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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 12, 1998
REGISTRATION NO. 333-__________
REGISTRATION NO. 333-__________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
FIRST WESTERN CORP. FW CAPITAL I
(Name of small business issuer in its charter) (Name of small business co-issuer in its charter)
NEBRASKA DELAWARE
(State or jurisdiction of incorporation or organization) (State or jurisdiction of incorporation or organization)
6712 6719
(Primary Standard Industrial Classification Code Number) (Primary Standard Industrial Classification Code Number)
47-0484682 APPLIED FOR
(I.R.S. Employer Identification No.) (I.R.S. Employer Identification No.)
11210 HURON STREET 11210 HURON STREET
NORTHGLENN, COLORADO 80234 NORTHGLENN, COLORADO 80234
(303) 451-1010 (303) 451-1010
(Address and telephone number of principal executive offices) (Address and telephone number of principal executive offices)
TIMOTHY D. WIENS, VICE CHAIRMAN
FIRST WESTERN CORP.
11210 HURON STREET
NORTHGLENN, COLORADO 80234
(303) 451-1010
(Name, address and telephone number of agent for service)
COPIES TO:
Reid A. Godbolt, Esq. Matthew C. Boba, Esq.
Jones & Keller, P.C. Chapman and Cutler
1625 Broadway, Suite 1600 111 West Monroe Street
Denver, Colorado 80202 Chicago, Illinois 60603
(303) 573-1600 (312) 845-3000
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [X]
CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED (1) REGISTERED PER UNIT(1) PRICE FEE
- ---------------------------------------------------------- ------------ ---------------- ---------------- ------------
% Cumulative Preferred Securities of FW Capital I 2,300,000(2) $ 10.00 $23,000,000 $ 6,394
% Junior Subordinated Debentures of First Western Corp. (3) -- -- --
Guarantee of First Western Corp. with respect to the
% Cumulative Preferred Securities (3) (4) -- -- --
Total Registration Fee -- -- -- $ 6,394
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(1) Estimated solely for the purpose of computing the registration fee
pursuant to Rule 457(a).
(2) Includes 300,000 __% Cumulative Preferred Securities (the "Preferred
Securities") issuable upon exercise of the underwriters'
over-allotment option.
(3) The % Junior Subordinated Debentures (the "Junior Subordinated
Debentures") will be purchased by FW Capital I with the proceeds of
the sale of the Preferred Securities. The Junior Subordinated
Debentures may later be distributed for no additional consideration to
the holders of the Preferred Securities upon FW Capital I's
dissolution and the distribution of its assets.
(4) This Registration Statement is deemed to cover the Junior Subordinated
Debentures of First Western Corp. (the "Company"), the rights of
holders of the Junior Subordinated Debentures of the company under the
Indenture, the rights of holders of the Preferred Securities under the
Trust Agreement, the Guarantee, the Expense Agreement entered into by
the company and certain backup undertakings as described herein. No
separate consideration will be received for the Guarantee or such
backup undertakings.
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS SHALL
FILE A FURTHER AMENDMENT THAT 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.
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SUBJECT TO COMPLETION, DATED NOVEMBER __, 1998
2,000,000 PREFERRED SECURITIES
FW CAPITAL I
__% CUMULATIVE PREFERRED SECURITIES
(LIQUIDATION AMOUNT $10 PER PREFERRED SECURITY)
GUARANTEED AS DESCRIBED IN THIS PROSPECTUS BY
FIRST WESTERN CORP.
[LOGO]
FW Capital I, a Delaware statutory business trust, is offering the Preferred
Securities. The Preferred Securities represent undivided beneficial interests
in FW Capital I's assets. These assets consist primarily of Junior
Subordinated Debentures issued by First Western Corp. First Western Corp. will
be the owner of the common securities of FW Capital I and will guarantee FW
Capital I's obligations under the Preferred Securities as described in this
prospectus.
An application has been filed to list the Preferred Securities on the American
Stock Exchange under the trading symbol "FWT.Pr.A."
YOU SHOULD CONSIDER THE "RISK FACTORS" BEGINNING ON PAGE 8 BEFORE INVESTING IN
THE PREFERRED SECURITIES.
These securities are not savings accounts or deposits and are not insured by
the Federal Deposit Insurance Corporation or any other governmental agency.
Per Preferred
Security Total
----------------- ------------
Per Preferred Security . . . . . . . . . . . . . . . . . $10 $20,000,000
Proceeds to FW Capital I . . . . . . . . . . . . $10 $20,000,000
The underwriters are offering the Preferred Securities subject to certain
conditions on a firm commitment basis, which means they must buy all of the
Preferred Securities offered by FW Capital I, if any are purchased. All of the
proceeds to FW Capital I will be used to purchase the Junior Subordinated
Debentures from First Western Corp. First Western Corp. has agreed to pay the
underwriters $_____ per Preferred Security, or a total of $_____, for arranging
the investment in the Junior Subordinated Debentures. The underwriters may,
under certain circumstances, purchase up to an additional 300,000 Preferred
Securities to cover over-allotments.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN
OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
HOWE BARNES INVESTMENTS, INC.
_____________, 1998
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[INSERT FW LOGO AND MAP]
Banking Locations
Map of the Colorado and Nebraska area indicating the company's banking
locations.
First Western Corp. intends to furnish you with annual reports
containing its audited consolidated financial statements and quarterly reports
for the first three quarters of each fiscal year containing unaudited financial
information. Prior to this offering, First Western Corp. has not been a
reporting company with the Securities and Exchange Commission.
AVAILABLE INFORMATION
First Western Corp. and FW Capital I have filed electronically with
the Commission through EDGAR a registration statement on Form SB-2 in
accordance with the requirements of the Securities Act of 1933 (the "Act")
registering the Preferred Securities. This prospectus does not contain all of
the information set forth in the registration statement and in the exhibits
attached. Certain items were omitted in accordance with the rules and
regulations of the Commission. Anyone may inspect the registration statement
without charge at the public reference facilities of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549 and may obtain copies of all or any part
of it from the Commission upon payment of the required fees. Statements
contained in this prospectus which refer to a document filed as an exhibit to
the registration statement are qualified in their entirety by reference to the
copy of that document. The registration statement may also be reviewed on the
Commission's Web Site at http://www.sec.gov.
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PROSPECTUS SUMMARY
This summary provides an overview of selected information contained
elsewhere in this prospectus and does not contain all the information you
should consider. Therefore, you should also read the more detailed information
set forth in this prospectus, the financial statements of the company and the
other information that is incorporated by reference in this prospectus. Unless
otherwise indicated, all information in this prospectus assumes that the
underwriters' over-allotment option is not exercised.
THE COMPANY
First Western Corp., a multibank holding company, offers full service
community banking through 10 banking locations in metropolitan Denver-northern
Colorado, and two banking locations in western and central Nebraska. The
company was organized in 1963 by its founder and Chairman, Joel H. Wiens, to
purchase the company's first community bank, Firstate Bank, in Kimball,
Nebraska. In 1993 the company began its banking operations in Colorado through
the purchase of a bank in Northglenn, Colorado, which was renamed Firstate Bank
of Colorado. In 1995 the company began its Colorado expansion through
establishing startup branches in areas of metropolitan Denver-northern Colorado
that management believed were well situated for deposit and loan growth. To
date, the company has added seven branches and purchased a two-branch savings
bank that has been assimilated into Firstate Bank of Colorado. The company
plans to open its eleventh Colorado banking branch in early 1999.
The company's growth strategy since 1995 has been to provide community
banking services by establishing startup branches at reasonable costs and
staffing them with experienced bankers to serve as branch presidents and loan
officers. Consolidation within the Colorado banking community has resulted in
the availability of experienced, highly capable bankers with existing customer
relationships who prefer to work in a community banking environment.
Consequently, the company has been able to open branches with highly qualified
personnel who have strong contacts with customers and who initiate immediate
banking business. In addition, the company believes that its management style
and internal culture, along with employee focused participation in decision
making, leads experienced bankers to explore employment with the company.
Also, the company has implemented its Colorado expansion through a central
operating system, and believes that its existing management, systems and
facilities are capable of supporting additional growth without proportionate
increases in operating costs. The company's operating strategy is to continue
to provide high quality community banking services to its customers and
increase market share through active solicitation of new business, repeat
business and referrals from customers, and continuation of selected promotional
strategies.
The company has experienced significant growth since 1995 due to its
expansion strategy. Total assets have increased to $335 million as of
September 30, 1998 from $228 million and $125 million as of December 31, 1997
and 1996, respectively. The company has maintained above average profitability
while achieving strong asset growth. During the same time period, net income
increased to $3.0 million for the nine months ended September 30, 1998, from
$2.5 million for the year ended December 31, 1997 and $1.6 million for the year
ended December 31, 1996. On an annualized basis, as of September 30, 1998,
return on average assets of the company equaled 1.49%, while return on average
equity was 21.47%.
The company's principal executive office is located at 11210 Huron
Street, Northglenn, Colorado, and its telephone number is (303) 451-1010.
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FW CAPITAL I
FW Capital I is a statutory business trust created under Delaware law
on November 6, 1998. FW Capital I's business and affairs will be conducted by
the Property Trustee, the Delaware Trustee and three individual Administrative
Trustees. The Administrative Trustees are officers or directors of the
company. FW Capital I was created exclusively for the purpose of offering the
Preferred Securities, investing in the Junior Subordinated Debentures and
engaging in the other transactions discussed in this prospectus. All of the
common securities of FW Capital I will be owned by the company. See
"Description of the Preferred Securities -- Subordination of Common Securities
of FW Capital I Held by the Company." FW Capital I will have a term of 30
years, but may be dissolved earlier as provided in the trust agreement.
RISK FACTORS
YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS SET OUT IMMEDIATELY
FOLLOWING THIS SUMMARY. THESE RISK FACTORS INCLUDE, BUT ARE NOT LIMITED TO:
o Distributions will be paid by FW Capital I on the Preferred Securities
only if interest payments are made by the company to FW Capital I on
the Junior Subordinated Debentures.
o Interest payments by the company on the Junior Subordinated Debentures
are dependent on the receipt of dividends from its subsidiary banks.
o The company may defer interest payments on the Junior Subordinated
Debentures for up to 20 consecutive quarters. If the company elects a
deferral, distributions will not be made on the Preferred Securities
by FW Capital I during the deferral period.
o Certain tax or regulatory events may trigger the redemption of the
Junior Subordinated Debentures by the company, and prepayment of the
Preferred Securities prior to the stated maturity date.
o Future legislation may be proposed or enacted that may prohibit the
company from deducting its interest payments on the Junior
Subordinated Debentures for tax purposes, making redemption of the
Junior Subordinated Debentures likely.
o None of the governing documents of FW Capital I protect you in the
event of a material adverse change in the company's business or
performance.
o You will have very limited voting rights.
o The company's financial results may be adversely affected by changes in
economic conditions and interest rates.
o The company faces risks in its branching strategy as well as
competition in its banking business.
o There can be no assurance that the company's allowance for loan losses
will be adequate to cover actual losses.
THE OFFERING
Preferred securities issuer . . . . . . . . FW Capital I
Securities offered . . . . . . . . . . . . 2,000,000 Preferred Securities. The
Preferred Securities represent
undivided beneficial interests in
the assets of FW Capital I. These
assets will consist of the Junior
Subordinated Debentures issued and
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payable by the company and payments
made on them, as well as rights
under an expense agreement.
Distributions . . . . . . . . . . . . . . . The distributions payable on each
preferred security will be:
o fixed at a rate per year of %;
o cumulative;
o accrue from the date of issuance
of the Preferred Securities; and
o payable quarterly in arrears on
the 15th day of January, April,
July and October of each year
that the Preferred Securities
are outstanding, commencing on
April 15, 1999.
The amount of each distribution due
with respect to the Preferred
Securities will include amounts
accrued through the date the
distribution payment is due. See
"Description of the Preferred
Securities -- Distributions."
Extension Periods . . . . . . . . . . . . . So long as no default has occurred
and is continuing, the company will
have the right, at any time, to
defer payments of interest on the
Junior Subordinated Debentures for
a period not exceeding 20
consecutive quarters with respect
to each deferral period. No
deferral may extend beyond the
stated maturity date of the Junior
Subordinated Debentures. If
interest payments are deferred,
distributions on the Preferred
Securities will also be deferred.
During such time, the company will
generally not be permitted to
declare or pay any cash
distributions with respect to its
common stock, and interest will
accrue on the deferred
distributions at the rate of __%
per year and compound quarterly.
Holders of the Preferred Securities
would be required to include
accrued interest in income for
United States federal income tax
purposes. This means that in such
event you would have income from
the Preferred Securities for United
States federal income tax purposes
but that you would not receive any
cash with which to pay the tax that
may be due on that income. See
"Description of Junior Subordinated
Debentures -- Option to Extend
Interest Payment Period," "Certain
Federal Income Tax Consequences --
Interest Income and Original Issue
Discount" and "Risk Factors --
Option to Extend Interest Payment
Period; Tax Consequences."
Stated Maturity Date and Redemption . . . . The Junior Subordinated Debentures
will mature on , 2028. You will be
required to sell your Preferred
Securities to FW Capital I upon the
stated maturity date of the Junior
Subordinated Debentures or earlier
if the Junior Subordinated
Debentures are
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prepaid. In the case of prepayment,
FW Capital I will redeem your
Preferred Securities on the date of
redemption.
Redemption Events . . . . . . . . . . . . . Final payment may be made prior to
the maturity date if certain
conditions are met (including the
company having received prior
approval of the Federal Reserve, if
required). The company may redeem
the Junior Subordinated Debentures
prior to maturity:
o on or after, ______, 2003, in
whole at any time or in part
from time to time; or
o at any time, in whole (but not
in part), upon the occurrence
of certain events which may
have a material, adverse
effect on the company's
benefits of having the
Preferred Securities
outstanding.
The redemption price will equal the
principal amount of the Junior
Subordinated Debentures redeemed,
plus any accrued but unpaid
interest to the date of redemption.
See "Description of the Preferred
Securities -- Redemption" and
"Description of the Junior
Subordinated Debentures --
Redemption."
Distribution of Junior
Subordinated Debentures . . . . . . . . . . The company has the right at any
time to dissolve or liquidate FW
Capital I. Thereafter, the company
has the right to distribute the
Junior Subordinated Debentures to
holders of Preferred Securities, if
the company has received prior
approval of the Federal Reserve and
paid the creditors of FW Capital I.
Upon such a dissolution or
liquidation you will receive Junior
Subordinated Debentures in exchange
for the same principal amount of
your holdings in Preferred
Securities. See "Description of the
Preferred Securities --
Distribution of Junior Subordinated
Debentures."
Guarantee . . . . . . . . . . . . . . . . . The company will provide a full
guarantee, on a subordinated basis,
of payments by FW Capital I of
amounts due on the Preferred
Securities, to the extent FW
Capital I has received payment on
the Junior Subordinated Debentures.
If FW Capital I has insufficient
funds to pay distributions on the
Preferred Securities (i.e., if the
company has failed to make required
payments under the Junior
Subordinated Debentures) and the
company has not deferred such
payments, you would be entitled to
institute a legal proceeding
directly against the company to
enforce payment of such
distributions. See "Risk Factors --
Limitations on Direct Actions
Against the Company
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and on Rights Under the Guarantee"
and "Description of Junior
Subordinated Debentures --
Debenture Events of Default," "--
Enforcement of Certain Rights of
Holders of Preferred Securities,"
"Description of Guarantee."
Ranking . . . . . . . . . . . . . . . . . The Preferred Securities will rank
equally with, and payments thereon
will be made proportionately, with
the common securities of FW Capital
I held by the company, except as
described under "Description of the
Preferred Securities -
Subordination of Common Securities
of FW Capital I Held by the
Company." The company's obligations
under its guarantee, the Junior
Subordinated Debentures and other
governing documents described in
this prospectus are unsecured and
rank junior in right of payment to
all current and future senior and
subordinated debt of the company.
As of September 30, 1998, the
aggregate outstanding senior and
subordinated debt of the company
was $5.8 million. In addition,
because the company is a multibank
holding company, all existing and
future liabilities of the company's
subsidiaries, including its banks,
will rank prior to all obligations
of the company relating to the
securities described in this
prospectus. There is no limit on
the amount of preferred securities
or junior subordinated debentures
of the company that may be issued
in the future. In this event, the
company's obligations under the
junior subordinated debentures to
be issued to such other trusts and
the company's guarantees of the
payments by such trusts will rank
equally with the company's
obligations under the Junior
Subordinated Debentures and its
guarantee described above.
Voting Rights . . . . . . . . . . . . . . . You will have very limited voting
rights. These rights relate only to
the dissolution or termination of
FW Capital I and removal of the
Property Trustee and the Indenture
Trustee upon certain events
described in this prospectus. See
"Description of the Preferred
Securities -- Voting Rights;
Amendment of FW Capital I
Agreement."
Proposed American Stock
Exchange Symbol . . . . . . . . . . . . . FWT.Pr.A
Use of Proceeds . . . . . . . . . . . . . The proceeds to FW Capital I from
the sale of the Preferred
Securities will be invested by FW
Capital I in the Junior
Subordinated Debentures. The
company, in turn, intends to use
the net proceeds to pay a note
payable of $5.8 million and
contribute approximately $4.2
million of capital to Firstate Bank
of Colorado, with the remainder of
the proceeds to be used for general
corporate purposes. These
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purposes may include additional
capital contributions to the
company's banks, purchasing and
establishing future startup bank
branches and possible future
acquisitions of financial
institutions. The company expects
approximately $6.6 million of the
Preferred Securities to qualify as
Tier 1 capital under the capital
guidelines of the Federal Reserve.
The remaining $13.4 million not
qualifying as Tier 1 capital will
be included in total capital of the
company. See "Use of Proceeds" and
"Capitalization."
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SELECTED CONSOLIDATED FINANCIAL DATA
The consolidated statements of income data for the years ended
December 31, 1997 and 1996 and the consolidated balance sheet data as of
December 31, 1997 are derived from the company's consolidated financial
statements and notes thereto which have been audited by Clifton Gunderson
L.L.C., independent public accountants, and are included elsewhere in this
prospectus. The consolidated statements of income data for the year ended
December 31, 1995 and the balance sheet data as of December 31, 1996 and 1995
are derived from the company's unaudited consolidated financial statements not
included herein. The consolidated statement of income data for the nine months
ended September 30, 1998 and 1997, and the consolidated balance sheet data as
of September 30, 1998 and 1997, have been derived from unaudited consolidated
financial statements, which, in the opinion of the company, reflect all
adjustments, consisting only of normal recurring accruals, necessary for a fair
presentation of the financial position and results of operations of the company
for those periods. The consolidated statements of income data for interim
periods are not necessarily indicative of results for subsequent periods or the
full year. The following information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and with the company's consolidated financial statements appearing
elsewhere in this prospectus.
AT OR FOR THE NINE MONTHS AT OR FOR THE YEAR
ENDED SEPTEMBER 30, ENDED DECEMBER 31,
------------------------ ---------------------------------------
1998 1997 1997 1996 1995
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENT OF INCOME:
INTEREST INCOME ....................................... $ 18,715 $ 11,308 $ 16,263 $ 7,908 $ 6,544
INTEREST EXPENSE ...................................... 8,755 5,109 7,481 3,120 2,655
NET INTEREST INCOME ................................... 9,960 6,199 8,782 4,788 3,889
PROVISION FOR LOAN LOSSES ............................. 180 110 140 15 104
OTHER INCOME .......................................... 1,981 1,205 1,708 1,251 907
OTHER EXPENSES ........................................ 7,043 4,414 6,544 3,749 2,775
INCOME TAX EXPENSE .................................... 1,765 919 1,309 705 475
NET INCOME ............................................ 2,953 1,961 2,497 1,570 1,442
CONSOLIDATED BALANCE SHEET:
TOTAL ASSETS .......................................... $ 335,493 $ 218,813 $ 227,600 $ 125,013 $ 95,975
LOANS ................................................. 248,347 147,266 165,627 68,751 45,580
ALLOWANCE FOR LOAN LOSSES ............................. 1,592 1,290 1,321 851 767
INVESTMENT SECURITIES AVAILABLE-FOR-SALE .............. 35,110 15,920 15,470 15,653 21,579
INVESTMENT SECURITIES HELD-TO-MATURITY ................ 9,241 13,578 13,042 16,135 13,204
NONPERFORMING ASSETS(1) ............................... 1,471 874 1,369 125 138
DEPOSITS .............................................. 294,044 187,979 200,294 101,387 78,041
STOCKHOLDERS' EQUITY .................................. 19,868 16,369 16,911 13,749 12,244
PER COMMON SHARE:
BASIC EARNINGS PER SHARE(2) ........................... $ 21.09 $ 14.89 $ 18.67 $ 12.56 $ 11.54
BOOK VALUE PER SHARE .................................. 141.92 116.92 120.79 109.99 97.96
TANGIBLE BOOK VALUE PER SHARE ......................... 135.79 109.91 114.33 109.99 97.96
KEY RATIOS(3):
NET INTEREST MARGIN (4) ............................... 5.49% 5.34% 5.27% 5.36% 5.11%
NET INTEREST SPREAD (4) ............................... 4.73 4.45 4.39 4.24 4.15
RETURN ON AVERAGE ASSETS .............................. 1.49 1.51 1.35 1.52 1.63
RETURN ON AVERAGE COMMON EQUITY ....................... 21.47 17.43 16.31 11.42 11.78
STOCKHOLDERS' EQUITY TO TOTAL ASSETS .................. 5.92 7.48 7.43 11.00 12.76
TIER 1 RISK-BASED CAPITAL ............................. 7.22 9.59 9.02 17.79 21.01
TOTAL RISK BASED CAPITAL .............................. 7.80 10.36 9.74 18.80 22.21
NONPERFORMING ASSETS TO TOTAL ASSETS .................. 0.44 0.40 0.60 0.10 0.14
NONPERFORMING LOANS TO TOTAL LOANS .................... 0.28 0.29 0.74 0.17 0.30
ALLOWANCE FOR LOAN LOSSES TO TOTAL LOANS .............. 0.64 0.88 0.80 1.24 1.68
ALLOWANCE FOR LOAN LOSSES TO NONPERFORMING LOANS ...... 229.73% 179.87% 107.61% 739.65% 555.93%
RATIO OF EARNINGS TO FIXED CHARGES (5):
INCLUDING INTEREST ON DEPOSITS ........................ 1.54X 1.56X 1.51X 1.73X 1.72X
EXCLUDING INTEREST ON DEPOSITS ........................ 9.27X 9.01X 8.69X 15.06X 15.44X
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(1) Other real estate, and nonaccrual, impaired and all other loans 90
days or more delinquent.
(2) No difference exists between basic and diluted earnings per share.
(3) The ratios for the nine months ended September 30, 1998 and 1997 have
been annualized and are not necessarily indicative of the results for
the entire year.
(4) On a tax equivalent basis.
(5) For purposes of computing the ratio of earnings to fixed charges,
earnings represent income before income taxes, extraordinary items and
fixed charges. Fixed charges represent interest expense.
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RISK FACTORS
Prospective investors should consider, among other things, the
following factors in connection with a decision to purchase the Preferred
Securities.
RISK FACTORS RELATING TO THE PREFERRED SECURITIES
Ranking of the Company's Obligations Under the Junior Subordinated
Debentures and the Guarantee. FW Capital I's ability to make payments to you
on the Preferred Securities will be dependent upon the company making payments
on the Junior Subordinated Debentures. The Junior Subordinated Debentures are
unsecured; therefore, no collateral is available to back the company's payment
obligation. In addition, the Junior Subordinated Debentures rank subordinate
and junior to all current debt and unlimited future debt of the company (unless
such future debt is subordinate to the Junior Subordinated Debentures).
However, the company does intend to use $5.8 million of the proceeds from this
offering to retire its existing note payable. See "Use of Proceeds." Further,
the company may issue an unlimited amount of additional junior subordinated
debentures in connection with any future offerings of preferred securities, and
any such additional debentures would rank equally with the Junior Subordinated
Debentures. See "Description of Junior Subordinated Debentures --
Subordination" and "Description of Guarantee -- Status of the Guarantee."
Dependence on Dividends From Subsidiary Banks. A substantial majority
of the company's assets consist of its investments in its subsidiary banks.
Thus, the company's ability to pay interest and principal on the Junior
Subordinated Debentures to FW Capital I depends primarily upon the cash
dividends the company receives from its banks. Dividend payments from the
banks to the company are subject to, among other things: (i) regulatory
limitations, generally based on current and retained earnings and capital
maintenance requirements, imposed by various bank regulatory agencies, (ii)
profitability, financial condition and capital expenditures and other cash flow
requirements of the banks, and (iii) prior claims of creditors of the banks.
If the banks are unable to pay sufficient dividends to the company, then the
company will likely be unable to make payments on the Junior Subordinated
Debentures thereby leaving insufficient funds for FW Capital I to make payments
to you on the Preferred Securities.
Option to Defer Interest Payments. As long as the company is not in
default on the Junior Subordinated Debentures, the company has the right to
defer interest payments on the Junior Subordinated Debentures for up to 20
consecutive quarters, provided that such deferment does not extend beyond the
maturity date of the Junior Subordinated Debentures.
o Option Consequences - In the event of a deferral, quarterly
distributions will not be paid during the deferral. Interest
on all amounts deferred will compound quarterly and accumulate
at the rate of __% per year. During any such deferral, the
company will be prohibited from making certain payments or
distributions with respect to the company's capital stock
(including cash dividends on or redemptions of common or
preferred stock) and from making certain payments with respect
to any debt securities of the company that rank equal with, or
junior to, the Junior Subordinated Debentures, although there
currently are no such debt securities. The company, however,
would have the ability to continue to make payments on debt
that is senior to the Junior Subordinated Debentures. There
is no limitation on the number of times that the company may
elect to defer payments. See "Description of the Preferred
Securities -- Distributions" and "Description of Junior
Subordinated Debentures -- Option to Extend Interest Payment
Period."
o Tax Consequences - You will be treated as owning an undivided
beneficial interest in the Junior Subordinated Debentures for
federal income tax purposes. The company believes the
likelihood of it exercising its option to defer payments of
interest as described immediately above is remote. As a
result, you will include interest in taxable income under
10
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your own method of tax accounting (i.e., cash or accrual). If
the company exercises its right to defer payments of interest
or if the Internal Revenue Service successfully took the
position that the exercise of such right was not remote at the
time of issuance of the Junior Subordinated Debentures,
certain provisions of the Internal Revenue Code (the original
issue discount provisions) would require you to include in
your taxable income a proportionate amount of interest on the
Junior Subordinated Debentures, calculated under those
original issue discount provisions, regardless of your own
method of tax accounting, and even though you might not
receive any distribution on the Preferred Securities. See
"Certain Federal Income Tax Consequences -- Interest Income
and Original Issue Discount."
o Market Consequences - While the company has no current
intention of exercising its right to defer payments of
interest, should the company elect to exercise this right in
the future, the market price of the Preferred Securities is
likely to be affected adversely.
Redemption. Although the Junior Subordinated Debentures have a stated
maturity date of _______, 2028, they may be redeemed by the company prior to
such date, upon the following:
o In whole or in part, on or after ____________, 2003 at the
option of the company.
o In whole upon a change in the federal tax laws or a change in
the interpretation of the tax laws by the courts or the
Internal Revenue Service, which would result in more than an
insubstantial risk that (i) FW Capital I is or will be subject
to federal income tax, (ii) interest paid by the company on
the Junior Subordinated Debentures will not be deductible by
the company for federal income tax purposes, or (iii) FW
Capital I is or will be subject to more than a minimal amount
of other taxes or governmental charges.
o In whole upon a change in the laws or regulations to the
effect that FW Capital I is or will be considered to be an
"investment company" that is required to be registered under
the Investment Company Act of 1940.
o In whole upon a change in the laws or regulations if there is
more than an insubstantial risk that the company will not be
able to treat all or a substantial portion of the Preferred
Securities as "Tier 1 Capital" for purposes of capital
adequacy guidelines of the Federal Reserve.
The exercise of these redemption rights is subject to the company having
received prior approval of the Federal Reserve, if required. See "Description
of the Preferred Securities -- Redemption."
Possible Tax Law Changes Affecting Preferred Securities. Certain
federal legislative proposals were made in 1996 and 1997 which, if enacted,
could have adversely affected the ability of the company to deduct interest
paid on the Junior Subordinated Debentures. While these proposals were not
enacted, there can be no assurance that future legislation will not otherwise
adversely affect the ability of the company to deduct the interest it pays on
the Junior Subordinated Debentures. See "Description of the Preferred
Securities -- Redemption," "Description of Junior Subordinated Debentures --
Redemption," and "Certain Federal Income Tax Consequences."
Possible Distribution of Junior Subordinated Debentures to Holders of
Preferred Securities. The company will have the right at any time to terminate
FW Capital I and distribute the Junior Subordinated Debentures to you in
exchange for the Preferred Securities, subject to the receipt of any required
approval of the Federal Reserve. Because the Junior Subordinated Debentures
may be distributed to you, and also because payments on the Preferred
Securities are reliant on FW Capital I receiving payments on the Junior
Subordinated Debentures, you are also making an investment decision regarding
the Junior
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Subordinated Debentures. See "Description of the Preferred Securities --
Liquidation Distribution Upon Termination" and "Description of the Junior
Subordinated Debentures."
Limitations on Direct Actions Against the Company and on Rights Under
the Guarantee. The company will guarantee only the payment of distributions by
FW Capital I and payments on liquidation of or redemption of the Preferred
Securities to the extent of funds held by FW Capital I. If FW Capital I has
insufficient funds to pay distributions on the Preferred Securities (i.e., if
the company has failed to make required payments under the Junior Subordinated
Debentures) and the company has not deferred its payments, you would have the
right to institute a legal proceeding directly against the company to enforce
payment. Except as just described and further set forth in this prospectus,
you will not be directly able to exercise any other remedy to collect on
amounts owed to you, and you will be bound to the provisions of the governing
documents. See "Description of Junior Subordinated Debentures -- Enforcement
of Certain Rights of Holders of Preferred Securities" and "-- Debenture Events
of Default" and "Description of Guarantee."
Limited Covenants. The covenants in the governing documents relating
to the Preferred Securities and the Junior Subordinated Debentures are limited.
As a result, the governing documents do not protect you in the event of a
material adverse change in the company's financial condition or results of
operations. Nor do such governing instruments limit the ability of the company
or any of its subsidiaries to incur additional debt. Therefore, you should
not consider the terms of the governing documents to be a significant factor in
evaluating whether the company will be able to comply with its obligations
under the Junior Subordinated Debentures or its guarantee.
Limited Voting Rights. You will have limited voting rights which
relate only to the modification of the Preferred Securities and removal of the
Property Trustee and the Indenture Trustee upon certain events. You will not
have any voting rights with respect to the company or Administrative Trustees.
Trading Characteristics of the Preferred Securities. The Preferred
Securities may trade at a price that does not reflect the value of accrued but
unpaid interest with respect to the underlying Junior Subordinated Debentures.
If you dispose of your Preferred Securities between record dates for payments
on the Preferred Securities, you may have certain adverse tax consequences.
Under such circumstances, you will be required to include accrued but unpaid
interest on the Junior Subordinated Debentures allocable to such Preferred
Securities through the date of disposition in your income as ordinary income.
If interest on the Junior Subordinated Debentures is included in income under
the original issue discount provisions, you would add such amount to your
adjusted tax basis in your share of the underlying Junior Subordinated
Debentures deemed disposed. If your selling price is less than your adjusted
tax basis (which will include all accrued but unpaid original issue discount
interest included in your income), you could recognize a capital loss which
cannot be applied to offset ordinary income for federal income tax purposes
(subject to certain exceptions). See "Certain Federal Income Tax
Considerations -- Interest Income and Original Issue Discount" and "-- Sales
or Redemption of Preferred Securities."
Possible Limited Public Market. While an application for listing is
pending for the Preferred Securities with the American Stock Exchange, there
can be no assurance that the application will be approved. Even if listed on
the American Stock Exchange, an active and liquid trading market for the
Preferred Securities may not develop or be sustained.
Fluctuations in Market Price. Future trading prices of the Preferred
Securities will depend on many factors including prevailing interest rates, the
operating results and financial condition of the company, the exercise of the
company's deferral option, and the market for similar securities. There can be
no assurance as to the market prices for the Preferred Securities or the Junior
Subordinated Debentures that may be distributed in exchange for the Preferred
Securities if the company exercises its right to terminate FW Capital I.
Accordingly, the Preferred Securities, or the Junior Subordinated Debentures
that you may receive in liquidation of FW Capital I, may decline in value.
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RISK FACTORS RELATING TO THE COMPANY
Economic Conditions. The company's financial results may be
materially and adversely affected by changes in prevailing economic conditions,
including declines in real estate values, rapid changes in interest rates,
adverse employment conditions and the monetary and fiscal policies of the
federal government. Although economic conditions in the company's primary
market area are strong, there can be no assurance that such conditions will
continue to prevail. Moreover, substantially all of the loans of the company
are to individuals and businesses in the Denver metropolitan area, northern
Colorado and western Nebraska, and any decline in the economy of these market
areas could have an adverse impact on the company. There can be no assurance
that positive trends or developments discussed in this prospectus will continue
or that negative trends or developments will not have a material adverse effect
on the company.
Impact of Interest Rates. The profitability of the company 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.
Although management believes that the maturities of the company's assets are
moderately balanced in relation to maturities of liabilities, this balance
involves estimates as to how changes in the general level of interest rates
will impact the yields earned on assets and the rates paid on liabilities. A
decrease in interest rate spreads would have a negative effect on the net
interest income and profitability of the company, and there can be no assurance
that a decrease will not occur. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Growth and Expansion Risks. The company has pursued and intends to
continue to pursue an internal 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 corresponding increases in
non-interest expenses. The company's expansion strategy is primarily the
establishment of new branches. There can be no assurance that the company will
be successful in continuing its growth strategies due to delays and other
impediments resulting from regulatory oversight, lack of qualified personnel,
unavailability of branch sites or poor site selection of bank branches. In
addition, the level of success of the company's growth strategy will depend on
maintaining sufficient regulatory capital levels and on continued favorable
economic conditions in the company's primary market area. Also, the company
does not have any discussions or negotiations underway relating to acquisitions
of financial institutions, but in the future it may review acquisition
opportunities. Competition for acquisitions in the company's primary market
area is highly competitive, and the company may not be able to acquire
institutions on terms beneficial to the company. The company may not be
successful in identifying acquisition candidates, integrating acquired
institutions or preventing deposit erosion at acquired institutions, all of
which could hamper its continued growth.
Allowance for Loan Losses. The inability of borrowers to repay loans
can erode earnings and capital of banks. Like all financial institutions, the
company 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's control, and such losses may exceed current estimates. At September
30, 1998, the company had nonperforming loans of $693,000 and an allowance for
loan losses of $1.6 million or .64% of total loans and 229.73% of nonperforming
loans. State and federal regulatory agencies, as an integral part of their
examination process, review the company's loans and its allowance for loan
losses. Although management believes that the company's allowance for loan
losses is adequate to cover anticipated losses, the loan loss allowance at
September 30, 1998 is lower as a percentage of total loans than historical
levels. Management has determined to increase the monthly provision for loan
losses in anticipation of further loan growth. There can be no assurance,
however, that management will not determine a need to further increase the
allowance for loan losses or that regulators, when reviewing the
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company's loan portfolios in the future, will not require the company to
increase such allowance, either of which could adversely affect the company's
earnings. Further, there can be no assurance that the company's actual loan
losses will not exceed its allowance for loan losses. Future provisions for
loan losses could materially and adversely affect results of operations of the
company. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Competitive Banking Environment. The banking business in the company's
areas of operations is highly competitive. The company 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 the company. Interstate
banking is permitted in Colorado and to a lesser extent in Nebraska. As a
result, management believes that the company may experience greater competition
in its market areas.
Year 2000 Compliance. The company faces a significant business issue
regarding how existing application software programs and operating systems can
accommodate the date value for the year 2000. Many existing software application
products, including software application products used by the company and its
suppliers and customers, were designed to accommodate only a two-digit date
value, which represents the year. For example, information relating to the year
1996 is stored in the system as "96." As a result, the year 1999 (i.e., "99")
could be the maximum date value that these systems will be able to process
accurately. In response to concerns about this issue, regulatory agencies have
begun to monitor holding companies' and banks' readiness for the year 2000 as
part of the regular examination process. The company presently believes that
with modifications to existing software and conversion to new software, the year
2000 issue will not pose significant operational problems for the company's
business operations. To date, management believes the company's Nebraska bank is
substantially year 2000 compliant. In addition, the company's primary computer
operations are out-sourced to an unaffiliated computer service provider which is
in the process of implementing modifications and conversions to make its systems
year 2000 compatible. The company is monitoring its computer service provider
and receives quarterly status reports, and the provider has estimated that it
will be year 2000 compliant by mid-1999. The company has also arranged for
another computer service provider to handle the company's computer needs should
its current provider fail to make the necessary modifications on a timely basis.
Nonetheless, the interruption to the company's business could be substantial if
its current provider fails in efforts to become year 2000 compliant. In
addition, failure by suppliers and customers of the company to modify and
convert their own computer systems could have a significant adverse effect on
such suppliers' or customers' operations and profitability, thus inhibiting
their ability to provide services or repay loans to the company. As a practical
matter, the company will unlikely be able to accumulate information on its
suppliers' and customers' year 2000 programs to assess the impact on the
company. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Year 2000 Considerations."
Control by Principal Stockholders. Approximately 99.1% of the
outstanding shares of company common stock is owned directly or indirectly by
Joel H. Wiens, the company's Chairman, and Timothy D. Wiens, the company's Vice
Chairman. As a result, the Wiens are able to elect all members of the
company's Board of Directors and direct the policies and decisions of the
company. Such control would make the acquisition of control of the company by
a third party impossible without the Wiens' approval.
Government Regulation and Recent Legislation. The company and its
banks are subject to extensive federal and state legislation, regulation and
supervision which is intended primarily to protect depositors and the Federal
Deposit Insurance Corporation's Bank Insurance Fund, rather than investors.
Recently enacted, proposed and future legislation and regulations designed to
strengthen the banking industry have had and may have a significant impact on
the banking industry. Although some of the legislative and regulatory changes
may benefit the company and its banks, others may increase their costs of doing
business or otherwise adversely affect them and create competitive advantages
for non-bank competitors. See "Supervision and Regulation."
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CAUTIONARY STATEMENTS
Statements which are not historical facts contained or incorporated by
reference in this prospectus are forward-looking statements that involve risks
and uncertainties that could cause actual results to differ from projected
results. Factors that could cause actual results to differ materially include
the factors discussed in "Risk Factors" as well as continued success of the
company's branching strategy, general economic conditions, economic conditions
in the Denver metropolitan-northern Colorado and western Nebraska areas, the
monetary policy of the Federal Reserve Board, changes in interest rates,
inflation, and changes in the state and federal regulatory regime applicable to
the company's and its banks' operations.
Information included and incorporated by reference in this prospectus
includes "forward looking statements," which can be identified by the use of
forward-looking terminology such as "may," "will," "expect," "anticipate,"
"believe," "estimate," or "continue," or the negative thereof or other
variations thereon or comparable terminology. The statements in "Risk Factors"
and other statements and disclaimers in this prospectus constitute cautionary
statements identifying important factors, including certain risks and
uncertainties, with respect to such forward-looking statements that could cause
actual results to differ materially from those reflected in such
forward-looking statements.
USE OF PROCEEDS
All of the proceeds from the sale of Preferred Securities will be
invested by FW Capital I in the Junior Subordinated Debentures of the company.
The net proceeds to the company from the sale of the Junior Subordinated
Debentures, after deducting estimated underwriting commissions and offering
expenses, are estimated to be approximately $18.9 million ($21.7 million if the
underwriters' over-allotment option is exercised in full). The company intends
to use the net proceeds to repay all $5.8 million of its outstanding note
payable and contribute approximately $4.2 million of capital to Firstate Bank
of Colorado, with the remainder to be used for general corporate purposes,
which may include, without limitation, additional capital contributions to the
company's banks, purchase and construction of future bank branch locations, and
possible future acquisitions. The $4.2 million additional capital contribution
to Firstate Bank of Colorado will result in an increased legal lending limit
which is designed to further its internal growth objectives. Pending their
application, the net proceeds may be invested in short-term, marketable,
investment grade interest-bearing securities.
The company is required by the Federal Reserve to maintain certain
levels of capital for bank regulatory purposes. In 1996, the Federal Reserve
announced that certain qualifying amounts of securities having the
characteristics of the Preferred Securities could be included as Tier 1 capital
for bank holding companies subject to certain limitations. See
"Capitalization." Such Tier 1 capital treatment, together with the company's
ability to deduct, for federal income tax purposes, interest payable on the
Junior Subordinated Debentures, will provide the company with a cost-effective
means of obtaining capital for bank regulatory purposes.
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ACCOUNTING TREATMENT
For financial reporting purposes, FW Capital I will be treated as a
subsidiary of the company and, accordingly, the accounts of FW Capital I will
be included in the Consolidated Financial Statements of the company. The
Preferred Securities will be presented as a separate line item in the
consolidated balance sheets of the company under the caption "Company Obligated
Mandatorily Redeemable Preferred Securities of Subsidiary Trust Holding Solely
Junior Subordinated Debentures," and appropriate disclosures about the
Preferred Securities, the guarantee of the company and the Junior Subordinated
Debentures will be included in the Notes to Consolidated Financial Statements.
For financial reporting purposes, the company will record distributions payable
on the Preferred Securities as interest expense in the consolidated statements
of income.
Future reports of the company filed under the Securities Exchange Act
of 1934, as amended (the "Exchange Act") will include a footnote to the
consolidated financial statements stating that (i) FW Capital I is
wholly-owned, (ii) the sole assets of FW Capital I are the Junior Subordinated
Debentures (specifying the principal amount, interest rate and maturity date of
such Junior Subordinated Debentures), and (iii) the obligations of the company
described herein, in the aggregate, constitute a full and unconditional
guarantee on a subordinated basis by the company of the obligations of FW
Capital I under the Preferred Securities. FW Capital I will not provide
separate reports under the Exchange Act.
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CAPITALIZATION
The following table sets forth the consolidated borrowings and
capitalization of the company at September 30, 1998 and as adjusted to give
effect to the issuance of the Preferred Securities by FW Capital I in this
offering and the use of net proceeds therefrom as described in "Use of
Proceeds."
SEPTEMBER 30, 1998
-------------------------------
ACTUAL AS ADJUSTED
------------ ------------
(DOLLARS IN THOUSANDS)
Borrowings:
Securities sold under agreements to repurchase .................................... $ 2,588 $ 2,588
Federal Home Loan Bank borrowings ................................................. 8,500 8,500
Note payable ...................................................................... 5,800 --
------------ ------------
Total borrowings ........................................................... $ 16,888 $ 11,088
============ ============
Company obligated mandatorily redeemable preferred
securities of subsidiary trust holding solely Junior
Subordinated Debentures(1) ........................................................ $ -- $ 20,000
============ ============
Stockholders' equity:
Common Stock, $1.00 par value; 500,000 shares authorized;
140,000 shares issued and outstanding ........................................... $ 140 $ 140
Additional paid-in capital ........................................................ 697 697
Retained earnings ................................................................. 19,038 19,038
Unrealized loss on securities available for sale,
net of income tax effect ....................................................... (7) (7)
------------ ------------
Total stockholders' equity ................................................. $ 19,868 $ 19,868
============ ============
Consolidated regulatory capital ratios:
Total capital to risk-weighted assets ............................................. 7.80% 15.13%
Tier 1 capital to risk-weighted assets(2) ......................................... 7.22 9.62
Tier 1 capital to average assets(2) ............................................... 6.20 8.27
- ------------
(1) The subsidiary trust is FW Capital I, a wholly-owned subsidiary of the
company that will hold, as its sole asset, $20.6 million principal
amount of Junior Subordinated Debentures, of which $20.0 million will
be purchased with the proceeds of the Preferred Securities issued by FW
Capital I. The remaining $600,000 of Junior Subordinated Debentures
will be purchased with the proceeds of the Common Securities issued by
FW Capital I. The company will own all of the Common Securities. See
"Description of Junior Subordinated Debentures" and "Description of
Preferred Securities." The Junior Subordinated Debentures will mature
on ________, 2028, which date may be shortened to a date not earlier
than ________, 2003 if certain conditions are met. The Preferred
Securities are subject to mandatory redemption upon repayment of the
Junior Subordinated Debentures at maturity or their earlier redemption
in an amount equal to the amount of Junior Subordinated Debentures
maturing or being redeemed at a redemption price equal to the aggregate
Liquidation Amount of the Preferred Securities, plus accumulated and
unpaid Distributions thereon to the date of redemption. See
"Description of the Preferred Securities -- Redemption" and
"Description of Junior Subordinated Debentures -- Redemption."
(2) The Preferred Securities have been structured to qualify as Tier 1
capital. However, they cannot be used to constitute more than 25% of
the company's total Tier 1 capital according to regulatory
requirements. As adjusted for this offering, the company's Tier 1
capital as of September 30, 1998
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would have been $26.4 million of which $6.6 million would have been
attributable to the Preferred Securities. Any future increases in
other elements of the company's Tier 1 capital, including retained
earnings, should permit the company to include greater portions of the
Preferred Securities proceeds in Tier 1 capital. The remaining $13.4
million not qualifying as Tier 1 capital will be included in total
capital.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BUSINESS ENVIRONMENT AND RISK FACTORS
The following discussion should be read in conjunction with the
Consolidated Financial Statements and related notes included elsewhere herein.
The company's future operating results may be affected by various trends and
factors which are beyond the company's control. These include the factors set
forth in "Risk Factors" and "Cautionary Statements." Accordingly, past results
and trends may not be reliable indicators of future results or trends. With
the exception of historical information, the matters discussed below include
forward-looking statements that involve risks and uncertainties. The company
wishes to caution readers that a number of important factors discussed herein
could affect the company's actual results and cause actual results to differ
materially from those in the forward-looking statements.
OVERVIEW
The company has experienced significant growth since 1995 due to its
branch expansion strategy. Total assets have increased to $335 million as of
September 30, 1998 from $228 million and $125 million as of December 31, 1997
and 1996, respectively. The company has maintained above average profitability
while achieving strong asset growth. During the same time period, net income
increased to $3.0 million for the nine months ended September 30, 1998, from
$2.5 million for the year ended December 31, 1997 and $1.6 million for the year
ended December 31, 1996. On an annualized basis, as of September 30, 1998,
return on average assets of the company equaled 1.49%, while return on average
equity was 21.47%.
RESULTS OF OPERATIONS
Net Interest Income. The company's net income is derived primarily
from net interest income. Net interest income is the difference between
interest income, principally from loans, investment securities and funds sold,
and interest expense, principally on customer deposits. 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 earning assets
and interest- bearing liabilities. Net interest spread refers to the
difference between the average yield on earning assets and the average cost of
interest-bearing liabilities. Net interest margin refers to net interest
income divided by average earning assets and is influenced by the level and
relative mix of earning assets and interest-bearing liabilities.
The following tables set forth the average balances, net interest
income and expense and average yields and rates for the company's earning
assets and interest-bearing liabilities for the indicated periods on a tax
equivalent basis assuming a 34% tax rate.
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NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------------------------------------------------
1998 1997
----------------------------------- -------------------------------------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE EARNED YIELD AVERAGE EARNED YIELD
BALANCE OR PAID OR COST(1) BALANCE OR PAID OR COST(1)
---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
EARNING ASSETS
Investment securities:
Taxable ....................................... $ 20,073 $ 831 5.53% $ 22,708 $ 940 5.54%
Tax exempt (tax equivalent) ................... 8,849 560 8.46 8,376 499 7.95
Funds sold and interest-bearing deposits ........ 17,252 707 5.48 10,293 446 5.79
Loans held for sale ............................. 3,048 135 5.92 1,653 84 6.79
Loans(2) ........................................ 199,450 16,672 11.18 117,522 9,509 10.82
Allowance for loan losses ....................... (1,452) -- (1,128) --
---------- ---------- ---------- ----------
Total earning assets ............................ $ 247,220 $ 18,905 10.22 $ 159,424 $ 11,478 9.62
========== ---------- ========== ----------
INTEREST-BEARING LIABILITIES
Interest-bearing deposits:
Demand, interest-bearing ...................... $ 28,900 $ 658 3.04 $ 22,668 $ 458 2.70
Savings ....................................... 22,677 745 4.39 18,632 583 4.18
Certificates of deposit:
Under $100,000 .............................. 116,821 5,376 6.15 64,710 2,935 6.06
$100,000 and over ........................... 31,567 1,406 5.95 17,608 773 5.87
---------- ---------- ---------- ----------
Total interest-bearing deposits ................. 199,965 8,185 5.47 123,618 4,749 5.14
Federal Home Loan Bank borrowings, federal
funds purchased and securities sold under
agreements to repurchase ...................... 9,916 388 5.23 7,532 311 5.52
Note payable .................................... 3,156 182 7.71 870 49 7.44
---------- ---------- ---------- ----------
Total interest-bearing liabilities .............. $ 213,037 8,755 5.49 $ 132,020 5,109 5.17
========== ---------- ========== ----------
Net interest income (tax equivalent) ........... $ 10,150 $ 6,368
========== ==========
Net interest margin(3) ......................... 5.49% 5.34%
Net interest spread ............................. 4.73% 4.45%
Ratio of average interest-bearing liabilities
to average interest-earning assets ............ 86.17% 82.81%
- ----------
(1) Yields are annualized.
(2) Loans are net of unearned income. Nonaccrual loans are included in
average loans outstanding. Loan fees are included in interest income
as follows for the nine months ended September 30, 1998 - $1,632,962;
1997 - $837,713.
(3) Net interest margin is net interest income divided by average total
earning assets (on an annualized basis).
Net interest income, on a tax-equivalent basis, was $10.2 million for
the nine months ended September 30, 1998, an increase of $3.8 million from $6.4
million for the same period in 1997. Interest income for the nine months ended
September 30, 1998 and 1997 was $18.9 million and $11.5 million, respectively.
The interest income increase of $7.4 million is primarily due to higher
balances of earning assets. The company achieved an increase of $87.8 million
or 55.08% in average earning assets to $247.2 million for the nine months ended
September 30, 1998 from $159.4 million for the same period in 1997. The
majority of the increase in earning assets was attributable to $81.9 million
increase in average loans outstanding. The majority of the loans in the
company's lending portfolio are floating rate loans tied to the prime rate.
The $7.0 million increase in funds sold represents temporary liquidity to fund
loans committed but unfunded. The average yield on earning assets increased to
10.22% for the nine months ended September 30, 1998 from 9.62% for the
comparable period in 1997.
Interest expense increased $3.7 million to $8.8 million for the nine
months ended September 30, 1998 compared to $5.1 million for the same period in
1997. The significant increase in average balances
20
22
of certificates of deposit under $100,000 to $116.8 million for the nine months
ended September 30, 1998 from $64.7 million for the comparable period in 1997
was due to core growth at the company's banks as well as promotional campaigns
related to the opening of new branches. The increase in certificates of
deposit of $100,000 and over was due to the branch openings and promotional
campaigns. The increase in the average note payable to $3.2 million for the
nine months ended September 30, 1998 was due to the company's advances on a
note with a commercial lender. The proceeds of these advances were used as
capital injections at Firstate Bank of Colorado. The company expects to pay
off the note with net proceeds from the sale of the Junior Subordinated
Debentures. The cost of interest-bearing liabilities for the nine months ended
September 30, 1998 and 1997 was 5.49% and 5.17%, respectively, and, when
combined with noninterest-bearing deposits, the cost of funds for the nine
months ended September 30, 1998 and 1997 was 4.78% and 4.37%, respectively.
See "-- Deposits." As a result of the foregoing, net interest margin, on a
tax-equivalent basis, increased to 5.49% for the nine months ended September
30, 1998 from 5.34% for the comparable period in 1997.
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------
1997 1996
-------------------------------------- ------------------------------------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE EARNED YIELD AVERAGE EARNED YIELD
BALANCE OR PAID OR COST(1) BALANCE OR PAID OR COST(1)
---------- ---------- ---------- ---------- ---------- ---------
(DOLLARS IN THOUSANDS)
EARNING ASSETS
Investment securities:
Taxable ...................................... $ 22,190 $ 1,220 5.50% $ 23,189 $ 1,292 5.57%
Tax exempt (tax equivalent) .................. 8,393 678 8.07 8,573 767 8.95
Funds sold and interest-bearing deposits ....... 12,823 735 5.73 8,307 423 5.09
Loans held for sale ............................ 1,839 121 6.58 508 30 5.91
Loans(1) ....................................... 126,914 13,739 10.83 54,515 5,656 10.38
Allowance for loan losses ...................... (1,176) -- (832) -- --
---------- ---------- ---------- ----------
Total earning assets ........................... $ 170,983 $ 16,493 9.65 $ 94,260 $ 8,168 8.67
========== ---------- ========== ----------
INTEREST-BEARING LIABILITIES
Interest-bearing deposits:
Demand, interest-bearing ..................... $ 23,097 $ 630 2.73 $ 18,143 $ 467 2.57
Savings ...................................... 18,897 795 4.21 14,894 594 3.99
Certificates of deposit:
Under $100,000 ............................. 72,229 4,412 6.11 26,367 1,484 5.63
$100,000 and over .......................... 19,500 1,149 5.89 7,416 414 5.58
---------- ---------- ---------- ----------
Total interest-bearing deposits ................ 133,723 6,986 5.22 66,820 2,959 4.43
Federal Home Loan Bank borrowings,
federal funds purchased and securities
sold under agreements to repurchase ......... 7,031 382 5.43 3,591 161 4.50
Note payable ................................... 1,500 113 7.53 -- -- --
---------- ---------- ---------- ----------
Total interest-bearing liabilities ............. $ 142,254 $ 7,481 5.26 $ 70,411 $ 3,120 4.43
========== ---------- ========== ----------
Net interest income (tax equivalent) ........... $ 9,012 $ 5,048
========== ==========
Net interest margin(2) ......................... 5.27% 5.36%
Net interest spread ............................ 4.39% 4.24%
Ratio of average interest-bearing liabilities
to average interest-earning assets ........... 83.20% 74.70%
- ---------
(1) Loans are net of unearned loan fees. Nonaccrual loans are included in
average loans outstanding. Loan fees are included in interest income
as follows: 1997 - $1,218,289; 1996 - $383,628.
(2) Net interest margin is net interest income divided by average total
earning assets.
Net interest income, on a tax-equivalent basis, was $9.0 million for
the year ended December 31, 1997, an increase of $4.0 million from $5.0 million
in 1996. Interest income increased $8.3 million to $16.5
21
23
million in 1997 from $8.2 million in 1996. This increase resulted primarily
from an increase of $76.7 million in average earning assets to $171.0 million
in 1997 from $94.3 million in 1996. The majority of the asset growth was due to
growth in the loan portfolio. Average loans increased $72.4 million or 132.81%
to $126.9 million in 1997 from $54.5 million in 1996 due primarily to the
establishment of a new branch and to the company's acquisition of a two-branch
savings bank which was assimilated into Firstate Bank of Colorado. The average
yield on earning assets increased to 9.65% in 1997 from 8.67% in 1996.
Interest expense increased $4.4 million to $7.5 million in 1997 from
$3.1 million in 1996. A $57.9 million increase in certificates of deposit
accounted for $3.7 million of the increase. The certificates of deposits
increased due to the addition of a new branch and the acquisition of the
savings bank. Changes in the relative mix of average interest-bearing
liabilities included a $3.4 million average increase in advances from the
Federal Home Loan Bank ("FHLB"). The cost of interest-bearing liabilities for
the years ended December 31, 1997 and 1996 was 5.26% and 4.43%, respectively,
and, when combined with noninterest-bearing deposits, the cost of funds was
4.48% in 1997 compared to 3.56% in 1996. Net interest margin, on a
tax-equivalent basis, decreased to 5.27% in 1997 from 5.36% in 1996, primarily
as a result of higher costs for certificates of deposit.
22
24
The following table illustrates, for the periods indicated, the
changes in the company's net interest income on a tax-equivalent basis due to
changes in volume and changes in interest rates. Changes in net interest
income due to both volume and rate have been allocated to volume and rate in
proportion to the relationship of the absolute dollar amounts of the change in
each.
NINE MONTHS ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
-------------------------- -------------------------- ---------------------------
1998 COMPARED TO 1997: 1997 COMPARED TO 1996: 1996 COMPARED TO 1995:
-------------------------- -------------------------- ---------------------------
INCREASE (DECREASE) IN INCREASE (DECREASE) IN INCREASE (DECREASE) IN
NET INTEREST INCOME NET INTEREST INCOME NET INTEREST INCOME
DUE TO CHANGE IN DUE TO CHANGE IN DUE TO CHANGE IN
-------------------------- -------------------------- ---------------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL VOLUME RATE TOTAL
------- ------ ------- ------- ------ ------- ------- ------- -------
(IN THOUSANDS)
Earning assets:
Investment securities
Taxable .................................. $ (109) $ -- $ (109) $ (55) $ (17) $ (72) $ (191) $ (187) $ (378)
Tax exempt (tax equivalent) .............. 29 33 62 (16) (73) (89) 35 40 75
Fund sold and interest-bearing
deposits ............................... 286 (25) 261 253 59 312 167 (5) 162
Loans held for sale ...................... 63 (12) 51 87 4 91
Loans .................................... 6,839 324 7,163 7,827 256 8,083 1,294 208 1,502
------- ------ ------- ------- ------ ------- ------- ------- -------
Total earning assets ..................... 7,108 320 7,428 8,096 229 8,325 1,305 56 1,361
------- ------ ------- ------- ------ ------- ------- ------- -------
Interest-bearing liabilities:
Demand, interest bearing ................. 137 63 200 134 29 163 12 (19) (7)
Savings .................................. 132 30 162 167 34 201 (10) (13) (23)
Certificates of deposit:
Under $100,000 ......................... 2,396 45 2,441 2,791 137 2,928 304 34 338
$100,000 and over ...................... 623 10 633 711 24 735 130 (1) 129
Federal Home Loan Bank borrowings,
federal funds purchased and securities
sold under agreements to repurchase ... 94 (17) 77 181 40 221 -- 29 29
Note payable ............................. 133 -- 133 113 -- 113 -- -- --
------- ------ ------- ------- ------ ------- ------- ------- -------
Total interest-bearing liabilities ....... 3,515 131 3,646 4,097 264 4,361 436 30 466
------- ------ ------- ------- ------ ------- ------- ------- -------
Net increase (decrease) in net interest
income (tax equivalent) ................ $ 3,593 $ 189 $ 3,782 $ 3,999 $ (35) $ 3,964 $ 869 $ 26 $ 895
======= ====== ======= ======= ====== ======= ======= ======= =======
23
25
Other Income. The following table sets forth the company's other income
for the indicated periods.
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
----------------------- ----------------------
1998 1997 1997 1996
---------- ---------- ---------- ----------
(IN THOUSANDS)
Fees for other customer services ................. $ 726 $ 555 $ 761 $ 627
Net gains from sale of loans ..................... 716 475 625 232
Commissions and fees from
brokerage activities ........................... 133 13 29 15
Investment securities transactions, net .......... (3) -- -- 196
Other operating income ........................... 409 162 293 181
---------- ---------- ---------- ----------
Total other income ............................... $ 1,981 $ 1,205 $ 1,708 $ 1,251
========== ========== ========== ==========
During the nine months ended September 30, 1998, total other income
increased to $2.0 million from $1.2 million for the comparable period in 1997
due primarily to increases in mortgage loan originations and sales, increased
ATM fee income and the company's creation of an investment services division.
Other income for the year ended December 31, 1997 compared to 1996 increased by
approximately $457,000 due primarily to increased income from mortgage loan
originations and sales and increased ATM fee income.
Other Expenses. The following table sets forth the company's operating
expenses for the indicated periods.
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
----------------------- ----------------------
1998 1997 1997 1996
---------- ---------- ---------- ----------
(IN THOUSANDS)
Salaries and employee benefits ................... $ 3,545 $ 2,172 $ 3,296 $ 1,950
Net occupancy expense of premises ................ 1,107 652 989 464
Purchased services ............................... 906 627 842 327
Office supplies .................................. 233 126 182 137
Minority interest in income of
consolidated subsidiaries ...................... 93 86 101 184
Other operating expenses ......................... 1,159 751 1,134 687
---------- ---------- ---------- ----------
Total other expenses ....................... $ 7,043 $ 4,414 $ 6,544 $ 3,749
========== ========== ========== ==========
During the nine months ended September 30, 1998 total other expenses
increased by $2.6 million over the comparable 1997 period to $7.0 million,
primarily as a result of opening and operating four additional branches.
Salaries and employee benefits increased by $1.4 million due to staffing of new
branch locations, additions of corporate overhead and increases in the volume
of commission-based mortgage lending. The increase in net occupancy expenses
for each period is a direct result of the increased number of branches.
Purchased services reflect outside services, primarily data processing,
purchased by the company to conduct operations. During the year ended December
31, 1997, total operating expenses increased $2.8 million from 1996, with
increases occurring among the various components due primarily to the company's
purchase of the savings bank, establishment of an additional branch and other
internally generated growth.
Federal Income Tax. The company's consolidated income-tax rate varies
from statutory rates principally due to interest income from tax-exempt
securities. The provision for income taxes increased
24
26
by $846,000 to $1.8 million for the nine months ended September 30, 1998 from
$919,000 for the comparable period in 1997, reflecting the increase of income
before income taxes for the period. The company recorded income tax expenses
totaling $1.3 million in 1997 and $705,000 in 1996.
FINANCIAL CONDITION
Loan Portfolio Composition. The following table sets forth the
composition of the company's loan portfolio by type of loan at the dates
indicated. Management believes that the balance sheet information as of the
dates indicated should be read in conjunction with the average balance
information in the tables above under "- Net Interest Income."
SEPTEMBER 30, DECEMBER 31,
---------------------- -------------------------------------------------
1998 1997 1996
---------------------- ---------------------- ----------------------
AMOUNT % AMOUNT % AMOUNT %
--------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
COMMERCIAL, FINANCIAL AND
AGRICULTURAL(1) ................................ $ 50,070 20.3% $ 41,500 25.3% $ 27,343 40.3%
REAL ESTATE CONSTRUCTION ......................... 68,624 27.8 37,235 22.7 10,062 14.8
REAL ESTATE MORTGAGE ............................. 120,850 49.0 79,499 48.4 25,946 38.2
INSTALLMENT LOANS TO INDIVIDUALS ................. 9,393 3.8 7,693 4.7 5,226 7.7
OTHER ............................................ 167 0.0 132 0.0 332 0.5
--------- --------- --------- --------- --------- ---------
TOTAL FACE AMOUNT OF LOANS ..................... 249,104 100.9 166,059 101.1 68,909 101.5
UNEARNED LOAN FEES ............................... (757) (0.3) (432) (0.3) (158) (0.2)
--------- --------- --------- --------- --------- ---------
LOANS ............................................ 248,347 100.6 165,627 100.8 68,751 101.3
LESS ALLOWANCE FOR LOAN LOSSES ................... (1,592) (0.6) (1,321) (0.8) (851) (1.3)
--------- --------- --------- --------- --------- ---------
NET LOANS ........................................ $ 246,755 100.0 % $ 164,306 100.0% $ 67,900 100.0%
========= ========= ========= ========= ========= =========
- ----------
(1) Agricultural loan balances were $15.2 million at September 30, 1998,
$13.9 million at December 31, 1997 and $11.7 million at December 31,
1996.
As of September 30, 1998, loans were $248.3 million, or $82.7 million
greater than loans of $165.6 million as of December 31, 1997. The company's
two primary categories of loans, real estate mortgage loans and construction
loans (constituting 76.8% of loans as of September 30, 1998) trended upward as
indicated as of the stated dates. These loans as a group were $189.5 million
as of September 30, 1998, $72.8 million over the $116.7 million combined
balance as of December 31, 1997, which in turn was $80.7 million greater than
such loans as of December 31, 1996. Installment loans increased modestly, with
a balance of $9.4 million as of September 30, 1998 compared to $7.7 million as
of December 31, 1997 and $5.2 million at December 31, 1996. The significant
loan portfolio growth over the indicated periods is due primarily to the
company's success in attracting and retaining experienced bank personnel who
possessed existing customer relationships. Loans as of December 31, 1997 were
up $96.9 million compared to December 31, 1996, due to greater amounts of
commercial and residential construction and commercial real estate loans, which
reflect the company's growth.
Although the risk of non-payment exists for a variety of reasons with
respect to all loans, certain other more specific risks are associated with
each type of loan. Risks associated with real estate mortgage loans include
the borrower's inability to pay and deterioration in value of real estate held
as collateral. Several risks are present in construction loans, including
economic conditions in the building industry, fluctuating land values, failure
of the contractor to complete work and the borrower's inability to repay.
Risks associated with commercial, financial and agricultural loans are the
quality of the borrower's management and the impact of local economic factors
as well as prices received for products. Installment loans additionally face
the risk of a borrower's unemployment as a result of deteriorating economic
conditions as well as the personal circumstances of the borrower. Management
believes that risk levels associated with the various types of loans are
dependent upon the existence of the risks at any particular time (for example,
economic conditions in the building industry).
25
27
The company believes that its philosophy in extending credit is
relatively conservative in nature, with a presumption that most credit should
have both a primary and a secondary source of repayment, and that the primary
source should generally be operating cash flows, while the secondary source
should generally be disposition of collateral. The company engages in very
little unsecured lending, and generally requires personal guarantees of
principals for business obligations. The company practices a system of
concurrence in the approval of commercial credit whereby the documented
concurrence of a senior credit officer and/or a loan committee at certain
lending thresholds is obtained in addition to that of the recommending loan
officer.
At September 30, 1998, net loans totaled approximately 83.92% of total
deposits and approximately 73.55% of total assets.
Loan Maturities. The following tables present, at September 30, 1998 and
December 31, 1997, loans by maturity in each major category of the company's
portfolio based on contractual repricing schedules. Unearned loan fee income
has been matched with its respective loan categories and assigned to maturity
categories consistent with the underlying loans. Actual maturities may differ
from the contractual repricing maturities shown below as a result of renewals
and prepayments. Loan renewals are evaluated in the same manner as new credit
applications.
SEPTEMBER 30, 1998
-------------------------------------------------------------------------------------
OVER ONE YEAR THROUGH FIVE YEARS OVER FIVE YEARS
ONE YEAR ---------------------------------------- ---------------------------
OR LESS FIXED RATE FLOATING RATE FIXED RATE FLOATING RATE TOTAL
---------- ---------- ------------- ---------- ------------- ----------
(IN THOUSANDS)
Commercial, financial and
agricultural ........................ $ 45,762 $ 3,469 $ 66 $ 516 $ -- $ 49,813
Real estate construction .............. 68,624 -- -- -- -- 68,624
Real estate mortgage .................. 87,674 16,120 13,147 3,409 -- 120,350
Installment loans to individuals
and other .......................... 5,368 4,060 5 127 -- 9,560
---------- ---------- ---------- ---------- ---------- ----------
Total loans ......................... $ 207,428 $ 23,649 $ 13,218 $ 4,052 $ -- $ 248,347
========== ========== ========== ========== ========== ==========
DECEMBER 31, 1997
-------------------------------------------------------------------------------------
OVER ONE YEAR THROUGH FIVE YEARS OVER FIVE YEARS
ONE YEAR ---------------------------------------- ---------------------------
OR LESS FIXED RATE FLOATING RATE FIXED RATE FLOATING RATE TOTAL
---------- ---------- ------------- ---------- ------------- ----------
(IN THOUSANDS)
Commercial, financial and
agricultural ........................ $ 38,129 $ 2,950 $ 101 $ 173 $ -- $ 41,353
Real estate construction .............. 37,235 -- -- -- -- 37,235
Real estate mortgage .................. 48,728 14,227 12,609 3,650 -- 79,214
Installment loans to individuals
and other .......................... 4,431 3,271 21 102 -- 7,825
---------- ---------- ---------- ---------- ---------- ----------
Total loans ......................... $ 128,523 $ 20,448 $ 12,731 $ 3,925 $ -- $ 165,627
========== ========== ========== ========== ========== ==========
Nonperforming Loans. Nonperforming loans consist of loans 90 days or
more delinquent and still accruing interest, nonaccrual loans and restructured
loans. 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 accrued but unpaid interest is
reversed through a charge to current year's earnings. 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
generally 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.
26
28
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. The company did not have any restructured loans as of September
30, 1998, or December 31, 1997, 1996 and 1995.
The following table sets forth information concerning the nonperforming
assets of the company at the dates indicated:
SEPTEMBER 30, DECEMBER 31,
------------- ------------------------------------------
1998 1997 1996 1995
---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
NONACCRUAL LOANS: ..................................... $ 414 $ 484 $ 93 $ 110
OTHER LOANS 90 DAYS PAST DUE .......................... 279 744 22 28
---------- ---------- ---------- ----------
TOTAL NONPERFORMING LOANS ............................. 693 1,228 115 138
OTHER REAL ESTATE ..................................... 778 141 10 --
---------- ---------- ---------- ----------
TOTAL NONPERFORMING ASSETS ............................ $ 1,471 $ 1,369 $ 125 $ 138
========== ========== ========== ==========
RATIO OF TOTAL NONPERFORMING LOANS TO
TOTAL LOANS ......................................... 0.28% 0.74% 0.17% 0.30%
RATIO OF TOTAL NONPERFORMING ASSETS TO
TOTAL LOANS PLUS OTHER REAL ESTATE .................. 0.59 0.83 0.18 0.30
RATIO OF NONPERFORMING ASSETS TO TOTAL ASSETS ......... 0.44 0.60 0.10 0.14
Other real estate as of September 30, 1998 consists of three properties.
Approximately $600,000 represents two properties under contract for sale, one
of which closed after September 30, 1998, and the other is expected to close
before the end of 1998. Management believes that the company is adequately
collateralized on these assets. Management is not aware of any adverse trend
relating to the company's loan portfolio.
As of September 30, 1998, there was no significant amount of loans
excluded from nonperforming loans set forth above, where known information
about possible credit problems of borrowers caused management to 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.
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. The allowance 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.
27
29
The following table sets forth information regarding changes in the
allowance for loan losses of the company for the periods indicated.
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
---------- --------------------------
1998 1997 1996
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
AVERAGE TOTAL LOANS ......................... $ 199,450 $ 126,914 $ 54,515
========== ========== ==========
TOTAL LOANS AT END OF PERIOD ................ $ 248,347 $ 165,627 $ 68,751
========== ========== ==========
ALLOWANCE AT BEGINNING OF PERIOD ............ $ 1,321 $ 851 $ 767
CHARGE-OFFS:
REAL ESTATE CONSTRUCTION .................. -- -- --
COMMERCIAL, FINANCIAL AND
AGRICULTURAL ........................... 14 -- 9
INSTALLMENT LOANS TO INDIVIDUALS .......... 54 58 3
REAL ESTATE MORTGAGE ...................... -- -- 10
OTHER ..................................... -- -- --
---------- ---------- ----------
TOTAL CHARGE-OFFS ..................... 68 58 22
RECOVERIES:
REAL ESTATE CONSTRUCTION .................. -- -- --
COMMERCIAL, FINANCIAL AND
AGRICULTURAL ............................ 139 94 86
INSTALLMENT LOANS TO INDIVIDUALS .......... 20 7 5
REAL ESTATE MORTGAGE ...................... -- 10 --
OTHER ..................................... -- -- --
---------- ---------- ----------
TOTAL RECOVERIES ...................... 159 111 91
---------- ---------- ----------
NET RECOVERIES .............................. 91 53 69
PROVISIONS FOR LOAN LOSSES .................. 180 140 15
OTHER INCREASE RESULTING FROM ACQUISITION ... -- 277 --
---------- ---------- ----------
ALLOWANCE AT END OF PERIOD .................. $ 1,592 $ 1,321 $ 851
========== ========== ==========
RATIO OF NET RECOVERIES (CHARGE-OFFS)
TO AVERAGE TOTAL LOANS .................... 0.05% 0.04% 0.13%
ALLOWANCE TO TOTAL LOANS AT END OF
PERIOD .................................... 0.64% 0.80% 1.24%
ALLOWANCE TO NONPERFORMING LOANS ............ 229.73% 107.61% 739.65%
Net recoveries during the nine months ended September 30, 1998 totaled
approximately $91,000 or .05% of average loans compared to approximately
$53,000 or .04% of average loans for the year ended December 31, 1997 and
approximately $69,000 or .13% of average loans in 1996. These recoveries
resulted from loans charged off several years ago.
The company's lending personnel are responsible for continuous monitoring
of the quality of loan portfolios. The loan portfolios are also monitored and
examined by the company loan review personnel. In 1998 the company implemented
an annual outside loan review program. 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 over time depending on economic conditions and
changing historical experience.
28
30
State and federal regulatory agencies, as an integral part of their
examination process, review the company's loans and its allowance for loan
losses. Although management believes that the company's allowance for loan
losses is adequate to cover anticipated losses, the loan loss allowance at
September 30, 1998 is lower as a percentage of total loans than historical
levels. Management has determined to increase the monthly provision for loan
losses in anticipation of future loan growth. There can be no assurance,
however, that management will not determine a need to further increase the
allowance for loan losses or that regulators, when reviewing the company's loan
portfolios in the future, will not require the company to increase such
allowance, either of which could adversely affect the company's earnings.
Further, there can be no assurance that the company's actual loan losses will
not exceed its allowance for loan losses.
The following tables set forth an allocation of the allowance for loan
losses by loan category as of the dates indicated. Portions of the allowance
have been allocated to categories based on an 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 allocation table
should not be interpreted as an indication of the specific amounts, by loan
classification, to be charged to the allowance. Management believes that the
table may be a useful device for assessing the adequacy of the allowance as a
whole. The 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.
SEPTEMBER 30, DECEMBER 31,
----------------------- ----------------------------------------------------
1998 1997 1996
----------------------- ----------------------- -----------------------
LOANS IN LOANS IN LOANS IN
CATEGORY CATEGORY CATEGORY
AS A AS A AS A
PERCENTAGE PERCENTAGE PERCENTAGE
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
OF GROSS OF GROSS OF GROSS
ALLOWANCE LOANS ALLOWANCE LOANS ALLOWANCE LOANS
--------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
COMMERCIAL, FINANCIAL AND
AGRICULTURAL ............... $ 122 20.1% $ 16 25.0% $ 2 39.9%
REAL ESTATE CONSTRUCTION ..... 12 27.6 68 22.4 -- 14.7
REAL ESTATE MORTGAGE ......... 60 48.5 47 47.9 19 37.8
INSTALLMENT LOANS TO
INDIVIDUALS ................ 6 3.8 33 4.7 8 7.6
UNALLOCATED .................. 1,392 -- 1,157 -- 822 --
--------- --------- --------- --------- --------- ---------
TOTAL ALLOWANCE ......... $ 1,592 100.0% $ 1,321 100.0% $ 851 100.0%
========= ========= ========= ========= ========= =========
The total allowance for loan loss balance at September 30, 1998 was $1.6
million or 229.73% of nonperforming loans and the portion of the loan loss
allowance directly allocated to specific loan categories was 28.86% of
nonperforming loans. Management continuously monitors credit quality and
adjusts the provision for loan losses as appropriate.
The provision for loan losses takes into account many factors such as the
company's prior experience with loan losses and an evaluation of the risks in
the loan portfolio at any given time, including changes in economic, operating
and other conditions of borrowers, the Denver-northern Colorado and western and
central Nebraska economies and to a lesser extent, the national economy. As
indicated in the preceding table, a majority of the loan loss allowance was not
allocated to a single category. The company's loan portfolio contains a
significant amount of loans that are real estate mortgage and real estate
construction loans, and management assesses general risks to the portfolio that
are common to both categories. These risks include the financial conditions of
borrowers, economic conditions in the building industry that could effect a
slowdown in the market resulting in fewer building permits and lower absorption
of newly developed sites, fluctuating land values, building moratoriums by
municipalities, and the overall general economy of the company's primary area
of operations.
29
31
Management believes that the approximate amount of charge-offs by
category during 1998 will be in the range of .25% to .35% for consumer loans,
with recoveries in the range of .15% to .20% for commercial loans, for an
overall total recovery of approximately .04% of total loans. There are no
expected charge-offs or recoveries relating to the other categories. The
foregoing is a good faith best estimate only and is subject to several factors
beyond the control of the company, including the risks discussed above.
Investments. The company's investment policy is designed to ensure
liquidity for cash-flow requirements; to help manage interest rate risk; to
ensure collateral is available for public deposits, FHLB advances and
repurchase agreements; and to manage asset quality diversification. The
asset/liability committees of each of the company's banks are responsible for
implementing investment strategy, including ongoing review of the performance
of the investment portfolio, market values, market conditions, current economic
conditions, profitability, capital ratios, liquidity needs and collateral
position with the FHLB.
The company's investment portfolio at September 30, 1998 is comprised of
U.S. Treasury and U.S. Agency bonds and bills and general obligation and
revenue municipal bonds. The portfolio contains no derivatives, structured
notes or similar instruments that are classified as "High-Risk Securities" as
defined by the Federal Financial Institutions Examinations Council.
The following table sets forth the estimated fair value of the
available-for-sale securities and the amortized cost basis of held-to-maturity
securities in the company's investment portfolio by type as of the dates
indicated.
SEPTEMBER 30, DECEMBER 31,
------------- -------------------------
1998 1997 1996
---------- ---------- ----------
(IN THOUSANDS)
HELD-TO-MATURITY:
U.S. TREASURY & AGENCY SECURITIES .... $ 2,000 $ 5,807 $ 8,495
STATE AND POLITICAL SECURITIES ....... 7,241 7,235 7,136
OTHER BONDS .......................... -- -- 504
---------- ---------- ----------
TOTAL HELD-TO-MATURITY ........... $ 9,241 $ 13,042 $ 16,135
---------- ---------- ----------
AVAILABLE-FOR-SALE:
U.S. TREASURY & AGENCY SECURITIES .... $ 32,221 $ 11,986 $ 13,191
STATE AND POLITICAL SECURITIES ....... 1,681 1,611 1,445
OTHER BONDS .......................... -- 201 556
EQUITY SECURITIES .................... 1,208 1,672 461
---------- ---------- ----------
TOTAL AVAILABLE-FOR-SALE ......... $ 35,110 $ 15,470 $ 15,653
---------- ---------- ----------
TOTAL INVESTMENTS .......... $ 44,351 $ 28,512 $ 31,788
========== ========== ==========
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Investment Maturities and Yield, The following table sets forth the
estimated fair value of the available for sale securities and the amortized
cost basis of held-to-maturity securities with the approximate yield of the
securities in the investment portfolio by type and maturity at September 30,
1998.
SEPTEMBER 30, 1998
---------------------
TYPE AND MATURITY AMOUNT YIELD
----------------- -------- -----
(DOLLARS IN THOUSANDS)
U.S. TREASURY & AGENCY SECURITIES:
ONE YEAR OR LESS ................. $ 24,769 5.42%
OVER ONE THROUGH FIVE YEARS ...... 4,387 5.78
OVER FIVE THROUGH 10 YEARS ....... 3,888 5.70
OVER 10 YEARS .................... 1,177 6.83
--------
TOTAL ........................ $ 34,221 5.55
========
MUNICIPAL SECURITIES:
ONE YEAR OR LESS ................. $ 319 5.00
OVER ONE THROUGH FIVE YEARS ...... 3,242 5.21
OVER FIVE THROUGH 10 YEARS ....... 1,630 5.48
OVER 10 YEARS .................... 3,731 6.18
--------
TOTAL ........................ $ 8,922 5.66
========
TOTAL INVESTMENT IN DEBT SECURITIES:
ONE YEAR OR LESS ................. $ 25,088 5.41
OVER ONE THROUGH FIVE YEARS ...... 7,629 5.54
OVER FIVE THROUGH 10 YEARS ....... 5,518 5.64
OVER 10 YEARS .................... 4,908 6.34
--------
TOTAL ........................ $ 43,143 5.57%
========
Deposits. The company's primary source of funds has historically been
customer deposits. Deposits have grown significantly in recent years, with
average deposits increasing to $231.7 million for the nine months ended
September 30, 1998 from $158.4 million for the year ended December 31, 1997 and
$83.9 million for the year ended December 31, 1996. These increases are
primarily a result of the opening of one branch in 1996, two branches in 1997
and four branches in 1998. At September 30, 1998, average total certificates
of deposit comprised $148.4 million or 64.0% of average total deposits.
Management believes this ratio may increase as it uses this product in its
asset/liability management to minimize interest rate risk.
The following table presents the average balances for each major category
of deposits and the weighted average interest rates paid for interest-bearing
deposits for the period indicated.
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
------------------ --------------------------------------------
1998 1997 1996
------------------ ------------------ -----------------
AVERAGE AVERAGE AVERAGE
AVERAGE INTEREST AVERAGE INTEREST AVERAGE INTEREST
BALANCE COST BALANCE COST BALANCE COST
-------- -------- -------- -------- ------- --------
(DOLLARS IN THOUSANDS)
DEMAND, INTEREST-BEARING......................... $ 13,008 2.08% $ 12,184 2.09% $10,743 2.10%
MONEY MARKET ACCOUNTS........................... 15,892 3.83 10,913 3.43 7,400 3.25
SAVINGS......................................... 12,635 3.12 11,413 3.15 9,285 3.12
IRA DEPOSITS.................................... 10,042 5.99 7,484 5.82 5,609 5.43
CERTIFICATES OF DEPOSIT UNDER $100,000.......... 116,821 6.15 72,229 6.11 26,367 5.63
CERTIFICATES OF DEPOSIT $100,000 AND OVER....... 31,567 5.95 19,500 5.89 7,416 5.58
-------- -------- ------
TOTAL INTEREST-BEARING DEPOSITS......... 199,965 5.47 133,723 5.22 66,820 4.43
NONINTEREST-BEARING DEMAND DEPOSITS............. 31,765 24,654 17,124
-------- -------- -------
TOTAL DEPOSITS.......................... $231,730 $158,377 $83,944
======== ======== =======
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The following table sets forth the amount and maturity of IRA
certificates of deposit and time certificates of deposit that had balances of
more than $100,000 at September 30, 1998.
REMAINING MATURITY (IN THOUSANDS)
------------------
LESS THAN THREE MONTHS...................................... $ 7,644
THREE MONTHS UP TO SIX MONTHS............................... 7,919
SIX MONTHS UP TO ONE YEAR................................... 15,839
ONE YEAR AND OVER........................................... 11,742
-------
TOTAL............................................. $43,144
=======
Federal Home Loan Bank Borrowings. The company's banks are members of
the Federal Home Loan Bank 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 members of the FHLB, the company's banks are entitled to borrow
funds from the FHLB and are required to own FHLB stock in an amount determined
by a formula based upon total assets and FHLB borrowings. The company's banks
may use FHLB borrowings to supplement deposits as a source of funds. See
"Liquidity -- Asset/Liability Management." Average FHLB borrowings for the nine
months ended September 30, 1998 were $7.6 million compared to $4.2 million and
$0 for the years ended December 31, 1997 and 1996, respectively. At September
30, 1998, based on its FHLB stockholdings, the aggregate available and unused
borrowing capacity of the company's banks was approximately $9.7 million,
which was available through a line of credit and term advances. FHLB
borrowings are collateralized by FHLB stock, other investment securities and
certain loans.
A variety of borrowing terms and maturities can be chosen 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 non-amortizing advances. To date
FHLB stock has been redeemable at the preset price of $100 per share, but there
can be no assurance that this policy will continue.
CAPITAL RESOURCES
The company monitors compliance with bank and bank holding company
regulatory capital requirements, focusing primarily on risk-based capital
guidelines. By mid-1998 the company determined that it would be below the
total capital minimum for a bank holding company in the near term as a result
of its significant growth. As indicated in the table immediately below, at
September 30, 1998, the company was .20% below the total capital minimum
requirements. Upon completion of this offering, the company will be in
compliance with such requirements. See "Capitalization." Under the risk-based
capital method of capital measurement, the ratio computed is dependent upon the
amount and composition of assets recorded on the balance sheet, and the amount
and composition of off-balance sheet items, in addition to the level of
capital. Included in the risk-based capital method are two measures of capital
adequacy, Tier 1 or core capital, and total capital, which consists of Tier 1
plus Tier 2 capital. See "Supervision and Regulation -- First Western Corp. --
Capital Adequacy" for definitions of Tier 1 and Tier 2 capital.
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The following tables set forth the company's capital ratios as of the
indicated dates.
RISK-BASED CAPITAL RATIOS
SEPTEMBER 30, DECEMBER 31,
1998 1997
---------------------------- ---------------------------
AMOUNT RATIO AMOUNT RATIO
----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
Tier 1 capital .............................. $ 19,680 7.22% $ 16,676 9.02%
Tier 1 capital minimum
requirement (1) ........................... 10,909 4.00 7,394 4.00
----------- ----------- ----------- -----------
Excess ...................................... $ 8,771 3.22% $ 9,282 5.02%
=========== =========== =========== ===========
Total capital ............................... $ 21,272 7.80% $ 17,997 9.74%
Total capital minimum
requirement (1) ........................... 21,819 8.00 14,788 8.00
----------- ----------- ----------- -----------
Excess (deficit) ............................ $ (547) (.20)% $ 3,209 1.74%
=========== =========== =========== ===========
Total risk adjusted assets .................. $ 272,740 $ 184,847
=========== ===========
- ----------
(1) Based on risk-based capital guidelines of the Federal Reserve, a bank
holding company is required to maintain a Tier 1 capital to risk-adjusted
assets ratio of 4% and a total capital to risk-adjusted assets ratio of
8%. See "Supervision and Regulation -- First Western Corp. -- Capital
Adequacy" for definitions of Tier 1 and Tier 2 capital.
LEVERAGE RATIOS
SEPTEMBER 30, DECEMBER 31,
1998 1997
---------------------------- ---------------------------
AMOUNT RATIO AMOUNT RATIO
----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
Tier 1 capital .............................. $ 19,680 6.20% $ 16,676 7.53%
Minimum requirement (1) ..................... 12,692 4.00 8,861 4.00
----------- ----------- ----------- -----------
Excess ...................................... $ 6,988 2.20% $ 7,815 3.53%
=========== =========== =========== ===========
Average total assets ........................ $ 317,303 $ 221,523
=========== ===========
- ----------
(1) The leverage ratio is defined as the ratio of Tier 1 capital to average
total assets. Based on Federal Reserve guidelines, a bank holding
company generally is required to maintain a leverage ratio of 4%. See
"Supervision and Regulation -- First Western Corp. -- Capital Adequacy"
for definitions of Tier 1 and Tier 2 capital.
LIQUIDITY
Sources of Liquidity. The company continuously forecasts and manages its
liquidity in order to satisfy cash flow requirements of depositors and
borrowers and allow the company to meet its own cash flow needs. The company
has developed internal and external sources of liquidity to meet its continued
growth needs. These include, but are not limited to: the ability to raise
deposits through branch
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promotional campaigns, maturity of overnight funds ($12 million available as of
September 30, 1998), maturity of short term investment securities ($15 million
available as of September 30, 1998), sale of available for sale securities ($19
million available as of September 30, 1998), draws on available borrowing lines
($25 million available as of September 30, 1998), draws on increased borrowing
lines available at the FHLB with the purchase of additional FHLB stock ($9.7
million available as of September 30, 1998), participation or sale of portions
of the loan portfolio, and possible sale of fixed assets of the company. The
company intends to pay its $5.8 million note payable with proceeds from this
offering, thus providing it with additional liquidity if needed.
Asset/Liability Management. A principal function of asset/liability
management is to coordinate the levels of interest-sensitive assets and
liabilities to minimize net interest income fluctuations in times of
fluctuating market interest rates. Interest-sensitive assets and liabilities
are those that are subject to repricing in the near term, including both
variable rate instruments and those fixed-rate instruments which are
approaching maturity. Changes in net yield on interest-sensitive assets arise
when interest rates on those assets (e.g. loans and investment securities)
change in a different time period from that of interest rates on liabilities
(e.g. time deposits). Changes in net yield on interest-sensitive assets also
arise from changes in the mix and volumes of earning assets and
interest-bearing liabilities.
The following table sets forth the interest rate sensitivity of the
company's assets and liabilities as of September 30, 1998, and sets forth the
repricing dates of the company's earning assets and interest-bearing
liabilities as of that date, as well as the company's interest rate sensitivity
gap percentages for the periods presented. The table is based upon assumptions
as to when assets and liabilities will reprice in a changing interest rate
environment, and since such assumptions can be no more than estimates, certain
assets and liabilities indicated as maturing or otherwise repricing within a
stated period may, in fact, mature or reprice at different times and at
different volumes than those estimated. Also, the renewal or repricing of
certain assets and liabilities can be discretionary and subject to competitive
and other pressures. Therefore, the following table does not and cannot
necessarily indicate the actual future impact of general interest rate
movements on the company's net interest income.
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ESTIMATED MATURITY OR REPRICING AT SEPTEMBER 30, 1998
-----------------------------------------------------------------------------
THREE MONTHS
LESS THAN TO LESS THAN ONE TO OVER
THREE MONTHS ONE YEAR FIVE YEARS FIVE YEARS TOTAL
------------ ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
Earning assets:
Funds sold and interest-bearing deposits ......... $ 12,486 $ -- $ -- $ -- $ 12,486
Investment in securities available-for-sale ...... 17,887 6,901 4,345 5,977 35,110
Investment in securities held-to-maturity ........ 1,009 500 3,284 4,448 9,241
Loans ............................................ 70,275 137,152 36,868 4,052 248,347
---------- ---------- ---------- ---------- ----------
Total earning assets ............................. 101,657 144,553 44,497 14,477 305,184
Interest-bearing liabilities:
Deposits:
Demand, interest-bearing ....................... 32,222 -- -- -- 32,222
Savings ........................................ 17,315 -- -- -- 17,315
Certificates of deposit
under $100,000 ............................... 20,905 82,107 58,218 -- 161,230
$100,000 and over ............................ 7,644 23,758 11,742 -- 43,144
Other liabilities:
Securities sold under agreements
to repurchase ............................... 2,588 -- -- -- 2,588
Federal Home Loan Bank borrowings ................ -- -- 8,500 -- 8,500
Note payable ..................................... -- -- 5,800 -- 5,800
---------- ---------- ---------- ---------- ----------
Total interest-bearing liabilities ............... $ 80,674 $ 105,865 $ 84,260 $ -- $ 270,799
---------- ---------- ---------- ---------- ----------
Interest rate gap .................................. $ 20,983 $ 38,688 $ (39,763) $ 14,477 $ 34,385
========== ========== ========== ========== ==========
Cumulative interest rate gap at
September 30, 1998 ............................... $ 20,983 $ 59,671 $ 19,908 $ 34,385
========== ========== ========== ==========
Cumulative interest rate gap
to total assets .................................. 6.26% 17.79% 5.94% 10.25%
========== ========== ========== ==========
Due to the volume of loans that reprice with changes in the prime lending
rate and the volume of noninterest- bearing deposits, the company has
experienced a positive gap in assets and deposits that reprice or mature in
less than three months. Of the total earning assets at September 30, 1998,
33.31% reprice or mature in less than three months while 29.79% of all
interest-bearing liabilities reprice or mature in that same time frame. The
positive interest rate gaps indicate that net income would increase in the
event of rising interest rates and would decrease in the event of decreasing
interest rates. In the unlikely event of an immediate, parallel and sustained
shift of market interest rates of 200 basis points, management estimates that
net income during the 12 months ending September 30, 1999 would likely increase
approximately 6% compared to the prior like 12-month period if interest rates
rose by 200 basis points and likely fall by approximately 6% compared to the
prior like 12-month period if rates fell by the same amount. These are good
faith estimates assuming all other factors do not change materially, and, in
management's belief, are not necessarily indicative of what actually could
occur in the event of immediate interest rate increases or deceases of this
magnitude. Management believes that it is highly unlikely that such changes
would occur in a short time period. As interest-bearing assets and liabilities
reprice at different time frames and proportions to market interest rate
movements, various assumptions must be made based on historical relationships
of these variables in reaching any conclusion. Since these correlations are
based on competitive and market conditions, future results would, in
management's belief, be materially different from the foregoing estimates.
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
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37
resulted in increased interest rates. Over short periods of time interest
rates may not move in the same direction or magnitude as inflation.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued SFAS No. 130,
"Reporting Comprehensive Income," which is effective for the fiscal years
beginning after December 15, 1997. This statement establishes standards for
reporting and display of comprehensive income and its components (revenue,
expenses, gains and losses) in a full set of general purpose financial
statements. This statement requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements. The company adopted SFAS No. 130 on January 1,
1998, and all annual required disclosures will be included beginning with the
year end 1998 consolidated financial statements.
The Financial Accounting Standards Board recently adopted Statement No.
131 (Statement No. 131) "Disclosures about Segments of an Enterprise and
Related Information." Statement No. 131, which became effective for periods
beginning after December 15, 1997, requires that business enterprises report
information about operating segments in annual financial statements. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. Management believes that Statement No.
131 will have no significant impact on the company's consolidated financial
statements.
YEAR 2000 CONSIDERATIONS
As the year 2000 approaches, a significant business issue has emerged
regarding how existing software programs and operating systems can accommodate
the date value for the year 2000. Many existing software products, including
products used by the company and its suppliers and customers, were designed to
accommodate only a two-digit date value, which represents the year. For
example, information relating to the year 1996 is stored in the system as "96."
As a result, the year 1999 (i.e., "99") could be the maximum date value that
these systems will be able to process accurately. In response to concerns about
this issue, regulatory agencies have begun to monitor holding companies' and
banks' readiness for the year 2000 as part of the regular examination process.
The company presently believes that with modifications to existing software and
conversion to new software, the year 2000 issue will not pose significant
operational problems for the company's business operations. To date, management
believes the company's Nebraska bank is substantially year 2000 compliant. In
addition, the company outsources its computer systems to a third party supplier,
who has informed the company that it expects to be year 2000 compliant in
mid-1999. Implementation of the company's plan to test in-house and out-sourced
software has been underway since the first quarter of 1998. Testing of
applications considered to be "mission critical" are scheduled for completion by
the first quarter of 1999. Total compliance for all systems, including the
company's outsourced computer systems, is expected by management to be completed
by the third quarter of 1999; management currently estimates that such
compliance will cost $150,000. The plan implementation team is responsible for
progress and will continue to provide a status report to the board of directors
on a monthly basis through December 31, 2000. However, if such modifications
and conversions are not made, or are not completed timely, the year 2000 issue
could have a material adverse impact on the operations of the company. The
company has in place a contingency plan in the event its outsourced computer
systems are not year 2000 compliant on a timely basis. In addition, there can
be no assurance that unforeseen problems in the company's outsourced computer
systems will not have an adverse effect on the company's systems or operations.
Additionally, failure of the company's customers to prepare for year 2000
compatibility could have a significant adverse effect on such customers'
operations and profitability, thus inhibiting their ability to repay loans and
adversely affecting the company's operations. The company does not have
sufficient information accumulated from customers to enable the company to
assess the degree to which customers' operations are susceptible to potential
problems relating to the year 2000 issue.
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BUSINESS
GENERAL
First Western Corp., a multibank holding company, offers full service
community banking through 10 banking locations in metropolitan Denver-northern
Colorado and two banking locations in western and central Nebraska. The
company was organized in 1963 by its founder and Chairman, Joel H. Wiens, to
purchase the company's first community bank, Firstate Bank, in Kimball,
Nebraska (the "Nebraska Bank"). In 1993 the company began its banking
operations in Colorado through the purchase of a bank in Northglenn, Colorado,
which was renamed Firstate Bank of Colorado (the "Colorado Bank"). In 1995 the
company began its Colorado expansion through establishing startup branches in
areas of metropolitan Denver-northern Colorado that management believed were
well situated for deposit and loan growth. To date, the company has added
seven branches and purchased a two-branch savings bank that has been
assimilated into the Colorado Bank. The company plans to open another startup
banking branch in Colorado in early 1999.
The company's growth strategy since 1995 has been to provide community
banking services by establishing startup branches at reasonable costs and
staffing them with experienced bankers to serve as branch presidents and loan
officers. Consolidation within the Colorado banking community has resulted in
the availability of experienced, highly capable bankers with existing customer
relationships who prefer to work in a community banking environment.
Consequently, the company has been able to open branches with highly qualified
personnel who have strong contacts with customers and who initiate immediate
banking business. In addition, the company believes that its management style
and internal culture, along with employee focused participation in decision
making, leads experienced bankers to explore employment with the company.
Also, the company has implemented its Colorado expansion through a central
operating system, and believes that its existing management, systems and
facilities are capable of supporting additional growth without proportionate
increases in operating costs. The company's operating strategy is to continue
to provide high quality community banking services to its customers and
increase market share through active solicitation of new business, repeat
business and referrals from customers, and continuation of selected promotional
strategies.
SUBSIDIARIES
The company has three subsidiaries, the Nebraska Bank, the Colorado Bank,
and First Mortgage Bancorp. The Nebraska Bank is a Nebraska state chartered
bank with assets of $72 million, net loans of $49 million and net deposits of
$60 million as of September 30, 1998. The Colorado Bank is a Colorado state
chartered bank with assets of $266 million, net loans of $207 million and
deposits of $234 million as of September 30, 1998. See "Supervision and
Regulation." First Mortgage Bancorp is a Nebraska licensed sales finance
company, with assets of $500,000. It does not conduct significant operations,
although from time to time it purchases loan participations from the company's
banks. The Nebraska Bank is 91.4% owned by the company; the other two
subsidiaries are wholly owned by the company.
STRATEGIES
Growth. The company's goal in continuing its expansion is to maintain a
profitable, customer-focused financial institution. Management believes that
the company's existing structure, management, data and operational systems are
sufficient to achieve further growth in asset size, revenues and capital
without proportionate increases in operating costs. This growth should also
allow the company to increase the lending limits of its banks, thereby enabling
the company to continue to serve the needs of existing and new customers.
The company's growth strategy is primarily focused on branch expansions
and existing branch growth. Although the company may consider acquisitions of
smaller financial institutions from time to time,
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\such external growth is a secondary priority due to the significant premiums
currently being paid to acquire financial institutions in the company's market
area.
Branch Expansion. The company has been able to grow through establishing
startup branches at reasonable costs, while attracting experienced, highly
capable bankers who prefer the autonomy and decision making opportunities in a
community banking environment. Since January 1, 1996, the company has hired
over 15 experienced bankers to staff six new branches in Colorado as well as
experienced corporate financial officers in the Colorado Bank. Banking
experience of these individuals ranges from 10 to 30 years.
Because of the significant economic growth in Colorado over the past
several years, management has determined to focus the company's branch
expansion in the Front Range area (Colorado Springs to Fort Collins). The
Colorado Bank has one additional branch that is expected to begin operations in
early 1999. The company reviews branch opportunities on an ongoing basis.
Management believes that the company's branching strategy will capitalize on
the significant economic growth experienced in the company's primary market
area, as well as take advantage of the needs of businesses and consumers for a
full service community bank.
The company's market areas are the metropolitan Denver-northern Colorado
area and western and central Nebraska. The Denver-northern Colorado area is
the most densely populated area in the Rocky Mountain region. Total population
is approximately 2.5 million, and the area has received a net migration of over
260,000 persons since 1990. Employment in the area is diversified across the
manufacturing, construction, financial services, tourism, transportation,
technology, cable television, retail trade, services and government sectors.
In 1997, Colorado achieved the eleventh straight year of employment growth,
with nonagricultural employment increasing 4% during 1997 to approximately 2.0
million. The company's Nebraska market area includes the Nebraska Panhandle as
well as the fringes of southeastern Wyoming and the northeastern corner of
Colorado, with service providers and agriculture being the primary businesses.
Existing Branch Growth. Management believes that the company's largest
source of internal growth is through the company's intensive solicitation
program conducted by branch presidents and lending officers, followed by
referrals from customers. The primary reason for referrals is positive
customer feedback regarding the company's customer service and response time.
The company's Colorado banking market is dominated by large national and
regional financial institutions. This dominance was achieved through the
purchase of Colorado-based financial institutions over the past several years,
which resulted in a significant consolidation of the company's Colorado banking
industry. Management believes that small and medium sized businesses often are
not adequately served by large banks nor are such businesses of sufficient size
to be of interest to these large banks, and that individuals frequently have
difficulty in finding personalized banking services. Many of these customers
seek a banking relationship with a smaller and significantly more
service-oriented community banking organization such as the company. The
company's operational systems have been designed to complement superior
customer service. Management believes the company's banking locations are
small enough to facilitate personalized services and decision-making, yet of
sufficient size to meet most customers' needs. Management also believes that
the economic expansion in Colorado contributes significantly to internal
growth. Through the company's primary emphasis on customer service and
management's experience, the company will continue to focus on attracting these
customers in achieving internal growth primarily by focusing on the following:
o Operational Efficiencies - the company seeks to maximize
operational and support efficiencies consistent with maintaining
high quality customer service. The company utilizes recently
developed technology to provide customer support. Various
management and administrative functions are consolidated, including
credit administration and servicing,
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investment management and accounting, enabling branch personnel to
better focus on customer service and business development.
o Marketing Activities - the company focuses on its active
solicitation program for new business, as well as identifying and
developing products and services that satisfy customer needs,
particularly customer service. The company's marketing programs
also utilize local print (promotional materials in each location)
as well as sponsorship of community events within branch areas.
o Products Offered - the company offers a wide range of deposit
products including regular checking, checking with interest, money
market accounts, regular savings, certificates of deposit, and
IRAs. The company also offers additional access to its customers
with a ATM/Visa debit card program as well as telephone banking, PC
banking, and on-line Internet banking. The company also offers
installment loans, including auto, recreational vehicle, and other
secured and unsecured loans sourced directly by its branches. See
"Loans" below for a discussion of products that the company
provides to commercial accounts.
LOANS
The company has the ability to provide a broad range of commercial and
retail lending services. The company 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, the
company provides ongoing loan officer training and review, obtains outside
independent loan reviews, operates a centralized processing, underwriting and
servicing center for loans and manages problem assets centrally. At September
30, 1998, substantially all loans outstanding were to customers within the
company's market area.
Real Estate Mortgage Loans. These loans include various types of loans
for which the company holds real property as collateral. Most of the loans as
of September 30, 1998 were to businesses. Of the $120.9 million of real estate
mortgage loans at September 30, 1998, approximately $57.8 million were loans
made to commercial customers where the collateral for the loan is, among other
things, the real estate occupied by the business of the customer. It is the
company's practice whenever practicable 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. Commercial
loans secured by real estate often mature annually and typically have
adjustable interest rates. 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 include commercial
and residential real estate construction loans. Real estate construction
loans are principally made to builders to construct business buildings or
single and multi-family residences. These loans typically have maturities of
six to 12 months and adjustable interest rates, and are subject to origination
fees. Terms may vary depending upon many factors, including, but are not
limited to, location, type of project and financial condition of the builder.
Commercial, Financial and Agricultural Loans. These loans consist
primarily of loans to businesses for various purposes, including revolving
lines of credit and equipment financing. The loans secured by collateral other
than real estate generally mature within one year, have adjustable interest
rates and are secured by inventory, accounts receivable, livestock, crops,
machinery or other commercial assets. Revolving lines of credit generally are
for business purposes, generally mature annually and have adjustable interest
rates.
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Installment Loans to Individuals. Installment loans to individuals,
which are not secured by real estate, generally have terms of two to five years
and bear interest at fixed rates. These loans usually are secured by motor
vehicles, investment securities or other personal assets, and in some instances
are unsecured.
The company maintains a loan committee approach to commercial lending,
which it believes yields positive results in both responsiveness to customer
needs and asset quality. The company has three regional loan committees, each
of whom meet once per week to review and discuss loans.
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. Most of the loans in the company's portfolio at September 30,
1998, had interest rates that float at a margin above the prime rate.
In the ordinary course of business, the company issues letters of credit.
See Note 10 of Notes to Consolidated Financial Statements. The company 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.
The company's exposure to credit loss under letters of credit is represented by
the amount of these commitments. Under applicable federal and state law,
permissible loans to one borrower at September 30, 1998 were limited to an
aggregate of $2.7 million for the Colorado Bank and $1.0 million for the
Nebraska Bank. With the infusion of approximately $4.2 million in capital to
the Colorado Bank (see "Use of Proceeds"), the company expects that the lending
limit of the Colorado Bank will increase by approximately $700,000 to a total
of $3.4 million.
COMPETITION
The company faces a high degree of competition. In its market areas,
there are numerous small banks and several larger national and regional
financial banking groups. The company 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 the company competes have capital resources
and legal lending limits substantially in excess of the capital resources and
legal lending limits of the company.
The company competes for loans and deposits principally based on the
availability and quality of services provided, responsiveness to customers,
interest rates, loan fees and office locations. The company actively solicits
deposit customers and competes by offering them superior customer service and a
complete product line. The company believes its customer service, broad
product line and banking franchise enable it to compete in its market area.
The company faces competition for its personnel. The company competes
through its management style and internal culture, along with employee focused
participation in decision making. Management believes that the company is able
to compete for personnel effectively in the company's market areas.
The company will also face significant competition from other financial
institutions in any potential acquisitions. Many of these competitors have
substantially greater resources than the company as well as the ability to
issue marketable equity securities that can be used as part of the purchase
price.
PROPERTIES
The principal offices of both the company and the Colorado Bank are
located in a two story building at 11210 Huron Street, Northglenn, Colorado
80234.
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The table below sets forth property information concerning the branches
of the Colorado Bank and the branches of the Nebraska Bank.
Square
Name and Address of Branch Year Opened Type of Interest footage of facility
- -------------------------- ----------- ---------------- -------------------
Main Office - Colorado Bank 1993 Land and building owned by 14,000
11210 Huron the Colorado Bank
Northglenn, Colorado 80234
Thornton Branch 1995 Land and building owned by 1,500
2616 East 120th Avenue the Colorado Bank
Thornton, Colorado 80233
Cherry Creek Branch 1995 Land and building owned by 5,500
101 Garfield Street the Colorado Bank
Denver, Colorado 80206
Westminster Branch 1996 Leased 4,560
9191 Sheridan Boulevard
Westminster, Colorado 80030
Boulder/Gunbarrel Branch 1997 Leased 4,000
6685 Gunpark Drive
Boulder, Colorado 80301
Greeley Branch 1997 Leased 3,316
3501 West 12th Street
Greeley, Colorado 80634
Lafayette Branch 1998 Leased 2,300
1200 West South Boulder Road
Lafayette, Colorado 80026
Loveland Branch 1998 Land and building owned by 4,000
205 East Eisenhower the Colorado Bank
Loveland, Colorado 80537
Fort Collins Branch 1998 Land and building owned by 5,000
3131 South College the Colorado Bank
Fort Collins, Colorado 80525
Denver Technological Center 1998 Leased 8,500
Branch
5299 DTC Boulevard
Englewood, Colorado 80111
Main Office - Nebraska Bank 1963 Land and building owned by 7,200
115 South Walnut the Nebraska Bank
Kimball, Nebraska 69145
Elm Creek Branch 1992 Land and building owned by 3,080
222 North Tyler the Nebraska Bank
Elm Creek, Nebraska 68836
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All of the leased properties are leased from unaffiliated third parties and are
subject to long term leases.
LEGAL PROCEEDINGS
The company and its subsidiaries are from time to time parties to various
legal actions arising in the normal course of business. Management believes
that there is no proceeding threatened or pending against the company or any of
its subsidiaries which, if determined adversely, would have a material adverse
effect on the financial condition or results of operations of the company.
EMPLOYEES
As of September 30, 1998, the company had approximately 150 full-time
equivalent employees. Management considers its relationship with its employees
to be very good.
FW CAPITAL I
FW Capital I is a statutory business trust created under Delaware law on
November 6, 1998. FW Capital I's business and affairs will be conducted by the
Property Trustee, the Delaware Trustee and three individual Administrative
Trustees who are officers or directors of the company. FW Capital I was created
for the exclusive purpose of offering the Preferred Securities and engaging in
the other transactions discussed in this prospectus. All of the common
securities of FW Capital I are owned by the company. See "Description of the
Preferred Securities -- Subordination of Common Securities of FW Capital I Held
by the Company." FW Capital I will have a term of 30 years, but may dissolve
earlier as provided in the trust agreement.
No separate financial statements of FW Capital I have been included
herein. The company and FW Capital I do not consider that such financial
statements would be material to holders of the Preferred Securities because FW
Capital I is a newly formed special purpose entity, has no operating history or
independent operations and is not engaged in and does not propose to engage in
any activity other than holding as assets the Junior Subordinated Debentures of
the company and issuing the Preferred Securities. See "Prospectus Summary --
FW Capital I," "Description of the Preferred Securities," "Description of the
Junior Subordinated Debentures" and "Description of Guarantee."
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the company, their respective
ages and positions as of November 1, 1998, are as follows:
NAME AGE POSITIONS
- ---- --- ---------
Joel H. Wiens 69 Chairman of the Board and President of the company and Chairman of the Board of the
Colorado and Nebraska Banks
Timothy D. Wiens 43 Vice Chairman and Director of the company; President, Chief Executive Officer and
Director of the Colorado Bank; and Director of the Nebraska Bank
Ronald B. James 44 Chief Financial Officer, Treasurer and Assistant Secretary of the company and the
Colorado Bank
Michael J. Nelson 56 Secretary and Director of the company; President and Director of the Nebraska Bank;
and Director of the Colorado Bank
Max W. Revell 46 Director of the company; Executive Vice President and Director of the Nebraska Bank
Lynn M. Anthony 34 Director of the company
Alan D. Linton 51 Senior Vice President/Senior Credit Officer of the Colorado Bank
Joel H. Wiens is the father of Timothy D. Wiens. There are no other
family relationships among any of the directors and executive officers of the
company or its banks. All directors of the company hold office until the next
meeting of shareholders or until their successors are elected and qualified.
Joel H. Wiens has been Chairman of the Board of the company and the
Nebraska Bank since 1963 and the Colorado Bank since 1993. For more than the
past five years, he has been the President and owner of Western Management
Company, a management company that provides management consulting services to
the company and its subsidiaries. See "Related Party Transactions."
Timothy D. Wiens has been an officer and Director of the company and a
Director of the Nebraska Bank for over the past five years. He has been an
officer and Director of the Colorado Bank since 1993. From August 1993 to
January 1995, Mr. Wiens was President of Firstate Mortgage Corporation. From
April 1989 to August 1993, Mr. Wiens served as an Executive Vice President for
Recycling Industries, a scrap metal industry consolidator. From 1986 to 1989,
Mr. Wiens was a co-founder and Chairman of First City Financial Corporation, a
Denver based residential and commercial mortgage company.
Ronald B. James has been Chief Financial Officer and Treasurer of the
company and the Colorado Bank since June 1998. From March 1997 to June 1998,
Mr. James was a Senior Vice President with First National Bank of Greeley, and
from March 1982 to February 1997, he was employed with First Interstate Bancorp
in various positions, including as a finance officer. Prior to 1982, Mr. James
held a controller and an accounting position with First Interstate Bank of
Englewood and Jefferson Bank and Trust, respectively.
Michael J. Nelson has been an officer and Director of the company since
1987, and he also has been an officer and Director of the Nebraska Bank since
1978 and a Director of the Colorado Bank since
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1993. Mr. Nelson is also a director of George Risk Industries, Inc., an
electronics manufacturing company in Kimball, Nebraska which is publicly traded
on the Nasdaq Bulletin Board System.
Max W. Revell has been a Director of the company since 1994 and an
officer and Director of the Nebraska Bank since 1982. Prior to 1982, Mr.
Revell worked for Centennial State Bank and Centennial Insurance Agency in
Lyons, Colorado and for Tri-State Insurance Agency in Kimball, Nebraska.
Lynn M. Anthony has been a Director of the company since January 1997.
Since May 1993, Mr. Anthony has been employed by Western Management Company,
the management company owned by Joel H. Wiens which provides management
services to the company and its banks. See "Related Party Transactions." From
January 1987 to May 1993, Mr. Anthony was employed as an accountant by Fred A.
Lockwood & Co., a regional public accounting firm located in Nebraska. Mr.
Anthony is a certified public accountant in Nebraska.
Alan D. Linton has been Senior Vice President/Senior Credit officer of
the Colorado Bank since January 1997. From 1987 through 1996 he was employed
as Director of Operations and Chief Financial Officer of Pratt Management
Company, a real estate property management, development and construction
company. From 1974 through 1986 he worked for United Banks of Colorado, ending
his tenure as President of United Bank of Longmont.
Directors of the company are paid an annual fee of $1,000. Directors
of the Colorado Bank receive a fee of $100 per meeting, plus directors living
outside of the Denver metropolitan area receive a $100 per meeting travel
allowance. Directors of the Nebraska Bank are paid $200 per meeting attended,
with up to an additional $100 per meeting of travel expense reimbursement. The
board of directors of the company meets quarterly and the board of directors of
the company's banks meet monthly.
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EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid by the company
to its Chief Executive Officer and to its Vice Chairman, the named executive
officers, for the years 1995 through 1997. No other executive officer of the
company received compensation from the company exceeding $100,000 for such
years.
SUMMARY COMPENSATION TABLE
- -----------------------------------------------------------------------------------------------------------------------
Awards Payouts
------------------------------
Securities
Other Under-
Annual Restricted lying All Other
Compen- Stock Options/ LTIP Compen-
Name Salary Bonus sation Award(s) SARs Payouts sation
and Principal Position Year ($) ($) ($) ($) (#) ($) ($)
- -----------------------------------------------------------------------------------------------------------------------
Joel H. Wiens, ........ 1997 -- -- -- -- -- -- (1)
Chairman of the Board.. 1996 -- -- -- -- -- -- (1)
1995 -- -- -- -- -- -- (1)
Timothy D. Wiens, ..... 1997 73,178 30,000 8,400(2) -- -- -- --
Vice Chairman ......... 1996 60,062 15,700 5,520(2) -- -- -- --
1995 55,000 17,000 -- -- -- -- --
(1) Joel H. Wiens does not receive a salary from the company or its banks;
however, Western Management Company, 100% owned by him, received
$167,000, $145,500 and $119,000 in 1997, 1996 and 1995, respectively,
from the company and its subsidiaries for management services. See
"Related Party Transactions."
(2) Represents an automobile allowance and club dues paid on behalf of
Timothy D. Wiens.
The company does not currently have any compensatory option or incentive
plans, although it does intend to adopt a stock option plan in the near future.
None of the directors or officers of the company have any options, warrants or
other similar rights to purchase securities of the company. However, the
company has the right to adopt or issue, as the case may be, such options,
warrants or rights in the future.
INDEMNIFICATION
The company's articles of incorporation provide that the board of
directors is authorized, without the need for shareholder approval, to
indemnify directors and officers to the fullest extent allowed by Nebraska law;
provided, however, that the exercise of such indemnification powers by the
board of directors is consistent with Nebraska law. Generally under Nebraska
law, any director or officer who is made or threatened to be made a party to
any suit or proceeding may 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 the company, his or her conduct was in the
company's best interests; and (ii) in all other cases, his or her conduct was
at least not opposed to the best interests of the company; and, with respect to
any criminal proceeding, he or she had no reasonable cause to believe his or
her conduct was unlawful. Nebraska law further provides that a company may
maintain insurance on behalf of an officer or director against liability
asserted or incurred by him or her in such capacity, and that a company may
indemnify, advance expenses to, or provide or maintain insurance on behalf of
an employee or agent without limitation from Nebraska law. Nebraska law also
extends such indemnification to officers and directors of the company who serve
at the request of the company as a director, officer, partner, trustee,
employee, or agent of another domestic or foreign entity.
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Nebraska law provides that a director is not liable for any action taken
as long as such director discharged his or her duties (i) in good faith, (ii)
with the care of an ordinarily prudent person in a like position under the same
circumstances, and (iii) in a manner he or she reasonably believes to be in the
best interest of the company.
There is no pending litigation or proceeding involving a director,
officer, employee or other agent of the company as to which indemnification is
being sought. The company is not aware of any other threatened litigation that
may result in claims for indemnification by any director, officer, employee or
other agent.
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PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding beneficial
ownership of common stock of the company, as of November 1, 1998, by (i) each
shareholder known by the company to be the beneficial owner of more than 5% of
its outstanding common stock and (ii) each director of the company and each
named executive officer 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.
NAME AND SHARES
ADDRESS OF BENEFICIALLY PERCENTAGE
BENEFICIAL OWNER OWNED OF CLASS
---------------- ------------ ----------
Joel H. Wiens . . . . . . . . . . . . . 126,437(1) 90.3%
11210 Huron Street
Northglenn, Colorado 80234
Timothy D. Wiens . . . . . . . . . . . . 17,159(2) 12.3%
11210 Huron Street
Northglenn, Colorado 80234
Michael J. Nelson . . . . . . . . . . . 878 (3)
115 South Walnut
Kimball, Nebraska 69145
Max W. Revell . . . . . . . . . . . . . 438 (3)
115 South Walnut
Kimball, Nebraska 69145
Lynn M. Anthony . . . . . . . . . . . . -- --
115 South Walnut
Kimball, Nebraska 69145
All executive officers and
directors as a group (seven persons) . 140,000 100.0%
- ------------
(1) Of this amount, 116,613 shares are owned directly, and 9,824 shares
are owned indirectly as trustee of a family trust of which Timothy D.
Wiens is a 50% beneficiary. One-half of these shares is included in
the stock ownership of Timothy D. Wiens.
(2) Of this amount, 9,545 shares are owned directly, 2,702 shares are
owned indirectly through his minor children and 4,912 shares are owned
indirectly as a 50% beneficiary of a family trust.
(3) Less than 1%.
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RELATED PARTY TRANSACTIONS
The company and each of its three subsidiaries have entered into
management agreements with Western Management Corporation, a corporation owned
by Joel H. Wiens, the company's Chairman of the Board. Each management
agreement is effective for one year, subject to renewal at the annual meeting
of the board of directors of each entity. Management services performed under
each agreement include strategic planning, tax planning and budgeting, business
development, marketing, community and industry relations, and assistance with
the preparation and filing of Federal Reserve reports. The management
agreements currently require monthly fees to Western Management Corporation as
follows: the company - $750; the Colorado Bank - $750 plus $250 per branch
(currently $2,750 in total); the Nebraska Bank - $3,000; First Mortgage Bancorp
- -- $2,000. In addition to the foregoing monthly fees, Western Management
Corporation bills in December of each year for any additional amount of time
spent over 100 hours annually at $85 per hour for Joel H. Wiens and $65 per
hour for Lynn M. Anthony. The company believes that these arrangements are on
terms similar to those that would be obtained with an unaffiliated party. The
following table summarizes payments made by the company and its subsidiaries to
Western Management Corporation for the periods indicated:
YEAR ENDED
DECEMBER 31,
NINE MONTHS ENDED ----------------------------------
SEPTEMBER 30, 1998 1997 1996 1995
------------------ -------- -------- --------
Company .................................... $ 6,750 $ 19,000 $ 19,000 $ 10,000
Colorado Bank .............................. 22,750 28,000 9,000 9,000
Nebraska Bank .............................. 27,000 86,000 86,000 86,000
First Mortgage Bancorp ..................... 18,000 34,000 31,500 14,000
-------- -------- -------- --------
Total ............................. $ 74,500 $167,000 $145,500 $119,000
======== ======== ======== ========
In 1995 Timothy D. Wiens sold assets of a mortgage company he owned to
the company for $100,000 to be paid out of profits generated by mortgage
operations relating to those assets. Through September 30, 1998, payments to
Timothy D. Wiens under this agreement totaled $82,000. The company believes
that this transaction was made on terms similar to those that would have been
obtained with an unaffiliated party.
In May 1997, the company issued 15,000 shares of its common stock to
Joel H. Wiens, Michael J. Nelson, Max W. Revell, Timothy D. Wiens and as
custodian for two of his minor children in exchange for 8,550 shares they
owned in the Colorado Bank (representing an 18.2% minority interest in the
Colorado Bank). The parties used comparable valuations of similar entities in
determining the exchange ratio for the transaction. The book value of the
minority interest was approximately $632,000. After the exchange, the Colorado
Bank became wholly-owned by the company.
From time to time, Joel H. Wiens, the company's Chairman, purchases
loan participations from the company's subsidiaries. The participations are
made on terms identical to those of unaffiliated parties. Approximate loan
principal balances outstanding under these participations are summarized as
follows:
SEPTEMBER 30, DECEMBER 31,
------------ -------------------------
1998 1997 1996
------------ ---------- ----------
(IN THOUSANDS)
Loan participations purchased by Joel H. Wiens .................. $ 1,041 $ 1,420 $ 1,071
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Timothy D. Wiens, Michael J. Nelson, and Max W. Revell, along with one
officer from the Nebraska Bank and two unaffiliated persons, equally own
Insurance Professionals, Inc., a Nebraska insurance agency. Insurance
Professionals, Inc. rents office space at both the Kimball and Elm Creek
branches of the Nebraska Bank for $100 per month per location.
SUPERVISION AND REGULATION
GOVERNMENT REGULATION
The company and its banks are extensively regulated under federal,
Colorado and Nebraska law. These laws and regulations are primarily intended to
protect depositors and the deposit insurance fund of the Federal Deposit
Insurance Corporation ("FDIC"), not shareholders of the company. 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 the company and its banks. The company is unable to predict
the nature or extent of the effects that fiscal or monetary policies, economic
controls or new federal or state legislation may have on its business and
earnings in the future.
FIRST WESTERN CORP.
General. The company is a bank holding company registered under the
Bank Holding Company Act of 1956, as amended, and is subject to regulation,
supervision and examination by the Federal Reserve. The company is required to
file an annual report and such other reports as the Federal Reserve now
requires or may require.
Acquisitions. As a bank holding company, the company is required to
obtain the prior approval of the Federal Reserve before acquiring direct or
indirect ownership or control of more than 5% of the voting shares of a bank or
bank holding company. The Federal Reserve 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 Federal Reserve also considers managerial, capital and other
financial factors in acting on acquisition or merger applications.
Permissible Activities. Subject to limited exceptions, 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 Federal Reserve to be closely
related to banking or managing banks. The Federal Reserve has identified
specific non-banking activities in which a bank holding company may engage with
notice to, or prior approval by, the Federal Reserve.
Capital Adequacy. The Federal Reserve monitors the capital adequacy
of bank holding companies. As discussed below, the company's banks are also
subject to the capital adequacy requirements of the FDIC and, Colorado and
Nebraska regulations, as applicable. The Federal Reserve uses a combination of
risk-based guidelines and leverage ratios to evaluate capital adequacy of the
company.
The Federal Reserve 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
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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 less the unamortized
balance of intangible assets. 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).
At September 30, 1998, the company's Tier 1 capital was $19.7 million.
In addition to the risk-based capital guidelines, the Federal Reserve
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 average tangible assets. Based
upon the current capital status of the company, the applicable minimum required
leverage ratio is 4%.
The table below sets 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 September 30, 1998.
AT SEPTEMBER 30, 1998
-------------------------
RATIO ACTUAL MINIMUM REQUIRED
----- ------ ----------------
TOTAL CAPITAL TO RISK-WEIGHTED ASSETS................... 7.80% 8.00%
TIER 1 CAPITAL TO RISK-WEIGHTED ASSETS.................. 7.22% 4.00%
TIER 1 CAPITAL TO AVERAGE ASSETS........................ 6.20% 4.00%
Failure to meet the capital guidelines may result in the initiation by
the Federal Reserve of appropriate supervisory or enforcement actions. The
company's total capital to risk-weighted assets was below the minimum required
as of September 30, 1998. The company has anticipated that capital would be
needed in its expansion efforts, and has informed its banking regulators that
the offering of Preferred Securities will improve the ratio substantially. See
"Capitalization."
THE BANKS
General. The company owns two banks, Firstate Bank of Colorado, a
Colorado banking corporation with 10 banking locations, and Firstate Bank, a
Nebraska banking corporation with two banking locations. The deposits of the
company's banks are insured by the FDIC, and both banks are subject to
supervision and regulation by the FDIC. In addition, the Colorado Bank and the
Nebraska Bank are regulated by the Colorado Division of Banking and the
Nebraska Department of Banking and Finance, respectively.
Permissible Activities. No Colorado or Nebraska 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. Neither the Colorado Bank nor
the Nebraska Bank are presently involved in the types of transactions covered
by this limitation.
Community Reinvestment Act. Enacted in 1977, the federal Community
Reinvestment Act ("CRA") has become 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 regularly conduct CRA examinations to assess
the performance of financial institutions. During the last examination,
ratings of satisfactory were received by both the Colorado Bank and Nebraska
bank. As a result, management
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believes that the banks' performance under CRA will not impede regulatory
approvals of proposed acquisitions or branching opportunities.
Dividend Restrictions. Dividends paid by the company's banks provide
substantially all of the operating and investing cash flow of the company.
Under Colorado and Nebraska law, 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 exceeds the total of its net profits of
that year combined with its retained net profits for the preceding two years.
In addition, a bank cannot pay a dividend if it will cause its bank to be
"undercapitalized." See "Risk Factors -- Dependence on Dividends From
Subsidiary Banks."
Examinations. The company's banks are examined from time to time by the
FDIC. 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. The Colorado Division of Banking and the
Nebraska Department of Banking and Finance also conduct examinations of
state-chartered banks. Both of these regulators may accept the results of a
federal examination in lieu of conducting an independent examination. Both the
Colorado and Nebraska have the authority to revalue the assets of a
state-chartered institution and require it to establish reserves.
Capital Adequacy. The FDIC 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 FDIC 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 FDIC risk-based capital guidelines require state non-member 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 FDIC leverage guidelines require that state banks maintain Tier 1
capital of no less than 3% and up to 5% of total tangible assets. The applicable
guideline for the company's banks are estimated to be 4%. 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 table below sets forth the capital ratios of the Colorado Bank and
the Nebraska Bank at September 30, 1998.
AT SEPTEMBER 30, 1998
----------------------------------------------------------
COLORADO BANK NEBRASKA BANK
RATIO ACTUAL MINIMUM REQUIRED ACTUAL MINIMUM REQUIRED
----- ------ ---------------- ------ ----------------
TOTAL CAPITAL TO RISK-WEIGHTED ASSETS................. 8.37% 8.00% 16.24% 8.00%
TIER 1 CAPITAL TO RISK-WEIGHTED ASSETS................. 8.03 4.00 14.99 4.00
TIER 1 CAPITAL TO AVERAGE ASSETS....................... 7.16 4.00 11.26 4.00
Banking regulators have adopted regulations that define 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
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has a total risk-based capital ratio of not less than 8%, a Tier 1 risk-based
capital ratio not less than 4% and a leverage ratio of not less than 4%. Under
these regulations, as of September 30, 1998, the Colorado Bank was adequately
capitalized and the Nebraska Bank was well capitalized.
The Federal Deposit Insurance Corporation Improvement Act ("FDICIA")
requires the federal banking regulators to take "prompt corrective action" with
respect to resolving the problems of depository institutions, including
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 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.
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 generally are equal to or less
than the loan to value limitations established by the company's banks.
Deposit Insurance Premiums. The assessment schedule for banks ranges
from 0 to 27 cents per $100 of deposits subject to Bank Insurance Fund ("BIF")
assessments, based on each institution's risk classification. The banks' insured
deposits are subject to assessment payable to BIF. 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). Currently, the ratings for
the Colorado Bank are two and a Group A supervisory subgroup, and the ratings
for the Nebraska Bank are one and a Group A supervisory subgroup.
Interstate Banking Legislation. The Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 (the "Interstate Act"), which became effective
September 1995, has eliminated many of the historical barriers to the
acquisition of banks by out-of-state bank holding companies. The Interstate Act
facilitates the interstate expansion and consolidation of banking organizations
by permitting: (i) bank holding companies that are adequately capitalized and
managed to acquire banks located in states outside their home states regardless
of whether such acquisitions are authorized under the laws of the host state;
(ii) the interstate merger of banks after June 1, 1997, subject to the right of
individual states either to pass legislation providing for earlier effectiveness
of such mergers or to "opt out" of this authority prior to such date; (iii)
banks to establish new branches on an interstate basis provided that such action
is specifically authorized by the law of the host state; (iv) foreign banks to
establish, with approval of the appropriate regulators in the United States,
branches outside their home states to the same extent that national or state
banks located in such state would be authorized to do so; and (v) banks to
receive deposits, renew time deposits, close loans, service loans and receive
payments on loans and other obligations as agent for any bank or thrift
affiliate, whether the affiliate is located in the same or different state. The
company's banks do not currently have any plans 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 not possible to predict the
outcome of these changes.
One of the major additional burdens imposed on the banking industry is
the increased authority of federal agencies to regulate the activities of
federal and state banks and their holding companies. The Federal Reserve, the
Comptroller of the Currency and the 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 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 and the Nebraska
Department of Banking and Finance possess certain enforcement powers to address
violations of their banking laws by banks chartered in each respective state.
EFFECT ON ECONOMIC ENVIRONMENT
The policies of regulatory authorities, including the monetary policy
of the Federal Reserve, have a significant effect on the operating results of
bank holding companies and their subsidiaries. Among the means available to the
Federal Reserve to affect the money supply are open market operations in U.S.
Government securities, changes in the discount rate on member bank borrowings,
and changes in reserve requirements against member bank deposits. These means
are used in varying combinations to influence overall growth and distribution of
bank loans, investments and deposits, and their use may affect interest rates
charged on loans or paid on deposits.
The Federal Reserve's 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 the company and its subsidiaries
cannot be predicted.
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DESCRIPTION OF THE PREFERRED SECURITIES
The Preferred Securities and the Common Securities will be issued
pursuant to the terms of the Trust Agreement. The Trust Agreement will be
qualified as an indenture under the Trust Indenture Act. Initially, Wilmington
Trust Company will be the Delaware Trustee and the Property Trustee and will act
as trustee for the purpose of complying with the Trust Indenture Act. The terms
of the Preferred Securities will include those stated in the Trust Agreement and
those made part of the Trust Agreement by the Trust Indenture Act. This summary
of certain terms and provisions of the Preferred Securities and the Trust
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Trust Agreement,
including the definitions therein of certain terms, and the Trust Indenture Act.
Wherever particular defined terms of the Trust Agreement (as amended or
supplemented from time to time) are referred to herein, such defined terms are
incorporated herein. The form of the Trust Agreement has been filed as an
exhibit to the Registration Statement of which this prospectus forms a part.
GENERAL
Pursuant to the terms of the Trust Agreement, the Administrative
Trustees on behalf of FW Capital I will issue the Preferred Securities and the
Common Securities (collectively, the "Trust Securities"). The Preferred
Securities will represent preferred undivided beneficial interests in the assets
of FW Capital I and the holders thereof will be entitled to a preference in
certain circumstances with respect to distributions and amounts payable on
redemption or liquidation over the Common Securities of FW Capital I (which will
be held by the company), as well as other benefits as described in the Trust
Agreement.
The Preferred Securities will rank pari passu, and payments will be
made thereon pro rata, with the Common Securities of FW Capital I except as
described under "Subordination of Common Securities of FW Capital I Held by the
Company" below.
Legal title to the Junior Subordinated Debentures will be held by the
Property Trustee in trust for the benefit of the holders of the Trust
Securities. The Guarantee executed by the company for the benefit of the holders
of the Preferred Securities (the "Guarantee") will be a guarantee on a
subordinated basis and will not guarantee payment of distributions or amounts
payable on redemption of the Preferred Securities or on liquidation of the
Preferred Securities if FW Capital I does not have funds on hand available to
make such payments. See "Description of Guarantee."
DISTRIBUTIONS
Payment of Distributions. Distributions on the Preferred Securities
("Distributions") will be payable at the annual rate of % of the stated
Liquidation Amount of $10, payable quarterly in arrears on the 15th day of
January, April, July and October in each year, commencing April 15, 1999 to the
holders of the Preferred Securities on the relevant record dates (each date on
which Distributions are payable in accordance with the foregoing, a
"Distribution Date"). The amount of each Distribution due with respect to the
Preferred Securities will include amounts accrued through the date the
Distribution is due. Distributions on the Preferred Securities will be payable
to the holders thereof as they appear on the register of FW Capital I on the
relevant record date which, for so long as the Preferred Securities remain in
book-entry form, will be one Business Day (as defined below) prior to the
relevant Distribution Date and, in the event the Preferred Securities are not in
book-entry form, will be the first day of the month in which the relevant
Distribution Date occurs. Distributions will accumulate from the date of
original issuance. The first Distribution Date for the Preferred Securities will
be April 15, 1999.
The amount of Distributions payable for any period will be computed on
the basis of a 360-day year of twelve 30-day months. In the event that any
date on which Distributions are payable on the Preferred Securities is not a
Business Day, payment of the Distribution payable on such date will be made on
the
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next Business Day (and without any interest or other payment in respect to any
such delay) except that, if such Business Day is in the next succeeding
calendar year, payment of such Distribution shall be made on the immediately
preceding Business Day, in each case with the same force and effect as if made
on the date such payment was originally payable. As used in this prospectus, a
"Business Day" means any day other than a Saturday or a Sunday, or a day on
which banking institutions in Colorado are authorized or required by law or
executive order to remain closed or a day on which the corporate trust office
of the Property Trustee or the Indenture Trustee is closed for business.
The funds of FW Capital I available for distribution to holders of its
Preferred Securities will be limited to payments by the company under the
Junior Subordinated Debentures in which FW Capital I will invest the proceeds
from the issuance and sale of its Preferred Securities. "Description of Junior
Subordinated Debentures." If the company does not make interest payments on
the Junior Subordinated Debentures, the Property Trustee will not have funds
available to pay Distributions on the Preferred Securities. The payment of
Distributions (if and to the extent FW Capital I has funds legally available
for the payment of such Distributions and cash sufficient to make such
payments) is guaranteed by the company. See "Description of Guarantee."
Extension Period. So long as no Debenture Event of Default has occurred
and is continuing, the company has the right under the Indenture to defer the
payment of interest on the Junior Subordinated Debentures at any time or from
time to time for a period not exceeding 20 consecutive quarters with respect to
each such period (each, an "Extension Period"), provided that no Extension
Period may extend beyond the stated maturity of the Junior Subordinated
Debentures. As a consequence of any such election, quarterly Distributions on
the Preferred Securities will be deferred by FW Capital I during any such
Extension Period. Distributions to which holders of Preferred Securities are
entitled will accumulate additional amounts thereon at the rate per year of %
thereof, compounded quarterly from the relevant Distribution Date, to the extent
permitted under applicable law. The term "Distributions" as used herein includes
any such additional accumulated amounts. During any such Extension Period, the
company may not (i) declare or pay any dividends or distributions on, or redeem,
purchase, acquire, or make a liquidation payment with respect to, any of the
company's capital stock (which includes common and preferred stock) or (ii) make
any payment of principal, interest or premium, if any, on or repay, repurchase
or redeem any debt securities of the company that rank pari passu with or junior
in interest to the Junior Subordinated Debentures or make any guarantee payments
with respect to any guarantee by the company of the debt securities of any
subsidiary of the company if such guarantee ranks pari passu with or junior in
interest to the Junior Subordinated Debentures (other than (a) dividends or
distributions in common stock of the company, (b) any declaration of a dividend
in connection with the implementation of a stockholders' rights plan, or the
issuance of stock under any such plan in the future, or the redemption or
repurchase of any such rights pursuant thereto, (c) payments under the Guarantee
and (d) purchases of common stock for issuance under any future benefit plans
for its directors, officers or employees). Prior to the termination of any such
Extension Period, the company may further extend such Extension Period, provided
that such extension does not cause such Extension Period to exceed 20
consecutive quarters or extend beyond the stated maturity. Upon the termination
of any such Extension Period and the payment of all amounts then due, and
subject to the foregoing limitations, the company may elect to begin a new
Extension Period. Subject to the foregoing, there is no limitation on the number
of times that the company may elect to begin an Extension Period.
The company has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the Junior
Subordinated Debentures.
REDEMPTION
Mandatory Redemption of Preferred Securities. Upon the repayment or
redemption at any time, in whole or in part, of any Junior Subordinated
Debentures, the proceeds from such repayment or redemption shall be applied by
the Property Trustee to redeem a Like Amount (as defined below) of the
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Trust Securities, upon not less than 30 nor more than 60 days' notice of a date
of redemption (the "Redemption Date"), at the Redemption Price (as defined
below). See "Description of Junior Subordinated Debentures -- Redemption." If
less than all of the Junior Subordinated Debentures are to be repaid or
redeemed on a Redemption Date, then the proceeds from such repayment or
redemption shall be allocated to the redemption of the Trust Securities pro
rata.
Optional Redemption of Junior Subordinated Debentures. The company will
have the right to redeem the Junior Subordinated Debentures (i) on or after
____________, 2003, in whole at any time or in part from time to time at a
redemption price equal to the accrued and unpaid interest on the Junior
Subordinated Debentures so redeemed to the date fixed for redemption, plus 100%
of the principal amount thereof, or (ii) at any time, in whole (but not in
part), upon the occurrence of a Tax Event, an Investment Company Event or a
Capital Treatment Event at a redemption price equal to the accrued and unpaid
interest on the Junior Subordinated Debentures so redeemed to the date fixed for
redemption, plus 100% of the principal amount thereof, in each case subject to
receipt of prior approval by the Federal Reserve if then required under
applicable capital guidelines or policies of the Federal Reserve. See
"Description of Junior Subordinated Debentures -- Redemption."
Tax Event Redemption, Investment Company Event Redemption, Capital
Treatment Event Redemption or Distribution of Junior Subordinated Debentures. If
a Tax Event, an Investment Company Event or a Capital Treatment Event shall
occur and be continuing, the company has the right to redeem the Junior
Subordinated Debentures in whole (but not in part) and thereby cause a mandatory
redemption of the Trust Securities in whole (but not in part) at the Redemption
Price (as defined below) within 90 days following the occurrence of such Tax
Event, Investment Company Event or Capital Treatment Event, in each case subject
to receipt of prior approval by the Federal Reserve if then required under
applicable capital guidelines or policies of the Federal Reserve. If a Tax
Event, an Investment Company Event or a Capital Treatment Event has occurred and
is continuing and the company does not elect to redeem the Junior Subordinated
Debentures and thereby cause a mandatory redemption of the Trust Securities or
to liquidate FW Capital I and cause the Junior Subordinated Debentures to be
distributed to holders of the Trust Securities in liquidation of FW Capital I as
described below, such Trust Securities will remain outstanding and Additional
Sums (as defined below) may be payable on the Junior Subordinated Debentures.
A "Tax Event" means the receipt by the company and FW Capital I of an
opinion of counsel experienced in such matters to the effect that, as a result
of any amendment to, or change (including any announced prospective change) in,
the laws (or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein, or as a result of any
official administrative pronouncement or judicial decision interpreting or
applying such laws or regulations, which amendment or change is effective or
such pronouncement or decision is announced on or after the original issuance of
the Preferred Securities, there is more than an insubstantial risk that (i) FW
Capital I is, or will be within 90 days of the date of such opinion, subject to
United States federal income tax with respect to income received or accrued on
the Junior Subordinated Debentures, (ii) interest payable by the company on the
Junior Subordinated Debentures is not, or within 90 days of such opinion, will
not be, deductible by the company, in whole or in part, for United States
federal income tax purposes, or (iii) FW Capital I is, or will be within 90 days
of the date of the opinion, subject to more than a de minimis amount of other
taxes, duties or other governmental charges.
An "Investment Company Event" means the receipt by the company and FW
Capital I of an opinion of counsel experienced in such matters to the effect
that, as a result of any change in law or regulation or a change in
interpretation or application of law or regulation by any legislative body,
court, governmental agency or regulatory authority, FW Capital I is or will be
considered an "investment company" that is required to be registered under the
Investment Company Act, which change becomes effective on or after the original
issuance of the Preferred Securities.
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A "Capital Treatment Event" means the reasonable determination by the
company that, as a result of any amendment to, or change (including any
proposed change) in, the laws (or any regulations thereunder) of the United
States or any political subdivision thereof or therein, or as a result of any
official or administrative pronouncement or action or judicial decision
interpreting or applying such laws or regulations, which amendment or change is
effective or such proposed change, pronouncement or decision is announced on or
after the date of issuance of the Preferred Securities under the Trust
Agreement, there is more than an insubstantial risk of impairment of the
Company's ability to treat the Preferred Securities (or any substantial portion
thereof) as "Tier 1 Capital" (or the then equivalent thereof) for purposes of
the capital adequacy guidelines of the Federal Reserve, as then in effect and
applicable to the company.
DEFINITIONS
"Additional Sums" means the additional amounts as may be necessary to
be paid by the company with respect to the Junior Subordinated Debentures in
order that the amount of Distributions then due and payable by FW Capital I on
the outstanding Trust Securities of FW Capital I shall not be reduced as a
result of any additional taxes, duties and other governmental charges to which
FW Capital I has become subject.
"Like Amount" means (i) with respect to a redemption of Trust
Securities, Trust Securities having a Liquidation Amount (as defined below)
equal to that portion of the principal amount of Junior Subordinated Debentures
to be contemporaneously redeemed in accordance with the Indenture, allocated to
the Common Securities and to the Preferred Securities based upon the relative
Liquidation Amounts of such classes and the proceeds of which will be used to
pay the Redemption Price of such Trust Securities, and (ii) with respect to a
distribution of Junior Subordinated Debentures to holders of Trust Securities in
connection with a dissolution or liquidation of FW Capital I, Junior
Subordinated Debentures having a principal amount equal to the Liquidation
Amount of the Trust Securities of the holder to whom such Junior Subordinated
Debentures are distributed.
"Liquidation Amount" means the stated amount of $10 per Trust Security.
"Redemption Price" means, with respect to any Trust Security, the
Liquidation Amount of such Trust Security, plus accumulated and unpaid
Distributions to the Redemption Date, allocated on a pro rata basis (based on
Liquidation Amounts) among the Trust Securities.
DISTRIBUTION OF JUNIOR SUBORDINATED DEBENTURES
Subject to the company having received prior approval of the Federal
Reserve if so required under applicable capital guidelines or policies of the
Federal Reserve, the company will have the right at any time to liquidate FW
Capital I and, after satisfaction of the liabilities of creditors of FW Capital
I as provided by applicable law, cause the Junior Subordinated Debentures to be
distributed to the holders of Trust Securities in liquidation of FW Capital I.
After the liquidation date fixed for any distribution of Junior Subordinated
Debentures for Preferred Securities (i) such Preferred Securities will no
longer be deemed to be outstanding, (ii) the Depositary or its nominee, as the
record holder of the Preferred Securities, will receive a registered global
certificate or certificates representing the Junior Subordinated Debentures to
be delivered upon such distribution and (iii) any certificates representing
Preferred Securities not held by the Depositary or its nominee will be deemed
to represent the Junior Subordinated Debentures having a principal amount equal
to the Liquidation Amount of such Preferred Securities, and bearing accrued and
unpaid interest in an amount equal to the accrued and unpaid Distributions on
the Preferred Securities until such certificates are presented to the
Administrative Trustees or their agent for transfer or reissuance.
There can be no assurance as to the market prices for the Preferred
Securities or the Junior Subordinated Debentures that may be distributed in
exchange for the Preferred Securities if a dissolution
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and liquidation of FW Capital I were to occur. Accordingly, the Preferred
Securities that an investor may purchase, or the Junior Subordinated Debentures
that the investor may receive on dissolution and liquidation of FW Capital I,
may trade at a discount to the price that the investor paid to purchase the
Preferred Securities offered hereby.
REDEMPTION PROCEDURES
Preferred Securities redeemed on each Redemption Date will be redeemed
at the Redemption Price with the applicable proceeds from the contemporaneous
redemption of the Junior Subordinated Debentures. Redemptions of the Preferred
Securities will be made and the Redemption Price will be payable on each
Redemption Date only to the extent that FW Capital I has funds on hand available
for the payment of such Redemption Price. See "-- Subordination of Common
Securities of FW Capital I Held by the Company" and "-- Guarantee."
Notice of any redemption will be mailed at least 30 days but not more
than 60 days before the Redemption Date to each holder of Trust Securities at
such holder's registered address. Unless FW Capital I defaults in payment of the
applicable Redemption Price, on and after the Redemption Date, Distributions
will cease to accrue on such Preferred Securities called for redemption.
If FW Capital I gives a notice of redemption in respect of the
Preferred Securities, then, by 12:00 noon, Denver time, on the Redemption Date,
the Property Trustee will pay the Redemption Price to the Depositary, as the
record holder of the Preferred Securities, and the Depositary thereafter will
credit the Redemption Price to the Participants for whom it holds the Preferred
Securities. See "Book-Entry Issuance." If such Preferred Securities are no
longer in book-entry form, the Property Trustee, to the extent funds are
available, will deposit with the paying agent for such Preferred Securities
funds sufficient to pay the aggregate Redemption Price and will give such paying
agent irrevocable instructions and authority to pay the Redemption Price to the
holders thereof upon surrender of their certificates evidencing such Preferred
Securities. Notwithstanding the foregoing, Distributions payable on or prior to
the Redemption Date will be payable to the holders of such Preferred Securities
on the relevant record dates for the related Distribution Dates. If notice of
redemption shall have been given and funds deposited as required, then upon the
date of such deposit, all rights of the holders of the Preferred Securities will
cease, except the right of the holders of the Preferred Securities to receive
the applicable Redemption Price, but without interest on such Redemption Price,
and such Preferred Securities will cease to be outstanding. In the event that
any date fixed for redemption of such Preferred Securities is not a Business
Day, then payment of the Redemption Price payable on such date will be made on
the next succeeding Business Day (and without any interest or other payment in
respect of any such delay), except that, if such Business Day falls in the next
calendar year, such payment will be made on the immediately preceding Business
Day. In the event that payment of the Redemption Price in respect of Preferred
Securities called for redemption is improperly withheld or refused and not paid
either by FW Capital I or by the company pursuant to the Guarantee,
Distributions on such Preferred Securities will continue to accrue at the then
applicable rate, from the Redemption Date originally established by FW Capital I
for such Preferred Securities to the date such Redemption Price is actually
paid, in which case the actual payment date will be the date fixed for
redemption for purposes of calculating the Redemption Price. See "Description of
Guarantee."
Subject to applicable law (including, without limitation, federal
securities laws), the company may at any time and from time to time purchase
outstanding Preferred Securities by tender, in the open market or by private
agreement.
Payment of the Redemption Price on the Preferred Securities and any
distribution of Junior Subordinated Debentures to holders of Preferred
Securities will be made to the applicable record holders thereof as they appear
on the register of such Preferred Securities on the relevant record date, which
date will be one Business Day prior to the relevant Redemption Date; provided,
however, that in the event that any Preferred Securities are not in book-entry
form, the relevant record date for such Preferred Securities
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will be a date at least 15 days prior to the Redemption Date. In the case of a
liquidation, the record date will be established by the Property Trustee and be
no more than 45 days before the Liquidation Date.
If less than all of the Trust Securities issued by FW Capital I are to
be redeemed on a Redemption Date, then the aggregate Redemption Price for such
Trust Securities to be redeemed will be allocated pro rata to the Preferred
Securities and Common Securities based upon the relative Liquidation Amounts of
such classes. The particular Preferred Securities to be redeemed will be
selected by the Property Trustee from the outstanding Preferred Securities not
previously called for redemption, by such method as the Property Trustee shall
deem fair and appropriate and which may provide for the selection for redemption
of portions (equal to $10 or an integral multiple thereof) of the Liquidation
Amount of Preferred Securities. The Property Trustee shall promptly notify the
Trust Securities registrar in writing of the Preferred Securities selected for
redemption and, in the case of any Preferred Securities selected for partial
redemption, the Liquidation Amount thereof to be redeemed. For all purposes of
the Trust Agreement, unless the context otherwise requires, all provisions
relating to the redemption of Preferred Securities will relate to the portion of
the aggregate Liquidation Amount of Preferred Securities which has been or is to
be redeemed.
SUBORDINATION OF COMMON SECURITIES OF FW CAPITAL I HELD BY THE COMPANY
Payment of Distributions on, and the Redemption Price of, the Preferred
Securities and Common Securities, as applicable, shall be made pro rata based on
the Liquidation Amounts of the Preferred Securities and Common Securities;
provided, however, that if on any Distribution Date or Redemption Date a
Debenture Event of Default shall have occurred and be continuing, no payment of
any Distribution on, or applicable Redemption Price of, any of the Common
Securities, and no other payment on account of the redemption, liquidation or
other acquisition of the Common Securities, shall be made unless payment in full
in cash of all accumulated and unpaid Distributions on all of the outstanding
Preferred Securities for all Distribution periods terminating on or prior
thereto, or in the case of payment of the applicable Redemption Price the full
amount of such Redemption Price on all of the outstanding Preferred Securities
then called for redemption, shall have been made or provided for. All funds
available to the Property Trustee shall first be applied to the payment in full
in cash of all Distributions on, or Redemption Price of, the Preferred
Securities then due and payable.
In the case of any Event of Default under the Trust Agreement resulting
from a Debenture Event of Default, the company as holder of the Common
Securities will be deemed to have waived any right to act with respect to any
such Event of Default until the effects of all such Events of Default have been
cured, waived or otherwise eliminated. Until any such Events of Default have
been so cured, waived or otherwise eliminated, the Property Trustee shall act
solely on behalf of the holders of the Preferred Securities and not on behalf of
the company as holder of the Common Securities, and only the holders of the
Preferred Securities will have the right to direct the Property Trustee to act
on their behalf.
LIQUIDATION DISTRIBUTION UPON TERMINATION
The company will have the right at any time to terminate FW Capital I
and cause the Junior Subordinated Debentures to be distributed to the holders of
the Preferred Securities. Such right is subject to the company having received
prior approval of the Federal Reserve if then required under applicable capital
guidelines or policies of the Federal Reserve. See "Distribution of Junior
Subordinated Debentures" above.
In addition, pursuant to the Trust Agreement, FW Capital I shall
automatically terminate upon expiration of its term and shall earlier terminate
on the first to occur of: (i) certain events of bankruptcy, dissolution or
liquidation of the company; (ii) delivery by the company of written direction to
the Property Trustee to terminate FW Capital I (which direction is optional and
wholly within the discretion of the company); (iii) redemption of all of the
Preferred Securities as described under "Description of the
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Preferred Securities--Redemption--Mandatory Redemption;" and (iv) the entry of
an order for the dissolution of FW Capital I by a court of competent
jurisdiction.
If an early termination occurs as described in clause (i), (ii) or (iv)
above or upon the expiration of the term of FW Capital I, FW Capital I shall be
liquidated by the Trustees as expeditiously as the Trustees determine to be
possible by distributing, after satisfaction of liabilities to creditors of FW
Capital I as provided by applicable law, to the holders of such Trust Securities
a Like Amount of the Junior Subordinated Debentures, unless such distribution is
determined by the Property Trustee not to be practical, in which event such
holders will be entitled to receive out of the assets of FW Capital I available
for distribution to holders, after satisfaction of liabilities to creditors of
FW Capital I as provided by applicable law, an amount equal to, in the case of
holders of Preferred Securities, the aggregate of the Liquidation Amount of $10
per Trust Security plus accrued and unpaid Distributions thereon to the date of
payment (such amount being the "Liquidation Distribution"). If such Liquidation
Distribution can be paid only in part because FW Capital I has insufficient
assets available to pay in full the aggregate Liquidation Distribution, then the
amounts payable directly by FW Capital I on the Preferred Securities will be
paid on a pro rata basis. The holder(s) of the Common Securities will be
entitled to receive distributions upon any such liquidation pro rata with the
holders of the Preferred Securities, except that if a Debenture Event of Default
has occurred and is continuing, the Preferred Securities will have a priority
over the Common Securities.
Under current United States federal income tax law and interpretations
and assuming, as expected, FW Capital I is treated as a grantor trust, a
distribution of the Junior Subordinated Debentures should not be a taxable event
to holders of the Preferred Securities. Should there be a change in law, a
change in legal interpretation, a Tax Event or other circumstances, however, the
distribution could be a taxable event to holders of the Preferred Securities.
See "Certain Federal Income Tax Consequences." If the company elects neither to
redeem the Junior Subordinated Debentures prior to maturity nor to liquidate FW
Capital I and distribute the Junior Subordinated Debentures to holders of the
Preferred Securities, the Preferred Securities will remain outstanding until the
repayment of the Junior Subordinated Debentures.
If the company elects to liquidate FW Capital I and thereby causes the
Junior Subordinated Debentures to be distributed to holders of the Preferred
Securities in liquidation of FW Capital I, the company will continue to have the
right to shorten the maturity of such Junior Subordinated Debentures, subject to
certain conditions. See "Description of Junior Subordinated Debentures --
General."
EVENTS OF DEFAULT; NOTICE
Any one of the following events that has occurred and is continuing
constitutes an "Event of Default" under the Trust Agreement (an "Event of
Default") with respect to the Preferred Securities and Common Securities
(whatever the reason for such Event of Default and whether it shall be voluntary
or involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(i) the occurrence of a Debenture Event of Default under the Indenture
(see "Description of Junior Subordinated Debentures -- Debenture Events of
Default"); or
(ii) default by FW Capital I in the payment of any Distribution when it
becomes due and payable, and continuation of such default for a period of 30
days; or
(iii) default by FW Capital I in the payment of any Redemption Price of
any Trust Security when it becomes due and payable; or
(iv) default in the performance, or breach, in any material respect, of
any covenant or warranty of the Property Trustee in the Trust Agreement (other
than a default or breach in the performance of a
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covenant or warranty which is addressed in clause (ii) or (iii) above), and
continuation of such default or breach, for a period of 60 days after there has
been given, by registered or certified mail, to the Property Trustee by the
holders of at least 25% in aggregate Liquidation Amount of the outstanding
Preferred Securities, a written notice specifying such default or breach and
requiring it to be remedied and stating that such notice is a "Notice of
Default" under the Trust Agreement; or
(v) the occurrence of certain events of bankruptcy or insolvency with
respect to the Property Trustee and the failure by the company to appoint a
successor Property Trustee within 60 days thereof.
Within five Business Days after the occurrence of any Event of Default
actually known to the Property Trustee, the Property Trustee will transmit
notice of such Event of Default to the holders of the Preferred Securities, the
Administrative Trustees and the company, unless such Event of Default shall have
been cured or waived. The company and the Administrative Trustees are required
to file annually with the Property Trustee a certificate as to whether they are
in compliance with all the conditions and covenants applicable to them under the
Trust Agreement.
If a Debenture Event of Default has occurred and is continuing, the
Preferred Securities will have a preference over the Common Securities upon
termination of FW Capital I as described above. See "-- Liquidation Distribution
Upon Termination." Upon a Debenture Event of Default, unless the principal of
all the Junior Subordinated Debentures has already become due and payable,
either the Property Trustee or the holders of not less than 25% in aggregate
principal amount of the Junior Subordinated Debentures then outstanding may
declare all of the Junior Subordinated Debentures to be due and payable
immediately by giving notice in writing to the company (and to the Property
Trustee, if notice is given by holders of the Junior Subordinated Debentures).
If the Property Trustee or the holders of the Junior Subordinated Debentures
fail to declare the principal of all of the Junior Subordinated Debentures due
and payable upon a Debenture Event of Default, the holders of at least 25% in
Liquidation Amount of the Preferred Securities then outstanding will have the
right to declare the Junior Subordinated Debentures immediately due and payable.
In either event, payment of principal and interest on the Junior Subordinated
Debentures will remain subordinated to the extent provided in the Indenture. In
addition, holders of the Preferred Securities have the right in certain
circumstances to bring a Direct Action (as defined below). See "Description of
Junior Subordinated Debentures -- Enforcement of Certain Rights by Holders of
Preferred Securities."
REMOVAL OF TRUSTEES
Unless a Debenture Event of Default shall have occurred and be
continuing, any Trustee may be removed at any time by the holder of the Common
Securities. If a Debenture Event of Default has occurred and is continuing, the
Property Trustee and the Delaware Trustee may be removed at such time by the
holders of a majority in Liquidation Amount of the outstanding Preferred
Securities. In no event will the holders of the Preferred Securities have the
right to vote to appoint, remove or replace the Administrative Trustees, which
voting rights are vested exclusively in the company as the holder of the Common
Securities. No resignation or removal of a Trustee and no appointment of a
successor trustee will be effective until the acceptance of appointment by the
successor trustee in accordance with the provisions of the Trust Agreement.
CO-TRUSTEES AND SEPARATE PROPERTY TRUSTEE
Unless an Event of Default shall have occurred and be continuing, at
any time or times, for the purpose of meeting the legal requirements of the
Trust Indenture Act or of any jurisdiction in which any part of Trust Property
may at the time be located, the company, as the holder of the Common Securities,
and the Administrative Trustees will have power to appoint one or more persons
either to act as a co-trustee, jointly with the Property Trustee, of all or any
part of such Trust Property, or to act as separate trustee of any such property,
in either case with such powers as may be provided in the instrument of
appointment,
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and to vest in such person or persons in such capacity any property, title,
right or power deemed necessary or desirable, subject to the provisions of the
Trust Agreement. In case a Debenture Event of Default has occurred and is
continuing, the Property Trustee alone will have power to make such
appointment.
MERGER OR CONSOLIDATION OF TRUSTEES
Any Person (as defined in the Trust Agreement) into which the Property
Trustee, the Delaware Trustee or any Administrative Trustee that is not a
natural person may be merged or converted or with which it may be consolidated,
or any Person resulting from any merger, conversion or consolidation to which
such Trustee will be a party, or any Person succeeding to all or substantially
all the corporate trust business of such Trustee, shall be the successor of such
Trustee under the Trust Agreement, provided such Person shall be otherwise
qualified and eligible.
MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF FW CAPITAL I
FW Capital I may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any corporation or other Person, except as
described below. FW Capital I may, at the request of the company, with the
consent of the Administrative Trustees and without the consent of the holders of
the Preferred Securities, the Property Trustee or the Delaware Trustee, merge
with or into, consolidate, amalgamate, or be replaced by or convey, transfer or
lease its properties and assets substantially as an entirety to a trust
organized as such under the laws of any State; provided, that (i) such successor
entity either (a) expressly assumes all of the obligations of FW Capital I with
respect to the Preferred Securities or (b) substitutes for the Preferred
Securities other securities having substantially the same terms as the Preferred
Securities (the "Successor Securities") so long as the Successor Securities rank
the same as the Preferred Securities rank in priority with respect to
distributions and payments upon liquidation, redemption and otherwise, (ii) the
company expressly appoints a trustee of such successor entity possessing the
same powers and duties as the Property Trustee as the holder of the Junior
Subordinated Debentures, (iii) any such transaction does not adversely affect
the rights, preferences and privileges of the holders of the Preferred
Securities (including any Successor Securities) in any material respect, (iv)
such successor entity has a purpose identical to that of FW Capital I, (v) the
Successor Securities will be listed or traded on any national securities
exchange or other organization on which the Preferred Securities may then be
listed, (vi) prior to such a transaction, the company has received an opinion
from independent counsel to FW Capital I experienced in such matters to the
effect that (a) such transaction does not adversely affect the rights,
preferences and privileges of the holders of the Preferred Securities (including
any Successor Securities) in any material respect, and (b) following any such
transaction, neither FW Capital I nor such successor entity will be required to
register as an investment company under the Investment Company Act and (vii) the
company or any permitted successor or designee owns all of the common securities
of such successor entity and guarantees the obligations of such successor entity
under the Successor Securities at least to the extent provided by the Guarantee.
Notwithstanding the foregoing, FW Capital I shall not, except with the consent
of holders of 100% in Liquidation Amount of the Preferred Securities, enter into
any such transaction, or permit any other entity to consolidate, amalgamate,
merge with or into, or replace it if such transaction, would cause FW Capital I
or the successor entity to be classified as other than a grantor trust for
United States federal income tax purposes.
VOTING RIGHTS; AMENDMENT OF THE TRUST AGREEMENT
Except as provided below and under "Description of Guarantee --
Amendments and Assignment" and as otherwise required by law and the Trust
Agreement, the holders of the Preferred Securities will have no voting rights.
The Trust Agreement may be amended from time to time by the company and
the Trustees, without the consent of the holders of the Trust Securities, (i) to
cure any ambiguity, correct or supplement any
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provisions in the Trust Agreement that may be inconsistent with any other
provision, or to make any other provisions with respect to matters or questions
arising under the Trust Agreement, which shall not be inconsistent with the
other provisions of the Trust Agreement, or (ii) to modify, eliminate or add to
any provisions of the Trust Agreement to such extent as will be necessary to
ensure that FW Capital I will be classified for United States federal income
tax purposes as a grantor trust at all times that any Trust Securities are
outstanding or to ensure that FW Capital I will not be required to register as
an "investment company" under the Investment Company Act; provided, however,
that in the case of clause (i), such action shall not adversely affect in any
material respect the interests of any holder of Trust Securities, and any
amendments of the Trust Agreement shall become effective when notice thereof is
given to the holders of the Trust Securities. The Trust Agreement may be
amended by the Trustees and the company (i) with the consent of holders
representing not less than a majority of the aggregate Liquidation Amount of
the outstanding Trust Securities, and (ii) upon receipt by the Trustees of an
opinion of counsel to the effect that such amendment or the exercise of any
power granted to the Trustees in accordance with such amendment will not affect
FW Capital I's status as a grantor trust for United States federal income tax
purposes or FW Capital I's exemption from status as an "investment company"
under the Investment Company Act, provided that without the consent of each
holder of Trust Securities, the Trust Agreement may not be amended to (i)
change the amount or timing of any Distribution on the Trust Securities or
otherwise adversely affect the amount of any Distribution required to be made
in respect of the Trust Securities as of a specified date or (ii) restrict the
right of a holder of Trust Securities to institute suit for the enforcement of
any such payment on or after such date.
So long as any Junior Subordinated Debentures are held by the Property
Trustee, the Trustees shall not (i) direct the time, method and place of
conducting any proceeding for any remedy available to the Indenture Trustee, or
executing any trust or power conferred on the Indenture Trustee with respect to
the Junior Subordinated Debentures, (ii) waive any past default that is waivable
under the Indenture, (iii) exercise any right to rescind or annul a declaration
that the principal of all the Junior Subordinated Debentures shall be due and
payable or (iv) consent to any amendment, modification or termination of the
Indenture or the Junior Subordinated Debentures, where such consent shall be
required, without, in each case, obtaining the prior approval of the holders of
a majority in aggregate Liquidation Amount of all outstanding Preferred
Securities; provided, however, that where a consent under the Indenture would
require the consent of each holder of Junior Subordinated Debentures affected
thereby, no such consent may be given by the Property Trustee without the prior
consent of each holder of the Preferred Securities. The Trustees shall not
revoke any action previously authorized or approved by a vote of the holders of
the Preferred Securities except by subsequent vote of the holders of the
Preferred Securities. The Property Trustee will notify each holder of the
Preferred Securities of any notice of default with respect to the Junior
Subordinated Debentures. In addition to obtaining the foregoing approvals of
such holders of the Preferred Securities, prior to taking any of the foregoing
actions, the Trustees shall obtain an opinion of counsel experienced in such
matters to the effect that FW Capital I will not be classified as an association
taxable as a corporation for United States federal income tax purposes on
account of such action.
Any required approval of holders of the Preferred Securities may be
given at a meeting of holders of Preferred Securities convened for such purpose
or pursuant to written consent. The Property Trustee will cause a notice of
any meeting at which holders of the Preferred Securities are entitled to vote,
or of any matter upon which action by written consent of such holders is to be
taken, to be given to each holder of record of the Preferred Securities in the
manner set forth in the Trust Agreement.
No vote or consent of the holders of the Preferred Securities will be
required for FW Capital I to redeem and cancel the Preferred Securities in
accordance with the Trust Agreement.
Notwithstanding that holders of the Preferred Securities are entitled
to vote or consent under any of the circumstances described above, any of the
Preferred Securities that are owned by the company, the Trustees or any
affiliate of the company or any Trustees, shall, for purposes of such vote or
consent, be treated as if they were not outstanding.
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GLOBAL PREFERRED SECURITIES
The Preferred Securities will be represented by one or more global
certificates registered in the name of the Depositary or its nominee ("Global
Preferred Security"). Beneficial interests in the Preferred Securities will be
shown on, and transfers thereof will be effected only through, records
maintained by participants in the Depositary. Except as described below,
Preferred Securities in certificated form will not be issued in exchange for the
global certificates. See "Book-Entry Issuance."
A global security will be exchangeable for Preferred Securities
registered in the names of persons other than the Depositary or its nominee only
if (i) the Depositary notifies the company that it is unwilling or unable to
continue as a depositary for such global security and no successor depositary
shall have been appointed, or if at any time the Depositary ceases to be a
clearing agency registered under the Exchange Act, at a time when the Depositary
is required to be so registered to act as such depositary, (ii) the company in
its sole discretion determines that such global security shall be so
exchangeable, or (iii) there shall have occurred and be continuing an Event of
Default under the Indenture. Any global security that is exchangeable pursuant
to the preceding sentence shall be exchangeable for definitive certificates
registered in such names as the Depositary directs. It is expected that such
instructions will be based upon directions received by the Depositary with
respect to ownership of beneficial interests in such global security. In the
event that Preferred Securities are issued in definitive form, they will be in
denominations of $10 and integral multiples thereof and may be transferred or
exchanged at the offices described below.
Unless and until it is exchanged in whole or in part for the individual
Preferred Securities represented thereby, such Global Preferred Security may not
be transferred except as a whole by the Depositary to a nominee of such
Depositary or by a nominee of such Depositary to such Depositary or another
nominee of such Depositary or by the Depositary or any nominee to a successor
Depositary or any nominee of such successor.
Payments on Preferred Securities represented by a global security will
be made to the Depositary, as the depositary for the Preferred Securities. In
the event the Preferred Securities are issued in definitive form, Distributions
will be payable, the transfer of the Preferred Securities will be registrable,
and Preferred Securities will be exchangeable for Preferred Securities of other
denominations of a like aggregate Liquidation Amount, at the corporate office of
the Property Trustee, or at the offices of any paying agent or transfer agent
appointed by the Administrative Trustees, provided that payment of any
Distribution may be made at the option of the Administrative Trustees by check
mailed to the address of the persons entitled thereto or by wire transfer. In
addition, if the Preferred Securities are issued in certificated form, the
record dates for payment of Distributions will be the first day of the month in
which the relevant Distribution Date occurs. For a description of the terms of
the depositary arrangements relating to payments, transfers, voting rights,
redemptions and other notices and other matters, see "Book-Entry Issuance."
Upon the issuance of a Global Preferred Security, and the deposit of
such Global Preferred Security with or on behalf of the Depositary, the
Depositary or its nominee will credit, on its book-entry registration and
transfer system, the respective aggregate Liquidation Amounts of the individual
Preferred Securities represented by such Global Preferred Security to persons
that have accounts with such Depositary ("Participants"). Such accounts shall be
designated by the dealers, Underwriters or agents with respect to such Preferred
Securities. Ownership of beneficial interests in a Global Preferred Security
will be limited to Participants or persons that may hold interests through
Participants. Ownership of beneficial interests in such Global Preferred
Security will be shown on, and the transfer of that ownership will be effected
only through, records maintained by the Depositary or its nominee (with respect
to interests of Participants) and the records of Participants (with respect to
interests of persons who hold through Participants). The laws of some states
require that certain purchasers of securities take physical delivery of such
securities in definitive form. Such limits and such laws may impair the ability
to transfer beneficial interests in a Global Preferred Security.
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So long as the Depositary for a Global Preferred Security, or its
nominee, is the registered owner of such Global Preferred Security, such
Depositary or such nominee, as the case may be, will be considered the sole
owner or holder of the Preferred Securities represented by such Global
Preferred Security for all purposes under the Trust Agreement governing such
Preferred Securities. Except as provided below, owners of beneficial interests
in a Global Preferred Security will not be entitled to have any of the
individual Preferred Securities represented by such Global Preferred Security
registered in their names, will not receive or be entitled to receive physical
delivery of any such Preferred Securities in definitive form and will not be
considered the owners or holders thereof under the Trust Agreement.
None of the company, the Property Trustee, any Paying Agent, or the
Securities Registrar (defined below) for such Preferred Securities will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests of the Global
Preferred Security representing such Preferred Securities or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
The company expects that the Depositary for Preferred Securities or its
nominee, upon receipt of any payment of the Liquidation Amount or Distributions
in respect of a permanent Global Preferred Security, immediately will credit
Participants' accounts with payments in amounts proportionate to their
respective beneficial interest in the aggregate Liquidation Amount of such
Global Preferred Security as shown on the records of such Depositary or its
nominee. The company also expects that payments by Participants to owners of
beneficial interests in such Global Preferred Security held through such
Participants will be governed by standing instructions and customary practices,
as is now the case with securities held for the accounts of customers in bearer
form or registered in "street name." Such payments will be the responsibility of
such Participants.
If the Depositary for the Preferred Securities is at any time
unwilling, unable or ineligible to continue as depositary and a successor
depositary is not appointed by the company within 90 days, FW Capital I will
issue individual Preferred Securities in exchange for the Global Preferred
Security. In addition, FW Capital I may at any time and in its sole discretion,
subject to any limitations described herein relating to such Preferred
Securities, determine not to have any Preferred Securities represented by one or
more Global Preferred Securities and, in such event, will issue individual
Preferred Securities in exchange for the Global Preferred Security or Securities
representing the Preferred Securities. Further, if FW Capital I so specifies
with respect to the Preferred Securities, an owner of a beneficial interest in a
Global Preferred Security representing Preferred Securities may, on terms
acceptable to the company, the Property Trustee and the Depositary for such
Global Preferred Security, receive individual Preferred Securities in exchange
for such beneficial interests, subject to any limitations described herein. In
any such instance, an owner of a beneficial interest in a Global Preferred
Security will be entitled to physical delivery of individual Preferred
Securities represented by such Global Preferred Security equal in Liquidation
Amount to such beneficial interest and to have such Preferred Securities
registered in its name. Individual Preferred Securities so issued will be issued
in denominations, unless otherwise specified by FW Capital I, of $10 and
integral multiples thereof.
PAYMENT AND PAYING AGENCY
Payments in respect of the Preferred Securities will be made to the
Depositary, which will credit the relevant accounts at the Depositary on the
applicable Distribution Dates or, if any of the Preferred Securities are not
held by the Depositary, such payments will be made by check mailed to the
address of the holder entitled thereto as such address will appear on the
Register. The paying agent (the "Paying Agent") will initially be the Property
Trustee and any co-paying agent chosen by the Property Trustee and acceptable to
the Administrative Trustees and the company. The Paying Agent will be permitted
to resign as Paying Agent upon 30 days' written notice to the Property Trustee
and the company. In the event that the Property Trustee shall no longer be the
Paying Agent, the Administrative Trustees will appoint a
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successor (which shall be a bank or trust company acceptable to the
Administrative Trustees and the company) to act as Paying Agent.
REGISTRAR AND TRANSFER AGENT
The Property Trustee will act as registrar and transfer agent for the
Preferred Securities. Registration of transfers of the Preferred Securities
will be effected without charge by or on behalf of FW Capital I, but upon
payment of any tax or other governmental charges that may be imposed in
connection with any transfer or exchange. FW Capital I will not be required to
register or cause to be registered the transfer of the Preferred Securities
after such Preferred Securities have been called for redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, other than upon the occurrence and during the
continuance of an Event of Default, undertakes to perform only such duties as
are specifically set forth in the Trust Agreement and, after such Event of
Default, must exercise the same degree of care and skill as a prudent person
would exercise or use in the conduct of his or her own affairs. Subject to
this provision, the Property Trustee is under no obligation to exercise any of
the powers vested in it by the Trust Agreement at the request of any holder of
Preferred Securities unless it is offered reasonable indemnity against the
costs, expenses and liabilities that might be incurred thereby. If no Event of
Default has occurred and is continuing and the Property Trustee is required to
decide between alternative causes of action, construe ambiguous provisions in
the Trust Agreement or is unsure of the application of any provision of the
Trust Agreement, and the matter is not one on which holders of the Preferred
Securities are entitled under the Trust Agreement to vote, then the Property
Trustee shall take such action as is directed by the company and if not so
directed, shall take such action as it deems advisable and in the best
interests of the holders of the Trust Securities and will have no liability
except for its own bad faith, negligence or willful misconduct.
MISCELLANEOUS
The Administrative Trustees are authorized and directed to conduct the
affairs of and to operate FW Capital I in such a way that FW Capital I will not
be deemed to be an "investment company" required to be registered under the
Investment Company Act or classified as an association taxable as a corporation
for United States federal income tax purposes and so that the Junior
Subordinated Debentures will be treated as indebtedness of the company for
United States federal income tax purposes. In this regard, the company and the
Administrative Trustees are authorized to take any action, not inconsistent
with applicable law, the certificate of trust of FW Capital I or the Trust
Agreement, that the company and the Administrative Trustees determine in their
discretion to be necessary or desirable for such purposes, as long as such
action does not materially adversely affect the interests of the holders of the
related Preferred Securities. Holders of the Preferred Securities have no
preemptive or similar rights.
FW Capital I may not borrow money or issue debt or mortgage or pledge
any of its assets.
DESCRIPTION OF JUNIOR SUBORDINATED DEBENTURES
The Junior Subordinated Debentures will be issued under the
Subordinated Indenture, dated as of _________, 1998 (the "Indenture"), between
the company and Wilmington Trust Company, as trustee (the "Indenture Trustee").
The following summary of the terms and provisions of the Junior Subordinated
Debentures and the Indenture does not purport to be complete and is subject to,
and is qualified in its entirety by reference to, the Indenture, which has been
filed as an exhibit to the Registration Statement of which this prospectus forms
a part, and to the Trust Indenture Act. The Indenture is qualified under the
Trust Indenture Act. Whenever particular defined terms of the Indenture are
referred to herein, such defined terms are incorporated herein or therein by
reference.
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Concurrently with the issuance of the Preferred Securities, FW Capital
I will invest the proceeds thereof, together with the consideration paid by the
company for the Common Securities, in Junior Subordinated Debentures issued by
the company. The Junior Subordinated Debentures will be issued as unsecured debt
under the Indenture.
GENERAL
The Junior Subordinated Debentures will bear interest at the annual
rate of % of the principal amount thereof, payable quarterly in arrears on the
15th day of January, April, July and October of each year (each, an "Interest
Payment Date"), commencing April 15, 1999, to the person in whose name each
Junior Subordinated Debenture is registered, subject to certain exceptions, at
the close of business on the Business Day next preceding such Interest Payment
Date. Notwithstanding the above, in the event that either the (i) Junior
Subordinated Debentures are held by the Property Trustee and the Preferred
Securities are no longer in book-entry only form or (ii) the Junior Subordinated
Debentures are not represented by a Global Subordinated Debenture (as defined
herein), the record date for such payment shall be the first day of the month in
which such payment is made. The amount of each interest payment due with respect
to the Junior Subordinated Debentures will include amounts accrued through the
Interest Payment Date. It is anticipated that, until the liquidation, if any, of
FW Capital I, each Junior Subordinated Debenture will be held in the name of the
Property Trustee in trust for the benefit of the holders of the Preferred
Securities. The amount of interest payable for any period will be computed on
the basis of a 360-day year of twelve 30-day months. In the event that any date
on which interest is payable on the Junior Subordinated Debentures is not a
Business Day, then payment of the interest payable on such date will be made on
the next Business Day (and without any interest or other payment in respect of
any such delay), except that, if such Business Day is in the next succeeding
calendar year, such payment shall be made on the immediately preceding Business
Day, in each case with the same force and effect as if made on the date such
payment was originally payable. Accrued interest that is not paid on the
applicable Interest Payment Date will bear additional interest on the amount
thereof (to the extent permitted by law) at the rate per annum of __% thereof,
compounded quarterly. The term "interest" as used herein shall include quarterly
interest payments, interest on quarterly interest payments not paid on the
applicable Interest Payment Date and Additional Sums (as defined below), as
applicable.
The Junior Subordinated Debentures will mature on ___________, 2028
(such date, as it may be shortened as hereinafter described, the "Stated
Maturity"). Such date may be shortened once at any time by the company to any
date not earlier than ___________, 2003, subject to the company having received
prior approval of the Federal Reserve if then required under applicable capital
guidelines or policies of the Federal Reserve. In the event that the company
elects to shorten the stated maturity of the Junior Subordinated Debentures, it
will give notice to the registered holders of the Junior Subordinated
Debentures, the Property Trustee and the Indenture Trustee of such shortening no
less than 90 days prior to the effectiveness thereof. The Property Trustee must
give notice to the holders of the Trust Securities of the shortening of the
stated maturity.
The Junior Subordinated Debentures will be unsecured and will rank
junior and be subordinate in right of payment to all Senior and Subordinated
Debt of the company. Because the company is a holding company, the right of
the company to participate in any distribution of assets of any subsidiaries,
including its banks, upon any such subsidiaries' liquidation or reorganization
or otherwise (and thus the ability of holders of the Preferred Securities to
benefit indirectly from such distribution), is subject to the prior claims of
creditors of that subsidiary, except to the extent that the company may itself
be recognized as a creditor of that subsidiary. Accordingly, the Junior
Subordinated Debentures will be effectively subordinated to all existing and
future liabilities of the company's subsidiaries, and holders of Junior
Subordinated Debentures should look only to the assets of the company for
payments on the Junior Subordinated Debentures. The Indenture does not limit
the incurrence or issuance of other secured or unsecured debt of the company,
including Senior and Subordinated Debt, whether under the Indenture or any
existing or other indenture that the company may enter into in the future or
otherwise. See "Subordination" below.
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OPTION TO EXTEND INTEREST PAYMENT PERIOD
So long as no Debenture Event of Default has occurred and is
continuing, the company has the right under the Indenture at any time during the
term of the Junior Subordinated Debentures to defer the payment of interest at
any time or from time to time for a period not exceeding 20 consecutive quarters
(each such period an "Extension Period"), provided that no Extension Period may
extend beyond the stated maturity. At the end of such Extension Period, the
company must pay all interest then accrued and unpaid (together with interest
thereon at the annual rate of __%, compounded quarterly, to the extent permitted
by applicable law). During an Extension Period, interest will continue to accrue
and holders of Junior Subordinated Debentures will be required to accrue
interest income for United States federal income tax purposes. See "Certain
Federal Income Tax Consequences -- Potential Extension of Interest Payment
Period and Original Issue Discount."
During any such Extension Period, the company may not (i) declare or
pay any dividends or distributions on, or redeem, purchase, acquire, or make a
liquidation payment with respect to, any of the company's capital stock or (ii)
make any payment of principal, interest or premium, if any, on or repay,
repurchase or redeem any debt securities of the company (including other Junior
Subordinated Debentures) that rank pari passu with or junior in interest to the
Junior Subordinated Debentures or make any guarantee payments with respect to
any guarantee by the company of the debt securities of any subsidiary of the
company if such guarantee ranks pari passu with or junior in interest to the
Junior Subordinated Debentures (other than (a) dividends or distributions in
common stock of the company, (b) any declaration of a dividend in connection
with the implementation of a stockholders' rights plan, or the issuance of stock
under any such plan in the future, or the redemption or repurchase of any such
rights pursuant thereto, (c) payments under the Guarantee, and (d) purchases of
common stock related to rights under any of the company's benefit plans for its
directors, officers or employees). Prior to the termination of any such
Extension Period, the company may further extend such Extension Period, provided
that such extension does not cause such Extension Period to exceed 20
consecutive quarters or extend beyond the stated maturity. Upon the termination
of any such Extension Period and the payment of all amounts then due on any
Interest Payment Date, the company may elect to begin a new Extension Period
subject to the above requirements. No interest shall be due and payable during
an Extension Period, except at the end thereof. If the Property Trustee is the
only Registered Holder of the Junior Subordinated Debentures, the company must
give the Property Trustee, the Administrative Trustees and the Indenture Trustee
notice of its election of any Extension Period at least one Business Day prior
to the earlier of (i) the date the Distributions on the Preferred Securities
would have been payable except for the election to begin or extend such
Extension Period or (ii) the date the Administrative Trustees are required to
give notice to the holders of the Preferred Securities of the record date or the
date such Distributions are payable, but in any event not less than one Business
Day prior to such record date. The Indenture Trustee shall give notice of the
company's election to begin or extend a new Extension Period to the
Administrative Trustees who, in turn, will give notice to the holders of the
Preferred Securities. There is no limitation on the number of times that the
company may elect to begin an Extension Period.
ADDITIONAL SUMS
If FW Capital I is required to pay any additional taxes, duties or
other governmental charges as a result of a Tax Event, the company will pay as
additional amounts on the Junior Subordinated Debentures such amounts
("Additional Sums") as shall be required so that the Distributions payable by FW
Capital I shall not be reduced as a result of any such additional taxes, duties
or other governmental charges.
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REDEMPTION
Subject to the company having received prior approval of the Federal
Reserve, if then required under applicable capital guidelines or policies of the
Federal Reserve, the Junior Subordinated Debentures are redeemable prior to
maturity at the option of the company (i) on or after ________, 2003, in whole
at any time or in part from time to time, or (ii) at any time in whole (but not
in part), upon the occurrence and during the continuance of a Tax Event, an
Investment Company Event or a Capital Treatment Event, in each case at a
redemption price equal to the accrued and unpaid interest on the Junior
Subordinated Debentures so redeemed to the date fixed for redemption, plus 100%
of the principal amount thereof.
Notice of any redemption will be mailed at least 30 days but not more
than 60 days before the Redemption Date to each holder of Junior Subordinated
Debentures to be redeemed at such holder's registered address. Unless the
company defaults in payment of the Redemption Price, on and after the Redemption
Date interest ceases to accrue on such Junior Subordinated Debentures or
portions thereof called for redemption.
The Junior Subordinated Debentures will not be subject to any sinking
fund.
DISTRIBUTION UPON LIQUIDATION
As described under "Description of the Preferred Securities -
Liquidation Distribution Upon Termination," under certain circumstances
involving the termination of FW Capital I, the Junior Subordinated Debentures
may be distributed to the holders of the Preferred Securities and Common
Securities in liquidation of FW Capital I after satisfaction of liabilities to
creditors of FW Capital I as provided by applicable law. If distributed to
holders of the Preferred Securities in liquidation, the Junior Subordinated
Debentures will initially be issued in the form of one or more global securities
and the Depositary, or any successor depositary for the Preferred Securities,
will act as depositary for the Junior Subordinated Debentures. It is anticipated
that the depositary arrangements for the Junior Subordinated Debentures would be
substantially identical to those in effect for the Preferred Securities. If the
Junior Subordinated Debentures are distributed to the holders of Preferred
Securities upon the liquidation of FW Capital I, there can be no assurance as to
the market price of any Junior Subordinated Debentures that may be distributed
to the holders of Preferred Securities.
RESTRICTIONS ON CERTAIN PAYMENTS
If at any time (i) there shall have occurred any event of which the
company has actual knowledge that (a) with the giving of notice or the lapse of
time, or both, would constitute a Debenture Event of Default and (b) in respect
of which the company shall not have taken reasonable steps to cure, or (ii) the
company shall have given notice of its election of an Extension Period as
provided in the Indenture with respect to the Junior Subordinated Debentures and
shall not have rescinded such notice, or such Extension Period, or any extension
thereof, shall be continuing, or (iii) while the Junior Subordinated Debentures
are held by FW Capital I, the company shall be in default with respect to its
payment of any obligation under the Guarantee, then the company will not (1)
declare or pay any dividends or distributions on, or redeem, purchase, acquire,
or make a liquidation payment with respect to, any of the company's capital
stock or (2) make any payment of principal, interest or premium, if any, on or
repay, repurchase or redeem any debt securities of the company (including other
Junior Subordinated Debt) that rank pari passu with or junior in interest to the
Junior Subordinated Debentures or make any guarantee payments with respect to
any guarantee by the company of the debt securities of any subsidiary of the
company if such guarantee ranks pari passu or junior in interest to the Junior
Subordinated Debentures (other than (a) dividends or distributions in common
stock, (b) any declaration of a dividend in connection with the implementation
of a stockholders' rights plan, or the issuance of stock under any such plan in
the future or the redemption or repurchase of any such rights pursuant thereto,
(c) payments under the Guarantee and (d) purchases
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of common stock related to rights under any of the company's benefit plans for
its directors, officers or employees).
SUBORDINATION
In the Indenture, the company has agreed that any Junior Subordinated
Debentures will be subordinate and junior in right of payment to all Senior and
Subordinated Debt to the extent provided in the Indenture. Upon any payment or
distribution of assets to creditors upon any liquidation, dissolution, winding
up, reorganization, assignment for the benefit of creditors, marshaling of
assets or any bankruptcy, insolvency, debt restructuring or similar proceedings
in connection with any insolvency or bankruptcy proceeding of the company, the
holders of Senior and Subordinated Debt will first be entitled to receive
payment in full of principal of (and premium, if any) and interest, if any, on
such Senior and Subordinated Debt before the holders of Junior Subordinated
Debentures will be entitled to receive or retain any payment in respect of the
principal of or interest, if any, on the Junior Subordinated Debentures.
In the event of the acceleration of the maturity of any Junior
Subordinated Debentures, the holders of all Senior and Subordinated Debt
outstanding at the time of such acceleration will first be entitled to receive
payment in full of all amounts due thereon (including any amounts due upon
acceleration) before the holders of Junior Subordinated Debentures will be
entitled to receive or retain any payment in respect of the principal of or
interest, if any, on the Junior Subordinated Debentures; provided, however,
that holders of subordinated debt shall not be entitled to receive payment of
any such amounts to the extent that such subordinated debt is by its terms
subordinated to trade creditors.
No payments on account of principal or interest, if any, in respect of
the Junior Subordinated Debentures may be made if there shall have occurred and
be continuing a default in any payment with respect to Senior and Subordinated
Debt or an event of default with respect to any Senior and Subordinated Debt
resulting in the acceleration of the maturity thereof, or if any judicial
proceeding shall be pending with respect to any such default.
"Debt" means with respect to any person, whether recourse is to all or
a portion of the assets of such person and whether or not contingent: (i) every
obligation of such person for money borrowed; (ii) every obligation of such
person evidenced by bonds, debentures, notes or other similar instruments,
including obligations incurred in connection with the acquisition of property,
assets or businesses; (iii) every reimbursement obligation of such person with
respect to letters of credit, bankers' acceptances or similar facilities issued
for the account of such person; (iv) every obligation of such person issued or
assumed as the deferred purchase price of property or services (but excluding
trade accounts payable or accrued liabilities arising in the ordinary course of
business); (v) every capital lease obligation of such person; and (vi) every
obligation of the type referred to in clauses (i) through (v) of another person
and all dividends of another person the payment of which, in either case, such
person has guaranteed or is responsible or liable, directly or indirectly, as
obligor or otherwise.
"Senior and Subordinated Debt" means the principal of (and premium, if
any) and interest, if any (including interest accruing on or after the filing of
any petition in bankruptcy or for reorganization relating to the company whether
or not such claim for post-petition interest is allowed in such proceeding), on
Debt, whether incurred on or prior to the date of the Indenture or thereafter
incurred, unless, in the instrument creating or evidencing the same or pursuant
to which the same is outstanding, it is provided that such obligations are not
superior in right of payment to the Junior Subordinated Debentures or to other
Debt which is pari passu with, or subordinated to, the Junior Subordinated
Debentures; provided, however, that Senior and Subordinated Debt shall not be
deemed to include (i) any Debt of the company which when incurred and without
respect to any election under section 1111(b) of the United States Bankruptcy
Code of 1978, as amended, was without recourse to the company, (ii) any Debt of
the company to any of its subsidiaries, (iii) any Debt to any employee of the
company, (iv) any Debt which by its terms is subordinated to trade accounts
payable or accrued liabilities arising in the ordinary course of business to
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the extent that payments made to the holders of such Debt by the holders of the
Junior Subordinated Debentures as a result of the subordination provisions of
the Indenture would be greater than they otherwise would have been as a result
of any obligation of such holders to pay amounts over to the obligees on such
trade accounts payable or accrued liabilities arising in the ordinary course of
business as a result of subordination provisions to which such Debt is subject,
(v) the Guarantee, and (vi) any other debt securities issued pursuant to the
Indenture.
The Indenture places no limitation on the amount of additional Senior
and Subordinated Debt that may be incurred by the company. The company expects
from time to time to incur additional indebtedness constituting Senior and
Subordinated Debt.
DENOMINATIONS, REGISTRATION AND TRANSFER
The Junior Subordinated Debentures will be represented by global
certificates registered in the name of the Depositary or its nominee ("Global
Subordinated Debenture"). Beneficial interests in the Junior Subordinated
Debentures will be shown on, and transfers thereof will be effected only
through, records maintained by the Depositary. Except as described below, Junior
Subordinated Debentures in certificated form will not be issued in exchange for
the global certificates. See "Book-Entry Issuance."
Unless and until a Global Subordinated Debenture is exchanged in whole
or in part for the individual Junior Subordinated Debentures represented
thereby, it may not be transferred except as a whole by the Depositary for such
Global Subordinated Debenture to a nominee of such Depositary or by a nominee
of such Depositary to such Depositary or another nominee of such Depositary or
by the Depositary or any nominee to a successor Depositary or any nominee of
such successor.
A global security shall be exchangeable for Junior Subordinated
Debentures registered in the names of persons other than the Depositary or its
nominee only if (i) the Depositary notifies the company that it is unwilling or
unable to continue as a depositary for such global security and no successor
depositary shall have been appointed, or if at any time the Depositary ceases to
be a clearing agency registered under the Exchange Act at a time when the
Depositary is required to be so registered to act as such depositary or (ii) the
company in its sole discretion determines that such global security shall be so
exchangeable. Any global security that is exchangeable pursuant to the preceding
sentence shall be exchangeable for definitive certificates registered in such
names as the Depositary shall direct. It is expected that such instructions will
be based upon directions received by the Depositary from its Participants with
respect to ownership of beneficial interests in such global security. In the
event that Junior Subordinated Debentures are issued in definitive form, such
Junior Subordinated Debentures will be in denominations of $10 and integral
multiples thereof and may be transferred or exchanged at the offices described
below.
Payments on Junior Subordinated Debentures represented by a global
security will be made to the Depositary, as the depositary for the Junior
Subordinated Debentures. In the event Junior Subordinated Debentures are issued
in definitive form, principal and interest will be payable, the transfer of the
Junior Subordinated Debentures will be registrable, and Junior Subordinated
Debentures will be exchangeable for Junior Subordinated Debentures of other
denominations of a like aggregate principal amount, at the corporate office of
the Indenture Trustee, or at the offices of any paying agent or transfer agent
appointed by the company, provided that payment of interest may be made at the
option of the company by check mailed to the address of the persons entitled
thereto or by wire transfer. In addition, if the Junior Subordinated Debentures
are issued in certificated form, the record dates for payment of interest will
be the first day of the month in which such payment is to be made. For a
description of the Depositary and the terms of the depositary arrangements
relating to payments, transfers, voting rights, redemptions and other notices
and other matters, see "Book-Entry Issuance."
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The company will appoint the Indenture Trustee as securities registrar
under the Indenture (the "Securities Registrar"). Junior Subordinated Debentures
may be presented for exchange as provided above, and may be presented for
registration of transfer (with the form of transfer endorsed thereon, or a
satisfactory written instrument of transfer, duly executed), at the office of
the Securities Registrar. The company may at any time rescind the designation of
any such registrar or approve a change in the location through which any such
registrar acts, provided that the company maintains a registrar in the place of
payment. The company may at any time designate additional registrars with
respect to the Junior Subordinated Debentures.
In the event of any redemption, neither the company nor the Indenture
Trustee shall be required to issue or register the transfer of Junior
Subordinated Debentures during a period beginning at the opening of business 15
days before the day of selection for redemption of Junior Subordinated
Debentures and ending at the close of business on the day of mailing of the
relevant notice of redemption.
GLOBAL SUBORDINATED DEBENTURE
Upon the issuance of the Global Subordinated Debenture, and the deposit
of such Global Subordinated Debenture with or on behalf of the Depositary, the
Depositary for such Global Subordinated Debenture or its nominee will credit, on
its book-entry registration and transfer system, the respective principal
amounts of the individual Junior Subordinated Debentures represented by such
Global Subordinated Debenture to Participants. Ownership of beneficial interests
in a Global Subordinated Debenture will be limited to Participants or persons
that may hold interests through Participants. Ownership of beneficial interests
in such Global Subordinated Debenture will be shown on, and the transfer of that
ownership will be effected only through, records maintained by the applicable
Depositary or its nominee (with respect to interests of Participants) and the
records of Participants (with respect to interests of persons who hold through
Participants). The laws of some states require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
limits and such laws may impair the ability to transfer beneficial interests in
a Global Subordinated Debenture.
So long as the Depositary for a Global Subordinated Debenture, or its
nominee, is the registered owner of such Global Subordinated Debenture, such
Depositary or such nominee, as the case may be, will be considered the sole
owner or holder of the Junior Subordinated Debentures represented by such Global
Subordinated Debenture for all purposes under the Indenture governing such
Junior Subordinated Debentures. Except as provided below, owners of beneficial
interests in a Global Subordinated Debenture will not be entitled to have any of
the individual Junior Subordinated Debentures represented by such Global
Subordinated Debenture registered in their names, will not receive or be
entitled to receive physical delivery of any such Junior Subordinated Debentures
in definitive form and will not be considered the owners or holders thereof
under the Indenture.
Payments of principal of and interest on individual Junior Subordinated
Debentures represented by a Global Subordinated Debenture registered in the name
of the Depositary or its nominee will be made to the Depositary or its nominee,
as the case may be, as the registered owner of the Global Subordinated Debenture
representing such Junior Subordinated Debentures. None of the company, the
Indenture Trustee, any Paying Agent, or the Securities Registrar for such Junior
Subordinated Debentures will have any responsibility or liability for any aspect
of the records relating to or payments made on account of beneficial ownership
interests of the Global Subordinated Debenture representing such Junior
Subordinated Debentures or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests.
The company expects that the Depositary or its nominee, upon receipt of
any payment of principal or interest in respect of the Global Subordinated
Debenture representing the Junior Subordinated Debentures, immediately will
credit Participants' accounts with payments in amounts proportionate to their
respective beneficial interest in the principal amount of the Global
Subordinated Debenture as shown on
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the records of such Depositary or its nominee. The company also expects that
payments by Participants to owners of beneficial interests in such Global
Subordinated Debenture held through such Participants will be governed by
standing instructions and customary practices, as is now the case with
securities held for the accounts of customers in bearer form or registered in
"street name." Such payments will be the responsibility of such Participants.
If the Depositary is at any time unwilling, unable or ineligible to
continue as depositary and a successor depositary is not appointed by the
company within 90 days, the company will issue individual Junior Subordinated
Debentures in exchange for the Global Subordinated Debenture. In addition, the
company may at any time and in its sole discretion, determine not to have the
Junior Subordinated Debentures represented by one or more Global Subordinated
Debentures and, in such event, will issue individual Junior Subordinated
Debentures in exchange for the Global Subordinated Debenture. Further, if the
company so specifies with respect to the Junior Subordinated Debentures, an
owner of a beneficial interest in a Global Subordinated Debenture representing
the Junior Subordinated Debentures may, on terms acceptable to the company, the
Indenture Trustee and the Depositary for such Global Subordinated Debenture,
receive individual Junior Subordinated Debentures in exchange for such
beneficial interests. In any such instance, an owner of a beneficial interest in
a Global Subordinated Debenture will be entitled to physical delivery of
individual Junior Subordinated Debentures equal in principal amount to such
beneficial interest and to have such Junior Subordinated Debentures registered
in its name. Individual Junior Subordinated Debentures so issued will be issued
in denominations, unless otherwise specified by the company, of $10 and integral
multiples thereof.
PAYMENT AND PAYING AGENTS
Payment of principal of and any interest on the Junior Subordinated
Debentures will be made at the office of the Indenture Trustee, except that at
the option of the company payment of any interest may be made, except in the
case of a Global Subordinated Debenture, by check mailed to the address of the
person entitled thereto as such address shall appear in the securities register.
Payment of any interest on Junior Subordinated Debentures will be made to the
person in whose name such Junior Subordinated Debenture is registered at the
close of business on the regular record date for such interest. The company may
at any time designate additional Paying Agents or rescind the designation of any
Paying Agent; however, the company will at all times be required to maintain a
Paying Agent in each place of payment for the Junior Subordinated Debentures.
Any moneys deposited with the Indenture Trustee or any Paying Agent, or
then held by the company in trust, for the payment of the principal of or
interest on the Junior Subordinated Debentures and remaining unclaimed for two
years after such principal or interest has become due and payable shall, at the
request of the company, be repaid to the company and the holder of such Junior
Subordinated Debenture shall thereafter look, as a general unsecured creditor,
only to the company for payment thereof.
MODIFICATION OF INDENTURE
From time to time the company and the Indenture Trustee may, without
the consent of the holders of the Junior Subordinated Debentures, amend, waive
or supplement the Indenture for specified purposes, including, among other
things, curing ambiguities, defects or inconsistencies (provided that any such
action does not materially adversely affect the interests of the holders of the
Junior Subordinated Debentures or the Preferred Securities so long as they
remain outstanding) and qualifying, or maintaining the qualification of, the
Indenture under the Trust Indenture Act. The Indenture contains provisions
permitting the company and the Indenture Trustee, with the consent of the
holders of not less than a majority in principal amount of the outstanding
Junior Subordinated Debentures, to modify the Indenture in a manner affecting
the rights of the holders of the Junior Subordinated Debentures; provided, that,
no such modification may, without the consent of the holder of each outstanding
Junior Subordinated Debenture, (i) change the stated maturity of the Junior
Subordinated Debentures or extend the time of payment of interest thereon
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(except as described under "Description of Junior Subordinated
Debentures--General" and "--Option to Extend Interest Payment Period"), or
reduce the principal amount thereof or the rate of interest thereon, or (ii)
reduce the percentage of principal amount of Junior Subordinated Debentures,
the holders of which are required to consent to any such modification of the
Indenture, provided that so long as any of the Preferred Securities remain
outstanding, no such modification may be made that adversely affects the
holders of such Preferred Securities in any material respect, and no
termination of the Indenture may occur, and no waiver of any Debenture Event of
Default or compliance with any covenant under the Indenture may be effective,
without the prior consent of the holders of at least a majority of the
aggregate Liquidation Amount of the Preferred Securities unless and until the
principal of the Junior Subordinated Debentures and all accrued and unpaid
interest thereon have been paid in full and certain other conditions are
satisfied.
DEBENTURE EVENTS OF DEFAULT
The Indenture provides that any one or more of the following described
events with respect to the Junior Subordinated Debentures that has occurred and
is continuing constitutes a "Debenture Event of Default" with respect to the
Junior Subordinated Debentures:
(i) failure for 30 days to pay any interest on the Junior Subordinated
Debentures, when due (subject to the deferral of any due date in the case of an
Extension Period); or
(ii) failure to pay any principal on the Junior Subordinated Debentures
when due whether at maturity, upon redemption by declaration or otherwise; or
(iii) failure by the company to observe or perform in any material
respect certain other covenants contained in the Indenture for 90 days after
written notice to the company from the Indenture Trustee or to the company and
the Indenture Trustee by the holders of at least 25% in aggregate outstanding
principal amount of the Junior Subordinated Debentures; or
(iv) certain events in bankruptcy, insolvency or reorganization of the
company, including the voluntary commencement of bankruptcy proceedings, entry
of an order for relief against the company in a bankruptcy proceeding,
appointment of a custodian over substantially all of the company's property, a
general assignment for the benefit of creditors, or a court order for
liquidation of the company.
The holders of a majority in aggregate outstanding principal amount of
the Junior Subordinated Debentures have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Indenture
Trustee. The Indenture Trustee or the holders of not less than 25% in aggregate
outstanding principal amount of the Junior Subordinated Debentures may declare
the principal due and payable immediately upon a Debenture Event of Default. The
holders of a majority in aggregate outstanding principal amount of the Junior
Subordinated Debentures may annul such declaration and waive the default if the
default (other than the non-payment of the principal of the Junior Subordinated
Debentures which has become due solely by such acceleration) has been cured and
a sum sufficient to pay all matured installments of interest and principal due
otherwise than by acceleration has been deposited with the Indenture Trustee.
Should the holders of the Junior Subordinated Debentures fail to annul such
declaration and waive such default, the holders of a majority in aggregate
Liquidation Amount of the Preferred Securities shall have such right. In case a
Debenture Event of Default shall occur and be continuing, the Property Trustee
will have the right to declare the principal of and the interest on such Junior
Subordinated Debentures, and any other amounts payable under the Indenture, to
be forthwith due and payable and to enforce its other rights as a creditor with
respect to such Junior Subordinated Debentures.
The company is required to file annually with the Indenture Trustee a
certificate as to whether the company is in compliance with all the conditions
and covenants applicable to it under the Indenture.
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ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF PREFERRED SECURITIES
If a Debenture Event of Default has occurred and is continuing and such
event is attributable to the failure of the company to pay interest or principal
on the Junior Subordinated Debentures on the date such interest or principal is
otherwise payable, a holder of Preferred Securities may institute a legal
proceeding directly against the company for enforcement of payment to such
holder of the principal of or interest on such Junior Subordinated Debentures
having a principal amount equal to the aggregate Liquidation Amount of the
Preferred Securities of such holder ("Direct Action"). If the right to bring a
Direct Action is removed, FW Capital I may become subject to the reporting
obligations under the Exchange Act. The company shall have the right under the
Indenture to set-off any payment made to such holder of Preferred Securities by
the company in connection with a Direct Action.
The holders of the Preferred Securities would not be able to exercise
directly any remedies other than those set forth in the preceding paragraph
available to the holders of the Junior Subordinated Debentures unless there
shall have been an Event of Default under the Trust Agreement. See "Description
of Preferred Securities--Events of Default; Notice."
CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
The Indenture provides that the company shall not consolidate with or
merge into any other Person or convey, transfer or lease its properties and
assets substantially as an entirety to any Person, and no Person shall
consolidate with or merge into the company or convey, transfer or lease its
properties and assets substantially as an entirety to the company, unless (i) in
case the company consolidates with or merges into another Person or conveys or
transfers its properties and assets substantially as an entirety to any Person,
the successor Person is organized under the laws of the United States or any
state or the District of Columbia, and such successor Person expressly assumes
the company's obligations on the Junior Subordinated Debentures issued under the
Indenture; (ii) immediately after giving effect thereto, no Debenture Event of
Default, and no event which, after notice or lapse of time or both, would become
a Debenture Event of Default, shall have occurred and be continuing; and (iii)
certain other conditions as prescribed in the Indenture are met.
The provisions of the Indenture do not afford holders of the Junior
Subordinated Debentures protection in the event of a highly leveraged or other
transaction involving the company that may adversely affect holders of the
Junior Subordinated Debentures.
SATISFACTION AND DISCHARGE
The Indenture provides that when, among other things, all Junior
Subordinated Debentures not previously delivered to the Indenture Trustee for
cancellation (i) have become due and payable or (ii) will become due and payable
at their stated maturity within one year, and the company deposits or causes to
be deposited with the Indenture Trustee, in trust, funds for the purpose and in
an amount in the currency or currencies in which the Junior Subordinated
Debentures are payable sufficient to pay and discharge the entire indebtedness
on the Junior Subordinated Debentures not previously delivered to the Indenture
Trustee for cancellation, for the principal and interest to the date of the
deposit or to the stated maturity, as the case may be, then the Indenture will
cease to be of further effect (except as to the company's obligations to pay all
other sums due pursuant to the Indenture and to provide the officers'
certificates and opinions of counsel described therein), and the company will be
deemed to have satisfied and discharged the Indenture.
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GOVERNING LAW
The Indenture and the Junior Subordinated Debentures will be governed
by and construed in accordance with the laws of the State of Colorado.
INFORMATION CONCERNING THE INDENTURE TRUSTEE
The Indenture Trustee shall have and be subject to all the duties and
responsibilities specified with respect to an indenture trustee under the Trust
Indenture Act. Subject to such provisions, the Indenture Trustee is under no
obligation to exercise any of the powers vested in it by the Indenture at the
request of any holder of Junior Subordinated Debentures, unless offered
reasonable indemnity by such holder against the costs, expenses and liabilities
which might be incurred thereby. The Indenture Trustee is not required to expend
or risk its own funds or otherwise incur personal financial liability in the
performance of its duties if the Indenture Trustee reasonably believes that
repayment or adequate indemnity is not reasonably assured to it.
COVENANTS OF THE COMPANY
The company will covenant in the Indenture, as to the Junior
Subordinated Debentures, that if and so long as (i) FW Capital I is the holder
of all such Junior Subordinated Debentures, (ii) a Tax Event in respect of FW
Capital I has occurred and is continuing and (iii) the company has elected, and
has not revoked such election, to pay Additional Sums (as defined under
"Description of the Preferred Securities - Redemption") in respect of the
Preferred Securities, the company will pay to FW Capital I such Additional Sums.
The company will also covenant, as to the Junior Subordinated Debentures, (i) to
maintain directly or indirectly 100% ownership of the Common Securities of FW
Capital I to which Junior Subordinated Debentures have been issued, provided
that certain successors which are permitted pursuant to the Indenture may
succeed to the company's ownership of the Common Securities, (ii) to use its
reasonable efforts to cause FW Capital I (a) to remain a business trust, except
in connection with a distribution of Junior Subordinated Debentures to the
holders of the Preferred Securities in liquidation of FW Capital I, (b) the
redemption of all of the Trust Securities or (c) in connection with certain
mergers, consolidations, or amalgamations permitted by the Trust Agreement, and
(iii) to use its reasonable efforts to cause each Holder of Trust Securities to
be treated as owning an individual beneficial interest in the Junior
Subordinated Debentures.
BOOK-ENTRY ISSUANCE
The Depositary will act as securities depositary for all of the
Preferred Securities and the Junior Subordinated Debentures. The Preferred
Securities and the Junior Subordinated Debentures will be issued only as
fully-registered securities registered in the name of Cede & Co. (the
Depositary's nominee). One or more fully-registered global certificates will be
issued for the Preferred Securities and the Junior Subordinated Debentures and
will be deposited with the Depositary.
The Depositary is a limited purpose trust company organized under the
New York Banking Law, a "banking organization" within the meaning of the New
York Banking Law, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Exchange Act. The Depositary holds securities that its Participants deposit with
the Depositary. The Depositary also facilitates the settlement among
Participants of securities transactions, such as transfers and pledges, in
deposited securities through electronic computerized book-entry changes in
Participants' accounts, thereby eliminating the need for physical movement of
securities certificates. "Direct Participants" include securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. The Depositary is owned by a number of its Direct Participants
and by the New York Stock Exchange, Inc., the American Stock Exchange, Inc. and
the National Association of Securities Dealers,
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Inc. Access to the Depositary system is also available to others such as
securities brokers and dealers, banks and trust companies that clear through or
maintain custodial relationships with Direct Participants, either directly or
indirectly ("Indirect Participants"). The rules applicable to the Depositary
and its Participants are on file with the Commission.
Purchases of Preferred Securities or Junior Subordinated Debentures
within the Depositary system must be made by or through Direct Participants,
which will receive a credit for the Preferred Securities or Junior Subordinated
Debentures on the Depositary's records. The ownership interest of each actual
purchaser of each preferred security and each Junior Subordinated Debenture
("Beneficial Owner") is in turn to be recorded on the Direct and Indirect
Participants' records. Beneficial Owners will not receive written confirmation
from the Depositary of their purchases, but Beneficial Owners are expected to
receive written confirmations providing details of the transactions, as well as
periodic statements of their holdings, from the Direct or Indirect Participants
through which the Beneficial Owners purchased Preferred Securities or Junior
Subordinated Debentures. Transfers of ownership interests in the Preferred
Securities or Junior Subordinated Debentures are to be accomplished by entries
made on the books of Participants acting on behalf of Beneficial Owners.
Beneficial Owners will not receive certificates representing their ownership
interests in Preferred Securities or Junior Subordinated Debentures, except in
the event that use of the book-entry system for the or Junior Subordinated
Debentures is discontinued.
The Depositary has no knowledge of the actual Beneficial Owners of the
Preferred Securities or Junior Subordinated Debentures; the Depositary's records
reflect only the identity of the Direct Participants to whose accounts such
Preferred Securities or Junior Subordinated Debentures are credited, which may
or may not be the Beneficial Owners. The Participants will remain responsible
for keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by the Depositary to
Direct Participants, by Direct Participants to Indirect Participants, and by
Direct Participants and Indirect Participants to Beneficial Owners and the
voting rights of Direct Participants, Indirect Participants and Beneficial
Owners will be governed by arrangements among them, subject to any statutory or
regulatory requirements as may be in effect from time to time.
Redemption notices will be sent to Cede & Co. as the registered holder
of the Preferred Securities or Junior Subordinated Debentures. If less than all
of the Preferred Securities or the Junior Subordinated Debentures are being
redeemed, the Depositary will determine by lot or pro rata the amount of the
Preferred Securities of each Direct Participant to be redeemed.
Although voting with respect to the Preferred Securities or the Junior
Subordinated Debentures is limited to the holders of record of the Preferred
Securities or the Junior Subordinated Debentures, in those instances in which a
vote is required, neither the Depositary nor Cede & Co. will itself consent or
vote with respect to Preferred Securities or Junior Subordinated Debentures.
Under its usual procedures, the Depositary would mail an omnibus proxy (the
"Omnibus Proxy") to the relevant Trustee as soon as possible after the record
date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to
those Direct Participants to whose accounts such Preferred Securities or Junior
Subordinated Debentures are credited on the record date (identified in a listing
attached to the Omnibus Proxy).
Distribution payments on the Preferred Securities or the Junior
Subordinated Debentures will be made by the relevant Trustee to the Depositary.
The Depositary's practice is to credit Direct Participants' accounts on the
relevant payment date in accordance with their respective holdings shown on the
Depositary's records unless the Depositary has reason to believe that it will
not receive payments on such payment date. Payments by Participants to
Beneficial Owners will be governed by standing instructions and customary
practices and will be the responsibility of such Participant and not of the
Depositary, the relevant Trustee, FW Capital I or the company, subject to any
statutory or regulatory requirements as may be in effect from time to time.
Payment of Distributions to the Depositary is the responsibility of the
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relevant Trustee, disbursement of such payments to Direct Participants is the
responsibility of the Depositary, and disbursements of such payments to the
Beneficial Owners is the responsibility of Direct and Indirect Participants.
The Depositary may discontinue providing its services as securities
depositary with respect to any of the Preferred Securities or the Junior
Subordinated Debentures at any time by giving reasonable notice to the relevant
Trustee and the company. In the event that a successor securities depositary is
not obtained, definitive Preferred Securities or Subordinated Debenture
certificates representing such Preferred Securities or Junior Subordinated
Debentures are required to be printed and delivered. The company, at its option,
may decide to discontinue use of the system of book-entry transfers through the
Depositary (or a successor depositary). After a Debenture Event of Default, the
holders of a majority in liquidation preference of Preferred Securities or
aggregate principal amount of Junior Subordinated Debentures may determine to
discontinue the system of book-entry transfers through the Depositary. In any
such event, definitive certificates for such Preferred Securities or Junior
Subordinated Debentures will be printed and delivered.
The information in this section concerning the Depositary and the
Depositary's book-entry system has been obtained from sources that FW Capital I
and the company believe to be accurate, but FW Capital I and the company assume
no responsibility for the accuracy thereof. Neither FW Capital I nor the company
has any responsibility for the performance by the Depositary or its Participants
of their respective obligations as described herein or under the rules and
procedures governing their respective operations.
DESCRIPTION OF GUARANTEE
The Preferred Securities Guarantee Agreement (the "Guarantee") will be
executed and delivered by the company concurrently with the issuance of the
Preferred Securities for the benefit of the holders of the Preferred Securities.
Wilmington Trust Company will act as trustee under the Guarantee (the "Guarantee
Trustee") for the purposes of compliance with the Trust Indenture Act, and the
Guarantee will be qualified under the Trust Indenture Act. The following summary
of certain provisions of the Guarantee does not purport to be complete and is
subject to, and qualified in its entirety by reference to, all of the provisions
of the Guarantee, including the definitions therein of certain terms, and the
Trust Indenture Act. The form of the Guarantee has been filed as an exhibit to
the Registration Statement of which this prospectus forms a part. The Guarantee
Trustee will hold the Guarantee for the benefit of the holders of the Preferred
Securities.
GENERAL
The Guarantee will be an irrevocable guarantee on a subordinated basis
of all of FW Capital I's obligations under the Preferred Securities, but will
apply only to the extent that FW Capital I has funds sufficient to make such
payments, and is not a guarantee of collection.
The company will irrevocably agree to pay in full on a subordinated
basis, to the extent set forth herein, the Guarantee Payments (as defined below)
to the holders of the Preferred Securities, as and when due, regardless of any
defense, right of set-off or counterclaim that FW Capital I may have or assert
other than the defense of payment. The following payments with respect to the
Preferred Securities, to the extent not paid by or on behalf of FW Capital I
(the "Guarantee Payments"), will be subject to the Guarantee: (i) any
accumulated and unpaid Distributions required to be paid on the Preferred
Securities, to the extent that FW Capital I has funds on hand available therefor
at such time, (ii) the Redemption Price with respect to any Preferred Securities
called for redemption to the extent that FW Capital I has funds on hand
available therefor at such time, and (iii) upon a voluntary or involuntary
dissolution, winding up or liquidation of FW Capital I (unless the Junior
Subordinated Debentures are distributed to holders of the Preferred Securities),
the lesser of (a) the Liquidation Distribution and (b) the amount of assets of
FW Capital I remaining available for distribution to holders of Preferred
Securities. The company's obligation
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to make a Guarantee Payment may be satisfied by direct payment of the required
amounts by the company to the holders of the Preferred Securities or by causing
FW Capital I to pay such amounts to such holders.
If the company does not make interest payments on the Junior
Subordinated Debentures held by FW Capital I, FW Capital I will not be able to
pay Distributions on the Preferred Securities and will not have funds legally
available therefor. The Guarantee will rank subordinate and junior in right of
payment to all Senior and Subordinated Debt of the company. See "Status of the
Guarantee" below. Because the company is a holding company, the right of the
company to participate in any distribution of assets of any subsidiary upon such
subsidiary's liquidation or reorganization or otherwise, is subject to the prior
claims of creditors of that subsidiary, except to the extent the company may
itself be recognized as a creditor of that subsidiary. Accordingly, the
company's obligations under the Guarantee will be effectively subordinated to
all existing and future liabilities of the company's subsidiaries, and claimants
should look only to the assets of the company for payments thereunder. Except as
otherwise described herein, the Guarantee does not limit the incurrence or
issuance of other secured or unsecured debt of the company, including Senior and
Subordinated Debt whether under the Indenture, any other indenture that the
company may enter into in the future, or otherwise.
The company has, through the Guarantee, the Trust Agreement, the Junior
Subordinated Debentures, the Indenture and the Expense Agreement, taken
together, fully, irrevocably and unconditionally guaranteed on a subordinated
basis all of FW Capital I's obligations under the Preferred Securities. No
single document standing alone or operating in conjunction with fewer than all
of the other documents constitutes such guarantee. It is only the combined
operation of these documents that has the effect of providing a full,
irrevocable and unconditional guarantee on a subordinated basis of all of FW
Capital I's obligations under the Preferred Securities. See "Relationship Among
the Preferred Securities, the Junior Subordinated Debentures and the Guarantee."
STATUS OF THE GUARANTEE
The Guarantee will constitute an unsecured obligation of the company
and will rank subordinate and junior in right of payment to all Senior and
Subordinated Debt in the same manner as the Junior Subordinated Debentures.
The Guarantee will constitute a guarantee of payment and not of
collection. The guaranteed party may institute a legal proceeding directly
against the company to enforce its rights under the Guarantee without first
instituting a legal proceeding against any other person or entity. The Guarantee
will be held for the benefit of the holders of the Preferred Securities. The
Guarantee does not place a limitation on the amount of additional Senior and
Subordinated Debt that may be incurred by the company. The company expects from
time to time to incur additional indebtedness constituting Senior and
Subordinated Debt.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes which do not materially adversely
affect the rights of holders of the Preferred Securities (in which case no vote
will be required), the Guarantee may not be amended without the prior approval
of the holders of not less than a majority of the aggregate Liquidation Amount
of such outstanding Preferred Securities. See "Description of the Preferred
Securities -- Voting Rights; Amendment of Trust Agreement." All guarantees and
agreements contained in the Guarantee shall bind the successors, assigns,
receivers, trustees and representatives of the company and shall inure to the
benefit of the holders of the Preferred Securities then outstanding.
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EVENTS OF DEFAULT
An event of default under the Guarantee will occur upon the failure of
the company to perform any of its payment or other obligations thereunder. The
holders of not less than a majority in aggregate Liquidation Amount of the
Preferred Securities have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Guarantee Trustee in
respect of the Guarantee or to direct the exercise of any trust or power
conferred upon the Guarantee Trustee under the Guarantee.
Any holder of the Preferred Securities may institute a legal
proceeding directly against the company to enforce its rights under the
Guarantee without first instituting a legal proceeding against FW Capital I,
the Guarantee Trustee or any other person or entity.
The company, as guarantor, is required to file annually with the
Guarantee Trustee a certificate as to whether the company is in compliance with
all the conditions and covenants applicable to it under the Guarantee.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, other than during the occurrence and
continuance of a default by the company in performance of the Guarantee,
undertakes to perform only such duties as are specifically set forth in the
Guarantee and, after default with respect to the Guarantee, must exercise the
same degree of care and skill as a prudent person would exercise or use in the
conduct of his or her own affairs. Subject to this provision, the Guarantee
Trustee is under no obligation to exercise any of the powers vested in it by
the Guarantee at the request of any holder of the Preferred Securities unless
it is offered reasonable indemnity against the costs, expenses and liabilities
that might be incurred thereby.
TERMINATION OF THE GUARANTEE
The Guarantee will terminate and be of no further force and effect
upon full payment of the Redemption Price of the Preferred Securities, upon
full payment of the amounts payable upon liquidation of FW Capital I or upon
distribution of Junior Subordinated Debentures to the holders of the Preferred
Securities. The Guarantee will continue to be effective or will be reinstated,
as the case may be, if at any time any holder of the Preferred Securities must
restore payment of any sums paid under the Preferred Securities or the
Guarantee.
GOVERNING LAW
The Guarantee will be governed by and construed in accordance with the
laws of the State of Colorado.
THE EXPENSE AGREEMENT
Pursuant to the Agreement as to Expenses and Liabilities entered into
by the company under the Trust Agreement (the "Expense Agreement"), the company
will irrevocably and unconditionally guarantee to each person or entity to whom
FW Capital I becomes indebted or liable, the full payment of any costs,
expenses or liabilities of FW Capital I, other than obligations of FW Capital I
to pay to the holders of the Preferred Securities or other similar interests in
FW Capital I of the amounts due such holders pursuant to the terms of the
Preferred Securities or such other similar interests, as the case may be.
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RELATIONSHIP AMONG THE PREFERRED SECURITIES, THE JUNIOR
SUBORDINATED DEBENTURES AND THE GUARANTEE
FULL AND UNCONDITIONAL GUARANTEE
Payments of Distributions and other amounts due on the Preferred
Securities (to the extent FW Capital I has funds available for the payment of
such Distributions) are irrevocably guaranteed by the company as and to the
extent set forth under "Description of Guarantee." Taken together, the
company's obligations under the Junior Subordinated Debentures, the Indenture,
the Trust Agreement, the Expense Agreement and the Guarantee provide, in the
aggregate, a full, irrevocable and unconditional guarantee on a subordinated
basis of payments of Distributions and other amounts due on the Preferred
Securities. No single document standing alone or operating in conjunction with
fewer than all of the other documents constitutes such guarantee. It is only
the combined operation of those documents that has the effect of providing a
full, irrevocable and unconditional guarantee on a subordinated basis of FW
Capital I's obligations under the Preferred Securities. If and to the extent
that the company does not make payments on the Junior Subordinated Debentures,
FW Capital I will not pay Distributions or other amounts due on the Preferred
Securities. The Guarantee does not cover payment of Distributions when FW
Capital I does not have sufficient funds to pay such Distributions. In such
event, the remedy of a holder of the Preferred Securities is to institute a
legal proceeding directly against the company for enforcement of payment of
such Distributions to such holder. The obligations of the company under the
Guarantee are subordinate and junior in right of payment to all Senior and
Subordinated Debt.
SUFFICIENCY OF PAYMENTS
As long as payments of interest and other payments are made when due
on the Junior Subordinated Debentures, such payments will be sufficient to
cover Distributions and other payments due on the Preferred Securities,
primarily because: (i) the aggregate principal amount of the Junior
Subordinated Debentures will be equal to the sum of the aggregate Liquidation
Amount of the Preferred Securities and Common Securities; (ii) the interest
rate and interest and other payment dates on the Junior Subordinated Debentures
will match the Distribution rate and Distribution and other payment dates for
the Preferred Securities; (iii) the company shall pay for all and any costs,
expenses and liabilities of FW Capital I except FW Capital I's obligations to
holders of Preferred Securities; and (iv) the Trust Agreement further provides
that FW Capital I will not engage in any activity that is not consistent with
the limited purposes of FW Capital I.
Notwithstanding anything to the contrary in the Indenture, the company
has the right to set-off any payment it is otherwise required to make
thereunder with and to the extent the company has theretofore made, or is
concurrently on the date of such payment making, a payment under the Guarantee.
ENFORCEMENT RIGHTS OF HOLDERS OF THE PREFERRED SECURITIES UNDER THE GUARANTEE
A holder of any the Preferred Securities may institute a legal
proceeding directly against the company to enforce its rights under the
Guarantee without first instituting a legal proceeding against the Guarantee
Trustee, FW Capital I or any other person or entity,
A default or event of default under any Senior and Subordinated Debt
would not constitute an Event of Default. However, in the event of payment
defaults under, or acceleration of, Senior and Subordinated Debt, the
subordination provisions of the Indenture provide that no payments may be made
in respect of the Junior Subordinated Debentures until such Senior and
Subordinated Debt has been paid in full or any payment default thereunder has
been cured or waived. Failure to make required payments on Junior Subordinated
Debentures would constitute an Event of Default.
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LIMITED PURPOSE OF FW CAPITAL I
The Preferred Securities evidence a beneficial interest in FW Capital
I, and FW Capital I exists for the sole purpose of issuing the Trust Securities
and investing the proceeds thereof in the Junior Subordinated Debentures. A
principal difference between the rights of a holder of the Preferred Securities
and a holder of a Junior Subordinated Debenture is that a holder of a Junior
Subordinated Debenture is entitled to receive from the company the principal
amount of and interest accrued on Junior Subordinated Debentures held, while a
holder of the Preferred Securities is entitled to receive Distributions from FW
Capital I (or from the company under the Guarantee) if and to the extent FW
Capital I has funds available for the payment of such Distributions.
RIGHTS UPON TERMINATION
Upon any voluntary or involuntary termination, winding-up or
liquidation of FW Capital I involving the liquidation of the Junior
Subordinated Debentures, the holders of Preferred Securities will be entitled
to receive, out of assets held by FW Capital I, the Liquidation Distribution in
cash. See "Description of the Preferred Securities -- Liquidation Distribution
Upon Termination." Upon any voluntary or involuntary liquidation or bankruptcy
of the company, the Property Trustee, as holder of the Junior Subordinated
Debentures, would be a subordinated creditor of the company, subordinated in
right of payment to all Senior and Subordinated Debt as set forth in the
Indenture, but entitled to receive payment in full of principal and interest,
before any stockholders of the company receive payments or distributions.
Since the company is the guarantor under the Guarantee and has agreed to pay
for all costs, expenses and liabilities of FW Capital I (other than FW Capital
I's obligations to the holders of its Preferred Securities), the positions of a
holder of the Preferred Securities and a holder of Junior Subordinated
Debentures relative to other creditors and to stockholders of the company in
the event of liquidation or bankruptcy of the company are expected to be
substantially the same.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Jones & Keller, P.C., counsel to the company
("Counsel"), the following summary accurately describes the material United
States federal income tax consequences that may be relevant to the purchase,
ownership and disposition of Preferred Securities. Unless otherwise stated,
this summary deals only with Preferred Securities held as capital assets by
United States Persons (defined below) who purchase the Preferred Securities
upon original issuance at the first price at which a substantial amount of
Preferred Securities were sold. As used herein, a "United States Person" means
a person that is (i) a citizen or resident of the United States, (ii) a
corporation, partnership or other entity created or organized in or under the
laws of the United States or any political subdivision thereof, (iii) an estate
the income of which is subject to United States federal income taxation
regardless of its source, or (iv) any trust if a court within the United States
is able to exercise primary supervision over the administration of such trust
and one or more United States persons have the authority to control all
substantial decisions of such trust. The tax treatment of holders may vary
depending on their particular situation. This summary does not address all the
tax consequences that may be relevant to a particular holder or to holders who
may be subject to special tax treatment, such as banks, real estate investment
trusts, regulated investment companies, insurance companies, dealers in
securities or currencies, tax-exempt investors, foreign investors, persons that
will hold the Preferred Securities as part of a position in a "straddle" or as
part of a "hedging" or other integrated transaction, or persons whose
functional currency is not the United States dollar. In addition, this summary
does not include any description of any alternative minimum tax consequences or
other collateral tax consequences under United States federal income tax laws,
or the tax laws of any state, local or foreign government that may be
applicable to a holder of Preferred Securities. This summary is based on the
Internal Revenue Code of 1986, as amended (the "Code"), the Treasury
regulations promulgated thereunder and administrative and judicial
interpretations thereof, as of the date hereof, all of which are subject to
change, possibly on a retroactive basis. Any such change could cause the tax
consequences
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to vary substantially from the consequences described below, possibly adversely
affecting an owner of Preferred Securities.
The following discussion does not discuss the tax consequences that
might be relevant to persons that are not United States Persons ("non-United
States Persons"). Non-United States Persons should consult their own tax
advisors as to the specific United States federal income tax consequences of
the purchase, ownership and disposition of Preferred Securities.
The authorities on which this summary is based are subject to various
interpretations and the opinions of Counsel are not binding on the Internal
Revenue Service ("Service") or the courts, either of which could take a
contrary position. Moreover, no rulings have been or will be sought from the
Service with respect to the transactions described herein. Accordingly, there
can be no assurance that the Service will not challenge the opinions expressed
herein or that a court would not sustain such a challenge. It is therefore
possible that the federal income tax treatment of the purchase, ownership and
disposition of Preferred Securities may differ from the treatment described
below.
HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE
PREFERRED SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL,
FOREIGN, AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED
STATES FEDERAL OR OTHER TAX LAWS. FOR A DISCUSSION OF THE POSSIBLE REDEMPTION
OF THE PREFERRED SECURITIES UPON THE OCCURRENCE OF CERTAIN TAX EVENTS, SEE
"DESCRIPTION OF PREFERRED SECURITIES -- REDEMPTION."
CLASSIFICATION OF FW CAPITAL I
In connection with the issuance of the Preferred Securities, Counsel
is of the opinion that, under current law and assuming compliance with the
terms of the Trust Agreement, and based on certain facts and assumptions
contained in such opinion, FW Capital I will be classified as a grantor trust
and not as an association taxable as a corporation for United States federal
income tax purposes. As a result, each beneficial owner of the Preferred
Securities (a "Securityholder") will be treated as owning an undivided
beneficial interest in the Junior Subordinated Debentures. Accordingly, each
Securityholder will be required to include in its gross income its pro rata
share of the interest income or original issue discount that is paid or accrued
on the Junior Subordinated Debentures. See "-- Interest Income and Original
Issue Discount." No amount included in income with respect to the Preferred
Securities will be eligible for the dividends received deduction.
CLASSIFICATION OF THE JUNIOR SUBORDINATED DEBENTURES
The company intends to take the position, based on the advice of Jones
& Keller, P.C., that the Junior Subordinated Debentures will be classified for
United States federal income tax purposes as indebtedness of the company under
current law, and, by acceptance of a Preferred Security, each holder covenants
to treat the Junior Subordinated Debentures as indebtedness and the Preferred
Securities as evidence of an indirect beneficial ownership interest in the
Junior Subordinated Debentures. No assurance can be given, however, that such
position of the company will not be challenged by the Service or, if
challenged, that such a challenge will not be successful. The remainder of
this discussion assumes that the Junior Subordinated Debentures will be
classified for United States federal income tax purposes as indebtedness of the
company. See "Risk Factors -- Possible Tax Law Changes Affecting Preferred
Securities."
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INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT
Except as set forth below, stated interest on the Junior Subordinated
Debentures generally will be included in income by a Securityholder at the time
such interest income is paid or accrued in accordance with such
Securityholder's regular method of tax accounting.
The company believes that, under the applicable Treasury regulations,
the Junior Subordinated Debentures will not be considered to have been issued
with original issue discount ("OID") within the meaning of Section 1273(a) of
the Code. This is because under the Treasury regulations a "remote"
contingency that stated interest will not be timely paid will be ignored in
determining whether a debt instrument is issued with OID. The company
believes, and will take the position, that the likelihood of exercising its
option to defer payments of interest is "remote." If the company's option to
defer payments of interest on the Junior Subordinated Debentures were not
treated as remote, the Junior Subordinated Debentures would be considered
issued with OID at original issuance which would, in general, accrue over the
term of the Junior Subordinated Debentures as described below.
If the company exercises its right to defer payments of interest on
the Junior Subordinated Debentures, the Junior Subordinated Debentures will
become OID instruments, and the amount of OID would be equal to the aggregate
of all future payments of interest on the Junior Subordinated Debentures. In
such event, all Securityholders would be required to accrue the OID on the
Junior Subordinated Debentures on a daily basis during the Extension Period,
even though the company would not pay such interest until the end of the
Extension Period, and even though some Securityholders may use the cash method
of tax accounting. Moreover, thereafter the Junior Subordinated Debentures
would be taxed as OID instruments for as long as they remained outstanding.
Thus, even after the end of the Extension Period, all Securityholders would be
required to continue to include the OID on the Junior Subordinated Debentures
in income on a daily economic accrual basis, regardless of their method of tax
accounting and in advance of receipt of the cash attributable to such interest
income. In such event, actual cash payments of interest on the Junior
Subordinated Debentures would not be reported separately as taxable income.
The Treasury regulations described above have not yet been addressed
in any rulings or other definitive interpretations by the Service, and it is
possible that the Service could take a contrary position. If the Service were
to assert successfully that the stated interest on the Junior Subordinated
Debentures was OID regardless of whether the company exercises its right to
defer payments of interest on such debentures, all Securityholders would be
required to include such stated interest in income on a daily economic accrual
basis as described above.
The company does not anticipate that Additional Sums (as defined in
the Indenture) will be paid. However, if Additional Sums are paid, they will
be taxable to the Securityholder as ordinary income (generally as interest
income).
DISTRIBUTION OF JUNIOR SUBORDINATED DEBENTURES TO HOLDERS OF PREFERRED
SECURITIES
Under current law, a distribution by FW Capital I of the Junior
Subordinated Debentures as described under the caption "Description of
Preferred Securities -- Liquidation and Distribution Upon Termination" will be
non-taxable and will result in the Securityholder receiving directly its pro
rata share of the Junior Subordinated Debentures previously held indirectly
through FW Capital I, with a holding period and aggregate tax basis equal to
the holding period and aggregate tax basis such Securityholder had in its
Preferred Securities before such distribution. If, however, the liquidation of
FW Capital I were to occur because FW Capital I is subject to United States
federal income tax with respect to income accrued or received on the Junior
Subordinated Debentures as a result of a Tax Event or otherwise, the
distribution of Junior Subordinated Debentures to Securityholders by FW Capital
I would be a taxable event to FW Capital I and each Securityholder, and a
Securityholder would recognize gain or loss as if the Securityholder had sold
or exchanged its Preferred Securities for the Junior Subordinated Debentures it
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received upon the liquidation of FW Capital I. See "-- Sales or Redemption of
Preferred Securities." A Securityholder would recognize interest income in
respect of Junior Subordinated Debentures received from FW Capital I in the
manner described above under "-- Interest Income and Original Issue Discount."
SALES OR REDEMPTION OF PREFERRED SECURITIES
Gain or loss will be recognized by a Securityholder on a sale of
Preferred Securities (including a redemption for cash) in an amount equal to
the difference between the amount realized (which for this purpose, will
exclude amounts attributable to accrued interest or OID not previously included
in income) and the Securityholder's adjusted tax basis in the Preferred
Securities sold or so redeemed. A Securityholder's adjusted tax basis will be
its initial purchase price increased by any accrued OID previously included in
such Securityholder's gross income to the date of disposition and decreased by
payments (other than stated interest on the Junior Subordinated Debentures that
does not constitute OID) received on the Preferred Securities. Any gain or
loss on the sale, exchange or retirement of the Preferred Securities generally
will be treated as capital gain or loss. In general, amounts attributable to
accrued interest with respect to a Securityholder's pro rata share of the
Junior Subordinated Debentures not previously included in income, will be
taxable as ordinary income. However, there is conflicting authority regarding
the need for inclusion of interest income for a cash basis taxpayer if the
Preferred Securities are sold for less than their principal amount. The
Internal Revenue Service Restructuring and Reform Act of 1998 provides that for
taxpayers other than corporations, net capital gain (which is defined as net
long-term capital gain over net short-term capital loss for the taxable year)
realized from property (with certain exclusions) is subject to a maximum
marginal stated tax rate of 20% (10% in the case of certain taxpayers in the
lowest tax bracket). Capital gain or loss is long-term if the holding period
for the asset is more than one year, and is short-term if the holding period
for the asset is one year or less. Capital gains realized from assets held for
one year or less are taxed at the same rates as ordinary income. Subject to
certain limitations, capital losses cannot be applied to offset ordinary income
for United States federal income tax purposes.
Should the company exercise its option to defer any payment of
interest on the Junior Subordinated Debentures, the Preferred Securities may
trade at a price that does not fully reflect the value of accrued but unpaid
interest with respect to the underlying Junior Subordinated Debentures. In the
event of such a deferral, a Securityholder that disposes of its Preferred
Securities between record dates for payments of Distributions (and consequently
does not receive a Distribution from FW Capital I for the period prior to such
disposition) will nevertheless be required to include in income accrued OID on
the Junior Subordinated Debentures through the date of disposition and will add
such amount to its adjusted tax basis in its Preferred Securities. Such a
Securityholder will recognize a capital loss on the disposition of its
Preferred Securities to the extent the selling price (which may not fully
reflect the value of accrued but unpaid OID) is less than the Securityholder's
adjusted tax basis in the Preferred Securities (which will include accrued but
unpaid OID that has been included in income). As stated previously, subject to
certain limited exceptions, capital losses cannot be applied to offset ordinary
income for United States federal income tax purposes.
BACKUP WITHHOLDING TAX AND INFORMATION REPORTING
The amount of interest paid or OID accrued, if any, on the Junior
Subordinated Debentures, beneficial ownership of which is reflected in the
Preferred Securities held of record by United States Persons (other than
corporations and other exempt Securityholders), will be reported to the
Service. Generally, income on the Preferred Securities will be reported to
Securityholders on Form 1099, which form should be mailed to Securityholders by
January 31 following each calendar year. Proposed regulations, if adopted,
could alter the information reporting requirements which must be made to both
the Internal Revenue Service and the Securityholders. "Backup" withholding at
a rate of 31% will apply to payments of interest to non-exempt United States
Persons unless the Securityholder furnishes its taxpayer identification number
in the manner prescribed in applicable Treasury regulations, certifies that
such
85
87
number is correct, certifies as to no loss of exemption from backup withholding
and meets certain other conditions. Any amounts withheld from a Securityholder
under the backup withholding rules will be allowed as a refund or a credit
against such Securityholder's United States federal income tax liability,
provided the required information is furnished to the Service. Payment of the
proceeds from the disposition of Preferred Securities to or through the United
States office of a broker is subject to information reporting and backup
withholding unless the Securityholder or beneficial owner establishes an
exemption from information reporting and backup withholding.
POSSIBLE TAX LAW CHANGES AFFECTING PREFERRED SECURITIES
Certain legislative proposals were made in 1996 and 1997, which if
enacted, could have adversely affected the ability of the company to deduct
interest paid on the Junior Subordinated Debentures. Although these proposals
were not enacted, there can be no assurance that future legislative proposals
or final legislation will not affect the ability of the company to deduct
interest on the Junior Subordinated Debentures or otherwise adversely affect
the tax treatment of the transaction described herein. Such a change could
give rise to a Tax Event, which may permit the company to cause a redemption of
the Trust Preferred Securities. See "Risk Factors -- Possible Tax Law Changes
Affecting Preferred Securities," "Description of the Preferred
Securities--Redemption" and "Description of Junior Subordinated Debentures --
Redemption."
ERISA CONSIDERATIONS
Employee benefit plans that are subject to the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), or Section 4975 of the Code
("Plans"), generally may purchase Preferred Securities subject to the investing
fiduciary's determination that the investment in Preferred Securities satisfies
ERISA's fiduciary standards and other requirements applicable to investments by
the Plan.
However, the company and/or any of its affiliates may be considered a
"party in interest" (within the meaning of Section 3(14) of ERISA) or a
"disqualified person" (within the meaning of Section 4975 of the Code) with
respect to certain Plans (generally, those Plans maintained or sponsored by, or
contributed to by, the company or an affiliate, or with respect to which the
company or an affiliate is a fiduciary, or Plans for which the company or an
affiliate provide services). The acquisition and ownership of Preferred
Securities by an individual retirement arrangement or other Plan described in
Section 4975(e)(1) of the Code, with respect to which the company or any of its
affiliates is considered a party in interest or a disqualified person, may
constitute or result in a prohibited transaction under ERISA or Section 4975 of
the Code, which could give rise to the imposition of substantial taxes unless
such Preferred Securities are acquired pursuant to and in accordance with an
applicable exemption.
As a result, Plans with respect to which the company and/or any of its
affiliates is a party in interest or a disqualified person should not acquire
Preferred Securities unless such Preferred Securities are acquired pursuant to
and in accordance with an applicable exemption. Any Plans or entities whose
assets include Plan assets subject to ERISA or Section 4975 of the Code
proposing to acquire Preferred Securities should consult with their own
counsel.
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UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement
among the company and the Underwriters listed on the table below for whom Howe
Barnes Investments, Inc. is acting as representative, the Underwriters have
severally agreed to purchase from FW Capital I an aggregate of 2,000,000
Preferred Securities in the amounts set forth below opposite their respective
names.
Underwriters Number of Preferred Securities
------------ ------------------------------
Howe Barnes Investments, Inc. . . . . . . . . .
---------
Total . . . . . . . . . . . . . . . . . 2,000,000
=========
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to accept and pay for all of the Preferred
Securities, if any are taken.
FW Capital I has granted to the Underwriters an option, exercisable
within 30 days after the date of this prospectus to purchase up to an
additional 300,000 Preferred Securities at the same price per Preferred
Security to be paid by the Underwriters for the other Preferred Securities
offered hereby. If the Underwriters purchase any of such additional Preferred
Securities pursuant to this option, each Underwriter will be committed to
purchase such additional shares in approximately the same proportion as set
forth in the table above. The Underwriters may exercise the option only for
the purpose of covering over-allotments, if any, made in connection with the
distribution of the Preferred Securities offered hereby.
The table below shows the price and proceeds on a per security and
aggregate basis. The proceeds to be received by FW Capital I as shown in the
table below do not reflect estimated expenses of $350,000 payable by the
company.
Per Preferred Security Total
---------------------- -----------------
Price to Investors $10 $20,000,000
Proceeds to company $10 $20,000,000
All of the proceeds to FW Capital I will be used to purchase the
Junior Subordinated Debentures from the company. The company has agreed to pay
the Underwriters $_____ per Preferred Security, or a total of $_______, as
compensation for arranging the investment in the Junior Subordinated
Debentures. Should the Underwriters exercise the over-allotment option, an
aggregate of $_____ will be paid to the Underwriters for arranging the
investment in the Junior Subordinated Debentures.
The Underwriters propose to offer the Preferred Securities in part
directly to the public at the initial public offering price set forth on the
cover page of this prospectus, and in part to certain securities dealers at
such price less a concession not in excess of $____ per Preferred Security.
The Underwriters may allow, and such dealers may reallow, a concession not in
excess of $___ per Preferred Security to certain brokers and dealers. After
the Preferred Securities are released for sale to the public, the offering
price and other selling terms may from time to time be varied by the
Underwriters.
The company and FW Capital I have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended.
In connection with the offering, the Underwriters may purchase and
sell the Preferred Securities in the open market. These transactions may
include over-allotment and stabilizing transactions and
87
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purchases to cover syndicate short positions created in connection with the
offering. Stabilizing transactions consist of certain bids or purchases for
the purpose of preventing or retarding a decline in the market price of the
Preferred Securities; and syndicate short positions involve the sale by the
Underwriters of a greater number of securities than they are required to
purchase from the company in the offering. The Underwriters also may impose a
penalty bid, whereby selling concessions allowed to syndicate members or other
broker-dealers in respect of the securities sold in the offering for their
account may be reclaimed by the syndicate if such Preferred Securities are
repurchased by the syndicate in stabilizing or covering transactions. These
activities may stabilize, maintain or otherwise affect the market price of the
Securities, which may be higher than the price that might otherwise prevail in
the open market. These activities, if commenced, may be discontinued at any
time. These transactions may be effected in the over-the- counter market or
otherwise.
The Underwriters have advised FW Capital I that they do not intend to
confirm any sales of Preferred Securities to any discretionary accounts. In
connection with the offer and sale of the Preferred Securities, the
Underwriters will comply with Rule 2810 under the NASD Conduct Rules.
LEGAL MATTERS
Certain matters of Delaware law relating to the validity of the
Preferred Securities, the enforceability of the Trust Agreement and the
formation of FW Capital I will be passed upon by Richards, Layton & Finger,
P.A., Wilmington, Delaware, special Delaware counsel to the company and FW
Capital I. The validity of the guarantee and the Junior Subordinated
Debentures will be passed upon for the company by Jones & Keller, P.C., Denver,
Colorado, counsel to the company. Certain legal matters in connection with
this offering will be passed upon for the Underwriters by Chapman and Cutler,
Chicago, Illinois. Jones & Keller, P.C. and Chapman and Cutler will rely on
the opinions of Richards, Layton & Finger, P.A., as to matters of Delaware law.
Certain matters relating to United States federal income tax considerations
will be passed upon for the company by Jones & Keller, P.C.
EXPERTS
The consolidated financial statements of the company in this
prospectus as of December 31, 1997 and for each of the years in the two-year
period ended December 31, 1997 have been included herein in reliance upon the
report of Clifton Gunderson L.L.C., independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
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90
INDEX TO FINANCIAL STATEMENTS
Page
----
Independent Auditor's Report . . . . . . . . . . . . . . . . . . F-2
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . F-3
Consolidated Statements of Income . . . . . . . . . . . . . . . . F-4
Consolidated Statements of Stockholders' Equity . . . . . . . . . F-5
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . F-6
Notes to Consolidated Financial Statements . . . . . . . . . . . F-7
F-1
91
INDEPENDENT AUDITOR'S REPORT
Board of Directors
First Western Corp.
Northglenn, Colorado
We have audited the consolidated balance sheet of First Western Corp. and
Subsidiaries as of December 31, 1997, and the related consolidated statements of
income, stockholders' equity and cash flows for each of the two years in the
period ended December 31, 1997. 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 First Western Corp.
and Subsidiaries as of December 31, 1997, and the results of their operations
and their cash flows for each of the two years in the period ended December 31,
1997, in conformity with generally accepted accounting principles.
CLIFTON GUNDERSON L.L.C.
Denver, Colorado
October 23,1998
F-2
92
FIRST WESTERN CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 1998 (Unaudited) and December 31, 1997
(In thousands, except share data)
September 30, December 31,
1998 1997
------------- ------------
(Unaudited)
ASSETS
Cash and due from banks $ 14,449 $ 10,427
Interest bearing deposits in other banks 6 149
Federal funds sold 12,480 11,310
Investment securities:
Available-for-sale, at fair value 35,110 15,470
Held-to-maturity, at amortized cost, fair value of $9,344, in 1998
and $13,125, in 1997 9,241 13,042
--------- ---------
Total investment securities 44,351 28,512
Loans held for sale 5,312 4,182
Gross loans receivable: 249,104 166,059
Less: unearned loan fees (757) (432)
allowance for loan losses (1,592) (1,321)
--------- ---------
Net loans receivable 246,755 164,306
Premises and equipment, net 7,408 5,117
Other assets 4,732 3,597
--------- ---------
TOTAL ASSETS $ 335,493 $ 227,600
========= =========
LIABILITIES
Deposits:
Demand non-interest bearing $ 40,132 $ 32,238
Demand interest bearing 12,887 12,558
Time 241,025 155,498
--------- ---------
Total deposits 294,044 200,294
Securities sold under agreements to repurchase 2,588 2,072
Note payable 5,800 3,380
Federal Home Loan Bank borrowings 8,500 1,000
Other liabilities 4,031 3,283
--------- ---------
Total liabilities 314,963 210,029
Minority interest in consolidated subsidiaries 662 660
STOCKHOLDERS' EQUITY
Common stock $1.00 par value; 500,000 shares authorized; 140 140
140,000 shares issued and outstanding
Surplus 697 697
Retained earnings 19,038 16,085
Unrealized loss on securities available-for-sale, net of taxes (7) (11)
--------- ---------
Total stockholders' equity 19,868 16,911
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 335,493 $ 227,600
========= =========
These consolidated financial statements should be read only in connection with
the accompanying notes to consolidated financial statements.
F-3
93
FIRST WESTERN CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Nine months ended September 30, 1998 and 1997 (Unaudited)
and years ended December 31, 1997 and 1996
(In thousands, except share and per share data)
Nine months ended September 30, Years ended December 31,
1998 1997 1997 1996
------------------------------- ------------------------
(Unaudited)
Interest income:
Loans, including fees $ 16,808 $ 9,593 $ 13,860 $ 5,686
Taxable investment securities 775 908 1,173 1,273
Nontaxable investment securities 369 328 447 506
Dividends on investment securities 56 33 47 19
Federal funds sold 693 412 690 417
Other interest 14 34 46 7
--------- --------- --------- ---------
Total interest income 18,715 11,308 16,263 7,908
--------- --------- --------- ---------
Interest expense:
Deposits 8,185 4,749 6,986 2,959
Federal funds purchased 8 42 45 11
Securities sold under agreements to repurchase 75 87 113 150
Note payable 182 49 113 --
Federal Home Loan Bank borrowings 305 182 224 --
--------- --------- --------- ---------
Total interest expense 8,755 5,109 7,481 3,120
--------- --------- --------- ---------
Net interest income 9,960 6,199 8,782 4,788
Provision for loan losses 180 110 140 15
--------- --------- --------- ---------
Net interest income after provision for loan losses 9,780 6,089 8,642 4,773
--------- --------- --------- ---------
Other income:
Fees for other customer services 726 555 761 627
Net gains from sale of loans 716 475 625 232
Commissions and fees from brokerage activities 133 13 29 15
Investment securities transactions, net (3) -- -- 196
Other operating income 409 162 293 181
--------- --------- --------- ---------
Total other income 1,981 1,205 1,708 1,251
--------- --------- --------- ---------
Other expenses:
Salaries and employee benefits 3,545 2,172 3,296 1,950
Net occupancy expense of premises 1,107 652 989 464
Purchased services 906 627 842 327
Office supplies 233 126 182 137
Minority interest in income of consolidated subsidiaries 93 86 101 184
Other operating expenses 1,159 751 1,134 687
--------- --------- --------- ---------
Total other expenses 7,043 4,414 6,544 3,749
--------- --------- --------- ---------
Income before income taxes 4,718 2,880 3,806 2,275
Income tax expense 1,765 919 1,309 705
--------- --------- --------- ---------
NET INCOME $ 2,953 $ 1,961 $ 2,497 $ 1,570
========= ========= ========= =========
Income per share:
Basic and diluted earnings per share $ 21.09 $ 14.89 $ 18.67 $ 12.56
========= ========= ========= =========
Weighted average shares outstanding 140,000 131,667 133,750 125,000
========= ========= ========= =========
These consolidated financial statements should be read only in connection with
the accompanying notes to consolidated financial statements.
F-4
94
FIRST WESTERN CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Nine months ended September 30, 1998 (Unaudited)
and years ended December 31, 1997 and 1996
(In thousands, except share data)
Unrealized
gain (loss) on
securities
available-for-
Retained sale, net of
Common Stock Surplus Earnings taxes Total
------------ -------- -------- --------------- --------
Balance at January 1, 1996 $ 125 $ 80 $ 12,018 $ 59 $ 12,282
Net income for the year -- -- 1,570 -- 1,570
Net change in unrealized gain (loss) -- -- -- (103) (103)
-------- -------- -------- -------- --------
Balance at December 31, 1996 125 80 13,588 (44) 13,749
Net income for the year -- -- 2,497 -- 2,497
Issuance of 15,000 shares in exchange for minority
shares of Firstate Bank of Colorado 15 617 -- -- 632
Net change in unrealized gain (loss) -- -- -- 33 33
-------- -------- -------- -------- --------
Balance at December 31, 1997 140 697 16,085 (11) 16,911
Net income for the period (unaudited) -- -- 2,953 -- 2,953
Net change in unrealized gain (loss) (unaudited) -- -- -- 4 4
-------- -------- -------- -------- --------
Balance at September 30, 1998 (unaudited) $ 140 $ 697 $ 19,038 $ (7) $ 19,868
======== ======== ======== ======== ========
These consolidated financial statements should be read only in connection with
the accompanying notes to consolidated financial statements.
F-5
95
FIRST WESTERN CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended September 30, 1998 and 1997 (Unaudited)
and years ended December 31, 1997 and 1996
(In thousands)
Nine months ended
September 30, Years ended December 31,
1998 1997 1997 1996
------------------------ -------------------------
(Unaudited)
Cash flows from operating activities:
Net income $ 2,953 $ 1,961 $ 2,497 $ 1,570
Adjustments to reconcile net income to cash
provided by operating activities:
Provision for loan losses 180 110 140 15
Provision for losses on other real estate owned -- 76 76 --
Depreciation and amortization 493 256 426 189
Net gains from sale of loans (716) (475) (625) (232)
Proceeds from sale of loans held for sale 40,660 18,649 27,225 7,471
Origination of loans held for sale (41,074) (19,442) (29,800) (8,221)
Investment securities transactions, net 3 -- -- (196)
Increase in minority interest in
consolidated subsidiaries 2 8 23 89
Changes in deferrals and accruals:
Other assets (545) (435) (449) 107
Other liabilities 740 3,631 3,375 247
--------- --------- --------- ---------
Net cash provided by operating activities 2,696 4,339 2,888 1,039
--------- --------- --------- ---------
Cash flows from investing activities:
Net (increase) decrease in federal funds sold (1,170) (9,395) 1,710 (6,805)
Net (increase) decrease in interest bearing deposits
in other banks 143 -- (50) 5
Purchase of investment securities available-for-sale (90,942) (315) (1,643) (2,224)
Purchase of investment securities held-to-maturity -- (1,543) (765) (2,892)
Proceeds from sale of investment securities
available-for-sale 30,154 250 250 3,065
Proceeds from maturities/paydowns of investment securities 44,956 5,136 6,681 5,065
Net increase in loans (83,267) (48,932) (67,275) (23,112)
Expenditures for bank premises and equipment (2,734) (2,388) (2,466) (252)
Proceeds from sale of real estate owned -- 256 256 --
Purchase of savings bank, net of $3,897 of cash
and due from banks acquired -- 154 154 --
--------- --------- --------- ---------
Net cash used in investing activities (102,860) (56,777) (63,148) (27,150)
--------- --------- --------- ---------
Cash flows from financing activities:
Net increase in deposits 93,750 59,621 71,936 23,347
Net increase (decrease) in securities sold under
agreements to repurchase 516 (5,144) (5,941) 3,963
Advances from Federal Home Loan Bank 7,500 -- 1,000 --
Payments on Federal Home Loan Bank advances -- (1,800) (6,800) --
Proceeds from note payable 3,850 2,400 3,380 --
Payments on note payable (1,430) -- -- --
--------- --------- --------- ---------
Net cash provided by financing activities 104,186 55,077 63,575 27,310
--------- --------- --------- ---------
Net increase in cash and due from banks 4,022 2,639 3,315 1,199
Cash and due from banks at beginning of period 10,427 7,112 7,112 5,913
--------- --------- --------- ---------
Cash and due from banks at end of period $ 14,449 $ 9,751 $ 10,427 $ 7,112
========= ========= ========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 8,631 $ 3,593 $ 5,028 $ 2,978
Income taxes 1,444 752 1,137 671
Noncash transactions:
Conversion of loans to other real estate owned 761 197 197 10
Issuance of shares for minority interest of
Firstate Bank of Colorado -- 632 632 --
These consolidated financial statements should be read only in connection with
the accompanying notes to consolidated financial statements.
F-6
96
FIRST WESTERN CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
First Western Corp. (the Company) was incorporated for the purposes of
owning shares of and acting as the parent holding company for Firstate Bank
(the Nebraska Bank) and Firstate Bank of Colorado (the Colorado Bank)
(collectively referred to as the "Banks"). The Banks provide a full range of
banking services to individual and corporate customers principally in the
west and central Nebraska and the Denver-northern Colorado areas. A majority
of the Company's loans are related to real estate and commercial activities.
The Company is subject to competition from other financial institutions for
loans and deposit accounts. The Company and the Banks are also subject to
regulation by certain governmental agencies and undergo periodic
examinations by those regulatory agencies.
BASIS OF FINANCIAL STATEMENT PRESENTATION AND USE OF ESTIMATES
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 Banks' allowance for loan
losses. Such agencies may require the Banks to recognize additional losses
based on their judgments about information available to them at the time of
their examination.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its respective subsidiaries. The Company currently owns 100% of
Firstate Bank of Colorado (having acquired the minority interest in a May,
1997 exchange of stock,) and First Mortgage Bancorp. The Company also owns
91.4% of Firstate Bank (Kimball, Nebraska). All material intercompany
transactions and balances have been eliminated in consolidation.
INTERIM FINANCIAL INFORMATION (UNAUDITED)
The unaudited interim financial statements have been prepared in
conformity with generally accepted accounting principles and include all
adjustments which are, in the opinion of management, normal and recurring in
nature and necessary to a fair presentation of the interim periods
presented. Results of operations for the nine months ended September 30,
1998 are not necessarily indicative of the results to be expected for the
full year.
CASH EQUIVALENTS
For purposes of the Statements of Cash Flows, the Company has defined
cash equivalents as those amounts included in the balance sheet caption
"Cash and Due from Banks".
F-7
97
FIRST WESTERN CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
INVESTMENT SECURITIES
Management determines the classification of debt securities at the time
of purchase. Debt securities are classified as held-to-maturity when the
Banks have the positive intent and ability to hold the securities to
maturity. Held-to-maturity securities are stated at amortized cost.
Debt securities not classified as held-to-maturity are classified as
available-for-sale. Available-for-sale securities are stated at fair value,
with the unrealized gains and losses, net of tax, reported as a component of
stockholders' equity.
The amortized cost of debt securities classified as held-to-maturity or
available-for-sale is adjusted for amortization of premiums and accretion of
discounts to maturity or, in the case of mortgage-backed securities, over
the estimated life of the security. Such amortization and accretion is
included as an adjustment to interest income from investments. Realized
gains and losses and declines in value judged to be other-than-temporary are
included in investment securities transactions, net in the Statements of
Income . The cost of securities sold is based on the specific identification
method.
LOANS HELD FOR SALE
Mortgage loans originated and intended for sale in the secondary market
are carried at the lower of cost or estimated market value in the aggregate.
Net unrealized losses are recognized through a valuation allowance by
charges to income.
LOANS RECEIVABLE
Loans receivable that management has the intent and ability to hold for
the foreseeable future or until maturity or pay-off are reported at their
outstanding principal adjusted for any charge-offs, the allowance for loan
losses, and any deferred fees or costs on originated loans.
Loan fees which represent adjustments to interest yield are deferred
and amortized over the estimated life of the loan. Most of the loans
originated by the Company are short-term.
The accrual of interest on impaired loans is discontinued when, in
management's opinion, the borrower may be unable to meet payments as they
become due. When interest accrual is discontinued, all unpaid accrued
interest is reversed. Interest income is subsequently recognized only to the
extent cash payments are received.
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 allowance for loan losses is established through a provision for
loan losses charged to expense. Loans are charged against the allowance for
loan losses when management believes that the collectibility of the
principal is unlikely or, with respect to consumer installment loans,
according to an established delinquency schedule. The allowance is an amount
that management believes will be adequate to absorb losses inherent in
existing loans and commitments to extend credit, based on evaluations of the
collectibility and prior loss experience of loans and commitments to extend
credit. The evaluations take into consideration such factors as changes in
the nature and volume of the portfolio, overall portfolio quality, loan
concentrations, specific problem loans and commitments, and current and
anticipated economic conditions that may affect the borrowers' ability to
pay.
F-8
98
FIRST WESTERN CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Impaired loans are measured based on the present value of expected
future 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.
PREMISES AND EQUIPMENT
Premises, including leasehold improvements, and equipment are stated at
cost. Depreciation is provided for in amounts sufficient to relate the cost
of depreciable assets to operations over their estimated service lives,
principally on the straight-line method.
FORECLOSED REAL ESTATE
Real estate properties acquired through, or in lieu of, foreclosure are
to be sold and are initially recorded at fair value at the date of
foreclosure establishing a new cost basis. After foreclosure, management
periodically performs valuations and the real estate is carried at the lower
of carrying amount or fair value less cost to sell. Revenue and expense from
operations and changes in the valuation allowance are included in other
operating expenses.
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 consolidated financial statements. Deferred tax assets and
liabilities are included in the consolidated 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.
PER SHARE COMPUTATIONS
Basic earnings per share is based on the weighted average number of
common shares outstanding during each period presented. The Company had no
dilutive-potential common shares and therefore basic earnings per share
equals diluted earnings per share.
OPERATING SEGMENTS
The Company adopted Financial Accounting Standards Board Statement No.
131, Disclosures About Segments of an Enterprise and Related Information,
(SFAS No. 131) effective January 1, 1998. This statement establishes
standards for reporting information about segments in annual and interim
financial statements. SFAS No. 131 introduces a new model for segment
reporting called "management approach". The management approach is based on
the way the chief operating decision-maker organizes segments within a
company for making operating decisions and assessing performance. Reportable
segments are based on products and services, geography, legal structure,
management structure and any other in which management disaggregates a
company. Based on the "management approach" model, the Company has
determined that its business is comprised of a single operating segment and
that SFAS No. 131 therefore has no impact on its consolidated financial
statements.
F-9
99
FIRST WESTERN CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 2 - ACQUISITIONS
In February 1997, the Company acquired 100% of First Northern Holdings,
L.T.D. and the remaining 18.5% minority interest not owned by it in First
Northern Savings Bank, Greeley, Colorado. The purchase price, approximately
$3.8 million, was paid in cash. The excess purchase price over the fair
value of the net assets acquired (goodwill) of $966,000 is being amortized
over a fifteen-year period from the date of purchase. Both locations of
First Northern Savings Bank immediately became branches of Firstate Bank of
Colorado and added approximately $33 million in assets to the Company.
In May 1997, the Company exchanged 15,000 shares of its common stock
for the 18.2% of Firstate Bank of Colorado that it did not own. Such
minority shares were owned by individuals already affiliated with the
Company. No goodwill was recognized in connection with this transaction.
Following their respective acquisition dates, the Company included the
results of operations of both of the above indicated acquisitions in its
Consolidated Statements of Income.
NOTE 3 - INVESTMENT SECURITIES
At December 31, 1997, the Company had securities with the following
amortized cost and estimated fair values (in thousands):
Gross Gross
Amortized Unrealized Unrealized Estimated
Securities held-to-maturity Cost Gains Losses Fair Value
- --------------------------- --------- ---------- ---------- ----------
U.S. Treasury & agency securities $ 5,807 $ -- $ 21 $ 5,786
State and political securities 7,235 104 -- 7,339
------- ------- ------- -------
$13,042 $ 104 $ 21 $13,125
======= ======= ======= =======
Gross Gross
Amortized Unrealized Unrealized Estimated
Securities held-to-maturity Cost Gains Losses Fair Value
- --------------------------- --------- ---------- ---------- ----------
U.S. Treasury & agency securities $12,028 $ -- $ 42 $11,986
State and political securities 1,587 24 -- 1,611
Other bonds 200 1 -- 201
Equity securities 1,672 -- -- 1,672
------- ------- ------- -------
$15,487 $ 25 $ 42 $15,470
======= ======= ======= =======
The amortized cost and estimated fair value of debt securities at
December 31, 1997, by contractual maturity, are shown below (in thousands).
Actual maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations without call or prepayment
penalties.
F-10
100
FIRST WESTERN CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Held-to-maturity Available-for-sale
---------------------- -----------------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
--------- ---------- --------- ----------
Due in one year or less $ 4,316 $ 4,303 $ 8,800 $ 8,779
Due after one year through five years 3,668 3,679 3,570 3,562
Due after five years through ten years 2,520 2,543 645 640
Due after ten years 2,538 2,600 800 817
------- ------- ------- -------
$13,042 $13,125 $13,815 $13,798
======= ======= ======= =======
Securities included in the accompanying Consolidated Balance Sheet at
December 31, 1997 with an amortized cost of $14,071,044 are pledged as
collateral for public deposits and for other purposes as required or
permitted by law.
Gross realized losses of $37 on sales of securities available-for-sale
were recognized in 1997. Gross realized gains and gross realized losses on
sales of securities available-for-sale respectively were $212,107 and
$15,747 in 1996.
NOTE 4 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES
The components of the loan portfolio are summarized as follows
(in thousands):
September 30, December 31,
1998 1997
------------ ------------
(Unaudited)
Commercial, financial and agricultural $ 50,070 $ 41,500
Real estate construction 68,624 37,235
Real estate mortgage 120,850 79,499
Installment loans to individuals 9,393 7,693
Other 167 132
--------- ---------
249,104 166,059
Less unearned loan fees (757) (432)
Less allowance for loan losses (1,592) (1,321)
--------- ---------
$ 246,755 $ 164,306
========= =========
The Company had no foreign loans outstanding at December 31, 1997 or
September 30, 1998 (unaudited.)
F-11
101
FIRST WESTERN CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Transactions in the allowance for loan losses are as follows (in
thousands):
Nine months
ended
September 30, Years Ended December 31,
1998 1997 1996
------------- ------- -------
(Unaudited)
Balance at beginning of period $ 1,321 $ 851 $ 767
Provision for loan losses 180 140 15
Acquisition of savings bank allowance -- 277 --
Recoveries 159 111 91
Loans charged off (68) (58) (22)
------- ------- -------
Balance at end of period $ 1,592 $ 1,321 $ 851
======= ======= =======
September 30, December 31,
1998 1997 1996
------------- ------- -------
(Unaudited)
(In thousands)
Outstanding principal balance of accruing
loans having payments delinquent more
than ninety days $279 $744 $ 22
Loans on which the accrual of interest has
been discontinued or reduced $414 $484 $ 93
The average investments in impaired loans were $ 329,000 and $ 89,000
during the years ended December 31, 1997 and 1996, respectively. Interest
income on impaired loans recognized for cash payments received during these
years was not significant.
The Company is not committed to lend funds to debtors whose loans have
been modified.
NOTE 5 - PREMISES AND EQUIPMENT
At December 31, 1997, premises and equipment consisted of the following
(in thousands):
Accumulated
depreciation
and Net
Cost amortization amount
------ ------------ -------
Buildings & improvements $3,593 $ 422 $3,171
Leasehold Improvements 446 89 357
Equipment 2,378 1,633 745
Land 844 -- 844
====== ====== ======
$7,261 $2,144 $5,117
====== ====== ======
F-12
102
FIRST WESTERN CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 6 - DEPOSITS
At September 30, 1998 (unaudited), the scheduled remaining maturities
of time deposits with stated maturities are as follows (in thousands):
Deposit Category
Under $100,000 $100,000 or more Total
---------------- ---------------- --------
Three months or less $ 22,526 $ 8,885 $ 31,411
Over three months through 12 months 81,081 22,125 103,206
Over one year through three years 57,973 11,539 69,512
Over three years 119 -- 119
No stated maturity 36,777
-------- -------- --------
$161,699 $ 42,549 $241,025
======== ======== ========
At December 31, 1997, the scheduled remaining maturities of time
deposits with stated maturities were as follows (in thousands):
Deposit Category
Under $100,000 $100,000 or more Total
---------------- ---------------- --------
Three months or less $ 23,311 $ 9,356 $ 32,667
Over three months through 12 months 48,190 12,388 60,578
Over one year through three years 30,225 3,615 33,840
Over three years 239 -- 239
No stated maturity 28,174
-------- -------- --------
$101,965 $ 25,359 $155,498
======== ======== ========
NOTE 7 - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
The securities underlying the repurchase agreements are held by an
agent of the Banks and are under the control of the Banks.
Information concerning the repurchase agreements is summarized as
follows:
Nine months ended Year ended
September 30, 1998 December 31, 1997
------------------ -----------------
(Unaudited)
(in thousands)
Average daily balance $ 2,274 $ 2,387
Period end balance 2,588 2,072
Average interest rate 4.44% 4.72%
F-13
103
FIRST WESTERN CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 8 - NOTE PAYABLE
The Company maintained a revolving line of credit with the National
Bank of Commerce in the amount of $5,000,000 at December 31, 1997. The
outstanding balance at December 31, 1997 was $3,380,000. The repayment
schedule requires semi-annual interest payments with the principal due at
maturity, (June 30, 2002.) Interest is calculated at 250 basis points over
the like "CMT" treasury (7.91 percent at December 31, 1997.) The note is
secured by 91 percent of the outstanding common stock of Firstate Bank
(Kimball, Nebraska) and is guaranteed by a principal stockholder of the
Company. The loan agreement also calls for the Company to maintain the
following minimum financial ratios:
Maintain or cause each of its bank subsidiaries to maintain:
(i) for Company, not less than a 6.5% tangible equity
capital-to-asset ratio and
(ii) for each of its subsidiary banks, not less than a 6.0% tangible
equity capital-to-asset ratio
On February 25, 1998 the revolving line of credit was modified to
increase the maximum principal balance from $5,000,000 to $10,000,000 and to
add as collateral 100% of the outstanding common stock of Firstate Bank of
Colorado. At September 30, 1998, the Company has $5,800,000 (unaudited)
borrowed against this line of credit.
NOTE 9 - FEDERAL HOME LOAN BANK BORROWINGS
As of December 31, 1997, the Banks had available lines of credit
totaling $9,731,000 with the Federal Home Loan Bank (FHLB) secured by FHLB
capital stock and qualifying first mortgage residential loans. The advances
outstanding at December 31, 1997 are as follows (in thousands):
Amount Maturity date Interest Rate
- ------ ----------------- -------------
$1,000 November 23, 1998 5.90%
The advances outstanding at September 30, 1998 (unaudited) are as
follows (in thousands):
Amount Maturity date Interest Rate
- ------ ----------------- -------------
$1,000 November 23, 1998 5.52%
2,500 February 2, 2001 5.74%
5,000 January 31, 2003 5.81%
- ------
$8,500
======
NOTE 10 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND CONTINGENT
LIABILITIES
The Banks are parties to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of their
customers. These financial instruments include commitments to extend credit
and stand-by letters of credit.
F-14
104
FIRST WESTERN CORP. AND SUBSIDIARIES
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 consolidated balance sheet. The
contract amounts of those instruments reflect the extent of involvement the
Banks have in particular classes of financial instruments.
The Banks' 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 Banks use the same credit policies in
making commitments and conditional obligations as it does for
on-balance-sheet instruments.
Financial instruments whose contract amounts represent credit risk are
as follows (in thousands):
September 30, December 31,
1998 1997
------------- ------------
(Unaudited)
Commitments to extend credit $ 86,346 $ 56,010
Stand-by letters of credit $ 3,161 $ 2,139
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 or be participated to other financial
institutions, the total commitment amounts do not necessarily represent
future cash requirements. The Banks evaluate each customer's
credit-worthiness on a case-by-case basis.
The amount of collateral obtained if deemed necessary by the Banks 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
Banks 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.
In the normal course of business there are outstanding various
contingent liabilities, such as claims and legal actions, which are not
reflected in the accompanying consolidated financial statements. Management
believes, based on consultation with counsel, that liabilities arising from
these proceedings, if any, will not be material to the Company's
consolidated financial position.
F-15
105
FIRST WESTERN CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 11 - LEASE COMMITMENTS
Firstate Bank of Colorado leases various office and ATM space under
noncancelable operating leases. Future minimum lease payments under these
leases, expiring at various dates through 2008, are as follows (in
thousands):
Year Ending December 31,
1998 $ 384
1999 495
2000 435
2001 419
2002 432
Thereafter 2,017
-------
$ 4,182
=======
Total lease expense for all operating leases was $241,866 and $169,359
for the years ended December 31, 1997 and 1996, respectively.
NOTE 12 - INCOME TAXES
Deferred tax assets and liabilities are recorded based on the
differences between financial statement and tax basis of assets and
liabilities and the tax rates in effect when these differences are expected
to reverse.
Temporary differences in the recognition of revenue and expense for tax
and financial reporting purposes resulted in net deferred tax assets as of
December 31, 1997 as follows (in thousands):
Deferred tax assets
Provision for loan losses $ 13
Depreciation 133
Unrealized loss on securities available-for-sale 6
-----
Total deferred tax assets $ 152
Deferred tax liabilities --
-----
Net deferred tax assets $ 152
=====
F-16
106
FIRST WESTERN CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The effective income tax rate varies from the statutory federal rate
because of several factors, the most significant being nontaxable interest
income earned on obligations of state and political subdivisions. The
following table reconciles the Company's effective tax rate to the statutory
federal rate (dollars in thousands).
1997 1996
Amount Percent Amount Percent
------- ------- ------ -------
Tax expense at statutory rate $ 1,294 34.0% $ 773 34.0%
Increase (decrease) in taxes due to:
Tax exempt municipal interest (142) -3.7% (167) -7.3%
State tax 81 2.1% 17 0.7%
Other 76 2.0% 82 3.6%
------- ---- ------ ----
Total income tax expense $ 1,309 34.4% $ 705 31.0%
======= ==== ====== ====
The consolidated provision for income taxes consisted of the following
for the years ended December 31 (in thousands):
1997 1996
------ ------
Current tax provision:
Federal $1,191 $ 679
State 123 26
------ ------
1,314 705
Deferred federal (5) --
------ ------
$1,309 $ 705
====== ======
NOTE 13 - RELATED PARTIES
The Company has sold loan participations to related parties
(stockholders, directors, family members, businesses related through common
ownership). At December 31, 1997 and 1996, the participations sold to
related parties were approximately $1.4 million and $1.1 million,
respectively. As of September 30, 1998, participations sold to related
parties were approximately $1.0 million (unaudited).
In accordance with the terms of management agreements, the Company and
each of its three subsidiaries purchase services from Western Management
Corporation, a corporation owned by a principal stockholder. Such agreements
are annually renewable and are on terms that the Company believes would be
similar to those obtained from an unaffiliated party. The purchased services
include strategic planning, tax planning and budgeting, business
development, marketing, etc.
F-17
107
FIRST WESTERN CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Amounts expensed by the Company and its subsidiaries are as follows (in
thousands):
Nine months ended Years ended December 31,
September 30, 1998 1997 1996
- ------------------ ---------- ---------
(Unaudited)
$ 74.5 $ 167.0 $ 145.5
In 1995, the Vice Chairman of the Company sold assets of a mortgage
company to the Company for a purchase price of $100,000 to be paid out of
future profits generated by mortgage operations relating to those assets.
Through September 30, 1998, payments under the terms of this agreement
totaled $82,000 (unaudited). The Company believes that this transaction was
made on terms similar to those that would have been obtained with an
unaffiliated party.
The Company had no loans outstanding to related parties at December
31, 1997 or September 30, 1998 (unaudited).
NOTE 14 - EMPLOYEE BENEFITS
The Company participates in a multiple-employer 401(k) profit sharing
plan involving other companies of its primary shareholder. The plan is
available for all Company personnel who have been employed for one year.
Employees may contribute up to 10% of their compensation with the Company's
discretionary matching within the limits defined for a 401(k) Plan.
Contributions in 1997 and 1996 were $19,341 and $15,817, respectively.
NOTE 15 - COMPREHENSIVE INCOME
The Financial Accounting Standards Board (FASB) has issued SFAS
No. 130, "Reporting Comprehensive Income", which is effective for the fiscal
years beginning after December 15, 1997. This statement establishes
standards for reporting and display of comprehensive income and its
components (revenue, expenses, gains and losses) in a full set of general
purpose financial statements. This statement requires that all items that
are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed
with the same prominence as other financial statements. The Company adopted
SFAS No. 130 on January 1, 1998, and all annual required disclosures will be
included beginning with the year end 1998 consolidated financial statements.
F-18
108
FIRST WESTERN CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The Company's comprehensive income is as follows (in thousands):
Nine months ended Years Ended December 31,
September 30, 1998 1997 1996
(Unaudited)
------------------ ---------- ---------
Net income $ 2,953 $ 2,497 $ 1,570
Other comprehensive income, net of tax-unrealized
gain (loss) on available-for-sale securities
Unrealized gain (loss) arising during the period 4 33 (103)
Less: reclassification adjustment for net gain (loss)
realized in net income -- -- --
------- ------- -------
Subtotal 4 33 (103)
------- ------- -------
Comprehensive income $ 2,957 $ 2,530 $ 1,467
======= ======= =======
NOTE 16 - 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 DUE FROM BANKS, INTEREST BEARING DEPOSITS IN BANKS AND FEDERAL FUNDS
SOLD
For these short-term instruments, the carrying amount approximates
fair value.
INVESTMENTS
For investment securities, 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 receivable 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.
F-19
109
FIRST WESTERN CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
For securities sold under agreements to repurchase, 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 AND STAND-BY LETTERS 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 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, 1997:
Carrying Estimated
Amount Fair Value
-------- ----------
(In thousands)
FINANCIAL ASSETS
Cash and due from banks $ 10,427 $ 10,427
Interest bearing deposits in other banks 149 149
Federal funds sold 11,310 11,310
Investment securities:
Securities held-to-maturity 13,042 13,125
Securities available-for-sale 15,470 15,470
Loans held for sale 4,182 4,182
Net loans 164,306 164,051
Accrued interest receivable 2,272 2,272
FINANCIAL LIABILITIES
Deposits:
Non-interest bearing 32,238 32,238
Interest bearing 168,056 168,186
Securities sold under agreements to repurchase 2,072 2,072
Note payable 3,380 3,380
Federal Home Loan Bank borrowing 1,000 1,000
Accrued interest payable 2,770 2,770
UNRECOGNIZED FINANCIAL INSTRUMENTS
Commitments to extend credit 56,010 56,010
Stand-by letters of credit 2,139 2,139
F-20
110
FIRST WESTERN CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 17 - STOCKHOLDERS' EQUITY AND REGULATORY RESTRICTIONS
The payment of dividends to the Company by the subsidiaries is subject
to various state and federal regulatory limitations.
The Company and the Banks are subject to various regulatory capital
requirements administered by the federal and state banking agencies. Failure
to meet minimum capital requirements can initiate certain mandatory, and
possibly additional discretionary, actions by regulators that, if
undertaken, could have a direct material effect on the Company's
consolidated financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Banks must meet
specific capital guidelines that involve quantitative measures of the bank's
assets, liabilities, and certain off-balance sheet items as calculated under
regulatory accounting practices. The Company and the Banks' capital amounts
and classification are also subject to qualitative judgments by the
regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Banks to maintain minimum amounts and ratios (set forth
in the table below) of total and Tier I capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier I capital (as
defined) to average assets (as defined). Management believes, as of December
31, 1997 and as of September 30, 1998 (unaudited), that the Banks meet all
minimum capital adequacy requirements to which they are subject.
As of December 31, 1997, the most recent notification, the Federal
Deposit Insurance Corporation categorized the Nebraska Bank as well
capitalized, and the Colorado Bank as adequately capitalized, under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized, a bank must maintain minimum total risk-based, Tier 1
risk-based, and Tier 1 leverage ratios as set forth in the table. There are
no conditions or events since that notification that management believes
have changed either Bank's category.
As of December 31, 1997
(In thousands of dollars)
To be well
For capital capitalized under
adequacy prompt corrective
Actual purposes action provisions
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
>or = >or =
CONSOLIDATED
Total capital to risk weighted assets $ 17,997 9.74% $14,788 8% $ 18,485 10%
Tier 1 capital to risk weighted assets 16,676 9.02% 7,394 4% 11,091 6%
Tier 1 capital to average assets 16,676 7.53% 8,861 4% 11,076 5%
COLORADO BANK
Total capital to risk weighted assets $ 12,472 9.10% $10,959 8% $ 13,698 10%
Tier 1 capital to risk weighted assets 11,855 8.65% 5,479 4% 8,219 6%
Tier 1 capital to average assets 11,855 7.66% 6,191 4% 7,739 5%
NEBRASKA BANK
Total capital to risk weighted assets $ 8,278 17.55% $ 3,773 8% $ 4,716 10%
Tier 1 capital to risk weighted assets 7,687 16.30% 1,887 4% 2,830 6%
Tier 1 capital to average assets 7,687 11.65% 2,640 4% 3,300 5%
F-21
111
FIRST WESTERN CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Unaudited actual consolidated capital ratios for the Company as of
September 30, 1998 are as follows:
Total capital to risk weighted assets 7.80%
Tier 1 capital to risk weighted assets 7.22%
Tier 1 capital to average assets 6.20%
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 $708,000 at December 31, 1997.
NOTE 18 - CONDENSED FINANCIAL STATEMENTS - PARENT COMPANY ONLY
The following presents condensed parent company only financial
statements for First Western Corp. (in thousands).
Condensed Balance Sheets
September 30, December 31,
1998 1997
------------- ------------
(Unaudited)
Assets
- ------
Cash and due from banks $ 10 $ 16
Investment in subsidiaries 26,309 20,523
Other assets 1,385 1,173
-------- --------
TOTAL ASSETS $ 27,704 $ 21,712
======== ========
Liabilities
- -----------
Note payable $ 5,800 $ 3,380
Income taxes payable 1,583 1,309
Accounts payable and accrued liabilities 453 112
-------- --------
Total liabilities 7,836 4,801
-------- --------
Stockholders' equity
- --------------------
Common stock 140 140
Surplus 697 697
Retained earnings 19,038 16,085
Unrealized loss on securities available-for-sale, net of taxes (7) (11)
-------- --------
Total stockholders' equity 19,868 16,911
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 27,704 $ 21,712
======== ========
F-22
112
FIRST WESTERN CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Condensed Statements of Income
Nine months ended Years ended
September 30, December 31,
1998 1997 1997 1996
-------------------- -------------------
(Unaudited)
Income
Dividends received from subsidiaries $ 996 $ 891 $ 937 $ 890
Interest -- 5 5 26
------- ------- ------- -------
Total income 996 896 942 916
------- ------- ------- -------
Expense
Purchased services 219 219 294 2
Interest 182 48 113 --
Other 9 9 27 26
------- ------- ------- -------
Total expenses 410 276 434 28
------- ------- ------- -------
Income before income tax (benefit) and equity
in undistributed income of subsidiaries 586 620 508 888
Income tax (benefit) (170) 2 2 (10)
------- ------- ------- -------
Income before equity in undistributed income of subsidiaries 756 618 506 898
Equity in undistributed income of subsidiaries 2,197 1,343 1,991 672
------- ------- ------- -------
Net income $ 2,953 $ 1,961 $ 2,497 $ 1,570
======= ======= ======= =======
F-23
113
FIRST WESTERN CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Condensed Statement of Cash Flows
Nine months ended Years ended
September 30, December 31,
1998 1997 1997 1996
-------------------- -------------------
(Unaudited)
Cash flows from operating activities:
Net income $ 2,953 $ 1,961 $ 2,497 $ 1,570
Adjustments to reconcile net income to net cash
provided by operating activities
Equity in undistributed income of subsidiaries (2,197) (1,343) (1,991) (672)
Changes in deferrals and accruals:
Other assets (212) (117) (501) (208)
Income taxes payable 274 209 639 205
Accounts payable and accrued liabilities 341 1,247 112 --
------- ------- ------- -------
Net cash provided by operating activities 1,159 1,957 756 895
------- ------- ------- -------
Cash flows from investing activities:
Capital injection into subsidiary bank (3,750) (3,738) (3,737) --
Purchase of savings bank -- (3,743) (3,743) --
Net cash transfers with First Mortgage Bancorp 165 2,660 2,799 (1,146)
------- ------- ------- -------
Net cash used in investing activities (3,585) (4,821) (4,681) (1,146)
------- ------- ------- -------
Cash flows from financing activities:
Proceeds from note payable 3,850 2,400 3,380 --
Payments on note payable (1,430) -- -- --
------- ------- ------- -------
Net cash provided by financing activities 2,420 2,400 3,380 --
------- ------- ------- -------
Net (decrease) increase in cash (6) (464) (545) (251)
Cash at beginning of period 16 561 561 812
------- ------- ------- -------
Cash at end of period $ 10 $ 97 $ 16 $ 561
======= ======= ======= =======
F-24
114
We have not authorized any dealer, salesperson or any other person to
give any information or to make any representations other than those contained
in this prospectus authorized by us and referred to in this prospectus, and, if
given or made, you must not rely upon such information and representations.
This prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any securities in any state to any person to whom it is unlawful
to make an offer. We do not intend the delivery of this prospectus or any sale
made to create the implication that there has been no change in our affairs
since the date of the information provided in this prospectus. However, if
there is any material change in our affairs during the time when a copy of this
prospectus is required to be delivered, we will amend or supplement this
prospectus to reflect the change.
115
TABLE OF CONTENTS
Page
----
PROSPECTUS SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SELECTED CONSOLIDATED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
CAUTIONARY STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ACCOUNTING TREATMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . 19
BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
PRINCIPAL SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
RELATED PARTY TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
SUPERVISION AND REGULATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
DESCRIPTION OF THE PREFERRED SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
DESCRIPTION OF JUNIOR SUBORDINATED DEBENTURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
BOOK-ENTRY ISSUANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
DESCRIPTION OF GUARANTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
RELATIONSHIP AMONG THE PREFERRED SECURITIES, THE JUNIOR SUBORDINATED DEBENTURES AND THE GUARANTEE . . . . . . . . . . 81
CERTAIN FEDERAL INCOME TAX CONSEQUENCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
ERISA CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
UNDERWRITING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
INDEX TO FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
DEALER PROSPECTUS DELIVERY OBLIGATIONS. UNTIL _________, 1999, ALL
DEALERS THAT EFFECT TRANSACTIONS IN THE PREFERRED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
116
2,000,000 PREFERRED SECURITIES
FW CAPITAL I
% CUMULATIVE PREFERRED SECURITIES
(LIQUIDATION AMOUNT $10 PER PREFERRED SECURITY)
GUARANTEED, AS DESCRIBED HEREIN, BY
FIRST WESTERN CORP.
LOGO
------------------------------
P R O S P E C T U S
------------------------------
HOWE BARNES INVESTMENTS, INC.
, 1998
117
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Directors, officers, employees, trustees and agents of the company and
FW Capital I may be entitled to benefit from the indemnification provisions
contained in the Nebraska Business Corporation Act (the "Nebraska Act") and the
company's Articles of Incorporation. In addition, certain provisions in the
Articles of Incorporation limit the liability of directors of the company. The
general effect of these provisions is summarized below:
The Nebraska Act permits a corporation organized in its state to
indemnify any person who was or is a party or is threatened to be made a party
to any suit, action or other proceeding by reason of the fact that such person
is or was a director, officer, employee or agent of the corporation, or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, trust or other enterprise. Such
indemnification may be against expenses, including attorneys' fees, judgments,
fines and other amounts in connection with such proceeding. Indemnification is
available if such person acted in good faith and in a manner reasonably
believed to be in or not opposed to the best interests of the corporation, or,
with respect to any criminal action or proceeding, such person had no
reasonable cause to believe that the conduct was unlawful. Unless a court of
competent jurisdiction otherwise orders, indemnification is not available in
connection with a proceeding by or in the right of the corporation if the
person is adjudged liable to the corporation or derived an improper personal or
financial benefit. A corporation is required to indemnify a director or
officer who is wholly successful in the defense of any such proceeding.
Expenses (including attorneys' fees) incurred by a director, officer, employee
or agent of the corporation in defending any such proceeding may be advanced by
the corporation before the final disposition if such person furnishes an
undertaking to repay such advances if it is ultimately determined that such
person is not entitled to be indemnified. Before a corporation may indemnify
or advance expenses to a person under these provisions, the board of directors
(excluding any directors who are parties to such a proceeding), independent
legal counsel appointed by the board of directors, or the shareholders must
provide authorization. A corporation may purchase insurance against any
liability of individuals for whom the corporation may provide such
indemnification. Any provisions in a corporation's articles of incorporation,
bylaws, resolutions or in a contract (except an insurance policy) for such
indemnification are valid only to the extent not inconsistent with the Nebraska
Act.
Article XII of the company's Articles of Incorporation states that the
company shall have all powers to indemnify and make advances in connection with
such indemnification to its directors, officers and others to the fullest
extent of the law. This Article also states that the board of directors is
authorized, without shareholder action, to exercise the company's powers of
indemnification, whether by provision in the bylaws or otherwise.
Nebraska law provides that a director is not liable for any action
taken as long as such director discharged his or her duties (i) in good faith,
(ii) with the care of an ordinarily prudent person in a like position under the
same circumstances, and (iii) in a manner he or she reasonably believes to be
in the best interest of the company.
II-1
118
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Securities and Exchange Commission registration fee $ 5,560
NASD fee 2,500
American Stock Exchange fees 15,000
Trustees' fees and expenses 25,000
Legal fees and expenses 125,000
Accounting fees and expenses 80,000
Printing expenses 85,000
Miscellaneous expenses 11,940
--------
Total $350,000
========
All of the above items except the registration fee are estimated.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
In May 1997, the Registrant issued 15,000 shares of its common stock
to Joel H. Wiens, Michael J. Nelson, Max W. Revell, Timothy D. Wiens and as
custodian for two of his minor children in exchange for an 18.2% equity
interest in Firstate Bank of Colorado, which is now a wholly-owned subsidiary
of the Registrant. All of the purchasers were directors and/or officers of the
company. No underwriters were involved in the transaction and the issuance was
made in a transaction exempt from the requirements of Section 5 of the
Securities Act of 1933 pursuant to Section 4(2) thereof. Reliance on the
exemption was based on the fact that the transaction was limited to the
Registrant and its executive officers and directors.
ITEM 27. EXHIBITS
(a) Exhibits
Exhibit No. Description
1.1 Form of Underwriting Agreement (1).
3.1 Articles of Incorporation of First Western Corp. , as amended
and restated (1).
3.2 Amended Bylaws of First Western Corp. (1).
4.1 Form of Subordinated Indenture dated _______, 1998 to be
entered into between the Registrant and Wilmington Trust
Company, as Indenture Trustee (1).
4.2 Form of Junior Subordinated Debenture (included as an exhibit
to Exhibit 4.1).
4.3 Certificate of Trust of FW Capital I (1).
4.4 Trust Agreement of FW Capital I dated as of November 6, 1998
(1).
4.5 Form of Amended and Restated Trust Agreement of FW Capital I,
dated ______, 1998 (1).
4.6 Form of Preferred Security Certificate of FW Capital I
(included as an exhibit to Exhibit 4.5).
4.7 Form of Preferred Securities Guarantee Agreement (1).
4.8 Form of Agreement as to Expenses and Liabilities (included as
an exhibit to Exhibit 4.5).
II-2
119
5.1 Form of Opinion of Jones & Keller, P.C. (1).
5.2 Form of Opinion and Consent of Richards, Layton & Finger, P.A.
(1).
8.1 Form of Opinion of Jones & Keller, P.C., as to certain federal
income tax matters (1).
10.1 Revolving Line of Credit dated February 19, 1998 between First
Western Corp. as borrower and National Bank of Commerce Trust
and Savings Association (1).
10.2 Advance, Pledge and Security Agreement dated October 21, 1997
between Federal Home Loan Bank of Topeka and First State Bank
(1).
10.3 Advance, Pledge and Security Agreement dated March 31, 1997
between Federal Home Loan Bank of Topeka and Firstate Bank of
Colorado (1).
10.4 Line of Credit agreement signed February 24, 1998 between
Firstate Bank of Colorado and Federal Home Loan Bank of Topeka
(1).
10.5 Federal Funds Purchased Line agreement between Firstate Bank
and Wells Fargo Bank (1).
10.6 Federal Funds Purchased Line agreement dated August 25, 1998
between Firstate Bank of Colorado and Bankers Bank of the West
(1).
10.7 Federal Funds Purchased Line agreement dated October 20, 1997
between Firstate Bank and Bankers Bank of the West (1).
10.8 Management Agreement between First Western Corp. and Western
Management Corporation dated January 21, 1997 (1).
10.9 Management Agreement between Firstate Bank of Colorado and
Western Management Corporation dated January 4, 1993 (1).
10.10 Management Agreement between Firstate Bank of Nebraska and
Western Management Corporation dated January 21, 1998 (1).
10.11 Management Agreement between First Mortgage Bancorp and
Western Management Corporation dated January 21, 1997 (1).
10.12 Electronic Data Processing Agreement between First Commerce
Technologies and Firstate Bank dated May 8, 1998 (1).
10.13 Electronic Data Processing Agreement between First Commerce
Technologies and Firstate Bank of Colorado dated April 14,
1998 (1).
11.1 Statement re Computation of per share earnings - see
Consolidated Financial Statements.
21 Subsidiaries of Registrant (1).
23.1 Consent of Clifton Gunderson L.L.C. (1).
23.2 Form of Consent of Jones & Keller, P.C. (included in Exhibit
5.1 above).
II-3
120
23.3 Form of Consent of Richards, Layton & Finger, P.A. (included
in Exhibit 5.2 above).
24.1 A power of attorney is set forth on the signature page of this
Registration Statement.
25.1 Form T-1 Statement of Eligibility of Wilmington Trust Company
to act as trustee under the Subordinated Indenture (1).
25.2 Form T-1 Statement of Eligibility of Wilmington Trust Company
to act as trustee under the Amended and Restated Trust
Agreement (1).
25.3 Form T-1 Statement of Eligibility of Wilmington Trust Company
to act as trustee under the Preferred Securities Guarantee
Agreement (1).
27 Financial Data Schedule (1)
- ----------
(1) Filed herewith.
(2) To be filed by amendment.
ITEM 28. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
each 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 each
Registrant of expenses incurred or paid by a director, officer or controlling
person of each 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, each 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.
Each Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as part
of a registration statement in reliance upon Rule 430A and contained in the
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of the registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-4
121
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form SB-2 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Northglenn, State of Colorado, on this 12th day
of November, 1998.
FW Capital I First Western Corp.
By: /s/ Timothy D. Wiens By: /s/ Joel H. Wiens
---------------------------------------- ------------------------------
Timothy D. Wiens, Joel H. Wiens,
Administrative Trustee Chairman of the Board
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Joel H. Wiens and Timothy D. Wiens and
each of them, his true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution for him in his name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting upon said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or either of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities of First Western Corp. and on the dates indicated.
Signatures Title Date
- ---------- ----- ----
/s/ Joel H. Wiens Director, Chairman of the Board November 12, 1998
- ------------------------------- (Principal Executive Officer)
Joel H. Wiens
/s/ Timothy D. Wiens Director and Vice Chairman November 12, 1998
- ----------------------------
Timothy D. Wiens
/s/ Michael J. Nelson Director November 12, 1998
- -----------------------------
Michael J. Nelson
/s/ Max W. Revell Director November 12, 1998
- --------------------------------
Max W. Revell
/s/ Lynn M. Anthony Director November 12, 1998
- -----------------------------
Lynn M. Anthony
/s/ Ronald B. James Treasurer and Chief Financial November 12, 1998
- ------------------------------ Officer (Principal Accounting Officer)
Ronald B. James
122
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
Exhibit No. Description
1.1 Form of Underwriting Agreement (1).
3.1 Articles of Incorporation of First Western Corp. , as amended
and restated (1).
3.2 Amended Bylaws of First Western Corp. (1).
4.1 Form of Subordinated Indenture dated _______, 1998 to be
entered into between the Registrant and Wilmington Trust
Company, as Indenture Trustee (1).
4.2 Form of Junior Subordinated Debenture (included as an exhibit
to Exhibit 4.1).
4.3 Certificate of Trust of FW Capital I (1).
4.4 Trust Agreement of FW Capital I dated as of November 6, 1998
(1).
4.5 Form of Amended and Restated Trust Agreement of FW Capital I,
dated ______, 1998 (1).
4.6 Form of Preferred Security Certificate of FW Capital I
(included as an exhibit to Exhibit 4.5).
4.7 Form of Preferred Securities Guarantee Agreement (1).
4.8 Form of Agreement as to Expenses and Liabilities (included as
an exhibit to Exhibit 4.5).
5.1 Form of Opinion of Jones & Keller, P.C. (1).
5.2 Form of Opinion and Consent of Richards, Layton & Finger, P.A.
(1).
8.1 Form of Opinion of Jones & Keller, P.C., as to certain federal
income tax matters (1).
10.1 Revolving Line of Credit dated February 19, 1998 between First
Western Corp. as borrower and National Bank of Commerce Trust
and Savings Association (1).
10.2 Advance, Pledge and Security Agreement dated October 21, 1997
between Federal Home Loan Bank of Topeka and First State Bank
(1).
10.3 Advance, Pledge and Security Agreement dated March 31, 1997
between Federal Home Loan Bank of Topeka and Firstate Bank of
Colorado (1).
10.4 Line of Credit agreement signed February 24, 1998 between
Firstate Bank of Colorado and Federal Home Loan Bank of Topeka
(1).
123
10.5 Federal Funds Purchased Line agreement between Firstate Bank
and Wells Fargo Bank (1).
10.6 Federal Funds Purchased Line agreement dated August 25, 1998
between Firstate Bank of Colorado and Bankers Bank of the West
(1).
10.7 Federal Funds Purchased Line agreement dated October 20, 1997
between Firstate Bank and Bankers Bank of the West (1).
10.8 Management Agreement between First Western Corp. and Western
Management Corporation dated January 21, 1997 (1).
10.9 Management Agreement between Firstate Bank of Colorado and
Western Management Corporation dated January 4, 1993 (1).
10.10 Management Agreement between Firstate Bank of Nebraska and
Western Management Corporation dated January 21, 1998 (1).
10.11 Management Agreement between First Mortgage Bancorp and
Western Management Corporation dated January 21, 1997 (1).
10.12 Electronic Data Processing Agreement between First Commerce
Technologies and Firstate Bank dated May 8, 1998 (1).
10.13 Electronic Data Processing Agreement between First Commerce
Technologies and Firstate Bank of Colorado dated April 14,
1998 (1).
11.1 Statement re Computation of per share earnings - see
Consolidated Financial Statements.
21 Subsidiaries of Registrant (1).
23.1 Consent of Clifton Gunderson L.L.C. (1).
23.2 Form of Consent of Jones & Keller, P.C. (included in Exhibit
5.1 above).
23.3 Form of Consent of Richards, Layton & Finger, P.A. (included
in Exhibit 5.2 above).
24.1 A power of attorney is set forth on the signature page of this
Registration Statement.
25.1 Form T-1 Statement of Eligibility of Wilmington Trust Company
to act as trustee under the Subordinated Indenture (1).
25.2 Form T-1 Statement of Eligibility of Wilmington Trust Company
to act as trustee under the Amended and Restated Trust
Agreement (1).
25.3 Form T-1 Statement of Eligibility of Wilmington Trust Company
to act as trustee under the Preferred Securities Guarantee
Agreement (1).
27 Financial Data Schedule (1)
- ----------
(1) Filed herewith.
(2) To be filed by amendment.