As filed with the Securities and Exchange Commission on September 21, 2001
Registration No. 333-69114
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 2 To
Form S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Sun Community Bancorp Limited
(Exact name of registrant as specified in its charter)
ARIZONA 6711 86-0878747
(State or Other Jurisdiction of (Primary Standard (I.R.S. Employer
Incorporation or Organization) Industrial Classification Identification No.)
Code Number)
2777 East Camelback Road, Suite 375
Phoenix, Arizona 85016
(602) 955-6100
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
Cristin Reid English
2777 East Camelback Road, Suite 375
Phoenix, Arizona 85016
(602) 955-6100
(Name and address, including zip code, and telephone number,
including area code, of agent for service)
Copy to:
Terry Morris Roman, Esq.
Snell & Wilmer, L.L.P.
One Arizona Center
Phoenix, Arizona 85004-001
(602) 382-6000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this Registration
Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box.[ ]
================================================================================
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(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. [ ]
CALCULATION OF REGISTRATION FEE
=========================================================================================================
Title Of Each Proposed Maximum Proposed Maximum
Class Of Securities Being Amount To Be Offering Price Aggregate Offering Amount Of
Registered Registered (1) Per Share (2) Price (2) Registration Fee
---------------------------------------------------------------------------------------------------------
Common stock (no par value) 269,833 $10.502000 $2,833,786 $765.00(3)
=========================================================================================================
(1) Based on 159,320 shares of common stock, $5.00 par value, of Southern
Arizona Community Bank, which is the maximum number of shares of Southern
common stock (excluding shares held by Sun) that may be outstanding
immediately prior to the consummation of the exchange transaction, assuming
exercise of all outstanding options to purchase shares of Southern common
stock. Based also on an assumed exchange ratio of 1.693656 shares of Sun
common stock for each share of Southern common stock.
(2) Pursuant to Rules 457(f)(1) and 457(c) under the Securities Act of 1933, as
amended, the registration fee has been calculated based on $10.502000 per
share of Sun common stock (the amount ascribed to the transaction value
based on information as of August 31, 2001 and an exchange ratio of
1.693656 Sun shares for each Southern share not owned by Sun), and the
maximum number of shares of Sun common stock that may be issued in the
consummation of the exchange transaction contemplated.
(3) Remitted previously.
[SOUTHERN LOGO]
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held On October 12, 2001
To the Shareholders of Southern Arizona Community Bank:
The annual meeting of the shareholders of Southern Arizona Community Bank
will be held at Southern Arizona Community Bank at 6400 North Oracle Road,
Tucson, Arizona 85704 on October 12, 2001, at 9:00 a.m., local time, for the
following purposes:
1. To consider and vote on a proposal to adopt and approve a Plan of Share
Exchange, dated as of September 1, 2001, between Sun Community Bancorp Limited
and Southern Arizona Community Bank under which all shareholders of Southern
(other than Sun) will exchange their stock in Southern for stock in Sun,
according to an exchange ratio, as described in the attached proxy
statement/prospectus. A copy of the Plan of Share Exchange is attached to the
proxy statement/prospectus as Annex A. Under the Arizona Business Corporation
Act, shareholders of Southern will have the right to assert dissenters' rights
in connection with the proposed Plan of Share Exchange. See "Dissenters' Rights"
in the proxy statement/prospectus accompanying this notice.
2. Election of Directors.
3. To act on any other matters that may properly be brought before the
shareholders' meeting or any adjournment or postponement.
Only shareholders of record at the close of business on August 17, 2001 are
entitled to notice of, and to vote at, the meeting or any adjournment or
postponement.
You are cordially invited to attend the meeting of Southern's shareholders.
Whether or not you plan to attend, please act promptly to vote your shares with
respect to the proposals described above. You may vote your shares by
completing, signing, dating and returning the enclosed proxy card as promptly as
possible in the enclosed postage-paid envelope.
If you attend the shareholders' meeting, you may vote your shares in person
even if you have previously submitted a proxy.
By Order of the Board of Directors,
/s/ John P. Lewis
President
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2
PROXY STATEMENT/PROSPECTUS
PROPOSED PLAN OF SHARE EXCHANGE
The Board of Directors of Southern Arizona Community Bank has approved a
Plan of Share Exchange that contemplates the exchange of the shares of Southern
common stock held by all shareholders other than Sun Community Bancorp Limited
for shares of Sun common stock. Sun currently holds 51% of Southern's common
stock. As a result of the exchange, Southern will become a wholly-owned
subsidiary of Sun.
If the exchange is approved, each share of Southern common stock will be
converted into the right to receive Sun common stock according to an exchange
ratio. The exchange ratio is calculated by dividing one and one-half times the
adjusted pro forma net book value per share of Southern common stock as of
August 17, 2001, by the higher of (1) the average closing prices of Sun's common
stock for each of the trading days in the thirty (30) calendar day period prior
to and ending on September 30, 2001, as reported by the NASDAQ Stock Market,
Inc. or (2) the book value of Sun's common stock as of September 30, 2001. If
the exchange ratio was calculated based on the information currently available,
each shareholder of Southern would receive in the exchange 1.693656 shares of
Sun common stock for each share of Southern common stock. This is based on an
assumed value of Sun's common stock of $10.502000 per share. The actual exchange
ratio will be based on information as of September 30, 2001, and will be
different.
Sun estimates that Sun will issue approximately 269,833 shares of Sun
common stock to Southern shareholders in the exchange. Those shares will
represent less than 5% of the outstanding Sun common stock after the exchange.
Sun's common stock trades on the Nasdaq National Market System under the symbol
"SCBL."
Southern's Board of Directors has scheduled a meeting of Southern
shareholders to vote on the Plan of Share Exchange. The attached proxy
statement/prospectus includes detailed information about the time, date and
place of the shareholders' meeting.
This document gives you detailed information about the meeting and the
proposed exchange. You are encouraged to read this document carefully. IN
PARTICULAR, YOU SHOULD READ THE "RISK FACTORS" SECTION FOR A DESCRIPTION OF
VARIOUS RISKS YOU SHOULD CONSIDER IN EVALUATING THE EXCHANGE OF YOUR SOUTHERN
COMMON STOCK FOR SUN'S COMMON STOCK.
--------------------------------------------------------------------------------
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED
THE SECURITIES TO BE ISSUED UNDER THIS PROXY STATEMENT/PROSPECTUS OR DETERMINED
IF THIS PROXY STATEMENT/PROSPECTUS IS ACCURATE OR ADEQUATE. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------------------------------------------------------------------------------
This proxy statement/prospectus is dated September 24, 2001, and is first
being mailed to shareholders of Southern on or about September 25, 2001.
3
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4
TABLE OF CONTENTS
ANSWERS TO FREQUENTLY ASKED QUESTIONS....................................... 7
SUMMARY..................................................................... 10
Reasons for the Exchange. ............................................... 10
The Annual Shareholders' Meeting......................................... 10
Recommendation to Shareholders........................................... 10
Votes Required........................................................... 11
Record Date; Voting Power................................................ 11
What Shareholders will Receive in the Exchange........................... 11
Accounting Treatment..................................................... 11
Tax Consequences of the Exchange to Southern Shareholders................ 12
Dissenters' Rights....................................................... 12
Opinion of Financial Advisor............................................. 12
The Plan of Share Exchange............................................... 12
Termination of the Exchange.............................................. 12
Your Rights as a Shareholder Will Change................................. 12
SELECTED CONSOLIDATED FINANCIAL DATA........................................ 13
RISK FACTORS................................................................ 15
RECENT DEVELOPMENTS......................................................... 19
CAPITALIZATION.............................................................. 20
DIVIDENDS AND MARKET FOR COMMON STOCK....................................... 21
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS................... 22
INFORMATION ABOUT SUN....................................................... 23
INFORMATION ABOUT SOUTHERN.................................................. 23
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION................................ 24
THE ELECTION OF DIRECTORS................................................... 25
THE EXCHANGE................................................................ 26
General.................................................................. 26
Background of the Exchange............................................... 26
Southern's Reasons for the Exchange...................................... 27
Sun's Reasons for the Exchange........................................... 27
Terms of Exchange........................................................ 27
Southern Board Recommendation............................................ 28
Accounting Treatment..................................................... 28
Pro Forma Data........................................................... 28
Material Federal Income Tax Consequences................................. 28
Regulatory Matters....................................................... 30
Dissenters' Rights....................................................... 30
Federal Securities Laws Consequences; Stock Transfer Restrictions........ 31
OPINION OF FINANCIAL ADVISOR................................................ 32
5
THE CLOSING................................................................. 34
Effective Time........................................................... 34
Shares Held by Sun....................................................... 34
Procedures for Surrender of Certificates; Fractional Shares.............. 34
Fees and Expenses........................................................ 35
Nasdaq Stock Market Listing.............................................. 35
Amendment and Termination................................................ 35
THE SHAREHOLDERS' MEETING................................................... 36
Date, Time and Place..................................................... 36
Matters to be Considered at the Shareholders' Meeting.................... 36
Record Date; Stock Entitled to Vote; Quorum.............................. 36
Votes Required........................................................... 36
Share Ownership of Management............................................ 36
Voting of Proxies........................................................ 37
General Information...................................................... 37
Solicitation of Proxies; Expenses........................................ 37
COMPARISON OF SHAREHOLDER RIGHTS............................................ 38
DESCRIPTION OF CAPITAL STOCK OF SUN......................................... 39
Rights of Common Stock................................................... 39
Shares Available for Issuance............................................ 39
Anti-Takeover Provisions................................................. 40
WHERE YOU CAN FIND MORE INFORMATION......................................... 41
LEGAL MATTERS............................................................... 42
EXPERTS..................................................................... 42
LIST OF ANNEXES
ANNEX A Plan of Share Exchange............................................ A-1
ANNEX B Opinion of Financial Advisor...................................... B-1
ANNEX C Tax Opinion of Snell & Wilmer, L.L.P.............................. C-1
ANNEX D Financial Information Regarding Southern Arizona Community Bank... D-1
ANNEX E Financial and Other Information Regarding Sun Community Bancorp
Limited.......................................................... E-1
ANNEX F Excerpts of Arizona Revised Statutes Regarding Dissenters'
Rights........................................................... F-1
6
ANSWERS TO
FREQUENTLY ASKED QUESTIONS
Q: Why am I receiving these materials?
A: Southern's Board of Directors has approved the exchange of the 49% of
Southern's common stock not owned by Sun for shares of common stock of Sun.
The exchange requires the approval of Southern's shareholders. Southern is
sending you these materials to help you decide whether to approve the
exchange. These materials also include information regarding Southern's
election of directors.
Q: What will I receive in the exchange?
A: You will receive shares of Sun common stock, which are publicly traded on
the National Market System of the Nasdaq Stock Market, Inc. under the
symbol "SCBL." If the exchange is approved, an exchange ratio will be
calculated by dividing one and one-half times the adjusted pro forma fully
diluted net book value per share of Southern common stock as of August 17,
2001, by the higher of (1) the average closing prices of Sun's common stock
for each of the trading days in the thirty (30) day period prior to and
ending on September 30, 2001 or (2) the book value of Sun's common stock as
of September 30, 2001. If the exchange ratio was calculated based on
currently available information, you would receive 1.693656 shares of Sun
common stock for each share of Southern common stock you own, based on an
assumed book value Sun common stock of $10.502000 per share. The actual
exchange ratio will be different because it will be based on information as
of September 30, 2001. Fractional shares will be settled in cash.
Q: What do I need to do now?
A: After you have carefully read this document, indicate on the enclosed proxy
card how you want to vote. Sign and mail the proxy card in the enclosed
prepaid return envelope as soon as possible. You should indicate your vote
now even if you expect to attend the shareholders' meeting and vote in
person. Indicating your vote now will not prevent you from later canceling
or revoking your proxy right up to the day of the shareholders' meeting and
will ensure that your shares are voted if you later find you cannot attend
the shareholders' meeting.
Q: What do I do if I want to change my vote?
A: You may change your vote:
* by sending a written notice to the President of Southern prior to the
shareholders' meeting stating that you would like to revoke your
proxy;
* by signing a later-dated proxy card and returning it by mail prior to
the shareholders' meeting, no later than October 5, 2001; or
* by attending the shareholders' meeting and voting in person.
Q: What vote is required to approve the exchange?
A: In order to complete the exchange, holders of a majority of the shares of
Southern common stock (other than Sun) must approve the Plan of Share
Exchange. If you do not vote your Southern shares, the effect will be a
vote against the Plan of Share Exchange.
7
Q: Should I send in my stock certificates at this time?
A: No. After the exchange is approved, Sun or Sun's stock transfer agent will
send Southern shareholders written instructions for exchanging their stock
certificates.
Q: When do you expect to complete the exchange?
A: As quickly as possible after September 30, 2001. Approval by Southern's
shareholders at the shareholders' meeting must be obtained first. It is
anticipated the exchange will be completed by November 30, 2001.
Q: Where can I find more information about Sun?
A: This document incorporates important business and financial information
about Sun from documents filed with the SEC that have been delivered with
this document. Certain exhibits are not included in those documents;
however, Sun will provide you with copies of those exhibits, without
charge, upon written or oral request to:
Sun Community Bancorp Limited
2777 East Camelback Road, Suite 375
Phoenix, Arizona 85016
Attention: General Counsel
Telephone Number: (602) 955-6100
IN ORDER TO RECEIVE TIMELY DELIVERY OF THE DOCUMENTS IN ADVANCE OF THE
SHAREHOLDERS' MEETING, YOU SHOULD MAKE YOUR REQUEST NO LATER THAN OCTOBER 5,
2001.
For more information on the matters incorporated by reference in this
document, see "Where You Can Find More Information".
8
WHO CAN ANSWER YOUR QUESTIONS?
If you have additional questions, you should contact:
Southern Arizona Community Bank
6400 North Oracle Road
Tucson, Arizona 85704
(520) 219-5000
Attention: John P. Lewis
President
or
Sun Community Bancorp Limited
2777 East Camelback Road, Suite 375
Phoenix, Arizona 85016
(602) 955-6100
Attention: Cristin Reid English
General Counsel
If you would like additional copies of this
proxy statement/prospectus you should contact:
Sun Community Bancorp Limited at the above address and phone number.
9
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROXY
STATEMENT/PROSPECTUS. IT DOES NOT CONTAIN ALL OF THE INFORMATION THAT MAY BE
IMPORTANT TO YOU. TO UNDERSTAND THE PROPOSED EXCHANGE FULLY AND THE CONSEQUENCES
TO YOU, YOU SHOULD READ CAREFULLY THE ENTIRE PROXY STATEMENT/PROSPECTUS AND THE
DOCUMENTS REFERRED TO IN THIS DOCUMENT. SEE "WHERE YOU CAN FIND MORE
INFORMATION".
Sun Community Bancorp Limited is a bank holding company with headquarters
located at 2777 East Camelback Road, Suite 375, Phoenix, Arizona 85016. Sun's
telephone number is (602) 955-6100. Sun's principal shareholder is Capitol
Bancorp Limited, a bank holding company headquartered in Lansing, Michigan.
Sun is a uniquely structured affiliation of community banks. It currently
has 14 wholly or majority-owned bank subsidiaries, including Southern Arizona
Community Bank. Each bank is viewed by management as being a separate business
from the perspective of monitoring performance and allocation of financial
resources. Sun uses a unique strategy of bank ownership and development through
a tiered structure.
Sun's operating strategy is to provide transactional, processing and
administrative support and mentoring to aid in the effective growth and
development of its banks. It provides access to support services and management
with significant experience in community banking. These administrative and
operational support services do not require a direct interface with the bank
customer and therefore can be consolidated more efficiently without affecting
the bank customer relationship. Subsidiary banks have full decision-making
authority in structuring and approving loans and in the delivery and pricing of
other banking services.
Southern Arizona Community Bank is a commercial bank with its headquarters
at 6400 North Oracle Road, Tucson, Arizona 85704. Southern's telephone number is
(520) 219-5000.
Southern is now and has been, since it commenced business, a 51% owned
subsidiary of Sun. Southern commenced the business of banking on August 17,
1998. Southern offers a full range of commercial banking services.
REASONS FOR THE EXCHANGE (PAGE 27)
It is believed that the exchange will provide you with greater liquidity
and flexibility because Sun's common stock is publicly traded. The exchange will
also provide you with greater diversification, since Sun is active in more than
one geographic area and across a broader customer base.
THE SHAREHOLDERS' MEETING (PAGE 36)
The meeting of Southern shareholders will be held on October 12, 2001 at
9:00 a.m., local time, at Southern Arizona Community Bank at 6400 North Oracle
Road, Tucson, Arizona 85704. At the shareholders' meeting, you will elect
Southern's Board of Directors and be asked to approve the Plan of Share
Exchange.
RECOMMENDATION TO SHAREHOLDERS (PAGE 28)
The Southern board believes that the exchange is fair to you and in the
best interests of both you and Southern and recommends that you vote FOR
approval of the share exchange.
10
VOTES REQUIRED (PAGE 36)
Approval of the Plan of Share Exchange requires the favorable vote of a
majority of the outstanding shares of Southern common stock excluding the shares
held by Sun. This is more than the vote required by law, but Southern's board
has set the vote requirement to be sure the exchange is what you, the
shareholders of Southern, want. Sun holds 51% of the outstanding shares of
Southern common stock. Southern's Board of Directors holds 8.34% of the
outstanding shares of Southern common stock, or 17.02% of all shares not held by
Sun. The majority of the Board of Directors have agreed to vote their shares FOR
approval of the Plan of Share Exchange.
RECORD DATE; VOTING POWER (PAGE 36)
Southern shareholders may vote at the shareholders' meeting if they owned
shares of common stock at the close of business on August 31, 2001. At the close
of business on August 17, 2001, 159,320 shares of Southern common stock were
outstanding (excluding shares held by Sun). For each share of Southern common
stock that you owned as of the close of business on that date, you will have one
vote in the vote of common shareholders at the shareholders' meeting on the
proposal to approve the Plan of Share Exchange.
WHAT SHAREHOLDERS WILL RECEIVE IN THE EXCHANGE (PAGE 27)
In the exchange, each outstanding share of Southern common stock will be
automatically converted into the right to receive Sun common stock, according to
an "exchange ratio". If the exchange ratio was calculated based on the
information currently available, each shareholder of Southern would receive in
the exchange 1.693656 shares of Sun common stock for each share of Southern
common stock. This assumes a value for Sun common stock of $10.502000 per share.
The actual exchange ratio will be based on information as of September 30, 2001,
and will be different. The exchange ratio will be determined by dividing the
Southern Share Value by the Sun Share Value, where:
SOUTHERN SHARE VALUE. The share value of each share of Southern common
stock shall be determined by multiplying 1.5 times the adjusted pro
forma fully diluted net book value per share of Southern common stock
as of the close of business on August 17, 2001. The adjusted pro forma
net book value per share of Southern common stock as of the close of
business on August 17, 2001 shall be calculated by (1) adding
stockholders' equity as reflected in Southern's internally prepared
financial statements as of July 31, 2001 and Southern's actual net
income for the month of August, 2001, prorated for the first 17 days
of the month, plus a pro forma adjustment for the previously-recorded
cumulative effect of an accounting change for start-up costs; (2)
subtracting from that sum the principal amounts of Sun's capital
contributions to Southern during the period from August 17, 1998 to
September 30, 2001 (none through August 17, 2001) for which Sun did
not receive shares of Southern's common stock and also subtracting an
interest factor to impute to Sun an appropriate return on its capital
contributions equivalent to Sun's forgone interest rate through
September 30, 2001; and (3) dividing Southern's adjusted pro forma
stockholders' equity by the number of shares of Southern's common
stock outstanding as of the close of business on September 30, 2001.
SUN SHARE VALUE. The share value of each share of Sun common stock
will be the higher of (1) the average closing prices of Sun's common
stock for each of the trading days in the thirty (30) calendar day
period prior to and ending on September 30, 2001, as reported by the
NASDAQ Stock Market, Inc. or (2) the book value of Sun's common stock
as of September 30, 2001.
Each Southern shareholder (except Sun) will receive shares of Sun common
stock in exchange for his, her or their Southern common stock calculated by
multiplying the number of shares of Southern common stock held by the
shareholder by the exchange ratio. Any fractional shares will be paid in cash.
ACCOUNTING TREATMENT (PAGE 28)
Sun's acquisition of the minority interest of Southern will be
accounted for under the purchase method of accounting. After the exchange, 100%
of Southern's results from operations will be included in Sun's income
statement, as opposed to 51% as is currently reported.
11
TAX CONSEQUENCES OF THE EXCHANGE TO SOUTHERN SHAREHOLDERS (PAGE 28)
Sun's tax counsel has rendered its opinion that the exchange should be
treated as a reorganization for United States federal income tax purposes.
Accordingly, Southern shareholders generally will not recognize any gain or loss
for United States federal income tax purposes on the exchange of their Southern
shares for shares of Sun's common stock in the exchange, except for any gain or
loss recognized in connection with the receipt of cash instead of a fractional
share of Sun's common stock. Tax counsel's opinion is attached as Annex C to
this proxy statement/prospectus. Tax Counsel's opinion is subject to certain
assumptions which may limit its application in particular instances.
Tax matters are very complicated, and the tax consequences of the exchange
to each Southern shareholder will depend on the facts of that shareholder's
situation. You are urged to consult your tax advisor for a full understanding of
the tax consequences of the exchange to you.
DISSENTERS' RIGHTS (PAGE 30)
Arizona law entitles shareholders to dissent from and obtain fair value for
their shares in the event of the consummation of a plan of share exchange to
which the corporation is a party as the corporation whose shares will be
acquired, if the shareholders are entitled to vote on the plan. Since the
shareholders are entitled to vote on the plan, there are dissenters' rights.
OPINION OF FINANCIAL ADVISOR (PAGE 32)
Southern retained JMP Financial, Inc. as its financial advisor and agent in
connection with the exchange to render a financial fairness opinion to the
Southern shareholders.
In deciding to approve the exchange, the Southern board considered this
opinion, which stated that as of its date and subject to the considerations
described in it, the consideration to be received in the exchange by holders of
Southern common stock is fair from a financial point of view. The opinion is
attached as Annex B to this proxy statement/prospectus.
THE PLAN OF SHARE EXCHANGE (PAGE 26)
The Plan of Share Exchange is attached as Annex A to this proxy
statement/prospectus. You are encouraged to read the Plan of Share Exchange
because it is the legal document that governs the exchange.
TERMINATION OF THE EXCHANGE
Southern and Sun can jointly agree to terminate the plan of exchange at any
time without completing the exchange.
Southern can terminate the exchange if a majority of Southern's
shareholders (other than Sun) fail to approve the exchange at the shareholders'
meeting; or a governmental authority prohibits the exchange.
YOUR RIGHTS AS A SHAREHOLDER WILL CHANGE
Your rights as a Southern shareholder are determined by Arizona's banking
law and by Southern's articles of incorporation and by-laws. When the exchange
is completed, your rights as a Sun stockholder will be determined by Arizona law
relating to business corporations (not the banking law) and by Sun's articles of
incorporation and by-laws. See "Comparison of Shareholders Rights".
12
SELECTED CONSOLIDATED FINANCIAL DATA
The consolidated financial data below summarizes historical consolidated
financial information for the periods indicated and should be read in
conjunction with the financial statements and other information included in
Sun's Annual Report on Form 10-K for the year ended December 31, 2000, which is
attached as part of Annex E to this proxy statement/prospectus. The unaudited
consolidated financial data below for the interim periods indicated has been
derived from, and should be read in conjunction with, Sun's Quarterly Report on
Form 10-Q for the period ended June 30, 2001, which is attached as part of Annex
E in this proxy statement/prospectus. See "Where You Can Find More Information".
Interim results for the six months ended June 30, 2001 are not necessarily
indicative of results which may be expected in future periods, including the
year ending December 31, 2001. BECAUSE OF THE NUMBER OF BANKS ADDED THROUGHOUT
THE PERIOD OF SUN'S EXISTENCE, AND BECAUSE OF THE DIFFERING OWNERSHIP PERCENTAGE
OF BANKS INCLUDED IN THE CONSOLIDATED AMOUNTS, HISTORICAL OPERATING RESULTS ARE
OF LIMITED RELEVANCE IN EVALUATING HISTORICAL PERFORMANCE AND PREDICTING SUN'S
FUTURE OPERATING RESULTS.
Sun's audited consolidated balance sheets as of December 31, 2000 and 1999
and related statements of operations and cash flows for the years ended December
31, 2000, 1999 and 1998 are attached as part of Annex E in this proxy
statement/prospectus. The selected financial data provided below as of and for
the six months ended June 30, 2001 and 2000 have been derived from Sun's
unaudited consolidated financial statements which are attached as part of Annex
E in this proxy statement/prospectus. Results of operations data and selected
balance sheet data as of and for the years ended December 31, 1997 and 1996 were
derived from audited consolidated financial statements which are not presented
in this proxy statement/prospectus.
Under current accounting rules, entities which are more than 50% owned by
another are consolidated or combined for financial reporting purposes. This
means that all of the banks' assets (including Southern's) are included in Sun's
consolidated balance sheet, regardless of whether Sun owns 51% or 100%. Sun's
consolidated net income, however, only includes its subsidiaries' (including
Southern) net income or net loss to the extent of its ownership percentage. This
means that when a newly formed bank incurs early start-up losses, Sun will only
reflect that loss based on its ownership percentage. Conversely, when banks
generate income, Sun will only reflect that income based on its ownership
percentage.
SUN COMMUNITY BANCORP LIMITED
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AS OF AND FOR THE
SIX MONTHS ENDED
JUNE 30 AS OF AND FOR THE
(UNAUDITED) YEARS ENDED DECEMBER 31
------------------- ----------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
SELECTED RESULTS OF OPERATIONS DATA:
Interest income $ 28,533 $ 16,560 $ 40,005 $ 17,920 $ 7,344 $ 2,871 $ 354
Interest expense 11,212 5,475 14,417 5,368 2,280 914 123
Net interest income 17,321 11,085 25,588 12,552 5,064 1,957 231
Provision for loan losses 1,862 1,702 3,926 1,753 379 268 49
Net interest income after provision for loan losses 15,460 9,382 21,662 10,799 4,685 1,689 182
Noninterest income 705 457 1,011 759 334 125 10
Noninterest expense 14,858 9,859 21,841 14,503 5,330 2,037 440
Income (loss)before cumulative effect of change
in accounting principle 795 261 807 (1,207) 57 (72) (164)
Cumulative effect of change in accounting principle (1) (386)
Net income (loss) 795 261 807 (1,593) 57 (72) (164)
13
AS OF AND FOR THE
SIX MONTHS ENDED
JUNE 30 AS OF AND FOR THE
(UNAUDITED) YEARS ENDED DECEMBER 31
------------------- ----------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
PER SHARE DATA:
Net income (loss) per common share:
Before cumulative effect of change in accounting
principle(1):
Basic $ 0.14 $ 0.05 $ 0.14 $ (0.26) $ 0.02 $ (0.05) $ (0.14)
Diluted 0.14 0.05 0.14 (0.26) 0.02 (0.05) (0.14)
After cumulative effect of change in accounting
principle(1):
Basic 0.14 0.05 0.14 (0.34) 0.02 (0.05) (0.14)
Diluted 0.14 0.05 0.14 (0.34) 0.02 (0.05) (0.14)
Cash dividends paid -- -- -- -- -- -- --
Book value per common share 9.43 9.17 9.29 9.09 6.92 5.10 4.51
SELECTED BALANCE SHEET DATA:
Total assets $677,181 $424,811 $526,833 $300,390 $135,578 $55,007 $17,276
Portfolio loans 545,452 314,620 422,344 206,232 68,080 31,236 4,850
Deposits 584,648 346,164 442,563 225,007 98,782 42,899 12,021
Debt obligations 3,888 -- -- -- -- -- --
Minority interest in consolidated
subsidiaries 28,147 23,138 27,246 21,384 9,411 2,010 --
Stockholders' equity 56,150 52,305 52,694 50,003 26,627 9,690 5,189
PERFORMANCE RATIOS: (2)
Return on average equity 2.92% 1.02% 1.57% -- 0.34% -- --
Return on average assets 0.26% 0.14% 0.20% -- 0.06% -- --
Net interest margin (fully taxable equivalent) 4.51% 5.21% 4.91% 4.84% 4.51% 4.51% 1.33%
Efficiency ratio (3) 82.43% 85.42% 82.11% 108.96% 98.74% 97.83% 182.57%
ASSET QUALITY:
Non-performing loans (4) $ 2,283 $ 1,465 $ 1,807 $ 34 -- -- --
Allowance for loan losses to non-performing loans 318.44% 250.65% 301.05% -- -- -- --
Allowance for loan losses to portfolio loans 1.33% 1.17% 1.29% 1.15% 1.02% 1.01% 1.30%
Non-performing loans to total portfolio loans 0.42% 0.47% 0.43% 0.02% -- -- --
Net loan losses to average portfolio loans 0.01% 0.31% 0.27% -- -- -- --
CAPITAL RATIOS:
Average equity to average assets 9.04% 14.11% 12.27% 18.10% 18.35% 20.47% 8.24%
Tier 1 risk-based capital ratio 14.20% 21.77% 17.74% 25.71% 42.43% 11.91% 9.80%
Total risk-based capital ratio 15.45% 22.85% 18.96% 26.56% 43.25% 12.88% 10.91%
Leverage ratio 8.29% 12.31% 10.00% 16.65% 19.64% 8.16% 7.16%
----------
(1) The accounting change related to a new accounting standard which required
the write-off of previously capitalized start-up costs as of January 1,
1999.
(2) These ratios are annualized for the periods indicated.
(3) Efficiency ratio is computed by dividing noninterest expense by the sum of
net interest income and noninterest income.
(4) Non-performing loans consist of loans on nonaccrual status and loans more
than 90 days delinquent.
14
RISK FACTORS
THE SHARES OF COMMON STOCK THAT ARE BEING OFFERED ARE NOT SAVINGS ACCOUNTS
OR DEPOSITS OR OTHER OBLIGATIONS OF A BANK AND ARE NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
INVESTING IN SUN'S COMMON STOCK WILL PROVIDE YOU WITH AN EQUITY OWNERSHIP
INTEREST IN SUN. AS A SUN SHAREHOLDER, YOUR INVESTMENT MAY BE IMPACTED BY RISKS
INHERENT IN ITS BUSINESS. YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS,
AS WELL AS OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, BEFORE DECIDING TO
VOTE TO EXCHANGE YOUR SOUTHERN COMMON STOCK FOR SUN'S COMMON STOCK.
THIS PROXY STATEMENT/PROSPECTUS ALSO CONTAINS CERTAIN FORWARD-LOOKING
STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THESE STATEMENTS RELATE TO
SUN'S FUTURE PLANS, OBJECTIVES, EXPECTATIONS AND INTENTIONS. THESE STATEMENTS
MAY BE IDENTIFIED BY THE USE OF WORDS SUCH AS "BELIEVES," "EXPECTS," "MAY,"
"WILL," "SHOULD," "SEEKS," "PRO FORMA," "ANTICIPATES," AND SIMILAR EXPRESSIONS.
ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED IN THESE STATEMENTS.
FACTORS THAT COULD CONTRIBUTE TO THESE DIFFERENCES INCLUDE THOSE DISCUSSED BELOW
AND ELSEWHERE IN THIS PROSPECTUS.
NEWLY FORMED BANKS ARE LIKELY TO INCUR SIGNIFICANT OPERATING LOSSES.
A majority of Sun's bank subsidiaries are less than three years old and
Sun's oldest bank is slightly more than five years old. Newly formed banks are
expected to incur operating losses in their early periods of operation because
of an inability to generate sufficient net interest income to cover operating
costs. Newly formed banks may never become profitable. An accounting rule change
effective January 1, 1999 requires immediate write-off, rather than
capitalization and amortization, of start-up costs and, as a result, future
newly formed banks are expected to report larger early period operating losses.
Those operating losses can be significant and can occur for longer periods than
planned depending upon the ability to control operating expenses and generate
net interest income, which could affect the availability of earnings retained to
support future growth.
SUN MAY BE UNABLE TO EFFECTIVELY MANAGE ITS GROWTH.
Sun has rapidly and significantly expanded its operations and anticipates
that further expansion will be required to realize its growth strategy. Sun's
rapid growth has placed significant demands on its management and other
resources which, given its expected future growth rate, are likely to continue.
To manage future growth, Sun will need to attract, hire and retain highly
skilled and motivated officers and employees and expand existing systems and/or
implement new systems for:
- transaction processing;
- operational and financial management; and
- training, integrating and managing Sun's growing employee base.
FAVORABLE ENVIRONMENT FOR FORMATION OF NEW BANKS COULD CHANGE ADVERSELY.
Sun's growth strategy includes the formation of additional new banks. Thus
far, Sun has experienced favorable business conditions for the formation of its
small, community and customer-focused banks. Those favorable conditions could
change suddenly or over an extended period of time. A change in the availability
of financial capital, human resources or general economic conditions could
eliminate or severely limit expansion opportunities. To the extent Sun is unable
to effectively attract personnel and deploy its capital in new or existing
banks, this could adversely affect future asset growth, earnings and the value
of Sun's common stock.
15
SUN'S BANKS ARE SMALL, HAVE LIMITATIONS ON THE SIZE OF LOANS THEY CAN MAKE AND
HAVE MINIMAL MARKET SHARE.
Sun endeavors to capitalize its newly formed banks with the lowest dollar
amount permitted by regulatory agencies. As a result, the legal lending limits
of Sun's banks severely constrain the size of loans that those banks can make.
In addition, many of the banks' competitors have significantly larger
capitalization and, hence, an ability to make significantly larger loans.
Sun's banks are intended to be small in size. They each generally operate
from single locations. They are very small relative to the dynamic markets in
which they operate. Each of those markets has a variety of large and small
competitors that have resources far beyond those of Sun's banks. While it is the
intention of Sun's banks to operate as niche players within their geographic
markets, their continued existence is dependent upon being able to attract and
retain loan customers in those large markets that are dominated by substantially
larger regulated and unregulated financial institutions.
SUN IS DEPENDENT UPON THE CONTRIBUTIONS OF ITS KEY MANAGEMENT PERSONNEL.
Sun's future success depends, in large part, upon the continuing
contributions of its key management personnel, including bank presidents and
other senior officers. In particular, Sun is dependent upon the continuing
services of Joseph D. Reid, Sun's Chairman, President and Chief Executive
Officer. The loss of services of one or more key employees at Sun or its
subsidiaries could have a material adverse effect on Sun. Sun can provide no
assurance that it will be able to retain any of its key officers and employees
or attract and retain qualified personnel in the future.
Joseph D. Reid has an employment agreement which expires on November 20,
2001. The agreement automatically extends for one successive year unless Mr.
Reid or Sun gives written notice to the contrary. Certain members of Sun's
senior management also have employment agreements with Sun.
IF SUN CANNOT RECRUIT ADDITIONAL HIGHLY QUALIFIED PERSONNEL, SUN'S BUSINESS MAY
BE ADVERSELY IMPACTED.
Sun's strategy is also dependent upon its continuing ability to attract and
retain other highly qualified personnel. Competition for such employees among
financial institutions is intense. Availability of personnel with appropriate
community banking experience varies. If Sun does not succeed in attracting new
employees or retaining and motivating current and future employees, Sun's
business could suffer significantly.
SUN AND ITS BANKS OPERATE IN AN ENVIRONMENT HIGHLY REGULATED BY STATE AND
FEDERAL GOVERNMENT; CHANGES IN FEDERAL AND STATE BANKING LAWS AND REGULATIONS
COULD HAVE A NEGATIVE IMPACT ON SUN'S BUSINESS.
As a bank holding company, Sun is regulated primarily by the Federal
Reserve Board. Sun's principal shareholder, Capitol Bancorp Ltd., is also a bank
holding company and regulated primarily by the Federal Reserve Board. Sun's
current bank affiliates are regulated primarily by the state banking regulators
and the FDIC.
Federal and the various state laws and regulations govern numerous aspects
of the banks' operations, including:
- adequate capital and financial condition;
- permissible types and amounts of extensions of credit and investments;
- permissible nonbanking activities; and
- restrictions on dividend payments.
16
Federal and state regulatory agencies have extensive discretion and power
to prevent or remedy unsafe or unsound practices or violations of law by banks
and bank holding companies. Sun and its banks also undergo periodic examinations
by one or more regulatory agencies. Following such examinations, Sun may be
required, among other things, to change its asset valuations or the amounts of
required loan loss allowances or to restrict its operations. Those actions would
result from the regulators' judgments based on information available to them at
the time of their examination.
The banks' operations are required to follow a wide variety of state and
federal consumer protection and similar statutes and regulations. Federal and
state regulatory restrictions limit the manner in which Sun and its banks may
conduct business and obtain financing. Those laws and regulations can and do
change significantly from time to time, and any such change could adversely
affect Sun.
REGULATORY ACTION COULD SEVERELY LIMIT FUTURE EXPANSION PLANS.
To carry out some of its expansion plans, Sun is required to obtain
permission from the Federal Reserve Board. Applications for the formation of new
banks are submitted to the state and federal bank regulatory agencies for their
approval.
While Sun's recent experience with the regulatory application process has
been favorable, the future climate for regulatory approval is impossible to
predict. Regulatory agencies could prohibit or otherwise significantly restrict
the expansion plans of Sun, its current bank subsidiaries and future new
start-up banks.
THE BANKS' ALLOWANCES FOR LOAN LOSSES MAY PROVE INADEQUATE TO ABSORB ACTUAL LOAN
LOSSES.
Sun believes that its consolidated allowance for loan losses is maintained
at a level adequate to absorb any inherent losses in the loan portfolios of its
banks at the balance sheet date. Management's estimates are used to determine
the allowance and are based on historical loan loss experience, specific problem
loans, value of underlying collateral and other relevant factors. These
estimates are subjective and their accuracy depends on the outcome of future
events. Actual losses may differ from current estimates. Depending on changes in
economic, operating and other conditions, including changes in interest rates,
that are generally beyond Sun's control, actual loan losses could increase
significantly. As a result, such losses could exceed current allowance
estimates. No assurance can be provided that the allowance will be sufficient to
cover actual future loan losses should such losses be realized.
Because most of Sun's banks are young, they do not have seasoned loan
portfolios, and it is likely that the ratio of the allowance for loan losses to
total loans will need to be increased in future periods as the loan portfolios
become more mature. If it becomes necessary to increase the ratio of the
allowance for loan losses to total loans, such increases would be accomplished
through higher provisions for loan losses, which will adversely impact net
income or will increase operating losses.
In addition, bank regulatory agencies, as an integral part of their
supervisory functions, periodically review the adequacy of the allowance for
loan losses. Regulatory agencies may require Sun or its banks to increase their
provision for loan losses or to recognize further loan charge-offs based upon
judgments different from those of management. Any increase in the allowance
required by regulatory agencies would have a negative impact on Sun's operating
results.
SUN'S COMMERCIAL LOAN CONCENTRATION INCREASES THE RISK OF DEFAULTS BY BORROWERS.
Sun's banks make various types of loans, including commercial, consumer,
residential mortgage and construction loans. Sun's strategy emphasizes lending
to small businesses and other commercial enterprises. Loans to small and
medium-sized businesses are generally riskier than single-family mortgage loans.
Typically, the success of a small or medium-sized business depends on the
management talents and efforts of one or two persons or a small group of
persons, and the death, disability or resignation of one or more of these
persons could have a material adverse impact on the business. In addition, small
and medium-sized businesses frequently have smaller market shares than their
17
competition, may be more vulnerable to economic downturns, often need
substantial additional capital to expand or compete and may experience
substantial variations in operating results, any of which may impair a
borrower's ability to repay a loan. Substantial credit losses could result,
which could cause you to lose your entire investment in the common stock.
CHANGES IN INTEREST RATES MAY ADVERSELY AFFECT SUN'S BUSINESS.
CHANGES IN NET INTEREST INCOME. Sun's profitability is significantly
dependent on net interest income. Net interest income is the difference between
interest income on interest-earning assets, such as loans, and interest expense
on interest-bearing liabilities, such as deposits. Therefore, any change in
general market interest rates, whether as a result of changes in monetary
policies of the Federal Reserve Board or otherwise, can have a significant
effect on net interest income. Sun's assets and liabilities may react
differently to changes in overall market rates or conditions because there may
be mismatches between the repricing or maturity characteristic of assets and
liabilities. As a result, changes in interest rates can affect net interest
income in either a positive or negative way.
CHANGES IN THE YIELD CURVE. Changes in the difference between short and
long-term interest rates, commonly known as the yield curve, may also harm Sun's
business. For example, short-term deposits may be used to fund longer-term
loans. When differences between short-term and long-term interest rates shrink
or disappear, the spread between rates paid on deposits and received on loans
could narrow significantly, decreasing net interest income.
SUN IS CONTROLLED BY AND A SUBSIDIARY OF CAPITOL BANCORP LIMITED.
Capitol currently owns a controlling interest in the common stock and has
voting control of Sun. Capitol's operating philosophy and investment in Sun
could change which could have an adverse impact on Sun.
EXISTING SUBSIDIARIES OF SUN MAY NEED ADDITIONAL FUNDS TO AID IN THEIR GROWTH OR
TO MEET OTHER ANTICIPATED NEEDS WHICH COULD REDUCE SUN'S FUNDS AVAILABLE FOR NEW
BANK DEVELOPMENT OR OTHER CORPORATE PURPOSES.
Sun's affiliated banks are generally capitalized at the minimum amount
permitted by regulatory agencies. Future growth of existing banks may require
additional capital infusions or other investment by Sun to maintain compliance
with regulatory capital requirements or to meet growth opportunities. Such
capital infusions could reduce funds available for development of new banks, or
other corporate purposes.
POSSIBLE VOLATILITY OF STOCK PRICE.
Sun became a public company in July 1999 and has a limited history of
trading activity. The market price of Sun's common stock may fluctuate in
response to numerous factors, including variations in the annual or quarterly
financial results of Sun, or its competitors; changes by financial research
analysts in their estimates of the earnings of Sun or its competitors or the
failure of Sun or its competitors to meet such estimates; conditions in the
economy in general or the banking industry in particular; or unfavorable
publicity affecting Sun, its banks, or the industry. In addition, equity markets
have, on occasion, experienced significant price and volume fluctuations that
have affected the market price for many companies' securities which have been
unrelated to the operating performance of those companies. Any fluctuation may
adversely affect the prevailing market price of Sun's common stock.
18
RECENT DEVELOPMENTS
On January 11, 2001, Sun opened its fourteenth bank subsidiary, Sunrise
Bank of San Diego located in San Diego, California and majority-owned by Sunrise
Capital Corporation which is a majority-owned subsidiary of Sun.
Additional expansion through the development of new banks in the states of
California and Nevada is currently underway by Sun or its subsidiary bank
development entities.
In April 2000, Sun announced plans to purchase up to $3 million of its
common stock in open market purchases. The shares repurchased in this manner may
be retained as treasury shares, retired, used for implementation of an employee
stock ownership plan or for other business purposes. To the extent such share
purchases are made, they will have the impact of increasing the percentage
ownership of Sun by Capitol Bancorp Ltd., which currently owns a controlling
interest in Sun's common stock. The share purchase program will be funded from
Sun's existing resources, principally short-term loans and investments. As of
June 30, 2001 Sun has repurchased 138,100 of Sun's shares on the open market.
In addition to the proposed share exchange herein for Southern, Sun has
proposed a similar share exchange transaction for Mesa Bank. The proposed share
exchange regarding Mesa is subject to the approval of that bank's shareholders
and Southern's shareholders have no vote in such matter unless they also own
shares of Mesa Bank. Because both proposed share exchange transactions are
subject to the approval by the banks' respective shareholders, there is no
assurance both or either transaction will be approved and consummated.
19
CAPITALIZATION
The table presented below shows Sun's actual total capitalization as of
June 30, 2001, and as adjusted to reflect the exchange of Sun's common stock for
Southern's common stock as described in this proxy statement/prospectus and the
pending proposed share exchange regarding Mesa Bank. See "Recent Developments".
AS OF JUNE 30, 2001
---------------------------------------------------------------------
AS ADJUSTED
FOR BOTH
AS ADJUSTED FOR AS ADJUSTED FOR SOUTHERN AND
THE SOUTHERN THE MESA MESA
ACTUAL EXCHANGE(2) EXCHANGE(3) EXCHANGES(4)
------------ ------------ ------------ ------------
DEBT OBLIGATIONS:
Short-term borrowings $ 3,888 $ 3,888 $ 3,888 $ 3,888
Other -- -- -- --
------------ ------------ ------------ ------------
Total debt obligations 3,888 3,888 3,888 3,888
MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES 28,147,018 26,168,882 26,132,860 24,154,724
STOCKHOLDERS' EQUITY(1):
Common stock, no par value; 10,000,000 shares
authorized; issued, and outstanding:
Actual - 6,089,849 shares 57,596,067
As adjusted for the Southern exchange -
6,359,682 shares 60,429,853
As adjusted for the Mesa exchange -
6,361,940 shares 60,453,567
As adjusted for both the Southern and Mesa
exchanges - 6,631,773 shares 63,287,353
Retained-earnings deficit (170,091) (170,091) (170,091) (170,091)
Market value adjustment for available-for-sale
securities (net of tax effect) 38,568 38,568 38,568 38,568
Less treasury stock (138,100 shares) (1,314,103) (1,314,103) (1,314,103) (1,314,103)
------------ ------------ ------------ ------------
Total stockholders' equity $ 56,150,441 $ 58,984,227 $ 59,007,941 $ 61,841,727
============ ============ ============ ============
TOTAL CAPITALIZATION $ 84,297,459 $ 85,153,109 $ 85,140,801 $ 85,996,451
============ ============ ============ ============
Book value per share of common stock $ 9.434275 $ 9.480583 $ 9.480954 $ 9.523382
============ ============ ============ ============
CAPITAL RATIOS:
Stockholders' equity to total assets 8.29% 8.70% 8.70% 9.11%
Total capitalization to total assets 12.45% 12.56% 12.56% 12.67%
----------
(1) Does not include 854,875 shares of common stock issuable upon exercise of
stock options. See "Management--Stock Option Program."
(2) Assumes issuance of 269,833 shares of Sun common stock upon completion of
Southern exchange.
(3) Assumes issuance of 272,091 shares of Sun common stock upon completion of
Mesa share exchange.
(4) Assumes issuance of 541,924 shares of Sun common stock upon completion of
both the Southern and Mesa share exchanges.
20
DIVIDENDS AND MARKET FOR COMMON STOCK
Sun's common stock is listed on the Nasdaq National Market under the symbol
"SCBL." The following table shows the high and low sale prices per share of
common stock as reported on the Nasdaq National Market. The table reflects
inter-dealer prices, without retail mark-up, mark-down or commission, and may
not represent actual transactions. The last reported sale price of Sun's common
stock was $10.40 on September 19, 2001.
Cash
2000 High Low Dividends Paid
---- ---- --- --------------
Quarter ended March 31 $ 9.750 $ 7.125 --
Quarter ended June 30 11.125 8.875 --
Quarter ended September 30 11.000 6.500 --
Quarter ended December 31 8.250 6.000 --
2001
----
Quarter ended March 31 8.875 6.250 --
Quarter ended June 30 11.000 6.650 --
Quarter ending September 30
(through August 31) 12.250 8.800 --
As of February 15, 2001, there were 1,993 beneficial holders of Sun's
common stock based on information supplied by its stock transfer agent and other
sources. Sun has never paid a cash dividend on its common stock.
In April 2000, Sun announced plans to purchase up to $3 million of its
common stock in open market purchases during the next several months. The shares
repurchased in this manner may be retained as treasury shares, retired, used for
implementation of an employee stock ownership plan or for other business
purposes. To the extent such share purchases are made, they will have the impact
of increasing the percentage ownership of Sun by Capitol Bancorp Ltd., which
currently owns a controlling interest in Sun's common stock. The share purchase
program will be funded from Sun's existing resources, principally short-term
loans and investments. Through June 30, 2001 Sun has repurchased 138,100 of
Sun's common stock on the open market.
There is no market for Southern's common stock. Any transfers have been
made privately and are not reported. Southern has never paid a dividend on its
common stock.
21
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement/prospectus includes forward-looking statements. Sun
has based these forward-looking statements on its current expectations and
projections about future events. These forward-looking statements may be
impacted by risks, uncertainties and assumptions. Examples of some of the risks,
uncertainties or assumptions that may impact the forward-looking statements are:
- the results of management's efforts to implement Sun's business
strategy including planned expansion in California, Nevada and
elsewhere;
- adverse changes in the banks' loan portfolios and the resulting credit
risk-related losses and expenses;
- adverse changes in the economy of the banks' market areas that could
increase credit-related losses and expenses;
- adverse changes in real estate market conditions that could also
negatively affect credit risk;
- the possibility of increased competition for financial services in
Sun's markets;
- fluctuations in interest rates and market prices, which could
negatively affect net interest margins, asset valuations and expense
expectations; and
- other factors described in "Risk Factors".
22
INFORMATION ABOUT SUN
This proxy statement/prospectus is accompanied by a copy of the following
documents as indicated in Annex E:
- Report on Form 10-Q for period ended June 30, 2001
- Report on Form 10-Q for period ended March 31, 2001
- Annual Report to Shareholders for year ended December 31, 2000
- Annual Report on Form 10-K for year ended December 31, 2000
- Proxy statement for Sun's Annual Meeting of Shareholders held on May
25, 2001
INFORMATION ABOUT SOUTHERN
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
Management's discussion and analysis of financial condition and results of
operations for the periods ended June 30, 2001 and December 31, 2000 are
included in this proxy statement/prospectus as part of Annex D.
FINANCIAL STATEMENTS.
Unaudited interim condensed financial statements of Southern as of June 30,
2001 and for the six months ended June 30, 2001 and 2000 are included in this
proxy statement/prospectus as part of Annex D. Audited financial statements of
Southern as of and for the years ended December 31, 2000 and 1999 and period
ended December 31, 1998 are included in this proxy statement/prospectus as part
of Annex D.
VOTING SECURITIES AND PRINCIPAL HOLDERS.
The following table shows the share holdings of each director and officer
of Southern and all directors and officers as a group. Where applicable, the
table includes shares held by members of their immediate families.
Southern shares beneficially owned
----------------------------------------------
Percentage Percentage of all
of all Southern shares
Southern excluding Southern
Name of Beneficial owner Number Shares shares owned by Sun
------------------------ ------ ------ -------------------
Sun Community Bancorp Limited 165,823 51% N/A
======= ===== =====
Southern's Directors and Officers:
William R. Assenmacher 7,500 2.31% 4.71%
Jody A. Comstock -- -- --
Michael J. Devine 400 0.12% 0.25%
Robert A. Elliott 1,500 0.46% 0.94%
Brian K. English 100 0.03% 0.06%
Michael L. Kasten 4,000 1.23% 2.51%
Yoram Levy -- -- --
John P. Lewis 6,529 2.01% 4.10%
Jim Livengood 200 0.06% 0.13%
James A. Mather 5,096 1.57% 3.20%
Morgan North -- -- --
James Sakrison -- -- --
Paul A. Zucarelli 1,500 0.46% 0.94%
Teresa R. Gomez -- -- --
Jean M. Griffin-Getek -- -- --
Michael J. Trueba -- -- --
Mindy C. Webb 300 0.09% 0.19%
------- ----- -----
Total of Directors and Officers, as a group 27,125 8.34% 17.03%
======= ===== =====
Other than the directors and officers of Southern as a group, no individual
owns greater than 5% of the outstanding shares of Southern, exclusive of the
shares owned by Sun.
23
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
Because Southern is already a majority-owned subsidiary of Sun, it is
already included in Sun's consolidated financial statements. Consummation of the
exchange is not expected to have a material impact on the consolidated financial
position or consolidated results of operations of Sun. Accordingly, pro forma
consolidated financial information illustrating the exchange and Sun's purchase
of the minority interest of Southern is not required to be presented in this
prospectus.
24
THE ELECTION OF DIRECTORS
Southern's Certificate of Incorporation and By-Laws provide that the number
of Directors, as determined from time to time by the Board of Directors, shall
be no less than (5) and no more than (25). The Board of Directors has presently
fixed the number of Directors at thirteen.
The Board of Directors has nominated the thirteen (13) directors named
below for a one-year term. All nominees are willing to be elected and to serve
in such capacity for one year and until the election and qualification of their
successors. All of the nominees for election to the Board of Directors are
currently members of Southern's Board of Directors.
The proposed nominees for election as Directors are willing to be elected
and serve but in the event that any nominee at the time of election is unable to
serve or is otherwise unavailable for election, the Board of Directors may
select a substitute nominee, and in that event the persons named in the enclosed
proxy intend to vote such proxy for the person selected.
The affirmative vote of a plurality of the votes cast at the meeting is
required for the nominees to be elected.
The table following sets forth information regarding Southern's Directors
based on the data furnished by them:
NAME, PROFESSIONAL POSITIONS & POSITIONS HELD WITH SOUTHERN
William R. Assenmacher, President, T.A. Caid Industries, Inc.; Director
Jody A. Comstock, Physician and Owner, Skin Spectrum; Director
Michael J. Devine, Attorney at Law; Director (also a director of Sun)
Robert A. Elliott, President and Owner, Robert A. Elliott, Inc.; Director
Brian K. English, General Counsel, Capitol Bancorp Limited; Director
Michael L. Kasten, Managing Partner, Kasten Investments, LLC; Director
(also a director of Sun and Capitol Bancorp Limited)
Yoram Levy, Project Manager, Diamond Ventures, Inc.; Director
John P. Lewis, President, Southern Arizona Community Bank; Director
Jim Livengood, Director of Athletics, University of Arizona; Director
James A. Mather, Certified Public Accountant and Attorney at Law; Director
Morgan North, President, Borderland Construction Co., Inc.; Director
James Sakrison, Principal, Slutes, Sakrison, et.al, PC; Director
Paul A. Zucarelli, Owner/Principal, Gordon, Zucarelli and Handley Insurance;
Director
25
THE EXCHANGE
GENERAL
The Southern Board of Directors is using this proxy statement/prospectus to
solicit proxies from the holders of Southern common stock for use at the
shareholders' meeting of Southern.
At the shareholders' meeting to be held on October 12, 2001, Southern
common shareholders will be asked to approve the exchange. The Plan of Share
Exchange provides for Southern's minority shareholders to exchange the 49% of
the common stock of Southern not owned by Sun for Sun common stock. Upon
consummation of the exchange, Southern will become a wholly-owned subsidiary of
Sun. In the exchange, Southern shareholders will receive shares of Sun's common
stock.
BACKGROUND OF THE EXCHANGE
The concept of a potential share exchange transaction with Sun has been
discussed informally from time to time from the beginning of Southern's
operations. Sun expressed a willingness to extend an offer of an exchange around
the Bank's 36th month of operation. These discussions occurred at various
Southern board meetings during that period. The objectives of the potential
exchange would be to enable shareholders of Southern to achieve liquidity in
their investment, a reasonable return on their investment in the form of a
`premium', and to accomplish such an exchange on a tax-free basis. Without the
exchange, shareholders of Southern will continue to hold Southern bank stock
which has no market and is illiquid.
Southern's board of directors has not solicited or received any other
proposals for the potential exchange or sale of Southern's shares of common
stock which are not owned by Sun. If other proposals were under consideration
for sale or exchange of Southern's shares to an entity other than Sun, Sun would
be permitted to vote its shares of Southern. By virtue of Sun's majority
ownership of Southern, it is likely that Sun would not vote its shares of
Southern in favor of any other proposals regarding a share exchange or sale of
the minority interest in Southern with another party. In addition, Sun currently
has no intentions of selling its majority interest in Southern. Hence, the only
proposal under consideration is Sun's proposal.
Sun based its proposal on its prior transactions and those of its parent,
Capitol Bancorp Ltd., whereby it has acquired the minority interest in banks it
controls. In those prior transactions, Sun and Capitol have offered those
minority shareholders an opportunity to exchange their bank shares for common
stock of Sun or Capitol (their respective majority owner, as the case may be) at
an exchange ratio based on 150% of the adjusted pro forma net book value of the
bank's shares on or about the 36th month of the bank's operations. Although Sun
is under no contractual obligation to make such an offer to acquire the minority
interests in any of its present bank subsidiaries, it has made this proposal to
Southern's board of directors consistent with its informal discussions with
Southern's board during the past three years.
Consensus between Sun and Southern's directors who are not employees or
officers of Sun was reached in August 2001, to approve the proposed exchange
subject only to:
- obtaining an independent opinion that the proposed share exchange is
fair to Southern's shareholders from a financial point of view; and
- obtaining approval for the proposed exchange by a majority of
Southern's shares not already owned by Sun.
In August 2001, the Southern board approved the Plan of Share Exchange and
agreed to call a shareholder meeting for a shareholder vote to approve the Plan
of Share Exchange.
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SOUTHERN'S REASONS FOR THE EXCHANGE.
Southern's reasons for the exchange are that the shareholders of Southern
will be best served by the exchange in order to maximize their shareholder value
and to provide them:
* better protection through diversification geographically and by
customer base through Sun's subsidiary banks rather than dependence
upon the resources of a single bank.
* the Southern shareholders will receive publicly traded shares,
providing them liquidity as opposed to the Southern common stock for
which there is no public market. Southern shareholders who choose to
do so may continue to hold the Sun stock they receive in the exchange
without being forced to have their investment reduced by the immediate
recognition of a capital gains tax.
SUN'S REASONS FOR THE EXCHANGE
Sun believes that Southern's profitability will increase. As noted
elsewhere in this proxy statement/prospectus, while Southern's assets are
reported as part of Sun's assets for purposes of its consolidated financial
statements, Southern's income or loss is attributed to Sun only in the
percentage which Sun owns of Southern common stock. Sun desires to acquire the
remainder of Southern's common stock so that Sun can include 100% of Southern's
income or loss in Sun's consolidated income statement.
TERMS OF THE EXCHANGE
Terms of the exchange are set forth in the Plan of Share Exchange. The Plan
of Share Exchange is included as Annex A to this proxy statement/prospectus. You
should review the Plan of Share Exchange in its entirety.
The terms of the exchange can be summarized as follows:
Upon approval of the exchange by a majority of the 49% of the shares
of Southern held by shareholders other than Sun, each share of
Southern common stock will be exchanged for shares of Sun common stock
according to an exchange ratio. The exchange ratio will be determined
by dividing the Southern share value by the Sun share value. The
Southern share value is one and one-half times the adjusted pro forma
fully diluted net book value per share of Southern common stock as of
August 17, 2001. The net book value per share of Southern common stock
as of August 17, 2001 will be calculated by (1) adding stockholders'
equity as reflected in Southern's internally prepared financial
statements as of July 31, 2001 and Southern's actual net income for
the month of August, 2001, prorated for the first 17 days of the
month, plus a pro forma adjustment for the previously-recorded
cumulative effect of an accounting change for start-up costs; (2)
subtracting from that sum the principal amounts of Sun's capital
contributions to Southern during the period from August 17, 1998 to
September 30, 2001 (none through August 17, 2001) for which Sun did
not receive shares of Southern's common stock and also subtracting an
interest factor to impute to Sun an appropriate return on its capital
contributions equivalent to Sun's forgone interest rate through
September 30, 2001; and (3) dividing Southern's pro forma
stockholders' equity by the number of shares of Southern's common
stock outstanding as of the close of business on September 30, 2001.
Sun's share value will be the higher of (1) the average closing prices of
Sun's common stock for each of the trading days in the thirty (30) calendar day
period prior to and ending on September 30, 2001, as reported by the NASDAQ
Stock Market, Inc. or (2) the book value of Sun common stock as of September 30,
2001.
Once the Southern share value and Sun share value are determined, the
exchange ratio will be determined by dividing the Southern share value by the
Sun share value. Each Southern shareholder (except Sun) will receive shares of
Sun common stock in exchange for his, her or their Southern common stock
calculated by multiplying the number of shares in Southern common stock held by
the shareholder by the exchange ratio. Any fractional shares will be paid in
cash.
27
SOUTHERN BOARD RECOMMENDATION
THE SOUTHERN BOARD HAS DETERMINED THAT THE EXCHANGE IS FAIR TO AND IN THE
BEST INTERESTS OF THE SOUTHERN SHAREHOLDERS, HAS APPROVED THE PLAN OF SHARE
EXCHANGE AND RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" APPROVAL OF THE PLAN OF
SHARE EXCHANGE.
ACCOUNTING TREATMENT
Sun expects the exchange to be treated as the acquisition of a minority
interest using the purchase method of accounting.
PRO FORMA DATA
In light of the respective total assets and net income of Sun and Southern
and since Southern has since its inception always been a consolidated subsidiary
of Sun, pro forma financial statements are not included in this proxy
statement/prospectus. The pro forma effect of the exchange is deemed to be
immaterial.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The income tax discussion below represents the opinion of Snell & Wilmer,
L.L.P., tax counsel to Sun, on the material federal income tax consequences of
the exchange. This discussion is not a comprehensive description of all of the
tax consequences that may be relevant to you. For example, counsel did not
address tax consequences that arise from rules that apply generally to all
taxpayers or to some classes of taxpayers, or tax consequences that are
generally assumed to be known by investors. This discussion is based upon the
Internal Revenue Code, the regulations of the U.S. Treasury Department, and
court and administrative rulings and decisions in effect on the date of this
proxy statement/prospectus. These laws may change, possibly retroactively, and
any change could affect the continuing validity of this discussion.
This discussion also is based upon certain representations made by Southern
and Sun. You should read carefully the full text of the tax opinion of Snell &
Wilmer, L.L.P. The opinion is included in this proxy statement/prospectus as
Annex C. This discussion also assumes that the exchange will be effected
pursuant to applicable state law and otherwise completed according to the terms
of the Plan of Share Exchange. You should not rely upon this discussion if any
of these factual assumptions or representations is, or later becomes,
inaccurate.
This discussion also assumes that shareholders hold their shares of
Southern common stock as a capital asset and does not address the tax
consequences that may be relevant to a particular shareholder receiving special
treatment under some federal income tax laws. Shareholders receiving special
treatment include:
* banks;
* tax-exempt organizations;
* insurance companies;
* dealers in securities or foreign currencies;
* Southern shareholders who received their Southern common stock through
the exercise of employee stock options or otherwise as compensation;
* Southern shareholders who are not U.S. persons; and
* Southern shareholders who hold Southern common stock as part of a
hedge, straddle or conversion transaction.
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The discussion also does not address any consequences arising under the
laws of any state, locality or foreign jurisdiction. No rulings have been or
will be sought from the Internal Revenue Service regarding any matters relating
to the exchange.
Based on the assumptions and representations above, it is the opinion of
Snell & Wilmer, L.L.P., tax counsel to Sun, that:
* the exchange will qualify as a reorganization within the meaning of
Section 368(a)(1)(B) of the Internal Revenue Code;
* no gain or loss will be recognized by the shareholders of Southern who
exchange their Southern common stock solely for Sun common stock
(except with respect to cash received instead of a fractional share of
Sun common stock);
* the aggregate tax basis of the Sun common stock received by Southern
shareholders who exchange all of their Southern common stock for Sun
common stock in the exchange will be the same as the aggregate tax
basis of the Southern common stock surrendered in exchange (reduced by
any amount allocable to a fractional share of Sun common stock for
which cash is received);
* the holding period of the Sun common stock received will include the
holding period of shares of Southern common stock surrendered in
exchange; and
* a holder of Southern common stock that receives cash instead of a
fractional share of Sun common stock will, in general, provided the
redemption is not essentially equivalent to a dividend under Section
302(b)(1) of the Internal Revenue Code, recognize capital gain or loss
equal to the difference between the cash amount received and the
portion of the holder's tax basis in shares of Southern common stock
allocable to the fractional share; this gain or loss will be long-term
capital gain or loss for federal income tax purposes if the holder's
holding period in the Southern common stock exchanged for the
fractional share of Sun common stock satisfies the long-term holding
period requirement.
The tax opinion of Snell & Wilmer, L.L.P. is not binding upon the Internal
Revenue Service or the courts.
TAX MATTERS ARE VERY COMPLICATED, AND THE TAX CONSEQUENCES OF THE EXCHANGE
TO YOU WILL DEPEND ON YOUR PARTICULAR SITUATION. YOU ARE ENCOURAGED TO CONSULT
YOUR OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES OF THE EXCHANGE,
INCLUDING TAX RETURN REPORTING REQUIREMENTS, THE APPLICABILITY OF FEDERAL,
STATE, LOCAL AND FOREIGN TAX LAWS AND THE EFFECT OF ANY PROPOSED CHANGE IN THE
TAX LAWS.
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REGULATORY MATTERS
Southern is subject to regulation by Arizona's State Banking Department and
the FDIC. The State Banking Department has been advised by Sun of the proposed
share exchange. The FDIC is not required to give permission or otherwise review
the exchange prior to consummation.
As a bank holding company, Sun is subject to regulation by the Federal
Reserve Board. Federal Reserve Board rules require Sun to obtain the Federal
Reserve Board's permission to acquire at least 51% of a subsidiary bank. The
rules of the Federal Reserve Board do not differentiate between ownership of 51%
and ownership of 100% of the stock of the subsidiary bank. Of course, Sun
received permission to acquire 51% or more ownership of Southern prior to
Southern commencing the business of banking. Accordingly, Sun will not be
required to seek any further approval from the Federal Reserve Board for the
exchange.
It is a condition of the exchange that the shares of Sun stock to be issued
pursuant to the Plan of Share Exchange be approved for listing on the Nasdaq
Stock Market, Inc., subject to official notice of issuance. An application will
be filed to list Sun's shares. Accordingly, the shares of Sun common stock to be
issued in exchange for the Southern common stock will be publicly tradable upon
consummation of the exchange. There will be no restriction on the ability of a
former Southern shareholder to sell in the open market the Sun common stock
received (unless the Southern shareholder is also an officer, director or
affiliate of either Southern or Sun, in which case Rule 144 and Rule 145 issued
by the SEC do impose certain restrictions on the sale of Sun common stock).
DISSENTERS' RIGHTS
Arizona law entitles shareholders to dissent from and obtain fair value for
their shares in the event of the consummation of a plan of share exchange to
which the Corporation is a party as the corporation whose shares will be
acquired, if the shareholders are entitled to vote on the plan. Since the
shareholders are entitled to vote on the plan, there are dissenters' rights.
By following the specific procedures set forth in the Arizona Business
Corporation Act (the "ABCA"), holders of Southern common stock have a statutory
right to dissent from the Plan of Share Exchange. If the exchange is approved
and consummated, any holder of Southern common stock who properly perfects his
dissenters' rights will be entitled, upon consummation of the exchange, to
receive an amount in cash equal to the fair value of his shares of Southern
common stock rather than receiving the consideration set forth in the Plan of
Share Exchange. The following summary is not a complete statement of statutory
dissenters' rights of appraisal, and this summary is qualified by reference to
the applicable provisions of the ABCA, which are reproduced in full in Annex F
to this proxy statement/prospectus.
A shareholder must complete each step in the precise order prescribed by
the statute to perfect his dissenter's rights of appraisal.
Any holder of Southern common stock who desires to dissent from the Plan of
Share Exchange shall (i) deliver to Southern before the vote is taken at the
shareholders' meeting written notice of the shareholder's intent to demand
payment for the shareholder's shares if the Plan of Share Exchange is
effectuated, and (ii) not vote his shares in favor of the Plan of Share
Exchange.
If the Plan of Share Exchange is authorized at the shareholders' meeting,
Sun will be liable for discharging the rights of the shareholders who dissented
from the Plan of Share Exchange ("Dissenting Shareholder") and shall, no later
than ten (10) days after approval of the Plan of Share Exchange, notify the
Dissenting Shareholders in writing of the location to where the Dissenting
Shareholders' demand for payment must be sent. The written notice must also set
a date by which Sun must receive the payment demand (the "Notice Date"), which
date shall be at least thirty (30) but not more that sixty (60) days after the
date notice is provided to the Dissenting Shareholders. Each Dissenting
Shareholder so notified must demand payment, certify whether the shareholder
acquired beneficial ownership of the shares before the date of the first
announcement of the terms of the Plan of Share Exchange and deposit his
certificates representing shares of Southern common stock in accordance with the
terms of the notice. A Dissenting Shareholder who does not demand payment or
deposit his certificates, if required, by the Notice Date is not entitled to
payment for his shares.
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Upon receipt of a payment demand, Sun shall pay each Dissenting Shareholder
the amount Sun estimates to be the fair value of the Dissenting Shareholder's
shares plus accrued interest.
A Dissenting Shareholder may notify Sun in writing of his own estimate of
the fair value of his shares and amount of interest due and either demand
payment of the Dissenting Shareholder's estimate, less any previous payment, or
reject Sun's offer and demand payment of the fair value of the Dissenting
Shareholder's shares and interest due if either (i) the Dissenting Shareholder
believes that the amount paid by Sun is less than the fair value of his shares
or that the interest due is incorrectly calculated, (ii) Sun fails to make
payment within sixty (60) days after the date set for demanding payment, or
(iii) Sun, having failed to effectuate the exchange, does not return the
Dissenting Shareholder's deposited certificates within sixty (60) days after the
date set for demanding payment. A Dissenting Shareholder waives the right to
demand payment pursuant to his own estimate of the fair value of his shares
unless he notifies Sun of his demand in writing within thirty (30) days after
Sun made or offered payment for the Dissenting Shareholder's shares.
FEDERAL SECURITIES LAWS CONSEQUENCES; STOCK TRANSFER RESTRICTIONS
This proxy statement/prospectus does not cover any resales of the Sun
common stock you will receive in the exchange, and no person is authorized to
make any use of this proxy statement/prospectus in connection with any such
resale.
All shares of Sun common stock you will receive in the exchange will be
freely transferable, except that if you are deemed to be an "affiliate" of
Southern under the Securities Act of 1933 at the time of the shareholders
meeting, you may resell those shares only in transactions permitted by Rule 145
under the Securities Act or as otherwise permitted under the Securities Act.
Persons who may be affiliates of Southern for those purposes generally include
individuals or entities that control, are controlled by, or are under common
control with, Southern, and would not include shareholders who are not officers,
directors or principal shareholders of Southern.
The affiliates of Southern may not offer, sell or otherwise dispose of any
of the shares of Sun common stock issued to that affiliate in the exchange or
otherwise owned or acquired by that affiliate:
(1) for a period beginning 30 days prior to the exchange and continuing
until financial results covering at least 30 days of post-exchange
combined operations of Sun and Southern have been publicly filed by
Sun; or
(2) in violation of the Securities Act.
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OPINION OF FINANCIAL ADVISOR
Southern has retained JMP Financial, Inc. to provide a financial fairness
opinion in connection with the exchange. The Southern board selected JMP
Financial, Inc. to act as Southern's financial advisor based on its
qualifications, expertise and reputation. JMP Financial, Inc. has rendered its
opinion, in writing, that, based upon and subject to the various considerations
set forth in the opinion, the consideration to be received pursuant to the
exchange by the holders of Southern common stock is fair from a financial point
of view.
The full text of the written opinion of JMP Financial, Inc. is attached as
Annex B to this proxy statement/prospectus and sets forth, among other things,
the assumptions made, procedures followed, matters considered and limitations on
the scope of the review undertaken by JMP Financial, Inc. in rendering its
opinion. Southern shareholders are urged to, and should, read the opinion
carefully and in its entirety. The opinion is directed to the Southern board and
addresses only the fairness from a financial point of view of the consideration
received pursuant to the exchange as of the date of the opinion. It does not
address any other aspect of the exchange and does not constitute a
recommendation to any holder of Southern common stock as to how to vote at the
special shareholders meeting. The summary of the opinion of JMP Financial, Inc.
set forth in this document is qualified in its entirety by reference to the full
text of the opinion.
In connection with rendering its opinion, JMP Financial, Inc. among other
things:
* reviewed certain internal financial statements and other financial and
operating data concerning Southern prepared by the management of
Southern;
* discussed the past and current operations and financial condition and
the prospects of Southern with senior executives of Southern;
* reviewed certain publicly available financial statements and other
information of Sun;
* discussed the past and current operations and financial condition and
the prospects of Sun with senior executives of Sun;
* reviewed the reported prices and trading activity for Sun common
stock;
* compared the financial performance of Southern and Sun and the prices
and trading activity of Sun common stock with that of certain other
comparable publicly traded companies and their securities;
* reviewed the financial terms, to the extent publicly available, of
certain comparable transactions;
* reviewed the Plan of Share Exchange; and
* performed such other analyses and considered such other factors as JMP
Financial, Inc. deemed appropriate.
In rendering its opinion, JMP Financial, Inc. performed the following
analyses:
(1) JMP Financial, Inc. reviewed the performance of a sample of publicly
traded stocks of other banks and bank holding companies. No bank or
bank holding company was identical to Sun. The pricing ratios of these
publicly traded banks were compared to Sun.
(2) JMP Financial, Inc. also consulted a private database to construct a
group of banks and bank holding companies it deemed to be similar to
either Southern or Sun, considering, but not limiting its analysis to,
such factors as size, financial condition and performance, growth,
geography and market performance. Once again, although no bank or bank
holding company was identical to Southern or Sun, JMP Financial, Inc.
noted in the aggregate the factors considered presented a reasonable
comparison to the respective factors for Southern and Sun.
32
(3) JMP Financial, Inc. reviewed the pricing ratios in those mergers and
acquisitions of banks and bank holding companies pending or completed
during the past twelve months for which public information was
available. JMP Financial, Inc. found that the premium to book value
ratios offered to selling shareholders generally ranged from 97
percent to 369 percent, with both median and average premium to book
values falling between 194 percent and 203 percent. All of these
transactions involved the transfer of control to the acquiring
institution. JMP Financial, Inc. also reviewed the trading prices and
histories of small publicly traded banks it deemed comparable to
Southern to determine the approximate fair market value of small
minority positions in those institutions and found that price-to-book
value ratios ranged from 44 percent to 251 percent with averages and
medians ranging from 108 to 115 percent. The banks which JMP
Financial, Inc. reviewed and which it defined as "small publicly
traded banks" are all listed on the Nasdaq National Market System and
average a weekly trading volume of about one-half of one percent of
their outstanding stock. Among the significant differences between
these small publicly traded banks and Southern is that the Southern
stock is illiquid. A number of historical studies and valuation
practices estimate liquidity discounts in a range from 10 to 30
percent. The transaction at issue is somewhere between the sale of all
of the stock of an entire financial institution and the sale of a
minority block of stock in a community bank; however, JMP Financial,
Inc. believes the exchange bears more characteristics of the latter
than the former. The most dramatic difference, in the view of JMP
Financial, Inc., between the exchange and an acquisition of all of the
stock of an entire institution is the "change of control" by which the
acquiring institution acquires all of the outstanding stock of the
acquired institution. In such transactions, control of the acquired
institution changes hands, for which the acquiring institution may pay
a significant premium. In the present transaction, JMP Financial, Inc.
noted that Sun has had control of Southern from the outset and would
not be expected to pay a "premium" for control, since it already owns
control of Southern. JMP Financial, Inc. would expect that the premium
over book value would be closer to the price paid in the sale of a
minority block of stock in a small publicly traded bank, which in fact
is the case. JMP Financial, Inc. therefore concluded that the exchange
was fair to the shareholders of Southern from a financial point of
view.
The opinion and presentation of JMP Financial, Inc. to the Southern board
was one of many factors taken into consideration by Southern's board in making
its decision to approve the exchange. The analyses as described above should not
be viewed as determinative of the opinion of the Southern board with respect to
the exchange or of whether the Southern board would have been willing to agree
to a transaction with a different form or amount of consideration.
The Southern board retained JMP Financial, Inc. based upon its
qualifications, experience and expertise. JMP Financial, Inc. is a recognized
investment banking and advisory firm which has special expertise in the
valuation of banks.
This opinion is based on the veracity of public information obtained by JMP
and of information, both written and oral, provided to JMP by the Bank, without
verification of JMP. JMP has not analyzed the credit quality of the loan
portfolio.
Under the engagement letter, JMP Financial, Inc. provided financial
advisory services and a financial fairness opinion in connection with the
exchange, and Southern agreed to pay JMP Financial, Inc. a fee of $8,000 plus
out-of-pocket expenses. In addition, Southern has agreed to indemnify JMP
Financial, Inc. and its affiliates, against certain liabilities and expenses,
including certain liabilities under the federal securities laws.
33
THE CLOSING
EFFECTIVE TIME
The exchange will be effective at 5:00 p.m., Mountain Time, on October 12,
2001, and will be closed as soon as possible after the vote at the meeting of
Southern's shareholders. If the Plan of Share Exchange is approved, as of the
effective date, each outstanding share of Southern common stock will be
automatically converted into the right to receive Sun common stock according to
the exchange ratio.
SHARES HELD BY SUN
Shares of Southern common stock owned by Sun since Southern's organization
will be unaffected by the exchange. Those shares will not be exchanged for any
securities of Sun or other consideration.
PROCEDURES FOR SURRENDER OF CERTIFICATES; FRACTIONAL SHARES
As soon as reasonably practicable after the effective date of the exchange,
Sun or Sun's transfer agent will send you a letter of transmittal. The letter of
transmittal will contain instructions with respect to the surrender of your
Southern stock certificates. YOU SHOULD NOT RETURN STOCK CERTIFICATES WITH THE
ENCLOSED PROXY.
Commencing immediately after the effective date of the exchange, upon
surrender by you of your stock certificates representing Southern shares in
accordance with the instructions in the letter of transmittal, you will be
entitled to receive stock certificates representing shares of Sun common stock
into which those Southern shares have been converted, together with a cash
payment in lieu of fractional shares, if any.
After the effective date, each certificate that previously represented
shares of Southern stock will represent only the right to receive the shares of
Sun common stock into which shares of Southern stock were converted in the
exchange, and the right to receive cash in lieu of fractional shares of Sun
common stock as described below.
Until your Southern certificates are surrendered to Sun or Sun's agent, you
will not be paid any dividends or distributions on the Sun common stock into
which your Southern shares have been converted with a record date after the
exchange, and will not be paid cash in lieu of a fractional share. When those
certificates are surrendered, any unpaid dividends and any cash in lieu of
fractional shares of Sun common stock payable as described below will be paid to
you without interest.
Southern's transfer books will be closed at the effective date of the
exchange and no further transfers of shares will be recorded on the transfer
books. If a transfer of ownership of Southern stock that is not registered in
the records of Southern has occurred, then, so long as the Southern stock
certificates are accompanied by all documents required to evidence and effect
the transfer, as set forth in the transmittal letter and accompanying
instructions, a certificate representing the proper number of shares of Sun
common stock will be issued to a person other than the person in whose name the
certificate so surrendered is registered, together with a cash payment in lieu
of fractional shares, if any, and payment of dividends or distributions, if any.
No fractional share of Sun common stock will be issued upon surrender of
certificates previously representing Southern shares. Instead, Sun will pay you
an amount in cash determined by multiplying the fractional share interest to
which you would otherwise be entitled by the Sun share value used in determining
the exchange ratio.
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FEES AND EXPENSES
Whether or not the exchange is completed, Sun and Southern will each pay
its own costs and expenses incurred in connection with the exchange, including
the costs of (a) the filing fees in connection with Sun's Form S-4 registration
statement and this proxy statement/prospectus, (b) the filing fees in connection
with any filing, permits or approvals obtained under applicable state securities
and "blue sky" laws, (c) the expenses in connection with printing and mailing of
the Sun Form S-4 registration statement and this proxy statement/prospectus, and
(d) all other expenses.
NASDAQ STOCK MARKET LISTING
Sun will promptly prepare and submit to the Nasdaq Stock Market, Inc. a
listing application with respect to the maximum number of shares of Sun common
stock issuable to Southern shareholders in the exchange, and Sun must use
reasonable best efforts to obtain approval for the listing of Sun common shares
on the Nasdaq Stock Market, Inc.
AMENDMENT AND TERMINATION
Sun and Southern may amend or terminate the exchange at any time before or
after shareholder approval of the Plan of Share Exchange. After shareholder
approval of the exchange, it may not be further amended without the approval of
the shareholders.
35
THE SHAREHOLDERS' MEETING
DATE, TIME AND PLACE
The shareholders' meeting will be held on October 12, 2001 at Southern
Arizona Community Bank, 6400 North Oracle Road, Tucson, Arizona 85704 at 9:00
a.m., local time.
MATTERS TO BE CONSIDERED AT THE SHAREHOLDERS' MEETING
At the shareholders' meeting, holders of Southern common stock will vote on
whether to approve the exchange. See "The Exchange". Shareholders will also vote
on the election of directors for Southern. See "Election of Directors".
RECORD DATE; STOCK ENTITLED TO VOTE; QUORUM
Holders of record of Southern common stock at the close of business on
August 17, 2001, the record date for the shareholders' meeting, are entitled to
receive notice of and to vote at the shareholders' meeting. At August 17, 2001,
325,143 shares of Southern common stock were issued and outstanding and held by
approximately 196 holders of record. Sun held 165,823 shares of Southern common
stock on that date and 159,320 were held by shareholders other than Sun.
A majority of the shares of the Southern common stock (excluding shares
held by Sun) entitled to vote on the record date must be represented in person
or by proxy at the shareholders' meeting in order for a quorum to be present for
purposes of transacting business at the meeting. In the event that a quorum of
common stock is not represented at the shareholders' meeting, it is expected
that the meeting will be adjourned or postponed to solicit additional proxies.
Holders of record of Southern common stock on the record date are each entitled
to one vote per share with respect to approval of the exchange at Southern's
shareholders' meeting.
Southern does not expect any other matters to come before the shareholders'
meeting. However, if any other matters are properly presented at the special
meeting for consideration, the persons named in the enclosed form of proxy, and
acting thereunder, will have discretion to vote or not vote on those matters in
accordance with their best judgment, unless authorization to use that discretion
is withheld. If a proposal to adjourn the meeting is properly presented,
however, the persons named in the enclosed form of proxy will not have
discretion to vote in favor of the adjournment proposal any shares which have
been voted against the proposal(s) to be presented at the meeting. Southern is
not aware of any matters expected to be presented at the meeting other than as
described in the notice of the meeting.
VOTES REQUIRED
Although approval of the exchange by two-thirds of the shares entitled to
vote is all that is required by law, Southern and Sun have agreed that approval
of the exchange will require the affirmative vote of a majority of the shares of
Southern common stock outstanding on the record date, excluding the 51% of
Southern's shares held by Sun. Abstentions and broker non-votes will have the
same effect as a vote against the proposal to approve the exchange.
SHARE OWNERSHIP OF MANAGEMENT
As of the close of business on August 15, 2001, the directors and executive
officers of Southern and their affiliates were entitled to vote approximately
27,125 shares of Southern common stock. These shares represent approximately
8.34% of the outstanding shares of Southern common stock and 17.02% of
Southern's shares held by shareholders other than Sun. The directors and
executive officers have agreed to vote their shares of Southern common stock in
favor of the exchange.
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VOTING OF PROXIES
SUBMITTING PROXIES
You may vote by attending the shareholders' meeting and voting your shares
in person at the meeting, or by completing the enclosed proxy card, signing and
dating it, and mailing it in the enclosed postage pre-paid envelope. If you sign
a written proxy card and return it without instructions, your shares will be
voted FOR the exchange at the shareholders' meeting.
If your shares are held in the name of a trustee, bank, broker or other
record holder, you must either direct the record holder of your shares as to how
to vote your shares or obtain a proxy from the record holder to vote at the
shareholders' meeting.
Shareholders who submit proxy cards should not send in any stock
certificates with their proxy cards. A transmittal form with instructions for
the surrender of certificates representing shares of Southern stock will be
mailed by Sun to former Southern shareholders shortly after the exchange is
effective.
REVOKING PROXIES
If you are a shareholder of record, you may revoke your proxy at any time
prior to the time it is voted at the shareholders' meeting. Proxies may be
revoked by written notice, including by telegram or telecopy, to the president
of Southern, by a later-dated proxy signed and returned by mail or by attending
the shareholders' meeting and voting in person. Attendance at Southern's special
shareholders meeting will not in and of itself constitute a revocation of a
proxy. Any written notice of a revocation of a proxy must be sent so as to be
delivered before the taking of the vote at the shareholders' meeting to:
Southern Arizona Community Bank
6400 North Oracle Road
Tucson, Arizona, 85704
Attn: John P. Lewis, President
If you require assistance in changing or revoking a proxy, you should
contact John Lewis at the address above or at phone number (520) 219-5000.
GENERAL INFORMATION
Brokers who hold shares in street name for customers who are the beneficial
owners of those shares are prohibited from giving a proxy to vote on non-routine
matters, such as the proposal to be voted on at the shareholders' meeting,
unless they receive specific instructions from the customer. These so-called
broker non-votes will have the same effect as a vote against the exchange.
Abstentions may be specified on all proposals. If you submit a proxy with
an abstention, you will be treated as present at the shareholders' meeting for
purposes of determining the presence or absence of a quorum for the transaction
of all business. An abstention will have the same effect as a vote against the
exchange.
SOLICITATION OF PROXIES; EXPENSES
Sun or Southern will pay the cost of solicitation of proxies. In addition
to solicitation by mail, the directors, officers and employees of Southern may
also solicit proxies from shareholders by telephone, telecopy, telegram or in
person.
37
COMPARISON OF SHAREHOLDER RIGHTS
As a result of the exchange, holders of shares of Southern stock will
become holders of shares of Sun common stock. This comparison of shareholder
rights is not intended to be complete and is qualified by reference to the
Arizona Revised Statutes, as well as to Southern's articles of incorporation and
by-laws (copies of which may be obtained from Southern) and Sun's articles of
incorporation and by-laws, (copies of which are on file with the SEC).
Southern shareholders may share in dividends as and when declared by the
Southern Board of Directors (although none have been to date). Dividends payable
other than in Southern's own stock may be paid out of capital surplus with
approval of the superintendent.
Sun stockholders may share in dividends as and when declared by Sun's Board
of Directors (see "Dividends and Market for Common Stock"); dividends may be
paid out of any funds available unless the payment of the dividend renders the
business corporation insolvent.
38
DESCRIPTION OF THE CAPITAL STOCK OF SUN
Sun's Articles of Incorporation, as amended to date, authorize the issuance
of up to 10,000,000 shares of common stock, without par value. Sun's articles of
incorporation do not authorize the issuance of any other class of stock. As of
June 30, 2001, 6,089,849 shares of common stock were outstanding (including
138,100 shares held by Sun as treasury stock). Computershare Investor Services,
Inc., serves as transfer agent and registrar for Sun's common stock.
Arizona law allows Sun's board of directors to issue additional shares of
stock up to the total amount of common stock authorized without obtaining the
prior approval of the shareholders.
Sun's board of directors has authorized the issuance of the shares of
common stock as described in this proxy statement/prospectus. All shares of
common stock offered will be, when issued, fully paid and nonassessable.
The following summary of the terms and provisions of the common stock does
not purport to be complete and is qualified in its entirety by reference to
Sun's articles of incorporation, as amended, a copy of which is on file with the
SEC, and to the [Arizona Revised Statutes ("A.R.S.")].
RIGHTS OF COMMON STOCK
All voting rights are vested in the holders of shares of common stock. Each
share of common stock is entitled to one vote. The shares of common stock have
cumulative voting rights, which means that a stockholder is entitled to cumulate
their votes by multiplying the number of votes they are entitled to cast by the
number of directors for whom they are entitled to vote, and to cast the product
for a single candidate or distribute the same amongst several candidates. The
holders of the common stock do not have any preemptive, conversion or redemption
rights. Holders of common stock are entitled to receive dividends if and when
declared by Sun's board of directors out of funds legally available. Under
Arizona law, dividends may be legally declared or paid only if after the
distribution the corporation can pay its debts as they come due in the usual
course of business and the corporation's total assets equal or exceed the sum of
its liabilities. In the event of liquidation, the holders of common stock will
be entitled, after payment of amounts due to creditors and senior security
holders, to share ratably in the remaining assets.
SHARES AVAILABLE FOR ISSUANCE
The availability for issuance of a substantial number of shares of common
stock at the discretion of the board of directors provides Sun with the
flexibility to take advantage of opportunities to issue additional stock in
order to obtain capital, as consideration for possible acquisitions and for
other purposes (including, without limitation, the issuance of additional shares
through stock splits and stock dividends in appropriate circumstances). There
are, at present, no plans, understandings, agreements or arrangements concerning
the issuance of additional shares of common stock, except as described in this
proxy statement/prospectus and for the shares of common stock reserved for
issuance under Sun's stock option program.
Uncommitted authorized but unissued shares of common stock may be issued
from time to time to persons and in amounts the board of directors of Sun may
determine and holders of the then outstanding shares of common stock may or may
not be given the opportunity to vote thereon, depending upon the nature of those
transactions, applicable law and the judgment of the board of directors of Sun
regarding the submission of an issuance to or vote by Sun's shareholders. As
noted, Sun's shareholders have no preemptive rights to subscribe to newly issued
shares.
Moreover, it will be possible that additional shares of common stock would
be issued for the purpose of making an acquisition by an unwanted suitor of a
controlling interest in Sun more difficult, time consuming or costly or would
otherwise discourage an attempt to acquire control of Sun. Under such
circumstances, the availability of authorized and unissued shares of common
stock may make it more difficult for shareholders to obtain a premium for their
shares. Such authorized and unissued shares could be used to create voting or
other impediments or to frustrate a person seeking to obtain control of Sun by
means of a merger, tender offer, proxy contest or other means. Such shares could
be privately placed with purchasers who might cooperate with the board of
directors of Sun in opposing such an attempt by a third party to gain control of
Sun. The issuance of new shares of common stock could also be used to dilute
ownership of a person or entity seeking to obtain control of Sun. Although Sun
does not currently contemplate taking that action, shares of Sun common stock
could be issued for the purposes and effects described above, and the board of
directors reserves its rights (if consistent with its fiduciary
responsibilities) to issue shares for such purposes.
39
ANTI-TAKEOVER PROVISIONS
In addition to the utilization of authorized but unissued shares as
described above, the A.R.S. contains other provisions which could be utilized by
Sun to impede efforts to acquire control of Sun. Those provisions include the
following:
CONTROL SHARE ACQUISITIONS. The A.R.S. contains an article intended to
protect shareholders and prohibit or discourage certain types of hostile
takeover activities. These provisions regulate the acquisition of "control
shares" of large public Arizona corporations.
The Arizona article establishes procedures governing "control share
acquisitions." A control share acquisition is defined as an acquisition of
shares by an acquirer which, when combined with other shares held by that person
or entity, would give the acquirer voting power at or above any of the following
thresholds: 20%, 33-1/3% or 50%. Under the article, an acquirer may not vote
"control shares" unless the corporation's disinterested shareholders vote to
confer voting rights on the control shares. The acquiring person, officers of
the target corporation, and directors of the target corporation are precluded
from voting on the issue of whether the control shares shall be accorded voting
rights. The article does not affect the voting rights of shares owned by an
acquiring person prior to the control share acquisition.
The article entitles corporations to redeem control shares from the
acquiring person under certain circumstances.
The article applies only to an "issuing public corporation." Sun falls
within the statutory definition of an "issuing public corporation." The article
automatically applies to any "issuing public corporation" unless the corporation
"opts out" of the statute by so providing in its articles of incorporation or
bylaws. Sun has not "opted out" of the provisions of the article.
FAIR PRICE ACT. Certain provisions of the A.R.S. establish a statutory
scheme similar to the supermajority and fair price provisions found in many
corporate charters. The act provides that a super majority vote of 90% of the
shareholders and no less than two-thirds of the votes of non-interested
shareholders must approve a "business combination." The act defines a "business
combination" to encompass any merger, consolidation, share exchange, sale of
assets, stock issue, liquidation, or reclassification of securities involving an
"interested shareholder" or certain "affiliates." An "interested shareholder" is
generally any person who owns 10% or more of the outstanding voting shares of
the company. An "affiliate" is a person who directly or indirectly controls, is
controlled by, or is under common control with a specified person.
At this time, Sun's management beneficially owns (including immediately
exercisable stock options) control of approximately 63% of Sun's outstanding
common stock (which includes shares owned by Capitol Bancorp Ltd.). It is now
unknown what percentage will be owned by management upon completion of the
exchange. If management's shares are voted as a block, management will be able
to prevent the attainment of the required supermajority approval.
The supermajority vote required by the act does not apply to business
combinations that satisfy certain conditions. These conditions include, among
others, that: (i) the purchase price to be paid for the shares of the company is
at least equal to the greater of (a) the market value of the shares or (b) the
highest per share price paid by the interested shareholder within the preceding
two-year period or in the transaction in which the shareholder became an
interested shareholder, whichever is higher; and (ii) once a person has become
an interested shareholder, the person must not become the beneficial owner of
any additional shares of the company except as part of the transaction which
resulted in the interested shareholder becoming an interested shareholder or by
virtue of proportionate stock splits or stock dividends.
The requirements of the act do not apply to business combinations with an
interested shareholder that the Board of Directors has approved or exempted from
the requirements of the act by resolution at any time prior to the time that the
interested shareholder first became an interested shareholder.
40
WHERE YOU CAN FIND MORE INFORMATION
Sun has filed a registration statement on Form S-4 to register with the SEC
the Sun common stock to be issued to Southern shareholders in the exchange. This
proxy statement/prospectus is a part of that registration statement and
constitutes a prospectus of Sun in addition to being a proxy statement of
Southern for the special meeting. As allowed by SEC rules, this proxy
statement/prospectus does not contain all the information you can find in the
registration statement or the exhibits to the registration statement.
In addition, Sun files reports, proxy statements and other information with
the SEC under the Exchange Act. Please call the SEC at 1-800-SEC-0330 for
further information on the public reference rooms. You may read and copy this
information at the following locations of the SEC:
Public Reference Room New York Regional Office Chicago Regional Office Citicorp Center
450 Fifth Street, N.W. 7 World Trade Center 500 West Madison Street
Room 1024 Suite 1300 Suite 1400
Washington, D.C. 20549 New York, New York 10048 Chicago, Illinois 60661-2511
You may also obtain copies of this information by mail from the Public
Reference Section of the SEC, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, at prescribed rates. The SEC also maintains an Internet world wide
web site that contains reports, proxy statements and other information about
issuers, including Sun, who file electronically with the SEC. The address of
that site is www.sec.gov. You can also inspect reports, proxy statements and
other information about Sun at the offices of the National Association of
Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006.
In addition, all subsequent documents filed with the SEC by Sun pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 after
the date of this proxy statement/ prospectus shall be deemed to be incorporated
by reference into this proxy statement/prospectus and to be a part hereof from
the date of filing such documents. Any statement contained in this proxy
statement/prospectus or in a document incorporated or deemed to be incorporated
by reference in this prospectus or another such document shall be deemed to be
modified or superseded for purposes of this proxy statement/prospectus to the
extent that a statement contained in this proxy statement/prospectus or another
such document or in any subsequently filed document which also is or is deemed
to be incorporated by reference herein modified or supersedes such statement.
Any statement so modified or superseded shall not be deemed, except as so
modified superseded, to constitute a part of this proxy statement/prospectus.
IF YOU WOULD LIKE TO REQUEST DOCUMENTS, PLEASE DO SO BY OCTOBER 5, 2001 TO
RECEIVE THEM BEFORE THE SHAREHOLDERS' MEETING. If you request exhibits to any
incorporated documents from us, Sun will mail them to you by first class mail,
or another equally prompt means, within one business day after Sun receives your
request.
No one has been authorized to give any information or make any
representation about Southern, Sun or the exchange, that differs from, or adds
to, the information in this document or in documents that are publicly filed
with the SEC. Therefore, if anyone does give you different or additional
information, you should not rely on it.
If you are in a jurisdiction where it is unlawful to offer to exchange, or
to ask for offers of exchange, the securities offered by this proxy
statement/prospectus or to ask for proxies, or if you are a person to whom it is
unlawful to direct these activities, then the offer presented by this proxy
statement/prospectus does not extend to you.
The information contained in this proxy statement/prospectus speaks only as
of its date unless the information specifically indicates that another date
applies. Information in this document about Sun has been supplied by Sun, and
information about Southern has been supplied by Southern.
41
LEGAL MATTERS
Certain legal matters relating to the validity of the shares of Sun common
stock offered by this proxy statement/prospectus and certain federal income tax
matters relating to the exchange will be passed upon for Sun by Snell & Wilmer,
L.L.P.
EXPERTS
The consolidated financial statements of Sun attached to this proxy
statement/prospectus included in Sun's annual report to shareholders and its
report on Form 10-K for the fiscal year ended December 31, 2000, have been
audited by BDO Seidman, LLP, independent certified public accountants, as stated
in their report, which is attached as part of Annex E, and are included in
reliance upon such report given upon their authority as experts in accounting
and auditing.
The financial statements of Southern attached to this proxy
statement/prospectus as Annex D for the fiscal years ended December 31, 2000 and
1999 and the period ended December 31, 1998 have been audited by BDO Seidman,
LLP, independent certified public accountants, as stated in their report, which
is attached as part of Annex D, and are included in reliance upon such report
given upon their authority as experts in accounting and auditing.
42
ANNEX A
PLAN OF SHARE EXCHANGE
THIS PLAN OF SHARE EXCHANGE ("Plan") is entered into effective September 1,
2001 between and among SUN COMMUNITY BANCORP LIMITED, an Arizona corporation
("Sun") and the SHAREHOLDERS of SOUTHERN ARIZONA COMMUNITY BANK ("Southern").
RECITALS
A. Southern is an Arizona banking corporation which commenced the
business of banking on August 17, 1998.
B. Sun is now and has been since Southern commenced the business of
banking the holder of approximately fifty-one (51%) percent of the duly issued
and outstanding common stock of Southern ("Southern common stock").
C. Southern common stock is privately held and not traded in any public
market.
D. Sun's common stock ("Sun common stock") is traded on the National
Market System of the NASDAQ Stock Market, Inc.
E. Southern's Board of Directors has determined that it would be in the
best interest of Southern's stockholders to exchange their shares of stock in
Southern for shares of Sun common stock as described in this Plan, and Sun is
willing to make an exchange on those terms.
The parties adopt this Plan as of the effective date.
1. THE EXCHANGE. Each shareholder who holds Southern common stock
will exchange his, her or their shares of Southern common stock for shares of
Sun common stock according to an exchange ratio determined as follows:
SOUTHERN SHARE VALUE. The share value of each share of Southern
common stock shall be determined by multiplying 1.5 times the
adjusted pro forma fully diluted net book value per share of
Southern common stock as of the close of business on August 17,
2001. The adjusted pro forma fully diluted net book value per
share of Southern common stock as of the close of business on
August 17, 2001 shall be calculated by (1) adding stockholders'
equity as reflected in Southern's internally prepared financial
statements as of July 31, 2001 and Southern's actual net income
for the month of August, 2001, prorated for the first 17 days of
the month, plus a pro forma adjustment for the
previously-recorded cumulative effect of accounting change for
start-up costs; (2) subtracting from that amount the principal
amounts of Sun's capital contributions to Southern during the
period from its inception to September 30, 2001 (none through
August 17, 2001) for which Sun did not receive shares of Southern
common stock and also subtracting an interest factor to impute to
Sun an appropriate return on its capital contributions equivalent
to Sun's incremental yield on earning assets through September
30, 2001; and (3) dividing Southern's pro forma fully diluted
stockholders' equity by the fully diluted number of shares of
Southern's common stock outstanding as of the close of business
on September 30, 2001.
SUN SHARE VALUE. The share value of each share of Sun common
stock will be the higher of (1) the average of the closing prices
of Sun common stock for each of the trading days in the thirty
(30) calendar day period prior to and ending on September 30,
2001, as reported by the NASDAQ Stock Market, Inc. or (2) the
book value per share of Sun's common stock as of September 30,
2001, before the consummation of the share exchange contemplated
herein.
EXCHANGE RATIO. The exchange ratio will be determined by dividing
the Southern Share Value by the Sun Share Value.
Each Southern shareholder (except Sun) will receive shares of Sun
common stock in exchange for his, her or their Southern common stock calculated
by multiplying the number of shares of Southern common stock held by the
shareholder by the exchange ratio. Any fractional shares will be paid in cash.
2. APPROVALS NECESSARY. The following approvals will be necessary
prior to the Plan becoming effective:
a. The Board of Directors of Southern shall have approved and
adopted the Plan.
b. The Board of Directors of Sun (acting through its Executive
Committee or otherwise, Sun's Board having already approved
the exchange in principle) shall have approved and adopted
the Plan.
c. A majority of the common stock of Southern (exclusive of the
shares held by Sun) shall have been voted to approve and
adopt the Plan at a meeting of the shareholders called for
that purpose.
d. The Securities and Exchange Commission shall have declared
effective the Registration Statement registering the shares
of stock of Sun's common stock to be issued in the exchange.
e. The Arizona State Banking Department shall not have issued
any objection to the Plan.
3. FAIRNESS OPINION. The Board of Directors of Southern shall have
secured the opinion of a recognized firm of financial advisors that the share
exchange is fair from a financial point of view to the shareholders of Southern.
4. TAX OPINION. Snell & Wilmer, L.L.P. shall have issued its legal
opinion that the share exchange constitutes a reorganization within the meaning
of Section 368 of the Internal Revenue Code of 1986, as amended, and that the
exchange shall not be a taxable event to the shareholders of Southern (except to
the extent of the cash received in lieu of fractional shares).
5. SURRENDER OF CERTIFICATES. Each shareholder of Southern common
stock shall surrender to Sun his, her or their certificate(s) for shares of
Southern common stock within thirty (30) days after the effective date of this
Plan. Sun shall direct its transfer agent, Computershare Investor Services, to
issue certificate(s) of Sun common stock to be issued in the exchange.
Certificate(s) of Sun common stock shall be issued and registered in the same
name as the shares of Southern common stock surrendered in exchange therefor,
and shall thereafter be transferable in the same manner as otherwise provided
for Sun common stock. In the event any shareholder of Southern common stock
fails to surrender his, her or their certificate(s) within thirty (30) days of
the effective date of this Plan, such certificate(s) shall nonetheless be
canceled and deemed surrendered, and certificate(s) for Sun common stock shall
be issued and registered in the name of the person who is the registered holder
on the books of Southern on the effective date of this Plan, and the Southern
certificate(s) shall thereafter be null and void and of no force or effect
whatever.
6. NEW SOUTHERN CERTIFICATE. Southern shall issue its certificate
registering in the name of Sun all shares of stock now registered to
shareholders other than Sun.
ANNEX B
JMP FINANCIAL, INC.
753 GRAND MARAIS
GROSSE POINTE PARK, MI 48230
TEL/FAX (313) 824-1711
September 21, 2001
Board of Directors
Southern Arizona Community Bank
6400 North Oracle Road
Tucson, AZ 85704
Ladies and Gentlemen:
We have examined the proposed Plan of Share Exchange (the "Agreement")
dated September 1, 2001, to be entered into between Sun Community Bancorp
Limited, an Arizona Corporation ("Sun") and the shareholders (the
"Shareholders") of Southern Arizona Community Bank ("Southern"), an Arizona
Corporation by which Sun shall acquire from the Shareholders their outstanding
shares of Southern, not already owned by Sun, in exchange for shares of Sun (the
"Exchange").
The terms of the transaction contemplated by the Agreement provide that
each share of Southern's common stock, not already owned by Sun and issued and
outstanding as of September 30, 2001 (the "Effective Date") shall be exchanged,
pursuant to the Exchange Ratio specified in the Agreement, into shares of Sun.
You have requested our opinion as to the fairness, from a financial point of
view, of the Exchange.
JMP Financial, Inc. ("JMP"), as a regular part of its investment banking
business, is engaged in the valuation of the securities of commercial and
savings banks as well as the holding companies of commercial and savings banks
in connection with mergers, acquisitions, and divestitures, and for other
purposes.
In connection with this engagement and rendering this opinion, we reviewed
materials deemed necessary and appropriate by us under the circumstances,
including;
* Audited consolidated financial statements of Southern and Sun for the
years ended December 31, 2000, 1999 and 1998 as available;
* Unaudited financial statements of Southern for the period ended June
30, 2001;
* Certain unaudited internal financial information concerning the
capital ratios of Southern;
* Publicly available information concerning Sun;
Page Two
Southern Board of Directors
September 21, 2001
* Publicly available information with respect to certain other bank
holding companies, which we deemed appropriate, including competitors
of Sun and Southern.
* Publicly available information with respect to the nature and terms of
certain other transactions which we consider relevant;
* The Agreement;
* Reviewed certain historical market prices and trading volumes of
Southern's and Sun's common stock to the extent reasonably available.
As to Southern, such review was limited to its initial offering of
common stock.
We have assumed and relied upon, without independent verification, the
accuracy and completeness of all of the financial statements and other
information reviewed by us for the purposes of the opinion expressed herein. We
have not made an independent evaluation or appraisal of the assets and
liabilities of Southern or Sun or any of its subsidiaries and we have not been
furnished with any such evaluation or appraisal, except as referenced above.
Additionally, we are not experts in the evaluation of reserves for loan losses,
and we have not reviewed any individual credit files. For purposes of this
opinion, we have assumed that Sun's and Southern's loan loss reserves are
adequate in all material respects and that, in the aggregate, other conditions
at Sun and Southern are satisfactory and this opinion is conditioned upon such
assumption. We have also assumed that there has been no material change in
Southern's or Sun's assets, financial condition, results of operations,
business, or prospects since the date of the last financial statements made
available to us for Southern and Sun, respectively. This opinion is necessarily
based on economic, market and other conditions in effect on, and the information
made available to us as of, the date hereof. It should be understood that
subsequent developments may effect the opinion and that JMP does not have any
obligation to update, revise or reaffirm it.
The opinion expressed herein is being rendered to the Board of Directors of
Southern for its use in evaluation of the proposed transaction, assuming the
transaction is consummated upon the terms set forth in the Agreement.
Based upon the terms and conditions of the Exchange and the current market
value of Sun's common stock, and based further upon such other considerations as
we deem relevant, JMP is, subject to the foregoing, of the opinion on the date
hereof, that the consideration to be received by the Shareholders in the
Exchange would be fair from a financial point of view if the transaction
contemplated by the Agreement is in fact consummated pursuant to the terms
thereof.
Sincerely,
/s/ John Palffy
John Palffy
President
JMP Financial, Inc.
ANNEX C
OPINION OF SNELL & WILMER L.L.P.
September 21, 2001
Sun Community Bancorp Limited
2777 East Camelback Rd., Suite 375
Phoenix, Arizona 85016
Re: Federal Tax Consequences of Plan of Share Exchange
Gentlemen:
We have acted as special counsel to Sun Community Bancorp Limited ("Sun")
in connection with the Plan of Share Exchange (the "Plan") between Sun and the
shareholders of Southern Arizona Community Bank ("Southern") dated as of
September 1, 2001.
Sun has filed with the Securities and Exchange Commission under the
Securities Act of 1933, as amended (the "1933 Act"), a registration statement on
Form S-4 (the "Registration Statement"), with respect to the common shares of
Sun to be issued to holders of shares of common stock of Southern in connection
with the Plan. In addition, Sun has prepared, and we have reviewed, a Proxy
Statement/Prospectus which is contained in and made a part of the Registration
Statement (the "Proxy Statement"). In rendering our opinion, we have relied upon
the facts stated in the Proxy Statement, the representations provided to us by
Sun and Southern, as summarized below, and upon such other documents as we have
deemed appropriate, including the information about Sun and Southern referenced
in the Proxy Statement.
We have assumed that (i) all parties to the Plan, and to any other
documents reviewed by us, have acted, and will act, in accordance with the terms
of the Plan, (ii) all facts, information, statements and representations
qualified by the knowledge and/or belief of Sun and/or Southern will be complete
and accurate as of the effective date of the Plan as though not so qualified,
(iii) the Plan will be consummated pursuant to the terms and conditions set
forth in the Plan without the waiver or modification of any such terms and
conditions, and (iv) the Plan will be authorized by and will be effected
pursuant to applicable state law. We have also assumed that each Southern
shareholder holds the shares of Southern common stock to be surrendered under
the Plan as a capital asset.
Sun Community Bancorp Limited
September 21, 2001
Page 2
This opinion does not address the specific tax consequences that may be
relevant to a particular shareholder receiving special treatment under some
federal income tax laws, including: (i) banks; (ii) tax-exempt organizations;
(iii) insurance companies; (iv) dealers in securities or foreign currencies; (v)
Southern shareholders, if any, who received their Southern common stock through
the exercise of employee stock options or otherwise as compensation; (vi)
Southern shareholders who are not U.S. persons; and (vii) Southern shareholders
who hold Southern common stock as part of a hedge, straddle, or conversion
transaction.
Our opinion also does not address any consequences arising under the laws
of any state, locality, or foreign jurisdiction. No rulings have been or will be
sought from the Internal Revenue Service regarding any matters relating to the
exchange.
Our opinion is predicated on the accuracy of the following representations
provided to us by Sun:
1. The fair market value of the Sun common stock to be received by the
Southern shareholders will be approximately equal to the fair market value of
the Southern common stock surrendered under the Plan.
2. Sun has no plan or intention to liquidate Southern; to merge Southern
into another corporation; to cause Southern to sell or otherwise dispose of any
of its assets, except for dispositions made in the ordinary course of business;
or to sell or otherwise dispose of any of the Southern common stock acquired in
the transaction.
3. Sun has no plan or intention to reacquire any of its common stock issued
under the Plan.
4. Sun, Southern, and the shareholders of Southern will pay their
respective expenses, if any, incurred in connection with the Plan.
5. The only consideration that will be received by the shareholders of
Southern for their common stock of Southern is voting common stock of Sun,
except for fractional shares paid in cash. Further, no liabilities of Southern
or any Southern shareholder will be assumed by Sun, nor will any of the Southern
stock acquired by Sun be subject to any liabilities.
6. Sun will not own as of immediately before the effective date of the
Plan, directly or indirectly, any Southern common stock other than the Southern
common stock first acquired by Sun upon the formation of Southern August 17,
1998.
Sun Community Bancorp Limited
September 21, 2001
Page 3
7. Sun will not make any cash payments, directly or indirectly, to
dissenting shareholders of Southern, nor will Sun, directly or indirectly,
reimburse Southern for any payments made by Southern to dissenting shareholders.
8. Any cash payment made by Sun to Southern shareholders in lieu of
fractional shares of Sun is solely for the purpose of avoiding the expense and
inconvenience to Sun of issuing fractional shares and does not represent
separately bargained-for consideration.
9. Sun is not an investment company as defined in Section 368(a)(2)(F)(iii)
or (iv) of the Internal Revenue Code of 1986, as amended (the "Code")
10. The Plan will be consummated in compliance with the material terms
contained in the Registration Statement, none of the material terms and
conditions therein have been or will be waived or modified and Sun has no plan
or intention to waive or modify any such material condition.
11. Sun has a stock repurchase program in place under which Sun is
repurchasing shares of its common stock on the open market ("Repurchase Plan").
Sun is not obligated to repurchase any of its shares, and has no obligation to
repurchase any shares issued under the Plan. To the best knowledge of Sun, the
Repurchase Plan does not represent an inducement to the Southern shareholders to
consummate the Plan. Sun has no plan or intention to repurchase through the
Repurchase Plan any Sun common stock issued under the Plan.
12. To the best knowledge of Sun, there is no plan or intention on the part
of the shareholders of Southern to utilize Sun's Repurchase Plan to effect the
redemption of any Sun common stock issued under the Plan.
13. Sun will not enlarge the Repurchase Plan in connection with
consummating the Plan.
Our opinion is also predicated on the accuracy of the following
representations provided to us by Southern:
1. The Plan will be consummated in compliance with the material terms
contained in the Registration Statement, none of the material terms and
conditions therein have been or will be waived or modified and Southern has no
plan or intention to waive or modify any such material condition.
2. The fair market value of the Sun common stock to be received by the
Southern shareholders will be approximately equal to the fair market value of
the Southern common stock surrendered under the Plan.
Sun Community Bancorp Limited
September 21, 2001
Page 4
3. Southern has no plan or intention to issue additional shares of its
stock that would result in Sun losing "control" of Southern within the meaning
of Section 368(c) of the Code.
4. Sun, Southern, and the shareholders of Southern will pay their
respective expenses, if any, incurred in connection with the Plan.
5. At the time the Plan is executed, Southern will not have outstanding any
warrants, options, convertible securities, or any other type of right pursuant
to which any person could acquire any stock in Southern.
6. Following the execution of the Plan, Southern will continue its historic
business or use a significant portion of its historic business assets in a
business.
7. Southern is not an investment company as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
8. Southern will pay any dissenting shareholders the value of their stock
out of its own funds.
9. On the effective date of the Plan, the fair market value of the assets
of Southern will exceed the sum of its liabilities plus, the liabilities, if
any, to which the assets are subject.
Based upon and subject to the foregoing, and subject to the qualifications,
limitations, representations and assumptions contained in the portion of the
Proxy Statement captioned "Material Federal Income Tax Consequences" and
incorporated by reference in this opinion, we are of the opinion that:
1) The exchange will qualify as a reorganization within the meaning of
Section 368(a)(1)(B) of the Code;
2) No gain or loss will be recognized by the shareholders of Southern
who exchange their Southern common stock solely for Sun common stock (except
with respect to cash received instead of fractional shares of Sun common stock);
3) The aggregate tax basis of the Sun common stock received by
Southern shareholders who exchange all of their Southern common stock for Sun
common stock in the exchange will be the same as the aggregate tax basis of the
Southern common stock surrendered in the exchange (reduced by any adjusted basis
allocable to a fractional share of Sun common stock for which cash is received);
Sun Community Bancorp Limited
September 21, 2001
Page 5
4) The holding period of the Sun common stock received by a former
shareholder of Southern will include the holding period of shares of Southern
common stock surrendered in the exchange; and
5) A holder of Southern common stock who receives a cash payment
instead of a fractional share of Sun common stock will recognize capital gain or
loss to the extent such cash payment is treated pursuant to Section 302 of the
Code as made in exchange for the fractional share. Such gain or loss will be
equal to the difference between the cash amount received and the portion of the
holder's adjusted basis in shares of Southern common stock allocable to the
fractional share, and such gain or loss will be long-term capital gain or loss
for federal income tax purposes if the holder's holding period in the Southern
common stock satisfies the long-term holding period requirement.
No opinion is expressed on any matters other than those specifically
stated. This opinion is furnished to you for use in connection with the
Registration Statement and may not be used for any other purpose without our
prior express written consent. We hereby consent to the inclusion of this
opinion as an appendix to the Proxy Statement and to the use of our name in that
portion of the Proxy Statement captioned "Material Federal Income Tax
Consequences." In giving such consent, we do not thereby admit that we are in
the category of persons whose consent is required under Section 7 of the 1933
Act.
Very truly yours,
/s/ Snell & Wilmer, L.L.P.
Snell & Wilmer, L.L.P.
[This page intentionally left blank]
ANNEX D
FINANCIAL INFORMATION REGARDING SOUTHERN ARIZONA COMMUNITY BANK
Management's discussion and analysis of financial
condition and results of operations...................................... D-2
Condensed interim financial statements as of and for the periods
ended June 30, 2001 and 2000 (unaudited) ................................ D-6
Audited financial statements as of and for the periods ended
December 31, 2000, 1999 and 1998......................................... D-12
D-1
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
SOUTHERN ARIZONA COMMUNITY BANK
PERIODS ENDED JUNE 30, 2001 AND DECEMBER 31, 2000
FINANCIAL CONDITION
Southern Arizona Community Bank is engaged in commercial banking activities from
its sole location in Tucson, Arizona. From its inception in August 1998, the
Bank provides a full array of banking services, principally loans and deposits,
to entrepreneurs, professionals and other high net worth individuals in its
community.
Total assets approximated $48.2 million at June 30, 2001, a slight increase from
$40.2 million at December 31, 2000. The Bank's total assets approximated $25.8
million at year-end 1999.
Total portfolio loans approximated $40.2 million at June 30, 2001, an increase
of approximately $4.1 million from the $36.1 million level at December 31, 2000.
At December 31, 1999, total portfolio loans approximated $20.6 million.
Portfolio loan growth has been significant and is consistent with the Bank's
overall balance sheet growth during these periods. Commercial loans approximated
93.3% of total portfolio loans at June 30, 2001 consistent with the Bank's
emphasis on commercial lending activities. Real estate mortgage loans
approximated 6.6% of total portfolio loans at June 30, 2001.
The allowance for loan losses at June 30, 2001 approximated $503,000 or 1.25% of
total portfolio loans, a slight increase over the year-end 2000 ratio of 1.20%.
The allowance for loan losses is maintained at a level believed adequate by
management to absorb potential losses inherent in the loan portfolio at the
balance sheet date. Management's determination of the adequacy of the allowance
is based on evaluation of the portfolio (including volume, amount and
composition, potential impairment of individual loans and concentrations of
credit), past loss experience, current economic conditions, loan commitments
outstanding and other factors.
There have been no loans charged off from the inception of the Bank and through
June 30, 2001.
The Bank's growth has been funded primarily by deposits, most of which are
interest-bearing. Total deposits approximated $44.0 million at June 30, 2001, an
increase of approximately $8.0 million from the $36.0 million level at December
31, 2000. Deposits increased significantly in 2000 from the $22.0 million level
at the beginning of the year.
D-2
The Bank generally does not rely upon brokered deposits as a key funding source;
deposits are generally obtained within the Bank's community.
The Bank emphasizes obtaining noninterest-bearing deposits as a means to reduce
its cost of funds. Noninterest-bearing deposits approximated $8.6 million at
June 30, 2001 or about 20% of total deposits, an increase of approximately $1.8
million from December 31, 2000. Noninterest-bearing deposits fluctuate
significantly from day to day, depending upon customer account activity.
Stockholders' equity approximated $4.0 million at June 30, 2001 or approximately
8.4% of total assets. Capital adequacy is discussed elsewhere in this narrative.
RESULTS OF OPERATIONS
Net income for the six months ended June 30, 2001 approximated $113,000,
compared with net income of $36,000 in the six-month 2000 period.
Net income for the Bank in 2000 was $169,000. 1999 represented the Bank's first
full calendar year of operations, with a net loss of $546,000 (including the
cumulative effect of an accounting change regarding start-up costs), compared to
a net loss of $252,000 in the 1998 period of about four months.
During these most recent periods, the Bank's profitability has been the result
of its loan and deposit portfolios reaching a sufficient size to generate an
adequate margin to cover operating expenses and produce profits.
The principal source of operating revenues is interest income. Total interest
income for the six months ended June 30, 2001 approximated $2.0 million,
compared with $1.4 million in the first six months of 2000. For the year ended
December 31, 2000, total interest income approximated $3.3 million, compared
with $1.5 million in 1999 and $193,000 in 1998.
Interest expense on deposits has also increased significantly during these
periods, consistent with the growth in the interest-bearing deposits. Total
interest expense approximated $897,000 for the six months ended June 30, 2001,
compared with $555,000 for the first six months of 2000. For the year ended
December 31, 2000, total interest expense approximated $1.4 million, compared
with $603,000 in 1999 and $86,000 in 1998.
Net interest income approximated $1.1 million for the six months ended June 30,
2001, compared with $836,000 for the 2000 corresponding period. Net interest
income for the year ended December 31, 2000 approximated $1.9 million,
significantly more than the $859,000 in 1999 and $107,000 in 1998.
Provisions for loan losses ($69,000 and $96,000 for the six months ended June
30, 2001 and 2000, respectively; $227,000 for the year ended December 31, 2000,
$177,000 in 1999 and $30,000 in 1998) have been based primarily upon amounts
necessary to increase the allowance for loan losses to the regulatorily-imposed
ratio requirement of not less than 1% of total portfolio loans outstanding and
management's analysis of other allowance requirements discussed previously.
D-3
Noninterest income has increased consistently during the Bank's period of
existence. Total noninterest income approximated $33,000 for the six months
ended June 30, 2001 ($14,000 in the corresponding period in 2000) and
approximated $36,000 for the year ended December 31, 2000, $19,000 in 1999 and
$1,000 in 1998.
Noninterest expenses have increased significantly during the period of the
Bank's existence. Total noninterest expense approximated $873,000 for the six
months ended June 30, 2001, compared with $696,000 for the corresponding 2000
period. For the year ended December 31, 2000, total noninterest expense
approximated $1.4 million, compared with $1.3 million in 1999 and $460,000 in
the 1998 period.
The principal component of noninterest expense is salaries and employee benefits
which have increased during these periods based upon the increased staffing
required to serve customers and to facilitate growth.
LIQUIDITY AND CAPITAL RESOURCES
The principal funding source for asset growth and loan origination activities is
deposits. Growth in deposits and loans was previously discussed in this
narrative. As stated previously, most of the deposit growth has been deployed
into commercial loans, consistent with the Bank's emphasis on commercial lending
activities.
Cash and cash equivalents approximated $7.3 million at June 30, 2001, compared
with $2.1 million at December 31, 2000 and $1.0 million at December 31, 1999. As
liquidity levels vary continuously based upon customer activities, amounts of
cash and cash equivalents can vary widely at any given point in time. Management
believes the Bank's liquidity position at June 30, 2001 is adequate to fund loan
demand and to meet depositor needs.
In addition to cash and cash equivalents, a source of long-term liquidity is the
Bank's portfolio of marketable investment securities. Liquidity requirements
have not historically necessitated the sale of investments in order to meet
liquidity needs. The Bank also has not engaged in active trading of its
investments and has no intention of doing so in the foreseeable future. At June
30, 2001 and December 31, 2000, the Bank had approximately $0 and $997,960,
respectively, of investment securities classified as available for sale which
can be utilized to meet various liquidity needs as they arise.
All banks are subject to a complex series of capital ratio requirements which
are imposed by state and federal banking agencies. In the case of Southern
Arizona Community Bank, as a young bank, it is subject to a more restrictive
requirement than is applicable to most banks inasmuch as the Bank must maintain
a capital-to-asset ratio of not less than 8% for its first three years of
operation.
D-4
IMPACT OF NEW ACCOUNTING STANDARDS
Financial Accounting Standards Board (FASB) Statement No. 133, ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, requires all derivatives to be
recognized in financial statements and to be measured at fair value. Gains and
losses resulting from changes in fair value are included in income or in
comprehensive income, depending on whether the instrument qualifies for hedge
accounting and the type of hedging instrument involved. This new standard became
effective January 1, 2001 and had no effect on Southern's financial statements.
In early July 2001, the Securities and Exchange Commission, American Institute
of Certified Public Accountants and Federal Financial Institutions Examination
Council each issued new guidance (some of which remains to be finalized) on
accounting for loan loss reserves (also known as allowances for loan losses).
While the new guidance does not change prior accounting rules in this area, it
provides additional clarification and guidance on how such reserves and
allowances may be documented by management.
In July 2001, the FASB issued Statements No. 141, "Business Combinations" and
No. 142, "Goodwill and Other Intangible Assets". Statement No. 141 requires that
all business combinations be accounted for under a prior standard of purchase
accounting, eliminating the so-called pooling-method which was used to account
for some business combinations. Statement No. 141 requires that the purchase
method be used for business combinations initiated after June 30, 2001. This new
standard is not expected to have a material effect on Southern's financial
statements.
Statement No. 142 requires that goodwill no longer be amortized and charged
against earnings, but instead to be periodically reviewed for impairment.
Amortization of goodwill ceases upon adoption of the Statement, which for most
companies, will be January 1, 2002. This new standard requires that goodwill be
reviewed periodically for impairment and, accordingly, impairment adjustments of
goodwill be charged against earnings, when determined. Management has not
completed its analysis of this new standard, however, its preliminary review has
concluded that, upon implementation, future amortization of goodwill will be
reduced or eliminated.
A variety of proposed or otherwise potential accounting standards are currently
under study by standard-setting organizations and various regulatory agencies.
Because of the tentative and preliminary nature of these proposed standards,
management has not determined whether implementation of such proposed standards
would be material to Southern's financial statements.
D-5
SOUTHERN ARIZONA COMMUNITY BANK
------
INTERIM FINANCIAL STATEMENTS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2001 AND 2000
D-6
BALANCE SHEETS
SOUTHERN ARIZONA COMMUNITY BANK
June 30 December 31
2001 2000
------------ ------------
(unaudited)
ASSETS
Cash and due from banks $ 1,612,152 $ 1,152,269
Interest-bearing deposits with banks 4,018,623
Federal funds sold 1,700,000 1,000,000
------------ ------------
Cash and cash equivalents 7,330,775 2,152,269
Investment securities:
Available for sale 997,760
Held for investment 47,904
------------ ------------
Total investment securities 47,904 997,760
Portfolio loans:
Commercial 37,532,744 33,461,934
Real estate mortgage 2,668,262 2,450,976
Installment 17,205 221,743
------------ ------------
Total portfolio loans 40,218,211 36,134,653
Less allowance for loan losses (503,000) (434,000)
------------ ------------
Net portfolio loans 39,715,211 35,700,653
Premises and equipment 561,646 621,956
Accrued interest income 206,778 208,355
Other assets 310,072 474,517
------------ ------------
TOTAL ASSETS $ 48,172,386 $ 40,155,510
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 8,610,290 $ 6,795,337
Interest-bearing 35,376,834 29,249,299
------------ ------------
Total deposits 43,987,124 36,044,636
Accrued interest on deposits and other liabilities 148,250 188,797
------------ ------------
Total liabilities 44,135,374 36,233,433
STOCKHOLDERS' EQUITY:
Common stock, $5 par value,
325,143 shares authorized, issued and outstanding 1,625,715 1,625,715
Surplus 2,926,287 2,926,287
Retained-earnings deficit (514,990) (628,447)
Market value adjustment (net of tax effect) for investment
securities available for sale (accumulated other
comprehensive income) (1,478)
------------ ------------
Total stockholders' equity 4,037,012 3,922,077
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 48,172,386 $ 40,155,510
============ ============
See notes to interim financial statements
D-7
STATEMENTS OF INCOME (UNAUDITED)
SOUTHERN ARIZONA COMMUNITY BANK
Six Months Ended
June 30
---------------------------
2001 2000
---------- ----------
Interest income:
Portfolio loans (including fees) $1,863,313 $1,257,840
Taxable investment securities 8,072 63,248
Interest-bearing deposits with banks 26,761 1,325
Federal funds sold 80,153 67,904
Dividends from investment securities 284
---------- ----------
Total interest income 1,978,583 1,390,317
Interest expense:
Demand deposits 311,620 229,017
Savings deposits 6,795 3,072
Time deposits 578,305 322,442
Debt obligations 121
---------- ----------
Total interest expense 896,720 554,652
---------- ----------
Net interest income 1,081,863 835,665
Provision for loan losses 69,000 96,000
---------- ----------
Net interest income after
provision for loan losses 1,012,863 739,665
Noninterest income:
Service charges on deposit accounts 24,311 8,513
Other 8,866 5,697
---------- ----------
Total noninterest income 33,177 14,210
Noninterest expense:
Salaries and employee benefits 374,999 315,071
Occupancy 97,176 97,099
Other 400,408 283,376
---------- ----------
Total noninterest expense 872,583 695,546
---------- ----------
Income before federal income taxes 173,457 58,329
Federal income taxes 60,000 22,000
---------- ----------
NET INCOME $ 113,457 $ 36,329
========== ==========
NET INCOME PER SHARE $ .35 $ .11
========== ==========
See notes to interim financial statements
D-8
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
SOUTHERN ARIZONA COMMUNITY BANK
Accumulated
Retained- Other
Common Earnings Comprehensive
Stock Surplus Deficit Income Total
---------- ---------- ---------- ---------- ----------
SIX MONTHS ENDED JUNE 30, 2000
Balances at January 1, 2000 $1,625,715 $2,926,287 $ (797,192) $ (21,657) $3,733,153
Components of comprehensive income:
Net income for the period 36,329 36,329
Market value adjustment for investment
securities available for sale (net of tax effect) 4,051 4,051
----------
Comprehensive income for the period 40,380
---------- ---------- ---------- ---------- ----------
BALANCES AT JUNE 30, 2000 $1,625,715 $2,926,287 $ (760,863) $ (17,606) $3,773,533
========== ========== ========== ========== ==========
SIX MONTHS ENDED JUNE 30, 2001
Balances at January 1, 2001 $1,625,715 $2,926,287 $ (628,447) $ (1,478) $3,922,077
Components of comprehensive income:
Net income for the period 113,457 113,457
Market value adjustment for investment
securities available for sale (net of tax effect) 1,478 1,478
----------
Comprehensive income for the period 114,935
---------- ---------- ---------- ---------- ----------
BALANCES AT JUNE 30, 2001 $1,625,715 $2,926,287 $ (514,990) $ 0 $4,037,012
========== ========== ========== ========== ==========
See notes to interim financial statements.
D-9
STATEMENTS OF CASH FLOWS (UNAUDITED)
SOUTHERN ARIZONA COMMUNITY BANK
Six Months Ended
June 30
------------------------------
2001 2000
------------ ------------
OPERATING ACTIVITIES
Net income for the period $ 113,457 $ 36,329
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 69,000 96,000
Depreciation of premises and equipment 72,635 67,419
Deferred income taxes 60,000 22,000
Decrease (increase) in accrued interest income and other assets 105,260 (34,405)
Increase (decrease) in accrued interest on deposits
and other liabilities (40,547) 50,493
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 379,805 237,836
INVESTING ACTIVITIES
Proceeds from maturities of investment securities
available for sale 1,000,000 1,000,000
Purchase of investment securities held for investment (47,904)
Net increase in portfolio loans (4,083,558) (6,921,062)
Purchases of premises and equipment (12,325) (773)
------------ ------------
NET CASH USED BY INVESTING ACTIVITIES (3,143,787) (5,921,835)
FINANCING ACTIVITIES
Net increase in demand deposits, NOW accounts
and savings accounts 7,570,445 6,929,243
Net increase in certificates of deposit 372,043 6,394,961
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 7,942,488 13,324,204
------------ ------------
INCREASE IN CASH AND CASH EQUIVALENTS 5,178,506 7,640,205
Cash and cash equivalents at beginning of period 2,152,269 1,034,511
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 7,330,775 $ 8,674,716
============ ============
See notes to interim financial statements.
D-10
NOTES TO INTERIM FINANCIAL STATEMENTS (UNAUDITED)
SOUTHERN ARIZONA COMMUNITY BANK
NOTE A--BASIS OF PRESENTATION
The accompanying condensed financial statements of Southern Arizona
Community Bank have been prepared in accordance with generally accepted
accounting principles for interim financial information. Accordingly, they do
not include all information and footnotes necessary for a fair presentation of
financial position, results of operations and cash flows in conformity with
generally accepted accounting principles.
The statements do, however, include all adjustments of a normal recurring
nature which Southern considers necessary for a fair presentation of the interim
periods.
The results of operations for the six-month period ended June 30, 2001 are
not necessarily indicative of the results to be expected for the year ending
December 31, 2001.
NOTE B--NEW ACCOUNTING STANDARDS
Financial Accounting Standards Board (FASB) Statement No. 133, ACCOUNTING
FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, requires all derivatives to
be recognized in financial statements and to be measured at fair value. Gains
and losses resulting from changes in fair value are included in income or in
comprehensive income, depending on whether the instrument qualifies for hedge
accounting and the type of hedging instrument involved. This new standard became
effective January 1, 2001 and had no effect on Southern's financial statements.
In early July 2001, the Securities and Exchange Commission, American
Institute of Certified Public Accountants and Federal Financial Institutions
Examination Council each issued new guidance (some of which remains to be
finalized) on accounting for loan loss reserves (also known as allowances for
loan losses). While the new guidance does not change prior accounting rules in
this area, it provides additional clarification and guidance on how such
reserves and allowances may be documented by management.
In July 2001, the FASB issued Statements No. 141, "Business Combinations"
and No. 142, "Goodwill and Other Intangible Assets". Statement No. 141 requires
that all business combinations be accounted for under a prior standard of
purchase accounting, eliminating the so-called pooling-method which was used to
account for some business combinations. Statement No. 141 requires that the
purchase method be used for business combinations initiated after June 30, 2001.
This new standard is not expected to have a material effect on Southern's
financial statements.
Statement No. 142 requires that goodwill no longer be amortized and charged
against earnings, but instead to be periodically reviewed for impairment.
Amortization of goodwill ceases upon adoption of the Statement, which for most
companies, will be January 1, 2002. This new standard requires that goodwill be
reviewed periodically for impairment and, accordingly, impairment adjustments of
goodwill be charged against earnings, when determined. Management has not
completed its analysis of this new standard, however, its preliminary review has
concluded that, upon implementation, future amortization of goodwill will be
reduced or eliminated.
A variety of proposed or otherwise potential accounting standards are
currently under study by standard-setting organizations and various regulatory
agencies. Because of the tentative and preliminary nature of these proposed
standards, management has not determined whether implementation of such proposed
standards would be material to Southern's financial statements.
D-11
SOUTHERN ARIZONA COMMUNITY BANK
------
FINANCIAL STATEMENTS
PERIODS ENDED DECEMBER 31, 2000, 1999 AND 1998
D-12
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Southern Arizona Community Bank
We have audited the accompanying balance sheets of Southern Arizona Community
Bank as of December 31, 2000 and 1999, and the related statements of operations,
changes in stockholders' equity and cash flows for the years ended December 31,
2000 and 1999 and the period from August 1, 1998 (date of inception) to December
31, 1998. These financial statements are the responsibility of the Bank's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Southern Arizona Community Bank
as of December 31, 2000 and 1999, and the results of its operations and its cash
flows for the years ended December 31, 2000 and 1999 and the period from August
1, 1998 (date of inception) to December 31, 1998, in conformity with accounting
principles generally accepted in the United States of America.
In accordance with a new accounting standard, as more fully described in Note A
to the financial statements, the Bank changed its method of accounting for
start-up and organization costs effective January 1, 1999.
/s/ BDO Seidman, LLP
Grand Rapids, Michigan
January 29, 2001
D-13
BALANCE SHEETS
SOUTHERN ARIZONA COMMUNITY BANK
December 31
------------------------------
2000 1999
------------ ------------
ASSETS
Cash and due from banks $ 1,152,269 $ 523,128
Interest-bearing deposits with banks 311,383
Federal funds sold 1,000,000 200,000
------------ ------------
Cash and cash equivalents 2,152,269 1,034,511
Investment securities available for sale--Note B 997,760 2,967,937
Portfolio loans--Note C:
Commercial 33,461,934 19,455,072
Real estate mortgage 2,450,976 1,141,827
Installment 221,743 12,677
------------ ------------
Total portfolio loans 36,134,653 20,609,576
Less allowance for loan losses (434,000) (207,000)
------------ ------------
Net portfolio loans 35,700,653 20,402,576
Premises and equipment--Note D 621,956 752,977
Accrued interest income 208,355 129,227
Other assets 474,517 491,256
------------ ------------
TOTAL ASSETS $ 40,155,510 $ 25,778,484
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 6,795,337 $ 2,969,464
Interest-bearing--Note G 29,249,299 19,037,473
------------ ------------
Total deposits 36,044,636 22,006,937
Accrued interest on deposits and other liabilities 188,797 38,394
------------ ------------
Total liabilities 36,233,433 22,045,331
STOCKHOLDERS' EQUITY--Note K:
Common stock, par value $5.00 per share, 325,143 shares
authorized, issued and outstanding 1,625,715 1,625,715
Surplus 2,926,287 2,926,287
Retained-earnings deficit (628,447) (797,192)
Market value adjustment (net of tax effect) for
investment securities available for sale (accumulated
other comprehensive income) (1,478) (21,657)
------------ ------------
Total stockholders' equity 3,922,077 3,733,153
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 40,155,510 $ 25,778,484
============ ============
See notes to financial statements.
D-14
STATEMENTS OF OPERATIONS
SOUTHERN ARIZONA COMMUNITY BANK
Year Ended December 31 Period Ended
---------------------------- December 31
2000 1999 1998
----------- ----------- -----------
Interest income:
Portfolio loans (including fees) $ 2,981,639 $ 1,094,030 $ 60,310
Taxable investment securities 116,558 139,458 1,283
Federal funds sold 192,767 155,867 119,969
Interest bearing deposits with banks 13,533 72,985 11,762
----------- ----------- ----------
Total interest income 3,304,497 1,462,340 193,324
Interest expense:
Demand deposits 495,582 308,214 51,873
Savings deposits 9,181 2,519 274
Time deposits 907,791 292,408 34,208
Other 121
----------- ----------- ----------
Total interest expense 1,412,675 603,141 86,355
----------- ----------- ----------
Net interest income 1,891,822 859,199 106,969
Provision for loan losses--Note C 227,000 177,000 30,000
----------- ----------- ----------
Net interest income after provision for loan losses 1,664,822 682,199 76,969
Noninterest income:
Service charges on deposit accounts 23,888 14,061 816
Other 11,734 5,382 493
----------- ----------- ----------
Total noninterest income 35,622 19,443 1,309
Noninterest expense:
Salaries and employee benefits 631,444 585,946 161,996
Occupancy 196,140 197,865 70,524
Equipment rent, depreciation and maintenance 99,187 111,699 34,302
Other 507,928 409,523 193,142
----------- ----------- ----------
Total noninterest expense 1,434,699 1,305,033 459,964
----------- ----------- ----------
Income (loss) before federal income taxes and
cumulative effect of change in accounting principle 265,745 (603,391) (381,686)
Federal income taxes (benefit)--Note E 97,000 (205,000) (130,000)
----------- ----------- ----------
Income (loss) before cumulative effect
of change in accounting principle 168,745 (398,391) (251,686)
Cumulative effect of change in accounting principle--Note A (147,115)
----------- ----------- ----------
NET INCOME (LOSS) $ 168,745 $ (545,506) $ (251,686)
=========== =========== ==========
NET INCOME (LOSS) PER SHARE $ 0.52 $ (1.68) $ (.77)
=========== =========== ==========
See notes to financial statements
D-15
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
SOUTHERN ARIZONA COMMUNITY BANK
Accumulated
Retained- Other
Common Earnings Comprehensive
Stock Surplus Deficit Income Total
---------- ---------- ---------- ---------- ----------
Balances at August 1, 1998, beginning of period $ 0 $ 0 $ 0 $ 0 $ 0
Issuance of 325,143 shares of common stock
for cash consideration of $14.00 per share
in conjunction with formation of Bank 1,625,715 2,926,287 4,552,002
Components of comprehensive income (loss):
Net loss for 1998 (251,686) (251,686)
Market value adjustment (net of tax effect) for
investment securities available for sale (2,692) (2,692)
----------
Total comprehensive loss for 1998 (254,378)
---------- ---------- ---------- ---------- ----------
BALANCES AT DECEMBER 31, 1998 1,625,715 2,926,287 (251,686) (2,692) 4,297,624
Components of comprehensive income (loss):
Net loss for 1999 (545,506) (545,506)
Market value adjustment (net of tax effect) for
investment securities available for sale (18,965) (18,965)
----------
Total comprehensive loss for 1999 (564,471)
---------- ---------- ---------- ---------- ----------
BALANCES AT DECEMBER 31, 1999 1,625,715 2,926,287 (797,192) (21,657) 3,733,153
Components of comprehensive income:
Net income for 2000 168,745 168,745
Market value adjustment (net of tax effect) for
investment securities available for sale 20,179 20,179
----------
Total comprehensive income for 2000 188,924
---------- ---------- ---------- ---------- ----------
BALANCES AT DECEMBER 31, 2000 $1,625,715 $2,926,287 $ (628,447) $ (1,478) $3,922,077
========== ========== ========== ========== ==========
See notes to financial statements.
D-16
STATEMENTS OF CASH FLOWS
SOUTHERN ARIZONA COMMUNITY BANK
Year Ended December 31 Period Ended
----------------------------- December 31
2000 1999 1998
------------ ------------ ------------
OPERATING ACTIVITIES
Net income (loss) for the period $ 168,745 $ (545,506) $ (251,686)
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
Provision for loan losses 227,000 177,000 30,000
Depreciation of premises and equipment 136,179 145,127 43,586
Net amortization of investment security premiums 749 452 297
Deferred income taxes 83,000 (280,000) (130,000)
Cumulative effect of change in accounting principle 147,115
Decrease (increase) in accrued interest income and other assets (155,782) 33,575 (382,812)
Increase in accrued interest on deposits and other liabilities 150,403 26,067 13,713
------------ ------------ ------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 610,294 (296,170) (676,902)
INVESTING ACTIVITIES
Proceeds from sale of investment securities available for sale 2,000,000
Purchases of investment securities available for sale (2,000,000) (1,000,000)
Net increase in portfolio loans (15,525,077) (17,684,242) (2,925,334)
Purchases of premises and equipment (5,158) (36,099) (905,681)
------------ ------------ ------------
NET CASH USED BY INVESTING ACTIVITIES (13,530,235) (19,720,341) (4,831,015)
FINANCING ACTIVITIES
Net increase in demand deposits, NOW accounts
and savings accounts 6,498,698 7,271,789 4,664,937
Net increase in certificates of deposit 7,539,001 6,479,962 3,590,249
Net proceeds from issuance of common stock 4,552,002
------------ ------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 14,037,699 13,751,751 12,807,188
------------ ------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,117,758 (6,264,760) 7,299,271
Cash and cash equivalents at beginning of period 1,034,511 7,299,271 --
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,152,269 $ 1,034,511 $ 7,299,271
============ ============ ============
See notes to financial statements.
D-17
NOTES TO FINANCIAL STATEMENTS
SOUTHERN ARIZONA COMMUNITY BANK
DECEMBER 31, 2000
NOTE A--SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS AND BASIS OF PRESENTATION: Southern Arizona Community Bank
(the "Bank") is a full-service commercial bank located in Tucson, Arizona. The
Bank commenced operations in August 1998. The Bank is 51% owned by Sun Community
Bancorp Limited, a bank development company headquartered in Phoenix, Arizona.
The Bank provides a full range of banking services to individuals, businesses
and other customers located in its community. A variety of deposit products are
offered, including checking, savings, money market, individual retirement
accounts and certificates of deposit. The principal market for the Bank's
financial services is the community in which it is located and the areas
immediately surrounding that community.
ESTIMATES: The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
CASH AND CASH EQUIVALENTS: Cash and cash equivalents include cash on hand,
amounts due from banks (interest-bearing and noninterest-bearing) and federal
funds sold. Generally, federal funds transactions are entered into for a one-day
period.
INVESTMENT SECURITIES: Investment securities available for sale are carried at
market value with unrealized gains and losses reported as a separate component
of stockholders' equity, net of tax effect (accumulated other comprehensive
income). All other investment securities (none at December 31, 2000 and 1999)
are classified as held for long-term investment and are carried at amortized
cost which approximates market value. Investments are classified as available
for sale at the date of purchase based on management's analysis of liquidity and
other factors. The adjusted cost of specific securities sold is used to compute
realized gains or losses. Premiums and discounts are recognized in interest
income using the interest method over the period to maturity.
LOANS, CREDIT RISK AND ALLOWANCE FOR LOAN LOSSES: Portfolio loans are carried at
their principal balance based on management's intent and ability to hold such
loans for the foreseeable future until maturity or repayment.
D-18
NOTES TO FINANCIAL STATEMENTS
SOUTHERN ARIZONA COMMUNITY BANK
DECEMBER 31, 2000
NOTE A--SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
Credit risk arises from making loans and loan commitments in the ordinary course
of business. Consistent with the Bank's emphasis on business lending, there are
concentrations of credit in loans secured by commercial real estate, equipment
and other business assets. The maximum potential credit risk to the Bank,
without regard to underlying collateral and guarantees, is the total of loans
and loan commitments outstanding. Management reduces the Bank's exposure to
losses from credit risk by requiring collateral and/or guarantees for loans
granted and by monitoring concentrations of credit, in addition to recording
provisions for loan losses and maintaining an allowance for loan losses.
The allowance for loan losses is maintained at a level believed adequate by
management to absorb estimated losses in the portfolio at the balance sheet
date. Management's determination of the adequacy of the allowance is based on
evaluation of the portfolio (including potential impairment of individual loans
and concentrations of credit), past loss experience, current economic
conditions, volume, amount and composition of the loan portfolio, loan
commitments outstanding and other factors. The allowance is increased by
provisions charged to operations and reduced by net charge-offs.
INTEREST AND FEES ON LOANS: Interest income on loans is recognized based upon
the principal balance of loans outstanding. Fees from origination of loans
approximate related costs incurred.
The accrual of interest is generally discontinued when a loan becomes 90 days
past due as to interest. When interest accruals are discontinued, interest
previously accrued (but unpaid) is reversed. Management may elect to continue
the accrual of interest when the estimated net realizable value of collateral is
sufficient to cover the principal balance and accrued interest and the loan is
in process of collection.
PREMISES AND EQUIPMENT: Premises and equipment are stated on the basis of cost.
Depreciation is computed principally by the straight-line method based upon
estimated useful lives of the respective assets. Leasehold improvements are
generally depreciated over the respective lease term.
OTHER REAL ESTATE: Other real estate (included as a component of other assets;
none at December 31, 2000 and 1999) comprises properties acquired through a
foreclosure proceeding or acceptance of a deed in lieu of foreclosure. These
properties held for sale are carried at the lower of cost or estimated fair
value at the date acquired and are periodically reviewed for subsequent
impairment.
D-19
NOTES TO FINANCIAL STATEMENTS
SOUTHERN ARIZONA COMMUNITY BANK
DECEMBER 31, 2000
NOTE A--SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
TRUST ASSETS AND RELATED INCOME: Customer property, other than funds on deposit,
held in a fiduciary or agency capacity by the Bank is not included in the
balance sheet because it is not an asset of the Bank. Trust fee income is
recorded on the accrual method.
FEDERAL INCOME TAXES: Deferred income taxes are recognized for the tax
consequences of temporary differences by applying enacted tax rates applicable
to future years to differences between the financial statement carrying amounts
and the tax bases of existing assets and liabilities. The effect on deferred
income taxes of a change in tax laws or rates is recognized in income in the
period that includes the enactment date.
NET INCOME (LOSS) PER SHARE: Net income (loss) per share is based on the
weighted average number of common shares outstanding (325,143 shares).
COMPREHENSIVE INCOME: Comprehensive income is the sum of net income (loss) and
certain other items which are charged or credited to stockholders' equity. For
the periods presented, the Bank's only element of comprehensive income other
than net income (loss) was the net change in the market value adjustment for
investment securities available for sale. Accordingly, the elements and total of
comprehensive income are shown within the statement of changes in stockholders'
equity presented herein.
COSTS OF START-UP ACTIVITIES: In 1998, the American Institute of CPAs issued
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities". It
requires start-up costs and organizational costs to be charged to expense when
incurred. The initial application of the statement requires a cumulative
effective adjustment for those companies that had previously capitalized
start-up and organization costs and became effective in 1999. In the
circumstances of the Bank, this new accounting standard applies to previously
capitalized preopening and other start-up costs which, net of amortization,
approximated $225,000 at December 31, 1998 and were classified as a component of
other assets. Implementation of this standard is reflected as a cumulative
effect adjustment (net of income tax effect) of approximately $147,000 in 1999.
NOTE B--INVESTMENT SECURITIES
Investment securities available for sale consisted of United States government
agency securities at December 31, 2000 and 1999, with a maturity of less than
five years. Gross unrealized losses on such investment securities approximated
$2,240 and $32,812 at December 31, 2000 and 1999, respectively.
D-20
NOTES TO FINANCIAL STATEMENTS
SOUTHERN ARIZONA COMMUNITY BANK
DECEMBER 31, 2000
NOTE C--LOANS
Transactions in the allowance for loan losses are summarized below:
2000 1999 1998
-------- -------- --------
Balance at beginning of period $207,000 $ 30,000 $ 0
Provision charged to operations 227,000 177,000 30,000
Loans charged off (deduction) -- -- --
Recoveries -- -- --
-------- -------- --------
Balance at December 31 $434,000 $207,000 $ 30,000
======== ======== ========
At December 31, 2000 and 1999, impaired loans (i.e., loans for which there is a
reasonable probability that borrowers would be unable to repay all principal and
interest due under the contractual terms of the loan documents) were not
material.
NOTE D--PREMISES AND EQUIPMENT
Major classes of premises and equipment consisted of the following at December
31:
2000 1999
--------- ---------
Leasehold improvements $ 550,340 $ 550,340
Equipment and furniture 396,597 391,439
--------- ---------
946,937 941,779
Less accumulated depreciation (324,981) (188,802)
--------- ---------
$ 621,956 $ 752,977
========= =========
The Bank rents office space under an operating lease. Rent expense under this
lease agreement approximated $111,000 in 2000 and 1999 and $73,000 in 1998.
Future minimum rental payments under operating leases that have initial or
remaining noncancelable lease terms in excess of one year as of December 31,
2000 aggregate $1,533,000 due as follows: $111,000 each in the years 2001 and
2002, $123,000 in 2003, $127,000 each in the years 2004 and 2005 and $934,000
thereafter.
D-21
NOTES TO FINANCIAL STATEMENTS
SOUTHERN ARIZONA COMMUNITY BANK
DECEMBER 31, 2000
NOTE E--INCOME TAXES
Federal income taxes (benefit) consist of the following components:
2000 1999 1998
--------- --------- ---------
Current $ 14,000 $ -- $ --
Deferred 83,000 (280,000) (130,000)
--------- --------- ---------
$ 97,000 $(280,000) $(130,000)
========= ========= =========
The federal income tax benefit in 1999 shown above includes $75,000 relating to
the cumulative effect of the change in accounting principle.
Net deferred income tax assets consisted of the following at December 31:
2000 1999
--------- ---------
Net operating loss carryforward $ 261,000 $ 340,000
Allowance for loan losses 62,000 70,000
Market value adjustment for investment
securities available for sale 1,000 (11,000)
Other, net 4,000
--------- ---------
$ 328,000 $ 399,000
========= =========
No federal income taxes were paid during 2000, 1999 or 1998. As of December 31,
2000, the Bank has an operating loss carryforward for federal income tax
purposes of approximately $767,000 which expires at varying dates through 2019.
NOTE F--RELATED PARTIES TRANSACTIONS
In the ordinary course of business, the Bank makes loans to officers and
directors of the Bank including their immediate families and companies in which
they are principal owners. At December 31, 2000 and 1999, total loans to these
persons approximated $804,000 and $583,000, respectively. During 2000, $303,000
of new loans were made to these persons and repayments totaled $82,000. Such
loans are made at the Bank's normal credit terms.
D-22
NOTES TO FINANCIAL STATEMENTS
SOUTHERN ARIZONA COMMUNITY BANK
DECEMBER 31, 2000
NOTE F--RELATED PARTIES TRANSACTIONS--CONTINUED
Such officers and directors of the Bank (and their associates, family and/or
affiliates) are also depositors of the Bank. Such deposits are similarly made at
the Bank's normal terms as to interest rate, term and deposit insurance.
The Bank purchases certain data processing and management services from Sun
Community Bancorp Limited. Amounts paid for such services aggregated $266,268
and $196,689 for the periods ended December 31, 2000 and 1999, respectively.
NOTE G--DEPOSITS
The aggregate amount of time deposits of $100,000 or more approximated
$13,020,000 and $6,456,000 as of December 31, 2000 and 1999, respectively.
At December 31, 2000, the scheduled maturities of time deposits of $100,000 or
more were as follows:
2001 $11,785,000
2002 1,235,000
-----------
Total $13,020,000
===========
Interest paid approximates amounts charged to operations on an accrual basis for
the periods presented.
NOTE H--EMPLOYEE RETIREMENT PLAN
Subject to eligibility requirements, the Bank's employees participate in a
multi-employer employee 401(k) retirement plan. Amounts charged to expense by
the Bank for this plan approximated $14,000 in 2000 ($9,550 in 1999; none in
1998).
D-23
NOTES TO FINANCIAL STATEMENTS
SOUTHERN ARIZONA COMMUNITY BANK
DECEMBER 31, 2000
NOTE I--ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
Carrying values and estimated fair values of financial instruments at December
31 were as follows (in thousands):
2000 1999
---------------------- ----------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
----- ---------- ----- ----------
Financial Assets:
Cash and cash equivalents $ 2,152 $ 2,152 $ 1,035 $ 1,035
Investment securities available for sale 998 998 2,968 2,968
Portfolio loans:
Fixed rate 7,039 7,137 3,981 3,983
Variable rate 29,096 28,964 16,628 16,399
-------- -------- -------- -------
Total portfolio loans 36,135 36,101 20,610 20,382
Less allowance for loan losses (434) (434) (207) (207)
-------- -------- -------- -------
Net portfolio loans 35,701 35,667 20,403 20,175
Financial Liabilities:
Deposits:
Noninterest-bearing deposits 6,795 6,795 2,969 2,969
Interest-bearing deposits:
Demand accounts 11,640 11,635 8,967 8,954
Time certificates of deposit less than $100,000 4,589 4,621 3,614 3,606
Time certificates of deposit $100,000 or more 13,020 13,092 6,456 6,455
-------- -------- -------- -------
Total interest-bearing deposits 29,249 29,348 19,037 19,015
-------- -------- -------- -------
Total deposits 36,044 36,143 22,007 21,985
Estimated fair values of financial assets and liabilities are based upon a
comparison of current interest rates on financial instruments and the timing of
related scheduled cash flows to the estimated present value of such cash flows
using current estimated market rates of interest unless quoted market values or
other fair value information is more readily available. Such estimates of fair
value are not intended to represent market value or portfolio liquidation value,
and only represent an estimate of fair values based on current financial
reporting requirements.
D-24
NOTES TO FINANCIAL STATEMENTS
SOUTHERN ARIZONA COMMUNITY BANK
DECEMBER 31, 2000
NOTE J--COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, various loan commitments are made to
accommodate the financial needs of Bank customers. Such loan commitments may
include stand-by letters of credit, lines of credit, and various commitments for
other commercial, consumer and mortgage loans. Stand-by letters of credit, when
issued, commit the Bank to make payments on behalf of customers when certain
specified future events occur and are used infrequently ($559,000 at December
31, 2000; none at December 31, 1999). Other loan commitments outstanding consist
of unused lines of credit and approved, but unfunded, specific loan commitments
($10,158,000 and $7,525,000 at December 31, 2000 and 1999, respectively).
These loan commitments (stand-by letters of credit and unfunded loans) generally
expire within one year and are reviewed periodically for continuance or renewal.
All loan commitments have credit risk essentially the same as that involved in
routinely making loans to customers and are made subject to the Bank's normal
credit policies. In making these loan commitments, collateral and/or personal
guarantees of the borrowers are generally obtained based on management's credit
assessment. Such loan commitments are also included in management's evaluation
of the adequacy of the allowance for loan losses.
Deposits at the Bank are insured up to the maximum amount covered by FDIC
insurance.
NOTE K--CAPITAL REQUIREMENTS
The Bank is subject to certain capital requirements. Federal financial
institution regulatory agencies have established certain risk-based capital
guidelines for banks. Those guidelines require all banks to maintain certain
minimum ratios and related amounts based on "Tier I" and "Tier II" capital and
"risk-weighted assets" as defined and periodically prescribed by the respective
regulatory agencies. Failure to meet these capital requirements can result in
severe regulatory enforcement action or other adverse consequences for a
depository institution, and, accordingly, could have a material impact on the
Bank's financial statements.
Under the regulatory capital adequacy guidelines and related framework for
prompt corrective action, the specific capital requirements involve quantitative
measures of assets, liabilities and certain off-balance-sheet items calculated
under regulatory accounting practices. The capital amounts and classifications
are also subject to qualitative judgments by regulatory agencies about
components, risk weighting and other factors.
D-25
NOTES TO FINANCIAL STATEMENTS
SOUTHERN ARIZONA COMMUNITY BANK
DECEMBER 31, 2000
NOTE K--CAPITAL REQUIREMENTS--CONTINUED
As of December 31, 2000, the most recent notification received by the Bank from
regulatory agencies has advised that the Bank is classified as
"well-capitalized" as that term is defined by the applicable agencies. There are
no conditions or events since those notifications that management believes would
change the regulatory classification of the Bank.
Management believes, as of December 31, 2000, that the Bank meets all capital
adequacy requirements to which it is subject.
The Bank's various amounts of regulatory capital and related ratios as of
December 31, 2000 and 1999 are summarized below (amounts in thousands):
2000 1999
------ ------
Tier 1 capital to total assets:
Actual amount $3,483 $3,307
Ratio 8.77% 13.05%
Minimum required amount (8%) >= $3,178 >= $2,027
Tier 1 capital to risk-weighted assets:
Actual amount $3,483 $3,307
Ratio 9.51% 14.94%
Minimum required amount (4%) >= $1,465 >= $ 885
Combined Tier 1 and Tier 2 capital to risk-weighted assets:
Actual amount $3,917 $3,514
Ratio 10.70% 15.88%
Minimum required amount (8%) >= $2,930 >= $1,771
Amount required to meet "Well-Capitalized" category (10%) $3,662 $2,213
As a condition of charter approval, the Bank is required to maintain a ratio of
Tier 1 capital to total assets of not less than 8% and an allowance for loan
losses of not less than 1% of portfolio loans for the first three years of
operations.
D-26
ANNEX E
FINANCIAL AND OTHER INFORMATION REGARDING
SUN COMMUNITY BANCORP LIMITED
The following items accompany this Proxy Statement/Prospectus as mailed to the
shareholders of Southern Arizona Community Bank:
- Report on Form 10-Q for period ended June 30, 2001
- Report on Form 10-Q for period ended March 31, 2001
- Annual report to shareholders for year ended December 31, 2000
- Annual report on Form 10-K for year ended December 31, 2000
- Proxy statement for Sun's Annual Meeting of Shareholders held on May
25, 2001
[This page intentionally left blank]
ANNEX F
EXCERPTS OF ARIZONA REVISED STATUTES
(SECTIONS 10-1301 THROUGH 10-1331)
REGARDING DISSENTERS' RIGHTS
10-1301. DEFINITIONS
In this article, unless the context otherwise requires:
1. "Beneficial shareholder" means the person who is a beneficial owner of shares
held in a voting trust or by a nominee as the record shareholder.
2. "Corporation" means the issuer of the shares held by a dissenter before the
corporate action or the surviving or acquiring corporation by merger or share
exchange of that issuer.
3. "Dissenter" means a shareholder who is entitled to dissent from corporate
action under section 10-1302 and who exercises that right when and in the manner
required by article 2 of this chapter.
4. "Fair value" with respect to a dissenter's shares means the value of the
shares immediately before the effectuation of the corporate action to which the
dissenter objects, excluding any appreciation or depreciation in anticipation of
the corporate action unless exclusion is inequitable.
5. "Interest" means interest from the effective date of the corporate action
until the date of payment at the average rate currently paid by the corporation
on its principal bank loans or, if none, at a rate that is fair and equitable
under the circumstances.
6. "Record shareholder" means the person in whose name shares are registered in
the records of a corporation or the beneficial owner of shares to the extent of
the rights granted by a nominee certificate on file with a corporation.
7. "Shareholder" means the record shareholder or the beneficial shareholder.
10-1302. RIGHT TO DISSENT
A. A shareholder is entitled to dissent from and obtain payment of the fair
value of the shareholder's shares in the event of any of the following corporate
actions:
1. Consummation of a plan of merger to which the corporation is a party if
either:
(a) Shareholder approval is required for the merger by section 10-1103 or the
articles of incorporation and if the shareholder is entitled to vote on the
merger.
(b) The corporation is a subsidiary that is merged with its parent under section
10-1104.
2. Consummation of a plan of share exchange to which the corporation is a party
as the corporation whose shares will be acquired, if the shareholder is entitled
to vote on the plan.
3. Consummation of a sale or exchange of all or substantially all of the
property of the corporation other than in the usual and regular course of
business, if the shareholder is entitled to vote on the sale or exchange,
including a sale in dissolution, but not including a sale pursuant to a court
order or a sale for cash pursuant to a plan by which all or substantially all of
the net proceeds of the sale will be distributed to the shareholders within one
year after the date of sale.
4. An amendment of the articles of incorporation that materially and adversely
affects rights in respect of a dissenter's shares because it either:
(a) Alters or abolishes a preferential right of the shares.
(b) Creates, alters or abolishes a right in respect of redemption, including a
provision respecting a sinking fund for the redemption or repurchase, of the
shares.
(c) Alters or abolishes a preemptive right of the holder of the shares to
acquire shares or other securities.
(d) Excludes or limits the right of the shares to vote on any matter or to
cumulate votes other than a limitation by dilution through issuance of shares or
other securities with similar voting rights.
(e) Reduces the number of shares owned by the shareholder to a fraction of a
share if the fractional share so created is to be acquired for cash under
section 10-604.
5. Any corporate action taken pursuant to a shareholder vote to the extent the
articles of incorporation, the bylaws or a resolution of the board of directors
provides that voting or nonvoting shareholders are entitled to dissent and
obtain payment for their shares.
B. A shareholder entitled to dissent and obtain payment for his shares under
this chapter may not challenge the corporate action creating the shareholder's
entitlement unless the action is unlawful or fraudulent with respect to the
shareholder or the corporation.
C. This section does not apply to the holders of shares of any class or series
if the shares of the class or series are redeemable securities issued by a
registered investment company as defined pursuant to the investment company act
of 1940 (15 United States Code section 80a-1 through 80a-64).
D. Unless the articles of incorporation of the corporation provide otherwise,
this section does not apply to the holders of shares of a class or series if the
shares of the class or series were registered on a national securities exchange,
were listed on the national market systems of the national association of
securities dealers automated quotation system or were held of record by at least
two thousand shareholders on the date fixed to determine the shareholders
entitled to vote on the proposed corporate action.
10-1303. DISSENT BY NOMINEES AND BENEFICIAL OWNERS
A. A record shareholder may assert dissenters' rights as to fewer than all of
the shares registered in the record shareholder's name only if the record
shareholder dissents with respect to all shares beneficially owned by any one
person and notifies the corporation in writing of the name and address of each
person on whose behalf the record shareholder asserts dissenters' rights. The
rights of a partial dissenter under this subsection are determined as if the
shares as to which the record shareholder dissents and the record shareholder's
other shares were registered in the names of different shareholders.
B. A beneficial shareholder may assert dissenters' rights as to shares held on
the beneficial shareholder's behalf only if both:
1. The beneficial shareholder submits to the corporation the record
shareholder's written consent to the dissent not later than the time the
beneficial shareholder asserts dissenters' rights.
2. The beneficial shareholder does so with respect to all shares of which the
beneficial shareholder is the beneficial shareholder or over which the
beneficial shareholder has power to direct the vote.
10-1320. NOTICE OF DISSENTERS' RIGHTS
A. If proposed corporate action creating dissenters' rights under section
10-1302 is submitted to a vote at a shareholders' meeting, the meeting notice
shall state that shareholders are or may be entitled to assert dissenters'
rights under this article and shall be accompanied by a copy of this article.
B. If corporate action creating dissenters' rights under section 10-1302 is
taken without a vote of shareholders, the corporation shall notify in writing
all shareholders entitled to assert dissenters' rights that the action was taken
and shall send them the dissenters' notice described in section 10-1322.
10-1321. NOTICE OF INTENT TO DEMAND PAYMENT
A. If proposed corporate action creating dissenters' rights under section
10-1302 is submitted to a vote at a shareholders' meeting, a shareholder who
wishes to assert dissenters' rights shall both:
1. Deliver to the corporation before the vote is taken written notice of the
shareholder's intent to demand payment for the shareholder's shares if the
proposed action is effectuated.
2. Not vote the shares in favor of the proposed action.
B. A shareholder who does not satisfy the requirements of subsection A of this
section is not entitled to payment for the shares under this article.
10-1322. DISSENTERS' NOTICE
A. If proposed corporate action creating dissenters' rights under section
10-1302 is authorized at a shareholders' meeting, the corporation shall deliver
a written dissenters' notice to all shareholders who satisfied the requirements
of section 10-1321.
B. The dissenters' notice shall be sent no later than ten days after the
corporate action is taken and shall:
1. State where the payment demand must be sent and where and when certificates
for certificated shares shall be deposited.
2. Inform holders of uncertificated shares to what extent transfer of the shares
will be restricted after the payment demand is received.
3. Supply a form for demanding payment that includes the date of the first
announcement to news media or to shareholders of the terms of the proposed
corporate action and that requires that the person asserting dissenters' rights
certify whether or not the person acquired beneficial ownership of the shares
before that date.
4. Set a date by which the corporation must receive the payment demand, which
date shall be at least thirty but not more than sixty days after the date the
notice provided by subsection A of this section is delivered.
5. Be accompanied by a copy of this article.
10-1323. DUTY TO DEMAND PAYMENT
A. A shareholder sent a dissenters' notice described in section 10-1322 shall
demand payment, certify whether the shareholder acquired beneficial ownership of
the shares before the date required to be set forth in the dissenters' notice
pursuant to section 10-1322, subsection B, paragraph 3 and deposit the
shareholder's certificates in accordance with the terms of the notice.
B. A shareholder who demands payment and deposits the shareholder's certificates
under subsection A of this section retains all other rights of a shareholder
until these rights are canceled or modified by the taking of the proposed
corporate action.
C. A shareholder who does not demand payment or does not deposit the
shareholder's certificates if required, each by the date set in the dissenters'
notice, is not entitled to payment for the shareholder's shares under this
article.
10-1324. SHARE RESTRICTIONS
A. The corporation may restrict the transfer of uncertificated shares from the
date the demand for their payment is received until the proposed corporate
action is taken or the restrictions are released under section 10-1326.
B. The person for whom dissenters' rights are asserted as to uncertificated
shares retains all other rights of a shareholder until these rights are canceled
or modified by the taking of the proposed corporate action.
10-1325. PAYMENT
A. Except as provided in section 10-1327, as soon as the proposed corporate
action is taken, or if such action is taken without a shareholder vote, on
receipt of a payment demand, the corporation shall pay each dissenter who
complied with section 10-1323 the amount the corporation estimates to be the
fair value of the dissenter's shares plus accrued interest.
B. The payment shall be accompanied by all of the following:
1. The corporation's balance sheet as of the end of a fiscal year ending not
more than sixteen months before the date of payment, an income statement for
that year, a statement of changes in shareholders' equity for that year and the
latest available interim financial statements, if any.
2. A statement of the corporation's estimate of the fair value of the shares.
3. An explanation of how the interest was calculated.
4. A statement of the dissenter's right to demand payment under section 10-1328.
5. A copy of this article.
10-1326. FAILURE TO TAKE ACTION
A. If the corporation does not take the proposed action within sixty days after
the date set for demanding payment and depositing share certificates, the
corporation shall return the deposited certificates and release the transfer
restrictions imposed on uncertificated shares.
B. If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it shall send a new
dissenters' notice under section 10-1322 and shall repeat the payment demand
procedure.
10-1327. AFTER-ACQUIRED SHARES
A. A corporation may elect to withhold payment required by section 10-1325 from
a dissenter unless the dissenter was the beneficial owner of the shares before
the date set forth in the dissenters' notice as the date of the first
announcement to news media or to shareholders of the terms of the proposed
corporate action.
B. To the extent the corporation elects to withhold payment under subsection A
of this section, after taking the proposed corporate action, it shall estimate
the fair value of the shares plus accrued interest and shall pay this amount to
each dissenter who agrees to accept it in full satisfaction of his demand. The
corporation shall send with its offer a statement of its estimate of the fair
value of the shares, an explanation of how the interest was calculated and a
statement of the dissenters' right to demand payment under section 10-1328.
10-1328. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER
A. A dissenter may notify the corporation in writing of the dissenter's own
estimate of the fair value of the dissenter's shares and amount of interest due
and either demand payment of the dissenter's estimate, less any payment under
section 10-1325, or reject the corporation's offer under section 10-1327 and
demand payment of the fair value of the dissenter's shares and interest due, if
either:
1. The dissenter believes that the amount paid under section 10-1325 or offered
under section 10-1327 is less than the fair value of the dissenter's shares or
that the interest due is incorrectly calculated.
2. The corporation fails to make payment under section 10-1325 within sixty days
after the date set for demanding payment.
3. The corporation, having failed to take the proposed action, does not return
the deposited certificates or does not release the transfer restrictions imposed
on uncertificated shares within sixty days after the date set for demanding
payment.
B. A dissenter waives the right to demand payment under this section unless the
dissenter notifies the corporation of the dissenter's demand in writing under
subsection A of this section within thirty days after the corporation made or
offered payment for the dissenter's shares.
10-1330. COURT ACTION
A. If a demand for payment under section 10-1328 remains unsettled, the
corporation shall commence a proceeding within sixty days after receiving the
payment demand and shall petition the court to determine the fair value of the
shares and accrued interest. If the corporation does not commence the proceeding
within the sixty day period, it shall pay each dissenter whose demand remains
unsettled the amount demanded.
B. The corporation shall commence the proceeding in the court in the county
where a corporation's principal office or, if none in this state, its known
place of business is located. If the corporation is a foreign corporation
without a known place of business in this state, it shall commence the
proceeding in the county in this state where the known place of business of the
domestic corporation was located.
C. The corporation shall make all dissenters, whether or not residents of this
state, whose demands remain unsettled parties to the proceeding as in an action
against their shares, and all parties shall be served with a copy of the
petition. Nonresidents may be served by certified mail or by publication as
provided by law or by the Arizona rules of civil procedure.
D. The jurisdiction of the court in which the proceeding is commenced under
subsection B of this section is plenary and exclusive. There is no right to
trial by jury in any proceeding brought under this section. The court may
appoint a master to have the powers and authorities as are conferred on masters
by law, by the Arizona rules of civil procedure or by the order of appointment.
The master's report is subject to exceptions to be heard before the court, both
on the law and the facts. The dissenters are entitled to the same discovery
rights as parties in other civil proceedings.
E. Each dissenter made a party to the proceeding is entitled to judgment either:
1. For the amount, if any, by which the court finds the fair value of his shares
plus interest exceeds the amount paid by the corporation.
2. For the fair value plus accrued interest of the dissenter's after-acquired
shares for which the corporation elected to withhold payment under section
10-1327.
10-1331. COURT COSTS AND ATTORNEY FEES
A. The court in an appraisal proceeding commenced under section 10-1330 shall
determine all costs of the proceeding, including the reasonable compensation and
expenses of any master appointed by the court. The court shall assess the costs
against the corporation, except that the court shall assess costs against all or
some of the dissenters to the extent the court finds that the fair value does
not materially exceed the amount offered by the corporation pursuant to sections
10-1325 and 10-1327 or that the dissenters acted arbitrarily, vexatiously or not
in good faith in demanding payment under section 10-1328.
B. The court may also assess the fees and expenses of attorneys and experts for
the respective parties in amounts the court finds equitable either:
1. Against the corporation and in favor of any or all dissenters if the court
finds that the corporation did not substantially comply with the requirements of
article 2 of this chapter.
2. Against the dissenter and in favor of the corporation if the court finds that
the fair value does not materially exceed the amount offered by the corporation
pursuant to sections 10-1325 and 10-1327.
3. Against either the corporation or a dissenter in favor of any other party if
the court finds that the party against whom the fees and expenses are assessed
acted arbitrarily, vexatiously or not in good faith with respect to the rights
provided by this chapter.
C. If the court finds that the services of an attorney for any dissenter were of
substantial benefit to other dissenters similarly situated and that the fees for
those services should not be assessed against the corporation, the court may
award to these attorneys reasonable fees to be paid out of the amounts awarded
the dissenters who were benefited.
PART II
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Sections 10-850 - 10-858 of the Arizona Revised Statutes ("A.R.S."), grant
the Registrant broad powers to indemnify any person in connection with legal
proceedings brought against him by reason of his present or past status as an
officer or director of the Registrant, provided that the person acted in good
faith and in a manner he reasonably believed to be in (when acting in an
official capacity) or not opposed to (when acting in all other circumstances)
the best interests of the Registrant, and with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
A.R.S. also gives the Registrant powers to indemnify any such person against
reasonable expenses in connection with any action by or in the right of the
Registrant, provided the person acted in good faith and in a manner he
reasonably believed to be in (when acting in an official capacity) or not
opposed to (when acting in all other circumstances) the best interests of the
Registrant, except that no indemnification may be made if such person is
adjudged to be liable to the Registrant, or in connection with any proceeding
charging improper personal benefit to the director whether or not involving
action in the director's official capacity, in which the director was held
liable on the basis that the personal benefit was improperly received by the
director. In addition, to the extent that any such person is successful in the
defense of any such legal proceeding, the Registrant is required by the A.R.S.
to indemnify him against expenses, including attorneys' fees, that are actually
and reasonably incurred by him in connection therewith.
The Registrant's Articles of Incorporation contain provisions entitling
directors and executive officers of the Registrant to indemnification against
certain liabilities and expenses to the full extent permitted by Arizona law.
Under an insurance policy maintained by the Registrant, the directors and
officers of the Registrant are insured within the limits and subject to the
limitations of the policy, against certain expenses in connection with the
defense of certain claims, actions, suits or proceedings, and certain
liabilities which might be imposed as a result of such claims, actions, suits or
proceedings, which may be brought against them by reason of being or having been
such directors and officers.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
Reference is made to the Exhibit Index at Page II-6 of the
Registration Statement.
(b) Financial Statement Schedules included in the Registrant's Annual
Report on Form 10-K for the year ended December 31, 2000 are
incorporated herein by reference.
All other schedules are omitted because they are not applicable or the
required information is shown in the consolidated financial statements
or notes thereto that are incorporated herein by reference.
ITEM 22. UNDERTAKINGS.
(A) The undersigned Registrant hereby undertakes:
II-1
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933 (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising
after the effective date of this registration statement (or)
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in this registration
statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high
end of the estimated maximum offering range may be reflected
in the form of prospectus filed with the Commission pursuant
to Rule 424(b) under the Securities Act, if, in the
aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price
set forth in the "Calculation of Registration Fee" table in
the effective registration statement; and
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in this
registration statement or any material change to such
information in this Registration Statement; provided,
however, that the undertakings set forth in paragraphs
(1)(i) and (ii) above do not apply if the information
required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed by
the registrant pursuant to Section 13 or Section 15(d) of
the Securities Exchange Act of 1934 (the "Exchange Act")
that are incorporated by reference in this registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
(B) The undersigned Registrant hereby undertakes, that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the
Exchange Act (and, where applicable, each filing of an employee
benefit plan's annual report pursuant to Section 15(d) of the Exchange
Act) that is incorporated by reference in the Registration Statement
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
II-2
(C) The undersigned Registrant hereby undertakes:
(1) That, prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this
Registration Statement, by any person or party who is deemed to
be an underwriter within the meaning of Rule 145(c), the issuer
undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters,
in addition to the information called for by the other items of
the applicable form.
(2) That every prospectus (i) that is filed pursuant to paragraph (1)
immediately preceding, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415,
will be filed as a part of an amendment to the Registration
Statement and will not be used until such amendment is effective,
and that, for purposes of determining any liability under the
Securities Act, each such post-effective amendment shall be
deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
(D) 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, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
(E) The undersigned Registrant hereby undertakes:
(1) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11, 13
of this Form S-4, within one business day of receipt of such
request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information
contained in documents filed subsequent to the effective date of
the Registration Statement through the date of responding to the
request.
(2) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved
therein, that was not the subject of and included in the
Registration Statement when it became effective.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 2 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in Phoenix, Arizona on
September 21, 2001.
SUN COMMUNITY BANCORP LIMITED
By: /s/ JOSEPH D. REID
------------------------------
JOSEPH D. REID
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to Registration Statement has been signed by the following persons in the
capacities indicated on September 21, 2001.
II-4
Signature Title
--------- -----
/s/ JOSEPH D. REID Chairman of the Board and
------------------------------- Chief Executive Officer,
JOSEPH D. REID Director (Principal Executive Officer)
/s/ LEE W. HENDRICKSON Executive Vice President and
------------------------------- Chief Financial Officer (Principal
LEE W. HENDRICKSON Financial and Accounting Officer)
/s/ JOHN S. LEWIS* Vice Chairman, Director
-------------------------------
JOHN S. LEWIS
/s/ RICHARD N. FLYNN* Secretary, Director
-------------------------------
RICHARD N. FLYNN
/s/ MICHAEL L. KASTEN* Director
-------------------------------
MICHAEL L. KASTEN
Director
-------------------------------
MICHAEL J. DEVINE
/s/ MICHAEL F. HANNLEY* Director
-------------------------------
MICHAEL F. HANNLEY
/s/ RICHARD F. IMWALLE* Director
-------------------------------
RICHARD F. IMWALLE
/s/ HUMBERTO S. LOPEZ* Director
-------------------------------
HUMBERTO S. LOPEZ
/s/ LYLE MILLER* Director
-------------------------------
LYLE MILLER
/s/ KATHRYN L. MUNRO* Director
-------------------------------
KATHRYN L. MUNRO
/s/ RONALD K. SABLE* Director
-------------------------------
RONALD K. SABLE
* By: /s/ JOSEPH D. REID
-------------------------
JOSEPH D. REID
Attorney-in-Fact
II-5
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
2.1 Plan of Share Exchange (included in the Proxy
Statement/Prospectus as Annex A).
5 Opinion of Snell & Wilmer, L.L.P. as to the validity of the
shares.
8 Tax Opinion of Snell & Wilmer, L.L.P. (included in the Proxy
Statement/Prospectus as Annex C).
23.1a Consent of BDO Seidman, LLP.
23.1b Consent of BDO Seidman, LLP.
23.2 Consent of Snell & Wilmer, L.L.P. (included in Exhibit 5).
23.3 Consent of Snell & Wilmer, L.L.P. (included in Exhibit 8).
23.4 Consent of JMP Financial, Inc. (financial advisor).
24 Power of Attorney (included on the signature page of the
Registration Statement).
99 Form of proxy for the Special Meeting of Shareholders of
Southern Arizona Community Bank.
II-6