As filed with the Securities and Exchange Commission on November 16, 2001
Registration No. 333-_______
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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CAPITOL BANCORP LTD.
(Exact name of registrant as specified in its charter)
MICHIGAN 6711 38-2761672
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) INDUSTRIAL CLASSIFICATION IDENTIFICATION NO.)
CODE NUMBER)
200 Washington Square North, Fourth Floor
Lansing, Michigan 48933
(517) 487-6555
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
Cristin Reid English, Esq.
200 Washington Square North, Fourth Floor
Lansing, Michigan 48933
(517) 487-6555
(Name and address, including zip code, and telephone number,
including area code, of agent for service)
Copy to:
Terry Morris Roman, Esq. John Sharp, Esq.
Snell & Wilmer, L.L.P. Strobl Cunningham Caretti & Sharp P.C.
One Arizona Center 300 East Long Lake Road, Suite 200
Phoenix, AZ 85004-0001 Bloomfield Hills, MI 48304
(602) 382-6000 (248) 540-2300
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 Price (2) Registration Fee
---------- -------------- --------- --------- ----------------
Common stock (no par value) 2,719,858 N/A $37,092,335 $9,273
- ----------
(1) Based on 3,705,528 shares of common stock, no par value, of Sun Community
Bancorp, which is the maximum number of shares of Sun common stock
(excluding shares held by Capitol) that may be outstanding immediately
prior to the consummation of the exchange transactions, multiplied by an
assumed exchange ratio of .734 shares of Capitol common stock for each
share of Sun 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 $10.01, the
average of the high and low price per share of Sun common stock, as
reported on the Nasdaq National Market on November 13, 2001, multiplied by
3,705,528, the maximum number of shares of Sun common stock as described in
Note 1 above.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
================================================================================
[SUN LOGO]
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held On January 18, 2002
To the Shareholders of Sun Community Bancorp Limited:
A special meeting of the shareholders of Sun Community Bancorp Limited will
be held at _____________ at ___________, Phoenix, Arizona _____ on January 18,
2002, 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 November 16, 2001, between Capitol Bancorp Limited and Sun
Community Bancorp Limited under which all shareholders of Sun (other than
Capitol) will exchange their common stock in Sun for common stock in Capitol,
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.
2. 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 December __, 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 Sun'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/ Richard N. Flynn
Secretary
[CAPITOL LOGO]
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held On January 18, 2002
To the Shareholders of Capitol Bancorp Limited:
A special meeting of the shareholders of Capitol Bancorp Limited will be
held at _____________ at ___________, Lansing, Michigan _____ on January 18,
2002, 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 November 16, 2001, between Capitol Bancorp Limited and Sun
Community Bancorp Limited under which all shareholders of Sun (other than
Capitol) will exchange their common stock in Sun for common stock in Capitol,
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 Michigan corporate law, Capitol is
not required to obtain the approval of its common stock shareholders. Rules of
Nasdaq Stock Market, Inc., however, require shareholder approval when the
proposed transaction involves the issuance of 20% or more common stock of the
issuer. Capitol is seeking its shareholder approval for the proposed share
exchange because of the inherent conflicts of interest which exist because of
shared management, common directors and other transactions and agreements
between Capitol and Sun.
2. 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 December __, 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 Capitol'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/ David O'Leary
Secretary
PROXY STATEMENT/PROSPECTUS
PROPOSED PLAN OF SHARE EXCHANGE
The Boards of Directors of Sun Community Bancorp Limited and Capitol
Bancorp Limited have each approved a Plan of Share Exchange that contemplates
the exchange of the shares of Sun common stock held by all shareholders other
than Capitol for shares of Capitol common stock. Capitol currently has a
controlling interest in Sun's common stock. As a result of the exchange, Sun
will become a wholly-owned subsidiary of Capitol.
If the exchange is approved, each share of Sun common stock will be
converted into the right to receive Capitol common stock according to an
exchange ratio. The exchange ratio is calculated by multiplying the number of
shares of Sun common stock by the exchange ratio of .734 Capitol shares for each
Sun share of common stock (excluding shares of Sun already owned by Capitol).
The exchange ratio is based on an assumed value of $10.497 for each share of Sun
common stock and a value of $14.301 for each share of Capitol common stock.
These assumed values are based on the arithmetic average of the closing prices
of the common stock of Sun and Capitol for the period of October 5, 2001 through
November 2, 2001 as reported by the Nasdaq National Market.
Capitol estimates that Capitol will issue approximately 2,719,858 shares of
Capitol common stock to Sun shareholders in the exchange. Those shares will
approximate 26% of the outstanding Capitol common stock after the exchange.
Capitol's common stock trades on the Nasdaq National Market System under the
symbol "CBCL." Sun's common stock currently trades on the Nasdaq National Market
System under the symbol "SCBL"; however, if the proposed share exchange is
approved and consummated, all of Sun's common stock will be owned by Capitol and
accordingly, Sun's shares will no longer be publicly traded or listed.
Sun's and Capitol's Boards of Directors have scheduled separate meetings of
their respective 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' meetings.
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 SUN COMMON
STOCK FOR CAPITOL'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 December ___, 2001, and is first
being mailed to shareholders of Sun and Capitol on or about December ___, 2001.
1
TABLE OF CONTENTS
ANSWERS TO FREQUENTLY ASKED QUESTIONS...................................... 4
SUMMARY.................................................................... 7
Reasons for the Exchange. ............................................... 7
The Shareholders' Meetings............................................... 7
Recommendation to Shareholders........................................... 7
Votes Required........................................................... 8
Record Date; Voting Power................................................ 8
What Sun's Shareholders will Receive in the Exchange..................... 8
Accounting Treatment..................................................... 8
Tax Consequences of the Exchange to Sun Shareholders..................... 9
Opinions of Financial Advisors........................................... 9
The Plan of Share Exchange............................................... 9
Termination of the Exchange.............................................. 9
The Rights of Sun's Shareholders Will Change............................. 9
SELECTED CONSOLIDATED FINANCIAL DATA OF CAPITOL............................ 10
SELECTED CONSOLIDATED FINANCIAL DATA OF SUN................................ 12
RISK FACTORS............................................................... 14
RECENT DEVELOPMENTS........................................................ 19
CAPITALIZATION............................................................. 20
DIVIDENDS AND MARKET FOR COMMON STOCK...................................... 21
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS.................. 22
INFORMATION ABOUT SUN...................................................... 22
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION..................... 22
THE EXCHANGE............................................................... 25
General.................................................................. 25
Background of the Exchange............................................... 25
Sun's Reasons for the Exchange........................................... 26
Capitol's Reasons for the Exchange....................................... 26
Terms of Exchange........................................................ 26
Sun's Board Recommendation............................................... 26
Capitol's Board Recommendation........................................... 26
Accounting Treatment..................................................... 27
Pro Forma Data........................................................... 27
Material Federal Income Tax Consequences................................. 28
Regulatory Matters....................................................... 29
Federal Securities Laws Consequences; Stock Transfer Restrictions........ 30
OPINION OF SUN'S FINANCIAL ADVISOR......................................... 31
OPINION OF CAPITOL'S FINANCIAL ADVISOR..................................... 35
2
THE CLOSING................................................................ 40
Effective Time........................................................... 40
Shares Held by Capitol................................................... 40
Procedures for Surrender of Certificates; Fractional Shares.............. 40
Fees and Expenses........................................................ 41
NASDAQ Stock Market Listing.............................................. 41
Amendment and Termination................................................ 41
THE SHAREHOLDERS' MEETINGS................................................. 42
Date, Time and Place..................................................... 42
Matters to be Considered at the Shareholders' Meetings................... 42
Record Date; Stock Entitled to Vote; Quorum.............................. 42
Votes Required........................................................... 42
Share Ownership of Management............................................ 43
Voting of Proxies........................................................ 43
General Information...................................................... 44
Solicitation of Proxies; Expenses........................................ 44
COMPARISON OF SHAREHOLDER RIGHTS........................................... 45
DESCRIPTION OF CAPITAL STOCK OF CAPITOL.................................... 46
Rights of Common Stock................................................... 46
Shares Available for Issuance............................................ 46
Capitol's Trust-Preferred Securities..................................... 47
Anti-Takeover Provisions................................................. 47
WHERE YOU CAN FIND MORE INFORMATION........................................ 49
LEGAL MATTERS.............................................................. 50
EXPERTS.................................................................... 50
LIST OF ANNEXES
ANNEX A Plan of Share Exchange.......................................... A-1
ANNEX B Opinion of Sun's Financial Advisor.............................. B-1
ANNEX C Opinion of Capitol's Financial Advisor.......................... C-1
ANNEX D Tax Opinion of Strobl Cunningham Caretti & Sharp, P.C........... D-1
ANNEX E Financial and Other Information Regarding Sun................... E-1
ANNEX F Financial and Other Information Regarding Capitol............... F-1
3
ANSWERS TO
FREQUENTLY ASKED QUESTIONS
Q: Why am I receiving these materials?
A: Sun's and Capitol's Board of Directors have each approved the exchange of
Sun's common stock not owned by Capitol for shares of common stock of
Capitol. The exchange requires the approval of Sun's shareholders. Under
Michigan corporate law, Capitol is not required to obtain the approval of
its common stock shareholders. Rules of Nasdaq Stock Market, Inc., however,
require shareholder approval when the proposed transaction involves the
issuance of 20% or more common stock of the issuer. Capitol is seeking its
shareholder approval for the proposed share exchange because of the
inherent conflicts of interest which exist because of shared management,
common directors and other transactions and agreements between Capitol and
Sun. Sun and Capitol are sending these materials to each of their
respective shareholders to help them decide whether to approve the
exchange.
Q: What will Sun's shareholders receive in the exchange?
A: Sun's shareholders will receive shares of Capitol common stock, which are
publicly traded on the National Market System of the Nasdaq Stock Market,
Inc. under the symbol "CBCL." If the exchange is approved, the exchange
ratio is based on an assumed value of $10.497 for each share of Sun common
stock and a value of $14.301 for each share of Capitol common stock. These
assumed values are based on the arithmetic average of the closing prices of
the common stock of Sun and Capitol for the period of October 5, 2001
through November 2, 2001 as reported by the Nasdaq Stock Market, Inc. Based
on these relative values, each Sun share would be exchanged for .734 shares
of Capitol's common stock, if the proposed share exchange is approved.
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 Secretary of Sun or Capitol, as
applicable, 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 January 10, 2002; or
- by attending the shareholders' meeting and voting in person.
4
Q: What vote is required to approve the exchange?
A: In order to complete the exchange, holders of a majority of the shares of
Sun common stock (other than Capitol) must approve the Plan of Share
Exchange. If you do not vote your Sun shares, the effect will be a vote
against the Plan of Share Exchange. Under Michigan corporate law, Capitol
is not required to obtain the approval of its common stock shareholders.
Rules of Nasdaq Stock Market, Inc., however, require shareholder approval
when the proposed transaction involves the issuance of 20% or more common
stock of the issuer. Capitol is seeking its shareholder approval for the
proposed share exchange because of the inherent conflicts of interest which
exist because of shared management, common directors and other transactions
and agreements between Capitol and Sun. Capitol's Board has decided that a
majority of Capitol's shareholders must approve the Plan of Share Exchange.
Q: Should I send in my Sun stock certificates at this time?
A: No. If the proposed share exchange is approved, Capitol or Capitol's stock
transfer agent will send Sun shareholders written instructions for
exchanging their stock certificates.
Q: When do you expect to complete the exchange?
A: As quickly as possible after the shareholder meetings. Approval by Sun's
shareholders at the shareholders' meeting must be obtained first. Capitol
is also seeking approval by Capitol's shareholders, which is a condition to
completing the exchange. It is anticipated the exchange will be completed
by February 15, 2002.
Q: Where can I find more information about Capitol?
A: This document incorporates important business and financial information
about Capitol from documents filed with the SEC that have not been
delivered with this document. Certain exhibits are not included in those
documents; however, Capitol will provide you with copies of those exhibits,
without charge, upon written or oral request to:
Capitol Bancorp Limited
200 Washington Square North, Fourth Floor
Lansing, Michigan 48933
Attention: General Counsel
Telephone Number: (517) 487-6555
IN ORDER TO RECEIVE TIMELY DELIVERY OF THE DOCUMENTS IN ADVANCE OF THE
SHAREHOLDERS' MEETING, YOU SHOULD MAKE YOUR REQUEST NO LATER THAN JANUARY 11,
2002.
For more information on the matters incorporated by reference in this
document, see "Where You Can Find More Information".
5
WHO CAN ANSWER YOUR QUESTIONS?
If you have additional questions, you should contact:
Sun Community Bancorp Limited
2777 East Camelback Road, Suite 375
Phoenix, Arizona 85016
(602) 955-6100
Attention: Cristin Reid English
or
Capitol Bancorp Limited
200 Washington Square North, Fourth Floor
Lansing, Michigan 48933
(517) 487-6555
Attention: Lee W. Hendrickson
If you would like additional copies of this
proxy statement/prospectus you should contact:
Capitol Bancorp Limited at the above address and phone number.
6
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".
Capitol Bancorp Limited is a bank holding company with headquarters located
at 200 Washington Square North, Fourth Floor, Lansing, Michigan 48933. Capitol's
telephone number is (517) 487-6555.
Capitol is a uniquely structured affiliation of community banks. It
currently has 27 wholly or majority-owned bank subsidiaries, including 14 bank
subsidiaries which are wholly or majority-owned directly or indirectly by Sun.
Each bank is viewed by management as being a separate business from the
perspective of monitoring performance and allocation of financial resources.
Capitol uses a unique strategy of bank ownership and development through a
tiered structure. Capitol's strategy is the model which was used for the
formation of Sun and its bank subsidiaries. Capitol and Sun are already closely
related in several important ways.
Capitol's and Sun's operating strategies are to provide transactional,
processing and administrative support and mentoring to aid in the effective
growth and development of their banks. They provide 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.
Sun Community Bancorp Limited is a bank holding company with its
headquarters at 2777 East Camelback Road, Suite 375, Phoenix, Arizona 85016.
Sun's telephone number is (602) 955-6100.
Sun is now and has been, since it commenced business, a controlled
subsidiary of Capitol. Sun commenced operations in June 1997.
REASONS FOR THE EXCHANGE (PAGE 26)
It is believed that the exchange will provide Sun's shareholders with
greater liquidity and flexibility because Capitol's common stock is publicly
traded and historically has been more actively traded than Sun's shares have
been in the past. Capitol has been paying quarterly cash dividends to its common
shareholders (although there is no assurance such dividends will continue in the
future). Sun has never paid a cash dividend. The exchange will also provide
Sun's shareholders with greater diversification, since Capitol is active in more
than one geographic area and across a broader customer base.
THE SHAREHOLDERS' MEETINGS (PAGE 36)
The meeting of Sun's shareholders will be held on January 18, 2002 at 9:00
a.m., local time, at _________ at ______________, Phoenix, Arizona _____. At the
meeting, Sun's shareholders will be asked to approve the Plan of Share Exchange.
The meeting of Capitol's shareholders will be held on January 18, 2002 at
9:00 a.m., local time, at ________ at ______________, Lansing, Michigan ______.
At the meeting, Capitol's shareholders will be asked to approve the Plan of
Share Exchange.
RECOMMENDATIONS TO SHAREHOLDERS (PAGE 26)
Sun's board of directors believes that the exchange is fair and in the best
interests of Sun's shareholders and Sun and recommends that Sun's shareholders
vote FOR approval of the share exchange.
Capitol's board of directors believes that the exchange is fair and in the
best interests of Capitol's shareholders and Capitol and recommends that
Capitol's shareholders vote FOR approval of the share exchange.
7
VOTES REQUIRED (PAGE 36)
Approval of the Plan of Share Exchange requires the favorable vote of a
majority of the outstanding shares of Sun common stock excluding the shares held
by Capitol. This is more than the vote required by law, but Sun's board has set
the vote requirement to be sure the exchange is what the shareholders of Sun
want. Capitol controls about 50% of the outstanding shares of Sun common stock
(________ at December __, 2001). Sun's executive management and Board of
Directors holds 6.74% of the outstanding shares of Sun common stock, or 13.48%
of all shares not held by Capitol. The majority of Sun's Board of Directors have
agreed to vote their shares FOR approval of the Plan of Share Exchange.
Capitol is not required under Michigan corporate law to obtain the approval
of its common stock shareholders. Capitol is seeking its shareholder approval
for the proposed share exchange because of the inherent conflicts of interest
which exist because of shared management, common directors and other
transactions and agreements between Capitol and Sun. Capitol's executive
management and Board of Directors hold 21.98% of the outstanding shares of
Capitol common stock. The majority of Capitol's Board of Directors have agreed
to vote their shares FOR approval of the Plan of Share Exchange.
RECORD DATE; VOTING POWER (PAGE 36)
Sun shareholders may vote at the Sun shareholders' meeting if they owned
shares of common stock of Sun at the close of business on December ___, 2001. At
the close of business on December ___, 2001, _________ shares of Sun common
stock were outstanding (excluding shares held by Capitol). For each share of Sun
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.
Capitol shareholders may vote at the Capitol shareholders' meeting if they
owned shares of common stock of Capitol at the close of business on December
___, 2001. At the close of business on December ___, 2001, __________ shares of
Capitol common stock were outstanding. For each share of Capitol 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 SUN'S SHAREHOLDERS WILL RECEIVE IN THE EXCHANGE (PAGE 26)
In the exchange, each outstanding share of Sun common stock will be
automatically converted into the right to receive Capitol common stock,
according to an "exchange ratio". The exchange ratio is based on an assumed
value of $10.497 for each share of Sun common stock and a value of $14.301 for
each share of Capitol common stock. These assumed values are based on the
arithmetic average of the closing prices of the common stock of Sun and Capitol
for the period of October 5, 2001 through November 2, 2001 as reported by the
Nasdaq Stock Market, Inc. Based on these relative values, each Sun share would
be exchanged for .734 shares of Capitol's common stock, if the proposed share
exchange is approved.
Each Sun shareholder (except Capitol) will receive shares of Capitol common
stock in exchange for his, her or their Sun common stock calculated by
multiplying the number of shares of Sun common stock held by the shareholder by
the exchange ratio. Any fractional shares will be paid in cash.
ACCOUNTING TREATMENT (PAGE 27)
Capitol's acquisition of the shares of Sun not already owned by Capitol
will be accounted for under the purchase method of accounting. After the
exchange, 100% of Sun's results from operations will be included in Capitol's
income statement, as opposed to about 50%, prior to the exchange.
DISSENTERS' RIGHTS ARE NOT AVAILABLE (PAGE 36)
Holders of Sun common stock are not entitled to dissenters' rights under
Arizona law in connection with the exchange. Dissenters' rights under Arizona
law are not available in connection with the exchange because Sun's common stock
is listed on the Nasdaq National Market.
Michigan law does not provide any dissenters' rights to Capitol
shareholders who vote against the exchange.
8
TAX CONSEQUENCES OF THE EXCHANGE TO SUN SHAREHOLDERS (PAGE 27)
Capitol's tax counsel has rendered its opinion that the exchange should be
treated as a reorganization for United States federal income tax purposes.
Accordingly, Sun shareholders generally will not recognize any gain or loss for
United States federal income tax purposes on the exchange of their Sun shares
for shares of Capitol'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 Capitol's common stock. Tax counsel's opinion is attached as Annex D 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 Sun 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.
OPINIONS OF FINANCIAL ADVISORS (PAGE 30)
Sun retained Friedman, Billings, Ramsey & Co., Inc. as its financial
advisor and agent in connection with the exchange to render a financial fairness
opinion to the Sun shareholders.
In deciding to approve the exchange, Sun's board of directors 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
Sun common stock is fair from a financial point of view. The opinion is attached
as Annex B to this proxy statement/prospectus.
Capitol retained Stifel, Nicolaus & Company, Incorporated as its financial
advisor and agent in connection with the exchange to render a financial fairness
opinion to the Capitol shareholders.
In deciding to approve the exchange, Capitol's board of directors
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 Capitol common stock is fair from a financial point of view. The
opinion is attached as Annex C 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 (PAGE 35)
Sun and Capitol can jointly agree to terminate the plan of exchange at any
time without completing the exchange.
Sun can terminate the exchange if a majority of Sun's shareholders (other
than Capitol) fail to approve the exchange at Sun's shareholders' meeting or any
adjournment or postponement thereof; or a governmental authority prohibits the
exchange.
Capitol can terminate the exchange if a majority of Capitol's shareholders
fail to approve the exchange at Capitol's shareholders' meeting or any
adjournment or postponement thereof; or a governmental authority prohibits the
exchange.
THE RIGHTS OF SUN'S SHAREHOLDERS WILL CHANGE
Your rights as a Sun shareholder are determined by Arizona law relating to
business corporations and by Sun's articles of incorporation and by-laws. If the
exchange is completed, your rights as a Capitol shareholder will be determined
by Michigan law relating to business corporations and by Capitol's articles of
incorporation and by-laws. See "Comparison of Shareholders Rights".
9
SELECTED CONSOLIDATED FINANCIAL DATA OF CAPITOL
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
Capitol's Annual Report on Form 10-K for the year ended December 31, 2000, which
is incorporated herein by reference. The consolidated financial data below for
the interim periods indicated has been derived from, and should be read in
conjunction with, Capitol's Quarterly Report on Form 10-Q for the period ended
September 30, 2001, which is incorporated herein by reference. See "Where You
Can Find More Information". The interim results include all adjustments of a
normal nature considered necessary for a fair presentation. Interim results for
the nine months ended September 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
CAPITOL'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 FINANCIAL PERFORMANCE AND PREDICTING CAPITOL'S
FUTURE OPERATING RESULTS.
Capitol's consolidated balance sheets as of December 31, 2000 and 1999, and
the related consolidated statements of income, changes in stockholders' equity
and cash flows for the years ended December 31, 2000, 1999 and 1998 are
incorporated herein by reference. The selected financial data provided below as
of and for the nine months ended September 30, 2001 and 2000 have been derived
from Capitol's consolidated financial statements which are incorporated herein
by reference. Results of operations data and selected balance sheet data as of
and for the years ended December 31, 1998, 1997 and 1996 were derived from
consolidated financial statements which are not incorporated 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 assets and liabilities of subsidiaries (including Sun) are
included in Capitol's consolidated balance sheet. Capitol's consolidated net
income, however, only includes its subsidiaries' (including Sun) 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, Capitol will only reflect that loss
based on its ownership percentage. Conversely, when banks generate income,
Capitol will only reflect that income based on its ownership percentage.
CAPITOL BANCORP LIMITED
----------------------------------------------------------------------------------
AS OF AND FOR THE
NINE MONTHS ENDED AS OF AND FOR THE
SEPTEMBER 30 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 $ 115,766 $ 95,481 $ 132,311 $ 93,602 $ 69,668 $ 49,549 $ 36,479
Interest expense 56,894 47,169 65,912 46,237 36,670 24,852 17,800
Net interest income 58,872 48,312 66,399 47,365 32,998 24,697 18,679
Provision for loan losses 5,637 4,996 7,216 4,710 3,523 2,049 1,196
Net interest income after provision
for loan losses 53,235 43,316 59,183 42,655 29,475 22,648 17,483
Noninterest income 6,994 4,374 6,137 4,714 3,558 2,157 1,705
Noninterest expense 47,358 38,888 52,846 40,257 26,325 16,721 12,307
Income before income tax expense,
minority interest and cumulative
effect of change in accounting
principle 12,871 8,802 12,474 7,112 6,708 8,445 6,881
Income tax expense 4,238 3,041 4,289 3,213 2,584 2,888 2,245
Income before cumulative effect
of change in accounting principle 7,755 5,728 8,035 5,606 4,628 5,557 4,636
Cumulative effect of change in
accounting principle (1) (197)
Net income 7,755 5,728 8,035 5,409 4,628 5,557 4,636
10
CAPITOL BANCORP LIMITED
----------------------------------------------------------------------------------------
AS OF AND FOR THE
NINE MONTHS ENDED AS OF AND FOR THE
SEPTEMBER 30 YEARS ENDED DECEMBER 31
----------------------- --------------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
PER SHARE DATA:
Net income per common share:
Before cumulative effect of
accounting change:
Basic $ 1.00 $ 0.81 $ 1.14 $ 0.87 $ 0.74 $ 0.91 $ 0.85
Diluted 0.98 0.80 1.13 0.86 0.72 0.88 0.82
After cumulative effect of
accounting change:
Basic 1.00 0.81 1.14 0.84 0.74 0.91 0.85
Diluted 0.98 0.80 1.13 0.83 0.72 0.88 0.82
Cash dividends declared 0.30 0.27 0.36 0.36 0.33 0.30 0.25
Book value 9.96 8.81 9.18 8.08 7.77 7.22 7.43
Dividend payout ratio 30.61% 33.33% 31.58% 42.86% 43.63% 32.95% 29.05%
Weighted average number of
common shares outstanding 7,769 7,029 7,065 6,455 6,284 6,130 5,477
SELECTED BALANCE SHEET DATA:
Total assets $1,975,379 $1,568,423 $1,630,076 $1,305,987 $1,024,444 $ 690,556 $ 492,263
Investment securities 43,865 77,520 68,926 107,145 86,464 64,470 48,725
Portfolio loans 1,660,042 1,298,002 1,355,798 1,049,204 724,280 502,755 357,623
Allowance for loan losses (21,849) (16,415) (17,449) (12,639) (8,817) (6,229) (4,578)
Deposits 1,687,494 1,350,208 1,400,899 1,112,793 890,890 604,407 436,166
Debt obligations 77,437 53,075 58,150 47,400 23,600 6,500
Trust preferred securities 48,606 24,318 24,327 24,291 24,255 24,126
Stockholders' equity 77,902 63,210 70,404 54,668 49,292 45,032 40,159
PERFORMANCE RATIOS: (2)
Return on average equity 13.94% 12.96% 12.85% 10.41% 9.81% 13.05% 12.01%
Return on average assets 0.57% 0.53% 0.55% 0.47% 0.55% 0.96% 1.08%
Net interest margin (fully taxable
equivalent) 4.60% 4.79% 4.80% 4.44% 4.15% 4.54% 4.62%
Efficiency ratio (3) 71.90% 73.81% 72.85% 77.30% 70.63% 60.92% 60.38%
ASSET QUALITY:
Non-performing loans (4) $ 11,642 $ 6,611 $ 6,757 $ 4,124 $ 7,242 $ 4,011 $ 2,699
Allowance for loan losses to
non-performing loans 187.67% 248.30% 258.24% 306.47% 121.75% 155.30% 169.62%
Allowance for loan losses to
portfolio loans 1.32% 1.26% 1.29% 1.20% 1.22% 1.24% 1.28%
Non-performing loans to total
portfolio loans 0.70% 0.51% 0.50% 0.39% 1.00% 0.80% 0.75%
Net loan losses to average
portfolio loans 0.11% 0.10% 0.20% 0.10% 0.15% 0.09% 0.10%
CAPITAL RATIOS:
Average equity to average assets 4.11% 4.02% 4.26% 4.46% 5.36% 7.22% 8.97%
Tier 1 risk-based capital ratio 10.69% 11.26% 11.10% 10.78% 13.42% 14.26% 11.91%
Total risk-based capital ratio 12.12% 12.51% 12.35% 11.62% 14.60% 16.61% 12.88%
Leverage ratio 3.94% 4.03% 4.32% 4.35% 4.88% 6.65% 8.16%
- ----------
(1) Accounting change relates to new accounting standard which required
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) Nonperforming loans consist of loans on nonaccrual status and loans more
than 90 days delinquent.
11
SELECTED CONSOLIDATED FINANCIAL DATA OF SUN
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 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 September 30, 2001, which is attached as part of Annex E in
this proxy statement/prospectus. See "Where You Can Find More Information". The
interim results include all adjustments of a normal recurring nature considered
necessary for a fair presentation. Interim results for the nine months ended
September 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 FINANCIAL PERFORMANCE AND PREDICTING SUN'S FUTURE OPERATING RESULTS.
Sun's consolidated balance sheets 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, 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 nine months ended September 30, 2001 and 2000 have been
derived from Sun's 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, 1998,
1997 and 1996 were derived from 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 assets and liabilities are included in Sun's consolidated
balance sheet. Sun's consolidated net income, however, only includes its
subsidiaries' 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
-----------------------------------------------------------------------------
AS OF AND FOR THE
NINE MONTHS ENDED AS OF AND FOR THE
SEPTEMBER 30 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 $ 43,511 $ 27,499 $ 40,005 $ 17,920 $ 7,344 $ 2,871 $ 354
Interest expense 16,865 9,558 14,417 5,368 2,280 914 123
Net interest income 26,646 17,941 25,588 12,552 5,064 1,957 231
Provision for loan losses 2,770 2,667 3,926 1,753 379 268 49
Net interest income after provision
for loan losses 23,876 15,274 21,662 10,799 4,685 1,689 182
Noninterest income 1,146 695 1,011 759 334 125 10
Noninterest expense 22,210 15,579 21,841 14,503 5,330 2,037 440
Income (loss) before income tax expense,
minority interest and cumulative
effect of change in accounting
principal 2,813 390 832 (2,945) (311) (109) (248)
Income tax expense (benefit) 899 134 305 (529) 29 (33) (84)
Income (loss) before minority interest
and cumulative effect of change in
accounting principal 1,914 255 527 (2,417) (340) (72) (164)
Income (loss) before cumulative effect
of change in accounting principle 1,452 505 807 (1,207) 57 (72) (164)
Cumulative effect of change in
accounting principle (1) (386)
Net income (loss) 1,452 505 807 (1,593) 57 (72) (164)
12
SUN COMMUNITY BANCORP LIMITED
----------------------------------------------------------------------------------------
AS OF AND FOR THE
NINE MONTHS ENDED AS OF AND FOR THE
SEPTEMBER 30 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 $ 0.25 $ 0.09 $ 0.14 $ (0.26) $ 0.02 $ (0.05) $ (0.14)
Diluted 0.25 0.09 0.14 (0.26) 0.02 (0.05) (0.14)
After cumulative effect of
change in accounting principle(1):
Basic 0.25 0.09 0.14 (0.34) 0.02 (0.05) (0.14)
Diluted 0.25 0.09 0.14 (0.34) 0.02 (0.05) (0.14)
Cash dividends paid -- -- -- -- -- -- --
Book value 9.58 9.23 9.29 9.09 6.92 5.10 4.51
Weighted average number of common
shares outstanding 5,765 5,559 5,591 4,674 2,853 1,593 1,149
SELECTED BALANCE SHEET DATA:
Total assets $ 732,824 $ 476,558 $ 526,833 $ 300,390 $ 135,578 $ 55,007 $ 17,276
Portfolio loans 593,393 376,933 422,344 206,232 68,080 31,236 4,850
Allowance for loan losses (7,903) (5,440) (2,371) (696) (317) (49)
Deposits 633,581 393,776 442,563 225,007 98,782 42,899 12,021
Debt obligations 8,288 1,050 -- -- -- -- --
Investment securities 13,185 13,609 13,609 35,440 12,923 11,534 10,872
Stockholders' equity 59,751 52,568 52,694 50,003 26,627 9,690 5,189
PERFORMANCE RATIOS: (2)
Return on average equity 3.44% 1.31% 1.57% -- 0.34% -- --
Return on average assets 0.31% 0.17% 0.20% -- 0.06% -- --
Net interest margin (fully taxable
equivalent) 4.47% 5.25% 4.91% 4.84% 4.51% 4.51% 1.33%
Efficiency ratio (3) 79.91% 83.60% 82.11% 108.96% 98.74% 97.83% 182.57%
ASSET QUALITY:
Non-performing loans (4) $ 3,330 $ 1,664 $ 1,807 $ 34 -- -- --
Allowance for loan losses to
non-performing loans 237.33% 278.37% 301.05% -- -- -- --
Allowance for loan losses to
portfolio loans 1.33% 1.23% 1.29% 1.15% 1.02% 1.01% 1.30%
Non-performing loans to total
portfolio loans 0.56% 0.44% 0.43% 0.02% -- -- --
Net loan losses to average
portfolio loans 0.08% 0.19% 0.27% -- -- -- --
CAPITAL RATIOS:
Average equity to average assets 8.93% 13.20% 12.27% 18.10% 18.35% 20.47% 8.24%
Tier 1 risk-based capital ratio 12.99% 19.06% 17.74% 25.71% 42.43% 11.91% 9.80%
Total risk-based capital ratio 14.24% 20.21% 18.96% 26.56% 43.25% 12.88% 10.91%
Leverage ratio 8.15% 11.03% 10.00% 16.65% 19.64% 8.16% 7.16%
- ----------
(1) Accounting change relates to a new accounting standard which required
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.
13
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 CAPITOL'S COMMON STOCK WILL PROVIDE YOU WITH AN EQUITY
OWNERSHIP INTEREST IN CAPITOL. AS A CAPITOL 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 SUN'S COMMON STOCK FOR CAPITOL'S COMMON
STOCK.
THIS PROXY STATEMENT/PROSPECTUS ALSO CONTAINS CERTAIN FORWARD-LOOKING
STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THESE STATEMENTS RELATE TO
CAPITOL'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.
Several of Capitol's (and Sun's) bank subsidiaries are less than three
years old and Capitol's oldest bank is slightly less than twenty 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.
Current accounting rules require 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.
CAPITOL MAY BE UNABLE TO EFFECTIVELY MANAGE ITS GROWTH.
Capitol and Sun have rapidly and significantly expanded their operations
and anticipate that further expansion will be required to realize their growth
strategies. Capitol's (and 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, Capitol 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 Capitol's growing employee base.
FAVORABLE ENVIRONMENT FOR FORMATION OF NEW BANKS COULD CHANGE ADVERSELY.
Capitol's growth strategy includes the addition of new banks. Thus far,
Capitol 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 Capitol 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 Capitol's common stock.
14
CAPITOL'S (AND SUN'S) BANKS ARE SMALL, HAVE LIMITATIONS ON THE SIZE OF LOANS
THEY CAN MAKE AND HAVE MINIMAL MARKET SHARE.
Capitol endeavors to capitalize its newly formed banks with the lowest
dollar amount permitted by regulatory agencies. As a result, the legal lending
limits of Capitol's (and 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.
Capitol's (and 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 Capitol's
banks. While it is the intention of Capitol'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 and depositors in those large
markets that are dominated by substantially larger regulated and unregulated
financial institutions.
CAPITOL IS DEPENDENT UPON THE CONTRIBUTIONS OF ITS KEY MANAGEMENT PERSONNEL.
Capitol'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, Capitol is dependent upon the continuing
services of Joseph D. Reid, Capitol's Chairman and Chief Executive Officer.
Certain members of Capitol's senior management also have employment agreements
with Capitol. The loss of services of one or more key employees at Capitol or
its subsidiaries could have a material adverse effect on Capitol. Capitol 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.
IF CAPITOL CANNOT RECRUIT ADDITIONAL HIGHLY QUALIFIED PERSONNEL, CAPITOL'S
BUSINESS MAY BE ADVERSELY IMPACTED.
Capitol'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 Capitol does not succeed in
attracting new employees or retaining and motivating current and future
employees, Capitol's business could suffer significantly.
CAPITOL 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 CAPITOL'S BUSINESS.
As a bank holding company, Capitol is regulated primarily by the Federal
Reserve Board. Sun is also a bank holding company and regulated primarily by the
Federal Reserve Board. Capitol's and 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.
15
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. Capitol and its banks also undergo periodic
examinations by one or more regulatory agencies. Following such examinations,
Capitol 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 Capitol 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 Capitol.
REGULATORY ACTION COULD SEVERELY LIMIT FUTURE EXPANSION PLANS.
To carry out some of its expansion plans, Capitol 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 Capitol'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 Capitol, its current bank subsidiaries and future new
start-up banks.
THE BANKS' ALLOWANCES FOR LOAN LOSSES MAY PROVE INADEQUATE TO ABSORB ACTUAL LOAN
LOSSES.
Capitol 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 Capitol'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 many of Capitol's (and 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.
Widespread media reports of concerns about the health of the domestic
economy have continued throughout 2001. While local economic conditions appear
to indicate a weakening environment, Capitol's loan losses in this interim 2001
period have increased only slightly in comparison to the level with the prior
year's period. In 2001, however, nonperforming loans have increased and it is
anticipated that levels of nonperforming loans and related loan losses may
increase as economic conditions, locally and nationally, evolve.
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 Capitol or its banks to increase
their allowance 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 Capitol's
operating results.
16
CAPITOL'S COMMERCIAL LOAN CONCENTRATION INCREASES THE RISK OF DEFAULTS BY
BORROWERS.
Capitol's (as well as Sun's) banks make various types of loans, including
commercial, consumer, residential mortgage and construction loans. Capitol's (as
well as 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 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 CAPITOL'S BUSINESS.
CHANGES IN NET INTEREST INCOME. Capitol'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. Capitol'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.
In 2001, the Open Market Committee of the Federal Reserve Board (FRBOMC)
has taken unprecedented actions to significantly reduce interest rates. In
January 2001, the FRBOMC decreased interbank interest rates on two separate
dates, for a total decrease of 100 basis points. In March 2001, another 50 basis
points decrease was initiated by the Federal Reserve, followed by decreases of
50 basis points in both April and May 2001 and 25 basis points in June 2001. In
the third quarter of 2001, the Federal Reserve decreased interest rates 25 basis
points in August and 50 basis points in September, followed by a reduction of 50
basis points in early November 2001.
Because variable rate loans reprice more rapidly than interest-bearing
deposits, such market interest rate decreases compressed net interest margins at
Capitol's banks in 2001. As the FRBOMC continues to influence interest rates and
other economic policy in 2001 and beyond, including the potential of additional
rate decreases, net interest margins may become more compressed (having an
adverse impact on earnings) as the year progresses, and thereafter.
CHANGES IN THE YIELD CURVE. Changes in the difference between short-term
and long-term interest rates, commonly known as the yield curve, may also harm
Capitol'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.
EXISTING SUBSIDIARIES OF CAPITOL MAY NEED ADDITIONAL FUNDS TO AID IN THEIR
GROWTH OR TO MEET OTHER ANTICIPATED NEEDS WHICH COULD REDUCE CAPITOL'S FUNDS
AVAILABLE FOR NEW BANK DEVELOPMENT OR OTHER CORPORATE PURPOSES.
Capitol's (and 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 Capitol 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.
17
POSSIBLE VOLATILITY OF STOCK PRICE.
The market price of Capitol's common stock may fluctuate in response to
numerous factors, including variations in the annual or quarterly financial
results of Capitol, or its competitors; changes by financial research analysts
in their estimates of the earnings of Capitol or its competitors or the failure
of Capitol or its competitors to meet such estimates; conditions in the economy
in general or the banking industry in particular; or unfavorable publicity
affecting Capitol, its banks, or the industry. In addition, equity markets have,
on occasion (especially on or after September 11, 2001), 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 Capitol's common stock.
CAPITOL HAS DEBT SECURITIES OUTSTANDING WHICH MAY PROHIBIT FUTURE CASH DIVIDENDS
ON CAPITOL'S COMMON STOCK OR OTHERWISE ADVERSELY AFFECT REGULATORY CAPITAL
COMPLIANCE.
As of September 30, 2001, Capitol had notes payable to an unaffiliated bank
outstanding in the amount of approximately $14 million. Under this credit
facility, additional borrowings of $20 million are permitted, subject to certain
conditions. Capitol is reliant upon its bank subsidiaries' earnings and
dividends to service this debt obligation which may be inadequate to service the
obligations. In the event of violation of the covenants relating to the credit
facility, or due to failure to make timely payments of interest and debt
principal, the lender may terminate the credit facility. In addition, upon such
occurrences, dividends on Capitol's common stock may be prohibited or Capitol
may be otherwise unable to make future dividends payments or obtain replacement
credit facilities.
Capitol also has three series of trust-preferred securities outstanding,
totaling about $50 million, which are treated as capital for regulatory ratio
compliance purposes. Although these securities are viewed as capital for
regulatory purposes, they are debt securities which have numerous covenants and
other provisions which, in the event of noncompliance, could have an adverse
effect on Capitol. For example, these securities permit Capitol to defer the
periodic payment of interest for various periods, however, if such payments are
deferred, Capitol is prohibited from paying cash dividends on its common stock
during deferral periods and until deferred interest is paid. Future payment of
interest is dependent upon Capitol's bank subsidiaries' earnings and dividends
which may be inadequate to service the obligations. Continued classification of
these securities as elements of capital for regulatory purposes is subject to
future changes in regulatory rules and regulations and the actions of regulatory
agencies, all of which is beyond the control or influence of Capitol.
THE RECENT TERRORIST ATTACKS MAY HAVE AN ADVERSE EFFECT ON CAPITOL, ITS BANKS
AND BANK CUSTOMERS.
The terrorist attacks in New York, Pennsylvania and Washington, D.C. on
September 11, 2001 are having an adverse effect on business, financial and
general economic conditions. These effects may, in turn, have an adverse effect
on Capitol's business and results of operations. At this time, however, it is
impossible to predict the nature, extent and duration of these effects on
overall economic conditions or on our business and operating results.
The events of September 11, 2001, additional threatened terrorist acts and
the ongoing military action have created additional uncertainties in the banking
industry as well as domestic and international economies in general. These
events, and potential future terrorist acts, may potentially have a material
adverse effect on banks, bank customers and other relationships in addition to
having a material adverse effect on Capitol's financial condition and operating
results.
Because of the United States government's current focus on terrorist
organizations and their finances, it is uncertain what actions may be taken by
the government which may adversely impact the banking industry, Capitol's banks,
or its bank customers.
18
RECENT DEVELOPMENTS
In June 2001, Capitol entered into a stock option call agreement with
Joseph D. Reid, Capitol's (and Sun's) Chairman and Chief Executive Officer. This
agreement assigns Capitol a right to call stock options of Sun held by Joseph D.
Reid. The call agreement has the effect of permitting Capitol to exercise such
stock options contingent upon a directive from the Federal Reserve Board
requiring Capitol to increase its ownership position in Sun. As of November 16,
2001, no such directive has been issued by the Federal Reserve Board. The effect
of the agreement is that Capitol could currently increase its ownership in Sun
to materially exceed 50%. It is anticipated that this agreement will be
cancelled upon completion of the proposed exchange.
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.
Camelback Community Bank reached its 36th month of operation in May 2001.
In June 2001, Sun offered the minority owners of Camelback an opportunity to
exchange their Camelback shares for shares of Sun. The exchange ratio was based
on 150% of Camelback's adjusted book value and was completed effective June 30,
2001. As a result of the share exchange, the minority owners of Camelback became
shareholders of Sun. About 280,500 new shares of Sun's common stock were issued
in the Camelback share exchange transaction. Effective September 30, 2001, Sun
entered into a similar share exchange transaction with the minority shareholders
of Southern Arizona Community Bank (previously a majority-owned subsidiary of
Sun), issuing about 282,600 new shares of Sun's common stock.
At September 30, 2001, a similar proposed share exchange transaction was
pending regarding Mesa Bank. At a shareholders' meeting in October 2001, Mesa's
shareholders (other than Sun) approved the proposed share exchange. Such share
exchange (which is estimated to result in the issuance of about 286,800 new
shares of Sun's common stock) will be completed prior to December 31, 2001.
In 1997, Sun entered into an antidilution agreement with Capitol. Under the
terms of the antidilution agreement, Capitol has the right to purchase
additional shares of Sun's common stock, when Sun issues previously unissued Sun
shares to shareholders other than Capitol. Capitol is entitled to purchase
shares of Sun at a price equal to the per-share value ascribed to the shares
issued to shareholders other than Capitol, at a ratio based on 51% of the total
number of new shares being issued by Sun (including the shares to be purchased
by Capitol). Capitol's purchase price for such shares is to be paid to Sun in
cash. In October 2001, Capitol exercised its rights under the antidilution
agreement as to the above-mentioned Camelback exchange and, accordingly,
purchased about 292,000 new shares of Sun's common stock. Capitol is expected to
exercise its rights under the antidilution agreement as to the above-mentioned
share exchanges involving Southern Arizona Community Bank and the pending
exchange regarding Mesa Bank, both prior to December 31, 2001. It is estimated
that, in conjunction with Capitol's exercise of those rights, Sun will receive
cash consideration of about $6 million and issue about 592,700 new shares of
Sun's common stock to Capitol. It is anticipated that this agreement will be
cancelled upon completion of the proposed exchange.
On November 5, 2001, Capitol announced that its total banking assets (which
includes the banking assets of Sun) surpassed the $2 billion level during
October.
First California Northern Bancorp, a majority-owned subsidiary of Sun,
anticipates that its first bank affiliate, Napa Community Bank, will open in
early first quarter 2002.
Nevada Community Bancorp Limited, a majority-owned subsidiary of Sun,
anticipates that its fourth bank affiliate, Bank of Las Vegas, will open in
early first quarter 2002.
19
CAPITALIZATION
The table presented below shows Capitol's actual total capitalization as of
September 30, 2001, and as adjusted to reflect the exchange of Capitol's common
stock for Sun's common stock as described in this proxy statement/prospectus.
AS OF SEPTEMBER 30, 2001
---------------------------------------------
(dollars in thousands, except per share data)
AS ADJUSTED FOR THE
ACTUAL SUN EXCHANGE(4)(5)
--------- ------------------
DEBT OBLIGATIONS $ 77,437 $ 77,437
========= =========
TRUST-PREFERRED SECURITIES 48,606 48,606
MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES (5) 67,182 35,216
STOCKHOLDERS' EQUITY(1):
Common stock, no par value; 25,000,000 shares
authorized; issued, and outstanding:
Actual - 7,823,690 shares 67,631
As adjusted for the Sun exchange -
10,543,548 shares(4)(5) 106,090
Retained earnings 11,996 11,996
Market value adjustment for available-for-sale
securities (net of tax effect) 271 271
Less unallocated ESOP shares and note receivable
from sale of common stock (1,996) (1,996)
--------- ---------
Total stockholders' equity $ 77,902 $ 116,361
========= =========
Book value per share of common stock $ 9.96 $ 11.04
========= =========
TOTAL CAPITALIZATION(2) $ 145,084 $ 151,577
========= =========
TOTAL CAPITAL FUNDS(3) $ 193,690 $ 200,183
========= =========
CAPITAL RATIOS:
Stockholders' equity to total assets 3.94% 5.87%
Total capitalization to total assets 7.34% 7.65%
Total capital funds to total assets 9.80% 10.10%
- ----------
(1) Does not include 1,184,913 shares of common stock issuable upon exercise of
stock options. See "Management--Stock Option Program." Also does not
include 82,568 warrants each of which permits the holder to purchase a
share of Capitol's common stock.
(2) Total capitalization includes stockholders' equity and minority interests
in consolidated subsidiaries.
(3) Total capital funds include stockholders' equity, minority interests in
consolidated subsidiaries and trust-preferred securities.
(4) Assumes issuance of 2,719,858 shares of Capitol common stock upon
completion of Sun exchange. Does not include 1,315,199 stock options of Sun
which will convert to options in Capitol at the same ratio as the shares of
common stock.
(5) Amounts are also adjusted for Sun's pending share exchange with the
minority shareholders of Mesa Bank which is estimated to result in the
issuance of 286,848 shares of Sun's common stock in November 2001.
20
DIVIDENDS AND MARKET FOR COMMON STOCK
Capitol's common stock is listed on the Nasdaq National Market under the
symbol "CBCL." 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 Capitol's
common stock was $14.380 on November 15, 2001.
Cash Dividends
1999 High Low Paid
- ---- ---- --- ----
Quarter ended March 31 $21.750 $18.000 $0.09
Quarter ended June 30 20.000 16.875 0.09
Quarter ended September 30 18.625 10.875 0.09
Quarter ended December 31 14.625 9.625 0.09
2000
- ----
Quarter ended March 31 16.938 8.063 0.09
Quarter ended June 30 13.875 10.750 0.09
Quarter ended September 30 12.375 9.625 0.09
Quarter ended December 31 13.375 8.750 0.09
2001
- ----
Quarter ended March 31 14.250 9.688 0.10
Quarter ended June 30 15.660 12.000 0.10
Quarter ending September 30 17.500 12.250 0.10
Quarter ending December 31
(through November 15) 15.200 12.800 --
As of December ___, 2001, there were approximately _____ beneficial holders
of record of Capitol's common stock based on information supplied by its stock
transfer agent and other sources.
Sun's common stock is listed on the Nasdaq National Market under the symbol
"SCBL." In April 2000, Sun announced plans to purchase up to $3 million of its
common stock in open market purchases over a future period of time. Through
November 16, 2001 Sun has repurchased 138,100 of Sun's shares on the open
market. 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 $10.000 on November 15, 2001.
Cash Dividends
1999 High Low Paid
- ---- ---- --- ----
Quarter ended September 30 $20.000 $10.375 --
Quarter ended December 31 12.500 8.000 --
2000
- ----
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 12.250 8.800 --
Quarter ending December 31
(through November 15) 11.250 9.500 --
As of December ___, 2001, there were approximately _____ beneficial holders
of record 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.
21
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement/prospectus includes forward-looking statements.
Capitol 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 Capitol's business
strategy including future expansion;
- 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
Capitol'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".
INFORMATION ABOUT SUN
The following Sun documents are attached as Annex E:
- Report on Form 10-Q for the period ended September 30, 2001
- Report on Form 10-Q for the period ended June 30, 2001
- Report on Form 10-Q for the period ended March 31, 2001
- Annual Report to Shareholders for the 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
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
Because Sun is already included in Capitol's consolidated financial
statements. Unaudited pro forma consolidated financial information follow,
illustrating the exchange and Capitol's purchase of the minority interest of Sun
(adjusted for Sun's pending share exchange with the minority shareholders of
Mesa Bank), which is being accounted for under the purchase method of accounting
as if it had occurred effective September 30, 2001 (shown on page 23) and at the
beginning of 2000 (shown on page 24). The accompanying notes to the unaudited
pro forma consolidated financial statements are an integral part of the
unaudited pro forma financial information. The unaudited pro forma results of
operations for the period ended September 30, 2001 are not necessarily
indicative of results for the year ending December 31, 2001 or any subsequent
period thereafter. The unaudited pro forma results of operations do not give
effect to any potential cost savings or other synergies that could result from
the share exchange. However, because Sun and Capitol are already related and
already share some executives and common systems, material potential cost
savings and other synergies are not expected upon completion of the share
exchange.
22
Unaudited Pro Forma Condensed Consolidated Balance Sheet
Capitol Bancorp Ltd. and Subsidiaries
September 30, 2001
(in $1,000s, except share and per-share data)
Historical
Amounts Pro Forma Pro Forma
ASSETS as Reported Adjustments Amounts
----------- ----------- -----------
Cash and cash equivalents $ 186,513 $ (438)D $ 186,075
Loans held for resale 42,319 42,319
Investment securities 43,865 43,865
Portfolio loans 1,660,042 1,660,042
Less allowance for loan losses (21,849) (21,849)
----------- -----------
Net portfolio loans 1,638,193 1,638,193
Premises and equipment, net 16,698 16,698
Goodwill, net 8,011 11,308 A 19,319
Other assets 39,780 39,780
----------- ----------- -----------
TOTAL ASSETS $ 1,975,379 $ 10,870 $ 1,986,249
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 1,687,494 $ 1,687,494
Debt obligations 77,437 77,437
Other liabilities 16,758 16,758
----------- -----------
Total liabilities 1,781,689 1,781,689
Trust-preferred securities 48,606 48,606
Minority interests in consolidated subsidiaries 67,182 (31,966)B 35,216
Stockholders' equity:
Common stock 67,631 42,836 C 110,467
Retained earnings 11,996 11,996
Other, net (1,725) (1,725)
----------- ----------- -----------
Total stockholders' equity 77,902 42,836 120,738
----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,975,379 $ 10,870 $ 1,986,249
=========== =========== ===========
Number of common shares issued and outstanding 7,823,690 2,719,858 10,543,548
=========== =========== ===========
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET:
A -- Additional goodwill arising from proposed share exchange with Sun's
shareholders other than Capitol.
B -- Elimination of minority interests associated with Sun's shareholders
other than Capitol.
C -- Assumes issuance of 2,719,858 shares of Capitol common stock in proposed
share exchange with Sun's shareholders other than Capitol for approximately
3,418,680 shares of Sun's common stock (at an estimated fair value of
$14.301 per Capitol share and the estimated fair value of stock options,
after also giving effect to Sun's pending share exchange with the minority
shareholders of Mesa Bank which is estimated to result in the issuance of
286,848 shares of Sun's common stock in November 2001. In addition, Capitol
will issue options to purchase approximately 853,000 shares of Capitol
common stock to holders of Sun options at an estimated fair value of $4.8
million resulting in a total purchase price of $43.3 million (including
expenses of $438,000).
D -- Estimated expenses of the proposed share exchange.
23
Unaudited Pro Forma Condensed Statements of Operations
Capitol Bancorp Ltd. and Subsidiaries
Nine Months Ended September 30, 2001 Year Ended December 31, 2000
---------------------------------------- ----------------------------------------
(in $1,000s, except share and per-share data) Historical Historical
Amounts Pro Forma Pro Forma Amounts Pro Forma Pro Forma
as Reported Adjustments Amounts as Reported Adjustments Amounts
---------- ----------- ----------- ----------- ---------- ------------
Interest income $ 115,766 $ 115,766 $ 132,311 $ 132,311
Interest expense 56,894 56,894 65,912 65,912
---------- ----------- ---------- ------------
Net interest income 58,872 58,872 66,399 66,399
Provision for loan losses 5,637 5,637 7,216 7,216
---------- ----------- ---------- ------------
Net interest income after provision
for loan losses 53,235 53,235 59,183 59,183
Noninterest income 6,994 6,994 6,137 6,137
------------
Noninterest expense 47,358 565 A 47,923 52,846 753 A 53,599
---------- ----------- ----------- ---------- ---------- ------------
Income before federal income taxes
and minority interest 12,871 (565) 12,306 12,474 (753) 11,721
Federal income taxes 4,238 4,238 4,289 4,289
---------- ----------- ----------- ---------- ---------- ------------
Income before minority interest 8,633 (565) 8,068 8,185 (753) 7,432
Minority interest in net income of
consolidated subsidiaries (878) 726 B (152) (150) 404 B 254
---------- ----------- ----------- ---------- ---------- ------------
NET INCOME $ 7,755 $ 161 $ 7,916 $ (349) $ (349) $ 7,686
========== =========== =========== ========== ========== ============
NET INCOME PER SHARE:
Basic $ 1.00 $ 0.75 $ 1.14 $ 0.78
========== =========== ========== ============
Diluted $ 0.98 $ 0.74 $ 1.13 $ 0.78
========== =========== ========== ============
Average number of common shares
outstanding for purposes of computing
basic net income per share 7,769,316 2,719,858 C 10,489,174 7,064,830 2,719,858 C 9,784,688
========== =========== =========== ========== ========== ============
Average number of common shares and
dilutive securities for purposes of
computing diluted net income per share 7,920,324 2,719,858 C 10,640,182 7,114,452 2,719,858 C 9,834,310
========== =========== =========== ========== ========== ============
NOTES TO UNAUDITED PRO FORMA CONDENSED STATEMENTS OF OPERATIONS:
A -- Amount represents pro forma goodwill amortization for period presented,
assuming 15-year straight-line amortization. Effective January 1, 2002,
however, amortization of goodwill will no longer be required. For periods
beginning on or after January 1, 2002, goodwill will be periodically
reviewed for impairment.
B -- Amount represents reduction in earnings attributable to Sun's minority
interests due to proposed share exchange between Capitol and Sun.
C -- Assumes issuance of 2,719,858 shares of Capitol common stock in proposed
share exchange with Sun's shareholders other than Capitol. Also giving
effect to Sun's pending share exchange with the minority shareholders of
Mesa Bank.
24
THE EXCHANGE
GENERAL
The Boards of Directors of Sun and Capitol are using this proxy
statement/prospectus to solicit proxies from their respective shareholders for
use at the shareholders' meetings of Sun and Capitol.
At Sun's shareholders' meeting to be held on January 18, 2002, Sun's
shareholders will be asked to approve the exchange. The Plan of Share Exchange
provides for Sun's shareholders to exchange common stock of Sun not owned by
Capitol for Capitol common stock. Upon consummation of the exchange, Sun will
become a wholly-owned subsidiary of Capitol. In the exchange, Sun shareholders
will receive shares of Capitol's common stock. Capitol's shareholders are also
being asked to approve the exchange at Capitol's shareholders' meeting also to
be held on January 18, 2002.
MATERIAL CONTRACTS OR UNDERSTANDINGS BETWEEN CAPITOL AND SUN
In 1997, Sun entered into an antidilution agreement with Capitol. Under the
terms of the antidilution agreement, Capitol has the right to purchase
additional shares of Sun's common stock, when Sun issues previously unissued Sun
shares to shareholders other than Capitol. Capitol is entitled to purchase
shares of Sun at a price equal to the per-share value ascribed to the shares
issued to shareholders other than Capitol, at a ratio based on 51% of the total
number of new shares being issued by Sun (including the shares to be purchased
by Capitol). Capitol's purchase price for such shares is to be paid to Sun in
cash.
In June 2001, Capitol entered into a stock option call agreement with
Joseph D. Reid, Capitol's (and Sun's) Chairman and Chief Executive Officer. This
agreement assigns Capitol a right to call stock options of Sun held by Joseph D.
Reid. The call agreement has the effect of permitting Capitol to exercise such
stock options contingent upon a directive from the Federal Reserve Board
requiring Capitol to increase its ownership position in Sun. As of November 16,
2001, no such directive has been issued by the Federal Reserve Board. The effect
of the agreement is that Capitol could currently increase its ownership in Sun
to materially exceed 50%. It is anticipated that this agreement will be
cancelled upon completion of the proposed exchange.
Capitol and Sun also share some key executives, common directors and common
systems.
BACKGROUND OF THE EXCHANGE
The concept of a potential share exchange transaction with Capitol was
discussed initially on an informal basis in August 2001. Capitol expressed a
willingness to extend an offer of an exchange. The objectives of the potential
exchange are to enable shareholders of Sun to achieve better liquidity in their
investment, a current dividend and to accomplish such an exchange on a tax-free
basis. Without the exchange, shareholders of Sun will continue to hold Sun stock
which has more limited market activity and is more thinly traded than Capitol's
common stock. Capitol has paid quarterly cash dividends throughout the past five
years (although there is no assurance cash dividends will be paid in the
future).
When considering the possibilities of a potential share exchange
transaction involving Capitol and Sun's shareholders other than Capitol, the
Boards of Directors of Sun and Capitol each noted the conflict of interests
between Capitol and Sun in such a transaction, because of the existing ownership
of Sun by Capitol and that Capitol and Sun have some directors in common, in
addition to having common executive management and shared systems. Because of
that perceived conflict, the Boards of Directors of Sun and Capitol each formed
independent board committees to explore the possibilities of a potential share
exchange transaction between Sun and Capitol. Those committees were formed in
early November 2001. Each of the committees is comprised of three independent
directors. Each committee selected and appointed an investment banking firm in
the capacity of financial advisor to their respective committee, the objective
of which is the issuance of the respective firms' opinion as to whether the
proposed exchange is fair to Sun's or Capitol's shareholders from a financial
point of view. Sun's special board committee selected the firm of Friedman,
Billings, Ramsey & Co., Inc. (FBR). FBR has not previously been engaged by Sun
for market making or other transactions. Capitol's special board committee
selected the firm of Stifel, Nicolaus & Company, Incorporated (Stifel). Capitol
has had prior transactions with Stifel, most recently, participation in a
private placement of pooled trust-preferred securities. Stifel is a market-maker
in Capitol's common stock and Capitol Trust I, a subsidiary of Capitol. Stifel
has also published research reports and an investment rating on Capitol's common
stock.
25
Consensus between Capitol's and Sun's Directors who are not employees or
officers of Capitol was reached on November 16, 2001, to approve the proposed
exchange subject only to:
- obtaining independent opinions that the proposed share exchange is
fair to Sun's and Capitol's shareholders from a financial point of
view; and
- obtaining approval for the proposed exchange by a majority of Sun's
shares not already owned by Capitol and by Capitol's shareholders.
On November 16, 2001, the Sun and Capitol Boards approved the Plan of Share
Exchange and agreed to call separate shareholder meetings for a vote of the
respective shareholders to approve the Plan of Share Exchange.
Sun's Board of Directors has not solicited or received any other proposals
for the potential exchange or sale of Sun's shares of common stock which are not
owned by Capitol. If other proposals were under consideration for sale or
exchange of Sun's shares to an entity other than Capitol, Capitol would be
permitted to vote its shares of Sun. By virtue of Capitol's control of Sun, it
is likely that Capitol would not vote its shares of Sun in favor of any other
proposals regarding a share exchange or sale of the minority interest in Sun to
another party. In addition, Capitol currently has no intentions of selling its
interest in Sun. Hence, the only proposal under consideration is Capitol's
proposal.
SUN'S REASONS FOR THE EXCHANGE.
Sun's reasons for the exchange are that the shareholders of Sun 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 Capitol's subsidiary banks rather than
dependence upon the resources of Sun's sole emphasis in the
southwestern United States.
. the Sun shareholders will receive Capitol's common stock which is more
widely traded, providing Sun's shareholders improved liquidity and a
history of cash dividends. Sun common stock has seen limited public
market activity and has not paid any cash dividends. Sun shareholders
who choose to do so may continue to hold the Capitol stock they
receive in the exchange without being forced to have their investment
reduced by the immediate recognition of a capital gains tax.
CAPITOL'S REASONS FOR THE EXCHANGE
Capitol believes that Sun's profitability will increase. As noted elsewhere
in this proxy statement/prospectus, while Sun's assets are reported as part of
Capitol's assets for purposes of its consolidated financial statements, Sun's
income or loss is attributed to Capitol only in the percentage which Capitol
owns of Sun common stock. Capitol desires to acquire the remainder of Sun's
common stock so that Capitol can include 100% of Sun's income or loss in
Capitol's consolidated income statement.
TERMS OF THE PLAN OF SHARE 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 exchange ratio is
based on an assumed value of $10.497 for each share of Sun common stock and a
value of $14.301 for each share of Capitol common stock. These assumed values
are based on the arithmetic average of the closing prices of the common stock of
Sun and Capitol for the period of October 5, 2001 through November 2, 2001 as
reported by the Nasdaq National Market, Inc. These share values result in an
exchange ratio whereby Sun shareholders (other than Capitol) will receive .734
shares of Capitol for each share of Sun common stock. Outstanding stock options
of Sun will be exchanged for stock options of Capitol with the same vesting and
expiration dates.
26
The effectiveness of the Plan of Share Exchange is subject to the following
conditions:
. approval of the Plan of Share Exchange by a majority of the
outstanding shares of common stock of Sun (exclusive of the shares
held by Capitol);
. approval of the Plan of Share Exchange by a majority of the
outstanding shares of common stock of Capitol;
. the registration statement on Form S-4 registering the shares of
Capitol common stock to be issued in the exchange, of which this proxy
statement/prospectus forms a part, must have been declared effective
by the Securities and Exchange Commission;
. receipt by Sun of an opinion of a recognized firm of financial
advisors that the Plan of Share Exchange is fair from a financial
point of view to the shareholders of Sun; and
. receipt by Capitol of an opinion of a recognized firm of financial
advisors that the Plan of Share Exchange is fair from a financial
point of view to the shareholders of Capitol.
SUN'S BOARD RECOMMENDATION
SUN'S BOARD HAS DETERMINED THAT THE EXCHANGE IS FAIR TO AND IN THE BEST
INTERESTS OF SUN'S SHAREHOLDERS, HAS APPROVED THE PLAN OF SHARE EXCHANGE AND
RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" APPROVAL OF THE PLAN OF SHARE
EXCHANGE.
CAPITOL'S BOARD RECOMMENDATION
CAPITOL'S BOARD HAS DETERMINED THAT THE EXCHANGE IS FAIR TO AND IN THE BEST
INTERESTS OF CAPITOL'S SHAREHOLDERS, HAS APPROVED THE PLAN OF SHARE EXCHANGE AND
RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" APPROVAL OF THE PLAN OF SHARE
EXCHANGE.
ACCOUNTING TREATMENT
Capitol's acquisition of the shares of Sun not already owned by Capitol
will be treated as the acquisition of a minority interest using the purchase
method of accounting.
PRO FORMA DATA
Because Sun is already a controlled subsidiary of Capitol, it is already
included in Capitol's consolidated financial statements. Unaudited pro forma
consolidated financial information is presented in this document, illustrating
the exchange and Capitol's purchase of the minority interest of Sun (adjusted
for Sun's pending share exchange with the minority shareholders of Mesa Bank),
which is being accounted for under the purchase method of accounting as if it
had occurred effective September 30, 2001 (shown on page 23) and at the
beginning of 2000 (shown on page 24). The accompanying notes to the unaudited
pro forma consolidated financial statements are an integral part of the
unaudited pro forma financial information. The unaudited pro forma results of
operations for the period ended September 30, 2001 are not necessarily
indicative of results for the year ending December 31, 2001 or any subsequent
period thereafter. The unaudited pro forma results of operations do not give
effect to any potential cost savings or other synergies that could result from
the share exchange. However, because Sun and Capitol are already related and
already share some executives and common systems, material potential cost
savings and other synergies are not expected upon completion of the share
exchange.
27
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The income tax discussion below represents the opinion of Strobl Cunningham
Caretti & Sharp, P.C., tax counsel to Capitol, 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 Sun and
Capitol. You should read carefully the full text of the tax opinion of Strobl
Cunningham Caretti & Sharp, P.C. The opinion is included in this proxy
statement/prospectus as Annex D. 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 Sun
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;
. Sun shareholders who received their Sun common stock through the
exercise of employee stock options or otherwise as compensation;
. Sun shareholders who are not U.S. persons; and
. Sun shareholders who hold Sun common stock as part of a hedge,
straddle or conversion transaction.
The discussion also does not address any consequences arising under the
laws of any state, locality or foreign jurisdiction.
Based on the assumptions and representations above, it is the opinion of
Strobl Cunningham Caretti & Sharp, P.C., tax counsel to Capitol, 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 Sun who
exchange their Sun common stock solely for Capitol common stock
(except with respect to cash received instead of a fractional share of
Capitol common stock);
* the aggregate tax basis of the Capitol common stock received by Sun
shareholders who exchange all of their Sun common stock for Capitol
common stock in the exchange will be the same as the aggregate tax
basis of the Sun common stock surrendered in exchange (reduced by any
amount allocable to a fractional share of Capitol common stock for
which cash is received);
28
* the holding period of the Capitol common stock received will include
the holding period of shares of Sun common stock surrendered in
exchange; and
* a holder of Sun common stock that receives cash instead of a
fractional share of Capitol 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 Sun 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 Sun common stock exchanged for the fractional
share of Capitol common stock satisfies the long-term holding period
requirement.
The tax opinion of Strobl Cunningham Caretti & Sharp, P.C. is not binding
upon the Internal Revenue Service or the courts. No rulings have been or will be
sought from the Internal Revenue Service regarding any matters relating to the
exchange.
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.
REGULATORY MATTERS
As a bank holding company, Capitol is subject to regulation by the Federal
Reserve Board. Federal Reserve Board rules require Capitol 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, Capitol
received permission to acquire its controlling ownership of Sun prior to Sun
commencing the business of operating as a bank holding company. Accordingly,
Capitol 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 Capitol 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 Capitol's shares. Accordingly, the shares of
Capitol common stock to be issued in exchange for the Sun common stock will be
publicly tradable upon consummation of the exchange. There will be no
restriction on the ability of a former Sun shareholder to sell in the open
market the Capitol common stock received (unless the Sun shareholder is also an
officer, director or affiliate of either Sun or Capitol, in which case Rule 144
and Rule 145 issued by the SEC do impose certain restrictions on the sale of
Capitol common stock).
DISSENTERS' RIGHTS ARE NOT AVAILABLE
Holders of Sun common stock are not entitled to dissenters' rights under
Arizona law in connection with the exchange. Dissenters' rights under Arizona
law are not available in connection with the exchange because Sun's common stock
is listed on the Nasdaq National Market.
Michigan law does not provide any dissenters' rights to Capitol
shareholders who vote against the exchange.
29
FEDERAL SECURITIES LAWS CONSEQUENCES; STOCK TRANSFER RESTRICTIONS
This proxy statement/prospectus does not cover any resales of the Capitol
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 Capitol common stock you will receive in the exchange will be
freely transferable, except that if you are deemed to be an "affiliate" of Sun
or Capitol 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 Sun or Capitol for those purposes generally
include individuals or entities that control, are controlled by, or are under
common control with, Sun or Capitol, and would not include shareholders who are
not officers, directors or principal shareholders of Sun or Capitol.
The affiliates of Sun or Capitol may not sell their shares of Capitol
common stock acquired in connection with the exchange except pursuant to:
. an effective registration statement under the Securities Act covering
the resale of those shares;
. an exemption under paragraph (d) of Rule 145 under the Securities Act;
or
. another applicable exemption under the Securities Act.
Capitol's registration statement on Form S-4, of which this proxy
statement/prospectus forms a part, does not cover the resale of Capitol common
stock to be received by affiliates.
Capitol has agreed that it will cause its board of directors to adopt
resolutions consistent with the interpretive guidance of the Securities and
Exchange Commission so that the assumption of Sun stock options and exchange of
Sun common stock by Capitol is an exempt transaction for purposes of Section 16
of the Securities Exchange Act.
30
OPINION OF SUN'S FINANCIAL ADVISOR
GENERAL. Pursuant to an engagement letter dated November 9, 2001 between
the Special Committee of the Board of Directors (the "Committee") of Sun
Community Bancorp Limited ("Sun" or the "Company") and Friedman, Billings,
Ramsey & Co., Inc. ("FBR"), Sun retained FBR to act as its sole financial
advisor in connection with the possible exchange of shares of common stock of
Capitol Bancorp Limited ("Capitol") for all of the outstanding shares of common
stock of Sun not presently owned by Capitol (the "Exchange"). As part of its
engagement, FBR agreed, if requested by Sun, to render an opinion with respect
to the fairness, from a financial point of view, to the holders of Sun shares of
common stock other than Capitol (the "Sun Shareholders"), of the number of
shares of common stock of Capitol to be exchanged for each share of common stock
of Sun not presently owned by Capitol (the "Exchange Ratio") as set forth in the
Plan of Share Exchange dated as of November 16, 2001 (the "Plan").
On November 15, 2001, FBR delivered its oral opinion to the Committee that
the Exchange Ratio was fair to Sun Shareholders, from a financial point of view,
as of the date of such opinion. FBR also delivered to the Sun Board of Directors
(the "Sun Board") a written opinion dated as of November 16, 2001, confirming
its oral opinion as of such date. FBR updated its November 16, 2001 opinion as
of the date of this proxy statement/prospectus.
The full text of FBR's written opinion to the Sun Board, dated as of the
date of this proxy statement/prospectus (the "Opinion") is attached as Annex B
and is incorporated herein by reference. The Opinion sets forth the assumptions
made, matters considered and extent of review by FBR. It should be read
carefully and in its entirety in conjunction with this proxy
statement/prospectus. The following summary of FBR's opinion is qualified in its
entirety by reference to the full text of the Opinion. FBR's opinion is
addressed only to the Sun Board and directed only to the fairness, from a
financial point of view, of the Exchange Ratio to the Sun Shareholders, and does
not constitute a recommendation to any Sun Shareholder as to how such
shareholder should vote at the Sun Special Meeting described in this document.
FBR is a nationally recognized specialist in the financial services
industry in general, and in community banks and thrifts in particular. FBR is
regularly engaged in evaluations of similar businesses and in advising
institutions with regard to mergers and acquisitions, as well as raising debt
and equity capital for such institutions. Sun selected FBR as its financial
advisor based upon FBR's qualifications, expertise and reputation in such
capacity.
No limitations were imposed by Sun on FBR with respect to the investigations
made or the procedures followed in rendering its opinion. FBR was not requested
to and did not make any recommendation to the Committee or to Sun's Board as to
the form or amount of the consideration to be paid to the Sun Shareholders in
the Exchange, which was determined through arm's length negotiations between the
31
parties. FBR was not requested to opine as to, and its opinion does not address,
either Sun's or Capitol's underlying business decision to proceed with or effect
the Exchange or the relative merits of the Exchange compared to any alternative
transaction that might be available to either Sun or Capitol.
FBR, in connection with rendering its opinion:
* reviewed Sun's Annual Report to Shareholders and Annual Report on Form
10-K for each of the fiscal years ended December 31, 1998, December
31, 1999, and December 31, 2000, including the audited financial
statements contained therein, and Sun's Quarterly Report on Form 10-Q
for each of the quarters ended March 31, 2001, June 30, 2001 and
September 30, 2001;
* reviewed Capitol's Annual Report to Shareholders and Annual Report on
Form 10-K for each of the fiscal years ended December 31, 1998,
December 31, 1999 and December 31, 2000, including the audited
financial statements contained therein, and Capitol's Quarterly Report
on Form 10-Q for each of the quarters ended March 31, 2001, June 30,
2001 and September 30, 2001;
* reviewed certain other public and non-public information, primarily
financial in nature, relating to the respective businesses, earnings,
assets and prospects of Sun and Capitol provided to FBR or publicly
available;
* participated in meetings and telephone conferences with members of
senior management of Sun and Capitol concerning the financial
condition, business, assets, financial forecasts and prospects of the
respective companies, as well as other matters FBR believed relevant
to its inquiry;
* reviewed certain stock market information for the shares of common
stock of Sun ("Sun Shares") and for the shares of common stock of
Capitol ("Capitol Shares") and compared it with similar information
for certain companies, the shares of common stock of which are
publicly traded;
* compared the results of operations and financial condition of Sun and
Capitol with that of certain companies that FBR deemed to be relevant
for purposes of the Opinion;
* reviewed and discussed the regulatory examinations of both Sun and
Capitol with their respective managements, including safety and
soundness and CRA ratings;
* reviewed the Plan and its schedules and exhibits and certain related
documents;
* reviewed the draft of Form S-4 of Capitol with respect to the Exchange
and its schedules and exhibits; and
32
* performed such other reviews and analyses as FBR deemed appropriate.
The oral and written opinions provided by FBR to Sun were necessarily based
upon economic, monetary, financial market and other relevant conditions as of
the dates thereof.
In connection with its review and arriving at its opinion, FBR relied upon
the accuracy and completeness of the financial information and other pertinent
information provided by Sun and Capitol to FBR for purposes of rendering its
opinion. FBR did not assume any obligation to verify independently any of the
provided information as being complete and accurate in all material respects.
With regard to the financial forecasts established and developed for Sun and
Capitol with the input of the respective managements, as well as projections of
cost savings, revenue enhancements and operating synergies, FBR assumed that
these materials had been reasonably prepared on bases reflecting the best
available estimates and judgments of Sun and Capitol as to the future
performance of the separate and combined entities and that the projections
provided a reasonable basis upon which FBR could formulate its opinion. Neither
Sun nor Capitol publicly discloses such internal management projections of the
type utilized by FBR in connection with FBR's role as financial advisor to Sun
with respect to the review of the Exchange. Therefore, such projections cannot
be assumed to have been prepared with a view towards public disclosure. The
projections were based upon numerous variables and assumptions that are
inherently uncertain, including, among others, factors relative to the general
economic and competitive conditions facing Sun and Capitol. Accordingly, actual
results could vary significantly from those set forth in the respective
projections.
FBR does not claim to be an expert in the evaluation of loan portfolios or
the allowance for loan losses with respect thereto and therefore assumes that
such allowances for Sun and Capitol are adequate to cover such losses. In
addition, FBR does not assume responsibility for the review of individual credit
files and did not make an independent evaluation, appraisal or physical
inspection of the assets or individual properties of Sun or Capitol, nor was FBR
provided with such appraisals. Furthermore, FBR assumes that the Exchange will
be consummated in accordance with the terms set forth in the Plan, without any
waiver of any material terms or conditions by Sun, and that obtaining the
necessary regulatory approvals for the Exchange will not have an adverse effect
on either separate institution or the combined entity. Moreover, in each
analysis that involves per share data for Sun, FBR adjusted the data to reflect
the effect of the adjustment of the exercise price of outstanding Sun stock
options to reflect the Exchange Ratio. For purposes of the opinion, FBR assumes,
with the consent of Sun, that the Exchange will qualify as a tax-free exchange
under the United States Internal Revenue Code.
In connection with rendering the Opinion, FBR performed a variety of
financial and comparative analyses, which are briefly summarized below. Such
summary of analyses does not purport to be a complete description of the
analyses performed by FBR. Moreover, FBR believes that these analyses must be
considered as a whole and that selecting portions of such analyses and the
factors considered by it, without considering all such analyses and factors,
could create an incomplete understanding of the scope of the process underlying
the analyses and, more importantly, the opinion derived from them. The
preparation of a financial advisor's opinion is a complex process involving
subjective judgments and
33
is not necessarily susceptible to partial analyses or a summary description of
such analyses. In its full analysis, FBR also included assumptions with respect
to general economic, financial markets and other financial conditions.
Furthermore, FBR drew from its past experience in similar transactions, as well
as its experience in the valuation of securities and its general knowledge of
the banking industry as a whole. Any estimates in FBR's analyses were not
necessarily indicative of actual future results or values, which may
significantly diverge more or less favorably from such estimates. Estimates of
company valuations do not purport to be appraisals nor to necessarily reflect
the prices at which companies or their respective securities actually may be
sold. None of the analyses performed by FBR were assigned a greater significance
by FBR than any other in deriving its opinion.
SUMMARY OF TERMS OF PROPOSED EXCHANGE: Under the terms of the Plan, each
Sun Share will be converted into the right to receive Capitol Shares according
to the Exchange Ratio. The Exchange Ratio is calculated by dividing the assumed
value of a Sun Share by the assumed value of a Capitol Share. For purposes of
this calculation, the assumed value of a Sun Share is $10.497, and the assumed
value of a Capitol Share is $14.301. These assumed values were calculated by
taking the arithmetic average of the closing prices of the Sun Shares and the
Capitol Shares, respectively, for the period beginning October 5, 2001 and
ending on November 2, 2001 as reported by the NASDAQ Stock Market, Inc. As a
result, the Exchange Ratio is 0.734 Capitol Share for each Sun Share.
COMPARABLE COMPANY ANALYSIS: FBR reviewed and compared actual stock market
data and actual and estimated selected financial information for Sun with
corresponding information for 17 publicly traded banks headquartered in the
Western United States with total assets between $500 million and $1.0 billion
which FBR deemed to be relevant (the "Sun Peer Group"). The following table
represents a summary analysis of the Sun Peer Group based on market prices as of
November 9, 2001 and the latest publicly available financial data as of or for
the twelve months ended September 30, 2001:
Mean Median Sun
---- ------ ---
Total Assets ($000's) $711,144 $671,828 $732,824
Tangible equity to tangible assets 8.04% 7.66% 7.68%
Price to estimated 2001 earnings 10.75x 10.18x 29.71x
Price to estimated 2002 earnings 9.48x 9.27x 14.64x
Price to book value 155.5% 148.7% 112.3%
Price to tangible book value 164.6% 160.3% 119.2%
Dividend yield 1.14% 0.00% 0.00%
Return on average assets 1.07% 1.14% 0.20%
Return on average equity 13.12% 13.66% 2.43%
Efficiency ratio 61.41% 63.50% 79.91%
FBR reviewed and compared actual stock market data and actual and estimated
selected financial information for Capitol, both prior to and following the
Exchange, with corresponding information for 40 publicly traded community
commercial banks headquartered in the Midwestern and Western United States with
total assets between $1.0 billion and $3.0 billion (the "Capitol Peer
34
Group"). The following table represents a summary analysis of the Capitol Peer
Group based on market prices as of November 9, 2001 and the latest publicly
available financial data as of or for the last twelve months ended September 30,
2001:
Capitol Capitol
Before After
Mean Median Exchange Exchange
---- ------ -------- --------
Total Assets ($000's) $1,833,229 $1,775,280 $1,975,379 $1,981,872
Tangible equity to tangible assets 7.51% 7.33% 3.55% 5.18%
Price to estimated 2001 earnings 13.21x 12.78x 10.44x 12.33X
Price to estimated 2002 earnings 11.20x 11.08x 8.79x 9.75x
Price to book value 174.3% 162.8% 139.46% 124.02%
Price to tangible book value 194.9% 198.7% 155.37% 141.68%
Dividend yield 2.10% 2.21% 2.88% 2.88%
Return on average assets 1.16% 1.10% 0.57% 0.43%*
Return on average equity 14.16% 13.88% 14.68% 7.28%*
Efficiency ratio 56.30% 56.96% 67.79% 67.79%
* Based on total assets at September 30, 2001
PRO FORMA EFFECT OF THE EXCHANGE: FBR r eviewed certain estimated future
operating and financial information developed by Sun and Capitol and certain
estimated future operating and financial information for the pro forma combined
entity resulting from the Exchange for the twelve month periods ended December
31, 2002 through December 31, 2006. On the basis of this estimated future
operating and financial information, FBR compared per share equivalent estimated
earnings, pro forma book value and pro forma tangible book value and cash
dividends of the resulting combined company to the stand-alone projections for
Sun. The following summarizes the pro forma impact on Sun Shareholders of the
Exchange on a per share equivalent basis:
Change Per
Sun Share
---------
Estimated 2001 earnings per share 137% increase
Estimated 2002 earnings per share 50% increase
Pro forma book value per share (9/30/01) 9.9% decrease
Pro forma tangible book value per share (9/30/01) 16.3% decrease
The analysis also demonstrated that the Exchange would result in the
establishment of a cash dividend for Sun Shareholders equal to approximately
$0.29 per Sun Share, assuming the Capitol Board maintains its current dividend
policy. Additionally, the market liquidity of the Capitol Shares should increase
as the number of Capitol Shares not held by directors, management and employees
of both Capitol and Sun would increase by over 50%.
DISCOUNTED CASH FLOW ANALYSIS: FBR performed a discounted cash flow
analysis with regard to Sun on a stand-alone basis over a five year horizon
beginning with the full year 2002. This analysis utilized a range of discount
rates of 10.0% to 20.0% and a range of terminal earnings multiples of 8 to
35
12 times. The analysis resulted in a range of present values for Sun of
approximately $28.5 million to $81.6 million and an average value of
approximately $51.5 million. This range of present values was multiplied by the
percentage of Sun Shares not presently owned by Capitol and the resulting
product (approximately $14.0 million to $40.0 million and averaging
approximately $25.2) was compared to the approximately $38.5 million of market
value of Capitol Shares which the Exchange Ratio provides Sun Shareholders. As
indicated above, this analysis was based on Sun's and Capitol's senior
management estimates and is not necessarily indicative of actual values or
actual future results and does not purport to reflect the prices at which any
securities may trade at the present or at any time in the future. FBR noted that
the discounted cash flow analysis was included because it is a widely used
valuation methodology, but noted that the results of such methodology are highly
dependent upon the numerous assumptions that must be made, including earnings
growth rates, asset growth rates, discount rates, and terminal values.
OTHER ANALYSES: FBR also reviewed certain other information including pro
forma estimated balance sheet composition, pro forma financial performance and
pro forma deposit composition.
No company used as a comparison in the above analyses is identical to Sun,
Capitol or the combined entity, and no other transaction is identical to the
Exchange. Accordingly, an analysis of the results of the foregoing is not purely
mathematical; rather, such analyses involve complex considerations and judgments
concerning differences in financial market and operating characteristics of the
companies and other factors that could affect the public trading volume of the
companies to which Sun, Capitol and the combined entity are being compared.
In connection with delivery of its opinion dated as of the date of this
Proxy Statement/Prospectus, FBR performed procedures to update, as necessary,
certain of the analyses described above and reviewed the assumptions on which
such analyses described above were based and the factors considered in
connection therewith. FBR did not perform any analyses in addition to those
described above in updating the opinion.
For its financial advisory services provided to Sun, FBR has been paid fees
of $150,000 to date. In addition, Sun has agreed to reimburse FBR for all
reasonable out-of-pocket expenses incurred by it on Sun's behalf, as well as
indemnify FBR against certain liabilities, including any which may arise under
the federal securities laws.
FBR in the conduct of its broker-dealer activities may have from time to
time purchased securities from, and sold securities to, Sun and/or Capitol. As a
market maker, FBR may also have purchased and sold the securities of both Sun
and Capitol for FBR's own account and for the accounts of its customers.
36
OPINION OF CAPITOL'S FINANCIAL ADVISOR
Capitol has retained Stifel, Nicolaus & Company, Incorporated as its
financial advisor in connection with the exchange because Stifel is a nationally
recognized investment-banking firm with substantial expertise in transactions
similar to the exchange. Stifel is an investment banking and securities firm
with membership on all principal United States' securities exchanges. As part of
its investment banking activities, Stifel is regularly engaged in the
independent valuation of businesses and securities in connection with mergers,
acquisitions, underwritings, sales and distributions of listed and unlisted
securities, private placements and valuations for estate, corporate and other
purposes.
In connection with the November 15, 2001 meeting of the special committee
of the board of directors, Stifel rendered its opinion that, as of such date,
the exchange ratio pursuant to the plan was fair to the holders of Capitol
common stock from a financial point of view. Stifel has confirmed its November
15, 2001 opinion by delivery of its written opinion to the special committee of
the board of directors, dated the date of this proxy statement/prospectus, that,
based upon and subject to the various considerations set forth therein, as of
the date hereof the exchange ratio pursuant to the plan is fair to the holders
of Capitol common stock from a financial point of view.
The full text of Stifel's opinion as of the date hereof, which sets forth
the assumptions made, matters considered and limitations of the review
undertaken, is attached as Annex C to this proxy statement/prospectus and is
incorporated herein by reference, and should be read in its entirety in
connection with this proxy statement/prospectus. The summary of the opinion of
Stifel set forth in this proxy statement/prospectus is qualified in its entirety
by reference to the full text of such opinion.
No limitations were imposed by Capitol on the scope of Stifel's
investigation or the procedures to be followed by Stifel in rendering its
opinion. Stifel was not requested to and did not make any recommendation to the
special committee of the board of directors or Capitol's board of directors as
to the form or amount of the consideration to be paid to Sun or its
shareholders, which was determined through arm's length negotiations between the
parties. In arriving at its opinion, Stifel did not ascribe a specific range of
values to Capitol or Sun. Its opinion is based on the financial and comparative
analyses described below. Stifel's opinion was directed solely to special
committee of the board of directors for its use in connection with its
consideration of the exchange. Stifel's opinion addressed only the fairness of
the exchange ratio solely to the shareholders of Capitol from a financial point
of view, did not address any other aspect of the exchange, and was not intended
to be and does not constitute a recommendation to any shareholder of Capitol as
to how such shareholder should vote with respect to the exchange. Stifel was not
requested to opine as to, and its opinion does not address, Capitol's underlying
business decision to proceed with or effect the exchange or the relative merits
of the exchange compared to any alternative transaction that might be available
to Capitol.
In connection with its November 15, 2001 opinion, Stifel, among other
things:
* reviewed the form of the plan dated November 15, 2001;
* reviewed the financial statements of Capitol included in its 10-Ks for
the five years ended December 31, 2000 and its 10-Qs for the three
quarters ended September 30, 2001;
* reviewed the financial statements of Sun included in its 10-Ks for the
three years ended December 31, 2000, its 10-Qs for the three quarters
ended September 30, 2001, and its initial public offering prospectus,
dated July 2, 1999;
* reviewed certain internal financial analyses and forecasts for Capitol
and Sun prepared by their respective managements;
* conducted conversations with Capitol's and Sun's senior management
regarding their business plans and financial forecasts;
37
* compared certain financial and securities data of Capitol and Sun with
various other companies whose securities are traded in public markets
and reviewed the historical stock prices and trading volumes of the
common stock of Capitol and Sun;
* reviewed the financial terms of certain other business combinations;
and
* conducted such other financial studies, analyses and investigations as
it deemed appropriate for purposes of its opinion.
Stifel also took into account its assessment of general economic, market
and financial conditions and its experience in other transactions, as well as
its experience in securities valuations and its knowledge of the commercial
banking industry generally.
In rendering its opinion, Stifel relied upon and assumed, without
independent verification, the accuracy and completeness of all of the financial
and other information that was provided to it or that was otherwise reviewed by
it and did not assume any responsibility for independently verifying any of such
information. Stifel assumed financial forecasts supplied to it were reasonably
prepared on the basis reflecting the best currently available estimates and
judgments of the management of Capitol and Sun as to the future operating and
financial performance of Capitol and Sun, that they would be realized in the
amounts and time periods estimated and that they provided a reasonable basis
upon which Stifel could form its opinion. Stifel also assumed that there were no
material changes in the assets, liabilities, financial condition, results of
operations, business or prospects of either Capitol or Sun since the date of the
last financial statements made available to it. Stifel also assumed, without
independent verification and with Capitol's consent, that the aggregate
allowances for loan losses set forth in the financial statements of Capitol and
Sun are in the aggregate adequate to cover all such losses. Stifel did not make
or obtain any independent evaluation, appraisal or physical inspection of
Capitol's or Sun's assets or liabilities, the collateral securing any of such
assets or liabilities, or the collectibility of any such assets nor did it
review loan or credit files of Capitol or Sun. Stifel relied on advice of
Capitol's counsel and accountants as to certain legal and accounting matters
with respect to Capitol, the plan and the transactions and other matters
contained or contemplated therein. Stifel assumed, with Capitol's consent, that
there are no factors that would delay or subject to any adverse conditions any
necessary regulatory or governmental approval and that all conditions to the
exchange will be satisfied and not waived.
In rendering its opinion, Stifel assumed that the exchange will be
consummated as provided in the plan, will constitute a tax-free reorganization
as contemplated by the plan. Stifel's opinion was necessarily based on economic,
market, financial and other conditions as they existed on, and on the
information made available to it as of, the date of its opinion, and does not
imply any conclusion as to the price or trading range of the Capitol common
stock or the Sun common stock, which may vary depending upon various factors,
including changes in interest rates, dividend rates, market conditions, economic
conditions and other factors that influence the price of securities.
The financial forecasts furnished to Stifel for Capitol and Sun resulting
from the exchange were prepared by the managements of Capitol and Sun and
constitute forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. As a matter of policy, Capitol and Sun
do not publicly disclose internal management forecasts, projections or estimates
of the type furnished to Stifel in connection with its analysis of the financial
terms of the exchange, and such forecasts and estimates were not prepared with a
view towards public disclosure. These forecasts and estimates were based on
numerous variables and assumptions which are inherently uncertain and which may
not be within the control of the management of either Capitol or Sun, including,
without limitation, factors related to the integration of Capitol and Sun and
general economic, regulatory and competitive conditions. Accordingly, actual
results could vary materially from those set forth in such forecasts and
estimates.
In connection with rendering its November 15, 2001 opinion, Stifel
performed a variety of financial analyses that are summarized below. Such
summary does not purport to be a complete description of such analyses. Stifel
believes that its analyses and the summary set forth herein must be considered
as a whole and that selecting portions of such analyses and the factors
considered therein, without considering all factors and analyses, could create
an incomplete view of the analyses and processes underlying its opinions. The
preparation of a fairness opinion is a complex process involving subjective
judgments and is not necessarily susceptible to partial analysis or summary
description. In its analyses, Stifel made numerous assumptions with respect to
industry performance,
38
business and economic conditions, and other matters, many of which are beyond
the control of Capitol or Sun. Any estimates contained in Stifel's analyses are
not necessarily indicative of actual future values or results, which may be
significantly more or less favorable than suggested by such estimates. Estimates
of values of companies do not purport to be appraisals or necessarily reflect
the actual prices at which companies or their securities actually may be sold.
No company or transaction utilized in Stifel's analyses was identical to Capitol
or Sun or the exchange. Accordingly, an analysis of the results described below
is not mathematical; rather, it involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
companies and other facts that could affect the public trading value of the
companies to which they are being compared. None of the analyses performed by
Stifel was assigned a greater significance by Stifel than any other. The
analyses described below does not purport to be indicative of actual future
results, or to reflect the prices at which Capitol common stock or Sun common
stock may trade in the public markets.
The following is a summary of the financial analyses performed by Stifel in
connection with providing its opinion on November 15, 2001.
PRO FORMA EFFECT OF THE EXCHANGE. Stifel reviewed certain estimated future
operating and financial information developed by Capitol and Sun and certain
estimated future operating and financial information for the pro forma combined
entity resulting from the exchange for the calendar years ended December 31,
2002 through December 31, 2005. Based on this analysis, Stifel compared certain
of Capitol's estimated future per share results with such estimated figures for
the pro forma combined entity. Stifel compared Capitol's estimated future
stand-alone GAAP earnings per share with such estimated figures for the pro
forma combined entity. On a pro forma basis, the exchange is forecast to be
approximately 10% - 12% dilutive to earnings per share for the year ending
December 31, 2002. Stifel's analysis also concluded the exchange ratio to be
dilutive to earnings per share for the years ending December 31, 2003 through
December 31, 2005, with the dilution declining in each year. Stifel also
reviewed certain projected financial information in order to determine the
effect of the exchange on Capitol's book value and tangible book value. Based on
this analysis, at December 31, 2001, on a pro forma basis the exchange is
forecast to be accretive to Capitol's book value per share and tangible book
value per share.
ANALYSIS OF BANK MERGER TRANSACTIONS. Stifel analyzed certain information
relating to recent transactions in the banking industry (while taking into
account the fact that less than a controlling interest in Sun is to be acquired
pursuant to the exchange), consisting of (1) 145 acquisitions announced between
November 8, 2000 and November 8, 2001, involving sellers in all regions of the
United States with announced transaction values and excluding merger of equals
transactions, referred to below as Group A, (2) 12 acquisitions announced
between November 8, 2000 and November 8, 2001, involving sellers in the western
region of the United States with announced transaction values and excluding
merger of equals transactions, referred to below as Group B, and (3) 17
acquisitions announced between between November 8, 2000 and November 8, 2001,
involving sellers, with a return on equity between 3% and 7% in the most recent
reporting period, in the all regions of the United States with announced
transaction values and excluding merger of equals transactions, referred to
below as Group C. Stifel calculated the following ratios with respect to the
exchange and the selected transactions:
Group A Selected Transactions
Capitol/ -------------------------------------------------
Ratios Sun 25th Percentile Median 75th Percentile
- ------ --- --------------- ------ ---------------
Deal Price Per Share/ Book Value
Per Share 106.6% 145.6% 176.4% 213.4%
Deal Price Per Share/Tangible Book
Value Per Share 113.6% 148.3% 180.2% 231.8%
Deal Price Per Share/Last 12
Months Earnings Per Share 33.8x 14.5x 17.8x 21.0x
Deal Price/Assets 13.8% 13.3% 16.2% 20.9%
Premium over Tangible Book
Value/Deposits 2.0% 4.9% 8.1% 13.7%
Deal Price/Deposits 16.3% 15.1% 18.9% 25.1%
39
Group B Selected Transactions
Capitol/ -------------------------------------------------
Ratios Sun 25th Percentile Median 75th Percentile
- ------ --- --------------- ------ ---------------
Deal Price Per Share/ Book Value
Per Share 106.6% 151.4% 186.4% 242.2%
Deal Price Per Share/Tangible Book
Value Per Share 113.6% 160.8% 219.4% 262.1%
Deal Price Per Share/Last 12
Months Earnings Per Share 33.8x 16.2x 16.9x 17.3x
Deal Price/Assets 13.8% 15.5% 17.8% 23.3%
Premium over Tangible Book
Value/Deposits 2.0% 6.0% 11.1% 15.5%
Deal Price/Deposits 16.3% 17.7% 20.2% 26.3%
Group C Selected Transactions
Capitol/ -------------------------------------------------
Ratios Sun 25th Percentile Median 75th Percentile
- ------ --- --------------- ------ ---------------
Deal Price Per Share/ Book Value
Per Share 106.6% 118.5% 164.2% 197.0%
Deal Price Per Share/Tangible Book
Value Per Share 113.6% 126.4% 173.4% 210.3%
Deal Price Per Share/Last 12
Months Earnings Per Share 33.8x 18.4x 21.6x 27.1x
Deal Price/Assets 13.8% 10.5% 14.8% 16.2%
Premium over Tangible Book
Value/Deposits 2.0% 2.4% 6.0% 8.3%
Deal Price/Deposits 16.3% 11.8% 16.7% 18.0%
This analysis resulted in a range of imputed values for Capitol common
stock of between $5.36 and $16.87 based on the median multiples for Group A,
between $5.09 and $19.70 based on the median multiples for Group B and between
$6.53 and $15.71 based on the median multiples for Group C.
PRESENT VALUE ANALYSIS. Applying discounted cash flow analysis to the
theoretical future earnings and dividends of Capitol and Sun, Stifel compared
the calculated value of a Capitol share to the calculated value of the combined
entity. The analysis was based upon management's projected earnings growth, a
range of assumed price/earnings ratios, and a 15.0%, 17.5% and 20.0% discount
rate. Stifel selected the range of terminal price/earnings ratios on the basis
of past and current trading multiples for other publicly traded comparable
commercial banks. The stand-alone present value of Capitol common stock
calculated on this basis ranged from $13.00 to $20.00 per share. The present
value of one share of common stock in the combined entity under the terms of the
plan calculated on this basis ranged from $13.00 to $19.00 per share.
DISCOUNTED EARNINGS ANALYSIS. Using a discounted earnings analysis, Stifel
estimated the net present value of the future streams of after-tax earnings per
share that Sun could produce on a stand-alone basis. In this analysis, Stifel
assumed that Sun would perform in accordance with management's estimates. Stifel
calculated the sum of (1) the estimated terminal values per share of the
Company's common stock based on assumed multiples to the Company's projected
2006 earnings ranging from 12.0x to 19.5x, plus (2) the assumed 2002 - 2005
earnings streams per share, in each case discounted to present values at assumed
discount rates ranging from 13.0% to 17.0%. This discounted earnings analysis
indicated an implied equity value reference range of $12.00 to $22.00 per share
of Sun's common stock. This analysis did not purport to be indicative of actual
future results and did not purport to reflect the prices at which shares of
Sun's common stock may trade in the public markets. A discounted earnings
analysis was included because it is a widely used valuation methodology, but the
results of such methodology are highly dependent upon the numerous assumptions
that must be made, including earnings growth rates, dividend payout rates and
discount rates.
40
COMPARISON OF SELECTED COMPANIES. Stifel reviewed and compared certain
multiples and ratios for the exchange with a peer group of 9 selected de novo
banks with assets between $200 million and $700 million which Stifel deemed to
be relevant. The group of selected banks consisted of Mercantile Bank
Corporation, Macatawa Bank Corporation, QCR Holdings, Inc., Capital Bank
Corporation, Bank of the Northwest, Tower Financial Corporation, Community
Central Bank Corporation, St. Joseph Capital Corporation and Dearborn Bancorp
Inc. In order to calculate a range of imputed values for a share of Sun common
stock, Stifel applied a 32.5% control premium to the trading prices of the
selected group of comparable companies and compared the resulting theoretical
offer price to each of book value, tangible book value, latest 12 month
earnings, estimated 2001 earnings as provided by Institutional Brokers Estimate
System ("IBES"), assets, tangible book value to deposits and deposits. Stifel
then applied the resulting range of multiples and ratios for the peer group
specified above to the appropriate financial results of Sun. This analysis
resulted in a range of imputed values for Sun common stock of between $6.23 and
$13.92 based on the median multiples and ratios for the peer group. The 32.5%
control premium selected by Stifel was based on a 5 year analysis of market
premiums paid in bank and thrift merger transactions.
Additionally, Stifel performed a similar analysis based on the public
trading prices of the selected group of comparable companies which included no
control premium This analysis resulted in a range of imputed values for Sun
common stock of between $4.70 and $10.50 based on the median multiples and
ratios for the peer group.
As described above, Stifel's opinion was among the many factors taken into
consideration by the special committee of the board of directors in making its
determination to approve the exchange.
Pursuant to the terms of Stifel's engagement, Capitol paid Stifel a
nonrefundable cash fee of $62,500 upon the signing of the definitive plan.
Capitol has also agreed to reimburse Stifel for certain out-of-pocket expenses
and has agreed to indemnify Stifel, its affiliates and their respective
partners, directors, officers, agents, consultants, employees and controlling
persons against certain liabilities, including liabilities under the federal
securities laws.
In the ordinary course of its business, Stifel actively trades equity
securities of Capitol for its own account and for the accounts of its customers
and, accordingly, may at any time hold a long or short position in such
securities. In addition, Stifel may trade equity securities of Sun for the
accounts of its customers.
41
THE CLOSING
EFFECTIVE TIME
The exchange will be effective at 5:00 p.m., Mountain Time, on
_____________, and will be closed as soon as possible after the votes at the
meetings of Sun's and Capitol's shareholders. If the Plan of Share Exchange is
approved, as of the effective date, each outstanding share of Sun common stock
will be automatically converted into the right to receive Capitol common stock
according to the exchange ratio. Outstanding stock options of Sun will similarly
be exchanged for stock options of Capitol with similar vesting and expiration
dates.
SHARES HELD BY CAPITOL
Shares of Sun common stock owned by Capitol since Sun's organization and
thereafter will be unaffected by the exchange. Those shares will not be
exchanged for any securities of Capitol or other consideration.
PROCEDURES FOR SURRENDER OF CERTIFICATES; FRACTIONAL SHARES
As soon as reasonably practicable after the effective date of the exchange,
Capitol or Capitol's transfer agent will send Sun's shareholders a letter of
transmittal. The letter of transmittal will contain instructions with respect to
the surrender of Sun 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 Sun shares in
accordance with the instructions in the letter of transmittal, you will be
entitled to receive stock certificates representing shares of Capitol common
stock into which those Sun 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 Sun stock will represent only the right to receive the shares of
Capitol common stock into which shares of Sun stock were converted in the
exchange, and the right to receive cash in lieu of fractional shares of Capitol
common stock as described below.
Until Sun certificates are surrendered to Capitol or Capitol's agent, you
will not be paid any dividends or distributions on the Capitol common stock into
which Sun 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
Capitol common stock payable as described below will be paid to you without
interest.
Sun'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 Sun stock that is not registered in the records of Sun
has occurred, then, so long as the Sun 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 Capitol 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 Capitol common stock will be issued upon surrender
of certificates previously representing Sun shares. Instead, Capitol will pay an
amount in cash determined by multiplying the fractional share interest to which
a Sun shareholder would otherwise be entitled by the Capitol share value used in
determining the exchange ratio.
42
FEES AND EXPENSES
Whether or not the exchange is completed, Capitol and Sun 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 Capitol'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 Capitol Form S-4 registration statement and this proxy statement/prospectus,
and (d) all other expenses.
NASDAQ STOCK MARKET LISTING
Capitol will promptly prepare and submit to the Nasdaq Stock Market, Inc. a
listing application with respect to the maximum number of shares of Capitol
common stock issuable to Sun shareholders in the exchange, and Capitol must use
its reasonable best efforts to obtain approval for the listing of Capitol common
shares on the Nasdaq Stock Market, Inc. It is anticipated that Sun's shares will
be delisted from Nasdaq upon completion of exchange.
AMENDMENT AND TERMINATION
Capitol and Sun 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. The exchange will not occur if the Plan of Share Exchange is
not approved by shareholders of Capitol and Sun in the manner described in this
proxy statement/prospectus.
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43
THE SHAREHOLDERS' MEETINGS
DATE, TIME AND PLACE
Sun's shareholders' meeting will be held on January 18, 2002 at
___________, at _____________, Phoenix, Arizona _____ at 9:00 a.m., local time.
Capitol's shareholders' meeting will be held on January 18, 2002 at
___________, at _____________, Lansing, Michigan _____ at 9:00 a.m., local time.
MATTERS TO BE CONSIDERED AT THE SHAREHOLDERS' MEETINGS
At the respective shareholders' meeting, holders of Sun and Capitol common
stock, as the case may be, will vote on whether to approve the exchange. See
"The Exchange".
RECORD DATE; STOCK ENTITLED TO VOTE; QUORUM
Holders of record of Sun common stock at the close of business on December
___, 2001, the record date for the shareholders' meeting, are entitled to
receive notice of and to vote at the shareholders' meeting. At December ___,
2001, ________ shares of Sun common stock were issued and outstanding. Capitol
held _________ shares of Sun common stock on that date and __________ were held
by shareholders other than Capitol.
Holders of record of Capitol common stock at the close of business on
December ___, 2001, the record date for the shareholders' meeting, are entitled
to receive notice of and to vote at the shareholders' meeting. At December ___,
2001, ______ shares of Capitol common stock were issued and outstanding.
A majority of the shares of the Sun common stock (excluding shares held by
Capitol) 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 Sun common stock on the record date are each entitled to
one vote per share with respect to approval of the exchange at Sun's
shareholders' meeting.
A majority of the shares of the Capitol common stock 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 Capitol common
stock on the record date are each entitled to one vote per share with respect to
approval of the exchange at Capitol's shareholders' meeting.
No other matters are expected to come before the shareholders' meetings.
However, if any other matters are properly presented at the meetings 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. Neither Sun
nor Capitol is aware of any matters expected to be presented at their respective
meetings other than as described in the notices of the meeting.
VOTES REQUIRED
Although approval of the exchange by a majority of the shares entitled to
vote is all that is required by law, Sun and Capitol have agreed that approval
of the exchange will require the affirmative vote of a majority of the shares of
Sun common stock outstanding on the record date, excluding the shares of Sun
held by Capitol. Approval of the exchange by Capitol's shareholders requires a
simple majority. Abstentions and broker non-votes will have the same effect as a
vote against the proposal to approve the exchange.
44
DISSENTERS' RIGHTS ARE NOT AVAILABLE
Holders of Sun common stock are not entitled to appraisal rights under
Arizona law in connection with the exchange. Appraisal rights under Arizona law
are not available in connection with the exchange because Sun's common stock is
listed on the Nasdaq National Market.
Michigan law does not provide any dissenters' rights to Capitol
shareholders who vote against the exchange.
SHARE OWNERSHIP OF MANAGEMENT
As of the close of business on October 31, 2001, the directors and
executive officers of Sun and their affiliates (including Capitol) were entitled
to vote approximately _____ shares of Sun common stock. These shares represent
approximately _____% of the outstanding shares of Sun common stock and _____% of
Sun's shares held by shareholders other than Capitol. A majority of directors
and executive officers have expressed their intent to vote their shares of Sun
common stock in favor of the exchange.
As of the close of business on October 31, 2001, the directors and
executive officers of Capitol and their affiliates were entitled to vote
approximately _____ shares of Capitol common stock. A majority of directors and
executive officers have expressed their intent to vote their shares of Capitol
common stock in favor of the exchange.
VOTING OF PROXIES
SUBMITTING PROXIES
You may vote by attending the applicable 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 Sun stock will be mailed by
Capitol's transfer agent to former Sun 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 secretary
of Sun or Capitol (as applicable), by a later-dated proxy signed and returned by
mail or by attending the shareholders' meeting and voting in person. Attendance
at the shareholders' meetings 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:
Sun Community Bancorp Limited Capitol Bancorp Limited
2777 East Camelback Road, Suite 375 200 Washington Square North
Phoenix, Arizona 85016 Lansing, Michigan 48933
Attn: Richard N. Flynn, Secretary Attn: David O'Leary, Secretary
If you require assistance in changing or revoking a proxy, you should
contact Sun and Capitol's internal Securities Counsel, Cristin Reid English, at
either address above or at phone number (517) 487-6555.
45
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
Capitol and Sun will each pay the cost of solicitation of proxies for their
respective meetings. In addition to solicitation by mail, the directors,
officers and employees of Capitol or Sun may also solicit proxies from
shareholders by telephone, telecopy, telegram or in person.
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46
COMPARISON OF SHAREHOLDER RIGHTS
As a result of the exchange, holders of shares of Sun stock will become
holders of shares of Capitol 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 Sun's articles of incorporation and by-laws
(copies of which are on file with the SEC) and the Michigan Business Corporation
Act as well as to Capitol's articles of incorporation and by-laws, (copies of
which are on file with the SEC).
Sun's shareholders may share in dividends as and when declared by Sun's
Board of Directors (although none have been to date).
Capitol shareholders may share in dividends as and when declared by
Capitol'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.
The following summary compares various rights, privileges and restrictions
applicable to shareholders of Sun and Capitol:
Sun Capitol
--- -------
Authorized Capital Stock 50,000 25,000
Preemptive Rights None None
Quorum Requirements Majority Majority
Special Meetings of Stockholders Called by CEO, majority of the Called by CEO, majority of the
board or shareholders board or shareholders
representing 25% of the shares representing 25% of the shares
entitled to vote entitled to vote
Stockholder Action by Written Consent Yes, if unanimous Yes, if unanimous
Inspection of Voting List of Stockholders Inspector may be appointed by Inspector may be appointed by
the Board, by the person the Board, by the person
presiding at shareholders' presiding at shareholders'
meeting or by the request of a meeting or by the request of a
shareholder shareholder
Classification of the Board of Directors No No
Election of the Board of Directors Annually by shareholders Annually by shareholders
Cumulative Voting Yes No
Number of Directors 5-25 5-25
Removal of Directors By a majority of the By a majority of the
outstanding shares of stock outstanding shares of stock
Vacancies on the Board of Directors May be filed by a majority of May be filed by a majority of
the Board of Directors the Board of Directors
Liability of Directors Eliminated to the fullest Eliminated to the fullest
extent provided by law extent provided by law
Indemnification of Directors, Officers,
Employees or Agents Yes Yes
Amendments to Articles of Incorporation By a majority of the By a majority of the
outstanding shares outstanding shares
Amendments to Bylaws By majority of directors By majority of directors
Appraisal/Dissenters' Rights Arizona law provides for
appraisal rights, they are not
applicable in this transaction No
47
DESCRIPTION OF THE CAPITAL STOCK OF CAPITOL
Capitol's Articles of Incorporation, as amended to date, authorize the
issuance of up to 25,000,000 shares of common stock, without par value.
Capitol's articles of incorporation do not authorize the issuance of any other
class of stock. As of December ___, 2001, ________ shares of common stock were
outstanding. UMB Bank, n.a., serves as transfer agent and registrar for
Capitol's common stock.
Michigan law allows Capitol'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.
Capitol'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
Capitol's articles of incorporation, as amended, a copy of which is on file with
the SEC, and to the Michigan Business Corporation Act ("MBCA").
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 do not
have cumulative voting rights, which means that a stockholder is entitled to
vote each of his or her shares once for each director to be elected at any
election of directors and may not cumulate shares in order to cast more than one
vote per share for any one director. 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 Capitol's board of
directors out of funds legally available. Under Michigan 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 Capitol 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 Capitol'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 Capitol
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
Capitol regarding the submission of an issuance to a vote by Capitol's
shareholders. As noted, Capitol'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 Capitol more difficult, time consuming or costly or
would otherwise discourage an attempt to acquire control of Capitol. 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 Capitol
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 Capitol in opposing such an attempt by a third party to gain
control of Capitol. 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
Capitol. Although
48
Capitol does not currently contemplate taking that action, shares of Company
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.
CAPITOL'S TRUST-PREFERRED SECURITIES
Capitol has issued debentures to Capitol Trust I, a Delaware business trust
subsidiary of Capitol. Capitol Trust I purchased the debentures with the
proceeds of preferred securities (which are traded on the NASDAQ National Stock
Market under the symbol "CBCLP"). Capitol also has additional trust-preferred
securities which were private placed. Capitol has guaranteed the preferred
securities. The documents governing these securities, including the indenture
under which the debentures were issued, restrict Capitol's right to pay a
dividend on its common stock under certain circumstances and give the holders of
the preferred securities preference on liquidation over the holders of Capitol's
common stock. Specifically, Capitol may not declare or pay a cash dividend on
its common stock if (a) an event of default has occurred as defined in the
indenture, (b) Capitol is in default under its guarantee, or (c) Capitol has
exercised its right under the debentures and the preferred securities to extend
the interest payment period. In addition, if any of these conditions have
occurred and until they are cured, Capitol is restricted from redeeming or
purchasing any shares of its common stock except under very limited
circumstances. Capitol's obligation under the debentures, the preferred
securities and the guarantee approximates $50 million at an average interest
rate approximating 8.50%-8.75% per annum, payable quarterly.
ANTI-TAKEOVER PROVISIONS
In addition to the utilization of authorized but unissued shares as
described above, the MBCA contains other provisions which could be utilized by
Capitol to impede efforts to acquire control of Capitol. Those provisions
include the following:
CONTROL SHARE ACT. The MBCA contains provisions 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 Michigan corporations.
The act 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 that act, 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 who are also employees of the corporation
are precluded from voting on the issue of whether the control shares shall be
accorded voting rights. The act does not affect the voting rights of shares
owned by an acquiring person prior to the control share acquisition.
The act entitles corporations to redeem control shares from the acquiring
person under certain circumstances. In other cases, the act confers dissenters'
rights upon all of a corporation's shareholders except the acquiring person.
The act applies only to an "issuing public corporation." Capitol falls
within the statutory definition of an "issuing public corporation." The act
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. Capitol has not "opted out" of the provisions of the act.
FAIR PRICE ACT. Certain provisions of the MBCA 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.
49
As of October 31, 2001 Capitol's management beneficially owned (including
immediately exercisable stock options) control of approximately _____% of
Capitol's outstanding common stock. 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.
50
WHERE YOU CAN FIND MORE INFORMATION
Capitol has filed a registration statement on Form S-4 to register with the
SEC the Capitol common stock to be issued to Sun shareholders in the exchange.
This proxy statement/prospectus is a part of that registration statement and
constitutes a prospectus of Capitol in addition to being a proxy statement of
Sun and Capitol for the special shareholders' meetings. 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, Capitol and Sun file 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 Chicago Regional Office Citicorp Center
450 Fifth Street, N.W. 500 West Madison Street
Room 1024 Suite 1400
Washington, D.C. 20549 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 Capitol and 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 Capitol and Sun at the offices of the
National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006.
The SEC allows Capitol to "incorporate by reference" the information it
files with the SEC. This permits Capitol to disclose important information to
you by referring to these filed documents. Any information referred to in this
way is considered part of this proxy statement/prospectus, except for any
information superseded by information in, or incorporated by reference in, this
proxy statement/prospectus. Capitol incorporates by reference the following
documents that have been filed with the SEC:
Capitol Bancorp Ltd. SEC Filings
(File No. 0-18461) Period
------------------ ------
* Quarterly Report on Form 10-Q Quarter ended September 30, 2001
* Quarterly Report on Form 10-Q Quarter ended June 30, 2001
* Quarterly Report on Form 10-Q Quarter ended March 31, 2001
* Annual Report on Form 10-K Year ended December 31, 2000
* Proxy Statement on Schedule 14A Annual Meeting Held May 3, 2001
* The description of Capitol's common N/A
stock contained in Capitol's
Registration Statement on Form 8-A
filed April 19, 1990, including any
amendment or report filed for the
purpose of updating such description
51
In addition, all subsequent documents filed with the SEC by Capitol and 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 and prior to the meetings
of shareholders in connection with the exchange, 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 JANUARY 11, 2002 TO
RECEIVE THEM BEFORE THE SHAREHOLDERS' MEETING. If you request exhibits to any
documents incorporated by reference, Capitol or Sun (as applicable) will mail
them to you by first class mail, or another equally prompt means, within one
business day after your request is received.
No one has been authorized to give any information or make any
representation about Sun, Capitol 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 Capitol has been supplied by
Capitol, and information about Sun has been supplied by Sun.
LEGAL MATTERS
Certain legal matters relating to the validity of the shares of Capitol
common stock offered by this proxy statement/prospectus and certain federal
income tax matters relating to the exchange will be passed upon for Capitol by
Strobl Cunningham Caretti & Sharp, P.C.
EXPERTS
The consolidated financial statements of Capitol Bancorp Limited
incorporated by reference in this proxy statement/prospectus included in Capitol
Bancorp Limited's annual report to shareholders incorporated by reference in the
Company's annual report on Form 10-K for the year ended December 31, 2000, have
been audited by BDO Seidman, LLP, independent certified public accountants, as
stated in their report incorporated herein by reference, in reliance upon such
report given upon the authority of said firm as experts in accounting and
auditing.
The consolidated financial statements of Sun Community Bancorp Limited
attached to this proxy statement/prospectus as Annex E included in Sun Community
Bancorp Limited's annual report to shareholders incorporated by reference in the
Company's annual report on Form 10-K for the year ended December 31, 2000, have
been audited by BDO Seidman, LLP, independent certified public accountants, as
stated in their report and is included in reliance upon such report given upon
the authority of such firm as experts in accounting and auditing.
52
ANNEX A
PLAN OF SHARE EXCHANGE
THIS PLAN OF SHARE EXCHANGE ("Plan") is entered into effective November 16,
2001 between and among CAPITOL BANCORP LIMITED, a Michigan corporation
("Capitol") and the SHAREHOLDERS of SUN COMMUNITY BANCORP LIMITED ("Sun").
RECITALS
A. Sun is an Arizona corporation whose stock (Sun common stock) is traded
on the National Market System of the NASDAQ Stock Market, Inc. and commenced
operations in 1997.
B. Capitol is now, and has been since Sun commenced operations, the holder
of a controlling interest in the duly issued and outstanding common stock of
Sun.
C. Sun is subject to an antidilution agreement which gives Capitol the
right to acquire additional shares up to a 51% interest in Sun anytime Sun
issues new shares.
D. Capitol's common stock ("Capitol common stock") is traded on the
National Market System of the NASDAQ Stock Market, Inc.
E. Sun's Board of Directors has determined that it would be in the best
interest of Sun's stockholders to exchange their shares of stock in Sun for
shares of Capitol common stock as described in this Plan, and Capitol 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 Sun common stock will exchange
his, her or their shares of Sun common stock for shares of Capitol common stock
according to an exchange ratio. The exchange ratio is based on an assumed value
of $10.497 for each share of Sun common stock and a value of $14.301 for each
share of Capitol common stock. These assumed values are based on the arithmetic
average of the closing prices of the common stock of Sun and Capitol for the
period of October 5, 2001 through November 2, 2001 as reported by the NASDAQ
Stock Market, Inc. Based on these relative values, each Sun share would be
exchanged for .734 shares of Capitol common stock, if the proposed share
exchange is approved. Outstanding stock options of Sun will be exchanged for
stock options of Capitol with the same vesting and expiration dates.
Each Sun shareholder (except Capitol) will receive shares of Capitol
common stock in exchange for his, her or their Sun common stock calculated by
multiplying the number of shares of Sun 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 Sun shall have approved and adopted the
Plan.
b. The Board of Directors of Capitol shall have approved and adopted
the Plan.
c. A majority of the common stock of Sun (exclusive of the shares
held by Capitol) shall have been voted to approve and adopt the
Plan at a meeting of the shareholders called for that purpose.
d. A majority of the common stock of Capitol shall have been voted
to approve and adopt the Plan at a meeting of the shareholders
for that purpose.
e. The Securities and Exchange Commission shall have declared
effective the Registration Statement registering the shares of
stock of Capitol common stock to be issued in the exchange.
3. FAIRNESS OPINION. The following fairness opinions shall be obtained
prior to the Plan becoming effective:
a. The Board of Directors of Sun 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 Sun.
Such firm has been appointed by a special committee of
independent directors of Sun formed to explore the transaction.
b. The Board of Directors of Capitol 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 Capitol. Such firm has been appointed by a
special committee of independent directors of Capitol formed to
explore the transaction.
4. INDEPENDENT COUNSEL. Independent law firms have been retained to review
the proposed transaction on behalf of both companies. Snell and Wilmer, L.L.P.
has been retained by Sun to review the transaction. The firm of Strobl
Cunningham Caretti & Sharp, P.C. has been retained to review the transaction on
behalf of Capitol and to issue a tax opinion as to whether the share exchange
will constitute a reorganization within the means of section 368 of the Internal
revenue code of 1986, as amended.
5. SURRENDER OF CERTIFICATES. Each shareholder of Sun common stock shall
surrender to Capitol his, her or their certificate(s) for shares of Sun common
stock. Capitol shall direct its transfer agent, UMB Bank, n.a., to issue
certificate(s) of Capitol common stock to be issued in the exchange.
Certificate(s) of Capitol common stock shall be issued and registered in the
same name as the shares of Sun common stock surrendered in exchange therefor,
and shall thereafter be transferable in the same manner as otherwise provided
for Capitol common stock. Shareholders of Sun will not be paid dividend
payments, if any, paid by Capitol until such time as their certificates have
been exchanged. Any such withheld dividend payment will be paid upon exchange of
the certificate(s).
6. NEW SUN CERTIFICATE. Sun shall issue its certificate registering in the
name of Capitol all shares of stock now registered to shareholders other than
Capitol.
7. FEES. Each company shall bear the cost of their respective attorney fees
and investment banking fees, as well as fees associated with the solicitation
for and the holding of their special shareholders meeting.
8. The transaction will be governed by the laws of the State of Michigan.
ANNEX B
OPINION OF SUN'S FINANCIAL ADVISOR
November 16, 2001
Board of Directors
Sun Sun Bancorp Limited
2777 East Camelback Road, Suite 375
Phoenix, AZ 85016
Board of Directors:
You have requested that Friedman, Billings, Ramsey & Co., Inc. ("FBR") provide
you with its opinion as to the fairness, from a financial point of view, to the
holders of shares of common stock ("Stockholders") of Sun Community Bancorp
Limited ("Sun" or the "Company") of the Exchange Ratio (as hereinafter defined)
to be utilized in the possible exchange (the "Exchange") of shares of common
stock of Capitol Bancorp Limited ("Capitol") for all of the outstanding shares
of common stock of Sun not presently owned by Capitol (the "Sun Shares") as set
forth in the Plan of Share Exchange dated as of November 16, 2001 (the "Plan").
As used herein, Stockholders shall mean all holders of shares of common stock of
Sun other than Capitol.
Under the terms of the Plan, each Sun Share will be converted into the right to
receive shares of common stock of Capitol (the "Capitol Shares") according to
the Exchange Ratio. The Exchange Ratio is calculated by dividing the assumed
value of a Sun Share by the assumed value of a share of common stock of Capitol.
For purposes of this calculation, the assumed value of a Sun Share is $10.497,
and the assumed value of a Capitol Share is $14.301. These assumed values were
calculated by taking the arithmetic average of the closing prices of the Sun
Shares and the Capitol Shares, respectively, for the period beginning October 5,
2001 and ending on November 2, 2001 as reported by the NASDAQ Stock Market, Inc.
As a result, the Exchange Ratio is 0.734 Capitol Share for each Sun Share. The
complete terms of the proposed transaction are described in the Plan, and this
summary is qualified in its entirety by reference thereto. The Plan will be
considered at a special meeting of the Stockholders of Sun.
FBR, in connection with rendering this opinion:
* reviewed Sun's Annual Report to Shareholders and Annual Report on Form
10-K for each of the fiscal years ended December 31, 1998, December
31,
November 16, 2001
Page 2
1999, and December 31, 2000, including the audited financial
statements contained therein, and Sun's Quarterly Report on Form 10-Q
for each of the quarters ended March 31, 2001, June 30, 2001 and
September 30, 2001;
* reviewed Capitol's Annual Report to Shareholders and Annual Report on
Form 10-K for each of the fiscal years ended December 31, 1998,
December 31, 1999 and December 31, 2000, including the audited
financial statements contained therein, and Capitol's Quarterly report
on Form 10-Q for each of the quarters ended March 31, 2001, June 30,
2001 and September 30, 2001;
* reviewed certain other public and non-public information, primarily
financial in nature, relating to the respective businesses, earnings,
assets and prospects of Sun and Capitol provided to FBR or publicly
available;
* participated in meetings and telephone conferences with members of
senior management of Sun and Capitol concerning the financial
condition, business, assets, financial forecasts and prospects of the
respective companies, as well as other matters FBR believed relevant
to its inquiry;
* reviewed certain stock market information for the Sun Shares and for
the Capitol Shares and compared it with similar information for
certain companies, the shares of common stock of which are publicly
traded;
* compared the results of operations and financial condition of Sun and
Capitol with that of certain companies that FBR deemed to be relevant
for purposes of the Opinion;
* reviewed and discussed the regulatory examinations of both Sun and
Capitol with their respective managements, including safety and
soundness and CRA ratings;
* reviewed the Plan and its schedules and exhibits and certain related
documents;
* reviewed the draft of Form S-4 of Capitol with respect to the Exchange
and its schedules and exhibits; and
* performed such other reviews and analyses as FBR deemed appropriate.
November 16, 2001
Page 3
In rendering this opinion, FBR did not assume responsibility for independently
verifying, and did not independently verify, any financial or other information
concerning Sun and Capitol furnished to it by Sun or Capitol, or the
publicly-available financial and other information regarding Sun, Capitol and
other financial institutions (or their holding companies). FBR has assumed that
all such information is accurate and complete and has no reason to believe
otherwise. FBR has further relied on the assurances of management of Sun and
Capitol that they are not aware of any facts that would make such financial or
other information relating to such entities inaccurate or misleading. With
respect to financial forecasts for Sun and Capitol provided to FBR by their
respective managements, FBR has assumed, for purposes of this opinion, that the
forecasts have been reasonably prepared on bases reflecting the best available
estimates and judgments of such management at the time of preparation as to the
future financial performance of Sun and Capitol. FBR has assumed that there has
been no undisclosed material change in Sun's or Capitol's assets, financial
condition, results of operations, business or prospects since September 30,
2001. FBR did not undertake an independent appraisal of the assets or
liabilities of Sun or Capitol nor was FBR furnished with any such appraisals.
FBR is not an expert in the evaluation of allowances for loan losses, was not
requested to and did not review such allowances, and was not requested to and
did not review any individual credit files of Sun or Capitol. FBR's conclusions
and opinion are necessarily based upon economic, market and other conditions and
the information made available to FBR as of the date of this opinion. FBR
expresses no opinion on matters of a legal, regulatory, tax or accounting nature
related to the Plan.
FBR, as part of its institutional brokerage, research and investment banking
practice, is regularly engaged in the valuation of securities and the evaluation
of transactions in connection with mergers and acquisitions of commercial banks,
savings institutions and financial institution holding companies, initial and
secondary offerings and mutual-to-stock conversions of savings institutions, as
well as business valuations for other corporate purposes for financial
institutions and real estate related companies. FBR has experience in, and
knowledge of, the valuation of bank and thrift securities in Arizona and the
rest of the United States.
FBR has acted as a financial advisor to Sun in connection with the Exchange and
will receive a nonrefunadable fee for services rendered of $150,000. In
addition, Sun has agreed to reimburse FBR for all reasonable out-of-pocket
expenses incurred by it on Sun's behalf, as well as indemnify FBR against
certain liabilities, including any which may arise under the federal securities
laws. In the ordinary course of FBR's business, it may provide investment
banking services to Capitol for which FBR will receive compensation.
Furthermore, FBR may effect transactions in the securities of Sun or Capitol for
its own account and/or for the accounts of its customers and, accordingly,
November 16, 2001
Page 4
may at any time hold long or short positions in such securities. From time to
time, principals and/or employees of FBR may also have positions in such
securities.
Based upon and subject to the foregoing, as well as any such other matters as we
consider relevant, it is FBR's opinion, as of the date hereof, that the Exchange
Ratio is fair, from a financial point of view, to the Stockholders of Sun.
This letter is solely for the information of the Board of Directors and
Stockholders of Sun and may not be relied upon by any other person or used for
any other purpose, reproduced, disseminated, quoted from or referred to without
FBR's prior written consent; provided, however, this letter may be referred to
and reproduced in its entirety in proxy materials sent to the Stockholders in
connection with the solicitation of approval for the Plan.
Very truly yours,
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
ANNEX C
OPINION OF CAPITOL'S FINANCIAL ADVISOR
November 15, 2001
The Special Committee of the Board of Directors:
Mr. Douglas E. Crist, Chairman
Mr. Louis G. Allen
Mr. Leonard Maas
Capitol Bancorp Ltd.
200 Washington Square North
Lansing, MI 48933
Dear Members of the Special Committee:
You have requested our opinion as to the fairness from a financial point of
view solely to the shareholders of Capitol Bancorp Ltd. ("Capitol") of the
exchange ratio (the "Exchange Ratio") of 0.734 shares of common stock, without
par value per share, of Capitol (the "Capitol Common Stock") to be exchanged for
each share of common stock, without par value per share, of Sun Community
Bancorp Limited ("Sun") pursuant to the terms of the Plan of Share Exchange
dated as of November 16, 2001, between and among Capitol and the shareholders of
Sun (the "Plan"). For the purposes of our opinion, we have assumed that the
exchange between Sun and Capitol pursuant to the Plan (the "Exchange") will
constitute a tax-free reorganization.
Stifel, Nicolaus & Company, Incorporated ("Stifel"), as part of its
investment banking services, is regularly engaged in the independent valuation
of businesses and securities in connection with mergers, acquisitions,
underwritings, sales and distributions of listed and unlisted securities,
private placements and valuations for estate, corporate and other purposes. We
have been retained by Capitol to render a fairness opinion to the Special
Committee of the Board of Directors of Capitol (the "Special Committee") in
connection with the Plan. We will receive a fee for our services under the terms
of our engagement letter with the Special Committee dated November 9, 2001, as
previously provided to and approved by Capitol's Board of Directors. The fee,
which is payable upon delivery of this opinion to the Special Committee, is not
contingent upon the approval or consummation of the transaction. In addition,
Capitol has agreed to indemnify us for certain liabilities that may arise out of
the rendering of this opinion and to reimburse us for our reasonable expenses
incurred in connection with the performance of our services. In the ordinary
course of its business, Stifel actively trades equity securities of Capitol for
its own account and for the accounts of its customers and, accordingly, may at
any time hold a long or short position in such securities. In addition, Stifel
may trade equity securities of Sun for the accounts of its customers.
In rendering our opinion, we have reviewed, among other things: the form of
the Plan; the financial statements of Capitol included in its 10-Ks for the five
years ended December 31, 2000 and its 10-Qs for the three quarters ended
September 30, 2001; the financial statements of Sun included in its 10-Ks for
the three years ended December 31, 2000, its 10-Qs for the three quarters ended
September 30, 2001, and its initial public offering prospectus, dated July 2,
1999; certain internal financial analyses and forecasts for Capitol and Sun
prepared by their respective managements; and certain internal financial
forecasts for Capitol and Sun on a combined basis, giving effect to the
Exchange, prepared by the management of Capitol. We have conducted conversations
with Capitol's senior management regarding recent developments and managements'
financial forecasts for Capitol and Sun. We have also compared certain financial
and securities data of Capitol and Sun with various other companies whose
securities are traded in public markets, reviewed the historical stock prices
and trading volumes of the common stock of Capitol and Sun, reviewed the
financial terms of certain other business combinations and conducted such other
financial studies, analyses and investigations as we deemed appropriate for
purposes of this opinion. We also took into account our assessment of general
economic, market and financial conditions and our experience in other
transactions, as well as our experience in securities valuations and our
knowledge of the commercial banking industry generally.
The Special Committee of the Board of Directors
November 15, 2001
Page 2
In rendering our opinion, we have relied upon and assumed, without
independent verification, the accuracy and completeness of all of the financial
and other information that was provided to us or that was otherwise reviewed by
us and have not assumed any responsibility for independently verifying any of
such information. With respect to the financial forecasts supplied to us
(including without limitation, projected cost savings and operating synergies
resulting from the Exchange), we have assumed with your consent that they were
reasonably prepared on the basis reflecting the best currently available
estimates and judgments of Capitol and Sun as to the future operating and
financial performance of Capitol and Sun, that they would be realized in the
amounts and time periods estimated and that they provided a reasonable basis
upon which we could form our opinion. We also assumed that there were no
material changes in the assets, liabilities, financial condition, results of
operations, business or prospects of either Capitol or Sun since the date of the
last financial statements made available to us. We have also assumed, without
independent verification and with your consent, that the aggregate allowances
for loan losses set forth in the financial statements of Capitol and Sun are in
the aggregate adequate to cover all such losses. We did not make or obtain any
independent evaluation, appraisal or physical inspection of Capitol's or Sun's
assets or liabilities, the collateral securing any of such assets or
liabilities, or the collectibility of any such assets nor did we review loan or
credit files of Capitol or Sun. We relied on advice of Capitol's counsel and
accountants as to certain legal and accounting matters with respect to Capitol,
the Plan and the transactions and other matters contained or contemplated
therein. We have assumed, with your consent, that there are no factors that
would delay or subject to any adverse conditions any necessary regulatory or
governmental approval and that all conditions to the Exchange will be satisfied
and not waived. We have not been requested to analyze, nor are we expressing any
opinion with respect to, the fairness of the exchange ratio to the shareholders
of Sun.
Our opinion is necessarily based on economic, market, financial and other
conditions as they exist on, and on the information made available to us as of,
the date of this letter. Our opinion is directed to the Special Committee for
its information and assistance in connection with its consideration of the
financial terms of the transaction contemplated by the Exchange solely from the
financial point of view of the shareholders of Capitol and does not constitute a
recommendation to any shareholder as to how such shareholder should vote on the
proposed transaction, nor have we expressed any opinion as to the prices at
which any securities of Capitol or Sun might trade in the future. Except as
required by applicable law, including without limitation federal securities
laws, our opinion may not be published or otherwise used or referred to, nor
shall any public reference to Stifel be made, without our prior written consent.
Based upon the foregoing and such other factors as we deem relevant, we are
of the opinion, as of the date hereof, that the Exchange Ratio pursuant to the
Plan is fair to the holders of Capitol Common Stock from a financial point of
view.
Very truly yours,
STIFEL, NICOLAUS & COMPANY, INCORPORATED
ANNEX D
TAX OPINION OF STROBL CUNNINGHAM CARETTI & SHARP, P.C.
[to be filed by amendment]
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 Sun Community Bancorp Limited:
- Report on Form 10-Q for period ended September 30, 2001
- 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
ANNEX F
FINANCIAL AND OTHER INFORMATION REGARDING
CAPITOL BANCORP LIMITED
The following items are incorporated herein by reference:
- Report on Form 10-Q for period ended September 30, 2001
- 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 Capitol's Annual Meeting of Shareholders held on
May 3, 2001
- Description of Capitol's common stock contained in Capitol's
Registration Statement on Form 8-A filed April 19, 1990, including any
amendment or report filed for the purpose of updating such description
PART II
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Sections 561 - 571 of the Michigan Business Corporation Act ("MBCA"), 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
MBCA 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 MBCA 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 Michigan 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-7 of the
Registration Statement.
(b) All Financial Statements Schedules are omitted in the Registrant's
Annual Report on Form 10-K for the year ended December 31, 2000
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.
(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.
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(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 Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Lansing, Michigan on November 16,
2001.
CAPITOL BANCORP LIMITED
By: /s/ Joseph D. Reid
------------------------------------
JOSEPH D. REID
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Joseph D. Reid, Cristin Reid English, and Lee W.
Hendrickson and each of them (with full power to each of them to act alone), his
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all amendments (including post-effective amendments)
to this Registration Statement, including any Registration Statement for the
same offering that is to be effective upon filing pursuant to Rule 462(b) under
the Securities Act of 1933, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on November 16, 2001.
II-4
Signature Title
- --------- -----
/s/ Joseph D. Reid
- ---------------------------------- Chairman of the Board and
JOSEPH D. REID Chief Executive Officer,
Director (Principal Executive
Officer)
/s/ Lee W. Hendrickson
- ---------------------------------- Executive Vice President and
LEE W. HENDRICKSON Chief Financial Officer (Principal
Financial and Accounting Officer)
/s/ Robert C. Carr Executive Vice President, Treasurer,
- ---------------------------------- Director
ROBERT C. CARR
Secretary, Director
- ----------------------------------
DAVID O'LEARY
/s/ Louis G. Allen Director
- ----------------------------------
LOUIS G. ALLEN
/s/ Paul R. Ballard Director
- ----------------------------------
PAUL R. BALLARD
/s/ David L. Becker Director
- ----------------------------------
DAVID L. BECKER
/s/ Douglas E. Crist Director
- ----------------------------------
DOUGLAS E. CRIST
/s/ James C. Epolito Director
- ----------------------------------
JAMES C. EPOLITO
/s/ Gary A. Falkenberg Director
- ----------------------------------
GARY A. FALKENBERG
Director
- ----------------------------------
JOEL I. FERGUSON
/s/ Kathleen A. Gaskin Director
- ----------------------------------
KATHLEEN A. GASKIN
II-5
Signature Title
- --------- -----
/s/ H. Nicholas Genova Director
- ----------------------------------
H. NICHOLAS GENOVA
/s/ L. Douglas Johns Director
- ----------------------------------
L. DOUGLAS JOHNS
/s/ Michael L. Kasten Director
- ----------------------------------
MICHAEL L. KASTEN
/s/ Leonard Maas Director
- ----------------------------------
LEONARD MAAS
/s/ Lyle W. Miller Director
- ----------------------------------
LYLE W. MILLER
/s/ Cristin Reid English Director
- ----------------------------------
CRISTIN REID ENGLISH
II-6
EXHIBIT INDEX
INCORPORATED BY
EXHIBIT NO. DESCRIPTION REFERENCE FROM
- ---------- ----------- --------------
2.1 Plan of Share Exchange (included in the proxy statement/prospectus as Annex A).
4 Instruments Defining the Rights of Capitol's Security Holders:
(a) Common Stock Certificate (1)
(b) Indenture dated December 18, 1997 (2)
(c) Subordinated Debenture (2)
(d) Amended and Restated Trust Agreement dated December 18, 1997 (2)
(e) Preferred Security Certificate dated December 18, 1997 (2)
(f) Preferred Securities Guarantee Agreement of Capitol Trust I
dated December 18, 1997 (2)
(g) Agreement as to Expenses and Liabilities of Capitol Trust I (2)
5 Opinion of Strobl Cunningham Caretti & Sharp, P.C. as to the validity of the shares.
8 Tax Opinion of Strobl Cunningham Caretti & Sharp, P.C. (included in the proxy
statement/prospectus as Annex D).
23.1a Consent of BDO Seidman, LLP.
23.1b Consent of BDO Seidman, LLP.
23.2 Consent of Strobl Cunningham Caretti & Sharp, P.C. (included in Exhibits 5 and 8).
23.3 Consent of Snell & Wilmer, L.L.P.
23.4 Consent of Friedman, Billings, Ramsey & Co., Inc. (Sun's financial advisor).
23.5 Consent of Stifel, Nicolaus & Company, Incorporated (Capitol's financial advisor).
24 Power of Attorney (included on the signature page of the Registration Statement).
99a Form of proxy for the Special Meeting of Shareholders of Sun Community Bancorp Limited.
99b Form of proxy for the Special Meeting of Shareholders of Capitol Bancorp Limited.
KEY:
- ---
(1) Form S-18, Reg. No. 33-24728C, filed September 15, 1988.
(2) Post Effective Amendment No. 1 to Form S-3, Reg. No. 333-41215 and
333-41215-01 filed February 9, 1998.
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