 341
------ ------ ------ ------- ------
Allowance for loan losses at end of
period................................. $2,596 $2,090 $2,493 $ 1,999 $2,324
====== ====== ====== ======= ======
</TABLE>
(7) PREMISES AND EQUIPMENT
Premises and equipment is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ------------------
1996 1995 1994
--------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Land.................................................... $ 3,171 $ 3,171 $ 3,225
Buildings............................................... 5,715 5,715 5,677
Leasehold improvements.................................. 2,062 2,046 2,002
Furniture and equipment................................. 6,185 6,136 5,289
------- ------- -------
17,133 17,068 16,193
Less accumulated depreciation and amortization.......... (6,694) (6,493) (5,853)
------- ------- -------
Premises and equipment, net................... $10,439 $10,575 $10,340
======= ======= =======
</TABLE>
Land and buildings carried at approximately $994,000 and $987,000 at March
31, 1996 and December 31, 1995, respectively, are collateral for notes payable,
as described in note 10. Depreciation expense totaled $264,000, $214,000,
$923,000, $892,000 and $784,000 for the three months ended March 31, 1996 and
1995 and years ended December 31, 1995, 1994 and 1993, respectively.
F-17
<PAGE> 166
VECTRA BANKING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(8) ADVANCES FROM THE FEDERAL HOME LOAN BANK AND FEDERAL FUNDS PURCHASED
Vectra's subsidiary banks are members of the Federal Home Loan Bank of
Topeka (FHLB). Membership in the FHLB offers several benefits to the Company
including the ability to obtain advances which can be used as part of the
overall mix of funding for Vectra's loan and investing activities. Advances are
available with maturities varying from one day to ten years. All advances are
secured by securities and loans which have been pledged under blanket pledges.
In addition, the Company has agreements with three banks whereby the Company may
purchase up to $12,500,000 of federal funds. Balances, maturities and interest
rates of the advances are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------
MARCH 31,
1996 1995 1994
------------------ ------------------- -------------------
INTEREST INTEREST INTEREST
AMOUNT RATES AMOUNT RATES AMOUNT RATES
------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Fixed rate:
Overnight borrowings from FHLB......... $14,500 5.55% $ 11,345 6.15% $ 26,190 6.65%
Federal funds purchased................ 1,000 5.30% 1,000 5.80% -- --
Due in 60 days or less................. 35,000 5.19% -- -- 51,000 6.16%
Variable rate:
Due in less than one year, resets
monthly at one month London
Interbank Offered Rate, less .01%... 15,000 5.49% 15,000 5.82% -- --
Due in less than one year, resets
monthly at one month London
Interbank Offered Rate.............. -- -- 35,000 6.06% -- --
Due in less than one year, resets
monthly at one month London
Interbank Offered Rate, less .1%.... -- -- 8,000 5.92% 8,000 6.05%
Due in less than one year, resets
monthly at one month London
Interbank Offered Rate, less .05%... -- -- -- -- 77,000 6.18%
------- ---- -------- ---- -------- ----
Total at end of year........... $65,500 5.42% $ 70,345 6.00% $162,190 6.24%
======= ==== ======== ==== ======== ====
Average borrowings outstanding for the
period................................. $66,527 $123,083 $114,986
======= ======== ========
Weighted average interest rate for the
period................................. 5.56% 6.08% 4.71%
==== ==== ====
Maximum borrowings outstanding at any
month-end during the period............ $68,400 $167,500 $175,250
======= ======== ========
</TABLE>
F-18
<PAGE> 167
VECTRA BANKING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The advance availability, usage, and related collateral for FHLB advances
is summarized as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
--------- ------------
<S> <C> <C>
Total advances available..................................... $ 161,319 $155,868
Balances outstanding......................................... 64,500 (69,345)
-------- --------
Balances available and unused...................... $ 96,819 $ 86,523
======== ========
Book value of assets pledged as collateral:
Securities................................................. $ 170,053 $165,113
Investment in FHLB stock................................... 3,873 5,173
Loans...................................................... 33,922 33,722
-------- --------
$ 207,848 $204,008
======== ========
</TABLE>
Vectra has the right to substitute other acceptable collateral for the
securities and loans pledged as collateral for the advances. The Company is
required to purchase and hold stock in the FHLB to maintain membership and to
obtain advances. The amount of stock required to be held is generally based upon
the portion of Vectra's mortgage related assets to total assets as well as the
amount of advances outstanding. The FHLB paid dividends quarterly during 1995 at
a rate of approximately 6%. FHLB stock has always been redeemable at the preset
price of $100 per share; however, there can be no assurance that this redemption
feature and value will continue.
(9) SECURITIES AND LOANS SOLD UNDER AGREEMENTS TO REPURCHASE
Securities and loans sold under agreements to repurchase are used to fund
the purchase of securities and origination of loans and to provide collateral to
customers for funds placed with Vectra in excess of FDIC insured amounts. The
securities and loans which are subject to the agreements with customers are
under the control of the Company and are segregated in safekeeping accounts at
Vectra's correspondent banks. Vectra has the right to substitute securities and
loans at its discretion. The interest rate paid to customers under these
agreements is not related to the coupon rate of the securities sold, but rather
is a function of the rate earned on Vectra's federal funds sold and the amount
of each customer's balance with Vectra. The balances outstanding under these
agreements may fluctuate daily. The average rate paid under these agreements was
4.74%, 4.72%, 4.87%, 3.48% and 2.19% during the three months ended March 31,
1996 and 1995 and years ended December 31, 1995, 1994 and 1993, respectively.
The carrying value of loans and securities available for sale under these
agreements was $7,217,000, $5,576,000, $7,462,000, $6,329,000 and $3,563,000 at
March 31, 1996 and 1995 and December 31, 1995, 1994 and 1993, respectively. The
highest month-end balances during the three months ended March 31, 1996 and 1995
and years ended December 31, 1995, 1994 and 1993 were $6,004,000, $4,320,000,
$7,429,000, $5,888,000 and $3,632,000, respectively, and the average balances
were $6,538,000, $4,282,000, $6,405,000, $3,333,000 and $2,742,000,
respectively.
F-19
<PAGE> 168
VECTRA BANKING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(10) NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ----------------
1996 1995 1994
--------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Note payable to bank, collateralized by real property
(occupied by a subsidiary bank) with a net carrying
value of $987,000 at December 31, 1995, due September 1,
2016, callable with six months prior notice, payable in
monthly installments of $9,655 including interest at
9%...................................................... $ 1,046 $1,051 $1,100
Other..................................................... -- -- 9
------ ------ ------
$ 1,046 $1,051 $1,109
====== ====== ======
</TABLE>
At December 31, 1995, Vectra's aggregate contractual maturities of notes
payable (assuming the note payable to bank is not called prior to its scheduled
maturity) are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
1996............................................ $ 22
1997............................................ 24
1998............................................ 26
1999............................................ 29
2000............................................ 32
Thereafter...................................... 918
------
$1,051
======
</TABLE>
At March 31, 1996, there were no significant changes in contractual
maturities from December 31, 1995.
(11) SHAREHOLDERS' EQUITY
(a) Initial public offering
During 1994, the Company issued 923,770 shares of common stock and 805,000
shares of Series A cumulative preferred stock for proceeds of approximately
$14,471,000, net of offering costs, in an initial public offering.
(b) Common stock
In February 1994, the Company amended its Articles of Incorporation to
convert all outstanding shares of Class A Common Stock and Class B Common Stock
into a single class of common stock. This conversion resulted in the issuance of
220,410 shares of common stock to Class B shareholders.
In connection with the initial public offering, the Company purchased and
retired 270,000 shares of common stock from an existing shareholder for
$2,403,000, with a portion of the proceeds from the offering.
(c) Preferred stock
The Series A Cumulative Preferred Stock (Preferred Stock) is entitled to
receive a cumulative quarterly dividend at the annual rate of $.95 per share. In
the event of any liquidation or change in control of the
F-20
<PAGE> 169
VECTRA BANKING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company, the holders of the Preferred Stock will be entitled to a preferential
distribution of $10.00 per share ($8,050,000), plus all accumulated and unpaid
dividends.
The Preferred Stock will not be redeemable before March 31, 1997, except
upon change in control of the Company.
On or after March 31, 1997, the Preferred Stock will be redeemable at the
option of the Company, subject to prior regulatory approval, for cash, in whole
or in part, at the following redemption prices per share, plus, in each case an
amount equal to accumulated and unpaid dividends, if redeemed during the twelve-
month period ending on and including March 30 in each of the following years:
<TABLE>
<CAPTION>
REDEMPTION PRICE
PER SHARE
----------------
<S> <C>
1998.......................................... $10.30
1999.......................................... 10.15
2000 and thereafter........................... 10.00
</TABLE>
The 1989 preferred stock was redeemed in 1994 for approximately $477,000
with a portion of the proceeds from the initial public offering.
(d) Employees equity incentive plan
In March 1994, the Company adopted an employees equity incentive plan that
grants options for the purchase of common stock to its key employees including
officers and directors who are employees of Vectra. Stock option terms under
this plan may be adjusted at the discretion of the Board of Directors. In 1995,
the plan had authorized 450,000 option shares of common stock and options have
been granted for the purchase of 115,500 shares of common stock for $8.50 to
$11.375 per share. These options expire 10 years from the date of grant.
One-third of these options become exercisable at the date of grant with an
additional one-third of the shares becoming exercisable on each of the first two
anniversaries of the date granted. Upon any change in control of Vectra, options
outstanding become fully vested and exercisable. At March 31, 1996 and December
31, 1995, respectively, 101,833 shares and 70,834 shares were exercisable and no
options were exercised in 1996 or 1995.
(e) Outside directors' stock option plan
In March 1994, the Company also implemented an outside directors stock
option plan that grants options for the purchase of common stock to the
Company's directors who are not employees of Vectra. All outside directors were
immediately granted options to purchase 3,000 shares at the current market price
with an additional 1,500 shares to be granted for each subsequent year of
service. Options issued under this plan become exercisable in the same manner as
those issued under the employees equity incentive plan and expire five years
from the date of grant. At March 31, 1996 and December 31, 1995, options for the
purchase of 18,000 shares at $8.50 to $9.625 per share were outstanding. At
March 31, 1996 and December 31, 1995, respectively, 12,000 shares and 10,000
shares were exercisable and no options were exercised in 1996 or 1995.
(f) Nonqualified stock option plan
The Company had a 1989 nonqualified stock option plan (the 1989 Plan) which
permitted Vectra to grant options for the purchase of common stock to selected
key employees at no less than estimated fair value on the date of grant.
Initially, options expired no more than ten years after the date of grant and
were originally scheduled to vest on June 30, 1994. During 1990, Vectra granted
stock options for the purchase of approximately 47,250 shares of stock at $10
per share to fifteen officers. Additional options for the purchase of 22,000
shares at $10 per share were granted during 1992.
F-21
<PAGE> 170
VECTRA BANKING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In May 1993, the Company's shareholders approved a repricing of the options
to $6.60 per share with the condition that the options vest 20% on June 30, 1994
and an additional 20% on each June 30 thereafter until the options are fully
vested on June 30, 1998. The options vest fully in the event of a change of
control of the Company. During 1993, additional options for the purchase of
3,030 shares were granted and 18,720 options were canceled. In March 1994, the
1989 Plan was terminated. At March 31, 1996 and December 31, 1995, eleven
officers held options to purchase a total of 46,500 shares, at $6.60 per share.
At March 31, 1996 and December 31, 1995, options for the purchase of 18,600
shares were exercisable and no options were exercised in 1996 or 1995. During
1994, 3,030 options were exercised and no options were exercised in 1993.
(g) Restricted stock program
During 1992, Vectra adopted a restricted stock program whereby up to 30,000
shares of unrestricted common stock may be sold to certain employees at a price
of $.01 per share. The shares vest over a four-year period. Vectra records
compensation expense over the vesting period equal to the difference between the
fair value of shares and sales proceeds. At March 31, 1996 and December 31,
1995, respectively, 26,500 shares and 26,500 shares were outstanding under the
program.
(h) Underwriter's Warrant
In connection with its initial public offering, Vectra sold to its
underwriter a warrant to purchase 20,000 shares of common stock. The warrant is
exercisable at $10.20 per share, and expires in March 1999.
(12) INCOME TAXES
Income tax expense consists of the following:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEARS ENDED
MARCH 31, DECEMBER 31,
------------- ----------------------
1996 1995 1995 1994 1993
---- ---- ------ ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Current tax expense:
Federal...................................... $412 $389 $1,245 $319 $156
State........................................ 67 64 215 -- --
---- ---- ------ ---- ----
Total current expense................ 479 453 1,460 319 156
---- ---- ------ ---- ----
Deferred tax expense (benefit):
Federal...................................... (37) 10 272 403 400
State........................................ (32) -- 42 98 61
---- ---- ------ ---- ----
Total deferred expense (benefit)..... (69) 10 314 501 461
---- ---- ------ ---- ----
Total income tax expense....................... $410 $463 $1,774 $820 $617
==== ==== ====== ==== ====
</TABLE>
F-22
<PAGE> 171
VECTRA BANKING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income tax expense differs from the amounts computed by applying the U.S.
federal statutory rate to earnings before income taxes and cumulative effects of
changes in accounting as a result of the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
----------------------------- -----------------------------------------------
1996 1995 1995 1994 1993
------------- ------------- ------------- --------------- -------------
AMOUNT % AMOUNT % AMOUNT % AMOUNT % AMOUNT %
------ ---- ------ ---- ------ ---- ------- ----- ------ ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Expected federal tax expense.............. $476 34.0% $452 34.0% $1,726 34.0% $1,711 34.0% $596 34.0%
State taxes, net of federal benefit....... 45 3.2 43 3.2 169 3.3 161 3.2 58 3.3
Decrease (increase) in cash surrender
value of life insurance................. 6 0.4 14 1.1 85 1.7 (82 ) (1.6) (47) (2.7)
Decrease in valuation allowance on
deferred taxes.......................... (42) (3.0) (10) (0.7) (209 ) (4.1) (1,000 ) (19.9) -- --
Other..................................... (75) (5.3) (36) (2.7) 3 (0.0) 30 0.6 10 0.6
---- ---- ---- ---- ------ ---- ------ ----- ---- ----
$410 29.3% $463 34.9% $1,774 34.9% $ 820 16.3% $617 35.2%
==== ==== ==== ==== ====== ==== ====== ===== ==== ====
</TABLE>
Temporary differences between financial statement carrying amounts and tax
bases of assets and liabilities that result in significant portions of Vectra's
deferred tax asset are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ----------------
1996 1995 1994
--------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred tax assets:
Unrealized loss on securities available for sale........ $ 2,208 $2,194 $4,619
Net operating loss carryforwards........................ 335 272 998
Loans, primarily due to differences in accounting for
loan
losses............................................... 119 119 --
Other................................................... 37 73 175
------ ------ ------
Deferred tax asset.............................. 2,699 2,658 5,792
Less valuation allowance................................ (194) (236) (445)
------ ------ ------
Deferred tax asset, net of valuation
allowance..................................... 2,505 2,422 5,347
Deferred tax liabilities:
Loans, primarily due to differences in accounting for
loan
losses............................................... -- -- (150)
Premises and equipment, primarily due to differences in
original cost basis and depreciation................. -- -- (36)
------ ------ ------
Deferred tax liability.......................... -- -- (186)
------ ------ ------
Net deferred tax asset.......................... $ 2,505 $2,422 $5,161
====== ====== ======
</TABLE>
The valuation allowance recorded at March 31, 1996 and December 31, 1995
was determined based upon management's estimate of future taxable income through
December 31, 1996, and Vectra's ability to utilize existing net operating loss
carryforwards, certain of which are subject to limitations as to their use, to
offset such taxable income and the recovery or realization of unrealized losses
on securities. In the opinion of management, the Company is more likely than not
to realize the net deferred tax asset.
At December 31, 1995, Vectra has net operating loss carryforwards for
federal and state income tax purposes of approximately $600,000 which are
available to offset future taxable income through 2004. Vectra also has
approximately $700,000 of additional net operating loss carryforwards for state
income tax purposes which are available to offset future taxable income through
2009. These net operating loss carryforwards are
F-23
<PAGE> 172
VECTRA BANKING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
subject to separate return limitations and "ownership change" limitations, as
that term is defined in Section 382 of the Internal Revenue Code.
Effective January 1, 1993, Vectra and FDC adopted the provisions of SFAS
109 on a prospective basis. The cumulative effect of this change in the method
of accounting for income taxes at January 1, 1993 was an increase in net
earnings of $1,273,000. In connection with the adoption of SFAS 109, net
operating loss carryforwards relating to prior business combinations by Vectra
were recognized as a reduction of intangible assets in the amount of $230,000.
Under Vectra's previous method of accounting for income taxes, tax expense for
the year ended December 31, 1993 would have been offset by the tax benefit
resulting from the utilization of net operating loss carryforwards.
(13) RELATED PARTY TRANSACTIONS
Vectra has entered into transactions with its shareholders, directors,
officers and other affiliates. In the opinion of management, such transactions
have been entered into under terms and rates substantially the same as those
offered by Vectra in the ordinary course of business.
(14) COMMITMENTS AND CONTINGENCIES
Lease Commitments
As of December 31, 1995, future minimum rental payments and lease income
receipts under noncancelable operating leases for premises and equipment,
expiring at various dates through 2067, are as follows:
<TABLE>
<CAPTION>
RENTAL RENTAL
PAYMENTS RECEIPTS
-------- --------
(IN THOUSANDS)
<S> <C> <C>
1996.............................................. $ 541 $201
1997.............................................. 488 132
1998.............................................. 418 22
1999.............................................. 243 4
2000.............................................. 224 3
Thereafter........................................ 2,034 --
------ ----
Total minimum........................... $3,948 $362
====== ====
</TABLE>
Total rent expense for all operating leases, including equipment leases,
was $205,000, $184,000, $774,000, $705,000 and $739,000 for the three months
ended March 31, 1996 and 1995 and years ended December 31, 1995, 1994 and 1993,
respectively.
Commitments to Extend Credit
In the normal course of business, the subsidiary banks enter into
commitments to extend credit. The following outstanding commitments, which are
generally secured and at market rates of interest, are not reflected in the
accompanying financial statements (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
--------- ------------
<S> <C> <C>
Commitments on lines of credit............................... $58,716 $ 58,256
Outstanding letters of credit................................ 3,376 2,801
------- -------
$62,092 $ 61,057
======= =======
</TABLE>
F-24
<PAGE> 173
VECTRA BANKING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Commitments to extend credit and outstanding letters of credit are
evaluated for losses by management in a similar manner to existing loans and
real estate acquired by foreclosure.
Litigation
Vectra is involved in various litigation matters arising in the normal
course of business. In the opinion of management and Vectra's legal counsel, the
ultimate resolution of these matters will not have a significant adverse effect
on the financial condition or results of operations of the Company.
(15) DISCLOSURES OF FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, Disclosures about Fair
Value of Financial Instruments, requires that Vectra disclose estimated fair
values for its financial instruments. Fair value estimates, methods, and
assumptions for Vectra's financial instruments are as set forth below, and a
summary of the carrying values and fair values of the Company's financial
instruments at December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
---------------------- ----------------------
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
-------- --------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks............... $ 17,320 $ 17,320 $ 17,249 $ 17,249
Securities available for sale:
Structured notes (note 5).......... 9,785 9,785 8,900 8,900
Other.............................. 160,599 160,599 200,617 200,617
Securities held to maturity........... 814 819 25,569 24,902
Investment in FHLB stock.............. 5,173 5,173 8,843 8,843
Federal funds sold.................... 2,000 2,000 810 810
Loans................................. 204,171 209,198 179,766 181,854
Financial liabilities:
Deposits.............................. 307,085 307,085 268,184 268,184
Other liabilities..................... 80,612 80,612 170,537 170,537
</TABLE>
Cash and Due From Banks and Federal Funds Sold
The carrying amounts of these instruments are reasonable estimates of fair
value.
Securities
The fair value of securities available for sale and securities held to
maturity is estimated based on estimated market value quotations received from
securities dealers from whom Vectra normally purchases and sells securities.
Such estimates of market value are included in note 4.
Investment in Federal Home Loan Bank Stock
The carrying amount of this investment represents a reasonable estimate of
fair value since the stock can only be purchased from or sold to the FHLB, as
discussed in note 8.
Loans
Fair value of loans are estimated in accordance with Statement 107 for
portfolios of loans with similar financial characteristics. Loans are segregated
by type such as commercial, consumer and mortgages. Each loan category is
further segmented into fixed and adjustable rate interest terms and by
performing and nonperforming categories. Fair value of fixed rate loans is
calculated by discounting cash flows through the
F-25
<PAGE> 174
VECTRA BANKING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
estimated maturity based on the Company's expected experience with repayments
for each loan classification. The estimated market discount rates used in the
calculations represent loan rates offered by the Company on similar types of
loans. The Company's adjustable rate loans are categorized as home equity and
all other adjustable rate loans. Home equity loans generate a higher premium in
the loan secondary market than other adjustable rate loans, which is reflected
in the calculation of the fair market value for these types of loans. All other
performing adjustable rate loans are valued at 1% over the carrying value based
on consideration of average lives and contributions to net earnings of such
loans. The fair market values of all consumer loans were verified with
independent loan brokers.
A summary of carrying value and estimated fair value of loans at December
31 is as follows:
<TABLE>
<CAPTION>
1995 1994
---------------------- ----------------------
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
-------- --------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Loans................................... $202,748 $ 205,231 $179,060 $ 179,139
Loans held for sale..................... 3,916 $ 3,967 2,705 2,715
Allowance for loan losses............... (2,493) $ -- (1,999) --
-------- -------- -------- --------
Net loans..................... $204,171 $ 209,198 $179,766 $ 181,854
======== ======== ======== ========
</TABLE>
Deposits and Other Liabilities
The fair values of deposits with no stated maturity, such as demand
deposits, NOW and money market accounts and savings are equal to the amounts
payable on demand as included in the accompanying consolidated balance sheets.
The fair value of certificates of deposit is also estimated to be equal to the
amounts included in the accompanying consolidated balance sheets because the
majority of such certificates are of short duration and are at rates
substantially the same as current market rates. The estimated fair values of
advances from the FHLB and of securities and loans sold under agreements to
repurchase are also equal to carrying values because of their short durations or
the repricing frequencies. Notes payable carrying values are estimated to
approximate fair values because they are callable with six months notice.
Off-Balance Sheet Financial Instruments
Commitments to extend credit represent the principal category of
off-balance sheet financial instrument. The fair value of these commitments,
based on fees currently charged for similar commitments, is not significant.
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These estimates are subjective in nature and involve matters of significant
judgment and therefore cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
F-26
<PAGE> 175
VECTRA BANKING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(16) CONDENSED FINANCIAL INFORMATION FOR PARENT COMPANY
Condensed financial information for the parent company only, Vectra Banking
Corporation, is as follows:
CONDENSED BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, -------------------
1996 1995 1994
--------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Cash.................................................. $ 983 $ 304 $ 388
Investment in subsidiaries............................ 30,007 29,161 22,724
Other assets.......................................... 445 787 608
------- ------- -------
Total assets................................ $31,435 30,252 23,720
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Other liabilities..................................... $ 465 $ 67 $ 127
Shareholders' equity.................................. 30,970 30,185 23,593
======= ======= =======
Total liabilities and shareholders' equity $31,435 30,252 23,720
======= ======= =======
</TABLE>
CONDENSED OPERATIONS INFORMATION
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
-------------- --------------------------
1996 1995 1995 1994 1993
------ ---- ------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Operating income:
Management fees................................... $ -- $150 $ 600 $ 336 $ 336
Other............................................. 4 5 18 46 15
------ ---- ------ ------ ------
Total operating income.................... 4 155 618 382 351
------ ---- ------ ------ ------
Operating expenses:
Salaries and employee benefits.................... 4 95 328 340 344
Occupancy expenses................................ -- 19 74 62 54
Interest expense.................................. -- -- -- 18 85
Amortization of intangible asset.................. -- -- -- 312 523
Other............................................. 141 96 534 310 100
------ ---- ------ ------ ------
Total operating expenses.................. 145 210 936 1,042 1,106
------ ---- ------ ------ ------
Loss before income taxes, equity in
earnings of subsidiaries and cumulative
effects of changes in accounting........ (141) (55) (318) (660) (755)
Income tax benefit.................................. 57 19 156 470 142
------ ---- ------ ------ ------
Loss before equity in earnings of
subsidiaries and cumulative effects of
changes in accounting................... (84) (36) (162) (190) (613)
Equity in earnings of subsidiaries.................. 1,073 901 3,465 4,402 1,750
Cumulative effect of change in accounting for
goodwill.......................................... -- -- -- (1,537) --
Cumulative effect of change in accounting for income
taxes............................................. -- -- -- -- 1,273
------ ---- ------ ------ ------
Net earnings.............................. $ 989 $865 $3,303 $2,675 $2,410
====== ==== ====== ====== ======
</TABLE>
F-27
<PAGE> 176
VECTRA BANKING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CASH FLOW INFORMATION
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
---------------- ------------------------------
1996 1995 1995 1994 1993
------- ----- ------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings................................ $ 989 $ 865 $ 3,303 $ 2,675 $ 2,410
Equity in earnings of subsidiaries.......... (1,073) (901) (3,465) (4,402) (1,750)
Cumulative effects of changes in
accounting............................... -- -- -- 1,537 (1,273)
Depreciation and amortization............... -- -- -- 312 523
Net increase (decrease) in other operating
assets and liabilities................... 748 81 (210) (90) (198)
------- ----- ------- -------- -------
Net cash provided (used) by
operating activities.............. 664 45 (372) 32 (288)
------- ----- ------- -------- -------
Cash flows from investing activities:
Dividends received from subsidiaries........ 200 200 1,052 353 263
Capital contributions to subsidiaries....... -- -- -- (10,000) --
Other....................................... -- (2) -- (165) 65
------- ----- ------- -------- -------
Net cash provided (used) by
investing activities.............. 200 198 1,052 (9,812) 328
------- ----- ------- -------- -------
Cash flows from financing activities:
Proceeds from issuance of common and
preferred stock, net..................... -- -- -- 14,491 --
Common and preferred stock redemption....... -- -- -- (2,880) --
Repayment of notes payable.................. -- -- -- (940) (250)
Preferred stock dividends................... (185) (185) (765) (579) (6)
Other....................................... -- -- 1 11 44
------- ----- ------- -------- -------
Net cash provided (used) by
financing activities.............. (185) (185) (764) 10,103 (212)
------- ----- ------- -------- -------
Net increase (decrease) in cash..... 679 58 (84) 323 (172)
Cash at beginning of period................... 304 388 388 65 237
------- ----- ------- -------- -------
Cash at end of year period.................... $ 983 $ 446 $ 304 $ 388 $ 65
======= ===== ======= ======== =======
</TABLE>
F-28
<PAGE> 177
BANK LAND CO. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.......................................................... F-30
Consolidated Balance Sheets -- March 31, 1996 (unaudited) and December 31, 1995 and
1994................................................................................ F-31
Consolidated Statements of Income -- Three months ended March 31, 1996 and 1995
(unaudited) and years ended December 31, 1995 and 1994.............................. F-32
Consolidated Statement of Stockholders' Equity -- Three months ended March 31, 1996
(unaudited) and years ended December 31, 1995 and 1994.............................. F-33
Consolidated Condensed Statements of Cash Flows -- Three months ended March 31, 1996
and 1995 (unaudited)................................................................ F-34
Consolidated Statements of Cash Flows -- years ended December 31, 1995 and 1994....... F-35
Notes to Consolidated Financial Statements............................................ F-36
</TABLE>
F-29
<PAGE> 178
INDEPENDENT AUDITORS' REPORT
Board of Directors
Bank Land Co.
Denver, Colorado
We have audited the accompanying consolidated balance sheets of Bank Land
Co. and Subsidiary as of December 31, 1995 and 1994 and the related consolidated
statements of income, stockholders' equity and cash flows for the years then
ended. 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 audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Bank Land Co. and Subsidiary at December 31, 1995 and 1994 and the results of
their operations and cash flows for the years then ended, in conformity with
generally accepted accounting principles.
As discussed in notes A and D, to the consolidated financial statements,
the Company adopted the provisions of Statements of Financial Accounting
Standards No. 114, Accounting by Creditors for Impairment of a Loan, and No.
118, Accounting by Creditors for Impairment of a Loan -- Income Recognition and
Disclosures, as of January 1, 1995. In addition, as also discussed in notes A
and C to the consolidated financial statements, the Company adopted the
provisions of Statements of Financial Accounting Standards No. 115, Accounting
for Certain Investments in Debt and Equity Securities, as of January 1, 1994.
Fortner, Bayens, Levkulich & Co., P.C.
Denver, Colorado
February 16, 1996
F-30
<PAGE> 179
BANK LAND CO. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1994
MARCH 31, ------------ ------------
1996
------------
(UNAUDITED)
<S> <C> <C> <C>
Cash and due from banks............................ $ 6,700,938 $ 6,777,108 $ 6,155,289
Interest-bearing deposits with other banks......... 1,071,862 1,666,389 883,924
Investment securities
Held to maturity (market value of $15,527,171,
$15,784,060 and $19,169,938 at March 31, 1996
and December 31, 1995 and 1994,
respectively)................................. 15,546,002 15,738,334 19,453,899
Available for sale............................... 2,373,462 2,855,783 10,799,608
Federal funds sold................................. 9,601,000 8,000,000 6,200,000
Loans.............................................. 74,491,862 77,373,785 72,125,857
Less allowance for loan losses..................... (904,583) (933,191) (1,019,215)
------------ ------------ ------------
73,587,279 76,440,594 71,106,642
Premises and equipment, net........................ 984,529 1,045,723 1,111,914
Accrued interest receivable........................ 682,776 676,905 641,073
Deferred tax asset................................. 144,575 178,976 181,269
Foreclosed real estate............................. 211,278 195,109 --
Other.............................................. 70,546 109,122 83,651
------------ ------------ ------------
$110,974,247 $113,684,043 $116,617,269
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Demand........................................ $ 23,928,399 $ 24,568,772 $ 24,820,904
NOW and money market.......................... 22,865,362 24,136,170 29,691,000
Savings....................................... 20,166,244 19,865,994 20,413,953
Time, $100,000 and over....................... 10,856,210 11,923,093 11,559,645
Other time.................................... 17,772,417 18,384,708 16,923,314
------------ ------------ ------------
95,588,632 98,878,737 103,408,816
Dividends payable................................ -- -- 41,258
Income taxes payable............................. 210,521 5,757 76,862
Accrued interest payable and other liabilities... 324,217 365,695 280,471
------------ ------------ ------------
Total liabilities........................ 96,123,370 99,250,189 103,807,407
Commitments (notes H, I and J)
Minority interest in subsidiary.................... 1,104,110 1,070,195 914,532
Stockholders' equity
Preferred stock -- authorized, 500,000 shares
without par value; 100,000 shares issued and
outstanding................................... 265,750 265,750 265,750
Class A common stock -- authorized, 2,000,000
shares without par value; 334,833 shares
issued and outstanding........................ 1,355,428 1,355,428 1,355,428
Class B common stock -- authorized, 500,000
shares without par value; 10,000 shares issued
and outstanding............................... 150,000 150,000 150,000
Retained earnings................................ 11,974,969 11,589,526 10,130,838
Unrealized gain (loss) on securities available
for sale, net of taxes........................ 620 2,955 (6,686)
------------ ------------ ------------
13,746,767 13,363,659 11,895,330
------------ ------------ ------------
$110,974,247 $113,684,043 $116,617,269
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-31
<PAGE> 180
BANK LAND CO. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEARS ENDED
MARCH 31, DECEMBER 31,
------------------------ ------------------------
1996 1995 1995 1994
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees...................... $1,835,844 $1,868,760 $7,798,396 $6,878,828
Taxable investment securities.............. 254,841 402,103 1,270,290 1,049,402
Nontaxable investment securities........... 32,059 35,493 131,615 144,326
Federal funds sold......................... 110,725 25,764 228,761 276,808
---------- ---------- ---------- ----------
Total interest income.............. 2,233,469 2,332,120 9,429,062 8,349,364
INTEREST EXPENSE............................. 675,237 668,131 2,728,713 2,259,525
---------- ---------- ---------- ----------
NET INTEREST INCOME.......................... 1,558,232 1,663,989 6,700,349 6,089,839
PROVISION FOR LOAN LOSSES.................... 71,348 -- 135,000 135,000
---------- ---------- ---------- ----------
Net interest income after provision
for loan losses.................. 1,486,884 1,663,989 6,565,349 5,954,839
OTHER INCOME
Service charges on deposit accounts........ 209,192 216,139 861,565 836,700
Other income............................... 100,660... 120,749 467,720 824,203
---------- ---------- ---------- ----------
Total other income................. 309,852 336,888 1,329,285 1,660,903
OTHER EXPENSES
Salaries and employee benefits............. 525,904 699,770 2,438,494 2,608,069
Occupancy expenses of premises............. 40,796 36,306 168,065 161,504
Furniture and equipment expense............ 89,654 67,202 330,527 259,078
Other expenses............................. 480,349 526,559 2,061,755 2,069,223
---------- ---------- ---------- ----------
Total other expenses............... 1,136,703 1,329,837 4,998,841 5,097,874
---------- ---------- ---------- ----------
Income before income taxes and
minority interest in net income
of subsidiary (carried
forward)......................... 660,033 671,040 2,895,793 2,517,868
Income before income taxes and
minority interest in net income
of subsidiary (brought
forward)......................... 660,033 671,040 2,895,793 2,517,868
INCOME TAX EXPENSE........................... 240,476 235,384 1,023,639 736,357
---------- ---------- ---------- ----------
Net income before minority interest
in net income of subsidiary...... 419,557 435,656 1,872,154 1,781,511
MINORITY INTEREST............................ 34,114 36,041 154,841 149,447
---------- ---------- ---------- ----------
NET INCOME......................... $ 385,443 $ 399,615 $1,717,313 $1,632,064
========== ========== ========== ==========
Net income per share of common stock......... $ 1.12 $ 1.16 $ 4.98 $ 4.73
========== ========== ========== ==========
Weighted average shares outstanding.......... 344,833 344,833 344,833 344,833
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-32
<PAGE> 181
BANK LAND CO. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1996 (UNAUDITED) AND
TWO YEARS ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
UNREALIZED
GAIN (LOSS)
CLASS A CLASS B ON SECURITIES
PREFERRED COMMON COMMON RETAINED AVAILABLE TREASURY
STOCK STOCK STOCK EARNINGS FOR SALE STOCK TOTAL
--------- ---------- -------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1994.... $ -- $1,795,424 $ -- $10,416,560 $ -- $(1,931,741) $10,280,243
Elimination of treasury stock
account..................... -- (439,996) -- (1,491,745) -- 1,931,741 --
Cash dividend paid ($1.25 per
common share)............... -- -- -- (426,041) -- -- (426,041)
Issuance of 100,000 shares of
preferred stock............. 265,750 -- -- -- -- -- 265,750
Sale of 10,000 shares Class B
common stock................ -- -- 150,000 -- -- -- 150,000
Unrealized loss on
subsidiary's securities
available for sale, net of
taxes....................... -- -- -- -- (6,686) -- (6,686)
Net income.................... -- -- -- 1,632,064 -- -- 1,632,064
-------- ---------- -------- ----------- ------- ----------- -----------
BALANCE AT DECEMBER 31,
1994........................ 265,750.. 1,355,428 150,000 10,130,838 (6,686) -- 11,895,330
Cash dividend paid ($.75 per
common share)............... -- -- -- (258,625) -- -- (258,625)
Net income.................... -- -- -- 1,717,313 -- -- 1,717,313
Change in unrealized
gains/(losses).............. -- -- -- -- 9,641 -- 9,641
-------- ---------- -------- ----------- ------- ----------- -----------
BALANCE AT DECEMBER 31,
1995........................ 265,750 1,355,428 150,000 11,589,526 2,955 -- 13,363,659
Change in unrealized
gains/(losses).............. -- -- -- (2,335) -- (2,335)
Net income.................... -- -- -- 385,443 -- -- 385,443
-------- ---------- -------- ----------- ------- ----------- -----------
BALANCE AT MARCH 31, 1996..... $265,750 $1,355,428 $150,000 $11,974,969 $ 620 $ -- $13,746,767
======== ========== ======== =========== ======= =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-33
<PAGE> 182
BANK LAND CO. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------
1996 1995
----------- -----------
(UNAUDITED)
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES......................... $ 749,831 $ 305,865
CASH FLOWS FROM INVESTING ACTIVITIES
Change in federal funds sold.................................... (1,601,000) 4,300,000
Net (increase) decrease in loans................................ 2,760,708 (3,037,773)
Purchase of securities available for sale....................... (477,513) (1,420,061)
Purchase of securities held to maturity......................... (2,711,468) (773,391)
Proceeds from maturities of securities available for sale....... 1,000,000 4,200,000
Proceeds from maturities of securities held to maturity......... 2,904,111 3,565,658
Net change in interest-bearing deposits with banks.............. 594,527 (469,317)
Other........................................................... (5,261) (66,410)
----------- -----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES..... 2,464,104 6,298,706
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits.......................................... (3,290,105) (5,205,006)
Dividends paid on common stock.................................. -- (299,883)
----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES..... (3,290,105) (5,504,889)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS................ (76,170) 1,099,682
CASH AND DUE FROM BANKS AT BEGINNING OF PERIOD.................... 6,777,108 6,155,289
----------- -----------
CASH AND DUE FROM BANKS AT END OF PERIOD.......................... $ 6,700,938 $ 7,254,971
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-34
<PAGE> 183
BANK LAND CO. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1995 1994
----------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income..................................................... $ 1,717,313 $ 1,632,064
Adjustments to reconcile net income to net cash provided by
operating activities
Provision for loan losses................................... 135,000 135,000
Deferred income taxes....................................... (3,099) 33,656
Depreciation................................................ 189,822 154,877
Loss on real estate acquired by foreclosure................. 11,726 21,370
Gain on sale of real estate................................. (26,005) (131,477)
Net discount accretion...................................... (352,310) (265,662)
Compensation expensed through preferred stock issuance...... -- 265,750
Minority interest........................................... 154,841 149,447
Changes in accruals and deferrals
Interest receivable....................................... (35,832) 24,260
Other assets.............................................. (25,471) 5,763
Interest payable.......................................... 80,528 12,537
Taxes payable............................................. (71,105) (269,714)
Other liabilities......................................... 4,696 109,272
----------- ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES.............. 1,780,104 1,877,143
CASH FLOWS FROM INVESTING ACTIVITIES
Change in federal funds sold................................... (1,800,000) 5,100,000
Net change in interest bearing deposits with banks............. (782,465) --
Purchase of securities to be held to maturity.................. (4,033,356) (18,325,040)
Purchase of securities available for sale...................... (4,503,958) (13,851,107)
Proceeds from maturities of securities held to maturity........ 7,764,870 9,610,065
Proceeds from maturities of securities available for sale...... 12,800,000 9,300,000
Net (increase) decrease in loans............................... (5,675,787) 3,732,500
Expenditures for bank premises and equipment................... (152,331) (325,239)
Proceeds from sale of real estate acquired by foreclosure...... 54,704 466,515
----------- ------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES.... 3,671,677 (4,292,306)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits......................................... (4,530,079) 2,236,055
Dividends paid on common stock................................. (299,883) (458,458)
Issuance of common stock....................................... -- 150,000
----------- ------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES.... (4,829,962) 1,927,597
----------- ------------
NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS............... 621,819 (487,566)
CASH AND DUE FROM BANKS AT BEGINNING OF YEAR..................... 6,155,289 6,642,855
----------- ------------
CASH AND DUE FROM BANKS AT END OF YEAR........................... $ 6,777,108 $ 6,155,289
=========== ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest.................................................... $ 2,672,976 $ 2,258,173
Income taxes................................................ 1,097,843 942,783
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES
Transfer of securities from held to maturity to securities
available for sale.......................................... $ -- $ 5,974,561
</TABLE>
The accompanying notes are an integral part of these statements.
F-35
<PAGE> 184
BANK LAND CO. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE
THREE MONTHS ENDED MARCH 31, 1996 AND 1995 IS UNAUDITED)
NOTE A -- SUMMARY OF ACCOUNTING POLICIES
Summarized below are the significant accounting policies followed by Bank
Land Co. and subsidiary in the determination of financial position, results of
operations or cash flows.
Principles of Consolidation
The consolidated financial statements include the accounts of Bank Land Co.
(the Company), and its 92% owned subsidiary SouthWest State Bank (the Bank). All
significant intercompany accounts and transactions have been eliminated.
Nature of Operations
Bank Land Co. provides a full range of banking and mortgage services to
individual and corporate customers principally in the Denver metropolitan area.
A majority of the Company's loans are related to real estate activities.
Borrowers' abilities to honor their loans are dependent upon the continued
economic viability of the area. The Company is subject to competition from other
financial institutions for loans and deposit accounts. The Company is also
subject to regulation by certain governmental agencies and undergoes periodic
examinations by those regulatory agencies.
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 loan losses, 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. 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.
Unaudited Interim Consolidated Financial Statements
The consolidated balance sheet as of March 31, 1996 and the consolidated
statements of income and condensed cash flows for the three months ended March
31, 1996 and 1995, and the consolidated statement of stockholders' equity for
the three months ended March 31, 1996 are unaudited. In the opinion of
management, all adjustments necessary for the fair presentation of the financial
position, results of operations and cash flows as of March 31, 1996 and for the
three months ended March 31, 1996 and 1995, consisting only of normal recurring
adjustments, have been included. The results of operations for the three months
ended March 31, 1996 and 1995 are not necessarily indicative of the results
which may be expected for the entire year.
F-36
<PAGE> 185
BANK LAND CO. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Accrual Basis of Accounting
Financial accounting records are generally maintained on an accrual basis.
Certain fee income, such as loan fees, is recognized as received. In all cases,
the difference between the accrual basis and the cash basis is not material.
Earnings per Share
Earnings per share are computed using the weighted average method.
Investment Securities
Effective January 1, 1994, the Company adopted Financial Accounting
Standard No. 115, Accounting for Certain Investments in Debt and Equity
Securities. SFAS No. 115 requires, among other things, that securities
designated as available for sale be revalued at each reporting period with the
unrealized gain or loss, net of tax effect recorded as an element of
stockholder's equity.
The designation of a security as held to maturity or available for sale is
made at the time of acquisition. The held to maturity classification includes
debt securities that the Company has the positive intent and ability to hold to
maturity which are carried at amortized cost. The available for sale
classification includes debt and equity securities which are carried at fair
value. Unrealized gains and losses on securities available for sale are included
as a separate component of stockholder's equity, net of tax effect. Gains or
losses on sales of securities are recognized by the specific identification
method.
Loans
Loans are reported at the principal amount outstanding, net of the
allowance for loan losses. Interest on loans is calculated by using the simple
interest method on the daily balance of the principal amount outstanding.
Loans on which the accrual of interest has been discontinued are designated
as non-accrual loans. Accrual of interest on loans is discontinued when
reasonable doubt exists as to the full, timely collection of interest or
principal. When a loan is placed on non-accrual status, all interest previously
accrued but not collected is reversed against current period interest income.
Income on such loans is then recognized only to the extent that cash is received
and where the future collection of principal is probable. Interest accruals are
resumed on such loans only when they are brought fully current with respect to
interest and principal and when, in the judgment of management, the loans are
estimated to be fully collectible as to both principal and interest.
Renegotiated loans are those loans on which concessions in terms have been
granted because of a borrower's financial difficulty. Interest is generally
accrued on such loans in accordance with the new terms.
Allowance for Loan Losses
The Company provides for possible loan losses by a charge to operations
based on the character of the loan portfolio, current economic conditions, past
loan loss experience and such other factors as, in management's best judgment,
deserve current recognition in estimating loan losses.
For impairment recognized in accordance with Financial Accounting Standards
Board SFAS No. 114, Accounting by Creditors for Impairment of a Loan, the entire
change in present value of expected cash flows is reported as bad debt expense
in the same manner in which impairment initially was recognized or as a
reduction in the amount of bad debt expense that otherwise would be reported.
F-37
<PAGE> 186
BANK LAND CO. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Premises and Equipment
Premises and equipment are stated at cost, less accumulated depreciation.
Depreciation is provided for in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives.
Depreciation is computed generally on the straight-line method.
Foreclosed Real Estate
Foreclosed real estate is recorded at the lower of cost or estimated fair
market value. Gains or losses upon disposition are reflected in current
operations.
Cash Flows
For purposes of the statement of cash flows, the Company has defined cash
equivalents as those amounts included in the balance sheet caption "Cash and Due
from Banks".
Income Taxes
Provisions for income taxes are based on taxes payable or refundable for
the current year (after exclusion of non-taxable income such as interest on
state and municipal securities) and deferred taxes on temporary differences
between the amount of taxable income and pretax financial income and between the
tax bases of assets and liabilities and their reported amounts in the financial
statements. Deferred tax assets and liabilities are included in the financial
statements at currently enacted income tax rates applicable to the period in
which the deferred tax assets and liabilities are expected to be realized or
settled. As changes in tax laws or rates are enacted, deferred tax assets and
liabilities are adjusted through the provision for income taxes.
Disclosures About Fair Value of Financial Instruments
The Financial Accounting Standards Board has issued SFAS No. 107,
Disclosures about Fair Value of Financial Instruments. SFAS No. 107 extends the
existing fair value disclosures practices for some instruments by requiring all
entities to disclose the fair value of financial instruments, both assets and
liabilities recognized and not recognized in the balance sheet for which it is
practicable to estimate fair value. The Company has adopted the provisions of
SFAS No. 107 for its year ended December 31, 1995.
NOTE B -- CASH AND DUE FROM BANKS
The Federal Reserve Board requires banks to maintain reserve balances
composed of cash on hand and balances maintained at the Federal Reserve Bank.
These reserve balances are based primarily on deposit levels. These reserve
balances were approximately $802,000, $787,000 and $826,000 at March 31, 1996
and December 31, 1995 and 1994, respectively.
F-38
<PAGE> 187
BANK LAND CO. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE C -- INVESTMENT SECURITIES
On January 1, 1994, the Company adopted SFAS No. 115, Accounting for
Certain Investments in Debt and Equity Securities. The following presents
information related to the Company's portfolio of securities held to maturity
and available for sale at the date indicated.
<TABLE>
<CAPTION>
MARCH 31, 1996
------------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
SECURITIES TO BE HELD TO MATURITY
U.S. Treasury securities.................... $ 2,803,637 $ 16,864 $ 141 $ 2,820,360
U.S. agency securities...................... 8,397,048 14,885 98,505 8,313,428
State and municipal securities.............. 4,104,230 60,962 19,566 4,145,626
Mortgage-backed securities.................. 221,087 7,375 -- 228,462
Corporate securities........................ 20,000 -- 705 19,295
----------- -------- -------- -----------
$15,546,002 $ 100,086 $ 118,917 $15,527,171
=========== ======== ======== ===========
SECURITIES AVAILABLE FOR SALE
U.S. Treasury securities.................... $ 2,372,177 $ 1,285 $ -- $ 2,373,462
=========== ======== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995
------------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
SECURITIES TO BE HELD TO MATURITY
U.S. Treasury securities.................... $ 3,659,641 $ 24,323 $ 1,195 $ 3,682,769
U.S. agency securities...................... 8,338,363 24,454 84,288 8,278,529
State and municipal securities.............. 3,490,060 82,436 8,567 3,563,929
Mortgage-backed securities.................. 230,270 9,178 -- 239,448
Corporate securities........................ 20,000 -- 615 19,385
----------- -------- -------- -----------
$15,738,334 $ 140,391 $ 94,665 $15,784,060
=========== ======== ======== ===========
SECURITIES AVAILABLE FOR SALE
U.S. Treasury securities.................... $ 2,850,653 $ 5,130 $ -- $ 2,855,783
=========== ======== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1994
------------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
SECURITIES TO BE HELD TO MATURITY
U.S. Treasury securities.................... $ 4,077,903 $ 204 $ 77,467 $ 4,000,640
U.S. agency securities...................... 10,611,789 7,606 223,019 10,396,376
State and municipal securities.............. 4,007,904 59,918 48,160 4,019,662
Mortgage-backed securities.................. 335,603 -- 5,883 329,720
Corporate securities........................ 420,700 2,840 -- 423,540
----------- ------- -------- -----------
$19,453,899 $ 70,568 $ 354,529 $19,169,938
=========== ======= ======== ===========
SECURITIES AVAILABLE FOR SALE
U.S. Treasury securities.................... $10,810,334 $ 4,215 $ 14,941 $10,799,608
=========== ======= ======== ===========
</TABLE>
F-39
<PAGE> 188
BANK LAND CO. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The amortized cost and estimated market value of investment securities at
December 31, 1995 by contractual maturity are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay obligations without call of prepayment penalties.
<TABLE>
<CAPTION>
SECURITIES TO BE SECURITIES
HELD TO MATURITY AVAILABLE FOR SALE
-------------------------- ------------------------
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Due in one year or less............ $ 7,663,681 $ 7,676,557 $2,850,653 $2,855,783
Due after one year through five
years............................ 6,994,383 6,992,264 -- --
Due after five years through ten
years............................ 760,000 789,947 -- --
Due after ten years................ 90,000 85,844 -- --
----------- ----------- ---------- ----------
15,508,064 15,544,612 2,850,653 2,855,783
Mortgage-backed securities......... 230,270 239,448 -- --
----------- ----------- ---------- ----------
$15,738,334 $15,784,060 $2,850,653 $2,855,783
=========== =========== ========== ==========
</TABLE>
The Company had no gains and no losses on the sale and early redemption of
investment securities for the periods ended March 31, 1996 and December 31, 1995
and 1994.
Investment securities with carrying value of $5,137,120, $5,095,910 and
$4,499,425 are pledged at March 31, 1996 and December 31, 1995 and 1994,
respectively, as collateral for public deposits and for other purposes as
required or permitted by law.
NOTE D -- LOANS AND ALLOWANCES FOR POSSIBLE LOAN LOSSES
Major classifications of loans and leases are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, --------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Real estate................................... $40,859,838 $43,646,505 $42,616,623
Commercial.................................... 17,134,597 17,323,278 18,015,380
Installment................................... 15,709,594 15,662,168 10,910,897
Ready Reserve and credit cards................ 725,578 723,914 564,177
Overdrafts.................................... 62,255 17,920 18,780
----------- ----------- -----------
$74,491,862 $77,373,785 $72,125,857
=========== =========== ===========
</TABLE>
As of March 31, 1996 and December 31, 1995, the Company's recorded
investment in impaired loans was approximately $1,722,000 and $560,760,
respectively, and the related valuation allowance calculated under SFAS 114
totaled approximately $149,000 and $112,000, respectively. This valuation
allowance is included in the allowance for loan losses in the accompanying
consolidated balance sheet. The average recorded investment in impaired loans
for the three months ended March 31, 1996 and year ended December 31, 1995 was
$1,062,800 and $399,500, respectively.
Loans having carrying values of $206,835 were transferred to foreclosed
real estate in 1995.
The Company is not committed to lend funds to debtors whose loans have been
modified.
The principal balance of loans having payments delinquent more than sixty
days at March 31, 1996 and December 31, 1995 and 1994, amounted to $1,728,500,
$590,596 and $431,863, respectively. The accrual of interest had been
discontinued on principal balances of loans totaling $1,722,200, $560,760 and
$484,053 at
F-40
<PAGE> 189
BANK LAND CO. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
March 31, 1996 and December 31, 1995 and 1994. The Company had no renegotiated
loans at March 31, 1996 and December 31, 1995 and 1994.
Transactions in the allowance for possible loan and lease losses are as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, DECEMBER 31,
------------------------ ------------------------
1996 1995 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance at beginning of period....... $ 933,191 $1,019,215 $1,019,215 $1,003,683
Provision for loan losses............ 71,348 -- 135,000 135,000
---------- ---------- ---------- ----------
Total...................... 1,004,539 1,019,215 1,154,215 1,138,683
Loans charged off.................... (124,353) (49,364) (272,193) (198,230)
Recoveries........................... 24,397 3,868 51,169 78,762
---------- ---------- ---------- ----------
Net charge offs............ (99,956) (45,496) (221,024) (119,468)
---------- ---------- ---------- ----------
Balance at end of period............. $ 904,583 $ 973,719 $ 933,191 $1,019,215
========== ========== ========== ==========
</TABLE>
NOTE E -- PREMISES AND EQUIPMENT
Premises and equipment, less accumulated depreciation, consisted of the
following:
<TABLE>
<CAPTION>
MARCH 31, 1996
---------------------------------------
ACCUMULATED NET
COST DEPRECIATION AMOUNT
---------- ----------- ----------
<S> <C> <C> <C>
Building......................................... $1,246,957 $ 849,562 $ 397,395
Furniture and equipment.......................... 1,226,603 737,658 488,945
Land............................................. 98,189 -- 98,189
---------- ---------- ----------
$2,571,749 $ 1,587,220 $ 984,529
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995
---------------------------------------
ACCUMULATED NET
COST DEPRECIATION AMOUNT
---------- ----------- ----------
<S> <C> <C> <C>
Building......................................... $1,244,186 $ 825,708 $ 418,478
Furniture and equipment.......................... 1,224,113 695,057 529,056
Land............................................. 98,189 -- 98,189
---------- ---------- ----------
$2,566,488 $ 1,520,765 $1,045,723
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1994
---------------------------------------
ACCUMULATED NET
COST DEPRECIATION AMOUNT
---------- ----------- ----------
<S> <C> <C> <C>
Building......................................... $1,279,343 $ 805,822 $ 473,521
Furniture and equipment.......................... 1,098,779 558,575 540,204
Land............................................. 98,189 -- 98,189
---------- ---------- ----------
$2,476,311 $ 1,364,397 $1,111,914
========== ========== ==========
</TABLE>
F-41
<PAGE> 190
BANK LAND CO. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE F -- INCOME TAXES
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
-------------------- ----------------------
1996 1995 1995 1994
-------- -------- ---------- --------
<S> <C> <C> <C> <C>
Current.................................. $204,764 $235,384 $1,026,738 $702,701
Deferred expense (benefit)............... 35,712 -- (3,099) 33,656
-------- -------- ---------- --------
$240,476 $235,384 $1,023,639 $736,357
======== ======== ========== ========
</TABLE>
Income tax expense differed from amounts computed at the federal statutory
rate as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
---------------------------------------------------
1996 1995
------------------------ -----------------------
AMOUNT PERCENTAGE AMOUNT PERCENTAGE
---------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Expected federal tax expense............ $ 224,411 34.0% $ 228,154 34.0%
Tax-exempt interest..................... (10,900) (1.6) (12,068) (1.8)
State taxes net of federal benefit...... 16,314 2.5 11,193 1.7
Other................................... 10,651 1.5 8,105 1.2
-------- ---- -------- ----
$ 240,476 36.4% $ 235,384 35.1%
======== ==== ======== ====
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------
1995 1994
------------------------ -----------------------
AMOUNT PERCENTAGE AMOUNT PERCENTAGE
---------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Expected federal tax expense............ $ 984,570 34.0% $ 856,075 34.0%
Tax-exempt interest..................... (44,749) (1.5) (49,070) (1.9)
State taxes net of federal benefit...... 68,886 2.3 -- --
Decrease in valuation allowance on
deferred taxes related to alternative
minimum tax credit carryforward....... -- -- (106,793) (4.3)
Other................................... 14,932 .5 36,145 1.4
---------- ---- --------- ----
$1,023,639 35.3% $ 736,357 29.2%
========== ==== ========= ====
</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.
F-42
<PAGE> 191
BANK LAND CO. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Listed below are the components of the net deferred tax asset:
<TABLE>
<CAPTION>
MARCH DECEMBER 31,
31, --------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Deferred tax assets
Accrued expenses................................... $ -- $ 35,712 $ --
Unrealized loss on securities available for sale... -- -- 3,469
Allowance for loan losses.......................... 144,325 144,325 160,800
Pension accrual.................................... 12,987 12,987 17,000
Write downs on foreclosed real estate.............. 4,373 4,373 --
-------- -------- --------
Total deferred tax assets.................. 161,685 197,397 181,269
Deferred tax liabilities
Depreciation....................................... (16,498) (16,498) --
Unrealized gain on securities available for sale... (612) (1,923) --
-------- -------- --------
Total deferred tax liabilities............. (17,110) (18,421) --
-------- -------- --------
Net deferred tax asset..................... $144,575 $178,976 $181,269
======== ======== ========
</TABLE>
The Company did not have a valuation reserve for its deferred tax asset at
March 31, 1996 and December 31, 1995 and 1994.
NOTE G -- STOCKHOLDERS' EQUITY
During February 1994 the Company adopted amendments to its Articles of
Incorporation, authorizing the issue of Class B common stock and Preferred
stock.
Class B Common Stock
The Class B nonvoting common stock is distinguished from the Class A voting
common stock, in that the Class B nonvoting common stock has no voting
privileges or voting power, except as otherwise required by the Colorado
Business Corporation Act. In all other instances the Class B nonvoting common
stock has full rights, privileges, and power as that of Class A voting common
stock.
Preferred Stock
The preferred stock is not entitled to any rights in or to the Company,
including, but not limited to, voting (except as otherwise required by the
Colorado Business Corporation Act), dividend, liquidation, conversion, or any
other preferences and other special rights, except that upon the sale of the
Corporation's stock or assets, the holders of the Preferred stock, as a class,
shall receive seven and one-half percent (7 1/2%) of the net proceeds resulting
from such sale.
Effective June 30, 1994, Colorado corporate statutes were revised, in most
cases eliminating the designation of treasury stock. Under the revised statutes,
shares reacquired by a company are restored to unissued shares and the amount
paid for the shares must be offset against common stock and retained earnings.
The Company's 1994 financial statements reflect the effect of this statute.
NOTE H -- 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-43
<PAGE> 192
BANK LAND CO. 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 Bank
has in particular classes of financial instruments.
The Company's exposure to credit loss in the event of non-performance by
the other party to the financial instrument for commitments to extend credit and
stand-by letters of credit is represented by the contractual notional amount of
those instruments. The Bank uses the same credit policies in making commitments
and conditional obligations as it does for on-balance-sheet instruments.
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, --------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Financial instruments whose contract amounts
represent credit risk
Commitments to extend credit................ $12,788,500 $12,971,700 $11,778,000
Stand-by letters of credit.................. 151,600 186,400 520,800
Credit card arrangements.................... 718,000 633,000 580,800
</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 may 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 Bank
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 I -- EMPLOYEE BENEFITS
The Company has a defined contribution pension plan in effect for
substantially all full-time employees. Salaries and employee benefits expense in
1995 and 1994 includes $52,900 and $48,000, respectively, for this plan.
Contributions under this plan are made at the discretion of the Board of
Directors.
During 1995 the Company terminated its defined benefit pension plan, and
distributed the plan's assets to the participants. No gain or loss was realized
upon the final settlement of this plan. Salary and employee benefits expense in
1994 includes a $83,950 provision for the plan.
NOTE J -- RELATED PARTIES
In the ordinary course of business, certain directors and executive
officers of the Company 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.
F-44
<PAGE> 193
BANK LAND CO. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Aggregate loan transactions with related parties were as follows for the
years ended December 31:
<TABLE>
<CAPTION>
1995 1994
--------- --------
<S> <C> <C>
Balance beginning............................................. $ 171,900 $167,000
New loans..................................................... 664,500 10,000
Repayments.................................................... (251,200) (5,100)
-------- --------
$ 585,200 $171,900
======== ========
</TABLE>
Loans to related parties totaled $598,000 at March 31, 1996.
NOTE K -- REGULATORY MATTERS
Various restrictions limit the extent to which dividends may be paid by the
Company's subsidiary bank. The approval of the bank regulatory authorities is
required for the Bank to pay dividends in any calendar year which exceed the
Bank's net profit for that year combined with its retained profits for the
preceding two years.
Banking regulations also require the Company's subsidiary Bank to maintain
capital levels in relation to Bank assets. At March 31, 1996 and December 31,
1995, the Bank's capital levels exceeded minimum capital requirements.
NOTE L -- 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 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.
F-45
<PAGE> 194
BANK LAND CO. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
The following table presents estimated fair values of the Company's
financial instruments as of December 31, 1995:
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
-------- -------
(IN THOUSANDS OF
DOLLARS)
<S> <C> <C>
Financial assets
Cash and due from banks....................................... $ 6,777 $ 6,777
Federal funds sold and interest bearing deposits.............. 9,666 9,666
Investment securities
Securities held to maturity................................ 15,738 15,784
Securities available for sale.............................. 2,856 2,856
Loans, less allowance for loan losses......................... 76,440 76,006
Accrued interest receivable................................... 677 677
Financial liabilities
Deposits
Non-maturity deposits...................................... 69,335 69,335
Deposits with stated maturities............................ 30,308 30,359
Accrued interest payable...................................... 197 197
</TABLE>
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.
NOTE M -- MERGER AGREEMENT
On December 26, 1995, the Company entered into a Merger Agreement whereby
the Company would be merged into Vectra Banking Corporation. The Merger
Agreement is subject to approval by the Company's stockholders and certain
regulatory authorities. It is anticipated that the merger will be completed in
the second quarter of 1996.
F-46
<PAGE> 195
BANK LAND CO. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE N -- BANK LAND CO. PARENT COMPANY ONLY
CONDENSED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ------------------
1996 1995 1994
--------- ------- -------
<S> <C> <C> <C>
Cash............................................................ $ 616 $ 764 $ 448
Investment in subsidiary........................................ 12,944 12,548 10,723
Real estate..................................................... 98 98 131
Other assets.................................................... 89 82 593
------- ------- -------
$13,747 $13,492 $11,895
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities..................................................... $ -- $ 129 $ --
Stockholders' equity............................................ 13,747 13,363 11,895
------- ------- -------
$13,747 $13,492 $11,895
======= ======= =======
</TABLE>
CONDENSED INCOME STATEMENTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEARS ENDED
MARCH 31, DECEMBER 31,
------------- -----------------
1996 1995 1995 1994
---- ---- ------ ------
<S> <C> <C> <C> <C>
REVENUE
Dividends from subsidiary................................. $ -- $ -- $ -- $ 864
Other revenue............................................. 52 76 277 348
---- ---- ------ ------
Total revenue..................................... 52 76 277 1,212
EXPENSES.................................................... 74 111 420 531
---- ---- ------ ------
(Loss) income before income tax benefit and equity
in undistributed net earnings of unconsolidated
subsidiary...................................... (22) (35) (143) 681
INCOME TAX BENEFIT.......................................... 7 12 45 42
---- ---- ------ ------
(LOSS) INCOME BEFORE EQUITY IN UNDISTRIBUTED NET EARNINGS OF
UNCONSOLIDATED SUBSIDIARY................................. (15) (23) (98) 723
Equity in undistributed net earnings of subsidiary.......... 399 423 1,815 909
---- ---- ------ ------
NET INCOME........................................ $384 $400 $1,717 $1,632
==== ==== ====== ======
</TABLE>
F-47
<PAGE> 196
BANK LAND CO. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEARS ENDED
MARCH 31, DECEMBER 31,
--------------- ------------------
1996 1995 1995 1994
----- ----- ------- ------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................. $ 384 $ 400 $ 1,717 $1,632
Noncash items included in net income
Depreciation........................................ -- 2 4 8
Equity in undistributed net earnings of
unconsolidated subsidiary......................... (399) (423) (1,815) (909)
Gain on sale of real estate......................... -- (26) (26) (131)
Deferred taxes...................................... 36 -- (36) --
Compensation expensed through preferred stock
issuance.......................................... -- -- -- 266
Changes in deferrals and accruals................... (170) 472 671 (552)
----- ----- ------- ------
NET CASH (USED IN) PROVIDED BY OPERATING
ACTIVITIES................................... (149) 425 515 314
CASH FLOWS FROM INVESTING ACTIVITIES
Sale of real estate...................................... -- 55 55 183
Change in loan......................................... 1 -- 5 (43)
----- ----- ------- ------
NET CASH PROVIDED BY INVESTING ACTIVITIES...... 1 55 60 140
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid......................................... -- (259) (259) (426)
Sale of common stock................................... -- -- -- 150
----- ----- ------- ------
NET CASH USED IN FINANCING ACTIVITIES.......... -- (259) (259) (276)
----- ----- ------- ------
NET INCREASE (DECREASE) IN CASH.......................... (148) 221 316 178
CASH AT BEGINNING OF PERIOD.............................. 764 448 448 270
----- ----- ------- ------
CASH AT END OF PERIOD.................................... $ 616 $ 669 $ 764 $ 448
===== ===== ======= ======
</TABLE>
F-48
<PAGE> 197
SOUTHWEST STATE BANK
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Independent Auditors' Report.......................................................... F-50
Balance Sheets -- March 31, 1996 (unaudited) and December 31, 1995 and 1994........... F-51
Statements of Income -- Three months ended March 31, 1996 and 1995 (unaudited) and
years ended December 31, 1995 and 1994.............................................. F-52
Statement of Stockholders' Equity -- Three months ended March 31, 1996 (unaudited) and
years ended December 31, 1995 and 1994.............................................. F-53
Condensed Statements of Cash Flows -- Three months ended March 31, 1996 and 1995
(unaudited)......................................................................... F-54
Statements of Cash Flows -- years ended December 31, 1995 and 1994.................... F-55
Notes to Financial Statements......................................................... F-56
</TABLE>
F-49
<PAGE> 198
INDEPENDENT AUDITORS' REPORT
Board of Directors
SouthWest State Bank
Denver, Colorado
We have audited the accompanying balance sheets of SouthWest State Bank (a
92%-owned subsidiary of Bank Land Co.) as of December 31, 1995 and 1994 and the
related statements of income, stockholders' equity and cash flows for the years
then ended. These financial statements are the responsibility of the Bank's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of SouthWest State Bank at
December 31, 1995 and 1994 and the results of its operations and cash flows for
the years then ended, in conformity with generally accepted accounting
principles.
As discussed in notes A and D, to the financial statements, the Bank
adopted the provisions of Statements of Financial Accounting Standards No. 114,
Accounting by Creditors for Impairment of a Loan, and No. 118, Accounting by
Creditors for Impairment of a Loan -- Income Recognition and Disclosures, as of
January 1, 1995. In addition, as also discussed in notes A and C to the
financial statements, the Bank adopted the provisions of Statements of Financial
Accounting Standards No. 115, Accounting for Certain Investments in Debt and
Equity Securities, as of January 1, 1994.
Fortner, Bayens, Levkulich & Co., P.C.
Denver, Colorado
February 16, 1996
F-50
<PAGE> 199
SOUTHWEST STATE BANK
(A 92%-OWNED SUBSIDIARY OF BANK LAND CO.)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1994
MARCH 31, ------------ ------------
1996
------------
(UNAUDITED)
<S> <C> <C> <C>
Cash and due from banks............................ $ 6,700,938 $ 6,777,108 $ 6,155,289
Interest-bearing deposits with banks............... 1,071,862 1,666,389 883,924
Federal funds sold................................. 9,601,000 8,000,000 6,200,000
Investment securities
Held to maturity (market value of $15,527,171,
$15,784,060 and $19,169,938 at March 31, 1996
and December 31, 1995 and 1994,
respectively)................................. 15,546,002 15,738,334 19,453,899
Available for sale............................... 2,373,462 2,855,783 10,799,608
Loans.............................................. 74,455,169 77,336,058 72,083,020
Less allowance for loan losses..................... (904,583) (933,191) (1,019,215)
------------ ------------ ------------
73,550,586 76,402,867 71,063,805
Leasehold improvements and equipment, net.......... 886,340 947,534 980,995
Accrued interest receivable........................ 682,776 676,905 641,073
Foreclosed real estate............................. 211,278 195,109 --
Deferred tax asset................................. 144,575 143,264 181,269
Other assets....................................... 70,546 109,122 83,651
------------ ------------ ------------
$110,839,365 $113,512,415 $116,443,513
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Demand, non-interest bearing.................. $ 23,984,608 $ 24,653,264 $ 24,820,904
NOW and money market.......................... 23,425,195 24,815,680 29,192,971
Savings....................................... 20,166,244 19,865,994 21,359,879
Time, $100,000 and over....................... 10,856,210 11,923,093 11,559,645
Other......................................... 17,772,417 18,384,708 16,923,314
------------ ------------ ------------
Total deposits........................... 96,204,674 99,642,739 103,856,713
Accrued interest payable......................... 232,743 196,533 116,005
Current income taxes payable..................... 262,043 14,567 144,131
Other liabilities................................ 91,474 40,601 164,466
Dividends payable................................ -- -- 525,000
------------ ------------ ------------
Total liabilities........................ 96,790,934 99,894,440 104,806,315
Commitments (notes G, H and I)
Stockholders' equity
Common stock -- 150,000 shares of $10 par value
authorized, issued and outstanding............ 1,500,000 1,500,000 1,500,000
Capital surplus.................................. 2,500,000 2,500,000 2,500,000
Retained earnings................................ 10,047,758 9,614,768 7,644,455
Net unrealized gain (loss) on securities
available for sale, net of taxes.............. 673 3,207 (7,257)
------------ ------------ ------------
Total stockholders' equity............... 14,048,431 13,617,975 11,637,198
------------ ------------ ------------
$110,839,365 $113,512,415 $116,443,513
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-51
<PAGE> 200
SOUTHWEST STATE BANK
(A 92%-OWNED SUBSIDIARY OF BANK LAND CO.)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED
ENDED MARCH 31, DECEMBER 31,
------------------------ ------------------------
1996 1995 1995 1994
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans................. $1,834,941 $1,867,375 $7,798,396 $6,878,828
Interest on taxable investment
securities.............................. 254,841 402,103 1,270,290 1,049,402
Interest on investment securities exempt
from federal taxes...................... 32,059 35,493 131,615 144,326
Interest on federal funds sold............. 110,725 25,764 228,761 276,808
---------- ---------- ---------- ----------
Total interest income.............. 2,232,566 2,330,735 9,429,062 8,349,364
INTEREST EXPENSE............................. 681,060 671,360 2,753,504 2,270,710
---------- ---------- ---------- ----------
NET INTEREST INCOME.......................... 1,551,506 1,659,375 6,675,558 6,078,654
Provision for loan losses.................... 71,348 -- 135,000 135,000
---------- ---------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN
LOSSES..................................... 1,480,158 1,659,375 6,540,558 5,943,654
OTHER INCOME
Service charges on deposit accounts........ 209,192 216,139 861,565 836,700
Other income............................... 88,472.... 82,827 335,559 607,695
---------- ---------- ---------- ----------
297,664 298,966 1,197,124 1,444,395
OTHER EXPENSES
Salaries and employee benefits............. 531,904 603,770 2,246,494 2,247,615
Occupancy expense of premises.............. 74,741 67,206 282,065 275,504
Furniture and equipment expense............ 89,654 67,202 326,497 251,164
Other expenses............................. 401,057 514,307 1,844,152 1,912,754
---------- ---------- ---------- ----------
1,097,356 1,252,485 4,699,208 4,687,037
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES................... 680,466 705,856 3,038,474 2,701,012
Income tax expense........................... 247,476 247,221 1,068,161 778,347
---------- ---------- ---------- ----------
NET INCOME................................... $432,990... $ 458,635 $1,970,313 $1,922,665
========== ========== ========== ==========
Net income per share of common stock......... $ 2.89 $ 3.06 $ 13.13 $ 12.82
========== ========== ========== ==========
Weighted average shares outstanding.......... 150,000 150,000 150,000 150,000
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-52
<PAGE> 201
SOUTHWEST STATE BANK
(A 92%-OWNED SUBSIDIARY OF BANK LAND CO.)
STATEMENT OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1996 (UNAUDITED) AND
TWO YEARS ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
NET UNREALIZED
GAIN (LOSS)
ON SECURITIES
COMMON CAPITAL RETAINED AVAILABLE FOR SALE,
STOCK SURPLUS EARNINGS NET OF TAXES TOTAL
---------- ---------- ----------- ------------------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1994................ $1,500,000 $2,500,000 $ 6,246,790 $ -- $10,246,790
Net income................................ -- -- 1,922,665 -- 1,922,665
Cash dividend -- $3.50 per share.......... -- -- (525,000) -- (525,000)
Net unrealized loss on securities
available for sale...................... -- -- -- (7,257) (7,257)
---------- ---------- ----------- ------- -----------
BALANCE AT DECEMBER 31, 1994.............. 1,500,000 2,500,000 7,644,455 (7,257) 11,637,198
Change in net unrealized gain (loss) on
securities available for sale........... -- -- -- 10,464 10,464
Net income................................ -- -- 1,970,313 -- 1,970,313
---------- ---------- ----------- ------- -----------
BALANCE AT DECEMBER 31, 1995.............. 1,500,000 2,500,000 9,614,768 3,207 13,617,975
Change in net unrealized gain (loss) on
securities available for sale........... -- -- -- (2,534) (2,534)
Net income................................ -- -- 432,990 -- 432,990
---------- ---------- ----------- ------- -----------
BALANCE AT MARCH 31, 1996................. $1,500,000 $2,500,000 $10,047,758 $ 673 $14,048,431
========== ========== =========== ======= ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-53
<PAGE> 202
SOUTHWEST BANK
(A 92%-OWNED SUBSIDIARY OF BANK LAND CO.)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------
1996 1995
----------- -----------
(UNAUDITED)
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES......................... $ 898,825 $ 365,904
CASH FLOWS FROM INVESTING ACTIVITIES
Change in federal funds sold.................................... (1,601,000) 4,300,000
Net (increase) decrease in loans................................ 2,780,933 (2,999,926)
Purchase of securities available for sale....................... (477,513) (1,420,061)
Purchase of securities held to maturity......................... (2,711,468) (773,391)
Proceeds from maturities of securities available for sale....... 1,000,000 4,200,000
Proceeds from maturities of securities held to maturity......... 2,904,111 3,565,658
Net change in interest-bearing deposits with banks.............. 594,527 (469,317)
Other........................................................... (26,520) (159,794)
----------- -----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES..... 2,463,070 6,243,169
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits.......................................... (3,438,065) (4,984,391)
Dividends paid on common stock.................................. -- (525,000)
----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES..... (3,438,065) (5,509,391)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS................ (76,170) 1,099,682
CASH AND DUE FROM BANKS AT BEGINNING OF PERIOD.................... 6,777,108 6,155,289
----------- -----------
CASH AND DUE FROM BANKS AT END OF PERIOD.......................... $ 6,700,938 $ 7,254,971
=========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-54
<PAGE> 203
SOUTHWEST STATE BANK
(A 92%-OWNED SUBSIDIARY OF BANK LAND CO.)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1995 1994
----------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income..................................................... $ 1,970,313 $ 1,922,665
Adjustments to reconcile net income to net cash provided by
operating activities
Provision for loan losses................................... 135,000 135,000
Reduction in deferred income taxes.......................... 32,613 33,656
Depreciation................................................ 185,792 146,964
Loss on sale of real estate acquired by foreclosure......... 11,726 21,370
Net discount accretion...................................... (352,310) (265,662)
Changes in accruals and deferrals
Interest receivable....................................... (35,832) 24,260
Other assets.............................................. (25,471) 5,163
Interest payable.......................................... 80,528 12,537
Taxes payable............................................. (129,564) (202,445)
Other liabilities......................................... (123,865) 109,512
---------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES.............. 1,748,930 1,943,020
CASH FLOWS FROM INVESTING ACTIVITIES
Change in federal funds sold................................... (1,800,000) 5,100,000
Net increase in interest bearing deposits with banks........... (782,465) --
Purchase of securities to be held to maturity.................. (4,033,356) (18,325,040)
Purchase of securities available for sale...................... (4,503,958) (13,851,107)
Proceeds from maturities of securities held to maturity........ 7,764,870 9,610,065
Proceeds from maturities of securities available for sale...... 12,800,000 9,300,000
Net (increase) decrease in loans............................... (5,680,897) 3,775,337
Expenditures for bank premises and equipment................... (152,331) (325,239)
Proceeds from sale of real estate acquired by foreclosure...... -- 283,626
---------- -----------
NET CASH USED IN INVESTING ACTIVITIES.................. 3,611,863 (4,432,358)
CASH FLOWS FROM FINANCING ACTIVITIES
Net (decrease) increase in deposits............................ $(4,213,974) $ 2,414,272
Dividends paid on common stock................................. (525,000) (412,500)
---------- -----------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES.... (4,738,974) 2,001,772
---------- -----------
NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS............... 621,819 (487,566)
CASH AND DUE FROM BANKS AT BEGINNING OF YEAR..................... 6,155,289 6,642,855
---------- -----------
CASH AND DUE FROM BANKS AT END OF YEAR........................... $ 6,777,108 $ 6,155,289
========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest.................................................... $ 2,672,976 $ 2,258,173
Income taxes................................................ 1,165,112 942,783
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES
Transfer of securities from held to maturity to securities
available
for sale.................................................... $ -- $ 5,974,561
</TABLE>
The accompanying notes are an integral part of these statements.
F-55
<PAGE> 204
SOUTHWEST STATE BANK
(A 92%-OWNED SUBSIDIARY OF BANK LAND CO.)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE
THREE MONTHS ENDED MARCH 31, 1996 AND 1995 IS UNAUDITED)
NOTE A -- SUMMARY OF ACCOUNTING POLICIES
Nature of Operations
SouthWest State Bank ("the Bank") provides a full range of banking and
mortgage services to individual and corporate customers principally in the
Denver metropolitan area. A majority of the Bank's loans are related to real
estate 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 Bank is
also subject to regulation by certain governmental agencies and undergoes
periodic examinations by those regulatory agencies.
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 loan losses, 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 Bank's allowance for loan losses. Such agencies may
require the Bank to recognize additional losses based on their judgments about
information available to them at the time of their examination.
Unaudited Interim Consolidated Financial Statements
The balance sheet as of March 31, 1996 and the statements of income and
condensed cash flows for the three months ended March 31, 1996 and 1995, and the
statement of stockholders' equity for the three months ended March 31, 1996 are
unaudited. In the opinion of management, all adjustments necessary for the fair
presentation of the financial position, results of operations and cash flows as
of March 31, 1996 and for the three months ended March 31, 1996 and 1995,
consisting only of normal recurring adjustments, have been included. The results
of operations for the three months ended March 31, 1996 and 1995 are not
necessarily indicative of the results which may be expected for the entire year.
Accrual Basis of Accounting
Financial accounting records are generally maintained on an accrual basis.
Certain fee income, such as loan fees, is recognized as received. In all cases,
the difference between the accrual basis and the cash basis is not material.
Earnings per Share
Earnings per share are computed using the weighted average method.
F-56
<PAGE> 205
SOUTHWEST STATE BANK
(A 92%-OWNED SUBSIDIARY OF BANK LAND CO.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Investment Securities
Effective January 1, 1994, the Bank adopted Financial Accounting Standard
No. 115, Accounting for Certain Investments in Debt and Equity Securities. SFAS
115 requires, among other things, that securities designated as available for
sale be revalued at each reporting period with the unrealized gain or loss, net
of tax effect recorded as an element of stockholder's equity.
The designation of a security as held to maturity or available for sale is
made at the time of acquisition. The held to maturity classification includes
debt securities that the Bank has the positive intent and ability to hold to
maturity which are carried at amortized cost. The available for sale
classification includes debt and equity securities which are carried at fair
value. Unrealized gains and losses on securities available for sale are included
as a separate component of stockholder's equity, net of tax effect. Gains or
losses on sales of securities are recognized by the specific identification
method.
Loans
Loans are reported at the principal amount outstanding, net of the
allowance for loan losses. Interest on loans is calculated by using the simple
interest method on the daily balance of the principal amount outstanding.
Loans on which the accrual of interest has been discontinued are designated
as non-accrual loans. Accrual of interest on loans is discontinued when
reasonable doubt exists as to the full, timely collection of interest or
principal. When a loan is placed on non-accrual status, all interest previously
accrued but not collected is reversed against current period interest income.
Income on such loans is then recognized only to the extent that cash is received
and where the future collection of principal is probable. Interest accruals are
resumed on such loans only when they are brought fully current with respect to
interest and principal and when, in the judgment of management, the loans are
estimated to be fully collectible as to both principal and interest.
Renegotiated loans are those loans on which concessions in terms have been
granted because of a borrower's financial difficulty. Interest is generally
accrued on such loans in accordance with the new terms.
Allowance for Loan Losses
The Bank provides for possible loan losses by a charge to operations based
on the character of the loan portfolio, current economic conditions, past loan
loss experience and such other factors as, in management's best judgment,
deserve current recognition in estimating loan losses.
For impairment recognized in accordance with Financial Accounting Standards
Board SFAS 114, Accounting by Creditors for Impairment of a Loan, the entire
change in present value of expected cash flows is reported as bad debt expense
in the same manner in which impairment initially was recognized or as a
reduction in the amount of bad debt expense that otherwise would be reported.
Leasehold Improvements and Equipment
Leasehold improvements and equipment are stated at cost, less accumulated
depreciation. Depreciation is provided for in amounts sufficient to relate the
cost of depreciable assets to operations over their estimated service lives.
Depreciation is computed generally on the straight-line method. Depreciation on
leasehold improvements is over the term of the lease.
Foreclosed Real Estate
Foreclosed real estate is recorded at the lower of cost or estimated fair
market value. Gains or losses upon disposition are reflected in current
operations.
F-57
<PAGE> 206
SOUTHWEST STATE BANK
(A 92%-OWNED SUBSIDIARY OF BANK LAND CO.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Cash Flows
For purposes of the statement of cash flows, the Bank has defined cash
equivalents as those amounts included in the balance sheet caption "Cash and Due
from Banks".
Income Taxes
The Bank and its parent company, Bank Land Co., file consolidated income
tax returns. Income taxes of the Bank are recorded on the basis of filing
separate returns, after adjustments related to consolidated income tax
regulations. Current income taxes payable or receivable by the Bank are paid to
or received from the parent company.
Provisions for income taxes are based on taxes payable or refundable for
the current year (after exclusion of non-taxable income such as interest on
state and municipal securities) and deferred taxes on temporary differences
between the amount of taxable income and pretax financial income and between the
tax bases of assets and liabilities and their reported amounts in the financial
statements. Deferred tax assets and liabilities are included in the financial
statements at currently enacted income tax rates applicable to the period in
which the deferred tax assets and liabilities are expected to be realized or
settled. As changes in tax laws or rates are enacted, deferred tax assets and
liabilities are adjusted through the provision for income taxes.
Disclosures About Fair Value of Financial Instruments
The Financial Accounting Standards Board has issued SFAS No. 107,
Disclosures about Fair Value of Financial Instruments. SFAS No. 107 extends the
existing fair value disclosures practices for some instruments by requiring all
entities to disclose the fair value of financial instruments, both assets and
liabilities recognized and not recognized in the balance sheet for which it is
practicable to estimate fair value. The Bank has adopted the provisions of SFAS
No. 107 for its year ended December 31, 1995.
NOTE B -- CASH AND DUE FROM BANKS
The Federal Reserve Board requires banks to maintain reserve balances
composed of cash on hand and balances maintained at the Federal Reserve Bank.
These reserve balances are based primarily on deposit levels. These reserve
balances were approximately $802,000 and $787,000 and $826,000 at March 31, 1996
and December 31, 1995 and 1994, respectively.
F-58
<PAGE> 207
SOUTHWEST STATE BANK
(A 92%-OWNED SUBSIDIARY OF BANK LAND CO.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE C -- INVESTMENT SECURITIES
On January 1, 1994, the Bank adopted SFAS 115, Accounting for Certain
Investments in Debt and Equity Securities. The following presents information
related to the Bank's portfolio of securities held to maturity and available for
sale at the date indicated.
<TABLE>
<CAPTION>
MARCH 31, 1996
------------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
SECURITIES TO BE HELD TO MATURITY
U.S. Treasury securities.................... $ 2,803,637 $ 16,864 $ 141 $ 2,820,360
U.S. agency securities...................... 8,397,048 14,885 98,505 8,313,428
State and municipal securities.............. 4,104,230 60,962 19,566 4,145,626
Mortgage-backed securities.................. 221,087 7,375 -- 228,462
Corporate securities........................ 20,000 -- 705 19,295
----------- -------- -------- -----------
$15,546,002 $ 100,086 $ 118,917 $15,527,171
=========== ======== ======== ===========
SECURITIES AVAILABLE FOR SALE
U.S. Treasury securities.................... $ 2,372,177 $ 1,285 $ -- $ 2,373,462
=========== ======== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995
------------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
SECURITIES TO BE HELD TO MATURITY
U.S. Treasury securities.................... $ 3,659,641 $ 24,323 $ 1,195 $ 3,682,769
U.S. agency securities...................... 8,338,363 24,454 84,288 8,278,529
State and municipal securities.............. 3,490,060 82,436 8,567 3,563,929
Mortgage-backed securities.................. 230,270 9,178 -- 239,448
Corporate securities........................ 20,000 -- 615 19,385
----------- -------- ------- -----------
$15,738,334 $ 140,391 $ 94,665 $15,784,060
=========== ======== ======= ===========
SECURITIES AVAILABLE FOR SALE
U.S. Treasury securities.................... $ 2,850,653 $ 5,130 $ -- $ 2,855,783
=========== ======== ======= ===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1994
------------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
SECURITIES TO BE HELD TO MATURITY
U.S. Treasury securities.................... $ 4,077,903 $ 204 $ 77,467 $ 4,000,640
U.S. agency securities...................... 10,611,789 7,606 223,019 10,396,376
State and municipal securities.............. 4,007,904 59,918 48,160 4,019,662
Mortgage-backed securities.................. 335,603 -- 5,883 329,720
Corporate securities........................ 420,700 2,840 -- 423,540
----------- ------- -------- -----------
$19,453,899 $ 70,568 $ 354,529 $19,169,938
=========== ======= ======== ===========
SECURITIES AVAILABLE FOR SALE
U.S. Treasury securities.................... $10,810,334 $ 4,215 $ 14,941 $10,799,608
=========== ======= ======== ===========
</TABLE>
F-59
<PAGE> 208
SOUTHWEST STATE BANK
(A 92%-OWNED SUBSIDIARY OF BANK LAND CO.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The amortized cost and estimated market value of investment securities at
December 31, 1995 by contractual maturity are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay obligations without call of prepayment penalties.
<TABLE>
<CAPTION>
SECURITIES TO BE SECURITIES
HELD TO MATURITY AVAILABLE FOR SALE
-------------------------- ------------------------
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Due in one year or less............ $ 7,663,681 $ 7,676,557 $2,850,653 $2,855,783
Due after one year through five
years............................ 6,994,383 6,992,264 -- --
Due after five years through ten
years............................ 760,000 789,947 -- --
Due after ten years................ 90,000 85,844 -- --
----------- ----------- ---------- ----------
15,508,064 15,544,612 2,850,653 2,855,783
Mortgage-backed securities......... 230,270 239,448 -- --
----------- ----------- ---------- ----------
$15,738,334 $15,784,060 $2,850,653 $2,855,783
=========== =========== ========== ==========
</TABLE>
The Bank had no gains and no losses on the sale and early redemption of
investment securities for the periods ended March 31, 1996 and December 31, 1995
and 1994.
Investment securities with carrying value of $5,137,120, $5,095,910 and
$4,499,425 are pledged at March 31, 1996 and December 31, 1995 and 1994,
respectively, as collateral for public deposits and for other purposes as
required or permitted by law.
NOTE D -- LOANS AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
Major classifications of loans and leases at December 31, are as follows:
<TABLE>
<CAPTION>
MARCH 31,
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Real estate................................... $40,823,145 $43,608,778 $42,573,786
Commercial.................................... 17,134,597 17,323,278 18,015,380
Installment................................... 15,709,594 15,662,168 10,910,896
Ready Reserve and credit cards................ 725,578 723,914 564,178
Overdrafts.................................... 62,255 17,920 18,780
----------- ----------- -----------
$74,455,169 $77,336,058 $72,083,020
=========== =========== ===========
</TABLE>
As of March 31, 1996 and December 31, 1995, the Company's recorded
investment in impaired loans was approximately $1,722,000 and $560,760,
respectively, and the related valuation allowance calculated under SFAS 114
totaled approximately $149,000 and $112,000, respectively. This valuation
allowance is included in the allowance for loan losses in the accompanying
consolidated balance sheet. The average recorded investment in impaired loans
for the three months ended March 31, 1996 and year ended December 31, 1995 was
$1,062,800 and $399,500, respectively.
Loans having carrying values of $206,835 were transferred to foreclosed
real estate in 1995.
The Bank is not committed to lend funds to debtors whose loans have been
modified.
The principal balance of loans having payments delinquent more than sixty
days at March 31, 1996 and December 31, 1995 and 1994, amounted to $1,728,500,
$590,596 and $431,863, respectively. The accrual of interest had been
discontinued on principal balances of loans totaling $1,722,200, $560,760 and
$484,053 at
F-60
<PAGE> 209
SOUTHWEST STATE BANK
(A 92%-OWNED SUBSIDIARY OF BANK LAND CO.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
March 31, 1996 and December 31, 1995 and 1994. The Bank had no renegotiated
loans at March 31, 1996 and December 31, 1995 and 1994.
Transactions in the allowance for possible loan and lease losses are as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
------------------------ ------------------------
1996 1995 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance at beginning of year......... $ 933,191 $1,019,215 $1,019,215 $1,003,683
Provision for loan losses............ 71,348 -- 135,000 135,000
---------- ---------- ---------- ----------
Total...................... 1,004,539 1,019,215 1,154,215 1,138,683
Loans charged off.................... (124,353) (49,364) (272,193) (198,230)
Recoveries........................... 24,397 3,868 51,169 78,762
---------- ---------- ---------- ----------
Net charge offs............ (99,956) (45,496) (221,024) (119,468)
---------- ---------- ---------- ----------
Balance at end of year............... $ 904,583 $ 973,719 $ 933,191 $1,019,215
========== ========== ========== ==========
</TABLE>
NOTE E -- LEASEHOLD IMPROVEMENTS AND EQUIPMENT
Leasehold improvements and equipment, less accumulated depreciation,
consisted of the following:
<TABLE>
<CAPTION>
MARCH 31, 1996
-------------------------------------
ACCUMULATED NET
COST DEPRECIATION AMOUNT
---------- ----------- --------
<S> <C> <C> <C>
Leasehold improvements............................ $ 980,648 $ 583,253 $397,395
Furniture and equipment........................... 1,226,603 737,658 488,945
---------- ---------- --------
$2,207,251 $ 1,320,911 $886,340
========== ========== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-------------------------------------
ACCUMULATED NET
COST DEPRECIATION AMOUNT
---------- ----------- --------
<S> <C> <C> <C>
Leasehold improvements............................ $ 977,877 $ 559,399 $418,478
Furniture and equipment........................... 1,224,113 695,057 529,056
---------- ---------- --------
$2,201,990 $ 1,254,456 $947,534
========== ========== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1994
-------------------------------------
ACCUMULATED NET
COST DEPRECIATION AMOUNT
---------- ----------- --------
<S> <C> <C> <C>
Leasehold improvements............................ $ 953,034 $ 512,243 $440,791
Furniture and equipment........................... 1,098,779 558,575 540,204
---------- ---------- --------
$2,051,813 $ 1,070,818 $980,995
========== ========== ========
</TABLE>
F-61
<PAGE> 210
SOUTHWEST STATE BANK
(A 92%-OWNED SUBSIDIARY OF BANK LAND CO.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE F -- INCOME TAXES
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEARS ENDED
MARCH 31, DECEMBER 31,
-------------------- ----------------------
1996 1995 1995 1994
-------- -------- ---------- --------
<S> <C> <C> <C> <C>
Current.................................. $247,476 $247,221 $1,035,548 $744,691
Deferred................................. -- -- 32,613 33,656
-------- -------- ---------- --------
$247,476 $247,221 $1,068,161 $778,347
======== ======== ========== ========
</TABLE>
Income tax expense differed from amounts computed at the federal statutory
rate as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
---------------------------------------------------
1996 1995
------------------------ -----------------------
AMOUNT PERCENTAGE AMOUNT PERCENTAGE
---------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Expected federal tax expense............ $ 239,991 34.0% $ 231,358 34.0%
Tax-exempt interest..................... (10,900) (1.5) (12,068) (1.8)
State taxes net of federal benefit...... 16,314 2.3 11,193 1.6
Other................................... 1,816 .2 16,993 2.6
-------- ---- -------- ----
$ 247,221 35.0% $ 247,476 36.4%
======== ==== ======== ====
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------
1995 1994
------------------------ -----------------------
AMOUNT PERCENTAGE AMOUNT PERCENTAGE
---------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Expected federal tax expense............ $1,033,081 34.0% $ 918,344 34.0%
Tax-exempt interest..................... (44,749) (1.5) (49,070) (1.8)
State taxes net of federal benefit...... 68,886 2.3 -- --
Decrease in valuation allowance on
deferred taxes related to alternative
minimum tax credit carryforward....... -- -- (106,793) (4.0)
Other................................... 10,943 .4 15,866 .6
---------- ---- --------- ----
$1,068,161 35.2% $ 778,347 28.8%
========== ==== ========= ====
</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.
F-62
<PAGE> 211
SOUTHWEST STATE BANK
(A 92%-OWNED SUBSIDIARY OF BANK LAND CO.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Listed below are the components of the net deferred tax liability:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, --------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Deferred tax liabilities
Depreciation....................................... $(16,498) $(16,498) $ --
Unrealized gain on securities available for sale... (612) (1,923) --
-------- -------- --------
Total deferred tax liabilities............. (17,110) (18,421) --
Deferred tax assets
Unrealized loss on securities available for sale... -- -- 3,469
Allowance for loan losses.......................... 144,325 144,325 160,800
Pension accrual.................................... 12,987 12,987 17,000
Write downs on foreclosed real estate.............. 4,373 4,373 --
-------- -------- --------
Total deferred tax assets.................. 161,685 161,685 211,269
-------- -------- --------
Net deferred tax asset..................... $144,575 $143,264 $181,269
======== ======== ========
</TABLE>
NOTE G -- FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Bank 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.
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 Bank
has in particular classes of financial instruments.
The Bank's exposure to credit loss in the event of non-performance by the
other party to the financial instrument for commitments to extend credit and
stand-by letters of credit is represented by the contractual notional amount of
those instruments. The Bank uses the same credit policies in making commitments
and conditional obligations as it does for on-balance-sheet instruments.
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, --------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Financial instruments whose contract amounts
represent credit risk
Commitments to extend credit................ $12,788,500 $12,971,700 $11,778,000
Stand-by letters of credit.................. 151,600 186,400 520,800
Credit card arrangements.................... 718,000 633,000 580,800
</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 may expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's
credit-worthiness on a case-by-case basis. The amount of collateral obtained if
deemed necessary by the Bank 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.
F-63
<PAGE> 212
SOUTHWEST STATE BANK
(A 92%-OWNED SUBSIDIARY OF BANK LAND CO.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Stand-by letters of credit are conditional commitments issued by the Bank
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 H -- EMPLOYEE BENEFITS
The Bank has a defined contribution pension plan in effect for
substantially all full-time employees. Salaries and employee benefits expense in
1995 and 1994 includes $52,900 and $48,000, respectively, for this plan.
Contributions under this plan are made at the discretion of the Board of
Directors.
During 1995 the Bank terminated its defined benefit pension plan, and
distributed the plan's assets to the participants. No gain or loss was realized
upon the final settlement of this plan. Salary and employee benefits expense in
1994 includes a $83,950 provision for the plan.
NOTE I -- RELATED PARTIES
The Bank conducts its operations in a facility leased from its parent, Bank
Land Co., under an operating lease which expires in 1998.
The total future minimum rental commitments at December 31, 1995, are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S> <C>
1996........................................... $114,000
1997........................................... 114,000
1998........................................... 85,500
--------
$313,500
========
</TABLE>
Rental expense was $114,000 in 1995 and 1994.
In the ordinary course of business, certain directors and executive
officers of 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.
Aggregate loan transactions with related parties were as follows for the
years ended December 31:
<TABLE>
<CAPTION>
1995 1994
--------- --------
<S> <C> <C>
Balance beginning............................................... $ 171,900 $167,000
New loans....................................................... 664,500 10,000
Repayments...................................................... (251,200) (5,100)
--------- --------
$ 585,200 $171,900
========= ========
</TABLE>
Loans to related parties totaled $598,000 at March 31, 1996.
NOTE J -- DIVIDENDS
Various restrictions limit the extent to which dividends may be paid by the
Bank. The approval of the bank regulatory authorities is required for the Bank
to pay dividends in any calendar year which exceed the Bank's net profit for
that year combined with its retained profits for the preceding two years.
F-64
<PAGE> 213
SOUTHWEST STATE BANK
(A 92%-OWNED SUBSIDIARY OF BANK LAND CO.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE K -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The following summary presents the methodologies and assumptions used to
estimate the fair value of the Bank's financial instruments. The Bank 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 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.
Short-term Borrowings
For short-term borrowings, the carrying amount is a reasonable estimate of
fair value.
LONG-TERM BORROWINGS
The fair value of long-term borrowings is estimated by discounting the
future cash flows using the current rate at which a similar loan could be
financed.
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
F-65
<PAGE> 214
SOUTHWEST STATE BANK
(A 92%-OWNED SUBSIDIARY OF BANK LAND CO.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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.
The following table presents estimated fair values of the Bank's financial
instruments as of December 31, 1995:
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
-------- -------
(IN THOUSANDS OF
DOLLARS)
<S> <C> <C>
Financial assets
Cash and due from banks.................................... $ 6,777 $ 6,777
Federal funds sold and interest bearing deposits........... 9,666 9,666
Investment securities
Securities held to maturity............................. 15,738 15,784
Securities available for sale........................... 2,856 2,856
Loans, less allowance for loan losses...................... 76,403 75,969
Accrued interest receivable................................ 677 677
Financial liabilities
Deposits
Non-maturity deposits................................... 69,335 69,335
Deposits with stated maturities......................... 30,308 30,359
Accrued interest payable................................... 197 197
</TABLE>
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-66
<PAGE> 215
APPENDIX A
AGREEMENT AND PLAN OF MERGER
DATED AS OF THE 26TH DAY OF DECEMBER, 1995
AMONG
VECTRA BANKING CORPORATION,
VECTRA BANK,
BANK LAND CO.
AND
SOUTHWEST STATE BANK
<PAGE> 216
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Plan") is entered into this 26th
day of December, 1995, by and among VECTRA BANKING CORPORATION, a Colorado
corporation (hereinafter referred to as "VBC"), VECTRA BANK, a Colorado banking
corporation (hereinafter referred to as "Vectra"), BANK LAND CO., a Colorado
corporation (hereinafter referred to as "Bank Land"), and SOUTHWEST STATE BANK,
a Colorado banking corporation (hereinafter referred to as "Bank").
RECITALS
WHEREAS, Bank Land is the owner of 138,211.96 shares of the outstanding
capital stock of Bank, which shares represent at least ninety-two percent (92%)
of the outstanding shares of capital stock of Bank;
WHEREAS, it is the intention of the parties to this Plan that the Bank
Merger and the Bank Land Merger (as defined below) for federal income tax
purposes shall each qualify as a "reorganization" within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, by the vote of their respective members, the Boards of Directors
of Bank Land and Bank have adopted resolutions approving this Plan and the
consummation of the transactions contemplated hereby and authorizing the
execution, performance and delivery of this Plan. In addition, the Boards of
Directors of Vectra and VBC have adopted resolutions approving this Plan and the
consummation of the transactions contemplated hereby and authorizing the
execution, performance and delivery of this Plan;
WHEREAS, as a condition to, and immediately following, the execution and
delivery of this Plan, and as a condition to and inducement of the willingness
of VBC and Vectra to enter into this Plan, VBC and Bank Land will enter into a
Stock Option Agreement in the form set forth in Annex 1 (the "Option Agreement")
whereby Bank Land will grant to VBC an option to acquire from Bank Land up to
19.9% of the outstanding shares of Bank Common Stock, subject to regulatory
restrictions and upon the terms and conditions therein contained; and
WHEREAS, the parties desire to set forth their agreement as to this Plan.
NOW, THEREFORE, for and in consideration of their mutual promises and
obligations hereunder, and the mutual covenants and agreements herein contained,
the parties hereto do hereby adopt and make this Plan as follows:
AGREEMENT
ARTICLE 1 -- DEFINITIONS
For purposes of this Plan, the following words and phrases shall have the
respective meanings set forth below:
1.1 "ACQUISITION TRANSACTION" shall mean any transaction involving any of
the following:
(a) the sale or other disposition of all or any portion of Bank's or
Bank Land's assets other than in the ordinary course of business;
(b) the issuance, sale or other disposition of (1) any Bank or Bank
Land Common Stock (the "CS"), (2) any option, call, warrant or right
(whether or not immediately exercisable) to acquire any CS, or (3) any
security, instrument or obligation that is or may become convertible into
or exchangeable for any CS; or
(c) any merger, consolidation, business combination, CS exchange,
reorganization or similar transaction.
1.2 "ADJUSTED BANK LAND FINAL PURCHASE PRICE" means the Bank Land Final
Purchase Price less the Bank Land Preferred Stock Payment.
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1.3 "ALLOCATION PERCENTAGE" is used to allocate the Final Purchase Price
between Bank and Bank Land and shall equal:
[[[[Final Purchase Price-Parent Value]X.9214]+Parent Value]/Final
Purchase Price]
1.4 "BANK" shall mean Southwest State Bank.
1.5 "BANK COMMON STOCK" shall mean the shares of common stock, $10.00 par
value, of the Bank outstanding as of the Effective Time.
1.6 "BANK DISSENTING SHAREHOLDER" shall mean a Bank Shareholder that has
voted against approval of the Bank Merger at the meeting of Bank Shareholders
held for the purpose of approving the Bank Merger and has not waived his or her
right to dissent under Section 11-4-105 of the CBC as of the Effective Time.
1.7 "BANK FINAL PURCHASE PRICE" shall mean the Final Purchase Price times
(1 minus the Allocation Percentage) less a pro rata portion, based on Bank's
Allocation Percentage, of any excess expenses of the Mergers payable by Bank and
Bank Land Shareholders under the terms of Section 9.1(b) of the Plan.
1.8 "BANK LAND" shall mean Bank Land Co.
1.9 "BANK LAND COMMON STOCK" shall mean the shares of Class A and Class B
Common Stock, no par value, of Bank Land outstanding as of the Effective Time.
1.10 "BANK LAND DISSENTING SHAREHOLDER" shall mean a shareholder of Bank
Land Common Stock that did not vote in favor of the Bank Land Merger at the
meeting of the Bank Land Shareholders held for the purpose of approving the Bank
Land Merger and submitted his or her written notice of intent to demand payment
pursuant to Section 7-113-202 of the CBCA and, as of the Effective Time, has not
withdrawn or lost such right to demand payment pursuant to Section 7-113-204(l)
of the CBCA.
1.11 "BANK LAND FINAL PURCHASE PRICE" shall mean the [Final Purchase Price
times the Allocation Percentage], less the TWC Transaction Fee, less (i) a pro
rata portion, based on Bank Land's Allocation Percentage, of any excess expenses
of the Mergers payable by Bank and Bank Land Shareholders under the terms of
Section 9.1(b) of the Plan and (ii) any excess payments to TWC payable by Bank
Land Shareholders under the terms of Section 9.1(b) of the Plan.
1.12 "BANK LAND MERGER" shall mean the merger of Bank Land with and into
Vectra, pursuant to Section 7-111-101 of the CBCA and Section 11-4-102 of the
CBC.
1.13 "BANK LAND NON-DISSENTING SHAREHOLDERS" means all holders of Bank
Land Common Stock other than Bank Land Dissenting Shareholders.
1.14 "BANK LAND PREFERRED STOCK" shall mean the Preferred Stock of Bank
Land outstanding as of the Effective Time, 100 percent of which is currently
owned by, and as of the Effective Time will be owned by, Gary A. Mosko.
1.15 "BANK LAND PREFERRED STOCK PAYMENT" means an amount equal to the
product of .075 times the Bank Land Final Purchase Price, which amount shall be
rounded up or down to the nearest whole dollar.
1.16 "BANK LAND PREFERRED STOCK SHAREHOLDER" shall mean Gary A. Mosko.
1.17 "BANK LAND SHAREHOLDERS" shall mean all holders of Bank Land Common
Stock and Bank Land Preferred Stock as of the Effective Time, and "Bank Land
Shareholder" shall mean one holder of Bank Land Common Stock or Bank Land
Preferred Stock as of the Effective Time.
1.18 "BANK MERGER" shall mean the merger of Bank with and into Vectra,
pursuant to Section 11-4-102 of the CBC.
1.19 "BANK NON-DISSENTING SHAREHOLDERS" means all shareholders of the Bank
as of the Effective Time other than Bank Dissenting Shareholders.
1.20 "BANK SHAREHOLDERS" shall mean all holders of Bank Common Stock as of
the Effective Time, and "Bank Shareholder" shall mean one holder of Bank Common
Stock.
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1.21 "BASE PURCHASE PRICE" shall mean Twenty-One Million Six Hundred
Thousand Dollars ($21,600,000).
1.22 "CBC" shall mean the Colorado Banking Code of 1957, as amended.
1.23 "CBCA" shall mean the Colorado Business Corporation Act.
1.24 "CODE" shall mean the Internal Revenue Code of 1986, as amended.
1.25 "EFFECTIVE TIME" shall mean the time and date the Bank Land Merger
and the Bank Merger shall become effective as set forth in Articles of Merger
duly executed by the parties thereto meeting the requirements of the CBCA and
CBC, executed in accordance with all appropriate legal requirements, and filed
with the Secretary of State of the State of Colorado.
1.26 "FINAL PURCHASE PRICE" shall mean the Base Purchase Price plus 7% per
annum times the Base Purchase Price commencing on the date of this Plan and
ending on the Effective Time.
1.27 "MONTH END" shall mean the last day of the month preceding the month
in which the Closing occurs.
1.28 "PARENT VALUE" shall mean the shareholders' equity as set forth on
the Bank Land balance sheet prepared as of Month End and prepared in accordance
with generally accepted accounting principles except that (i) the value of Bank
Land's investment in Bank shall be excluded from such balance sheet and (ii)
Bank Land's investment in land and improvements shall be reflected at $1,250,000
rather than book value.
1.29 "SHAREHOLDER PERCENTAGE OWNERSHIP" shall mean with respect to each of
Bank Land and Bank, the respective shareholder's percentage ownership in Bank
Land Common Stock or Bank Common Stock, as the case may be, as set forth on
EXHIBITS A and B.
1.30 "SURVIVING CORPORATION" shall mean Vectra.
1.31 "TWC" shall mean The Wallach Company.
1.32 "TWC TRANSACTION FEE" shall be paid in cash and means the Transaction
Fee payable to TWC, as such Transaction Fee is defined in the Letter Agreement
dated February 8, 1995 between TWC and Bank Land.
1.33 "VBC" shall mean Vectra Banking Corporation.
1.34 "VECTRA" shall mean Vectra Bank.
1.35 "1996 SERIES A PREFERRED STOCK" shall mean the $0.10 par value 1996
Series A Preferred Stock of VBC as more fully described on EXHIBIT C, which is
attached hereto and incorporated herein.
ARTICLE 2 -- THE MERGERS
2.1 STRUCTURE OF THE MERGERS. Subject to the terms and conditions hereof,
at the Effective Time, Bank Land shall merge with and into Vectra and Bank shall
merge with and into Vectra (the Bank Land Merger and the Bank Merger are
hereinafter collectively referred to as the "Mergers"). Vectra shall be the
Surviving Corporation from both of the Mergers. The Mergers shall have the
effects specified in the CBCA and CBC. At the Effective Time of the Mergers, the
Articles of Incorporation and Bylaws of the Surviving Corporation shall be the
Articles of Incorporation and Bylaws of Vectra in effect immediately prior to
the Effective Time, and the directors and officers of the Surviving Corporation
shall be the directors and officers of Vectra immediately prior to the Effective
Time, with the addition of Gary A. Mosko.
2.2 EFFECT ON OUTSTANDING SHARES. By virtue of the Bank Land Merger and
the Bank Merger, automatically and without any action on the part of the
shareholders of those corporations, each share of Bank Land Common Stock and
Bank Land Preferred Stock, and each share of Bank Common Stock, issued and
outstanding at the Effective Time (in each case other than shares of Bank Land
Common Stock or Bank Common Stock held by Bank Land Dissenting Shareholders or
Bank Dissenting Shareholders, as the case
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may be) shall become and be converted into cash and shares of 1996 Series A
Preferred Stock in the following manner:
2.2.1 The Bank Land Preferred Stock Shareholder as of the Effective
Time shall receive in the aggregate the Bank Land Preferred Stock Payment
and the shareholders of Bank Land that own Bank Land Common Stock as of the
Effective Time shall receive in the aggregate the Adjusted Bank Land Final
Purchase Price. The Bank Land Preferred Stock Payment and the Adjusted Bank
Land Final Purchase Price shall be comprised of fifty and one-tenths
percent (50.1%) in 1996 Series A Preferred Stock (valued at $100 per share)
and forty-nine and nine-tenths percent (49.9%) in cash. The 1996 Series A
Preferred Stock and cash to be distributed to the Bank Land Shareholders
shall be distributed as follows:
(a) The Bank Land Preferred Stock Shareholder shall receive the
Bank Land Preferred Stock Payment in the form of (i) the number of
shares of 1996 Series A Preferred Stock that results from [the Bank Land
Preferred Stock Payment multiplied by .501], divided by 100; and (ii)
the amount of cash that results from the Bank Land Preferred Stock
Payment minus the product of [the number of shares of 1996 Series A
Preferred Stock to be distributed to the Bank Land Preferred Stock
Shareholder determined pursuant to Section 2.2.1(a)(i) multiplied by
$100], rounded up or down to the nearest whole cent.
(b) Each Bank Land Non-dissenting Shareholder who owns shares of
Bank Land Common Stock as of the Effective Time shall receive the number
of shares of 1996 Series A Preferred Stock ("BLNDS Shares") that results
from: (i) [The number of shares of Bank Land Common Stock owned by such
Bank Land Non-dissenting Shareholder as of the Effective Time, divided
by the total number of shares of Bank Land Common Stock owned by all
Bank Land Non-dissenting Shareholders as of the Effective Time],
multiplied by (ii) [the Adjusted Bank Land Final Purchase Price
multiplied by .501], divided by 100; and
(c) The amount of cash to be distributed to each Bank Land
Non-dissenting Shareholder who owns shares of Bank Land Common Stock as
of the Effective Time shall be equal to: Total Individual BLNDS
Consideration (as defined below) minus [Number of BLNDS Shares issued to
such Bank Land Non-dissenting Shareholder multiplied by $100], rounded
up or down to the nearest whole cent.
where:
"Total Individual BLNDS Consideration" shall be equal to the Adjusted
Bank Land Final Purchase Price multiplied by the quotient of [the total
number of shares of Bank Land Common Stock owned by such Bank Land
Non-dissenting Shareholder as of the Effective Time divided by the total
number of shares of Bank Land Common Stock owned by all shareholders of
Bank Land Common Stock as of the Effective Time], rounded up or down to
the nearest whole cent.
(d) Any Bank Land Dissenting Shareholder who, as of the Effective
Time, has taken all steps necessary to perfect his or her dissenters'
rights pursuant to Article 113 of the CBCA and who subsequently
withdraws or loses his or her right to dissent after the Effective Time,
shall be deemed for purposes of the Bank Land Merger to have chosen to
receive one hundred percent (100%) cash for his or her Bank Land Common
Stock, and such Bank Land Dissenting Shareholder shall receive all cash
in the Bank Land Merger in the following amount: [the number of shares
of Bank Land Common Stock owned by such shareholder as of the Effective
Time divided by the total number of outstanding shares of Bank Land
Common Stock as of the Effective Time] multiplied by the Adjusted Bank
Land Final Purchase Price, rounded up or down to the nearest whole cent.
(e) Any Bank Land Dissenting Shareholder that has effectively
perfected his or her dissenters' rights pursuant to Article 113 of the
CBCA shall receive all cash in the Bank Land Merger in the amount
determined under Article 113 of the CBCA.
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2.2.2 The Bank Shareholders (other than Bank Land and Vectra) as of
the Effective Time shall receive in the aggregate the Bank Final Purchase
Price. The Bank Final Purchase Price shall be comprised of fifty and
one-tenths percent (50.1%) in 1996 Series A Preferred Stock (valued at $100
per share) and forty-nine and nine-tenths percent (49.9%) in cash. The 1996
Series A Preferred Stock and cash to be distributed to the Bank
Shareholders (other than Bank Land and Vectra) shall be distributed as
follows:
(a) Each Bank Non-dissenting Shareholder (other than Bank Land and
Vectra) shall receive the number of shares of 1996 Series A Preferred
Stock (the "BNDS Shares") that results from: (i) [The number of shares
of Bank Common Stock owned by such Bank Non-dissenting Shareholder as of
the Effective Time, divided by the total number of shares of Bank Common
Stock owned by all Bank Non-dissenting Shareholders (other than those
shares owned by Bank Land and Vectra) as of the Effective Time],
multiplied by the dollar amount that results from (ii) [the Bank Final
Purchase Price multiplied by .501], and the product divided by 100; and
(b) The amount of cash to be distributed to each Bank
Non-dissenting Shareholder (other than Bank Land and Vectra) shall be
equal to: Total Individual BNDS Consideration (as defined below) minus
the product of [Number of BNDS Shares issued to such Bank Non-dissenting
Shareholder multiplied by $100], rounded up or down to the nearest whole
cent;
where:
"Total Individual BNDS Consideration" shall be equal to the Bank Final
Purchase Price multiplied by [the total number of shares of Bank Common
Stock owned by such Bank Non-dissenting Shareholder as of the Effective
Time divided by the total number of shares owned by all Bank
Shareholders (other than those shares owned by Bank Land and Vectra) as
of the Effective Time], rounded up or down to the nearest whole cent.
(c) Except as provided in Section 2.2.2(d) below, any Bank
Dissenting Shareholder shall receive all cash and no shares of 1996
Series A Preferred Stock in the Bank Merger.
(d) Any Bank Dissenting Shareholder who withdraws or loses his or
her right to dissent after the Effective Time shall receive forty-nine
and nine tenths percent (49.9%) of his or her consideration in cash and
the remaining fifty and one-tenths percent (50.1%) in 1996 Series A
Preferred Stock as follows: (i) the cash consideration shall equal [[the
number of shares of Bank Common Stock owned by such Bank Dissenting
Shareholder as of the Effective Time divided by the total number of
outstanding shares of Bank Common Stock (other than those shares owned
by Bank Land and Vectra) as of the Effective Time] multiplied by [the
Bank Final Purchase Price]] less [the number of shares of 1996 Series A
Preferred Stock to be distributed to such Bank Dissenting Shareholder
under Section 2.2.2(d)(ii) multiplied by $100], rounded up or down to
the nearest whole cent; and (ii) the number of shares of 1996 Series A
Preferred Stock to be issued to such Bank Dissenting Shareholder shall
equal [the number of shares of Bank Common Stock held by such Bank
Dissenting Shareholder as of the Effective Time divided by the total
number of outstanding shares of Bank Common Stock (other than those
shares owned by Bank Land and Vectra) as of the Effective Time]
multiplied by [the Bank Final Purchase Price multiplied by .501] divided
by 100.
2.3 FRACTIONAL SHARES. No fractional shares of 1996 Series A Preferred
Stock shall be issued pursuant hereto. In lieu of the issuance of any fractional
shares of 1996 Series A Preferred Stock pursuant to Section 2.2, Vectra will
round up to the next whole share of 1996 Series A Preferred Stock and reduce the
amount of cash to be distributed to such shareholder by the dollar amount of the
additional fractional share issued to such shareholder based on a value of $100
per share.
2.4 SHARES ISSUED PRIOR TO THE MERGERS. Each share of Vectra Common Stock
issued and outstanding immediately prior to the Effective Time shall remain
outstanding and unchanged after the Mergers.
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2.5 TWC TRANSACTION FEE. Immediately following the Effective Time, Vectra,
as successor-in-interest to Bank Land, shall pay the TWC Transaction Fee to TWC
in full satisfaction of all sums payable to TWC under the terms of the Letter
Agreement between TWC and Bank Land dated February 8, 1995, and TWC and Bank
Land shall furnish to Vectra as of the Closing, the TWC Agreement attached
hereto as EXHIBIT 2.5 which shall be executed by TWC, Bank Land and Vectra which
provides for the exact amount of the TWC Transaction Fee to be paid by Vectra to
TWC and TWC's release and acquittance of Bank Land and Vectra for making such
payment.
2.6 EXCHANGE PROCEDURES. At and after the Effective Time, each certificate
("Certificate") previously representing shares of Bank Land Common Stock, Bank
Land Preferred Stock and Bank Common Stock (other than shares of Bank Common
Stock owned by Bank Land and Vectra) shall represent the right to receive the
cash payment and the number of whole shares of 1996 Series A Preferred Stock
into which such shares of Bank Land Common Stock, Bank Land Preferred Stock and
Bank Common Stock have been converted pursuant to Sections 2.2 and 2.3 (the
"Bank Land Merger Consideration" or the "Bank Merger Consideration", as the case
may be). Certificates previously representing shares of Bank Land Common Stock,
Bank Land Preferred Stock and Bank Common Stock shall be exchanged as
hereinafter provided in this Section 2.6 for consideration set forth in Sections
2.2 and 2.3 only upon the surrender to Vectra of such Certificates.
As of the Effective Time, Vectra shall deposit or cause to be deposited
with American Securities Transfer, Incorporated (the "Exchange Agent"), for the
benefit of the holders of the Bank Land Common Stock, Bank Land Preferred Stock
and Bank Common Stock for exchange in accordance with this Section 2.6,
certificates representing the shares of 1996 Series A Preferred Stock and cash
to be issued and paid, respectively, pursuant to Sections 2.2 and 2.3. Such
certificates for shares of 1996 Series A Preferred Stock, together with any
dividends or distributions with respect thereto, and all cash are sometimes
referred to hereinafter as the "Exchange Fund."
Promptly after the Effective Time, Vectra or VBC shall cause the Exchange
Agent to mail to each holder of record of a Certificate or Certificates the
following: (i) a letter of transmittal specifying that delivery shall be
effected, and risk of loss to the Certificates shall pass, only upon delivery of
the Certificates to the Exchange Agent, which shall be in a form and contain any
other provisions as VBC and Bank Land may reasonably agree, including, without
limitation, a notice of the effectiveness of the Mergers; and (ii) instructions
for use in effecting the surrender of the Certificates in exchange for the Bank
Land Merger Consideration and the Bank Merger Consideration. Upon the proper
surrender of a Certificate to the Exchange Agent, together with a properly
completed and duly executed letter of transmittal, the holder of such
Certificate shall be entitled to receive in exchange therefor the appropriate
Bank Land Merger Consideration or the Bank Merger Consideration, and the
Certificate so surrendered shall forthwith be canceled. No interest will be paid
or accrued on unpaid dividends and distributions, if any, payable to holders of
Certificates. In the event of a transfer of ownership of any shares of Bank Land
Common Stock or Bank Common Stock not registered in the transfer records of Bank
Land or the Bank, as the case may be, the Bank Land Merger Consideration and the
Bank Merger Consideration may be delivered to the transferee only if the
Certificate representing such Bank Land Common Stock or Bank Common Stock is
presented to the Exchange Agent, accompanied by documents sufficient (i) to
evidence and effect such transfer and (ii) to evidence that all applicable stock
transfer taxes, if any, have been paid.
2.7 NO TRANSFERS OF BANK LAND PREFERRED STOCK. From and after the date of
this Plan, Bank Land and Gary A. Mosko agree that there shall be no voluntary
transfers of any shares of Bank Land Preferred Stock that were outstanding
immediately prior to the date of this Plan.
2.8 UNCLAIMED PORTION OF EXCHANGE FUND. Any portion of the Exchange Fund
(including the proceeds of any investments thereof and any 1996 Series A
Preferred Stock) that remains unclaimed by the Bank Land Shareholders or Bank
Shareholders for six months after the Effective Time shall be transferred to
Vectra. Any Bank Land Shareholders or Bank Shareholders, who have not
theretofore complied with Section 2.6 shall thereafter look only to Vectra for
payment of the Bank Land Merger Consideration and the Bank Merger Consideration
and any unpaid dividends and distributions on the 1996 Series A Preferred Stock
deliverable in
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respect of each share of Bank Land Common Stock, Bank Land Preferred Stock or
Bank Common Stock such shareholder holds as determined pursuant to this Plan, in
each case, without any interest thereon. If outstanding certificates for shares
of Bank Land Common Stock, Bank Land Preferred Stock or Bank Common Stock are
not surrendered or the payment for them not claimed prior to the date on which
such payments would otherwise escheat to or become the property of any
governmental unit or agency, the unclaimed items shall, to the extent permitted
by abandoned property and any other applicable law, become the property of
Vectra (and to the extent not in its possession shall be paid over to it), free
and clear of all claims or interest of any person previously entitled to such
claims. Notwithstanding the foregoing, none of Vectra, VBC, the Exchange Agent
or any other person shall be liable to any former holder of Bank Land Common
Stock, Bank Land Preferred Stock or Bank Common Stock for any amount delivered
to a public official pursuant to applicable abandoned property, escheat or
similar laws.
2.9 LOST CERTIFICATE. In the event any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if reasonably
required by VBC, the posting by such person of a bond in such form and amount as
VBC may direct as indemnity against any claim that may be made against it with
respect to such Certificate, the Exchange Agent will issue in exchange for such
lost, stolen or destroyed Certificate the appropriate Bank Land Merger
Consideration or Bank Merger Consideration, and any unpaid dividends and
distributions on the 1996 Series A Preferred Stock deliverable in respect of
each share of Bank Land Common Stock, Bank Land Preferred Stock or Bank Common
Stock represented by such Certificate as determined pursuant to this Plan, in
each case, without any interest thereon.
2.10 NOTICE OF BANK LAND DISSENTERS' RIGHTS. Bank Land shall forthwith
give VBC notice of any written demands for dissenters' rights of any holders of
shares of Bank Land Common Stock, attempted withdrawals of such demands, and any
other instruments or notices served pursuant to Article 113 of the CBCA received
by Bank Land relating to dissenters' rights. Bank Land shall not, except with
the prior written consent of VBC, voluntarily make any payment with respect to
any demands for dissenters' rights of any holder of shares of Bank Land Common
Stock, offer to settle or settle any such demands, or approve any withdrawal of
any such demands.
2.11 NOTICE OF BANK DISSENTERS' RIGHTS. Bank shall forthwith give VBC
notice of any written demands for dissenters' rights of any holders of shares of
Bank Common Stock, attempted withdrawals of such demands, and any other
instruments or notices served pursuant to Section 11-4-105 et seq. of the CBC
received by Bank relating to dissenters' rights. Bank shall not, except with the
prior written consent of VBC, voluntarily make any payment with respect to any
demands for dissenters' rights of any holder of shares of Bank Common Stock,
offer to settle or settle any such demands, or approve any withdrawal of any
such demands.
ARTICLE 3 -- CLOSING AND TERMINATION
3.1 CLOSING. The closing (referred to as the "Closing" and the date the
Closing takes place is referred to as the "Closing Date") of the Plan shall take
place at the offices of Freeborn & Peters, 950 17th Street, Suite 2600, Denver,
Colorado or at such other place as is mutually agreeable to VBC and Bank Land.
The Closing shall occur, unless this Plan is terminated as provided for herein,
on a date that is mutually agreeable to VBC and Bank Land, but such date in any
event to be within twenty (20) days (or if such day is a holiday in the State of
Colorado, the next business day) of the later of (i) the receipt of all required
approvals from bank regulatory agencies (whether in the form of a notice given
to the appropriate party or in the form of the lapse of any applicable waiting
period without receipt of a notice of disapproval) including, to the extent
necessary, the Division of Banking for the State of Colorado, the Federal
Deposit Insurance Corporation and/or the Board of Governors of the Federal
Reserve System (hereinafter collectively referred to as the "Regulatory
Authorities"), and (ii) the approval of the Plan by the Bank Land Shareholders
pursuant to the CBCA and the Bank Shareholders pursuant to the CBC. As soon as
reasonably practicable after the Closing, but in no event later than three
business days following the Closing, Bank Land and Vectra shall execute and
deliver Articles of Merger effecting the Bank Land Merger as required by Section
7-111-105 of the CBCA
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which shall be filed with the Colorado Secretary of State and be effective as of
the Effective Time. As soon as reasonably practicable after Closing, but in no
event later than three business days following the Closing, Bank and Vectra
shall execute and deliver Articles of Merger effecting the Bank Merger as
required by Section 11-4-106 of the CBC which shall be filed with the Colorado
Secretary of State.
3.2 TERMINATION.
3.2.1 This Plan shall terminate if any of the Regulatory Authorities
or any other regulatory agency disapproves any of the applications required
to be filed by Bank Land, Bank, Vectra or VBC with such authority or
agency.
3.2.2 If the Closing contemplated hereunder has not occurred on or
before October 31, 1996, either VBC or Bank Land may terminate this Plan
upon written notice to the other party; provided, however, that if any of
Vectra's or VBC's applications are then pending with the Regulatory
Authorities as of such date, the termination date of this Plan shall be
extended until the end of the thirty-first (31st) day following the date
that the Regulatory Authorities render the last of their decisions.
Notwithstanding the foregoing, this Plan shall terminate fourteen (14)
months after the date of this Plan.
3.2.3 If any of the representations, warranties or covenants of Bank
Land or Bank are found to be untrue or breached in any material respect, at
or prior to Closing, and Bank Land or Bank shall not have cured such breach
within thirty (30) days after VBC shall have given written notice to Bank
Land of the existence of such breach, VBC may terminate this Plan upon
written notice to Bank Land. If any of the representations, warranties or
covenants of Vectra or VBC are found to be untrue or breached in any
material respect, at or prior to Closing, and Vectra or VBC shall not have
cured such breach within thirty (30) days after Bank Land shall have given
written notice to VBC of the existence of such breach, Bank Land may
terminate this Plan upon written notice to VBC. In the event that any of
the parties receives a written notice of a material breach of any of its
representations, warranties or covenants within the thirty (30) days
immediately preceding the scheduled Closing Date, such breaching party
shall have the option to extend the Closing Date by the amount of days
required to give such party a full thirty (30) days to cure such breach.
3.2.4 This Plan may be terminated by Bank Land if Vectra and VBC have
not filed within sixty (60) days after the date of this Plan the necessary
applications with the appropriate Regulatory Authorities for permission to
consummate the Plan.
3.2.5 This Plan may be terminated by the written agreement of VBC,
Vectra, Bank Land and Bank.
3.3 EFFECT OF TERMINATION. In the event of the termination and abandonment
of this Plan pursuant to Section 3.2, this Plan shall be of no further force or
effect, with no liabilities or obligations of any party under this Plan;
provided, however, that Sections 6.3, 7.2 and 9.1(a) hereof shall survive any
termination of this Plan, and provided further that the parties shall not be
released from any liabilities, claims or actions regarding the falsity in any
material respect of a representation or warranty or a failure to perform or
comply with any material obligation under this Plan.
3.4 REGISTRATION AND PROXY STATEMENT. VBC shall, as promptly as
practicable after the date of this Plan and the furnishing by Bank and Bank Land
of the information regarding Bank and Bank Land required or desired by VBC to be
reflected therein, file with the Securities and Exchange Commission ("SEC") a
Registration Statement ("Registration Statement") under the Securities Act of
1933, as amended, relating to the shares of 1996 Series A Preferred Stock to be
issued at the Effective Time and containing a Proxy Statement ("Proxy
Statement") for use at the Bank and Bank Land Shareholders' Meetings referred to
in Section 6.4. VBC shall use its reasonable best efforts to cause the
Registration Statement to be declared effective by the SEC and to enable the
proxy material to be mailed to shareholders as promptly as practicable. Vectra,
VBC, Bank and Bank Land shall cooperate with each other in the preparation of
the Proxy Statement. VBC will use its reasonable best efforts to comply with
state "Blue Sky" or securities laws in connection with the issuance of the 1996
Series A Preferred Stock pursuant to the Mergers, and Bank and Bank Land shall
furnish VBC all information concerning Bank and Bank Land and the holders of
their capital stock required
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by federal securities laws to be included in the Registration Statement and to
otherwise take any action as VBC may reasonably request in connection with the
preparation and filing of the Registration Statement.
ARTICLE 4 -- REPRESENTATIONS AND WARRANTIES OF BANK LAND
Except to the extent that exceptions may be noted on the Exhibits attached
hereto, Bank Land represents and warrants to VBC and Vectra as of the date
hereof as follows:
4.1 AUTHORITY OF BANK. Bank is a State of Colorado banking corporation
duly organized, validly existing and in good standing under the laws of
Colorado, with full power under its charter and has all necessary governmental
authorizations to own its properties and assets and to carry on its business.
Bank is in compliance in all material respects with all applicable federal,
state and local laws, regulations and orders. Bank has the corporate power and
authority to execute and deliver this Plan and, subject to shareholder approval
and the approval of any necessary Regulatory Authorities, to perform all of its
obligations hereunder.
4.2 AUTHORITY OF BANK LAND. Bank Land (i) is duly organized, validly
existing and in good standing under the laws of Colorado; (ii) has the power and
authority to carry on its business as now conducted and to own or hold under
lease the assets and properties it purports to own or hold under lease; (iii) is
not required to be licensed or registered to transact its business in any state
or jurisdiction other than Colorado; (iv) is in compliance in all material
respects with all applicable federal, state and local laws, regulations and
orders; and (v) has the corporate power and authority to execute and deliver
this Plan and, subject to shareholder approval and the approval of any necessary
Regulatory Authorities, to perform all of its obligations hereunder.
4.3 CAPITAL STOCK OF BANK. Bank has authorized 150,000 shares of Bank
Common Stock, $10.00 par value per share and Bank has issued and outstanding
150,000 shares of Bank Common Stock, all of which shares have been duly and
validly issued and are fully paid and nonassessable. The outstanding shares have
not been issued in violation of the preemptive rights of any shareholder of
Bank. There are outstanding no other shares of any class of Bank stock. There
are no subscriptions, options, warrants, scrip, rights, calls, convertible
securities, or any other similar agreements, arrangements or commitments of any
character relating to the issued or unissued capital stock, or other securities
of Bank obligating, or which may obligate, Bank to issue, deliver or sell or
cause to be issued, delivered or sold, additional shares of its capital stock or
obligating or which may obligate, Bank to grant, extend or enter into any such
subscription, option, warrant, scrip, right, call, convertible security, or
other similar agreement, arrangement, or similar commitment. Except as set forth
in EXHIBIT 4.3 attached hereto, there are no voting trusts or restricted share
transfer agreements or other similar agreements, arrangements, or commitments to
which Bank is a party or of which it has knowledge with respect to the voting
and/or transfer of the capital stock of Bank. EXHIBIT 4.3 contains a copy of any
agreements among or between Bank and/or the shareholders of Bank relating to the
Bank Common Stock.
4.4 CAPITAL STOCK OF BANK LAND. Bank Land has authorized 3,000,000 shares
of capital stock, all of which shares are without par value, consisting of: (a)
2,000,000 shares of Class A voting common stock, of which 372,793 shares are
issued and outstanding, (b) 500,000 shares of Class B nonvoting common stock, of
which 10,000 shares are issued and outstanding, and (c) 500,000 shares of
Preferred Stock, of which 100,000 shares are issued and outstanding. All of the
issued and outstanding shares have been duly and validly issued and are fully
paid and nonassessable. The outstanding shares have not been issued in violation
of the preemptive rights of any shareholder of Bank Land. There are outstanding
no other shares of any class of Bank Land stock. There are no subscriptions,
options, warrants, scrip, rights, calls, convertible securities, or any other
similar agreements, arrangements or commitments of any character relating to the
issued or unissued capital stock, or other securities of Bank Land obligating,
or which may obligate, Bank Land to issue, deliver or sell or cause to be
issued, delivered or sold, additional shares of its capital stock or obligating
or which may obligate, Bank Land to grant, extend or enter into any such
subscription, option, warrant, scrip, right, call, convertible security, or
other similar agreement, arrangement, or similar commitment. Except as set forth
in EXHIBIT 4.4 attached hereto, there are no voting trusts or restricted share
transfer agreements or other similar agreements, arrangements, or commitments to
which Bank Land is a party or of which it has knowledge with respect to the
voting and/or transfer of the capital stock of Bank Land. EXHIBIT 4.4 contains a
copy of any
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agreements among or between Bank Land and/or the shareholders of Bank Land
relating to the Bank Land Common Stock and/or Bank Land Preferred Stock.
4.5 AUTHORITY AND BINDING EFFECT. This Plan has been, and all other
agreements and documents to be executed and delivered by Bank Land hereunder
will be, at or prior to the Closing, duly authorized, executed and delivered by
Bank Land and constitute the legal, valid and binding obligation of Bank Land
enforceable against Bank Land in accordance with their terms, except that (i)
such enforcement may be subject to bankruptcy, insolvency, reorganization,
moratorium or other similar rights, (ii) the remedy of specific performance and
injunctive and other form of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding may be
brought, and (iii) this Plan is subject to approval by the Bank Land
Shareholders and by the Regulatory Authorities. This Plan is a valid and binding
obligation of Bank Land, enforceable against Bank Land in accordance with its
terms, except to the extent set forth in this Plan.
4.6 NO VIOLATION. Neither the execution and delivery of this Plan nor the
performance by Bank and Bank Land of any of their obligations hereunder or the
consummation of any of the transactions contemplated hereby will violate any
agreement to which Bank or Bank Land is a party or by which Bank or Bank Land or
any of their assets or properties may be bound, or any provision of Bank's or
Bank Land's Articles of Incorporation or Bylaws or any applicable law, order or
decree.
4.7 SUBSIDIARIES, DEPOSITS AND ASSESSMENTS. Bank Land has no subsidiaries
other than Bank. The deposits of the Bank are insured by the FDIC in accordance
with the Federal Deposit Insurance Act and the Bank has paid all assessments and
filed all reports required by the Federal Deposit Insurance Act.
4.8 BANK FINANCIAL STATEMENTS. Attached hereto as EXHIBIT 4.8 are true and
complete copies of Bank's audited balance sheet as of December 31, 1994 and
related statements of income, and changes in shareholders' equity and cash flows
for the year then ended. Also attached hereto as part of EXHIBIT 4.8 are true
and correct copies of Bank's unaudited balance sheet as of October 31, 1995 and
statement of income for the ten-month period ended October 31, 1995. Commencing
thereafter, Bank will supplement EXHIBIT 4.8 with a balance sheet and statement
of income of Bank within fifteen (15) days of the end of each month during the
term of this Plan. All such financial statements, including the notes thereto,
are hereinafter referred to as the "Bank Financial Statements". The Bank
Financial Statements (i) are in accordance with the books and records of Bank,
(ii) present fairly the financial position and results of operations of Bank as
of the dates and for the periods indicated, and (iii) have been prepared in
accordance with generally accepted accounting principles consistently applied
throughout the periods above, except to the extent that such Bank Financial
Statements have been required by the Regulatory Authorities to be prepared in
accordance with regulatory accounting principles.
4.9 BANK LAND FINANCIAL STATEMENTS. Attached hereto as EXHIBIT 4.9 are
true and complete copies of Bank Land's parent only unaudited balance sheet as
of December 31, 1994 and related statements of income and changes in
shareholders' equity for the year then ended. Also attached hereto as part of
EXHIBIT 4.9 are Bank Land's parent only unaudited balance sheet and consolidated
balance sheet as of September 30, 1995 and statement of income for the
nine-month period ended September 30, 1995. Commencing thereafter, Bank Land
will supplement EXHIBIT 4.9 with a parent only balance sheet and statement of
income of Bank Land within fifteen (15) days of the end of each quarter during
the term of this Plan, commencing with the quarter ending December 31, 1995, and
a parent only balance sheet prepared as of Month End and delivered to VBC two
days prior to the Closing. All such financial statements, including the notes
thereto, are hereinafter referred to as the "Bank Land Financial Statements".
The Bank Land Financial Statements (i) are in accordance with the books and
records of Bank Land, (ii) present fairly the financial position and results of
operations of Bank Land as of the dates and for the periods indicated, and (iii)
have been prepared on a parent company only basis in accordance with generally
accepted accounting principles consistently applied throughout the periods
above, except to the extent that such Bank Land Financial Statements have been
required by the Regulatory Authorities to be prepared in accordance with
regulatory accounting principles.
4.10 NO MATERIAL CHANGES. Since September 30, 1995, the business of each
of Bank Land and Bank has been operated only in the ordinary and normal course
and, except as set forth in EXHIBIT 4.10 there has not
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been, after such date, (i) any material adverse change in the earnings, assets,
liabilities, financial condition or in the operation of their respective
businesses; (ii) any increase in the fixed or variable compensation payable to
or to become payable by Bank Land or Bank to officers, directors, key employees
or agents, or in the rate of commission or bonus, or in any insurance, pension
or other benefit plan, payment or arrangement made to, for or with any of such
officers, directors, key employees or agents (other than salary increases for
officers or employees consistent with prior practices or otherwise justifiable
based on their performance); or (iii) any commission or bonus paid to officers,
directors, key employees or agents of Bank or Bank Land.
4.11 UNDISCLOSED LIABILITIES. Neither Bank Land nor Bank has any
liabilities, claims, demands, actions, causes of action, or obligations
(collectively referred to as a "Liability" or "Liabilities" herein) of any
nature, direct or indirect, absolute, contingent or otherwise except (i) as
incurred in the ordinary course of business since the date of the Bank Land
Financial Statements and Bank Financial Statements and as set forth in Bank Land
Financial Statements and Bank Financial Statements, (ii) as disclosed in EXHIBIT
4.11, or (iii) which are not material. For purposes of this Section 4.11 only,
material shall be defined as $25,000 in the aggregate for all Liabilities.
4.12 TAXES. Bank Land and Bank have filed, with the appropriate
governmental agencies, all United States tax returns and reports, all state and
local tax returns and reports with respect to income and sales taxes, and all
other tax returns and reports that have been required to be filed by applicable
law, rules and regulations. All tax returns and reports filed by Bank and Bank
Land properly and fully reflect all taxes due and owing by Bank Land and Bank.
All federal, state and local taxes, assessments, interest, penalties or
deficiencies, fees or other governmental charges or impositions that are due
have been fully and adequately reserved for or have been paid. The provisions
for taxes contained in Bank Financial Statements and Bank Land Financial
Statements are adequate to fully cover all of the tax liabilities as of those
dates and nothing has come to Bank's or Bank Land's attention subsequent to
those dates which would indicate that such provisions were or are inadequate.
From January 1, 1995 through the Closing Date, Bank Land and Bank will make
sufficient provisions for taxes to cover all tax liabilities. Bank Land and Bank
have not received any notice of deficiency or assessment or proposed deficiency
or assessment respecting the business and properties of Bank Land or Bank from
the Internal Revenue Service or any other taxing authority. Bank Land and Bank
have not waived any law or regulation fixing, or consented to the extension of,
any period of time for the assessment of any tax.
Neither Bank Land nor Bank has received any notice from the Internal
Revenue Service or any other taxing authorities changing, contesting or
challenging any "net operating losses" and/or any "net operating loss
carryovers", as defined by the Internal Revenue Code of 1986, as amended,
included on any tax returns previously filed by Bank Land or Bank with the
Internal Revenue Service or any other taxing authorities.
4.13 CAPITAL STOCK OF BANK. Bank Land (i) is the owner of 138,211.96
shares of Bank Common Stock; (ii) will not sell, encumber or dispose of any such
shares prior to the Closing; and (iii) subject to applicable federal and state
securities laws, and any necessary approval of Bank Land Shareholders and
Regulatory Authorities, has complete and unrestricted power to sell or exchange
such shares, and at the Closing such shares shall be free and clear of all liens
and encumbrances.
4.14 LITIGATION. EXHIBIT 4.14 hereto sets forth the legal and
administrative proceedings and investigations of any kind or nature now pending
or, to the knowledge of Bank Land and Bank, threatened before any court or
administrative body against Bank Land or Bank. None of such proceedings set
forth in EXHIBIT 4.14, if determined adversely, unless specifically set forth
and explained, would have a material adverse effect on Bank Land or Bank, their
assets, operations or earnings, or challenge the transactions contemplated by
this Plan. Neither Bank Land nor Bank is subject to any unsatisfied judgment,
order or decree of any court of law, administrative board, regulatory agency,
arbitrator or arbitration panel. Except as disclosed in EXHIBIT 4.14, Bank Land
and Bank are in substantial compliance with all laws, rules and regulations of
governmental agencies and authorities, and any judgments, orders or decrees
which by their terms apply to Bank Land and/or Bank.
4.15 AGREEMENTS. Subject to compliance with applicable securities laws,
the approval of the appropriate Regulatory Authorities and the approval of the
Plan by the requisite vote of the shareholders of Bank Land
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and Bank, neither the execution and delivery of this Plan nor the performance of
the transactions contemplated hereby will violate any law or any rule or
regulation of any governmental agency or authority applicable to Bank Land or
Bank or will result in a breach of, or cause a default under, any mortgage,
indenture, loan agreement or other contract or agreement to which Bank Land or
Bank is a party or is bound.
4.16 FULL DISCLOSURE. No representation or warranty made by Bank Land in
this Plan (including the Exhibits hereto) contains any untrue statement of a
material fact or omits to state any material fact necessary to make such
representation or warranty not misleading. There is no fact known to Bank Land
which is not disclosed in this Plan which materially adversely affects the
accuracy of the representations and warranties contained in this Plan or the
Bank's or Bank Land's financial condition, operations, business, earnings,
assets or liabilities, or the Bank Financial Statements or Bank Land Financial
Statements. All information set forth in the schedules, exhibits and all other
information regarding Bank or Bank Land and their respective businesses,
condition, assets, liabilities, operations, financial performance, net income
and prospects that has been furnished to Vectra or VBC or any of their
representatives or agents by or on behalf of Bank or Bank Land, or any of Bank's
or Bank Land's representatives or agents, is accurate and complete in all
material respects. Bank and Bank Land have provided Vectra and Vectra's
representatives and agents with full and complete access to all of Bank's and
Bank Land's records and other documents and data.
4.17 LEASES AND CONTRACTS. Attached hereto as EXHIBIT 4.17 is a list of
the following which is accurate and complete as of the date hereof: (i) each
lease, contract, license, agreement or other commitment of Bank Land or Bank as
obligor involving a liability or obligation in excess of $5,000, contingent or
fixed, other than deposit obligations, obligations under certificates of
deposit, letters of credit, items in the process of collection and commitments
to loan or discount, and (ii) any and all powers of attorney granted to any
person, firm, corporation or other entity by Bank Land or Bank for any purpose
whatsoever.
4.18 CONDUCT. Except as disclosed in EXHIBIT 4.18, since September 30,
1995 neither Bank Land nor Bank has (i) issued or sold any shares of capital
stock, any securities convertible into or exchangeable for such capital stock or
any corporate debt obligations (except deposits, letters of credit, cashier's
checks, acknowledgments or indebtedness incident to borrowing from Federal
Reserve Banks and other documents and instruments issued in the ordinary course
of the banking business of Bank); (ii) granted any options, warrants or other
rights to purchase any of its capital stock; (iii) incurred any obligations or
liabilities (absolute or contingent), except obligations or liabilities incurred
in the ordinary course of business, or pledged or subjected to lien or
encumbrance (other than statutory liens not yet delinquent) any of its assets or
properties; (iv) sold, exchanged or otherwise disposed of any capital assets
other than in the ordinary course of business; (v) entered into any employment
contract with any officer or salaried employee or instituted any employee
welfare, bonus, stock option, profit sharing, retirement or similar plan or
arrangements; (vi) suffered any damage, destruction or loss, whether or not
covered by insurance, materially and adversely affecting its business, property
or assets or waived any rights of value which in the aggregate are material,
considering its business taken as a whole; (vii) entered into, amended or
modified any lease or, except in the ordinary course of business, any other
arrangement; (viii) declared or paid any dividend in respect of shares of
capital stock; or (ix) entered into any transaction outside the ordinary course
of its business except as expressly contemplated by this Plan.
4.19 CONTRACT DEFAULTS. Except as disclosed in EXHIBIT 4.19, neither Bank
Land nor Bank is in default in any respect under the terms of any outstanding
contract, agreement, lease or other commitment which is material to the
business, operation, properties or assets, or the condition, financial or
otherwise, of either Bank Land or Bank, or under their respective Articles of
Incorporation or Bylaws, and no event has occurred which with notice or lapse of
time, or both, may be or become an event of default under any such contract,
agreement, lease or other commitment which is material to either Bank Land or
Bank or under the Articles of Incorporation or Bylaws of either Bank Land or
Bank.
4.20 TITLE AND ENCUMBRANCES. All real property and depreciable tangible
personal property owned by Bank Land or Bank, and all real and personal property
leased by or to Bank Land or Bank are listed on EXHIBIT 4.20 hereto. Except as
disclosed in EXHIBIT 4.20 or other exhibits hereto, Bank Land and Bank have good
and marketable title to all of the tangible properties, interest in properties
and assets, real and personal,
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reflected on Bank Land Financial Statements and Bank Financial Statements or
acquired after such date (except properties, interests and assets sold or
otherwise disposed of since such date in the ordinary course of business and for
adequate consideration), free and clear of all mortgages, liens, pledges,
charges or encumbrances, except: (i) mortgages and other encumbrances referred
to in the notes to Bank Land Financial Statements and Bank Financial Statements;
(ii) liens for current taxes not yet due and payable; (iii) security interests
granted incident to borrowing from the Federal Reserve Bank and other financial
institutions or to secure deposits of funds by federal, state or other
governmental agencies; and (iv) such minor imperfections of title and
encumbrances as do not detract from or interfere with the present use of the
properties subject thereto or affected thereby, or otherwise impair present
business operations at such properties. Except as disclosed in EXHIBIT 4.20, the
structures and equipment owned and used by Bank Land or Bank comply in all
material respects with all applicable laws and ordinances and are in good
operating condition, subject to ordinary wear and tear; the real and personal
property, if any, leased by Bank Land or Bank, is held by it under valid and
enforceable leases; neither Bank Land nor Bank has received notice that it is in
default under any such leases, and all rentals due and payable under any such
leases on or prior to the date of the execution of this Plan have been paid or
will have been reserved for prior to the consummation of the transactions
contemplated under this Plan.
4.21 EMPLOYEE BENEFIT PLANS. Set forth in EXHIBIT 4.21 is a list of all
employment agreements, severance agreements or arrangements, parachute
agreements, employee or director bonus, deferred compensation, pension,
retirement, profit sharing, stock option, stock purchase, employee stock
ownership, stock appreciation rights, savings, consulting, stock appreciation
rights, group insurance, fringe benefit, and other employee benefit, incentive,
and welfare plans, policies, contracts and arrangements, formal or informal,
written or oral, and all trust agreements related thereto, now in effect and
relating to any present or former directors, officers, or employees of Bank or
Bank Land, whether or not described in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA") (collectively, the "Employee
Plans"). All of the Employee Plans have been maintained, operated, and
administered in substantial compliance with their terms, and Bank, Bank Land,
and all of the Employee Plans currently comply, and have at all relevant times
complied, in all material respects with applicable provisions of ERISA, the
Code, securities laws and other applicable laws. With respect to each Employee
Plan (whether currently in effect or which has been terminated) which is a
pension plan (as defined in Section 3(2) of ERISA) ( a "Pension Plan"), each
such Pension Plan (and any trust relating thereto) intended to be a qualified
plan under Section 401(a) of the Code has been determined by the IRS to be so
qualified. Neither Bank nor Bank Land nor any ERISA affiliate has in the past or
now maintains, sponsors or contributes to any plan subject to Title II of ERISA
or sec.412 of the Code (including any multiemployer pension plans defined in
sec.3(37) of ERISA), other than the Southwest State Bank Pension Plan, which has
been terminated, and none of them has ever incurred any liability to any person,
entity or agency by reason of the withdrawal from or termination of any plan.
"ERISA Affiliate" shall mean any entity that is a member of a commonly
controlled group of corporations or trades or businesses of which Bank or Bank
Land is a member within the meaning of sec.414(b) and (c) of the Code. No
"prohibited transaction" (as defined in Section 406 of ERISA or Section 4975 of
the Code) with respect to any "employee benefit plan" (as defined under Section
3(3) of ERISA, each such plan an "ERISA Plan") has occurred which is likely to
result in any penalties or taxes under Section 502(i) of ERISA or Section 4975
of the Code. All reporting and disclosure requirements of ERISA and the Code
have been complied with in all material respects with respect to each of the
ERISA Plans and each other Employee Plan. Bank and Bank Land have not
contributed to any "multiemployer plan," as defined in Section 3(37) of ERISA,
nor any plan that is subject to Title IV of ERISA, on or after September 26,
1980. Except as set forth in EXHIBIT 4.21 Bank and Bank Land do not have any
obligations for retiree health and life benefits under any benefit plan,
contract or arrangement.
With respect to each Employee Plan, Bank has attached as part of EXHIBIT
4.21 a true and correct copy of (i) the most recent annual report on Form 5500
filed with the IRS, if such report is required, (ii) such Employee Plan, (iii)
each trust agreement and insurance contract relating to such Employee Plan, (iv)
the most recent summary plan description for such Employee Plan, if it is
subject to Title I of ERISA, and (v) the most recent determination letter issued
by the IRS, if such Employee Plan is intended to be qualified under Section
401(a) of the Code.
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4.22 CONTRACTS. Except as set forth in EXHIBIT 4.22 hereto or in other
exhibits hereto, neither Bank Land nor Bank is a party to or bound by any oral
or written (i) contract for the employment of any officer or employee which is
not terminable for any or no reason on thirty (30) days' (or less) notice
without payment of any amount on account of such termination; (ii) bonus,
deferred compensation, savings, stock option, retirement, pension, profit
sharing, or severance pay agreement, plan or arrangement; (iii) agreement,
contract or indenture relating to the borrowing of money; (iv) guarantee of any
obligation for the borrowing of money or otherwise, excluding endorsements made
for collection and guarantees made in the ordinary course of business; (v)
management agreement, consulting or other similar contract or arrangement; (vi)
collective bargaining agreement; (vii) agreement with any present or former
officer, director or shareholder of Bank Land or Bank; (viii) license, whether
as licensor or licensee; (ix) contract or commitment for the purchase of
materials or supplies or for the performance of services over a period of more
than sixty (60) days; (x) contract, agreement or other commitments not made in
the ordinary course of business; (xi) contingent liabilities, including letters
of credit of all types; (xii) contracts to purchase or sell securities of all
types; (xiii) contract or commitment for capital expenditures in excess of
$10,000; (xiv) contract or option to lease, purchase or sell any real property
or any contract, agreement or commitment which is material to the business,
operations, prospects, properties or assets or to the condition, financial or
otherwise, of Bank Land or Bank.
4.23 INSURANCE. All assets and properties of Bank Land and Bank are
insured under valid and enforceable policies issued by insurers of recognized
responsibility in amounts and against the risks described in EXHIBIT 4.23(A) and
EXHIBIT 4.23(B) respectively. Attached hereto as EXHIBIT 4.23(A) in the case of
Bank Land, and EXHIBIT 4.23(B) in the case of Bank, is a list of all insurance
policies of Bank Land and Bank, respectively, as of the date hereof reflecting
kind, type and amount of coverage, all of which are in full force and effect,
and all of which have had the premiums therefore paid to the extent due.
4.24 EXHIBITS AND SCHEDULES. All statements contained in the Exhibits to
be furnished pursuant to this Plan are incorporated herein and made a part of
this Plan by reference thereto and shall be deemed to be additional
representations and warranties of the party furnishing the Exhibits.
4.25 LOANS, DISCOUNTS, OR COMMITMENTS TO LOAN OR DISCOUNT. Except as set
forth on EXHIBIT 4.25, Bank Land has no outstanding loans or commitments to make
loans to any person or party. Bank has no outstanding loans or discounts which
have not or will not be made prior to the Closing for good and valuable
consideration in the ordinary course of Bank's business and the notes or other
evidences of indebtedness evidencing any loans or discounts are true and genuine
and are what they purport to be. Bank has no outstanding commitments to loan or
discount which have not or will not be made prior to the Closing except in the
ordinary course of Bank's business and the documents evidencing any such
commitments to loan or discount are true and genuine and are what they purport
to be.
4.26 HAZARDOUS WASTE. Except as described in EXHIBIT 4.26, neither Bank
Land nor Bank has received from any governmental authority or third party any
request for information, notice of claim, demand letter or other notification
that it is or may be responsible with respect to any investigation or clean-up
of any hazardous, toxic or polluting substance releases at any site, nor does
Bank Land or Bank have knowledge of facts concerning any hazardous, toxic or
polluting substance releases at any of its properties in violation of any laws,
rules and regulations.
4.27 BOND PORTFOLIO. Attached hereto as EXHIBIT 4.27 is a true and
complete list of all bonds and other securities held by Bank included on its
balance sheet as of October 31, 1995 setting forth thereon the cost, interest,
obligor, maturity and book value of such securities.
4.28 LICENSES AND APPROVALS. All licenses, permits, franchise and other
governmental or quasi-governmental authorizations and approvals required or
necessary for Bank Land or Bank to carry on their respective businesses have
been obtained and are in full force and effect; Bank and Bank Land have no
knowledge of facts that would cause a reasonable person to believe such
licenses, permits, franchise and other governmental or quasi-governmental
authorizations and approvals shall not remain in full force and effect.
4.29 NO CONSENT OR APPROVAL. Neither the execution and delivery by Bank or
Bank Land of this Plan, nor the consummation of the transactions contemplated by
this Plan, requires the consent or approval of, or
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the giving of notice by Bank or Bank Land to, or the registration by Bank or
Bank Land with, or the taking of any other action by Bank or Bank Land in
respect of any federal, state or local governmental authority or any third
party, except as contemplated by this Plan.
4.30 AFFILIATES OF BANK LAND. Bank Land represents and warrants that, to
the best of its knowledge upon the advice of counsel, the only persons who are
or may be Affiliates of Bank Land within the meaning of SEC Rule 144 are
identified in EXHIBIT 4.30.
4.31 COMPLIANCE WITH LEGAL REQUIREMENTS. Except as set forth in EXHIBIT
4.31:
(a) Bank and Bank Land are in compliance in all material respects with
the legal requirements that apply to the conduct of their respective
businesses and the ownership and use of their assets;
(b) Bank and Bank Land have been in compliance in all material
respects at all times with each applicable legal requirement concerning the
conduct of their respective businesses and the ownership and use of their
assets; and
(c) No event has occurred, and no condition or circumstance exists,
that might reasonably be deemed likely (with or without notice or lapse of
time) to constitute or result directly or indirectly in a violation by Bank
or Bank Land of any applicable legal requirement which would have a
material adverse effect on Bank Land's or Bank's financial condition,
assets or properties or the results of their respective operations.
4.32 LABOR MATTERS. Neither Bank nor Bank Land is a party to, or is bound
by, any collective bargaining agreement, contract, or other agreement or
understanding with a labor union or labor organization, nor is Bank or Bank Land
the subject of any proceeding asserting that Bank or Bank Land has committed an
unfair labor practice or seeking to compel Bank or Bank Land to bargain with any
labor organization as to wages and conditions of employment, nor is there any
strike or other labor dispute involving Bank or Bank Land pending or threatened.
4.33 REGISTRATION AND PROXY STATEMENTS. The information to be supplied by
Bank and Bank Land to Vectra in writing expressly for inclusion in (i) the
Registration Statement on Form S-4 and/or such other forms as may be appropriate
to be filed under the Securities Act of 1933, as amended (the "1933 Act"), with
the Securities and Exchange Commission ("SEC") by VBC and Vectra for the purpose
of, among other things, registering the 1996 Series A Preferred Stock to be
issued in the Mergers (the "Registration Statement"), and (ii) the Proxy
Statement (as hereinafter defined) to be distributed in connection with Bank's
and Bank Land's meetings of their shareholders to vote upon this Plan (as
amended or supplemented from time to time, the "Proxy Statement", and together
with the prospectus included in the Registration Statement, as amended or
supplemented from time to time, the "Proxy Statement/Prospectus"), will not, at
the time the Registration Statement becomes effective, and, in the case of the
Proxy Statement/Prospectus, at the time it is mailed and at the time of the Bank
Shareholders' and Bank Land Shareholders' meetings, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. All documents which
Bank and Bank Land are responsible for filing, or which either furnishes to VBC
or Vectra in connection with the Mergers, will comply as to form and substance
in all material respects with the provisions of applicable law.
ARTICLE 5 -- REPRESENTATIONS AND WARRANTIES OF VBC
REPRESENTATIONS AND WARRANTIES OF VBC. Except to the extent that exceptions
may be noted on the Exhibits attached hereto, VBC represents and warrants to
Bank and Bank Land as of the date hereof through and on the Effective Time as
follows:
5.1 AUTHORITY OF VECTRA. Vectra is a State of Colorado banking corporation
duly organized, validly existing and in good standing under the laws of
Colorado, with full power under its charter and has all necessary governmental
authorizations to own its properties and assets and to carry on its business.
Vectra is in
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compliance in all material respects with all applicable federal, state and local
laws, regulations and orders. Vectra has the corporate power and authority to
execute and deliver this Plan and, subject to shareholder approval and the
approval of necessary Regulatory Authorities, to perform all of its obligations
hereunder.
5.2 AUTHORITY OF VBC. VBC (i) is duly organized, validly existing and in
good standing under the laws of Colorado; (ii) has the power and authority to
carry on its business as now conducted and to own or hold under lease the assets
and properties it purports to own or hold under lease; (iii) is not required to
be licensed or registered to transact its business in any state or jurisdiction
other than Colorado; (iv) is in compliance in all material respects with all
applicable federal, state and local laws, regulations and orders; and (v) has
the corporate power and authority to execute and deliver this Plan and, subject
to the Registration Statement becoming effective and the approval of necessary
Regulatory Authorities, to perform all of its obligations hereunder.
5.3 CAPITAL STOCK OF VBC. VBC has authorized 8,000,000 shares of stock,
consisting of 7,000,000 shares of common stock, $0.01 par value per share and
1,000,000 shares of preferred stock, $0.10 par value per share, and VBC has
issued and outstanding 3,195,279 shares of common stock and 805,000 shares of
Series A Preferred Stock. All of the outstanding shares of VBC have been duly
and validly issued and are fully paid and nonassessable. The outstanding shares
have not been issued in violation of the preemptive rights of any shareholder of
VBC. Except as set forth in EXHIBIT 5.3 attached hereto, there are no voting
trusts or restricted share transfer agreements or other similar agreements,
arrangements, or commitments to which VBC is a party or of which it has
knowledge with respect to the voting and/or transfer of the capital stock of
VBC.
5.4 AUTHORITY AND BINDING EFFECT. This Plan has been, and all other
agreements and documents to be executed and delivered by Vectra and VBC
hereunder will be, at or prior to the Closing, duly authorized, executed and
delivered by Vectra and VBC and constitute the legal, valid and binding
obligation of Vectra and VBC enforceable against Vectra and VBC in accordance
with their terms, except that (i) such enforcement may be subject to bankruptcy,
insolvency, reorganization, moratorium or other similar rights, (ii) the remedy
of specific performance and injunctive and other form of equitable relief may be
subject to equitable defenses and to the discretion of the court before which
any proceeding may be brought, and (iii) this Plan is subject to approval by the
shareholder of Vectra and by Regulatory Authorities. This Plan is a valid and
binding obligation of Vectra and VBC, enforceable against Vectra and VBC in
accordance with its terms, except to the extent set forth in this Plan.
5.5 NO VIOLATION. Neither the execution and delivery of this Plan nor the
performance by Vectra and VBC of any of their obligations hereunder or the
consummation of any of the transactions contemplated hereby will violate any
agreement to which Vectra or VBC is a party or by which Vectra or VBC or any of
their assets or properties may be bound, or any provision of Vectra's or VBC's
Articles of Incorporation or Bylaws or any applicable law, order or decree.
5.6 NO CHANGES. Since September 30, 1995, the business of each of Vectra
and VBC has been operated only in the ordinary and normal course and, except as
set forth in EXHIBIT 5.6 there has not been, after such date, any material
adverse change in the earnings, assets, liabilities, financial condition or in
the operation of their respective businesses.
5.7 UNDISCLOSED LIABILITIES. Neither Vectra nor VBC has any liabilities,
claims, demands, actions, causes of action, or obligations (collectively
referred to as a "Liability" or "Liabilities" herein) of any nature, direct or
indirect, absolute, contingent or otherwise except (i) as incurred in the
ordinary course of business since the date of their respective financial
statements, (ii) as disclosed in EXHIBIT 5.7, or (iii) which are not material.
For purposes of this Section 5.7, material shall be defined as $100,000 in the
aggregate for all Liabilities.
5.8 LITIGATION. EXHIBIT 5.8 hereto sets forth the material legal and
administrative proceedings and investigations of any kind or nature now pending
or, to the knowledge of Vectra and VBC, threatened before any court or
administrative body against Vectra or VBC. None of such proceedings set forth in
EXHIBIT 5.8, if determined adversely, unless specifically set forth and
explained, would have a material adverse effect on Vectra or VBC, their assets,
operations or earnings, or challenge the transactions contemplated by this Plan.
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Neither Vectra nor VBC is subject to any material unsatisfied judgment, order or
decree of any court of law, administrative board, regulatory agency, arbitrator
or arbitration panel. Except as disclosed in EXHIBIT 5.8, Vectra and VBC are in
substantial compliance with all laws, rules and regulations of governmental
agencies and authorities, and any judgments, orders or decrees which by their
terms apply to Vectra and/or VBC. For purposes of this Section 5.8, "material"
shall mean any proceeding or investigation, individually, that management of
Vectra and VBC reasonably believes will result in a judgment of at least
$100,000 against either Vectra or VBC.
5.9 TAXES. Vectra and VBC have filed, with the appropriate governmental
agencies, all United States tax returns and reports, all state and local tax
returns and reports with respect to income and sales taxes, and all other tax
returns and reports that have been required to be filed by applicable law, rules
and regulations. All tax returns and reports filed by Vectra and VBC properly
and fully reflect all taxes due and owing by Vectra and VBC. All federal, state
and local taxes, assessments, interest, penalties or deficiencies, fees or other
governmental charges or impositions that are due have been fully and adequately
reserved for or have been paid. The provisions for taxes contained in Vectra's
and VBC's financial statements are adequate to fully cover all of the tax
liabilities as of those dates and nothing has come to Vectra's or VBC's
attention subsequent to those dates which would indicate that such provisions
were or are inadequate. From January 1, 1995 through the Closing Date, Vectra
and VBC will make sufficient provisions for taxes to cover all tax liabilities.
Vectra and VBC have not received any notice of deficiency or assessment or
proposed deficiency or assessment respecting the business and properties of
Vectra or VBC from the Internal Revenue Service or any other taxing authority.
Vectra and VBC have not waived any law or regulation fixing, or consented to the
extension of, any period of time for the assessment of any tax.
Neither Vectra nor VBC has received any notice from the Internal Revenue
Service or any other taxing authorities changing, contesting or challenging any
"net operating losses" and/or any "net operating loss carryovers", as defined by
the Internal Revenue Code of 1986, as amended, included on any tax returns
previously filed by Vectra or VBC with the Internal Revenue Service or any other
taxing authorities.
5.10 AGREEMENTS. Subject to compliance with applicable securities laws,
the approval of the appropriate Regulatory Authorities and the approval of this
Plan by the requisite vote of the shareholder of Vectra, neither the execution
and delivery of this Plan nor the performance of the transactions contemplated
hereby will violate any law or any rule or regulation of any governmental agency
or authority applicable to Vectra or VBC or will result in a breach of, or cause
a default under, any mortgage, indenture, loan agreement or other contract or
agreement to which Vectra and/or VBC is a party or is bound.
5.11 FULL DISCLOSURE. No representation or warranty made by Vectra or VBC
in this Plan (inclusive of the Exhibits to this Plan) contains any untrue
statement of a material fact or omits to state any material fact necessary to
make such representation or warranty not misleading. There is no fact known to
Vectra or VBC which is not disclosed in this Plan which materially adversely
affects the accuracy of the representations and warranties contained in this
Plan or Vectra's or VBC's financial condition, operations, business, earnings,
assets, or liabilities. All information set forth in the schedules, exhibits and
all other information regarding Vectra or VBC and their respective businesses,
condition, assets, liabilities, operations, financial performance, net income
and prospects that has been furnished to Bank or Bank Land or any of their
representatives or agents by or on behalf of Vectra or VBC, or any of Vectra's
or VBC's representatives or agents, is accurate and complete in all material
respects. Vectra and VBC have provided Bank's and Bank Land's representatives
and agents with full and complete access to all of Vectra's and VBC's records
and other documents and data.
5.12 CONTRACT DEFAULTS. Except as disclosed in EXHIBIT 5.12, neither
Vectra nor VBC is in default in any respect under the terms of any outstanding
contract, agreement, lease or other commitment which is material to the
business, operation, properties or assets, or the condition, financial or
otherwise, of either Vectra or VBC, or under their respective Articles of
Incorporation or Bylaws, and no event has occurred which with notice or lapse of
time, or both, may be or become an event of default under any such contract,
agreement, lease or other commitment which is material to either Vectra or VBC
or under the Articles of Incorporation or Bylaws of either Vectra or VBC.
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5.13 EXHIBITS AND SCHEDULES. All statements contained in the Exhibits to
be furnished pursuant to this Plan are incorporated herein and made a part of
this Plan by reference thereto and shall be deemed to be additional
representations and warranties of the party furnishing the Exhibits.
5.14 HAZARDOUS WASTE. Except as described in EXHIBIT 5.14, neither Vectra
nor VBC has received from any governmental authority or third party any request
for information, notice of claim, demand letter or other notification that it is
or may be responsible with respect to any investigation or clean-up of any
hazardous, toxic or polluting substance releases at any site, nor does Vectra or
VBC have knowledge of facts concerning any hazardous, toxic or polluting
substance releases at any of its properties in violation of any laws, rules and
regulations.
5.15 NO CONSENT OR APPROVAL. Neither the execution and delivery by Vectra
or VBC of this Plan, nor the consummation of the transactions contemplated by
this Plan, requires the consent or approval of, or the giving of notice by
Vectra or VBC to, or the registration by Vectra or VBC with, or the taking of
any other action by Vectra or VBC in respect of any federal, state or local
governmental authority or any third party, except all necessary applications to
the Regulatory Authorities, filings with the SEC, and as otherwise contemplated
by this Plan.
5.16 COMPLIANCE WITH LEGAL REQUIREMENTS. Except as set forth in EXHIBIT
5.16:
(a) Vectra and VBC are in compliance in all material respects with the
legal requirements that apply to the conduct of their respective businesses
and the ownership and use of their respective assets;
(b) Vectra and VBC have been in compliance in all material respects at
all times with each applicable legal requirement concerning the conduct of
their respective businesses and the ownership and use of their respective
assets;
(c) No event has occurred, and no condition or circumstance exists,
that might reasonably be deemed likely (with or without notice or lapse of
time) to constitute or result directly or indirectly in a violation by
Vectra or VBC of any applicable legal requirement which would have a
material adverse effect on Vectra's or VBC's financial condition, their
assets or the results of their operations; and
(d) VBC and Vectra are current in its filings with the SEC pursuant to
the Securities Exchange Act of 1934, as amended.
5.17 1996 SERIES A PREFERRED AND COMMON STOCK. VBC has or will have on or
prior to Closing sufficient authorized and unissued shares of preferred stock
and common stock into which the 1996 Series A Preferred Stock can be converted,
and as of the Effective Time VBC will have sufficient authorized and unissued
shares of 1996 Series A Preferred Stock to consummate the Mergers. As of the
Closing, the shares of 1996 Series A Preferred Stock to be issued to the
shareholders of Bank and Bank Land pursuant to the Mergers will be validly
issued, fully paid and nonassessable and the shares of common stock when issued
pursuant to the terms of the 1996 Series A Preferred Stock will be validly
issued, fully paid and nonassessable.
5.18 Registration and Proxy Statements. The information to be supplied by
Vectra and VBC in writing expressly for inclusion in (i) the Registration
Statement, and (ii) the Proxy Statement to be distributed in connection with
Bank's and Bank Land's meetings of their shareholders to vote upon this Plan,
will not, at the time the Registration Statement becomes effective, and, in the
case of the Proxy Statement/Prospectus, at the time it is mailed and at the time
of the Bank Shareholders' and Bank Land Shareholders' meetings, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading. All
documents which Vectra and VBC are responsible for filing, or which either
furnishes to Bank or Bank Land in connection with the Mergers, will comply as to
form and substance in all material respects with the provisions of applicable
law.
5.19 SEC REPORTS. Neither VBC's Annual Report on Form 10-KSB for the year
ended December 31, 1994, nor any other document (excluding exhibits) filed with
the Securities and Exchange Commission (the "SEC") subsequent to December 31,
1994 pursuant to the Securities Exchange Act of 1934, as amended
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(the "Securities Exchange Act") (collectively, the "Reports"), contained or will
contain any untrue statement of a material fact or omitted or will omit to state
a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under which they were
made, not misleading. Each of the balance sheets or statements of condition
contained in the Reports (including any related notes and schedules) fairly
presented the financial position of the entity or entities to which it relates
as of its date and each of the statements of operations and retained earnings
and of cash flows or equivalent statements contained or incorporated by
reference in the Reports (including any related notes and schedules) fairly
presented the results of operations, retained earnings and cash flows, as the
case may be, of VBC for the period set forth therein (subject, in the case of
unaudited interim statements, to normal year-end audit adjustments), in each
case in accordance with generally accepted accounting principles applicable to
VBC consistently applied during the period involved, except as may be noted
therein.
ARTICLE 6 -- COVENANTS OF BANK AND BANK LAND
6.1 ACTIVITIES OF BANK AND BANK LAND. Each of Bank and Bank Land severally
but not jointly agrees that, from and after the date of this Plan and until the
Closing, except as contemplated by this Plan or with the prior written consent
of Vectra, which consent shall not be unreasonably withheld, each of Bank and
Bank Land:
6.1.1 Will not make any change in its Articles of Incorporation or
By-laws.
6.1.2 Will not issue or sell any shares of capital stock or options,
warrants or other rights to acquire capital stock or securities convertible
into capital stock or make any change in its capital structure.
6.1.3 Will not (i) enter into any contract or arrangement except in
the ordinary course of business; (ii) enter into commitments for capital
expenditures in excess of $10,000 or incur any liabilities except
liabilities of Bank in the ordinary course of its banking business; (iii)
incur any liens or encumbrances upon any of its properties (except for
current tax liens or other liens incurred in the ordinary course of banking
business); or (iv) make any substantial change in the type or character of
its business.
6.1.4 Will be managed, maintained, operated and accounted for on a
basis consistent with the management, maintenance, operation, accounting
and auditing of Bank and Bank Land over the last three years.
6.1.5 Will not grant any increase in the rates of pay of its
employees or any increase in the fixed or variable compensation payable, or
to become payable, to any officer, employee or agent thereof (other than
salary increases for officers or employees consistent with prior practices
or otherwise justifiable based on their performance), or in any pension
plan or other contract or commitment to increase the benefits or
compensation of any such officers, employees or agents; and not pay or
commit to pay any bonus or commission to any officer, employee or agent
thereof.
6.1.6 Will properly accrue sufficient reserves in accordance with
generally accepted accounting principles for the payment of all federal,
state and local taxes, assessments, interest, penalties or deficiencies,
fees, or other government charges or impositions imposed by any taxing
authority (hereinafter collectively "charges") to enable timely payment of
the charges as they are due.
6.1.7 Will cause the Bank to (A) accrue loan loss reserves so that as
of the Closing Date, the loan loss reserve of Bank shall be equal to the
greater of (i) $1,250,000, and (ii) an adequate reserve agreed to by Bank
Land and Vectra as of the Closing Date, and (B) maintain capital sufficient
to remain in compliance with all banking and other regulatory requirements.
6.1.8 Will give to Vectra, and Vectra's accountants, counsel,
employees, agents and other representatives, full access without
unreasonably interfering with Bank Land's or Bank's business operations, to
all of the properties, books, regulatory information, contracts,
commitments, tax returns and reports and records of Bank Land and Bank and
will furnish to Vectra all such documents, records and information with
respect to the affairs of Bank Land and Bank and copies of any work papers
relating to Bank as Vectra shall from time to time request. Bank Land shall
keep Vectra reasonably informed as
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to the affairs of Bank Land and Bank, and shall periodically advise the
officers of Vectra on all material matters pertaining to the business of
Bank Land and Bank.
6.1.9 Will notify Vectra at least two business days in advance of
Bank's loan and discount meetings and agree that a designated
representative of Vectra may attend such meetings. The loan and discount
meetings will review all loans, commitments to loan, letters of credit, or
any extensions or renewals of loans, commitments to loan or letters of
credit proposed to be made by Bank in excess of $50,000 with respect to any
person, firm or corporation (the "Discussion Loan"). Bank agrees that it
will discharge its responsibilities in a reasonable manner in accordance
with existing Bank policies, consistent with past practices, and will
exercise prudent banking practices and procedures in reviewing any
extension or renewal of a loan, commitment to loan or letter of credit
proposed to be extended or renewed by Bank in excess of $100,000. Bank
agrees not to make any Discussion Loan without Vectra having been given at
least two business days advance written notice of the loan and discount
meeting therefor. In the event the Bank approves any Discussion Loan which
Vectra's designated representative at the loan and discount meeting shall
have requested Bank not to make, then Vectra shall have the right within
one week prior to the Closing to determine whether a specific loan loss
provision should be made by the Bank for such loan.
6.1.10 Will not invest in securities having maturities in excess of
three (3) years from the date of purchase.
6.1.11 Will not encumber, sell or dispose of any of Bank's assets
(including securities held by Bank in its investment securities portfolio),
except in the ordinary course of Bank's business.
6.1.12 Will keep in force all insurance policies currently in effect.
6.1.13 Will operate, maintain, and repair all tangible property
consistent with prior business practices of such entity.
6.1.14 Will duly comply with all applicable laws, local, state or
federal, pertaining to the operation of Bank Land's and Bank's business,
except for unintentional infractions that are not adverse to the condition
of Bank Land or Bank.
6.1.15 Will not do any act or omit to do any act that will cause or
permit a breach of any material contract, commitment or obligation.
6.1.16 Will cause Bank Land and Bank to file with the appropriate
governmental agencies all required United States tax returns and reports,
all required state and local tax returns and reports with respect to income
and sales taxes, and all required tax returns and reports in a timely
fashion until Closing.
6.1.17 Will not renew, extend, amend or in any way or manner obligate
Bank Land or Bank with respect to any employment contracts.
6.2 GOVERNMENTAL APPLICATION. Bank Land and Bank will cooperate fully with
Vectra and VBC in connection with any application or notice to any governmental
agency or authority, the approval or consent of which is a prerequisite to
consummation of the transactions contemplated by this Plan, including but not
limited to the Regulatory Authorities.
6.3 CONFIDENTIAL INFORMATION. Bank Land and Bank shall hold in confidence
all information regarding Vectra and VBC that Bank Land and Bank learn from
Vectra and VBC and their agents pursuant to the terms of this Plan and the
transactions contemplated hereby, except (i) as in Bank Land's and Bank's
reasonable judgment may be required by law; or (ii) any disclosure which may be
required in connection with Bank Land's or Bank's disclosure to governmental
agencies; or (iii) any disclosure which may be required to Bank Land's creditors
and Bank's and Bank Land's shareholders.
6.4 SHAREHOLDERS' MEETINGS. Bank Land and Bank shall take all action
necessary, in accordance with applicable law and their Articles of Incorporation
and Bylaws, to convene shareholders meetings to consider the approval and
adoption of this Plan and to authorize the transactions contemplated by this
Plan on a date
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mutually agreed by VBC and Bank Land, such date to be the earliest practicable
date after the date the Registration Statement becomes effective and may be sent
to Bank Land's and Bank's shareholders. Bank and Bank Land shall submit the
Proxy Statement to their shareholders and use their reasonable best efforts to
obtain all votes and approvals required for approval of this Plan. Bank and Bank
Land will present this Plan for approval and adoption by their shareholders in
accordance with all applicable legal requirements. Subject to their fiduciary
obligations to their shareholders, the Boards of Directors of Bank Land and Bank
will recommend to their respective shareholders in the Proxy Statements that, at
such Shareholders' Meeting, the Board approves this Plan and authorizes the
transactions contemplated by it.
6.5 DELIVERY OF INFORMATION. Bank Land and Bank shall deliver and cause to
be prepared all financial statements, opinions, disclosures, consents, accounts
and such other information that may be reasonably necessary to enable Vectra and
VBC to make their respective filings with the appropriate Regulatory Authorities
and the preparation of the Proxy Statement/Prospectus.
6.6 TAX REPRESENTATIONS. Bank and Bank Land shall each make all
representations and warranties and each will use its best efforts to obtain a
certificate from its shareholders reasonably requested by counsel for VBC in
order for such counsel to issue the opinions referred to in Section 8.2.8.
6.7 REORGANIZATION TREATMENT. Neither Bank nor Bank Land nor any of their
shareholders or affiliates shall take or cause to be taken any action, whether
before or after the Effective Time, which would disqualify the Mergers as a
"reorganization" within the meaning of Section 368 of the Code.
6.8 DIVIDENDS. Neither Bank nor Bank Land will declare or pay any
dividends from and after November 15, 1995 through the Closing Date.
6.9 NO SOLICITATION. Bank and Bank Land agree that from the date of this
Plan until the date that this Plan is terminated in accordance with the terms
hereof, Bank and Bank Land, and their representatives, shall not directly or
indirectly solicit or encourage the initiation of any inquiry, proposal or offer
from any person or entity (other than Vectra or VBC) relating to any Acquisition
Transaction or except to the extent legally required for the discharge by the
members of the Board of Directors of Bank Land or Bank of their fiduciary duties
as advised in writing by such board's counsel, engage in any negotiations
concerning, or provide any confidential information of Bank or Bank Land or data
to, or have any discussions with, any person relating to an Acquisition
Transaction, or otherwise facilitate any effort to attempt to make or implement
an Acquisition Transaction. Bank and Bank Land will immediately cease and cause
to be terminated any existing activities, discussions or negotiations with any
parties conducted heretofore with respect to any of the foregoing. Bank and Bank
Land will take the necessary steps to inform the appropriate individuals or
entities referred to in the first sentence hereof of the obligations undertaken
in this Section 6.9. Bank and Bank Land will notify VBC immediately if any such
inquiries or proposals are received by, any such information is requested from,
or any such negotiations or discussions are sought to be initiated or continued
with Bank or Bank Land.
6.10 PROXY STATEMENT/PROSPECTUS. As soon as practicable after the date
hereof, VBC, Vectra, Bank and Bank Land shall prepare the Proxy
Statement/Prospectus, and promptly thereafter mail the Proxy
Statement/Prospectus to all holders of record (as of the applicable record date)
of shares of Bank Common Stock, Bank Land Common Stock and Bank Land Preferred
Stock. Bank and Bank Land shall cooperate with Vectra and VBC concerning the
preparation of the Proxy Statement/Prospectus.
6.11 TERMINATION OF BANK 401(k) PLAN. Subject to the Closing of the
Mergers, Bank shall terminate the Bank's 401(k) Plan as of the Effective Time.
In connection therewith, VBC agrees to cooperate with Bank as appropriate to
carry out such termination, including, without limitation, taking such action as
is necessary to obtain an approval of such termination from the Internal Revenue
Service and any other applicable regulatory authorities. Thereafter, the trust
funds maintained pursuant to such plan shall be distributed to the persons
entitled thereto.
6.12 SECURITIES ACT. As soon as practicable after the date of the Bank and
Bank Land Shareholders meetings, Bank and Bank Land shall identify to Vectra and
VBC all persons who were, at the time of the respective shareholder meetings,
possible "Affiliates" of Bank and Bank Land as that term is used in paragraphs
(c) and (d) of Rule 145 under the 1933 Act (the "Affiliates"). Thereafter and
until the Effective
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Time, Bank and Bank Land shall identity to Vectra and VBC each additional person
or entity who thereafter becomes an "Affiliate".
Bank and Bank Land shall use their reasonable best efforts to obtain a
written agreement in the form of EXHIBIT 6.12 from each person or entity who are
identified as a possible Affiliate pursuant to the above. Bank and Bank Land
shall deliver such written agreements to VBC and Vectra as soon as practicable
before the Bank and Bank Land Shareholders meetings, but not later than the date
on which the Proxy Statements are mailed to the Bank Shareholders and the Bank
Land Shareholders.
6.13 BANK AUTHORIZATION OF THIS PLAN. On or before January 9, 1996, this
Plan will be submitted to the board of directors of the Bank for approval, and
if approved, the Plan and all other agreements and documents to be executed and
delivered by Bank hereunder will be, at or prior to the Closing, duly
authorized, executed and delivered by Bank and constitute the legal, valid and
binding obligation of Bank enforceable against Bank in accordance with their
terms, except that (i) such enforcement may be subject to bankruptcy,
insolvency, reorganization, moratorium or other similar rights, (ii) the remedy
of specific performance and injunctive and other form of equitable relief may be
subject to equitable defenses and to the discretion of the court before which
any proceeding may be brought, and (iii) this Plan is subject to approval by the
Bank Shareholders and by the Regulatory Authorities. Subject to the approval of
the board of directors of the Bank, this Plan will be a valid and binding
obligation of Bank, enforceable against Bank in accordance with its terms,
except to the extent set forth in this Plan.
ARTICLE 7 -- COVENANTS OF VECTRA AND VBC
7.1 GOVERNMENTAL APPLICATIONS. Within sixty (60) days from the date of
this Plan, Vectra agrees to cause to be filed with the appropriate Regulatory
Authorities applications for approval of action to acquire Bank Land and Bank as
required by the rules and regulations of the Board of Governors of the Federal
Reserve System (the "FRB"), as well as any other notices or applications
required by applicable law or regulation. Vectra agrees to use its best efforts
to cause the FRB and any other governmental agency or authority whose approval
or acquiescence may be required to approve such notices and applications. Bank
and Bank Land agree to cooperate in the preparation and filing of such
applications in a timely manner.
7.2 CONFIDENTIAL INFORMATION. VBC and Vectra shall hold in confidence all
information regarding Bank Land and/or Bank that VBC and Vectra acquire from
Bank Land and Bank pursuant to the terms of this Plan and the transactions
contemplated hereby, except (i) as in Vectra's reasonable judgment may be
required by law; (ii) any disclosures which may be required in connection with
Vectra's disclosure to governmental agencies; and (iii) with respect solely to
information regarding Bank, after the consummation of the transactions
contemplated in this Plan.
7.3 REGISTRATION AND PROXY STATEMENT. VBC and Vectra shall, as promptly as
practicable after the furnishing by Bank and Bank Land of all necessary
information, prepare and file the Registration Statement with the SEC as soon as
reasonably practicable and shall use their reasonable best efforts to have the
Registration Statement declared effective by the SEC as promptly as practicable
and to maintain the effectiveness of such Registration Statement. VBC and Vectra
will, as promptly as practicable after the furnishing by Bank and Bank Land of
all necessary information, use its best efforts to qualify the 1996 Series A
Preferred Stock for offering under the applicable securities laws of such states
and other jurisdictions as may be necessary or desirable in order to allow
delivery of 1996 Series A Preferred Stock to all Bank Shareholders and Bank Land
Shareholders pursuant to this Plan. Vectra shall not be obligated to file any
general consent to service of process or to qualify as a foreign corporation or
as a dealer in securities in any jurisdiction in which it is not so qualified.
7.4 FULL ACCESS; INFORMATION. Vectra and VBC will provide Bank and Bank
Land's accountants, counsel, employees, agents and other representatives, full
access without reasonably interfering with Vectra or VBC's business operations,
to all of the properties, books, regulatory information, contracts, commitments,
tax returns and reports and records of Vectra and VBC and will furnish to Bank
Land all such documents, records and information with respect to the affairs of
Vectra and VBC and copies of any work papers relating to Vectra
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and VBC as Bank Land shall from time to time request. VBC shall keep Bank Land
reasonably informed as to the affairs of Vectra and VBC, and shall periodically
advise the officers of Bank Land on all material matters pertaining to the
business of Vectra and VBC, unless such matters are confidential in nature.
ARTICLE 8 -- CONDITIONS OF PURCHASE
8.1 CONDITIONS TO THE OBLIGATIONS OF VECTRA AND VBC. The obligations of
Vectra and VBC under this Plan are subject to the satisfaction of each of the
following conditions on or prior to Closing and such other conditions as may be
provided for in this Plan, unless waived in writing by Vectra and VBC:
8.1.1 The representations and warranties made by Bank and Bank Land
in this Plan shall have been true when made and shall be true at the
Closing in all material respects with the same force and effect as if such
representations and warranties were made at and as of the Closing, and Bank
Land and Bank shall have performed or complied with all covenants and
conditions required by this Plan to be performed or complied with by them
prior to or at the Closing. Vectra shall have been furnished with
certificates, signed by Bank and Bank Land and dated the Closing Date, to
the foregoing effect.
8.1.2 Vectra, VBC, Bank and Bank Land shall have received such
approvals, orders or exemptions from such Regulatory Authorities as may be
necessary to enable the consummation of this transaction.
8.1.3 On the Closing Date, there shall not be any litigation or
proceeding pending or threatened against Vectra, VBC, Bank Land or Bank in
or by any court or governmental agency or authority which seeks to
restrain, enjoin or prohibit consummation of the transactions contemplated
by this Plan and which is likely to result in divestiture, rescission or
material damages in connection with such transactions; and Vectra and VBC
shall have been furnished with certificates, dated the Closing Date and
signed by executive officers of Bank Land and Bank, to the effect that no
such litigation or proceeding is pending against Bank Land and/or Bank and
that Bank and Bank Land have no knowledge of any such claims against Bank
Land or Bank.
8.1.4 All proceedings, corporate, judicial, administrative or other,
to be held or taken in connection with the transactions contemplated by
this Plan, and all documents incident thereto, shall be reasonably
satisfactory in form and substance to Vectra's counsel.
8.1.5 At the Closing, the Loan Loss Reserve of Bank shall be equal to
or greater than the amount required pursuant to Section 6.1.7.
8.1.6 Vectra and VBC shall have received from Baker & Hostetler,
counsel for Bank and Bank Land, an opinion, dated as of the Closing Date,
addressed to Vectra and VBC and in form and substance reasonably
satisfactory to counsel to Vectra, as to the following matters:
(a) Bank Land is a corporation duly organized, validly existing and
in good standing under the laws of the State of Colorado and has full
corporate power to conduct its business as it is now being conducted and
to own and to operate the properties and assets now owned and operated
by it. Bank Land is duly qualified or licensed to do business as a
foreign corporation in each jurisdiction in which it has properties
owned or leased, or the nature of the business conducted by Bank Land
makes it necessary for Bank Land to be so qualified or licensed.
(b) Bank is a State of Colorado banking corporation, validly
existing and in good standing under the laws of Colorado and has full
corporate power to conduct its business as it is now being conducted and
to own and operate the properties and assets now owned and operated by
it.
(c) The execution and delivery of this Plan and the performance by
Bank and Bank Land of their obligations hereunder have been duly
authorized by all necessary corporate action on the part of Bank and
Bank Land.
(d) This Plan is a valid and binding obligation of Bank and Bank
Land enforceable against them in accordance with its terms and the
Employment and Noncompetition Agreement is a valid and binding
obligation of Gary A. Mosko enforceable against him in accordance with
its terms,
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except that the enforceability of this Plan and the Employment and
Noncompetition Agreement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
creditors' rights generally and approval by the Regulatory Authorities.
(e) To the best of such counsel's knowledge, neither the execution
and delivery of this Plan nor the performance by Bank and Bank Land of
any of their obligations hereunder nor the consummation of any of the
transactions contemplated hereby will violate any material agreement to
which Bank or Bank Land is a party or by which Bank or Bank Land or any
of their properties may be bound, or any provision of Bank or Bank
Land's Articles of Incorporation or Bylaws.
(f) All consents, approvals or authorization of, or designation,
declaration or filing with, any governmental authority on the part of
Bank and Bank Land as a condition to the valid execution and delivery of
this Plan by Bank and Bank Land have been obtained.
(g) The Articles of Merger executed and delivered by Bank Land
pursuant to this Plan have been duly authorized and executed on behalf
of Bank Land.
(h) The Articles of Merger executed and delivered by Bank pursuant
to this Plan have been duly authorized and executed on behalf of Bank.
(i) That to the best of such counsel's knowledge, there is no suit,
action or other proceeding or investigation pending of the nature
described in Section 4.14, except as disclosed on EXHIBIT 4.14.
8.1.7 There shall have been no material adverse change, nor shall
such a material adverse change be pending or threatened on the Closing
Date, in the business, assets (real, personal or mixed), condition,
financial or otherwise, or results of operation of Bank or Bank Land.
8.1.8 Bank and Bank Land shall have executed and delivered to Vectra
and VBC all agreements and documents required to be executed and delivered
by Bank and Bank Land on or prior to the Closing Date.
8.1.9 Vectra shall have received a tax opinion dated as of the
Closing Date from Freeborn & Peters that, for federal income tax purposes,
with respect to Vectra, VBC, Bank Land and Bank, the Bank Land Merger
should be treated as a reorganization under Section 368(a) of the Code and
the Bank Merger should be treated either as a reorganization under Section
368(a) of the Code or a liquidation under Sections 332 and 337 of the Code.
8.1.10 Bank Land shall have furnished Vectra with an agreement from
each "affiliate" of Bank Land as defined in the rules adopted under the
Securities Act of 1933, as amended, to the effect that (a) the affiliate is
familiar with SEC Rule 144; (b) none of the shares of 1996 Series A
Preferred Stock or VBC Common Stock will be transferred by or through the
affiliate in violation of the federal securities laws; (c) the affiliate
acknowledges that Vectra is under no obligation to register the sale,
transfer, or the disposition of 1996 Series A Preferred Stock by the
affiliate or to take any action necessary in order to make an exemption
from registration available to the affiliate, and understands that Vectra
will satisfy the public information requirements of Rules 144 and 145
during the three-year period following the Closing Date.
8.1.11 Not more than ten percent (10%) of the outstanding shares of
Bank Land Common Stock shall have dissented, under the CBCA, from the Plan.
8.1.12 Not more than seventy-five (75%) of the outstanding shares of
Bank Common Stock owned by Bank Shareholders (exclusive of shares owned by
Bank Land and VBC) shall have dissented, under the CBC, from the Plan.
8.1.13 Gary A. Mosko shall have executed and delivered to VBC and
Vectra the Employment and Noncompetition Agreement, attached hereto as
EXHIBITS 8.1.6 (a) and (b) and incorporated by reference herein.
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8.2 CONDITIONS TO OBLIGATIONS OF BANK AND BANK LAND. The obligations of
Bank and Bank Land under this Plan are subject to the satisfaction of the
following conditions on or prior to Closing and such other conditions as may be
provided for in this Plan, unless waived in writing by Bank or Bank Land:
8.2.1 The representations and warranties made by VBC and Vectra in
this Plan shall have been true when made and shall be true at the Closing
in all material respects with the same force and effect as if such
representations and warranties were made at and as of the Closing, and VBC
and Vectra shall have performed or complied with all covenants and
conditions required by this Plan to be performed or complied with by them
prior to or at the Closing. Bank and Bank Land shall have been furnished
with certificates, signed by executive officers of Vectra and VBC and dated
the Closing Date to the foregoing effect.
8.2.2 Vectra, VBC, Bank, and Bank Land shall have received such
approvals, orders or exemptions from such Regulatory Authorities as may be
necessary to enable the consummation of the Plan.
8.2.3 On the Closing Date, there shall not be any litigation or
proceeding pending or threatened against Vectra, VBC, Bank Land or Bank in
or by any court or governmental agency or authority which seeks to
restrain, enjoin or prohibit consummation of the transactions contemplated
by this Plan and which is likely to result in divestiture, rescission or
material damages in connection with such transactions; and Bank Land and
Bank shall have been furnished with certificates, dated the Closing Date
and signed by executive officers of Vectra and VBC, to the effect that no
such litigation or proceeding is pending against Vectra and/or VBC and that
Vectra and VBC have no knowledge of any such claims against Vectra or VBC.
8.2.4 All proceedings, corporate, judicial, administrative or other,
to be held or taken in connection with the transactions contemplated by
this Plan, and all documents incident thereto, shall be reasonably
satisfactory in form and substance to Bank Land's counsel.
8.2.5 Bank and Bank Land shall have received from Freeborn & Peters,
counsel for Vectra and VBC, an opinion, dated as of the Closing Date,
addressed to Bank and Bank Land and in form and substance reasonably
satisfactory to counsel for Bank Land, as to the following matters:
(a) VBC and Vectra are corporations duly organized, validly
existing and in good standing under the laws of the State of Colorado
and have full corporate power to conduct their business as they are now
being conducted and to own and to operate the properties and assets now
owned and operated by them. Vectra and VBC are duly qualified or
licensed to do business as a foreign corporation in each jurisdiction in
which they have properties owned or leased, or the nature of the
business conducted by them makes it necessary for them to be so
qualified or licensed.
(b) The execution and delivery of this Plan and the performance by
Vectra and VBC of their obligations hereunder have been duly authorized
by all necessary corporate action on the part of Vectra and VBC. VBC has
sufficient authorized and unissued shares of 1996 Series A Preferred and
common stock to consummate the Mergers. The shares of 1996 Series A
Preferred Stock issued to the shareholders of Bank and Bank Land in
connection with the Mergers will be validly issued, fully paid and
nonassessable and the shares of VBC Common Stock when issued upon
conversion of the 1996 Series A Preferred Stock will be validly issued,
fully paid and nonassessable shares of VBC's Common Stock.
(c) The execution and delivery of the Employment and Noncompetition
Agreements attached hereto as EXHIBITS 8.1.6 (a) and (b) have been duly
authorized by all necessary corporate action on the part of Vectra.
(d) This Plan is a valid and binding obligation of Vectra and VBC
enforceable against them in accordance with its terms and the Employment
and Noncompetition Agreement is a valid and binding obligation of Vectra
enforceable against it in accordance with its terms, except that the
enforceability of this Plan and the Employment and Noncompetition
Agreement may be limited by
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applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting creditors' rights generally and approval by the
Regulatory Authorities.
(e) To the best of such counsel's knowledge, neither the execution
and delivery of this Plan nor the performance by Bank and Bank Land of
any of their obligations hereunder nor the consummation of any of the
transactions contemplated hereby will violate any material agreement to
which Vectra or VBC is a party or by which Vectra or VBC or any of their
properties may be bound, or any provision of Vectra's or VBC's Articles
of Incorporation or Bylaws.
(f) All consents, approvals or authorizations of or designation,
declaration or filing with any governmental authority on the part of
Vectra or VBC as a condition to the valid execution and delivery of this
Plan by Vectra or VBC have been obtained.
(g) The Articles of Merger for each of the Mergers executed and
delivered by Vectra pursuant to this Plan have been duly authorized and
executed on behalf of Vectra.
(h) To the best of counsel's knowledge, there is no suit, action or
other proceeding or investigation pending of the nature described in
Section 5.6, except as disclosed on EXHIBIT 5.6.
8.2.6 There shall have been no material adverse change, nor shall
such a material adverse change be threatened on the Closing Date, in the
business, assets (real, personal or mixed), condition, financial or
otherwise, or results of operation of Vectra or VBC.
8.2.7 VBC and Vectra shall have executed and delivered to Bank Land
and Bank all agreements and documents required to be executed and delivered
by VBC and Vectra on or prior to the Closing Date.
8.2.8 Bank and Bank Land shall have received the opinion of Freeborn
& Peters, dated as of the Closing Date, substantially to the effect that,
on the basis of facts, representations, and assumptions set forth in such
opinion, the Bank Land Merger will qualify for federal income tax purposes
as a reorganization under Section 368(a)(2)(D) of the Code, and the Bank
Merger will be treated either as a reorganization under Section
368(a)(2)(D) of the Code or a liquidation under Sections 332 or 337 of the
Code, and that, accordingly, for federal income tax purposes: (i) no gain
or loss will be recognized by Bank or Bank Land as a result of the transfer
of assets to Vectra and the assumption of liabilities by Vectra pursuant to
the Mergers; (ii) the gain, if any, to be realized by a holder of Bank
Common Stock, Bank Land Common Stock or Bank Land Preferred Stock upon the
receipt by such shareholder of VBC 1996 Series A Preferred Stock and cash
in exchange for Bank Common Stock, Bank Land Common Stock or Bank Land
Preferred Stock will be recognized, but not in excess of the amount of cash
plus the fair market value of other property (other than stock), if any,
received; (iii) the tax basis of the shares of VBC 1996 Series A Preferred
Stock received by holders of Bank Land Common Stock, Bank Land Preferred
Stock and Bank Common Stock who receive such shares will be the same as the
tax basis of the shares of Bank Land Common Stock, Bank Land Preferred
Stock and Bank Common Stock exchanged therefor, decreased by the amount of
cash received and increased by the amount recognized as gain on the
exchange or treated as a dividend; and (iv) the holding period of the
shares of VBC 1996 Series A Preferred Stock received in exchange for Bank
Land Common Stock, Bank Land Preferred Stock and Bank Common Stock in the
Mergers will include the period during which such shares of Bank or Bank
Land Common Stock were held, provided such shares of Bank Common Stock,
Bank Land Common Stock or Bank Land Preferred Stock were held as capital
assets at the Closing Date. In rendering such opinion, Freeborn & Peters
may require and rely upon representations contained in certificates of
officers of Bank and Bank Land and others. The opinion shall be in form and
substance chosen by Freeborn & Peters, but such opinion must also be
reasonably satisfactory to Bank Land's counsel. Such opinion shall not
address the federal income treatment or consequences of the TWC Transaction
Fee.
8.2.9 On or prior to the Closing Date, Bank and Bank Land shall have
received a fairness opinion from The Wallach Company that provides the
terms of the respective Mergers are fair to the Bank and Bank Land
Shareholders from a financial point of view.
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8.2.10 Gary A. Mosko, Vectra and VBC shall have executed and
delivered the Employment and Noncompetition Agreements, attached hereto as
EXHIBITS 8.1.6 (a) and (b) and incorporated by reference herein.
8.2.11 Vectra and VBC shall be in compliance in all material respects
with their respective commitments to the Federal Reserve Bank of Kansas
City set forth in the letter of the Federal Reserve Bank of Kansas City to
VBC dated October 26, 1995.
ARTICLE 9 -- FEES AND EXPENSES OF THE PARTIES
9.1 FEES AND EXPENSES.
(a) Except as otherwise provided herein, the parties hereto shall bear
their own costs and expenses, including attorneys' and accountants' fees,
incurred in connection herewith and with the transactions contemplated
hereby, whether or not the transactions contemplated hereunder are
consummated or this Plan subsequently shall be terminated. Bank, Bank Land,
VBC and Vectra each hereby represent and warrant to the others that (i)
they or it have not requested, authorized or employed any person, firm or
corporation to act as their or its lender, broker or agent in connection
with the subject matter of this Plan or negotiations leading thereto,
except for the services of TWC, which has been retained by Bank Land, and
(ii) no party other than the party employing such lender, broker or agent
shall be responsible for the payment of any amounts to such lender, broker
or agent in connection with the transactions contemplated hereunder except
as set forth below. Notwithstanding the above, VBC shall pay for the
printing costs of the Proxy Statement.
(b) Notwithstanding Section 9.1 (a), (i) the costs and expenses
(including attorneys', accountants' fees and audit fees relating to the
audited financial statements of Bank and Bank Land that are required for
the preparation of the Proxy Statement/Prospectus and the consummation of
the transactions contemplated under this Plan) paid by Bank and Bank Land
relating to the consummation of the Plan shall not exceed $100,000 in the
aggregate, exclusive of amounts paid to TWC, and any sums due and owing in
excess of $100,000 shall be paid by the shareholders of Bank and Bank Land
as of the date hereof; and (ii) Bank and Bank Land shall not make any
payments to TWC after November 15, 1995 that exceed $7,500 per month for
TWC's services and expense reimbursements after November 1, 1995 in excess
of $100 per month and, except as set forth in this Section 9.1 (b), the
shareholders of Bank Land shall be solely responsible for any and all other
fees, costs, expenses and other charges incurred by Bank and/or Bank Land
to TWC thereafter. In the event that Bank or Bank Land pays any amounts to
TWC after November 15, 1995 not permitted under this Section 9.1 (b), the
excess amount shall be paid by the Bank Land Shareholders.
ARTICLE 10 -- MISCELLANEOUS
10.1 WAIVERS AND AMENDMENTS. Any term or condition of this Plan may be
waived at any time by the party entitled to the benefit thereof; provided that
any such waiver is in writing. This Plan may be amended at any time; provided
that any such amendment is consented to in writing by the parties hereto.
10.2 ENTIRE PLAN AND COUNTERPARTS. This Plan (including the Exhibits
hereto) contains the entire agreement between the parties hereto with respect to
this Plan and related transactions and supersedes any agreement entered into
among the parties hereto. This Plan may be executed in any number of
counterparts, each of which shall be deemed an original instrument but all such
counterparts together shall constitute but one agreement.
10.3 GOVERNING LAW. This Plan shall be governed by, and construed in
accordance with, the internal law, and not the law of conflicts, of the State of
Colorado.
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10.4 NOTICES. Except as otherwise provided herein, all notices which are
required to be given or may be given to the parties pursuant to the terms of
this Plan shall be sufficient in all respects if given in writing and delivered
personally, by facsimile or by registered or certified mail, postage prepaid as
follows:
In the case of Vectra and VBC:
Gary S. Judd, President
Vectra Bank
1650 South Colorado Blvd., Suite 320
Denver, Colorado 80222
Facsimile No.: (303) 759-5017
With a copy to:
Ernest J. Panasci, Esq.
Freeborn & Peters
950 17th Street, #2600
Denver, Colorado 80202
Facsimile No.: (303) 628-4240
In the case of Bank and Bank Land:
Gary A. Mosko, President
Bank Land Co.
380 South Federal Blvd.
Denver, Colorado 80219
Facsimile No.: (303) 934-9141
With a copy to:
Thomas H. Maxfield, Esq.
Baker & Hostetler
303 East Seventeenth Avenue, Suite 1100
Denver, Colorado 80203
Facsimile No.: (303) 861-2307
All notices which are required to be given or may be given pursuant to the terms
of this Plan shall be deemed delivered and shall be sufficient in all respects
if given in writing and delivered personally, by facsimile or by registered or
certified mail, postage prepaid. Each party may change the address at which it
is to receive communication by written notice to the other party.
10.5 BINDING EFFECT. This Plan shall be binding upon and shall inure to
the benefit of the parties, their heirs and permitted assigns, successors and
representatives.
10.6 COSTS. Notwithstanding the provisions of this Plan, if a party
defaults under this Plan, such party shall pay all reasonable costs and expenses
incurred by the other parties in connection with actions taken to enforce
performance or observance of this Plan by the defaulting party, whether by legal
proceeding or otherwise and including, without limitation, reasonable attorneys'
fees and court costs.
10.7 INVALIDITY. If any of the provisions of this Plan are held invalid or
unenforceable and unless the invalidity or unenforceability thereof does
substantial violence to the underlying intent and sense of the remainder of this
Plan, such invalidity or unenforceability shall not affect in any way the
validity or enforceability of any other provision of this Plan except those
which the invalidated or unenforceable provision comprises an integral part of
or is otherwise clearly inseparable from. In the event any provision is held
invalid or unenforceable, the parties shall attempt to agree on a valid or
enforceable provision which shall be a reasonable substitute for such invalid or
unenforceable provision in light of the tenor of this Plan and, on so agreeing,
shall incorporate such substitute provision in this Plan.
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10.8 ASSIGNMENT. Vectra may assign, without the consent of Bank Land, all
or a portion of its rights and interests, hereunder to any other corporation or
entity that is an affiliate of Vectra. The parties to this Plan acknowledge that
Vectra may assign its rights under this Plan to a subsidiary of Vectra or VBC.
Notwithstanding the foregoing provisions of this Section 10.8, no assignment
shall relieve Vectra of its obligations under this Plan.
10.9 OFFICERS AND DIRECTORS. The Board of Directors of Bank Land agrees to
use its best efforts to cause all officers and directors of Bank Land to resign
their respective positions as officers and directors of Bank Land effective as
of the Closing Date.
10.10 PRESS RELEASES. Except as may be mutually agreed to by Bank Land and
VBC or as required by law, none of the parties hereto shall issue any press
release or other information concerning the transactions contemplated hereby. If
no agreement to a press release can be reached after consultation, Bank Land and
VBC may each issue their or its own press release.
10.11 NO THIRD-PARTY BENEFICIARIES. This Plan is entered into solely for
the benefit of the parties hereto and no person not a party hereto shall have
any rights to object to or recover any damage or loss resulting from any course
of conduct by any of the parties or by reason of any amendment hereto or the
failure of any party to enforce the obligation of any other party hereto.
10.12 BANK AND BANK LAND AUDIT. The audit of Bank's financial statements
and Bank Land's financial statements for the year ended December 31, 1995 shall
be the responsibility of Bank and Bank Land, and Bank and Bank Land shall pay
for such audit.
10.13 BANK LAND FINAL TAX RETURNS. The parties acknowledge that it will be
necessary for Bank Land to file final consolidated tax returns under applicable
State and Federal tax laws with respect to the period January 1, 1996 to the
Closing Date. Bank Land agrees to cause such tax returns to be prepared
consistent with prior practices, signed by Gary A. Mosko and filed in a timely
and proper manner. The expenses for the preparation of such tax returns by
Fortner, Bayens, Levkulich & Co., CPA and appropriate amounts for all taxes due
(and for which estimated tax payments have not been made) shall be properly
accrued by Bank Land as of the Closing Date.
10.14 NEGOTIATED TRANSACTIONS. The provisions of this Plan were negotiated
by the parties hereto, and said Plan shall be deemed to have been drafted by all
parties hereto.
10.15 SHAREHOLDER VOTE. Gary A. Mosko and James Lustig shall not sell or
otherwise transfer between the date of this Plan and the Effective Time any of
their respective shares of Bank Common Stock, Bank Land Common Stock and Bank
Land Preferred Stock beneficially owned by them and shall vote all of their
respective shares (beneficially owned by them) of Bank Common Stock, Bank Land
Common Stock and Bank Land Preferred Stock in favor of this Plan and approving
the transactions contemplated herein.
10.16 RESTRUCTURE OF TRANSACTION. In the event the board of directors of
the Bank does not approve or disapproves this Plan on or before January 9, 1996,
then VBC, Vectra and Bank Land agree to amend this Plan (i) to provide that Bank
Land shall merge with and into VBC in consideration for the Bank Land Final
Purchase Price, (ii) to provide that the Bank Land Shareholders shall receive
the consideration for the Bank Land Merger as set forth in Section 2.2 of this
Plan, (iii) to delete Bank as a party to the Plan, and (iv) to make such other
changes to the Plan as are deemed appropriate by the parties to effect the
foregoing.
(END OF THIS PAGE INTENTIONALLY LEFT BLANK)
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AMENDMENT NO. 1 TO
AGREEMENT AND PLAN OF MERGER
AMONG
VECTRA BANKING CORPORATION,
VECTRA BANK,
BANK LAND CO.
AND
SOUTHWEST STATE BANK
<PAGE> 246
AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER
THIS AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER (the "Amendment") is
entered into this 3rd day of April, 1996, by and among VECTRA BANKING
CORPORATION, a Colorado corporation (hereinafter referred to as "VBC"), VECTRA
BANK, a Colorado banking corporation (hereinafter referred to as "Vectra"), BANK
LAND CO., a Colorado corporation (hereinafter referred to as "Bank Land"), and
SOUTHWEST STATE BANK, a Colorado banking corporation (hereinafter referred to as
"Bank").
RECITALS
WHEREAS, the parties entered into an Agreement and Plan of Merger dated as
of December 26, 1995 (the "Plan");
WHEREAS, the parties desire to amend their agreements set forth in the Plan
pursuant to the terms and conditions of this Amendment; and
WHEREAS, the capitalized terms not defined herein shall have the same
meanings as set forth in the Plan.
NOW, THEREFORE, for and in consideration of the premises, the mutual
promises and obligations hereunder, and the mutual covenants and agreements
herein contained and under the Plan, the parties hereto do hereby adopt and make
this Amendment as follows:
AGREEMENT
I. Each of Sections 1.7, 1.11, 1.32 and 1.35 of the Plan shall be amended in
their entirety and shall be as follows:
"1.7 "BANK FINAL PURCHASE PRICE" shall mean the Final Purchase Price times
(1 minus the Allocation Percentage) less the sum of (a) the TWC Bank Transaction
Fee, (b) the Bank Shareholders Stated Share Payment, and (c) a pro rata portion,
based on Bank's Allocation Percentage, of (i) any excess expenses of the Mergers
payable by Bank and Bank Land Shareholders under the terms of Section 9.1(b) of
the Plan, and (ii) any excess payments to TWC payable by Bank and Bank Land
Shareholders under the terms of Section 9.1(b) of the Plan.
1.11 "BANK LAND FINAL PURCHASE PRICE" shall mean the [Final Purchase Price
times the Allocation Percentage], less the sum of (a) the TWC Bank Land
Transaction Fee, (b) the Bank Land Shareholders Stated Share Payment, and (c) a
pro rata portion, based on Bank Land's Allocation Percentage, of (i) any excess
expenses of the Mergers payable by Bank and Bank Land Shareholders under the
terms of Section 9.1(b) of the Plan, and (ii) any excess payments to TWC payable
by Bank and Bank Land Shareholders under the terms of Section 9.1(b) of the
Plan.
1.32 "SECTION 1.32 is deleted in its entirety.
1.35 "1996 SERIES A PREFERRED STOCK" shall mean the $0.10 par value 1996
Series A Preferred Stock of VBC as more fully described on EXHIBIT A, which is
attached to this Amendment and incorporated herein."
II. The following new definitions are added to Article 1:
1.36 "TWC BANK LAND TRANSACTION FEE" shall be paid in cash and means the
Transaction Fee payable to TWC, as such Transaction Fee is defined in the Letter
Agreement dated February 8, 1995 between TWC and Bank Land.
1.37 "TWC BANK TRANSACTION FEE" shall be paid in cash and means the
Transaction Fee payable to TWC, as such Transaction Fee is defined in the Letter
Agreement dated January 4, 1996 between TWC and Bank.
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1.38 "BANK SHAREHOLDERS STATED SHARE PAYMENT" means the total amount
payable by the Bank Shareholders to VBC at Closing for Stated Shares as that
term is defined in the VBC Warrant.
1.39 "BANK LAND SHAREHOLDERS STATED SHARE PAYMENT" means the total amount
payable by the Bank Land Shareholders to VBC at Closing for Stated Shares as
that term is defined in the VBC Contingent Warrants.
1.40 "VBC CONTINGENT WARRANTS" means the contingent warrants to purchase
shares of VBC Common Stock.
III. Section 4.4 of the Plan shall be amended in its entirety and shall be as
follows:
"4.4 CAPITAL STOCK OF BANK LAND. Bank Land has authorized 3,000,000 shares
of capital stock, all of which shares are without par value, consisting of: (a)
2,000,000 shares of Class A voting common stock, of which 334,833 shares are
issued and outstanding, (b) 500,000 shares of Class B nonvoting common stock, of
which 10,000 shares are issued and outstanding, and (c) 500,000 shares of
Preferred Stock, of which 100,000 shares are issued and outstanding. All of the
issued and outstanding shares have been duly and validly issued and are fully
paid and nonassessable. The outstanding shares have not been issued in violation
of the preemptive rights of any shareholder of Bank Land. There are outstanding
no other shares of any class of Bank Land stock. There are no subscriptions,
options, warrants, scrip, rights, calls, convertible securities, or any other
similar agreements, arrangements or commitments of any character relating to the
issued or unissued capital stock, or other securities of Bank Land obligating,
or which may obligate, Bank Land to issue, deliver or sell or cause to be
issued, delivered or sold, additional shares of its capital stock or obligating
or which may obligate, Bank Land to grant, extend or enter into any such
subscription, option, warrant, scrip, right, call, convertible security, or
other similar agreement, arrangement, or similar commitment. Except as set forth
in EXHIBIT 4.4 attached hereto, there are no voting trusts or restricted share
transfer agreements or other similar agreements, arrangements, or commitments to
which Bank Land is a party or of which it has knowledge with respect to the
voting and/or transfer of the capital stock of Bank Land. EXHIBIT 4.4 contains a
copy of any agreements among or between Bank Land and/or the shareholders of
Bank Land relating to the Bank Land Common Stock and/or Bank Land Preferred
Stock."
IV. Section 8.1.12 of the Plan shall be amended in its entirety and shall be as
follows:
8.1.12 Not more than forty-five percent (45%) of the outstanding shares
of Bank Common Stock owned by Bank Shareholders (exclusive of shares
owned by Bank Land and VBC) shall have dissented, under the CBC, from
the Plan.
V. Section 9.1(b) of the Plan shall be amended in its entirety and shall be as
follows:
"(b) Notwithstanding Section 9.1 (a), (i) the costs and expenses
(including attorneys', accountants' fees and audit fees relating to the
audited financial statements of Bank and Bank Land that are required for
the preparation of the Proxy Statement/Prospectus and the consummation of
the transactions contemplated under this Plan) paid by Bank and Bank Land
relating to the consummation of the Plan shall not exceed $100,000 in the
aggregate, exclusive of amounts paid to TWC, and any sums due and owing in
excess of $100,000 shall be paid by the shareholders of Bank and Bank Land
as of the date hereof; and (ii) Bank and Bank Land shall not make any
payments to TWC after November 15, 1995 that exceed $7,500 per month for
TWC's services and expense reimbursements after November 1, 1995 in excess
of $100 per month and, except as set forth in this Section 9.1 (b), the
shareholders of Bank and Bank Land shall be solely responsible for any and
all other fees, costs, expenses and other charges incurred by Bank and/or
Bank Land to TWC thereafter. In the event that Bank or Bank Land pays any
amounts to TWC after November 15, 1995 not permitted under this Section 9.1
(b), the excess amount shall be paid by the Bank and Bank Land
Shareholders."
VI. The remaining terms and provisions of the Plan shall remain unchanged and
remain in full force and effect.
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AMENDMENT NO. 2 TO
AGREEMENT AND PLAN OF MERGER
AMONG
VECTRA BANKING CORPORATION,
VECTRA BANK,
BANK LAND CO.
AND
SOUTHWEST STATE BANK
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AMENDMENT NO. 2 TO AGREEMENT AND PLAN OF MERGER
THIS AMENDMENT NO. 2 TO AGREEMENT AND PLAN OF MERGER (the "Amendment") is
entered into this 22nd day of May, 1996, by and among VECTRA BANKING
CORPORATION, a Colorado corporation (hereinafter referred to as "VBC"), VECTRA
BANK, a Colorado banking corporation (hereinafter referred to as "Vectra"), BANK
LAND CO., a Colorado corporation (hereinafter referred to as "Bank Land"), and
SOUTHWEST STATE BANK, a Colorado banking corporation (hereinafter referred to as
"Bank").
RECITALS
WHEREAS, the parties entered into an Agreement and Plan of Merger dated as
of December 26, 1995 (the "Plan");
WHEREAS, the parties amended the Plan pursuant to Amendment No. 1 to the
Agreement and Plan of Merger ("Amendment 1");
WHEREAS, the parties desire to amend their agreements set forth in the Plan
and Amendment 1 pursuant to the terms and conditions of this Amendment; and
WHEREAS, the capitalized terms not defined herein shall have the same
meanings as set forth in the Plan.
NOW, THEREFORE, for and in consideration of the premises, the mutual
promises and obligations hereunder, and the mutual covenants and agreements
herein contained and under the Plan, the parties hereto do hereby adopt and make
this Amendment as follows:
AGREEMENT
I. Each of Sections 1.7, 1.11, 1.36, 1.38, 1.39 and 1.40 of the Plan shall be
amended in their entirety and shall be as follows:
1.7 "BANK FINAL PURCHASE PRICE" shall mean [the Final Purchase Price times
(1 minus the Allocation Percentage)] less the sum of (a) the TWC Bank
Transaction Fee, and (b) a pro rata portion, based on Bank's Allocation
Percentage, of (i) any excess expenses of the Mergers payable by Bank and Bank
Land Shareholders under the terms of Section 9.1(b) of the Plan, and (ii) any
excess payments to TWC payable by Bank and Bank Land Shareholders under the
terms of Section 9.1(b) of the Plan.
1.11 "BANK LAND FINAL PURCHASE PRICE" shall mean the [Final Purchase Price
times the Allocation Percentage], less the sum of (a) the TWC Bank Land
Transaction Fee, and (b) a pro rata portion, based on Bank Land's Allocation
Percentage, of (i) any excess expenses of the Mergers payable by Bank and Bank
Land Shareholders under the terms of Section 9.1(b) of the Plan, and (ii) any
excess payments to TWC payable by Bank and Bank Land Shareholders under the
terms of Section 9.1(b) of the Plan.
1.36 "TWC BANK LAND TRANSACTION FEE" shall be paid in cash and means the
Transaction Fee payable to TWC, as such Transaction Fee is defined in the Letter
Agreement dated February 7, 1995 between TWC and Bank Land, which fee shall be
net of the monthly payments and expense reimbursements paid by Bank Land to the
extent permitted under Section 9.1(b)(ii) of the Plan.
1.38 Section 1.38 is deleted in its entirety.
1.39 Section 1.39 is deleted in its entirety.
1.40 "VBC CONTINGENT WARRANTS" means the contingent warrants to acquire
shares of VBC Common Stock.
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II. Section 2.5 of the Plan shall be amended in its entirety and shall read as
follows:
2.5 TWC BANK TRANSACTION FEE AND TWC BANK LAND TRANSACTION FEE.
Immediately following the Effective Time, Vectra, as successor-in-interest to
Bank Land, shall pay the TWC Bank Transaction Fee and the TWC Bank Land
Transaction Fee to TWC in full satisfaction of all sums payable to TWC under the
terms of the Letter Agreement between TWC and Bank dated January 4, 1996 and the
Letter Agreement between TWC and Bank Land dated February 7, 1995, and TWC and
Bank and Bank Land shall furnish to Vectra as of the Closing the TWC Agreement
attached hereto as EXHIBIT 2.5, which shall be executed by TWC, Bank, Bank Land
and Vectra which provides for the exact amount of the TWC Bank Transaction Fee
and the Bank Land TWC Transaction Fee to be paid by Vectra to TWC and TWC's
release and acquittance of Bank Land, Bank, and Vectra for making such payment.
III. All references to the 1996 Series A Preferred Stock shall refer to the
Preferred Stock of VBC as more fully described in the Preferred Stock Statement
attached hereto as EXHIBIT A.
IV. Section 8.2 of the Plan shall be amended by adding a new subsection 8.2.12
thereto reading as follows:
8.2.12 VBC shall have executed and delivered the VBC contingent Warrants
in the form attached hereto as EXHIBIT B.
V. Sections 2.2.1 (a), (b) and (c) shall be amended in its entirety and shall
read as follows:
2.2.1 The Bank Land Preferred Stock Shareholder as of the Effective Time
shall receive in the aggregate the Bank Land Preferred Stock Payment and the
shareholders of Bank Land that own Bank Land Common Stock as of the Effective
Time shall receive in the aggregate the Adjusted Bank Land Final Purchase Price.
The sum of the Bank Land Preferred Stock Payment and the Adjusted Bank Land
Final Purchase Price shall be comprised of fifty and one-tenths percent (50.1%)
in 1996 Series A Preferred Stock (valued at $100 per share) and forty-nine and
nine-tenths percent (49.9%) in cash. The 1996 Series A Preferred Stock and cash
to be distributed to the Bank Land Shareholders shall be distributed as follows:
(a) The Bank Land Preferred Stock Shareholder shall receive the
Bank Land Preferred Stock Payment and his Total Individual BLNDS
Consideration (as defined below) in the form of (i) the number of shares
of 1996 Series A Preferred Stock that results from [the sum of the Bank
Land Preferred Stock Payment and his Total Individual BLNDS
Consideration multiplied by 501], divided by 100; and (ii) the amount of
cash that results from the sum of the Bank Land Preferred Stock Payment
and his Total Individual BLNDS Consideration minus the product of [the
number of shares of 1996 Series A Preferred Stock to be distributed the
Bank Land Preferred Stock Shareholder, in his capacity as a Bank Land
Shareholder, determined pursuant to Section 2.2(a)(i) multiplied by
$100], rounded up or down to the nearest whole cent.
(b) Each Bank Land Non-dissenting Shareholder (other than the Bank
Land Preferred Stock Shareholder in his capacity as a Bank Land
Non-Dissenting Shareholder) who owns shares of Bank Land Common Stock as
of the Effective Time shall receive the number of shares of 1996 Series
A Preferred Stock ("BLNDS Shares") that results from: (i) [The number of
shares of Bank Land Common Stock owned by such Bank Land Non-dissenting
Shareholder as of the Effective Time, divided by the total number of
shares of Bank Land Common Stock owned by all Bank Land Non-dissenting
Shareholders as of the Effective Time], multiplied by (ii) [the Adjusted
Bank Land Final Purchase Price multiplied by .501], divided by 100; and
(c) The amount of cash to be distributed to each Bank Land
Non-dissenting Shareholder (other than the Bank Land Preferred Stock
Shareholder in his capacity as a Bank Land Non-dissenting Shareholder)
who owns shares of Bank Land Common Stock as of the Effective Time shall
be equal to: Total Individual BLNDS Consideration (as defined below)
minus [Number of BLNDS Shares issued to such Bank Land Non-dissenting
Shareholder multiplied by $100], rounded up or down to the nearest whole
cent.
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WHERE:
"Total Individual BLNDS Consideration" shall be equal to the Adjusted Bank Land
Final Purchase Price multiplied by the quotient of [the total number of shares
of Bank Land Common Stock owned by such Bank Land Non-dissenting Shareholder as
of the Effective Time divided by the total number of shares of Bank Land Common
Stock owned by all shareholders of Bank Land Common Stock as of the Effective
Time], rounded up or down to the nearest whole cent.
VI. The remaining terms and provisions of the Plan shall remain unchanged and
remain in full force and effect.
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APPENDIX B
COLORADO BUSINESS CORPORATION ACT
ARTICLE 113
DISSENTERS' RIGHTS
PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT
FOR SHARES
SEC.7-113-101. DEFINITIONS
For purposes of this article:
(1) "Beneficial shareholder" means the beneficial owner of shares held in a
voting trust or by a nominee as the record shareholder.
(2) "Corporation" means the issuer of the shares held by a dissenter before
the corporate action, or the surviving or acquiring domestic or foreign
corporation, by merger or share exchange of that issuer.
(3) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under section 7-113-102 and who exercises that right at the
time and in the manner required by part 2 of this article.
(4) "Fair value", with respect to a dissenter's shares, means the value of
the shares immediately before the effective date of the corporate action to
which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action except to the extent that exclusion would
be inequitable.
(5) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at the legal rate as
specified in section 5-12-101, C.R.S.
(6) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares
that are registered in the name of a nominee to the extent such owner is
recognized by the corporation as the shareholder as provided in section
7-107-204.
(7) "Shareholder" means either a record shareholder or a beneficial
shareholder.
SEC.7-113-102. RIGHT TO DISSENT
(1) A shareholder, whether or not entitled to vote, is entitled to dissent
and obtain payment of the fair value of his or her shares in the event of any of
the following corporate actions:
(a) Consummation of a plan of merger to which the corporation is a
party if:
(I) Approval by the shareholders of that corporation is required
for the merger by section 7-111-103 or 7-111-104 or by the articles of
incorporation, or
(II) The corporation is a subsidiary that is merged with its parent
corporation under section 7-111-104;
(b) Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired;
(c) Consummation of a sale, lease, exchange, or other disposition of
all, or substantially all, of the property of the corporation for which a
shareholders' vote is required under section 7-112-102(1); and
(d) Consummation of a sale, lease, exchange, or other disposition of
all, or substantially all, of the property of an entity controlled by the
corporation if the shareholders of the corporation were entitled to vote
upon the consent of the corporation to the disposition pursuant to section
7-112-102(2).
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(2) A shareholder, whether or not entitled to vote, is entitled to dissent
and obtain payment of the fair value of the shareholder's shares in the event
of:
(a) An amendment to the articles of incorporation that materially and
adversely affects rights in respect of the shares because it:
(I) Alters or abolishes a preferential right of the shares; or
(II) Creates, alters, or abolishes a right in respect of redemption
of the shares, including a provision respecting a sinking fund for their
redemption or repurchase; or
(b) An amendment to the articles of incorporation that affects rights
in respect of the shares because it:
(I) Excludes or limits the right of the shares to vote on any
matter, or to cumulate votes, other than a limitation by dilution
through issuance of shares or other securities with similar voting
rights; or
(II) Reduces the number of shares owned by the shareholder to a
fraction of a share or to scrip if the fractional share or scrip so
created is to be acquired for cash or the scrip is to be voided under
section 7-10-104.
(3) A shareholder is entitled to dissent and obtain payment of the fair
value of the shareholder's shares in the event of any corporate action to the
extent provided by the bylaws or a resolution of the board of directors.
(4) A shareholder entitled to dissent and obtain payment for the
shareholder's shares under this article may not challenge the corporate action
creating such entitlement unless the action is unlawful or fraudulent with
respect to the shareholder or the corporation.
SEC.7-113-103. DISSENT BY NOMINEES AND BENEFICIAL OWNERS
(1) A record shareholder may assert dissenters' rights as to fewer than all
the shares registered in the record shareholder's name only if the record
shareholder dissents with respect to all shares beneficially owned by any one
person and causes the corporation to receive written notice which states such
dissent and the name, address, and federal taxpayer identification number, if
any, of each person on whose behalf the record shareholder asserts dissenters'
rights. The rights of a record shareholder under this subsection (1) are
determined as if the shares as to which the record shareholder dissents and the
other shares of the record shareholder were registered in the names of different
shareholders.
(2) A beneficial shareholder may assert dissenters' rights as to the shares
held on the beneficial shareholder's behalf only if:
(a) The beneficial shareholder causes the corporation to receive the
record shareholder's written consent to the dissent not later than the time
the beneficial shareholder asserts dissenters' rights; and
(b) The beneficial shareholder dissents with respect to all shares
beneficially owned by the beneficial shareholder.
(3) The corporation may require that, when a record shareholder dissents
with respect to the shares held by any one or more beneficial shareholders, each
such beneficial shareholder must certify to the corporation that the beneficial
shareholder and the record shareholder or record shareholders of all shares
owned beneficially by the beneficial shareholder have asserted, or will timely
assert, dissenters' rights as to all such shares as to which there is no
limitation on the ability to exercise dissenters' rights. Any such requirement
shall be stated in the dissenters' notice given pursuant to section 7-113-203.
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PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
SEC.7-113-201. NOTICE OF DISSENTERS' RIGHTS
(1) If a proposed corporate action creating dissenters' rights under
section 7-113-102 is submitted to a vote at a shareholders' meeting, the notice
of the meeting shall be given to all shareholders, whether or not entitled to
vote. The notice shall state that shareholders are or may be entitled to assert
dissenters' rights under this article and shall be accompanied by a copy of this
article and the materials, if any, that, under articles 101 to 117 of this
title, are required to be given to shareholders entitled to vote on the proposed
action at the meeting. Failure to give notice as provided by this subsection (1)
to shareholders not entitled to vote shall not affect any action taken at the
shareholders' meeting for which the notice was to have been given.
(2) If a proposed corporate action creating dissenters' rights under
section 7-113-102 is authorized without a meeting of shareholders pursuant to
section 7-107-104, any written or oral solicitation of a shareholder to execute
a writing consenting to such action contemplated in section 7-107-104 shall be
accompanied or preceded by a written notice stating that shareholders are or may
be entitled to assert dissenters' rights under this article, by a copy of this
article, and by the materials, if any, that, under articles 101 to 117 of this
title, would have been required to be given to shareholders entitled to vote on
the proposed action if the proposed action were submitted to a vote at a
shareholders' meeting. Failure to give notice as provided by this subsection (2)
to shareholders not entitled to vote shall not affect any action taken pursuant
to section 7-107-104 for which the notice was to have been given.
SEC.7-113-202. NOTICE OF INTENT TO DEMAND PAYMENT
(1) If a proposed corporate action creating dissenters' rights under
section 7-113-102 is submitted to a vote at a shareholders' meeting, a
shareholder who wishes to assert dissenters' rights shall:
(a) Cause the corporation to receive, before the vote is taken,
written notice of the shareholder's intention to demand payment for the
shareholder's shares if the proposed corporate action is effectuated; and
(b) Not vote the shares in favor of the proposed corporate action.
(2) If a proposed corporate action creating dissenters' rights under
section 7-113-102 is authorized without a meeting of shareholders pursuant to
section 7-107-104, a shareholder who wishes to assert dissenters' rights shall
not execute a writing consenting to the proposed corporate action.
(3) A shareholder who does not satisfy the requirements of subsection (1)
or (2) of this section is not entitled to demand payment for the shareholder's
shares under this article.
SEC.7-113-203. DISSENTERS' NOTICE
(1) If a proposed corporate action creating dissenters' rights under
section 7-11-102 is authorized, the corporation shall give a written dissenters'
notice to all shareholders who are entitled to demand payment for their shares
under this article.
(2) The dissenters' notice required by subsection (1) of this section shall
be given no later than ten days after the effective date of the corporate action
creating dissenters' rights under section 7-113-102 and shall:
(a) State that the corporate action was authorized and state the
effective date or proposed effective date of the corporate action;
(b) State an address at which the corporation will receive payment
demands and the address of a place where certificates for certificated
shares must be deposited;
(c) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
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<PAGE> 255
(d) Supply a form for demanding payment, which form shall request a
dissenter to state an address to which payment is to be made;
(e) Set the date by which the corporation must receive the payment
demand and certificates for certificated shares, which date shall not be
less than thirty days after the date the notice required by subsection (1)
of this section is given;
(f) State the requirement contemplated in section 7-113-103(3), if
such requirement is imposed; and
(g) Be accompanied by a copy of this article.
SEC.7-113-204. PROCEDURE TO DEMAND PAYMENT
(1) A shareholder who is given a dissenters' notice pursuant to section
7-113-203 and who wishes to assert dissenters' rights shall, in accordance with
the terms of the dissenters' notice:
(a) Cause the corporation to receive a payment demand, which may be
the payment demand form contemplated in section 7-113-203(2)(d), duly
completed, or may be stated in another writing; and
(b) Deposit the shareholder's certificates for certificated shares.
(2) A shareholder who demands payment in accordance with subsection (1) of
this section retains all rights of a shareholder, except the right to transfer
the shares, until the effective date of the proposed corporate action giving
rise to the shareholder's exercise of dissenters' rights and has only the right
to receive payment for the shares after the effective date of such corporate
action.
(3) Except as provided in section 7-113-207 or 7-113-209(1)(b), the demand
for payment and deposit of certificates are irrevocable.
(4) A shareholder who does not demand payment and deposit the shareholder's
share certificates as required by the date or dates set in the dissenters'
notice is not entitled to payment for the shares under this article.
SEC.7-113-205. UNCERTIFICATED SHARES
(1) Upon receipt of a demand for payment under section 7-113-204 from a
shareholder holding uncertificated shares, and in lieu of the deposit of
certificates representing the shares, the corporation may restrict the transfer
thereof.
(2) In all other respects, the provisions of section 7-113-204 shall be
applicable to shareholders who own uncertificated shares.
SEC.7-113-206. PAYMENT
(1) Except as provided in section 7-113-208, upon the effective date of the
corporate action creating dissenters' rights under section 7-113-102 or upon
receipt of a payment demand pursuant to section 7-113-204, whichever is later,
the corporation shall pay each dissenter who complied with section 7-11-204, at
the address stated in the payment demand, or if no such address is stated in the
payment demand, at the address shown on the corporation's current record of
shareholders for the record shareholder holding the dissenter's shares, the
amount the corporation estimates to be the fair value of the dissenter's shares,
plus accrued interest.
(2) The payment made pursuant to subsection (1) of this section shall be
accompanied by:
(a) The corporation's balance sheet as of the end of its most recent
fiscal year or, if that is not available, the corporation's balance sheet
as of the end of a fiscal year ending not more than sixteen months before
the date of payment, an income statement for that year, and, if the
corporation customarily provides such statements to shareholders, a
statement of changes in shareholders' equity for that year and
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a statement of cash flow for that year, which balance sheet and statements
shall have been audited if the corporation customarily provides audited
financial statements to shareholders, as well as the latest available
financial statements, if any, for the interim or full-year period, which
financial statements need not be audited;
(b) A statement of the corporation's estimate of the fair value of the
shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's right to demand payment under
section 7-113-209; and
(e) A copy of this article.
SEC.7-113-207. FAILURE TO TAKE ACTION
(1) If the effective date of the corporate action creating dissenters'
rights under section 7-113-102 does not occur within sixty days after the date
set by the corporation by which the corporation must receive the payment demand
as provided in section 7-113-203, the corporation shall return the deposited
certificates and release the transfer restrictions imposed on uncertificated
shares.
(2) If the effective date of the corporate action creating dissenters'
rights under section 7-113-102 occurs more than sixty days after the date set by
the corporation by which the corporation must receive the payment demand as
provided in section 7-113-203, then the corporation shall send a new dissenters'
notice, as provided in section 7-113-203, and the provisions of sections
7-113-204 to 7-113-209 shall again be applicable.
SEC.7-113-208. SPECIAL PROVISIONS RELATING TO SHARES ACQUIRED AFTER ANNOUNCEMENT
OF PROPOSED CORPORATE ACTION
(1) The corporation may, in or with the dissenters' notice given pursuant
to section 7-113-203, state the date of the first announcement to news media or
to shareholders of the terms of the proposed corporate action creating
dissenters' rights under section 7-11-102 and state that the dissenter shall
certify in writing, in or with the dissenter's payment demand under section
7-113-204, whether or not the dissenter (or the person on whose behalf
dissenters' rights are asserted) acquired beneficial ownership of the shares
before that date. With respect to any dissenter who does not so certify in
writing, in or with the payment demand, that the dissenter or the person on
whose behalf the dissenter asserts dissenters' rights acquired beneficial
ownership of the shares before such date, the corporation may, in lieu of making
the payment provided in section 7-113-206, offer to make such payment if the
dissenter agrees to accept it in full satisfaction of the demand.
(2) An offer to make payment under subsection (1) of this section shall
include or be accompanied by the information required by section 7-113-206(2).
SEC.7-113-209. PROCEDURE IF DISSENTER IS DISSATISFIED WITH PAYMENT OR OFFER
(1) A dissenter may give notice to the corporation in writing of the
dissenter's estimate of the fair value of the dissenter's shares and of the
amount of interest due and may demand payment of such estimate, less any payment
made under section 7-113-206, or reject the corporation's offer under section
7-113-208 and demand payment of the fair value of the shares and interest due,
if:
(a) The dissenter believes that the amount paid under section
7-113-206 or offered under section 7-113-208 is less than the fair value of
the shares or that the interest due was incorrectly calculated;
(b) The corporation fails to make payment under section 7-113-206
within sixty days after the date set by the corporation by which the
corporation must receive the payment demand; or
(c) The corporation does not return the deposited certificates or
release the transfer restrictions imposed on uncertificated shares as
required by section 7-11-207(1).
(2) A dissenter waives the right to demand payment under this section
unless the dissenter causes the corporation to receive the notice required by
subsection (1) of this section within thirty days after the corporation made or
offered payment for the dissenter's shares.
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PART 3. JUDICIAL APPRAISAL OF SHARES
SEC.7-113-301. COURT ACTION
(1) If a demand for payment under section 7-113-209 remains unresolved, the
corporation may, within sixty days after receiving the payment demand, commence
a proceeding and petition the court to determine the fair value of the shares
and accrued interest. If the corporation does not commence the proceeding within
the sixty-day period, it shall pay to each dissenter whose demand remains
unresolved the amount demanded.
(2) The corporation shall commence the proceeding described in subsection
(1) of this section in the district court of the county in this state where the
corporation's principal office is located or, if it has no principal office in
this state, in the district court of the county in which its registered office
is located. If the corporation is a foreign corporation without a registered
office in this state, it shall commence the proceeding in the county in this
state where the registered office of the domestic corporation merged into, or
whose shares were acquired by, the foreign corporation was located.
(3) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unresolved parties to the proceeding commenced
under subsection (2) of this section as in an action against their shares, and
all parties shall be served with a copy of the petition. Service on each
dissenter shall be by registered or certified mail, to the address stated in
such dissenter's payment demand, or if no such address is stated in the payment
demand, at the address shown on the corporation's current record of shareholders
for the record shareholder holding the dissenter's shares, or as provided by
law.
(4) The jurisdiction of the court in which the proceeding is commenced
under subsection (2) of this section is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and recommend a
decision on the question of fair value. The appraisers have the powers described
in the order appointing them, or in any amendment to such order. The parties to
the proceeding are entitled to the same discovery rights as parties in other
civil proceedings.
(5) Each dissenter made a party to the proceeding commenced under
subsection (2) of this section is entitled to judgment for the amount, if any,
by which the court finds the fair value of the dissenter's shares, plus
interest, exceeds the amount paid by the corporation, or for the fair value,
plus interest, of the dissenter's shares for which the corporation elected to
withhold payment under section 7-113-208.
SEC.7-113-302. COURT COSTS AND COUNSEL FEES
(1) The court in an appraisal proceeding commenced under section 7-113-301
shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court. The court shall
assess the costs against the corporation; except that the court may assess costs
against all or some of the dissenters, in amounts the court finds equitable, to
the extent the court finds the dissenters acted arbitrarily, vexatiously, or not
in good faith in demanding payment under section 7-113-209.
(2) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
(a) Against the corporation and in favor of any dissenters if the
court finds the corporation did not substantially comply with the
requirements of part 2 of this article; or
(b) Against either the corporation or one or more dissenters, in favor
of any other party, if the court finds that the party against whom the fees
and expenses are assessed acted arbitrarily, vexatiously, or not in good
faith with respect to the rights provided by this article.
(3) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to said counsel reasonable fees to be paid out of the amounts awarded to
the dissenters who were benefitted.
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APPENDIX C
SECTION 11-4-105 OF THE COLORADO BANKING CODE OF 1957, AS AMENDED,
GOVERNING RIGHTS OF DISSENTING SHAREHOLDERS OF SOUTHWEST STATE BANK
11-4-105. APPROVAL BY STOCKHOLDERS -- RIGHTS OF DISSENTERS. (1) To be effective,
a merger must be approved by the stockholders of each constituent state bank by
a vote of two-thirds of the outstanding voting stock, at a meeting called to
consider such action, which vote shall constitute the adoption of the charter
and bylaws of the resulting state bank, including the amendments set forth in
the merger agreement.
(2) The notice of the meeting of stockholders shall state that dissenting
stockholders will be entitled to payment of the value of only those shares which
are voted against the approval of the plan.
(3) The owners of shares which were voted against the approval of the
merger shall be entitled to receive their value in cash, if and when the merger
becomes effective, upon written demand made to the resulting state bank at any
time within thirty days after the effective date of the merger, accompanied by
the surrender of the stock certificates. The value of such shares shall be
determined as of the date of the shareholders' meeting approving the merger by
three appraisers, one to be selected by the owners of two-thirds of the
dissenting shares involved, one by the board of directors of the resulting state
bank, and the third by the two so chosen. The valuation agreed upon by any two
appraisers shall govern. If the appraisal is not completed within ninety days
after the merger becomes effective, the commissioner shall cause an appraisal to
be made.
(4) The expenses of appraisal shall be paid by the resulting state bank.
(5) The resulting state bank may fix an amount which it considers to be not
more than the fair market value of the shares of a constituent bank at the time
of the stockholders' meeting approving the merger, which it will pay dissenting
shareholders of that constituent bank entitled to payment in cash. The amount
due under such accepted offer or under the appraisal shall constitute a debt of
the resulting state bank.
<PAGE> 259
APPENDIX D
[THE WALLACH COMPANY LOGO]
June 4, 1996
The Board of Directors
Bank Land Company
1380 S. Federal Blvd.
Denver, CO 80219
Members of the Board:
You have requested our opinion as to the fairness, from a financial point
of view, to the common and preferred stockholders of Bank Land Company ("Bank
Land") of the consideration in the proposed merger (the "Merger") of Bank Land
and its subsidiary SouthWest State Bank ("Bank") with and into Vectra Bank
("Vectra Bank"), a subsidiary of Vectra Banking Corporation ("VBC"), pursuant to
the Merger Agreement dated December 26, 1995, as amended on February, 1996 (the
"Agreement"). Under the terms of the Agreement, each outstanding share of Bank
Land common and preferred stock, will be converted into shares of VBC Series A
Preferred Stock, and cash in the manner as described in Article 2.2 of the
Agreement (the "Bank Land Merger Consideration").
In arriving at our opinion, we have, among other things:
i. reviewed certain financial statements and other financial
information of Bank Land;
ii. reviewed the current condition and growth prospects for Bank Land
and its subsidiary operations, including financial projections prepared by
Bank Land management;
iii. discussed the past and current operations and financial
conditions and the prospects of Bank Land with Bank Land management;
iv. considered the prospect for value, liquidity, dividend yield and
appreciation if Bank Land were to remain independent;
v. evaluated the economic, banking and competitive climate in
Colorado, with special consideration given to recent transactions that may
have increased the competitive environment in the financial services and
banking industry;
vi. reviewed the process used in marketing Bank Land, including a
review of the potential acquirors contacted and their responses relative to
a potential acquisition of Bank Land;
vii. compared the various offers received from interested parties and
determined that the Vectra offer represented the highest value in absolute
terms;
viii. compared the Vectra offer to recent transactions involving other
institutions in Colorado and the Denver metropolitan area;
ix. reviewed the implications for Bank Land shareholders receiving
stock of VBC with regard to prospects for liquidity and such stock and cash
with regard to taxation;
x. examined the pricing and terms of the 1996 Series A Preferred
Stock;
xi. examined the price and trading activity for VBC;
xii. met with VBC management and reviewed certain financial statements
and reports of VBC and Vectra;
xiii. reviewed the Merger Agreement among VBC, Vectra, Bank Land, and
Bank;
<PAGE> 260
xiv. analyzed the price obtainable for Bank Land's shares at this time
compared with the risks involved and possible price available at a later
time;
xv. evaluated the future growth prospects of VBC following the Merger;
and
xvi. reviewed the allocation of the consideration between Bank Land
and Bank.
We have assumed without independent verification the accuracy and
completeness of the financial and other information regarding Bank Land, VBC,
and Vectra that was provided to us or obtained from publicly available sources.
We have relied without independent verification upon an independent appraisal of
the Bank building and land. We have not prepared or acquired an independent
valuation or appraisal of any of the other assets of Bank Land, VBC, or Vectra
and we have assumed without independent verification that the aggregate
allowances for loan losses of Bank Land and VBC are adequate to cover such
losses. With respect to business plans and forecasts, we have assumed that they
have been reasonably prepared on a basis reflecting the best currently available
estimates and judgments of the management of Bank Land as to the future
performance of Bank Land and Bank. Furthermore, we have assumed that the Merger
will be consummated on a timely basis in accordance with its terms and pursuant
to the Agreement. We have also taken into account our assessment of general
economic, market and financial conditions as they exist, as well as our
experience in connection with similar transactions and securities valuations
generally. Our opinion necessarily is based upon conditions as they exist and
can only be evaluated as of the date of this opinion.
The Wallach Company is an investment banking firm engaged in providing
merger and acquisition services including the valuation of businesses and their
securities in connection with mergers and acquisitions, private placements, and
for corporate and other purposes. The Wallach Company, as the Bank Land's
financial adviser, assisted with the marketing and negotiations leading to the
Agreement for which it has and will receive compensation.
It is understood that this letter is for the information of the Bank Land
Board and stockholders only and may not be used for any other purpose without
our prior written consent, provided, however, that we hereby consent to the
inclusion of this opinion in any registration statement or proxy statement used
in connection with the Merger so long as the opinion is included in its entirety
in such registration statement or proxy statement.
Based on our analysis of the foregoing, the assumptions described above and
upon such other factors we deem relevant, it is our opinion that, as of the date
hereof, the Bank Land Merger Consideration is fair to Bank Land shareholders
from a financial point of view.
/s/ THE WALLACH COMPANY, INC.
-----------------------------------
The Wallach Company, Inc.
2
<PAGE> 261
APPENDIX E
[THE WALLACH COMPANY LOGO]
June 4, 1996
The Board of Directors
SouthWest State Bank
1380 S. Federal Blvd.
Denver, CO 80219
Members of the Board:
You have requested our opinion as to the fairness, from a financial point
of view, to the common stockholders of SouthWest State Bank("Bank") of the
consideration in the proposed merger (the "Merger") of Bank with and into Vectra
Bank ("Vectra Bank"), a subsidiary of Vectra Banking Corporation ("VBC"),
pursuant to the Merger Agreement dated December 26, 1995 (the "Agreement"), as
amended on February, 1996. Under the terms of the Agreement, each outstanding
share of Bank common stock, will be converted into shares of VBC Series A
Preferred Stock, and cash in the manner as described in Article 2.2 of the
Agreement (the "Bank Merger Consideration").
In arriving at our opinion, we have, among other things:
i. reviewed certain financial statements and other financial
information of Bank;
ii. reviewed the current condition and growth prospects for Bank and
its operations, including financial projections prepared by Bank
management;
iii. discussed the past and current operations and financial
conditions and the prospects of Bank with Bank management;
iv. considered the prospect for value, liquidity, dividend yield and
appreciation if Bank were to remain independent;
v. evaluated the economic, banking and competitive climate in
Colorado, with special consideration given to recent transactions that may
have increased the competitive environment in the financial services and
banking industry;
vi. reviewed the process used in marketing Bank, including a review of
the potential acquirors contacted and their responses relative to a
potential acquisition of Bank;
vii. compared the various offers received from interested parties and
determined that the Vectra offer represented the highest value in absolute
terms;
viii. compared the Vectra offer to recent transactions involving other
institutions in Colorado and the Denver metropolitan area;
ix. reviewed the implications for Bank shareholders receiving stock of
VBC with regard to prospects for liquidity and such stock and cash with
regard to taxation;
x. examined the pricing and terms of the 1996 Series A Preferred
Stock;
xi. examined the price and trading activity for VBC;
xii. met with VBC management and reviewed certain financial statements
and reports of VBC and Vectra;
xiii. reviewed the Merger Agreement among VBC, Vectra, Bank, and Bank
Land Company;
xiv. analyzed the price obtainable for Bank's shares at this time
compared with the risks involved and possible price available at a later
time;
<PAGE> 262
xv. evaluated the future growth prospects of VBC following the Merger;
and
xvi. reviewed the allocation of the consideration between Bank and
Bank Land Company.
We have assumed without independent verification the accuracy and
completeness of the financial and other information regarding Bank, VBC, and
Vectra that was provided to us or obtained from publicly available sources. We
have relied without independent verification upon an independent appraisal of
the Bank building and land. We have not prepared or acquired an independent
valuation or appraisal of any of the other assets of Bank, Bank Land Company,
VBC, or Vectra and we have assumed without independent verification that the
aggregate allowances for loan losses of Bank and VBC are adequate to cover such
losses. With respect to business plans and forecasts, we have assumed that they
have been reasonably prepared on a basis reflecting the best currently available
estimates and judgments of the management of Bank as to the future performance
of Bank. Furthermore, we have assumed that the Merger will be consummated on a
timely basis in accordance with its terms and pursuant to the Agreement. We have
also taken into account our assessment of general economic, market and financial
conditions as they exist, as well as our experience in connection with similar
transactions and securities valuations generally. Our opinion necessarily is
based upon conditions as they exist and can only be evaluated as of the date of
this opinion.
The Wallach Company is an investment banking firm engaged in providing
merger and acquisition services including the valuation of businesses and their
securities in connection with mergers and acquisitions, private placements, and
for corporate and other purposes. The Wallach Company, as the Bank's financial
adviser, assisted with the marketing and negotiations leading to the Agreement
for which it has and will receive compensation.
It is understood that this letter is for the information of the Bank Board
and shareholders only and may not be used for any other purpose without our
prior written consent, provided, however, that we hereby consent to the
inclusion of this opinion in any registration statement or proxy statement used
in connection with the Merger so long as the opinion is included in its entirety
in such registration statement or proxy statement.
Based on our analysis of the foregoing, the assumptions described above and
upon such other factors we deem relevant, it is our opinion that, as of the date
hereof, the Bank Merger Consideration is fair to Bank shareholders from a
financial point of view.
/s/ THE WALLACH COMPANY, INC.
----------------------------------
The Wallach Company, Inc.
2
<PAGE> 263
APPENDIX F
STATEMENT ESTABLISHING
SERIES OF
PREFERRED STOCK
($.10 PAR VALUE)
---------------------
$100 SERIES A CONVERTIBLE PREFERRED STOCK
OF
VECTRA BANKING CORPORATION
PURSUANT TO SECTION 7-106-102 OF THE
COLORADO BUSINESS CORPORATION ACT
VECTRA BANKING CORPORATION, a corporation organized and existing under the
laws of the State of Colorado (the "Corporation"), HEREBY CERTIFIES that the
following resolution was duly adopted on , 1996, by the Board of
Directors of the Corporation pursuant to the authority conferred upon the Board
of Directors of the Corporation by the Articles of Incorporation of the
Corporation and by the Colorado Business Corporation Act:
RESOLVED, that the Board of Directors of the Corporation (the "Board of
Directors") pursuant to authority conferred upon the Board of Directors by the
provisions of the Articles of Incorporation of the Corporation, as amended and
restated (the "Articles of Incorporation"), which authorize the issuance of up
to 1,000,000 shares of preferred stock, $.10 par value (the "Preferred Stock,"
which term shall include any additional preferred stock authorized from time to
time), does hereby create and provide for the issuance of a series of Preferred
Stock and does hereby fix and determine the designations, preferences,
limitations and relative rights of such series of Preferred Stock as follows:
1. Designation and Number. The designation of such series of Preferred
Stock shall be "$100 Series A Convertible Preferred Stock" (the "$100 Preferred
Stock"), and the number of shares constituting such series shall be .
Shares of $100 Preferred Stock shall have a preference upon liquidation,
dissolution or winding up of the Corporation of $100.00 per share.
2. Rank. The $100 Preferred Stock shall, with respect to dividend rights
and rights on liquidation, winding up or dissolution of the Corporation, rank
prior to the Corporation's common stock, par value $.01 per share (the "Common
Stock"), and to all other classes and series of equity securities of the
Corporation now or hereafter authorized, issued or outstanding (the Common Stock
and such other classes and series of equity securities shall be collectively
referred to herein as "Junior Stock"), other than the Corporation's $.95 Series
A Cumulative Preferred Stock (the "$.95 Preferred Stock") and any other classes
or series of equity securities of the Corporation now or hereafter authorized,
issued or outstanding which rank by their terms pari passu with the $100
Preferred Stock as to dividend rights and rights upon liquidation, winding up or
dissolution of the Corporation (the $.95 Preferred Stock and any such other
classes or series ranking pari passu with the $100 Preferred Stock shall be
referred to herein as "Parity Stock").
3. Dividends; Restrictions on Payment of Dividends and Other Cash Payments
or Setting Aside of Cash in Respect of Equity Securities of the
Corporation.
(a) Holders of outstanding shares of $100 Preferred Stock shall be entitled
to receive, but only as the Board of Directors shall declare out of funds of the
Corporation legally available therefor, quarterly cash dividends or accrued
dividends for less than a full calendar quarter at the annual rate of $7.00 per
share, in preference to and in priority over any dividends with respect to
Junior Stock. Such dividends shall not be cumulative. Dividends on the
outstanding shares of $100 Preferred Stock shall begin to accrue from and
<PAGE> 264
including the "Effective Time" as that term is defined in the Agreement and Plan
of Merger, dated as of December 26, 1995, as amended on April 3, 1996, and May
22, 1996, among Vectra Banking Corporation, Vectra Bank, Bank Land Co. and
Southwest State Bank (the "Merger Agreement"), and shall be payable, if
declared, for and at the end of each calendar quarter on March 31, June 30,
September 30 and December 31 of each year (each of such dates shall be referred
to herein as a "Dividend Payment Date") commencing , 1996. The date
one year after the first Dividend Payment Date following the Effective Time and
each anniversary thereafter shall be referred to as a "Dividend Anniversary
Date." Each such dividend shall be payable, if declared, to the holders of
record as they appear on the stock books of the Corporation at the close of
business on such record dates, not more than 30 calendar days and nor less than
10 calendar days preceding the Dividend Payment Dates therefor, as are
determined by the Board of Directors (each of such dates shall be referred to
herein as a "Record Date"). In any case where the date fixed for any dividend or
other payment with respect to the $100 Preferred Stock shall not be a Business
Day (as defined below), then such payments need not be made on such date but may
be made on the next succeeding Business Day with the same force and effect as if
made on the date fixed therefor, without interest. The term "Business Day" shall
mean any day except a Saturday, a Sunday or a day on which banking institutions
are authorized or required by law to close in the State of Colorado.
(b) With respect to any four consecutive calendar quarters ending on a
Dividend Anniversary Date, including the partial quarter beginning at the
Effective Time and any partial quarters within such four quarters, where
calculation of dividends for such partial quarters is provided pursuant to the
terms hereof, if the Board of Directors fails to declare and pay the accrued
dividends for any such quarter by such Dividend Anniversary Date, the rights of
the holders of the $100 Preferred Stock to receive such dividends shall
terminate on such Dividend Anniversary Date. Dividends in arrears for the $100
Preferred Stock are only those dividends (i) declared but unpaid as of the
Dividend Payment Date for the quarter to which such dividends are applicable or
(ii) declared for a period less than a full quarter and accumulated as of a date
other than a Dividend Payment Date as may be provided herein, but excluding
dividends as to which the rights of the holders of the $100 Preferred Stock to
receive such dividends is terminated pursuant to the first sentence of this
Section 3(b).
(c) The amount of dividends "accumulated" on any share of $100 Preferred
Stock shall be calculated as the amount of any dividends declared but unpaid as
of the Dividend Payment Date for each quarter for which such dividends were
declared, plus an amount of dividends, if declared by the Board of Directors,
calculated on the basis of the annual dividend rate for the period from and
including the last preceding Dividend Payment Date to and excluding the date as
of which the calculation is made, but excluding any dividends as to which the
right of the holders of the $100 Preferred Stock to receive such dividends has
terminated pursuant to Section 3(b) above. The rights of the holders of the $100
Preferred Stock to receive any accumulated dividends shall not be considered as
cumulative in nature. The amount of dividends payable with respect to a full
quarterly dividend period on outstanding shares of $100 Preferred Stock shall be
computed by dividing the annual dividend rate by four and the amount of
dividends payable for any period shorter than a full quarterly dividend period
shall be computed on the basis of 30-day months, a 360-day year and the actual
number of days elapsed in the period.
(d) So long as any shares of $100 Preferred Stock shall be outstanding, if
(i) the Corporation shall be in default or in arrears with respect to the
payment of dividends declared by the Board of Directors on any outstanding
shares of $100 Preferred Stock or the Corporation shall be in default or in
arrears with regard to the payment of dividends on any other classes or series
of equity securities of the Corporation other than Junior Stock, or (ii) the
Corporation shall be in default or in arrears with respect to the mandatory or
optional redemption, purchase or other acquisition, retirement or other
requirement of, or with respect to, any sinking or other similar fund or
agreement for the redemption, purchase or other acquisition, retirement or other
requirement of, or with respect to, any shares of the $100 Preferred Stock or
any other classes or series of equity securities of the Corporation other than
Junior Stock, then the Corporation may not (A) declare, pay or set apart for
payment any dividends on any shares of Common Stock or other Junior Stock, or
(B) make any payment on account of, or set apart payment for, the purchase or
other acquisition, redemption, retirement or other requirement of, or with
respect to, any sinking or other similar fund or agreement for the purchase or
2
<PAGE> 265
other acquisition, redemption, retirement or other requirement of, or with
respect to, any shares of Common Stock or other Junior Stock or any warrants,
rights, calls or options exercisable or exchangeable for or convertible into
Common Stock or other Junior Stock, or (C) make any distribution in respect of
any shares of Common Stock or other Junior Stock or any warrants, rights, calls
or options exercisable or exchangeable for or convertible into Common Stock or
other Junior Stock, whether directly or indirectly, and whether in cash,
obligations or securities of the Corporation or other property, other than
dividends or distributions payable solely in Junior Stock which is neither
convertible into nor exchangeable or exercisable for any securities of the
Corporation other than Junior Stock or rights, warrants, options or calls
exercisable or exchangeable for or convertible into Junior Stock, or (D) permit
any corporation or other entity controlled directly or indirectly by the
Corporation to purchase or otherwise acquire or redeem any shares of Common
Stock or other Junior Stock or any warrants, rights, calls or options
exercisable or exchangeable for or convertible into shares of Common Stock or
other Junior Stock. If, for any calendar quarter after the 50th Dividend
Anniversary Date, the Corporation shall have not declared and paid all dividends
accrued during such quarter on the $100 Preferred Stock, then for any dividends,
payments, or distributions (as specified in clauses (A), (B) and (C) of this
paragraph) which might otherwise be declared, paid, set apart for payment or
made for or with respect to such quarter or which otherwise might be permitted
or required, pursuant to agreement or otherwise, as a result of events,
occurrences or circumstances existing at any time during such quarter, then, for
and with respect to such quarter, the Corporation shall not pay, declare or set
apart for payment any dividends on any shares of Common Stock or other Junior
Stock or make any payment or distribution of a type specified in clauses (B),
(C) or (D) of this paragraph.
(e) Subject to and in compliance with the provisions of Section 3(a) above,
dividends, including dividends in arrears, with respect to the outstanding
shares of $100 Preferred Stock may be declared, paid or set apart for payment at
any time and from time to time, without reference to any regular Dividend
Payment Date, to holders of record as they appear on the stock books of the
Corporation at the close of business on such Record Date as the Board of
Directors may establish with respect to such dividends. If there shall be
outstanding shares of Parity Stock, and if the payment of dividends on any
shares of the $100 Preferred Stock or the Parity Stock is in arrears, the
Corporation, in making any dividend payment on account of any shares of the $100
Preferred Stock or Parity Stock, shall make such payment ratably upon all
outstanding shares of the $100 Preferred Stock and Parity Stock in proportion to
the respective amounts of accumulated dividends in arrears upon such shares of
the $100 Preferred Stock and Parity Stock to the date of such dividend payment.
Holders of any shares of $100 Preferred Stock shall not be entitled to any
dividends, whether payable in cash, obligations or securities of the Corporation
or other property, in excess of the accumulated dividends on shares of $100
Preferred Stock. No interest, or sum of money in lieu of interest, shall be
payable in respect of any dividend or other payment or payments which may be in
arrears with respect to the $100 Preferred Stock. All dividends paid with
respect to the $100 Preferred Stock shall be paid pro rata to the holders
entitled thereto except for dividends paid in conjunction with the provisions
for conversion or redemption of the $100 Preferred Stock.
(f) Subject to the foregoing provisions hereof and applicable law, the
Board of Directors (i) may declare and the Corporation may pay or set apart for
payment dividends on any Junior Stock or Parity Stock, (ii) may make any payment
on account of or set apart payment for a sinking fund or other similar fund or
agreement for the purchase or other acquisition, redemption, retirement or other
requirement of, or with respect to, any Junior Stock or Parity Stock or any
warrants, rights, calls or options exercisable or exchangeable for or
convertible into any Junior Stock or Parity Stock, (iii) may make any
distribution in respect to any Junior Stock or Parity Stock or any warrants,
rights, calls or options exercisable or exchangeable for or convertible into any
Junior Stock or Parity Stock, whether directly or indirectly, and whether in
cash, obligations or securities of the Corporation or other property, and (iv)
may purchase or otherwise acquire, redeem or retire any Junior Stock or Parity
Stock or any warrants, rights, calls or options exercisable or exchangeable for
or convertible into any Junior Stock or Parity Stock, and the holders of the
shares of the $100 Preferred Stock shall not be entitled to share therein.
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<PAGE> 266
4. Voting Rights. The holders of $100 Preferred Stock shall have no right
to vote for any purpose, except as required by applicable law and except as
provided in this Section 4.
(a) So long as any shares of $100 Preferred Stock remain outstanding, the
affirmative vote of the holders of at least a majority of the votes entitled to
be cast with respect to the then outstanding $100 Preferred Stock, voting
separately as one class, at a meeting duly held for that purpose, shall be
necessary to (i) authorize, create or increase the authorized shares of any
class or series of equity securities of the Corporation (A) ranking prior to the
$100 Preferred Stock as to dividend rights or rights upon liquidation, winding
up or dissolution of the Corporation or (B) which possess rights which may allow
for voting separately as one class with the $100 Preferred Stock on a basis of
more than one vote for each $100.00 of liquidation preference thereof, or (ii)
repeal, amend or otherwise change any of the provisions of the Articles of
Incorporation in any manner which adversely affects the powers, preferences,
voting power or other rights or privileges of the $100 Preferred Stock. For
purposes of clause (ii) in the preceding sentence, any increase (including the
creation or authorization) or decrease in the amount of authorized capital stock
of any class or series of Junior Stock or Parity Stock or any increase in the
number of authorized shares of Preferred Stock which the Board of Directors has
the power to divide into series shall not be deemed to be an amendment which
adversely affects the powers, preferences or voting power or other rights or
privileges of shares of $100 Preferred Stock.
(b) If at any time (i) the payment of declared dividends aggregating an
amount at least equal to four full quarterly dividends, whether or not
consecutive (or if dividends are declared and payable for any periods other than
full quarters, a number of dividend periods, whether or not consecutive,
containing in the aggregate not less than 365 calendar days) on the then
outstanding shares of $100 Preferred Stock or (ii) dividends aggregating an
amount at least equal to four full quarterly dividends, whether or not
consecutive (or if dividends are payable other than on a quarterly basis, a
number of dividend periods, whether or not consecutive, containing in the
aggregate not less than 365 calendar days) on any then outstanding other Parity
Stock shall be in arrears or in default, the number of members of the Board of
Directors shall, without further action, be increased by two directors. The
holders of the outstanding $100 Preferred Stock shall have the exclusive right,
voting separately as one class, to fill such newly created directorships (the
other directors to be elected by the classes or series of stock entitled to vote
therefor) at each meeting of shareholders duly held for the purpose of electing
directors.
(c) Notwithstanding any provision herein to the contrary, for so long as
any person who, (i) at the time the Merger Agreement is executed is an officer
of Bank Land Co. or Southwest State Bank, (ii) pursuant to provisions in the
Merger Agreement (defined in Section 3(b) above) is to be elected as a member (a
"Superseding Member") of the Board of Directors of the Corporation to serve for
a definite or indefinite period of time, and (iii) remains in office as such a
Superseding Member of the Board of Directors without interruption after first
being so elected, the holders of the $100 Preferred Stock shall have the right
to elect only one member, rather than two members, of the Board of Directors
pursuant to this Section 4. If, during the time such director, elected by the
holders of the $100 Preferred Stock, is in office pursuant to the terms of this
Section 4, and any and all Superseding Members cease being members of the Board
of Directors, then the director elected and in office pursuant to this Section 4
may appoint the second director to hold office until such time as the holders of
the $100 Preferred Stock shall have elected a successor.
(d) Whenever the right of the $100 Preferred Stock to elect directors under
Section 4(b) shall have arisen, such right shall be exercised initially at a
meeting of the holders of the $100 Preferred Stock held for that purpose within
60 days after the Dividend Payment Date on which such right arose. The
Corporation shall take all action necessary to call and hold such meeting
without notice or demand from any holder of $100 Preferred Stock. In addition,
at any time while the holders of the $100 Preferred Stock have the right to
elect directors under this Section, upon the written request of the holders of
at least 10% of the outstanding shares of $100 Preferred Stock, the Corporation
shall take all action necessary to call and hold, within 60 days after such
request is received by the Corporation, a meeting of the holders of the $100
Preferred Stock for the purpose of electing or removing any such director. Any
meeting called and held by the Corporation pursuant to this Section may, but
need not, be an annual or special meeting of its shareholders generally. The
right of the holders of $100 Preferred Stock to elect directors hereunder shall
continue until such time as the Corporation shall no longer be in arrears or in
default in respect of the payment of dividends on any and all
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outstanding $100 Preferred Stock and any Parity Stock, at which time such voting
right of the holders of the $100 Preferred Stock shall, without further action,
terminate, subject to revesting in the event of each and every subsequent
failure of the Corporation to pay such dividends for the requisite number of
periods as described above.
(e) At any meeting duly held for the purpose of electing or removing
directors at which the holders of the $100 Preferred Stock shall have the right
to elect or remove directors as provided herein, the presence in person or by
proxy of the holders of at least a majority of the votes entitled to be cast at
such meeting with respect to the then outstanding shares of the $100 Preferred
Stock shall be required and be sufficient to constitute a quorum. At any such
meeting or adjournment thereof (i) the absence of a quorum with respect to the
$100 Preferred Stock shall not prevent the election of directors other than
those to be elected by the holders of the $100 Preferred Stock, and the absence
of a quorum or quorums with respect to the stock entitled to elect such other
directors shall not prevent the election of directors to be elected by the
holders of the $100 Preferred Stock, and (ii) in the absence of a quorum with
respect to the $100 Preferred Stock, a majority of the votes entitled to be cast
at such meeting with respect to the $100 Preferred Stock, present in person or
by proxy, shall have the power to adjourn the meeting for the election of
directors which the holders of shares of the $100 Preferred Stock may be
entitled to elect, from time to time, without notice (except as required by
applicable law) other than announcement at the meeting, until a quorum shall be
present.
(f) The term of office of all directors elected by the holders of the $100
Preferred Stock in office at any time when the aforesaid voting right is vested
in such holders shall terminate upon the election of their successors at any
meeting of shareholders for the purpose of electing directors; provided,
however, that, without further action but subject to applicable law, any
director who shall have been elected by holders of the $100 Preferred Stock or
appointed to fill a vacancy among such directors as provided herein may be
removed at any time, either with or without cause, at a meeting of the holders
of the $100 Preferred Stock duly held for that purpose, if the number of votes
cast in favor of such removal exceeds the number of votes cast against such
removal. Upon any termination of the right of the holders of the $100 Preferred
Stock to elect directors under Section 4(b), the term of office of all directors
elected by the holders of the $100 Preferred Stock pursuant hereto then in
office shall, without further action, thereupon terminate. Upon such
termination, the number of directors constituting the Board of Directors shall,
without further action, immediately be reduced accordingly, subject always to
subsequent increase in case the right of the holders of the $100 Preferred Stock
to elect directors as provided herein shall arise as a result of subsequent
dividend arrearages.
(g) Unless otherwise required by applicable law, in case of any vacancy
occurring among the directors elected by the $100 Preferred Stock, the remaining
director who shall have been so elected may appoint a successor to hold office
for the unexpired term of the director whose place shall be vacant and, in case
both directors shall cease to serve as directors before their terms expire, the
holders of the $100 Preferred Stock then outstanding may, at a meeting of such
holders duly held, elect successors to hold office for the unexpired terms of
the directors whose places shall be vacant.
(h) In all elections of directors by the holders of the $100 Preferred
Stock pursuant to this Section 4, every holder of the $100 Preferred Stock
entitled to vote in such elections shall have the right to vote, in person or by
proxy, the number of shares owned by him, for as many persons as there are
directors to be elected. In connection with any other matter on which holders of
the $100 Preferred Stock are entitled to vote including, without limitation, any
matter on which the holders of the $100 Preferred Stock are entitled to vote as
a class or otherwise pursuant to applicable law or the provisions of the
Articles of Incorporation of the Corporation, each holder of the $100 Preferred
Stock shall be entitled to one vote for each share of $100 Preferred Stock held
by such holder.
(i) Notwithstanding any other provision herein to the contrary, in no event
shall any Junior Stock or Parity Stock be permitted to vote with the $100
Preferred Stock for any members of the Board of Directors as provided in
Sections 4(b), 4(c), 4(d), 4(e), 4(f), 4(g) and 4(h) above.
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5. Redemption and Conversion.
(a) Except as prohibited or restricted pursuant to Section 5(j) herein, the
Corporation may require the redemption of the $100 Preferred Stock as follows at
any time on or after the date which is three years from the Effective Time
(defined in Section 3(a) above) (the "Third Anniversary"). The date four years
after the Effective Time shall be referred to as the "Fourth Anniversary," the
date five years after the Effective Time shall be referred to as the "Fifth
Anniversary," and so on, for each date which is twelve months after the last
preceding Anniversary date. On or after the Third Anniversary, the $100
Preferred Stock shall be redeemed for cash, at the option of the Corporation, in
whole or in part, at any time and from time to time. The shares shall be
redeemable at the following redemption prices per share (the "Applicable 5(a)
Price") of $100 Preferred Stock if redeemed during the twelve-month period
beginning on and following each of the following Anniversaries:
<TABLE>
<CAPTION>
APPLICABLE 5(A)
PRICE (PER SHARE)
-----------------
<S> <C>
Third Anniversary..................................... 103.50
Fourth Anniversary.................................... 103.00
Fifth Anniversary..................................... 102.50
Sixth Anniversary..................................... 102.00
Seventh Anniversary................................... 101.50
Eighth Anniversary.................................... 101.00
Ninth Anniversary..................................... 100.50
Tenth Anniversary and thereafter...................... 100.00
</TABLE>
plus, in each case an amount equal to accumulated and unpaid dividends, to but
excluding the date fixed for redemption, without interest. The Corporation shall
redeem no shares of $100 Preferred Stock pursuant to this Section 5(a) except
for those numbers of shares for which such redemption is lawful, as to which the
Corporation fully possesses adequate assets and resources to pay promptly the
full redemption price, plus all accumulated but unpaid dividends, and as to
which the restrictions of Section 5(j) shall not apply.
As a condition precedent to the right of the Corporation, on or after the
Third Anniversary and before the Fifth Anniversary, to redeem the $100 Preferred
Stock under this Section 5(a), the average of the closing prices for the Common
Stock on the Nasdaq National Market for the 20 trading days ending on the fifth
business day before the Corporation gives notice, pursuant to Section 5(f)
below, of its intent to require the redemption of the preferred shares, must be
at least $13.72 per share. If, at any time following the adoption of this
Statement, the Corporation subdivides its outstanding shares of Common Stock or
makes a distribution of Common Stock to the holders of the Corporation's
outstanding Common Stock such that immediately thereafter a greater number of
shares of Common Stock is outstanding, then the amount of $13.72 provided in
this Section 5(a) shall be proportionately decreased. Conversely, if the
Corporation should combine the outstanding shares of Common Stock into a smaller
number of shares, the amount of $13.72 provided in this Section 5(a) shall be
proportionately increased. If the record date for any such subdivision,
distribution or combination of the outstanding Common Stock occurs at any time
after the first day of the above 20-trading day period and on or before the
transfer, on the books of the Corporation, of any shares of Common Stock to the
shareholder, pursuant to this Section 5(a), then for each of the above 20
trading days preceding the record date, the closing price shall be
proportionately decreased or increased as provided and in the same manner as
above for the amount of $13.72. Whenever the redemption price is adjusted
pursuant to the foregoing provisions, the Corporation shall forthwith deliver to
the holders of the $100 Preferred Stock an officer's certificate describing in
reasonable detail the adjustment and the method of calculation.
(b) Subject to Section 5(k), if a Change in Control (as defined below)
takes place before the Fifth Anniversary, the $100 Preferred Stock shall be
redeemed, at the option of the Corporation for cash, in whole or in part, for a
redemption price per share of $100 Preferred Stock of (i) $103.50 if the date
set for redemption occurs before the Third Anniversary, or (ii) the Applicable
5(a) Price (as defined in Section 5(a) above) if the date set for redemption
occurs on or after the Third Anniversary and before the Fifth Anniversary, plus,
in either case, an amount equal to accumulated and unpaid dividends, to but
excluding the
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<PAGE> 269
date fixed for redemption, without interest. The Corporation shall give notice
of such a redemption within 10 days after the later of (i) the effective date of
the Change in Control or (ii) the receipt by the Corporation of the approval
required by Section 5(k). For the purposes of this Section 5(b), "Change in
Control" means (x) any sale or issuance or series of sales and/or issuances of
Common Stock by the Corporation or any holders thereof which results in any
person or group of affiliated persons (other than the owners of Common Stock
immediately prior to the initial issuance of the $100 Preferred Stock and their
affiliates and associates) owning more than 50% of the Common Stock outstanding
at the time of such sale or issuance or the last of such series of sales and/or
issuances, (y) a sale or transfer of more than 80% of the assets of the
Corporation (measured by the lesser of book value in accordance with generally
accepted accounting principles consistently applied or fair market value
determined in the reasonable good faith judgment of the Board of Directors) in
any transaction or series of related transactions or (z) any merger or
consolidation to which the Corporation is a party, except for a merger in which
the Corporation is the surviving corporation and, after giving effect to such
merger, the holders of the Corporation's outstanding capital stock possessing
the voting power (under ordinary circumstances) to elect a majority of the Board
of Directors immediately prior to the merger shall own the Corporation's
outstanding capital stock possessing the voting power (under ordinary
circumstances) to elect a majority of the Board of Directors. The Corporation
shall redeem no shares of $100 Preferred Stock pursuant to this Section 5(b)
except for those numbers of shares for which such redemption is lawful, as to
which the Corporation fully possesses adequate assets and resources to promptly
pay the full redemption price, plus all accumulated but unpaid dividends, and as
to which the restrictions of Section 5(j) shall not apply.
(c) At any time after the Effective Time the holders of the $100 Preferred
Stock may, at their option, convert all or any part of their $100 Preferred
Stock into the Common Stock of the Corporation at a conversion price of $13.25
per Common share, provided, however, that a record holder may give such notice
of the exercise of such conversion rights only once during any 60-day period. To
exercise such conversion rights, the shareholder must deliver to the Secretary
of the Corporation a written notice (i) clearly stating the shareholder's intent
to convert all or a portion of the shareholder's $100 Preferred Stock into
Common Stock, (ii) specifying the number of shares of the $100 Preferred Stock
which are being converted, and (iii) stating the certificate numbers for the
shares being converted and the number of shares represented by each such
certificate. The notice must be accompanied by the certificates for the shares
to be converted, duly endorsed for transfer to the Corporation. The numbers of
common shares to be issued hereunder shall be the numbers of shares of the $100
Preferred Stock to be converted multiplied by $100.00 and divided by $13.25. If,
at any time following the adoption of this Statement, the Corporation subdivides
its outstanding shares of Common Stock or makes a distribution of Common Stock
to the holders of the Corporation's outstanding Common Stock such that
immediately thereafter a greater number of shares of Common Stock is
outstanding, then the amount of $13.25 provided in this Section 5(c) shall be
proportionately decreased. Conversely, if the Corporation should combine the
outstanding shares of Common Stock into a smaller number of shares, the amount
of $13.25 provided in this Section 5(c) shall be proportionately increased.
Whenever the conversion price is adjusted pursuant to the foregoing provisions,
the Corporation shall forthwith deliver to the holders of the $100 Preferred
Stock an officer's certificate describing in reasonable detail the adjustment
and the method of calculation. Except as payment of dividends may be restricted
under Section 3(e), the Corporation shall pay all accumulated but unpaid
dividends on the shares of $100 Preferred Stock being converted, to, but
excluding the date of conversion. The Corporation will not issue fractional
shares of the Common Stock, but rather, shall pay cash for any such fractional
share at the rate of $13.25 per share. All shares of Common Stock to be
delivered and cash made payable pursuant to this Section 5(c) shall be delivered
and paid promptly except as such payment or delivery may be delayed or
restricted as provided herein or as required by law. No interest shall be
accrued or paid in respect of any delay in a cash payment or delivery of Common
Stock provided in this Section 5(c).
(d) For a period of 30 days beginning on the Fifth Anniversary,
notwithstanding Sections 5(a), 5(b) and 5(c) and notwithstanding any notice
given by VBC during said 30 day period that VBC elects to redeem any of the
holders' preferred shares pursuant to Section 5(a) or 5(b), any holder of the
$100 Preferred Stock shall have the right to deliver written notice to the
Corporation that such holder requires the Corporation to convert all or any part
of such holder's $100 Preferred Stock at a price per preferred share of $90.00
plus all
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<PAGE> 270
accumulated but unpaid dividends into Common Stock upon tender of certificates
endorsed for transfer with respect to such shares. The notice must (i) clearly
state the shareholder's intent to request the Corporation to convert pursuant to
this provision, (ii) state the certificate numbers for the shares to be
converted by the Corporation and the number of shares represented by each such
certificate, and (iii) specify the number of shares of $100 Preferred Stock to
be converted. The notice by a holder of the $100 Preferred Stock to the
Corporation shall be deemed given on the day it is received by the Corporation.
Notwithstanding the foregoing, the Corporation, at its option, may elect to
offer to redeem for cash such $100 Preferred Stock at $90 per share plus
accumulated but unpaid dividends. By the fifteenth business day after receiving
notice from the shareholder, the Corporation must make a written offer to redeem
the shares for cash at a price per preferred share of $90.00 plus all
accumulated but unpaid dividends or make a written offer to convert such $100
Preferred Stock into a certain number of shares of its Common Stock in
accordance with the shareholder's request, and, in the latter case, the
Corporation must set forth the details of how the number of shares of Common
Stock was calculated, including the average price per share of the Common Stock
which, if higher than $8.50 (as may be adjusted as hereinafter provided in this
Section 5(d)) was used in the calculation. The shareholder shall have until the
fifteenth business day after receipt of the Corporation's written offer to
deliver, and for the Corporation to receive, the shareholder's written
acceptance of the Corporation's offer, and if the shareholder fails to provide
such acceptance to the Corporation, the shareholder shall forfeit the right to
require the Corporation to convert or redeem the offered shares of $100
Preferred Stock pursuant to this Section 5(d). The notice of the shareholder's
acceptance of the Corporation's written offer as to the method of payment must
be accompanied by the certificates for the shares to be purchased or converted,
duly endorsed for transfer to the Corporation. Following receipt of certificates
for the shares of $100 Preferred Stock by the Corporation, the Corporation
promptly shall pay and deliver the purchase price in cash or issue the shares of
its Common Stock, plus any payment for a fractional share, except as such
payment or delivery may be delayed or restricted as provided herein or as
required by law. No interest shall be accrued or paid in respect of any delay in
a cash payment or delivery of Common Stock provided in this Section 5(d). In the
event the Corporation offers and the shareholder accepts the offer to convert
his or her preferred shares into Common Stock, the Corporation will convert the
$100 Preferred Stock into its Common Stock on a per share basis valued at the
higher of (i) the average of the closing prices for the Common Stock on the
Nasdaq National Market for the 10 trading days ending on the fifth business day
before the Corporation receives the initial notice from the shareholder or (ii)
$8.50. The number of common shares to be given shall be calculated by
multiplying the number of shares of $100 Preferred Stock times $90.00, adding
the accumulated but unpaid dividends, and dividing the sum by the
above-determined price per common share. The Corporation shall not issue
fractional shares of Common Stock, but rather shall pay cash for any such
fractional share at the above-determined price per common share.
If, at any time following the adoption of this Statement, the Corporation
subdivides its outstanding shares of Common Stock or makes a distribution of
Common Stock to the holders of the Corporation's outstanding Common Stock such
that immediately thereafter a greater number of shares of Common Stock is
outstanding, then the amount of $8.50 provided in this Section 5(d) shall be
proportionately decreased. Conversely, if the Corporation should combine the
outstanding shares of Common Stock into a smaller number of shares, the amount
of $8.50 provided in this Section 5(d) shall be proportionately increased. If
the record date for any such subdivision, distribution or combination of the
outstanding Common Stock occurs at any time after the first day of the above
10-trading day period and on or before the transfer, on the books of the
Corporation, of any shares of Common Stock to the shareholder, pursuant to this
Section 5(d), then for each of the above 10 trading days preceding the record
date, the closing price shall be proportionately decreased or increased as
provided and in the same manner as above for the amount of $8.50. Whenever the
conversion price is adjusted pursuant to the foregoing provisions, the
Corporation shall forthwith deliver to the holders of the $100 Preferred Stock
an officer's certificate describing in reasonable detail the adjustment and the
method of calculation.
(e) If any cash payments to be made to shareholders upon redemption or
conversion of the preferred shares into common shares under Sections 5(a), 5(b),
5(c) or 5(d) are restricted pursuant to Sections 3(d), 3(e), or 5(j) herein,
then such amount shall be withheld and paid, in whole or in part, without
interest, as soon as and to the full extent payment by the Corporation is
permitted and practicable, recognizing, however, that
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<PAGE> 271
ultimately less than the full cash payments otherwise payable under this Section
5(e) might be paid to the shareholders in such events as bankruptcy, involuntary
reorganization, or liquidation and dissolution of the Corporation. Any amounts
of cash, payment of which is delayed pursuant to Sections 3(d), 3(e) or 5(j),
shall be deemed to be general, non-interest bearing, unsecured debts of the
Corporation but shall retain their character as dividends, distributions or
redemptions insofar as the restrictions of Sections 3(d), 3(e) or 5(j) apply. No
delay in making such cash payments shall be an event of default.
(f) The Corporation shall mail or deliver written notice of redemption,
pursuant to Sections 5(a) or 5(b) above, to each holder of record of $100
Preferred Stock to be redeemed as the holders appear on the stock books of the
Corporation at the close of business on a date not less than 30 nor more than 50
calendar days prior to the date fixed for redemption, as determined by the Board
of Directors. Such notice of redemption, if mailed, shall be sent by first class
mail to the holder's address shown on the stock books of the Corporation, and
such notice shall be deemed given and shall be binding on the holder upon
receipt by the holder; provided, however, that the failure to give such notice
or any defect therein or in the mailing thereof shall not affect the validity of
the proceedings for such redemption, except as to any holder to whom the
Corporation failed to give proper notice or whose notice was defective. Each
such notice shall specify (i) the number of shares to be redeemed from such
holder, (ii) the certificate numbers for the shares being redeemed and the
number of shares represented by each such certificate, (iii) the date fixed for
redemption, (iv) the redemption price per share of $100 Preferred Stock, (v) the
places and times at which certificates may be surrendered and payment may be
obtained and (vii) that dividends on the shares to be redeemed shall cease to
accrue on the date fixed for such redemption. Following receipt of certificates
for the shares of $100 Preferred Stock duly endorsed for transfer to the
Corporation, the Corporation promptly shall pay the required amounts of cash,
except as such payment or delivery may be delayed or restricted as provided
herein or as required by law. No interest shall be accrued or paid in respect of
any delay in a cash payment provided in Sections 5(a) or 5(b).
Notwithstanding any other provisions herein, each holder of the $100
Preferred Stock as to whom the Corporation exercises the Corporation's rights to
redeem shall have 30 days following receipt of such notice within which such
holder may give the Corporation notice of election to convert the shares subject
to redemption into Common Stock of the Corporation pursuant to Section 5(c)
above.
(g) In the event that fewer than all of the outstanding shares of the $100
Preferred Stock are to be redeemed pursuant to Sections 5(a) or 5(b), the number
of shares to be redeemed shall be determined by lot, pro rata (subject to
rounding to avoid fractional shares) or by any other method as may be determined
by the Board of Directors to be equitable; provided, however, that the Board of
Directors may, in selecting shares of $100 Preferred Stock to be redeemed,
choose to redeem all shares of $100 Preferred Stock held by holders of a number
of such shares not to exceed 10, including all shares held by holders who, after
giving effect to the redemption, would hold fewer than 10 shares of $100
Preferred Stock, as may be specified by the Board of Directors.
(h) From and after the date fixed for or effective date of redemption or
conversion (unless default shall be made by the Corporation in providing for the
payment of the redemption price or delivery of the Common Stock plus accumulated
and unpaid dividends) (i) dividends shall cease to accrue on the shares of the
$100 Preferred Stock to be converted or redeemed, (ii) such shares of $100
Preferred Stock shall no longer be deemed to be outstanding and shall not have
the status of $100 Preferred Stock, and (iii) all rights of the holders thereof
(except the right to receive the redemption price or delivery of the Common
Stock plus accumulated and unpaid dividends and payments for fractional shares,
without interest) shall cease with respect to such shares.
The date fixed for redemption for shares of the $100 Preferred Stock
pursuant to Sections 5(a) or 5(b) shall be such date as may be fixed by the
Corporation in accordance with the terms herein. The effective date of the
conversion or redemption of the $100 Preferred Stock, pursuant to Section 5(d),
shall be the day on which the Corporation receives the shareholder's written
acceptance of the Corporation's offer to redeem or convert into Common Stock the
shares of $100 Preferred Stock, as the case may be. The effective date of the
conversion of the $100 Preferred Stock into Common Stock, pursuant to Section
5(c), shall be the date the
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<PAGE> 272
Corporation receives the shareholder's substantially correct written notice of
the shareholder's election to convert the $100 Preferred Stock.
The redemption or conversion of such shares of $100 Preferred Stock shall
be effective, the redemption or conversion shall be deemed to be completed, and
the redeemed or converted shares of the $100 Preferred Stock shall no longer be
outstanding, on and as of the date set for redemption under Sections 5(a) and
5(b) or the effective date of the conversion or redemption under Sections 5(c)
and 5(d). From and after any date fixed for or effective date of redemption or
conversion, shares of the $100 Preferred Stock redeemed or converted into Common
Stock by the Corporation shall, upon compliance with any applicable provisions
of law, be restored to the status of authorized but unissued shares of Preferred
Stock, without designation as to series until such shares are once more
designated as part of a particular series by the Board of Directors.
From and after the date fixed for or effective date of conversion or
redemption pursuant to Section 5(a), 5(b), 5(c) or 5(d), the shareholders having
rights to receive Common Stock pursuant to Sections 5(a), 5(b), 5(c) or 5(d)
shall have all of the rights and privileges bestowed upon them as owners of such
Common Stock. However, no such shareholder shall at any time have any rights as
an owner of a fractional share of Common Stock.
(i) If fewer than all of the shares of $100 Preferred Stock represented by
any certificate are redeemed or converted pursuant to Sections 5(a), 5(b), 5(c)
or 5(d), the Corporation will deliver to the holder (without cost to the holder)
a new certificate for the $100 Preferred Stock (which shall contain such legends
as were set forth on the surrendered certificate), representing any shares which
were represented by the certificate that was delivered to the Corporation in
connection with such conversion or redemption, but which were not redeemed or
converted. The Corporation will also deliver to the shareholder a certificate
for the common shares to be delivered pursuant to Sections 5(c) or 5(d). With
respect to the issuance by the Corporation of certificates for such shares of
$100 Preferred Stock or Common Stock, the Corporation will pay any and all
stamp, transfer and other similar taxes that may be payable in respect of the
issuance or delivery of such new certificate or certificates but shall not,
however, be required to pay any tax which may be payable in respect of any
transfer involved in the issuance or delivery of such new certificate or
certificates in a name other than that in which such shares of $100 Preferred
Stock were registered immediately prior to such redemption, and no such issuance
or delivery shall be made unless and until the person requesting such issuance
or delivery shall have paid to the Corporation the amount of any and all such
taxes or shall have established to the satisfaction of the Corporation that such
taxes have been paid in full.
(j) So long as the payment of any dividends on shares of the $100 Preferred
Stock or any Parity Stock is in arrears, no shares of the $100 Preferred Stock
or Parity Stock shall be redeemed (whether by mandatory or optional redemption)
unless all such shares are simultaneously redeemed, and the Corporation may not
(i) make any payment on account of, or set apart payment for, the purchase or
other acquisition, redemption, retirement or other requirement of, or with
respect to, any sinking or other similar fund or agreement for the purchase or
other acquisition, redemption, retirement or other requirement of, or with
respect to, the $100 Preferred Stock or any Parity Stock or any warrants,
rights, calls or options exercisable or exchangeable for or convertible into
Parity Stock or (ii) permit any corporation or other entity controlled directly
or indirectly by the Corporation to purchase or otherwise acquire or redeem any
$100 Preferred Stock or Voting Parity Stock or any warrants, rights, calls or
options exercisable or exchangeable for or convertible into Parity Stock.
(k) Notwithstanding any other provision of this Agreement, the Corporation
shall not be required or permitted to redeem or acquire any shares of $100
Preferred Stock, convert any shares of $100 Preferred Stock into Common Stock,
or make any cash payment in respect of any such redemption, acquisition or
conversion unless such redemption, acquisition, conversion or cash payment has
been approved by the Board of Governors of the Federal Reserve System or a
successor federal agency having jurisdiction over bank holding companies (the
"FRB"). This requirement shall apply only as long as such approval continues to
be required by any rule, regulation or order of the FRB. In the case of a
redemption, purchase or conversion permitted by Sections 5(a), 5(b), 5(c) or
5(d), the Corporation shall use its best efforts to obtain such FRB approval as
promptly as reasonably practicable.
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<PAGE> 273
6. Liquidation Preference. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation, the holders of
outstanding shares of $100 Preferred Stock shall be entitled to receive out of
the assets of the Corporation available for distribution to shareholders, before
any distribution of assets shall be made to the holders of shares of Common
Stock or any other Junior Stock, an amount equal to $100.00 per share, plus an
amount equal to all accumulated and unpaid dividends on such shares of $100
Preferred Stock to and including the date of such liquidation, dissolution or
winding up. If, upon any voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, the amounts payable with respect to the
outstanding $100 Preferred Stock and any outstanding Parity Stock are not paid
in full, the holders of such $100 Preferred Stock and of such Parity Stock shall
share ratably in any such distribution of assets of the Corporation in
proportion to the full respective preferential amounts (including accumulated
and unpaid dividends) to which they are entitled. After payment to the holders
of the $100 Preferred Stock of the full preferential amount (including
accumulated and unpaid dividends) provided for in this Section 6, the holders of
the $100 Preferred Stock shall be entitled to no further participation in any
distribution of assets by the Corporation. Neither the voluntary sale,
conveyance, exchange or transfer (for cash, securities or other consideration)
of all or any part of the property or assets of the Corporation, nor the
consolidation or merger or other business combination of the Corporation with or
into any other corporation or corporations, shall be deemed to be a voluntary or
involuntary liquidation, dissolution or winding up of the Corporation unless
such voluntary sale, conveyance, exchange or transfer shall be in connection
with a plan of liquidation, dissolution or winding up of the Corporation.
7. No Other Rights. The shares of $100 Preferred Stock shall not have any
preferences, voting powers or relative, participating, optional or other special
rights except as set forth above and in the Articles of Incorporation or as
otherwise required by applicable law.
IN WITNESS WHEREOF, Vectra Banking Corporation has caused its corporate
seal to be hereunto affixed and this Statement to be signed by its President and
attested by its Secretary this day of , 1996.
VECTRA BANKING CORPORATION
By:
-----------------------------------
Gary S. Judd, President
[Corporate Seal]
Attest:
- ------------------------------------------------------
Ray L. Nash, Secretary
11
<PAGE> 274
Number: APPENDIX G
CONTINGENT WARRANT
TO RECEIVE SHARES
OF
VECTRA BANKING CORPORATION
This certifies that for good and valuable consideration, ,
or his or her permitted assigns (the "Warrantholder"), is entitled, if the
conditions and terms set forth herein are met and fulfilled, to receive from
Vectra Banking Corporation, a Colorado corporation (the "Company") (i) up to
shares (the "Stated Shares") of $.01 par value Common Stock ("Common
Stock") of the Company, and (ii) if the Warrantholder receives all of the Stated
Shares, to receive additional shares ("Additional Shares") of Common Stock as
provided herein.
The issuance of the Stated Shares and Additional Shares to the
Warrantholder is contingent upon the termination under Section 3(b) of the
Statement Establishing Series of Preferred Stock, $100 Series A Convertible
Preferred Stock, dated , 1996 ("Preferred Stock Statement"), of the
rights of the holders of the Company's $100 Series A Convertible Preferred Stock
(the "$100 Preferred Stock") to receive dividends accrued in accordance with
Section 3(a) of the Preferred Stock Statement. This Contingent Warrant is in
respect of shares (the "Preferred Shares"), and no other shares,
issued as of the Effective Time, of the $100 Preferred Stock evidenced by that
certain stock Certificate No. (the "Preferred Certificate") or any other
certificate on which the Preferred Shares, in whole or in part, may be evidenced
(each such certificate also is a "Preferred Certificate"); provided however,
that the Preferred Shares may be redeemed, repurchased, converted into Common
Stock or canceled and cease to be outstanding, in whole or in part, in
accordance with the terms of the Preferred Stock Statement, and dividends shall
cease to accrue on any of the Preferred Shares so redeemed, repurchased,
converted or canceled from the time such Preferred Shares cease to be
outstanding. This Contingent Warrant is attached to and made part of the
Preferred Certificate. However, the terms of the $100 Preferred Stock and the
Preferred Stock Statement shall not be affected by this Contingent Warrant. This
Contingent Warrant cannot be detached, or transferred separately, from, and can
only be transferred with, the Preferred Certificate. Capitalized terms not
otherwise defined herein have the meanings set forth in the Preferred Stock
Statement.
1. Issuance of Stated Shares or Additional Shares.
(a) The Stated Shares shall be issued to the Warrantholder, without further
action by the Warrantholder only upon certain conditions and at such times and
in such numbers as provided herein. The Warrantholder also is entitled to
receive Additional Shares, without further action by the Warrantholder, only
after all of the Stated Shares have been issued and only upon certain conditions
and at such times and in such numbers as provided herein.
(b) Subject to other terms and conditions herein, the Stated Shares and any
Additional Shares will be issued only insofar as dividends which accrue on the
Preferred Shares outstanding at any time during the four-quarter period ending
on a Dividend Anniversary Date are not declared and paid by the Board, and the
Company's obligation to pay such dividends terminates pursuant to the provisions
of Section 3(b) of the Preferred Stock Statement. Additional Shares will be
issued only after all of the Stated Shares have been issued. For any Dividend
Anniversary Date, through and including the 50th Dividend Anniversary Date, on
which the obligation of the Company to pay dividends on any of the outstanding
Preferred Shares shall have been terminated pursuant to Section 3(b) of the
Preferred Stock Statement, the Company shall, within 10 Business Days (i) after
any such date for any of the Stated Shares or (ii) after the registration
statement provided in Section 1(b)(4) below is declared effective for Additional
Shares, send to the Warrantholder
<PAGE> 275
certificates for any Stated Shares or Additional Shares, as the case may be, to
which the Warrantholder is entitled and a written notice containing the
following:
(1) The dollar amount of the dividends accrued as of such Dividend
Anniversary Date which have not been declared and paid upon the number of
Preferred Shares outstanding at any time during the four-quarter period
ending on such Dividend Anniversary Date and as to which, pursuant to
Section 3(b) of the Preferred Stock Statement, the right to receive such
dividends has been terminated (the "Canceled Dividends").
(2) The average of the closing prices of the Common Stock of the
Company on the Nasdaq National Market for the 20 trading days ending on the
fifth Business Day before such Dividend Anniversary Date (the "Common Stock
Price").
(3) The "Calculation Price," which shall equal the Common Stock Price
times .97.
(4) The number of Stated Shares or Additional Shares the Warrantholder
is receiving, as the case may be. The Canceled Dividends, divided by the
Calculation Price, rounded up for half of a fractional Share or more and
down for less than half of a fractional Share, shall be the number of
Stated Shares or Additional Shares the Warrantholder shall be entitled to
receive, as the case may be. If the Warrantholder receives all of the
Stated Shares, then for the Dividend Anniversary Date as of which the
Warrantholder receives all of the previously unissued Stated Shares, the
Company shall calculate the amount of Canceled Dividends which would have
been necessary to issue all of the previously unissued Stated Shares and
subtract this amount from the total Canceled Dividends for such Dividend
Anniversary Date (such remainder being the "Additional Shares Remainder"),
and the Warrantholder shall receive such number of Additional Shares as may
be calculated using the formula set forth above in this paragraph, but
substituting the amount of the Additional Shares Remainder for the amount
of Canceled Dividends. The issuance of any Additional Shares shall first be
accomplished pursuant to a registration statement under the Securities Act
of 1933, as amended, and pursuant to any other registrations required under
the laws of certain states. The Company agrees to expeditiously file such a
registration statement after such Dividend Anniversary Date and use its
best efforts to cause it to be declared effective; provided, however, that
if the Company anticipates in advance of an Anniversary Date that the
Warrantholder will be entitled to receive any Additional Shares, the
Company will use its reasonable efforts to file such a registration
statement before such Dividend Anniversary Date.
(5) If any Stated Shares are being issued, a statement showing the
numbers and dates of prior issuances of Stated Shares, the number of Stated
Shares presently being issued, and the remaining number of unissued Stated
Shares.
(c) For any Dividend Anniversary Date, through and including the 50th
Dividend Anniversary Date, on which, for any part of the four calendar quarters
immediately preceding, any of the Preferred Shares were outstanding and for such
period there are no Canceled Dividends with respect to any of such Preferred
Shares as of such Dividend Anniversary Date, whether or not any of the Preferred
Shares remain outstanding as of such Dividend Anniversary Date, the Company
shall, within 10 business days after such Dividend Anniversary Date, provide
written notice to the Warrantholder that for the four calendar quarters
immediately preceding such Dividend Anniversary Date, there were no Canceled
Dividends which would result in any Stated Shares or Additional Shares being
issued to the Warrantholder.
(d) No rights to receive any Stated Shares or Additional Shares shall
accrue after the 50th Dividend Anniversary Date, and following the issuance
after the 50th Dividend Anniversary Date of any Stated Shares or Additional
Shares, as the case may be, required to be issued by the Company under this
Contingent Warrant, this Contingent Warrant shall terminate and be of no further
force or effect.
(e) The Company agrees that any Stated Shares or Additional Shares received
shall be deemed to be issued to the Warrantholder as the record owner as of the
close of business on the date on which the Stated Shares or Additional Shares,
as the case may be, are issued.
2
<PAGE> 276
(f) Stock certificates evidencing the Stated Shares or Additional Shares,
as the case may be, shall be delivered in accordance with Section 1(b) above.
Notwithstanding the foregoing, however, the Company shall not be required to
deliver any stock certificate evidencing any Stated Shares or Additional Shares
except in accordance with the provisions, and subject to the limitations, of
Section 5. The Company will pay all expenses and charges payable in connection
with the preparation, execution and delivery of stock certificates and any new
Contingent Warrants.
2. Certain Covenants of the Company. The Company covenants and agrees as
follows:
(a) All Stated Shares and Additional Shares issuable pursuant to this
Contingent Warrant (collectively, the "Contingent Warrant Shares") will, upon
issuance, be duly authorized, validly issued, fully paid and nonassessable
shares of the Company's common stock and free from all taxes, liens and charges
with respect to the issuance thereof.
(b) The Company will at all times applicable have authorized and reserved,
free of preemptive or other rights, for the purpose of issuance of Contingent
Warrant Shares, a sufficient number of shares of its Common Stock to provide for
the issuance of the Contingent Warrant Shares.
(c) The Company will not, by amendment or restatement of its Articles of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, issuance or sale of securities or otherwise, avoid or take any action
which would have the effect of avoiding the performance of any of the terms
hereof to be performed hereunder by the Company, but will at all times in good
faith carry out all of the provisions of this Contingent Warrant and take all
such action as may be necessary or appropriate to protect the rights of the
Warrantholder against dilution or other impairment.
3. Definition of Common Stock. As used herein, the term "Common Stock"
shall mean the Common Stock, par value $.01 per share, of the Company, as is
constituted and exists on the date hereof, and shall also include any other
substitute class of the capital stock of the Company hereafter authorized with
rights substantially equivalent to the $.01 par value Common Stock.
4. No Rights or Liabilities as a Shareholder. This Contingent Warrant shall
not entitle the Warrantholder as such to any rights whatsoever, including,
without limitation, voting rights, as a holder of Common Stock. No provisions
hereof and no mere enumeration herein of the rights or privileges of such
holder, shall give rise to any liability of such holder as a holder of Common
Stock, regardless of the person who may assert such liability.
5. Transfer; Ownership. This Contingent Warrant and all rights hereunder
are transferable, in whole or in part, only concurrently with a corresponding
transfer of the Preferred Certificate, to which this Contingent Warrant is
attached and made part of, at the office or agency of the Company referred to in
Section 1, by the Warrantholder in person or by a duly authorized attorney, upon
surrender of this Contingent Warrant attached to the Preferred Certificate, with
assignments of the Preferred Certificate, acceptable to the Company, duly
completed, at which time a new Contingent Warrant, along with and attached to a
corresponding Preferred Certificate for the number of Preferred Shares received
by the transferee, of the same tenor as this Contingent Warrant but registered
in the name of the transferee, shall be made and delivered by the Company. If
the Preferred Shares set forth on the Preferred Certificate are transferred only
in part, the respective numbers of Stated Shares to which the Warrantholder and
transferee are entitled shall be adjusted, and so shown on the new Contingent
Warrants, in proportion to the numbers of the Preferred Shares which the
Warrantholder and transferee, respectively, shall hold following the transfer.
The Warrantholder, by taking or holding the same, consents and agrees that this
Contingent Warrant, when the Preferred Certificate is fully endorsed in blank
with a medallion signature guarantee, shall be deemed negotiable as part of the
Preferred Certificate, and that the holder hereof, when the Preferred
Certificate shall have been so endorsed, may be treated by the Company and all
other persons dealing with this Contingent Warrant and the Preferred Certificate
as the absolute owner hereof for any purpose and as the person entitled to
exercise the rights represented by this Contingent Warrant and to transfer this
Contingent Warrant on the books of the Company, any notice to the contrary
notwithstanding; but until such transfer on such books, the Company may treat
the registered holder hereof as the owner hereof for all purposes.
3
<PAGE> 277
6. Exchange and Replacement. Subject to Section 5, this Contingent Warrant
is exchangeable, upon the surrender hereof, along with and securely attached to
the Preferred Certificate, by the holder hereof at the office or agency of the
Company referred to in Section 1, for new Contingent Warrants. Upon receipt by
the Company at the office or agency referred to in Section 1 of evidence
reasonably satisfactory to it of the loss, theft or destruction of this
Contingent Warrant and of indemnity or security reasonably satisfactory to it
(provided that the written indemnity of the holder hereof shall be deemed
reasonably satisfactory to the Company for such purposes), and provided the
Warrantholder produces the Preferred Certificate to the Company, the Company
will deliver a new Contingent Warrant of like tenor and date in replacement of
this Contingent Warrant. This Contingent Warrant shall be promptly canceled by
the Company upon the surrender hereof in connection with any transfer, exchange
or replacement. The Company will pay all expenses and charges payable in
connection with the preparation, execution and delivery of Contingent Warrants
pursuant to Section 5 and this Section 6.
7. Notices. Any notice or other document required or permitted to be given
or delivered to the Warrantholder, including but not limited to the written
notices referred to in Sections 1(b) and 1(c) above, shall be delivered at, or
sent by first class, certified or registered mail, to or to such
other address as shall have been furnished to the Company in writing by the
Warrantholder. Any notice or other document required or permitted to be given or
delivered to the Company shall be delivered at, or sent by first class,
certified or registered mail to, 1650 South Colorado Boulevard, Suite 320,
Denver, Colorado 80222, or to such other address as shall have been furnished in
writing to the Warrantholder by the Company. Any notice so addressed and mailed
by first class, registered or certified mail or otherwise delivered, shall be
deemed to be given when actually received by the addressee.
8. Governing Law. This Contingent Warrant shall be governed by, and
construed and enforced in accordance with, the laws of the State of Colorado.
9. Miscellaneous. This Contingent Warrant will be binding upon any entity
succeeding to the Company by consolidation or acquisition of all or
substantially all of the Company's assets, and upon any successor or assign of
the holder hereto. This Contingent Warrant and any provision hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party (or any predecessor in interest thereof) against whom
enforcement of the same is sought. The headings in this Contingent Warrant are
for purposes of reference only and shall not affect the meaning or construction
of any of the provisions hereon.
IN WITNESS WHEREOF, Vectra Banking Corporation has caused this Contingent
Warrant to be signed by its duly authorized officer to be dated ,
1996.
VECTRA BANKING CORPORATION
By
Gary S. Judd, President
4
<PAGE> 278
APPENDIX H
SOUTHWEST STATE BANK
AFFILIATE AGREEMENT
Gentlemen:
The undersigned, a holder of shares of Common Stock ("Company Common
Stock") of Southwest State Bank, a Colorado corporation, (the "Company") is
entitled to receive in connection with the merger (the "Merger") of the Company
with and into Vectra Bank ("Vectra"), a Colorado corporation, with Vectra being
the surviving corporation in such Merger, securities of Vectra Banking
Corporation ("Vectra Securities"). The undersigned acknowledges that the
undersigned may be deemed an "affiliate" of the Company within the meaning of
Rule 145 ("Rule 145") adopted under the Securities Act of 1933, as amended (the
"Act"), although nothing contained herein should be construed as an admission of
such fact.
If in fact, the undersigned were an affiliate of the Company, the
undersigned's ability to sell, assign or transfer the Vectra Securities received
by it in exchange for any shares of Company Common Stock pursuant to the Merger
may be restricted unless such transaction is registered under the Act or an
exemption from such registration is available. The undersigned has been advised
as to the nature and conditions of such exemptions, including information with
respect to the applicability to the resale of the Vectra Securities.
The undersigned hereby represents to and covenants with Vectra that he or
she will not sell, assign, or transfer any of the Vectra Securities received by
him or her in exchange for shares of Company Common Stock pursuant to the Merger
except (i) pursuant to a registration statement under the Act as declared
effective by the Securities and Exchange Commission, or (ii) in a transaction
which, in the opinion of independent counsel reasonably satisfactory to Vectra
or as described in a "no-action" or interpretive letter from the Staff of the
Securities and Exchange Commission, is not required to be registered under the
Act, or (iii) in conformity with the volume and other limitations imposed by
Rule 145 under the Act, including any applicable provisions of Rule 144 under
the Act.
In the event of a sale or other disposition of Vectra Securities pursuant
to Rule 145 or Rule 144, the undersigned will supply Vectra with evidence of
compliance with such Rule, by delivery of a letter in the form attached hereto
and the opinion of counsel referred to above. The undersigned understands that
Vectra may instruct its transfer agent to withhold the transfer of any Vectra
Securities disposed of by the undersigned, but that upon receipt of such letter
and opinion, the transfer agent shall effectuate the transfer of the Vectra
Securities sold as indicated in the letter.
The undersigned acknowledges and agrees that appropriate legends will be
placed on certificates representing Vectra Securities received by the
undersigned in the Merger or held by a transferee thereof, which legends will be
removed by delivery of substitute certificates upon receipt of an opinion in
form and substance reasonably satisfactory to Vectra to the effect that such
legends are no longer required under of the Act.
The undersigned acknowledges that he or she has carefully read this letter
and understands the requirements hereof and the limitations imposed upon the
distribution, sale, transfer or other disposition of the Vectra Securities to be
received by him or her in the Merger.
<TABLE>
<S> <C>
Dated: , 1996 Name:
</TABLE>
<PAGE> 279
As an inducement to the above individual to deliver this letter, Vectra
Banking Corporation agrees that for so long as and to the extent necessary to
permit such individual to sell the Vectra Securities pursuant to Rule 145 and,
to the extent applicable, Rule 144 under the Act, Vectra Banking Corporation
shall use its best efforts to file, on a timely basis, all reports and data
required to be filed by it with the Securities and Exchange Commission pursuant
to Section 13 of the Securities Exchange Act of 1934. Upon written request
addressed to Vectra Banking Corporation, 1650 South Colorado Boulevard, Suite
320, Denver, Colorado 80222, attention: Corporate Secretary, Vectra Banking
Corporation agrees to promptly advise the above individual that Vectra has
complied with such reporting requirements.
Vectra Banking Corporation
By:
Name:
Title:
2
<PAGE> 280
[Date]
Vectra Banking Corporation
1650 South Colorado Boulevard, Suite 320
Denver, Colorado 80222
Attention: Corporate Secretary
On , I sold the securities ("Vectra Securities") of Vectra
Banking Corporation ("VBC") described below in the space provided for that
purpose. The Vectra Securities were received by me in connection with the merger
of Southwest State Bank with and into Vectra Bank.
Based upon the most recent report filed by VBC with the Securities and
Exchange Commission under Section 13 of the Securities Exchange Act of 1934, as
amended, the Vectra Securities sold by me were within the prescribed limitations
set forth in paragraph (e) of Rule 144 adopted under the Securities Act of 1933,
as amended (the "Act") or Rule 145(d), if applicable.
I hereby represent that the Vectra Securities were sold in "brokers'
transactions" within the meaning of Section 4(4) of the Act or in transactions
directly with a "market maker" as that term is defined in Section 3(a)(38) of
the Securities Exchange Act of 1934, as amended. I further represent that I have
not solicited or arranged for the solicitation of order to buy the Vectra
Securities, and that I have not made any payments in connection with the offer
or sale of the Vectra Securities to any person other than to the broker who
executed the order in respect of such sale.
Description of Vectra Securities: ____________________
Very truly yours,
Name:
<PAGE> 281
BANK LAND CO.
AFFILIATE AGREEMENT
Gentlemen:
The undersigned, a holder of shares of Common Stock ("Company Common
Stock") of Bank Land Co., a Colorado corporation, (the "Company") is entitled to
receive in connection with the merger (the "Merger") of the Company with and
into Vectra Bank ("Vectra"), a Colorado corporation, with Vectra being the
surviving corporation in such Merger, securities of Vectra Banking Corporation
("Vectra Securities"). The undersigned acknowledges that the undersigned may be
deemed an "affiliate" of the Company within the meaning of Rule 145 ("Rule 145")
adopted under the Securities Act of 1933, as amended (the "Act"), although
nothing contained herein should be construed as an admission of such fact.
If in fact, the undersigned were an affiliate of the Company, the
undersigned's ability to sell, assign or transfer the Vectra Securities received
by it in exchange for any shares of Company Common Stock pursuant to the Merger
may be restricted unless such transaction is registered under the Act or an
exemption from such registration is available. The undersigned has been advised
as to the nature and conditions of such exemptions, including information with
respect to the applicability to the resale of the Vectra Securities.
The undersigned hereby represents to and covenants with Vectra that he or
she will not sell, assign, or transfer any of the Vectra Securities received by
him or her in exchange for shares of Company Common Stock pursuant to the Merger
except (i) pursuant to a registration statement under the Act as declared
effective by the Securities and Exchange Commission, or (ii) in a transaction
which, in the opinion of independent counsel reasonably satisfactory to Vectra
or as described in a "no-action" or interpretive letter from the Staff of the
Securities and Exchange Commission, is not required to be registered under the
Act, or (iii) in conformity with the volume and other limitations imposed by
Rule 145 under the Act, including any applicable provisions of Rule 144 under
the Act.
In the event of a sale or other disposition of Vectra Securities pursuant
to Rule 145 or Rule 144, the undersigned will supply Vectra with evidence of
compliance with such Rule, by delivery of a letter in the form attached hereto
and the opinion of counsel referred to above. The undersigned understands that
Vectra may instruct its transfer agent to withhold the transfer of any Vectra
Securities disposed of by the undersigned, but that upon receipt of such letter
and opinion, the transfer agent shall effectuate the transfer of the Vectra
Securities sold as indicated in the letter.
The undersigned acknowledges and agrees that appropriate legends will be
placed on certificates representing Vectra Securities received by the
undersigned in the Merger or held by a transferee thereof, which legends will be
removed by delivery of substitute certificates upon receipt of an opinion in
form and substance reasonably satisfactory to Vectra to the effect that such
legends are no longer required under of the Act.
The undersigned acknowledges that he or she has carefully read this letter
and understands the requirements hereof and the limitations imposed upon the
distribution, sale, transfer or other disposition of the Vectra Securities to be
received by him or her in the Merger.
<TABLE>
<S> <C>
Dated: , 1996 Name:
</TABLE>
<PAGE> 282
As an inducement to the above individual to deliver this letter, Vectra
Banking Corporation agrees that for so long as and to the extent necessary to
permit such individual to sell the Vectra Securities pursuant to Rule 145 and,
to the extent applicable, Rule 144 under the Act, Vectra Banking Corporation
shall use its best efforts to file, on a timely basis, all reports and data
required to be filed by it with the Securities and Exchange Commission pursuant
to Section 13 of the Securities Exchange Act of 1934. Upon written request
addressed to Vectra Banking Corporation, 1650 South Colorado Boulevard, Suite
320, Denver, Colorado 80222, attention: Corporate Secretary, Vectra Banking
Corporation agrees to promptly advise the above individual that Vectra has
complied with such reporting requirements.
Vectra Banking Corporation
By:
Name:
Title:
2
<PAGE> 283
[Date]
Vectra Banking Corporation
1650 South Colorado Boulevard, Suite 320
Denver, Colorado 80222
Attention: Corporate Secretary
On , I sold the securities ("Vectra Securities") of Vectra
Banking Corporation ("VBC") described below in the space provided for that
purpose. The Vectra Securities were received by me in connection with the merger
of Bank Land Co. with and into Vectra Bank.
Based upon the most recent report filed by VBC with the Securities and
Exchange Commission under Section 13 of the Securities Exchange Act of 1934, as
amended, the Vectra Securities sold by me were within the prescribed limitations
set forth in paragraph (e) of Rule 144 adopted under the Securities Act of 1933,
as amended (the "Act") or Rule 145(d), if applicable.
I hereby represent that the Vectra Securities were sold in "brokers'
transactions" within the meaning of Section 4(4) of the Act or in transactions
directly with a "market maker" as that term is defined in Section 3(a)(38) of
the Securities Exchange Act of 1934, as amended. I further represent that I have
not solicited or arranged for the solicitation of order to buy the Vectra
Securities, and that I have not made any payments in connection with the offer
or sale of the Vectra Securities to any person other than to the broker who
executed the order in respect of such sale.
Description of Vectra Securities: ____________________
Very truly yours,
Name:
<PAGE> 284
- --------------------------------------------------------------------------------
PROXY PROXY
VECTRA BANKING CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder of Vectra Banking Corporation ("VBC")
acknowledges receipt of the notice of Special Meeting of Shareholders, to be
held on Tuesday, June 18, 1996, at 8:00 a.m., Mountain Time, at 1650 South
Colorado Boulevard, Denver, Colorado, and hereby appoints Gary S. Judd and Ray
L. Nash, each with the power of substitution, as Attorneys and Proxies to vote
all the shares of the undersigned at the Special Meeting and at all adjournments
thereof, hereby ratifying and confirming all that the Attorneys and Proxies may
do or cause to be done by virtue hereof. The above-named Attorneys and Proxies
are instructed to vote all of the undersigned's shares as follows:
THE DIRECTORS RECOMMEND A VOTE FOR THE ITEMS INDICATED BELOW:
1. A proposal to approve the issuance of VBC securities pursuant to the
Agreement and Plan of Merger dated December 26, 1995, as amended on April 3,
1996 and May 22, 1996, under which Bank Land Co. and Southwest State Bank
will merge with and into Vectra Bank, a Colorado banking corporation, wholly
owned by VBC, under which shareholders of Bank Land Co. and Southwest State
Bank will receive $100 Series A Convertible Preferred Stock of VBC, VBC
Contingent Warrants to purchase VBC Common Stock, and cash, all as described
in the accompanying Prospectus/Joint Proxy Statement. VBC shareholders will
not receive any new securities nor be asked to exchange their shares for any
other securities.
/ / FOR / / AGAINST / / ABSTAIN
2. Transaction of such other business as may properly come before the Special
Meeting or any adjournment thereof.
(Continued and to be signed on the other side.)
- --------------------------------------------------------------------------------
<PAGE> 285
- --------------------------------------------------------------------------------
(Continued from other side.)
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSAL 1.
Please sign your name exactly as it appears on your stock certificate(s). When
shares are held by joint tenants, both should sign. When signing as attorney,
executor, administrator, trustee or guardian, please give full title as such. If
a corporation, please sign in full corporate name by the President or other
authorized officer. If a partnership, please sign in partnership name by an
authorized person.
DATED: __ , 1996
________________________________
SIGNATURE
________________________________
SIGNATURE IF HELD JOINTLY
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY. NOTE: SECURITIES
DEALERS PLEASE STATE THE NUMBER OF SHARES VOTED BY THIS PROXY: _____________
- --------------------------------------------------------------------------------
<PAGE> 286
- --------------------------------------------------------------------------------
PROXY PROXY
BANK LAND CO.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder of Bank Land Co. ("Bank Land") acknowledges
receipt of the notice of Special Meeting of Shareholders, to be held on Tuesday,
June 18, 1996, at 9:00 a.m., Mountain Time, at 1380 South Federal Boulevard,
Denver, Colorado, and hereby appoints Gary A. Mosko and James A. Lustig, each
with the power of substitution, as Attorneys and Proxies to vote all the shares
of the undersigned at the Special Meeting and at all adjournments thereof,
hereby ratifying and confirming all that the Attorneys and Proxies may do or
cause to be done by virtue hereof. The above-named Attorneys and Proxies are
instructed to vote all of the undersigned's shares as follows:
THE DIRECTORS RECOMMEND A VOTE FOR THE ITEMS INDICATED BELOW:
1. A proposal to approve and adopt the Agreement and Plan of Merger dated
December 26, 1995, as amended on April 3, 1996 and May 22, 1996, under which
Bank Land will merge with and into Vectra Bank, a Colorado banking
corporation, wholly owned by Vectra Banking Corporation ("VBC"), under which
shareholders of Bank Land will receive $100 Series A Convertible Preferred
Stock of VBC, VBC Contingent Warrants to purchase VBC Common Stock, and cash,
all as described in the accompanying Prospectus/Joint Proxy Statement.
/ / FOR / / AGAINST / / ABSTAIN
2. Transaction of such other business as may properly come before the Special
Meeting or any adjournment thereof.
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<PAGE> 287
- --------------------------------------------------------------------------------
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSAL 1.
Please sign your name exactly as it appears on your stock certificate(s). When
shares are held by joint tenants, both should sign. When signing as attorney,
executor, administrator, trustee or guardian, please give full title as such. If
a corporation, please sign in full corporate name by the President or other
authorized officer. If a partnership, please sign in partnership name by an
authorized person.
DATED: __________________ , 1996
---------------------------------
SIGNATURE
---------------------------------
SIGNATURE IF HELD JOINTLY
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY
- --------------------------------------------------------------------------------
<PAGE> 288
- --------------------------------------------------------------------------------
PROXY PROXY
SOUTHWEST STATE BANK
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder of Southwest State Bank (the "Bank")
acknowledges receipt of the notice of Special Meeting of Shareholders, to be
held on Tuesday, June 18, 1996, at 10:30 a.m., Mountain Time, at 1380 South
Federal Boulevard, Denver, Colorado, and hereby appoints Gary A. Mosko and James
A. Lustig, each with the power of substitution, as Attorneys and Proxies to vote
all the shares of the undersigned at the Special Meeting and at all adjournments
thereof, hereby ratifying and confirming all that the Attorneys and Proxies may
do or cause to be done by virtue hereof. The above-named Attorneys and Proxies
are instructed to vote all of the undersigned's shares as follows:
THE DIRECTORS RECOMMEND A VOTE FOR THE ITEMS INDICATED BELOW:
1. A proposal to approve and adopt the Agreement and Plan of Merger dated
December 26, 1995, as amended on April 3, 1996 and May 22, 1996, under which
the Bank will merge with and into Vectra Bank, a Colorado banking
corporation, wholly owned by Vectra Banking Corporation ("VBC"), under which
shareholders of the Bank will receive $100 Series A Convertible Preferred
Stock of VBC, VBC Contingent Warrants to purchase VBC Common Stock, and cash,
all as described in the accompanying Prospectus/Joint Proxy Statement.
/ / FOR / / AGAINST / / ABSTAIN
2. Transaction of such other business as may properly come before the Special
Meeting or any adjournment thereof.
- --------------------------------------------------------------------------------
<PAGE> 289
- --------------------------------------------------------------------------------
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSAL 1.
Please sign your name exactly as it appears on your stock certificate(s). When
shares are held by joint tenants, both should sign. When signing as attorney,
executor, administrator, trustee or guardian, please give full title as such. If
a corporation, please sign in full corporate name by the President or other
authorized officer. If a partnership, please sign in partnership name by an
authorized person.
DATED: ___________________ , 1996
---------------------------------
SIGNATURE
---------------------------------
SIGNATURE IF HELD JOINTLY
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY.
- --------------------------------------------------------------------------------
<PAGE> 290
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article 109 of Title Seven of the Colorado Revised Statutes enables a
Colorado corporation to indemnify its officers, directors, employees and agents
against liabilities, damages, costs and expenses for which they are liable if:
(i) in their Official Capacities (as defined by this statute) if they acted in
good faith and had no reasonable basis to believe their conduct was not in the
best interest of the Registrant; (ii) in all other cases, that their conduct was
at least not opposed to the Registrant's best interests; and (iii) in the case
of any criminal proceeding, they had no reasonable cause to believe their
conduct was unlawful.
Article XVI of Registrant's Articles of Incorporation limits the liability
of directors to the full extent provided by Colorado law.
Article VIII of the Registrant's Bylaws provide indemnification to
officers, directors, employees and agents to the fullest extent provided by
Colorado law.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- -------------------- ------------------------------------------------------------------------
<S> <C>
2.1 -- Agreement and Plan of Merger Dated as of the 26th Day of December,
1995 and amended as of April 3, 1996 Among Vectra Banking
Corporation, Vectra Bank, Bank Land Co. and Southwest State Bank
(included as Appendix A).
3.1 -- Amended and Restated Articles of Incorporation of Vectra Banking
Corporation, filed as Exhibit 3.1 to the Registrant's Registration
Statement No. 33-74724 on Form SB-2, Effective March 24, 1994 ("SB-2
Registration Statement"), and incorporated herein by reference.
3.2 -- Bylaws of Vectra Banking Corporation, filed as Exhibit 3.2 to the
Registrant's SB-2 Registration Statement, and incorporated herein by
reference.
5.1 -- Opinion and consent of Jones & Keller, P.C. as to the legality of
Vectra Banking Corporation 1996 Series A Preferred Stock and VBC
Contingent Warrants to Purchase Common Stock, filed with Amendment
No. 2 to this Registration Statement on June 3, 1996 and incorporated
herein by reference.
7.1 -- Opinion and consent of Jones & Keller, P.C. re: liquidation
preference, filed with Amendment No. 2 to this Registration Statement
on June 3, 1996 and incorporated herein by reference.
8.1 -- Opinion and consent of Freeborn & Peters re tax matters -- filed with
Amendment No. 2 to this Registration Statement on June 3, 1996 and
incorporated herein by reference.
10.1 -- Employees' Equity Incentive Plan, filed as Exhibit 10.1 to the
Registrant's SB-2 Registration Statement, and incorporated herein by
reference.
10.2 -- Nonemployee Directors' Stock Option Plan, filed as Exhibit 10.2 to
the Registrant's SB-2 Registration Statement, and incorporated herein
by reference, amendment to Plan filed with original filing of this
Registration Statement on April 5, 1996 and incorporated herein by
reference.
10.3 -- Non-Statutory Stock Option Plan, filed as Exhibit 10.3 to the
Registrant's SB-2 Registration Statement, and incorporated herein by
reference.
10.4 -- Incentive Stock Purchase Plan, filed as Exhibit 10.4 to the
Registrant's SB-2 Registration Statement, and incorporated herein by
reference.
</TABLE>
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<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- -------------------- ------------------------------------------------------------------------
<S> <C>
10.5 -- Promissory Note dated October 18, 1985 between Wadsworth Building
Corporation and the City of Wheat Ridge, filed as Exhibit 10.6 to the
Registrant's SB-2 Registration Statement, and incorporated herein by
reference.
10.6 -- Advance, Pledge and Security Agreement dated April 9, 1991 between
The Federal Home Loan Bank of Topeka and Vectra Bank, filed as
Exhibit 10.7 to the Registrant's SB-2 Registration Statement, and
incorporated herein by reference.
10.7 -- Advance, Pledge and Security Agreement dated April 9, 1991 between
The Federal Home Loan Bank of Topeka and Vectra Bank of Boulder,
filed as Exhibit 10.8 to the Registrant's SB-2 Registration
Statement, and incorporated herein by reference.
10.8 -- Lease dated October 1, 1991 by and between First Energy Properties,
Inc. and Vectra Bank of Thornton for Mission Trace Shopping Center,
filed as Exhibit 10.9 to the Registrant's SB-2 Registration
Statement, and incorporated herein by reference.
10.9 -- Lease dated May 1, 1995 by and between Allstate Insurance Company and
Vectra Bank for 6000 Greenwood Plaza Boulevard, filed as Exhibit 10.9
to Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995, and incorporated herein by reference.
10.10 -- Colorado Building Lease dated June 1, 1982 by and between Colorado
Building Group and National Bank of the Rockies in Boulder for 1919
14th Street, Suite 111, filed as Exhibit 10.11 to the Registrant's
SB-2 Registration Statement, and incorporated herein by reference.
10.11 -- Ground Lease dated October 21, 1991 by and between Community Plaza,
L.P. and Vectra Bank of Boulder for North Broadway Street, filed as
Exhibit 10.12 to the Registrant's SB-2 Registration Statement, and
incorporated herein by reference.
10.12 -- Office Building Lease dated April 14, 1988 by and between Denver
Place Associates Limited Partnership and National Bank of the Rockies
in Denver for 999 18th Street, filed as Exhibit 10.13 to the
Registrant's SB-2 Registration Statement, and incorporated herein by
reference.
10.13 -- Lease dated May 1, 1991 between Equity Management, Inc. and Vectra
Bank for 6901 South Pierce Street, Littleton, Colorado, filed as
Exhibit 10.14 to the Registrant's SB-2 Registration Statement, and
incorporated herein by reference.
10.14 -- 401(k) Plan, filed as Exhibit 10.15 to the Registrant's SB-2
Registration Statement, and incorporated herein by reference.
10.15 -- Incentive Stock Purchase Agreement -- Restricted Stock Program, filed
as Exhibit 10.17 to the Registrant's SB-2 Registration Statement, and
incorporated herein by reference.
10.16 -- Data Processing Hardware and Software Lease Agreement, filed as
Exhibit 10.18 to the Registrant's SB-2 Registration Statement, and
incorporated herein by reference.
10.17 -- Loan Agreement -- Wheat Ridge Building, filed as Exhibit 10.19 to the
Registrant's SB-2 Registration Statement, and incorporated herein by
reference.
10.18 -- Agreement and Plan of Merger Dated as of the 22nd day of November,
1994 by and between First Denver Corporation and Vectra Banking
Corporation, filed as Appendix A with Registration Statement on Form
S-4, No. 33-88064, Amendment No. 1, filed on February 10, 1995 and
incorporated herein by reference.
</TABLE>
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<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- -------------------- ------------------------------------------------------------------------
<S> <C>
10.19 -- Agreement dated November 21, 1994 Between Vectra Banking Corporation
and Robert A. Silverberg, filed as Exhibit 10.21 with Registration
Statement on Form S-4, No. 33-88064, filed on December 30, 1994 and
incorporated herein by reference.
10.20 -- Agency Agreement -- Bankers' Bank of the West and Policy for Federal
Funds Purchase, filed as Exhibit 10.22 with Registration Statement on
Form S-4, No. 33-88064, Amendment No. 1, filed on February 10, 1995
and incorporated herein by reference.
10.21 -- Employment Agreement -- Gary A. Mosko, filed with Amendment No. 1 to
this Registration Statement on May 24, 1996 and incorporated herein
by reference.
10.22 -- Loan Commitment dated January 22, 1996 to Vectra Banking Corporation
from Mid America Bank, filed as Exhibit 22 to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1995, and
incorporated herein by reference.
10.23 -- Income Security Agreements dated February 20, 1995, between Vectra
Banking Corporation and, for each Agreement, one of the following
individuals: Robert C. Barton, J. Patrick McDuff, Michael Y. Meganck,
Ray L. Nash and Joseph J. Wolf, filed with original filing of this
Registration Statement on April 5, 1996 and incorporated herein by
reference.
10.24 -- Covenant Not to Compete -- Gary A. Mosko, filed with Amendment No. 1
to this Registration Statement on May 24, 1996 and incorporated
herein by reference.
10.25 -- Stock Option Agreement dated December 26, 1995 between Vectra Banking
Corporation and Bank Land Co., filed with Amendment No. 1 to this
Registration Statement on May 24, 1996 and incorporated herein by
reference.
21 -- Subsidiaries of the Registrant, filed as Exhibit 21 to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1995, and
incorporated herein by reference.
23.1 -- Consent of KPMG Peat Marwick LLP, filed with Amendment No. 2 to this
Registration Statement on June 3, 1996 and incorporated herein by
reference.
23.2 -- Consent of Jones & Keller, P.C., see Exhibits 5.1 and 7.1.
23.4 -- Consent of Freeborn & Peters, see Exhibit 8.1.
23.5 -- Consent of Fortner, Bayens, Levkulich and Co., filed with Amendment
No. 2 to this Registration Statement on June 3, 1996 and incorporated
herein by reference.
23.6 -- Consent of The Wallach Company, Inc., filed with Amendment No. 2 to
this Registration Statement on June 3, 1996 and incorporated herein
by reference.
23.7 -- Consent of Gary A. Mosko, filed with Amendment No. 1 to this
Registration Statement on May 24, 1996 and incorporated herein by
reference.
25 -- Power of Attorney, filed with original filing of this Registration
Statement on April 5, 1996 and incorporated herein by reference.
99.1 -- Fairness Opinion -- The Wallach Company -- Southwest State Bank, see
Appendix E.
99.2 -- Fairness Opinion -- The Wallach Company -- Bank Land Co., see
Appendix D.
</TABLE>
ITEM 22. UNDERTAKINGS
Vectra hereby undertakes that, for purposes of determining any liability
under the Securities Act of 1933, as amended (the "1933 Act"), each filing of
Vectra's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934, as amended (and, where applicable, each filing
of an
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employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934, as amended), that is incorporated by reference
in the registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Vectra hereby undertakes that, prior to any public reoffering of the
securities registered hereunder through use of a prospectus which is a part of
this registration statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c), such reoffering prospectus will
contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other items of the applicable form.
Vectra hereby undertakes that every prospectus (i) that is filed pursuant
to the paragraph immediately preceding, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the 1933 Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as part of an
amendment to the registration statement and will not be used until such
amendment is effective; and that, for purposes of determining any liability
under the 1933 Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
Vectra hereby undertakes to respond to requests for information that is
incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11 or
13 of this Form, within one business day of receipt of such request, and to send
the incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
Effective Time of the registration statement through the date of responding to
the request.
Vectra hereby undertakes to supply by means of a post-effective amendment
all information concerning a transaction, and the company being acquired, that
was not the subject of and included in the registration statement when it became
effective.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
Vectra hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the Effective Time of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the Plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
Provided, however, that paragraphs (1)(i) and (1)(ii), above, do not apply
if the registration statement is on Form S-3 or Form S-8, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by Vectra pursuant to
Section 13 or
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<PAGE> 294
Section 15(d) of the Securities Exchange Act of 1934 that are incorporated
by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement, Amendment No. 3, to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City and County
of Denver, Colorado, on June 4, 1996.
VECTRA BANKING CORPORATION
By: /s/ GARY S. JUDD
-----------------------------
Gary S. Judd, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement, Amendment No. 3, has been signed by the following
persons in the capacities indicated and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ----------------------------------------------- ------------------------------ --------------
<S> <C> <C>
/s/ GARY S. Director, President and Chief June 4, 1996
JUDD Executive Officer (Principal
Gary S. Judd Executive Officer)
* Director June 4, 1996
Richard B. Tucker
* Director June 4, 1996
Robert Greene
* Director June 4, 1996
James L. Rumsey
Director June 4, 1996
W. James Tozer, Jr.
* Director June 4, 1996
Robert A. Silverberg
* Director June 4, 1996
Mary Gittings Cronin
/s/ RAY L. NASH Principal Financial and June 4, 1996
Ray L. Nash Accounting Officer
*By: /s/ RAY L. NASH
Ray L. Nash, Attorney
</TABLE>
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