As filed with the Securities and Exchange Commission on July 31, 2002
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 IDENTIFICATION NO.)
CLASSIFICATION
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)
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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
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Common stock (no par value) 271,555 N/A $5,395,798 $496
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(1) Based on 438,828 shares of common stock, no par value, of Sunrise Capital
Corporation, which is the maximum number of shares of Sunrise common stock
(excluding shares held by Capitol) that may be outstanding immediately
prior to the consummation of the exchange transaction, multiplied by the
proposed fixed exchange ratio of 0.618819 shares of Capitol common stock
for each share of Sunrise 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 $19.87, the
average of the high and low price per share of Capitol common stock, as
reported on the Nasdaq National Market on July 25, 2002, multiplied by
271,555, the maximum number of shares of Capitol common stock as described
in Note 1 above.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
[SUNRISE LOGO]
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held On September ___, 2002
To the Shareholders of Sunrise Capital Corporation:
The annual meeting of the shareholders of Sunrise Capital Corporation will
be held at the offices of Sunrise Bank of Arizona at 4350 East Camelback Road,
Suite 100A, Phoenix, Arizona 85018 on September ___, 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 May 31, 2002, between Capitol Bancorp Limited and
Sunrise Capital Corporation under which all shareholders of Sunrise (other than
Capitol) will exchange their common stock in Sunrise 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 New Mexico law, shareholders of
Sunrise will have the right to assert dissenters' rights in connection with the
proposed Plan of Share Exchange. See "Dissenters' Rights" in the proxy
statement/prospectus accompanying this notice.
2. Election of Directors.
3. To act on any other matters that may properly be brought before the
shareholders' meeting or any adjournment or postponement.
Only shareholders of record at the close of business on August ___, 2002
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 Sunrise'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/ Cristin Reid English
Secretary
THE INFORMATION IN THIS PROXY STATEMENT/PROSPECTUS IS NOT COMPLETE AND MAY
BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROXY
STATEMENT/PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT
SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER
OR SALE IS NOT PERMITTED.
PROXY STATEMENT/PROSPECTUS
PROPOSED PLAN OF SHARE EXCHANGE
The Boards of Directors of Sunrise Capital Corporation and Capitol Bancorp
Limited have each approved a Plan of Share Exchange that contemplates the
exchange of the shares of Sunrise common stock held by all shareholders other
than Capitol for shares of Capitol common stock. Capitol currently has a
controlling interest in Sunrise's common stock. As a result of the exchange,
Sunrise will become a wholly-owned subsidiary of Capitol.
If the exchange is approved, each share of Sunrise common stock will be
converted into the right to receive Capitol common stock according to an
exchange ratio. The exchange ratio is calculated by dividing Sunrise share value
by the Capitol share value. If the exchange is approved, each shareholder of
Sunrise (other than Capitol) would receive in the exchange 0.618819 shares of
Capitol common stock for each share of Sunrise common stock. The actual exchange
ratio may be different. Capitol share value, $21.816, is based on the average of
the closing prices of the common stock of Capitol for the thirty-day period
ended June 14, 2002 as reported by the Nasdaq National Market. Sunrise share
value is based on $13.50 per Sunrise share and is subject to adjustment based on
Capitol's due diligence review of Sunrise's consolidated loan portfolio as of
September 30, 2002.
Capitol estimates that Capitol will issue approximately 271,555 shares of
Capitol common stock to Sunrise shareholders in the exchange. Those shares will
be less than 5% of the outstanding Capitol common stock after the exchange.
Capitol's common stock trades on the Nasdaq National Market System under the
symbol "CBCL."
Sunrise's Board of Directors has scheduled the annual meeting of Sunrise
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 annual shareholders' meeting.
This document gives you detailed information about the meeting and the
proposed exchange. You are encouraged to read this document carefully. IN
PARTICULAR, YOU SHOULD READ THE "RISK FACTORS" SECTION BEGINNING ON PAGE 16 FOR
A DESCRIPTION OF VARIOUS RISKS YOU SHOULD CONSIDER IN EVALUATING THE EXCHANGE OF
YOUR SUNRISE 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 August ___, 2002, and is first
being mailed to shareholders of Sunrise on or about ___________, 2002.
1
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2
TABLE OF CONTENTS
ANSWERS TO FREQUENTLY ASKED QUESTIONS........................................ 5
SUMMARY...................................................................... 8
Reasons for the Exchange................................................... 8
The Annual Shareholders' Meeting........................................... 9
Recommendation to Shareholders............................................. 9
Votes Required............................................................. 9
Record Date; Voting Power.................................................. 9
What Shareholders Will Receive in the Exchange............................. 9
Accounting Treatment....................................................... 9
Tax Consequences of the Exchange to Sunrise Shareholders................... 10
Dissenters' Rights......................................................... 10
Opinion of Financial Advisor............................................... 10
The Plan of Share Exchange................................................. 10
Termination of the Exchange................................................ 10
Your Rights as a Shareholder Will Change................................... 10
SELECTED CONSOLIDATED FINANCIAL DATA OF CAPITOL.............................. 11
SELECTED CONSOLIDATED FINANCIAL DATA OF SUNRISE.............................. 14
RISK FACTORS................................................................. 16
COMPARATIVE HISTORICAL, PRO FORMA AND PRO FORMA EQUIVALENT
PER SHARE INFORMATION.................................................... 20
RECENT DEVELOPMENTS.......................................................... 21
CAPITALIZATION............................................................... 22
DIVIDENDS AND MARKET FOR COMMON STOCK........................................ 23
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS.................... 24
INFORMATION ABOUT CAPITOL.................................................... 25
INFORMATION ABOUT SUNRISE.................................................... 25
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA.............................. 27
THE ELECTION OF DIRECTORS.................................................... 31
THE EXCHANGE................................................................. 32
General.................................................................... 32
Material Contracts or Understandings Between Capitol and Sunrise........... 32
Background of the Exchange................................................. 32
Sunrise's Reasons for the Exchange......................................... 33
Capitol's Reasons for the Exchange......................................... 33
Terms of the Plan of Share Exchange........................................ 33
Sunrise's Board Recommendation............................................. 33
Accounting Treatment....................................................... 34
Pro Forma Data............................................................. 34
Material Federal Income Tax Consequences................................... 34
Regulatory Matters......................................................... 35
3
TABLE OF CONTENTS - Continued
Dissenters' Rights......................................................... 36
Federal Securities Laws Consequences; Stock Transfer Restrictions.......... 37
OPINION OF FINANCIAL ADVISOR................................................. 38
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' MEETING.................................................... 42
Date, Time and Place....................................................... 42
Matters to be Considered at the Shareholders' Meeting...................... 42
Record Date; Stock Entitled to Vote; Quorum................................ 42
Votes Required............................................................. 42
Share Ownership of Management.............................................. 42
Voting of Proxies.......................................................... 43
General Information........................................................ 43
Solicitation of Proxies; Expenses.......................................... 43
COMPARISON OF SHAREHOLDER RIGHTS............................................. 44
DESCRIPTION OF CAPITAL STOCK OF CAPITOL...................................... 45
Rights of Common Stock..................................................... 45
Shares Available for Issuance.............................................. 45
Capitol's Trust-Preferred Securities....................................... 46
Anti-Takeover Provisions................................................... 46
WHERE YOU CAN FIND MORE INFORMATION.......................................... 48
LEGAL MATTERS................................................................ 49
EXPERTS...................................................................... 49
LIST OF ANNEXES
ANNEX A Plan of Share Exchange............................................ A-1
ANNEX B Opinion of Financial Advisor...................................... B-1
ANNEX C Tax Opinion of ______________________ ............................ C-1
ANNEX D Financial Information Regarding Sunrise Capital Corporation....... D-1
ANNEX E Excerpts of New Mexico Business Corporation Act................... E-1
4
ANSWERS TO
FREQUENTLY ASKED QUESTIONS
Q: Why am I receiving these materials?
A: Sunrise's Board of Directors has approved the exchange of Sunrise's
common stock not owned by Capitol for shares of common stock of
Capitol. The exchange requires the approval of Sunrise's shareholders.
Sunrise is sending you these materials to help you decide whether to
approve the exchange. These materials also include information
regarding Sunrise's election of directors.
Q: What will Sunrise's shareholders receive in the exchange?
A: You 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, each share of
Sunrise common stock will be converted into the right to receive
Capitol common stock according to an exchange ratio. The exchange ratio
is calculated by dividing Sunrise share value by the Capitol share
value. If the exchange is approved, each shareholder of Sunrise (other
than Capitol) would receive in the exchange 0.618819 shares of Capitol
common stock for each share of Sunrise common stock. The actual
exchange ratio may be different. Capitol share value is based on the
average of the closing prices of the common stock of Capitol for the
thirty-day period ended June 14, 2002 as reported by the Nasdaq
National Market. Sunrise share value is based on $13.50 per Sunrise
share and is subject to adjustment based on Capitol's due diligence
review of Sunrise's consolidated loan portfolio as of September 30,
2002.
Each Sunrise shareholder (except Capitol) will receive shares of
Capitol common stock in exchange for his, her or their Sunrise common
stock calculated by multiplying the number of shares of Sunrise common
stock held by the shareholder by the exchange ratio. Any fractional
shares will be paid in cash. In addition, outstanding stock options of
Sunrise will be exchanged for stock options of Capitol with the same
vesting and expiration dates.
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 Sunrise 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 September ___,
2002; or
- by attending the shareholders' meeting and voting in person.
5
Q: What vote is required to approve the exchange?
A: In order to complete the exchange, holders of a majority of the shares
of Sunrise common stock (other than Capitol) must approve the Plan of
Share Exchange. If you do not vote your Sunrise shares, the effect will
be a vote against the Plan of Share Exchange.
Q: Should I send in my Sunrise stock certificates at this time?
A: No. If the proposed share exchange is approved, Capitol or Capitol's
stock transfer agent will send Sunrise's shareholders written
instructions for exchanging their stock certificates.
Q: When do you expect to complete the exchange?
A: As quickly as possible after approval by Sunrise's shareholders at the
shareholders' meeting. It is anticipated the exchange will be completed
by November 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 SEPTEMBER ___,
2002.
For more information on the matters incorporated by reference in this
document, see "Where You Can Find More Information".
6
WHO CAN ANSWER YOUR QUESTIONS?
If you have additional questions, you should contact:
Sunrise Capital Corporation
c/o Sunrise Bank of Arizona
4350 East Camelback Road, Suite 100A
Phoenix, Arizona 85018
Attention: William Hinz II
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.
7
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 29 wholly or majority-owned bank subsidiaries, including 3 bank
subsidiaries which are wholly or majority-owned directly or indirectly by
Sunrise. 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 Sunrise and its bank subsidiaries. Capitol and Sunrise are already
closely related in several important ways.
Sunrise Capital Corporation is a bank holding company with its headquarters
at 225 Gold SW, Albuquerque, New Mexico 87102. Sunrise's telephone number is
(505) 243-3388.
Sunrise is now and has been, since it commenced business, an affiliate and
a controlled subsidiary of Capitol. Sunrise became a bank holding company in
November 1999 when it acquired Sunrise Bank of Arizona (formed in 1998) through
a one-for-one stock exchange transaction with that bank's shareholders. Sunrise
subsequently expanded through the addition of two bank subsidiaries, Sunrise
Bank of Albuquerque (formed in 2000 and 87% owned by Sunrise) and Sunrise Bank
of San Diego (formed in 2001 and 64% owned by Sunrise). Most recently, Sunrise
has announced expansion into Dallas and Houston, Texas and Atlanta, Georgia,
through loan production offices and a private banking center in Scottsdale,
Arizona, each of which recently opened and are associated with Sunrise Bank of
Arizona. Up to July 31, 2002, Sunrise was a majority-owned subsidiary of Sun
Community Bancorp Limited. Sun was previously a 50% owned subsidiary of Capitol
Bancorp Ltd. Effective March 31, 2002, Sun became a wholly-owned subsidiary of
Capitol as the result of a share exchange transaction and, effective July 31,
2002, Sun was merged into Capitol. As a result of the merger, Sunrise became a
majority-owned subsidiary of Capitol, and Capitol directly owns 70.6% of the
outstanding shares of Sunrise common stock (1,054,095 shares as of December 31,
2001). Sunrise's executive management and Board of Directors holds 2.31% of the
outstanding shares of Sunrise common stock, or 7.86% of all shares not held by
Capitol. Capitol's executive management and Board of Directors that are not
executive management and directors of Sunrise hold less than 1% of the
outstanding shares of Sunrise's common stock.
Capitol's operating strategy is to provide transactional, processing and
administrative support and mentoring to aid in the effective growth and
development of its banks. It provides access to support services and management
with significant experience in community banking. These administrative and
operational support services do not require a direct interface with the bank
customer and therefore can be consolidated more efficiently without affecting
the bank customer relationship. Subsidiary banks have full decision-making
authority in structuring and approving loans and in the delivery and pricing of
other banking services.
Capitol and Sunrise have entered into a Plan of Share Exchange which, if
approved by Sunrise's shareholders, would result in the exchange of Sunrise's
common stock (excluding shares held by Capitol) for shares of Capitol's common
stock.
REASONS FOR THE EXCHANGE (PAGE 33)
It is believed that the exchange will provide Sunrise's shareholders with
greater liquidity and flexibility because Capitol's common stock is publicly
traded. The exchange will also provide Sunrise's shareholders with greater
diversification, since Capitol is active in more than one geographic area and
across a broader customer base. Capitol has been paying quarterly cash dividends
to its common shareholders (although there is no assurance such dividends will
continue in the future). Sunrise has never paid a cash dividend. In 2001 and
through June 30, 2002, Capitol has been paying quarterly cash dividends of $0.10
per share ($0.09 per share in 2000 and 1999). Future payment of cash dividends
by Capitol, if any, is dependent upon many variables and is subject to approval
by Capitol's Board of Directors.
8
THE ANNUAL SHAREHOLDERS' MEETING (PAGE 42)
The meeting of Sunrise shareholders will be held on September ___, 2002 at
9:00 a.m., local time, at Sunrise Bank of Arizona at 4350 East Camelback Road,
Suite 100A, Phoenix, Arizona, 85018. At the shareholders' meeting, you will
elect Sunrise's Board of Directors and be asked to approve the Plan of Share
Exchange.
RECOMMENDATION TO SHAREHOLDERS (PAGE 33)
The Sunrise board believes that the exchange is fair to you and in the best
interests of both you and Sunrise and recommends that you vote FOR approval of
the share exchange.
VOTES REQUIRED (PAGE 42)
Approval of the Plan of Share Exchange requires the favorable vote of a
majority of the outstanding shares of Sunrise common stock excluding the shares
held by Capitol. This is more than the vote required by law, but Sunrise's board
has set the vote requirement to be sure the exchange is what you, the
shareholders of Sunrise, want. Capitol holds 70.6% of the outstanding shares of
Sunrise common stock. Sunrise's Board of Directors holds 2.31% of the
outstanding shares of Sunrise common stock, or 7.86% of all shares not held by
Capitol. The majority of the Board of Directors have agreed to vote their shares
FOR approval of the Plan of Share Exchange.
RECORD DATE; VOTING POWER (PAGE 42)
Sunrise shareholders may vote at the shareholders' meeting if they owned
shares of common stock at the close of business on August ___, 2002. At the
close of business on June 30, 2002, 438,828 shares of Sunrise common stock were
outstanding (excluding shares held by Capitol). For each share of Sunrise common
stock that you owned as of the close of business on that date, you will have one
vote in the vote of common shareholders at the shareholders' meeting on the
proposal to approve the Plan of Share Exchange.
WHAT SHAREHOLDERS WILL RECEIVE IN THE EXCHANGE (PAGE 33)
In the exchange, each outstanding share of Sunrise common stock will be
automatically converted into the right to receive Capitol common stock,
according to an "exchange ratio". If the exchange is approved, each shareholder
of Sunrise would receive in the exchange 0.618819 shares of Capitol common stock
for each share of Sunrise common stock. This is based on the Capitol Share Value
of $21.816 per share and an assumed value of $13.50 Sunrise share value. The
actual exchange ratio will be determined by dividing the Sunrise Share Value by
the Capitol Share Value, where:
SUNRISE SHARE VALUE. The share value of each share of
Sunrise common stock shall be $13.50 per share and is
subject to adjustment based on Capitol's due diligence
review of Sunrise's consolidated loan portfolio as of
September 30, 2002.
CAPITOL SHARE VALUE. The share value of each share of
Capitol common stock shall be $21.816, the average of the
closing prices of Capitol's common stock for the thirty-day
period ended June 14, 2002, as reported by the Nasdaq
National Market.
Each Sunrise shareholder (except Capitol) will receive shares of Capitol
common stock in exchange for his, her or their Sunrise common stock calculated
by multiplying the number of shares of Sunrise common stock held by the
shareholder by the exchange ratio. Any fractional shares will be paid in cash.
ACCOUNTING TREATMENT (PAGE 34)
Capitol's acquisition of the minority interest of Sunrise will be accounted
for under the purchase method of accounting. After the exchange, 100% of
Sunrise's results from operations will be included in Capitol's income
statement, as opposed to 70.6% as is currently reported.
9
TAX CONSEQUENCES OF THE EXCHANGE TO SUNRISE SHAREHOLDERS (PAGE 34)
Capitol's tax counsel has rendered its opinion that Sunrise shareholders
will not recognize any gain or loss for federal income tax purposes on the
exchange of their Sunrise shares for shares of Capitol's common stock, 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 C to this proxy statement/prospectus. Tax counsel's opinion is
subject to certain assumptions which may limit its application in particular
instances.
Tax matters are very complicated, and the tax consequences of the exchange
to each Sunrise shareholder will depend on the facts of that shareholder's
situation. You are urged to consult your tax advisor for a full understanding of
the tax consequences of the exchange to you.
DISSENTERS' RIGHTS (PAGE 36)
Under New Mexico law, shareholders of Sunrise are entitled to dissent from
and obtain fair value for their shares in connection with the Plan of Share
Exchange.
OPINION OF FINANCIAL ADVISOR (PAGE 38)
Sunrise retained JMP Financial, Inc. as its financial advisor and agent in
connection with the exchange to render a financial fairness opinion to the
Sunrise shareholders.
In deciding to approve the exchange, Sunrise'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 Sunrise common stock is fair from a financial point of view.
Sunrise's Board of Directors adopted the fairness opinion as its own when
forming its recommendation that Sunrise's shareholders vote for the exchange.
The opinion is attached as Annex B to this proxy statement/prospectus.
THE PLAN OF SHARE EXCHANGE (PAGE 32)
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.
As of the date of this proxy statement/prospectus, the following conditions
to consummation of the proposed exchange remain:
* approval by a majority of Sunrise's common stock (excluding shares
held by Capitol); and
* the SEC shall have declared effective the registration statement
registering the issuance of the shares of Capitol common stock in the
exchange.
TERMINATION OF THE EXCHANGE
Sunrise and Capitol can jointly agree to terminate the plan of exchange at
any time without completing the exchange.
Sunrise can terminate the exchange if a majority of Sunrise's shareholders
(other than Capitol) fail to approve the exchange at Sunrise's shareholders'
meeting or any adjournment or postponement thereof; or a governmental authority
prohibits the exchange.
YOUR RIGHTS AS A SHAREHOLDER WILL CHANGE (PAGE 44)
Your rights as a Sunrise shareholder are currently determined by New Mexico
law relating to business corporations and by Sunrise's articles of incorporation
and by-laws. Rights as a Capitol shareholder are determined by Michigan law
relating to business corporations and by Capitol's articles of incorporation and
by-laws. See "Comparison of Shareholders Rights".
10
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, 2001, 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
June 30, 2002, which is incorporated herein by reference. See "Where You Can
Find More Information". The interim results include all adjustments of a normal
recurring nature that are, in the opinion of management, considered necessary
for a fair presentation. Interim results for the six months ended June 30, 2002
are not necessarily indicative of results which may be expected in future
periods, including the year ending December 31, 2002. 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, 2001 and 2000, and
the related consolidated statements of income, changes in stockholders' equity
and cash flows for the years ended December 31, 2001, 2000 and 1999 are
incorporated herein by reference. The selected financial data provided below as
of and for the six months ended June 30, 2002 and 2001 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, 1999, 1998 and 1997 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 Sunrise)
are included in Capitol's consolidated balance sheet. Capitol's consolidated net
income, however, only includes its subsidiaries' (including Sunrise) 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
SIX MONTHS ENDED AS OF AND FOR THE
JUNE 30 YEARS ENDED DECEMBER 31
---------------------- -----------------------------------------------------------
2002 2001 2001 2000 1999 1998 1997
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
SELECTED RESULTS OF OPERATIONS DATA:
Interest income $ 75,816 $ 76,708 $ 153,797 $ 132,311 $ 93,602 $ 69,668 $ 49,549
Interest expense 28,572 38,544 73,292 65,912 46,237 36,670 24,852
Net interest income 47,244 38,164 80,505 66,399 47,365 32,998 24,697
Provision for loan losses 4,774 3,321 8,167 7,216 4,710 3,523 2,049
Net interest income after provision
for loan losses 42,470 34,843 72,338 59,183 42,655 29,475 22,648
Noninterest income 6,222 4,612 9,585 6,137 4,714 3,558 2,157
Noninterest expense 37,833 31,489 64,136 52,846 40,257 26,325 16,721
Income before income tax expense,
minority interest and cumulative
effect of change in accounting
principle 10,859 7,966 17,787 12,474 7,112 6,708 8,084
Income tax expense 3,694 2,801 5,824 4,289 3,213 2,584 2,888
Income before minority interest and
cumulative effect of change in
accounting principle 7,165 5,165 11,963 8,185 3,899 4,124 5,196
Minority interest in net losses (income)
of consolidated subsidiaries (208) (182) (1,245) (150) 1,707 504 361
Income before cumulative effect
of change in accounting
principle 6,957 4,983 10,718 8,035 5,606 4,628 5,557
Cumulative effect of change in
accounting principle (1) (197)
Net income 6,957 4,983 10,718 8,035 5,409 4,628 5,557
11
CAPITOL BANCORP LIMITED
---------------------------------------------------------------------------------------------
AS OF AND FOR THE
SIX MONTHS ENDED AS OF AND FOR THE
JUNE 30 YEARS ENDED DECEMBER 31
------------------------- -----------------------------------------------------------------
2002 2001 2001 2000 1999 1998 1997
----------- ----------- ----------- ----------- ----------- ----------- ---------
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
PER SHARE DATA:
Net income per common share:
Before cumulative effect of
change in accounting
principle:
Basic $ 0.75 $ 0.64 $ 1.38 $ 1.14 $ 0.87 $ 0.74 $ 0.91
Diluted 0.73 0.63 1.35 1.13 0.86 0.72 0.88
After cumulative effect of
change in accounting
principle:
Basic 0.75 0.64 1.38 1.14 0.84 0.74 0.91
Diluted 0.73 0.63 1.35 1.13 0.83 0.72 0.88
Cash dividends declared 0.20 0.20 0.40 0.36 0.36 0.33 0.30
Book value 12.16 9.69 10.24 9.18 8.08 7.77 7.22
Dividend payout ratio 26.67% 31.25% 28.99% 31.58% 42.86% 43.63% 32.95%
Weighted average number of
common shares outstanding 9,301 7,742 7,784 7,065 6,455 6,284 6,130
SELECTED BALANCE SHEET DATA:
Total assets $ 2,233,766 $ 1,881,967 $ 2,044,006 $ 1,630,076 $ 1,305,987 $ 1,024,444 $ 690,556
Investment securities 44,241 43,979 43,687 68,926 107,145 86,464 64,470
Portfolio loans 1,897,776 1,564,666 1,734,589 1,355,798 1,049,204 724,280 502,755
Allowance for loan losses (26,310) (20,420) (23,238) (17,449) (12,639) (8,817) (6,229)
Deposits 1,908,359 1,629,577 1,740,385 1,400,899 1,112,793 890,890 604,407
Debt obligations 88,248 71,288 89,911 58,150 47,400 23,600
Minority interests in
consolidated subsidiaries 40,377 66,238 70,673 62,575 54,593 27,576 11,020
Trust preferred securities 51,551 24,345 48,621 24,327 24,291 24,255 24,126
Stockholders' equity 130,223 75,765 80,172 70,404 54,668 49,292 45,032
PERFORMANCE RATIOS: (2)
Return on average equity 13.23% 13.64% 15.22% 13.78% 10.66% 10.19% 13.28%
Return on average assets 0.65% 0.57% 0.58% 0.55% 0.47% 0.55% 0.96%
Net interest margin (fully
taxable equivalent) 4.74% 4.66% 4.60% 4.80% 4.44% 4.15% 4.54%
Efficiency ratio (3) 70.76% 73.61% 71.19% 72.85% 77.30% 70.63% 60.92%
ASSET QUALITY:
Non-performing loans (4) $ 23,310 $ 11,064 $ 17,238 $ 6,757 $ 4,124 $ 7,242 $ 4,011
Allowance for loan losses to
non-performing loans 112.87% 184.56% 134.81% 258.24% 306.47% 121.75% 155.30%
Allowance for loan losses to
portfolio loans 1.39% 1.31% 1.34% 1.29% 1.20% 1.22% 1.24%
Non-performing loans to total
portfolio loans 1.23% 0.71% 0.99% 0.50% 0.39% 1.00% 0.80%
Net loan losses to average
portfolio loans 0.19% 0.05% 0.15% 0.20% 0.10% 0.15% 0.09%
CAPITAL RATIOS:
Average equity to average assets 4.92% 4.16% 3.78% 4.26% 4.46% 5.36% 7.22%
Tier 1 risk-based capital ratio 10.73% 9.99% 10.54% 11.10% 10.78% 13.42% 14.26%
Total risk-based capital ratio 11.98% 11.24% 11.85% 12.35% 11.62% 14.60% 16.61%
Leverage ratio 5.83% 4.03% 3.92% 4.32% 4.35% 4.88% 6.65%
- ----------
(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.
12
SUPPLEMENTAL FINANCIAL INFORMATION
Statement No. 142, "Goodwill and Other Intangible Assets" is effective for
fiscal years beginning January 1, 2002. Statement No. 142 requires that goodwill
no longer be amortized and charged against earnings, but instead be reviewed for
impairment. Amortization of goodwill ceases upon adoption of Statement No. 142.
Capitol's previous business combinations (generally, acquisitions of minority
interests) have been accounted for using the purchase method. As of June 30,
2002, the net carrying amount of reporting-unit goodwill approximated $12.8
million and other intangible assets approximated $2.6 million. Upon
implementation, this new standard has not had a material effect on Capitol's
consolidated financial statements, other than the elimination of goodwill
amortization.
Statement No. 142 requires that intangible assets not subject to
amortization, such as Capitol's reporting-unit goodwill, be tested for
impairment annually, or more frequently if events or changes in circumstances
indicate that the asset might be impaired. Such potential impairment is measured
by comparing the fair value of a reporting unit with its carrying amount within
the consolidated group.
When goodwill is reviewed for potential impairment, impairment losses must
be charged against earnings if and when determined. Substantially all of
Capitol's recorded reporting-unit goodwill relates to acquisitions of minority
interests in consolidated subsidiaries. Such acquisitions have been made at
modest premiums in relation to the underlying fair value of net assets when
acquired. Based on management's review of recorded reporting-unit goodwill at
the transition date for Statement No. 142, January 1, 2002, no impairment losses
were identified as of that date.
Paragraph 61 of Statement No. 142 requires supplemental disclosure of
historical information, as adjusted to exclude amortization of goodwill no
longer being amortized, which is summarized below (in $1,000s except per share
amounts):
Six Months Ended
June 30 Year Ended December 31
---------------------- ----------------------------------
2002 2001 2001 2000 1999
---------- ---------- ---------- ---------- ----------
Net income, as reported $ 6,957 $ 4,983 $ 10,718 $ 8,035 $ 5,409
Add back -- goodwill
amortization -- 386 979 561 318
---------- ---------- ---------- ---------- ----------
Net income, as adjusted $ 6,957 $ 5,369 $ 11,697 $ 8,596 $ 5,727
========== ========== ========== ========== ==========
Net income per share, as reported:
Basic $ 0.75 $ 0.64 $ 1.38 $ 1.14 $ 0.84
========== ========== ========== ========== ==========
Diluted $ 0.73 $ 0.63 $ 1.35 $ 1.13 $ 0.83
========== ========== ========== ========== ==========
Add back -- goodwill
amortization per share:
Basic -- $ 0.05 $ 0.12 $ 0.08 $ 0.05
========== ========== ========== ==========
Diluted -- $ 0.05 $ 0.12 $ 0.08 $ 0.05
========== ========== ========== ==========
Net income per share,
as adjusted:
Basic $ 0.75 $ 0.69 $ 1.50 $ 1.22 $ 0.89
========== ========== ========== ========== ==========
Diluted $ 0.73 $ 0.68 $ 1.47 $ 1.21 $ 0.88
========== ========== ========== ========== ==========
13
SELECTED CONSOLIDATED FINANCIAL DATA OF SUNRISE
The consolidated financial data below summarizes historical consolidated
financial information for the periods indicated and should be read in
conjunction with the financial statements for the year ended December 31, 2001,
which appear elsewhere in 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, Condensed Consolidated Interim Financial
Statements, which appear elsewhere in this proxy statement/prospectus. The
interim results include all adjustments of a normal recurring nature that are,
in the opinion of management, considered necessary for a fair presentation.
Interim results for the six months ended June 30, 2002 are not necessarily
indicative of results which may be expected in future periods, including the
year ending December 31, 2002. BECAUSE OF THE NUMBER OF BANKS ADDED THROUGHOUT
THE PERIOD OF SUNRISE'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 SUNRISE'S FUTURE OPERATING RESULTS.
Sunrise's consolidated balance sheets as of December 31, 2001 and 2000, and
the related statements of operations, changes in stockholders' equity and cash
flows for the years ended December 31, 2001, 2000 and 1999 appear elsewhere in
this proxy statement/prospectus. The selected financial data provided below as
of and for the six months ended June 30, 2002 and 2001 have been derived from
Sunrise's consolidated financial statements which appear elsewhere in this proxy
statement/prospectus. Results of operations data and selected balance sheet data
as of and for the year ended December 31, 1998 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 Sunrise's
consolidated balance sheet. Sunrise'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, Sunrise will only reflect that loss based on its ownership percentage.
Conversely, when banks generate income, Sunrise will only reflect that income
based on its ownership percentage.
SUNRISE CAPITAL CORPORATION
---------------------------------------------------------------
AS OF AND FOR THE
SIX MONTHS ENDED AS OF AND FOR THE
JUNE 30 YEARS ENDED DECEMBER 31
---------------- ---------------------------------------
2002 2001 2001 2000 1999 1998
---- ---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
SELECTED RESULTS OF OPERATIONS DATA:
Interest income $ 5,889 $ 5,804 $ 11,846 $ 6,287 $ 1,543 $ 14
Interest expense 1,813 2,632 5,146 2,673 478 --
Net interest income 4,077 3,171 6,700 3,614 1,066 14
Provision for loan losses 198 520 755 874 232 18
Net interest income after provision
for loan losses 3,879 2,651 5,946 2,740 834 (4)
Noninterest income 186 46 129 142 14 --
Noninterest expense 3,628 3,558 6,479 3,286 1,540 36
Income (loss) before income tax
expense, minority interest and
cumulative effect of change in
accounting principle 437 (860) (405) (404) (692) (40)
Income tax expense (benefit) 134 (201) (28) (109) (235) (14)
Income (loss) before minority interest
and cumulative effect of change in
accounting principle 303 (659) (377) (295) (457) (26)
Minority interest in net losses (income)
of consolidated subsidiaries (58) 261 289 52
Income (loss) before cumulative effect
of change in accounting principle 245 (398) (88) (243) (457) (26)
Cumulative effect of change in
accounting principle (1) (176)
Net income (loss) 245 (398) (88) (243) (634) (26)
14
SUNRISE CAPITAL CORPORATION
------------------------------------------------------------------------------------------
AS OF AND FOR THE
SIX MONTHS ENDED AS OF AND FOR THE
JUNE 30 YEARS ENDED DECEMBER 31
-------------------------- -----------------------------------------------------------
2002 2001 2001 2000 1999 1998
----------- ----------- ----------- ----------- ----------- -----------
(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 $ 0.17 $ (0.40) $ (0.06) $ (0.23) $ (0.91) $ (0.04)
Diluted 0.17 (0.40) (0.06) (0.23) (0.91) (0.04)
After cumulative effect of
change in accounting principle(1):
Basic 0.17 (0.40) (0.06) (0.23) (0.66) (0.04)
Diluted 0.17 (0.40) (0.06) (0.23) (0.66) (0.04)
Cash dividends paid -- -- -- -- -- --
Book value--historical 8.66 8.29 8.49 7.22 7.24 5.98
Pro forma equivalent book value
per Capitol share (2) 7.76 N/A 6.78 N/A N/A N/A
Weighted average number of
common shares outstanding 1,493 996 1,458 1,051 698 600
SELECTED BALANCE SHEET DATA:
Total assets $ 154,160 $ 131,458 $ 137,232 $ 84,908 $ 30,615 $ 5,569
Investment securities 469 132 152 151 -- --
Portfolio loans 131,884 105,053 116,701 75,833 24,952 1,745
Allowance for loan losses 1,782 1,408 1,587 888 250 18
Deposits 136,054 114,090 119,299 74,475 23,287 1,283
Debt obligations 1,407 1,407 1,407 1,855 -- --
Minority interests in consolidated
subsidiaries 3,161 3,141 3,103 491 -- --
Stockholders' equity 12,927 12,371 12,682 7,768 7,223 4,174
PERFORMANCE RATIOS: (3)
Return on average equity 3.83% N/A N/A N/A N/A N/A
Return on average assets 0.34% N/A N/A N/A N/A N/A
Net interest margin (fully taxable
equivalent) 5.81% 6.19% 6.34% 6.69% 6.30% N/A
Efficiency ratio (4) 85.10% 110.60% 94.87% 87.49% 142.59% 257.14%
ASSET QUALITY:
Non-performing loans (5) $ 1,739 $ 117 $ 1,943 $ 144 -- --
Allowance for loan losses to
non-performing loans 102.47% 1,203.42% 81.68% 616.67% N/A N/A
Allowance for loan losses to
portfolio loans 1.35% 1.34% 1.36% 1.17% 1.00% 1.03%
Non-performing loans to total
portfolio loans 1.32% 0.11% 1.66% 0.19% 0.00% 0.00%
Net loan losses to average
portfolio loans 0.00% 0.00% 0.06% 0.47% 0.00% 0.00%
CAPITAL RATIOS:
Average equity to average assets 8.79% 9.31% 9.21% 12.98% 31.50% 74.96%
Tier 1 risk-based capital ratio 12.20% 15.80% 13.48% 11.22% 21.66% 152.29%
Total risk-based capital ratio 13.45% 14.55% 14.73% 12.42% 22.41% 153.00%
Leverage ratio 8.39% 9.41% 9.24% 9.15% 23.59% 74.96%
- ----------
N/A - Not applicable
(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) Based on the estimated exchange ratio of 0.618819 shares of Capitol for
each share of Sunrise. Includes the pro forma effect of pending share
exchange regarding Indiana Community Bancorp Limited (see "Unaudited Pro
Forma Consolidated Financial Data").
(3) These ratios are annualized for the periods indicated.
(4) Efficiency ratio is computed by dividing noninterest expense by the sum of
net interest income and noninterest income.
(5) Non-performing loans consist of loans on nonaccrual status and loans more
than 90 days delinquent.
15
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 SUNRISE'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 THAT COULD
NEGATIVELY AFFECT THE AVAILABILITY OF EARNINGS TO SUPPORT FUTURE GROWTH.
Several of Capitol's (including Sunrise's) bank subsidiaries are less than
three years old and Capitol's oldest bank is about 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.
IF CAPITOL IS UNABLE TO MANAGE ITS GROWTH, ITS ABILITY TO PROVIDE QUALITY
SERVICES TO CUSTOMERS COULD BE IMPAIRED AND CAUSE ITS CUSTOMER AND EMPLOYEE
RELATIONS TO SUFFER.
Capitol and Sunrise have rapidly and significantly expanded their
operations and anticipate that further expansion will be required to realize
their growth strategies. Capitol's (and Sunrise's) rapid growth has placed
significant demands on its management and other resources which, given its
expected future growth rate, are likely to continue. Capitol's future growth and
revenue will be negatively impacted if it is unable to provide quality service
to its customers, or 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, WHICH
COULD SEVERELY LIMIT CAPITOL'S EXPANSION OPPORTUNITIES.
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.
16
CAPITOL'S (AND SUNRISE'S) SMALL SIZE MAY MAKE IT DIFFICULT TO COMPETE WITH
LARGER INSTITUTIONS BECAUSE CAPITOL (AND SUNRISE) ARE NOT ABLE TO COMPETE WITH
LARGE BANKS IN THE OFFERING OF SIGNIFICANTLY LARGER LOANS.
Capitol endeavors to capitalize some of its newly formed banks with the
lowest dollar amount permitted by regulatory agencies. As a result, the legal
lending limits of Capitol's (and Sunrise'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. The inability to offer larger loans limits the
revenues that can be earned from interest amounts charged on larger loan
balances.
Capitol's (and Sunrise'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.
IF CAPITOL CANNOT RECRUIT ADDITIONAL HIGHLY QUALIFIED PERSONNEL, CAPITOL'S
CUSTOMER SERVICE COULD SUFFER, CAUSING ITS CUSTOMER BASE TO DECLINE.
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. Sunrise is also a bank holding company and regulated primarily by
the Federal Reserve Board. Capitol's and Sunrise'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.
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.
17
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, which could limit its ability to increase revenue.
THE BANKS' ALLOWANCES FOR LOAN LOSSES MAY PROVE INADEQUATE TO ABSORB ACTUAL LOAN
LOSSES, WHICH MAY ADVERSELY IMPACT NET INCOME OR INCREASE OPERATING 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
future loan losses could increase significantly. No assurance can be provided
that the allowance will be sufficient to cover actual future loan losses should
such losses be realized.
Loan loss experience, which is helpful in estimating the requirements for
the allowance for loan losses at any given balance sheet date, has been minimal
at many of Capitol's (and Sunrise's) banks. Because many of Capitol's (and
Sunrise'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 may need
to be increased in future periods as the loan portfolios become more mature and
loss experience evolves. 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 may adversely impact net income
or increase operating losses.
Widespread media reports of concerns about the health of the domestic
economy have continued throughout 2001 and the first half of 2002. While local
economic conditions appear to indicate a weakening environment, Capitol's loan
losses in the interim 2002 period have increased in comparison to the level with
the prior year's period and nonperforming loans have increased. 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.
CAPITOL'S COMMERCIAL LOAN CONCENTRATION TO SMALL BUSINESSES INCREASES THE RISK
OF DEFAULTS BY BORROWERS AND SUBSTANTIAL CREDIT LOSSES COULD RESULT, CAUSING
SHAREHOLDERS TO LOSE THEIR INVESTMENT IN CAPITOL'S COMMON STOCK.
Capitol's (as well as Sunrise's) banks make various types of loans,
including commercial, consumer, residential mortgage and construction loans.
Capitol's (as well as Sunrise'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, causing shareholders to lose their entire investment in Capitol's common
stock.
18
THE OPEN MARKET COMMITTEE OF THE FEDERAL RESERVE BOARD (FRBOMC) HAS TAKEN
UNPRECEDENTED ACTIONS TO SIGNIFICANTLY REDUCE INTEREST RATES AND DECREASES IN
INTEREST RATES MAY ADVERSELY AFFECT CAPITOL'S NET INTEREST INCOME.
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 FRBOMC decreased interbank interest rates 11 times, which was
an unprecedented action to reduce rates 475 basis points within a year. Interest
rates have remained relatively stable in the first half of 2002, however, future
stability and FRBOMC policy are uncertain.
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 Sunrise'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.
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 June 30, 2002, Capitol had notes payable to an unaffiliated bank
outstanding in the amount of approximately $15.9 million. Under this credit
facility, borrowings of up to $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 several series of trust-preferred securities outstanding,
totaling about $52 million at June 30, 2002, 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.
19
COMPARATIVE HISTORICAL, PRO FORMA AND PRO FORMA EQUIVALENT
PER SHARE INFORMATION
The following table, which should be read in conjunction with the unaudited
pro forma condensed consolidated balance sheet, pro forma condensed statements
of operations and related notes to the pro forma financial statements, which
appear elsewhere herein, summarizes per share information:
As of and for the As of and for the
Six Months Ended Year Ended
June 30, 2002 December 31, 2001
------------- -----------------
Capitol common stock:
Net income per share:
Basic:
Historical $ 0.75 $ 1.38
Pro forma consolidated(1) 0.73 1.33
Diluted:
Historical 0.73 1.35
Pro forma consolidated(1) 0.71 1.30
Cash dividends per share:
Historical 0.20 0.40
Pro forma consolidated(2) 0.20 0.40
Book value per share at period end:
Historical 12.16 10.24
Pro forma consolidated(3) $12.54 $10.86
Sunrise common stock:
Net income (loss) per share:
Basic:
Historical $ 0.16 $(0.06)
Pro forma equivalent(4) 0.45 0.82
Diluted:
Historical 0.16 (0.06)
Pro forma equivalent(4) 0.44 0.80
Cash dividends per share:
Historical -- --
Pro forma equivalent(4) 0.12 0.25
Book value per share at period end:
Historical 8.66 8.49
Pro forma equivalent(4) $ 7.76 $ 6.78
1--Assumes completion of proposed Sunrise exchange. Excludes the pro forma
effect of pending exchange regarding Indiana Community Bancorp Limited (see
"Unaudited Pro Forma Consolidated Financial Data").
2--The Capitol pro forma consolidated dividends per share represent historical
dividends per share.
3--Assumes completion of pending exchange regarding Indiana Community Bancorp
Limited and proposed Sunrise exchange (see "Unaudited Pro Forma Consolidated
Financial Data").
4--The Sunrise pro forma equivalent per share amounts are calculated by
multiplying Capitol pro forma consolidated per share amounts by the estimated
exchange ratio of 0.618819.
20
RECENT DEVELOPMENTS
Capitol and Sunrise have had similar strategies for the development and
formation of bank start-ups. Capitol has, since the formation of its first bank
(circa 1982), expanded to a total of 13 banks in the states of Michigan and
Indiana. Of the 13 banks, Capitol or its management were involved in the
start-up of 12; one became an affiliate through a purchase transaction.
Capitol's expansion into the Southwestern region of the United States was
made initially through its involvement in the formation of Bank of Tucson in
1996. Bank of Tucson subsequently became a subsidiary of Sun Community Bancorp
through a share exchange transaction and, as a result, Sun then became a
subsidiary of Capitol. In periods after 1997, Sun embarked on the development of
a total of 14 banks in the states of Arizona, California, Nevada and New Mexico.
Sun became a wholly-owned subsidiary of Capitol effective March 31, 2002.
During the past five years, Capitol and Sun (and Sunrise, as applicable)
have started new banks using a similar strategy. Because Sunrise was formed by
Sun and Capitol, and Capitol and Sunrise share management and common systems,
Sunrise's start-up banks are designed and formed using Capitol's strategy and
design for start-up banks. These start-up banks are, by design, intended to be
relatively small institutions which are locally managed, but share the
efficiencies of common data processing, accounting and risk management.
First California Northern Bancorp, a majority-owned subsidiary of Capitol,
opened its first bank affiliate, Napa Community Bank, in early 2002.
Nevada Community Bancorp Limited, a majority-owned subsidiary of Capitol,
opened its fourth bank affiliate, Bank of Las Vegas, in early 2002.
In early 2002, Capitol announced plans to explore bank development
opportunities on a national basis. Also, in early 2002, Sunrise Bank of Arizona
(Sunrise's wholly-owned subsidiary) announced opening of two loan production
offices in Texas (Dallas and Houston), a loan production office in Atlanta,
Georgia, and a private banking center in Scottsdale, Arizona.
As of July 31, 2002, Capitol had a private-placement/exempt-offering share
exchange proposal pending with the minority shareholders of Indiana Community
Bancorp (a majority-owned subsidiary of Capitol). Such share exchange proposal,
if completed, would result in Capitol issuing approximately 180,993 shares of
previously unissued Capitol common stock.
On June 1, 2002, Capitol paid its second 2002 quarterly dividend of $0.10
per share to shareholders of record as of May 1, 2002.
21
CAPITALIZATION
The table presented below shows Capitol's actual total capitalization as of
June 30, 2002, as adjusted to reflect the exchange of Capitol's common stock for
Sunrise's common stock as described in this proxy statement/prospectus.
AS OF JUNE 30, 2002
------------------------------------------------------------------
(dollars in thousands, except per share data)
AS ADJUSTED FOR
PENDING ICBL
AS ADJUSTED FOR AS ADJUSTED FOR EXCHANGE(4) AND
THE PENDING THE SUNRISE SUNRISE
ACTUAL ICBL EXCHANGE(4) EXCHANGE(5) EXCHANGE(5)
------ ---------------- ----------- -----------
DEBT OBLIGATIONS $ 88,248 $ 88,248 $ 88,248 $ 88,248
========= ========= ========= =========
TRUST-PREFERRED SECURITIES 51,551 51,551 51,551 51,551
MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES 40,377 37,779 36,577 33,979
STOCKHOLDERS' EQUITY(1):
Common stock, no par value; 25,000,000 shares
authorized; issued, and outstanding:
Actual - 10,705,378 shares 112,648
As adjusted for the pending ICBL exchange -
10,886,371 shares(4) 116,474
As adjusted for the Sunrise exchange -
10,976,933 shares(5) 118,572
As adjusted for pending ICBL exchange and
Sunrise exchange - 11,157,926 shares(4)(5) 122,398
Retained earnings 19,273 19,273 19,273 19,273
Market value adjustment for available-for-sale
securities (net of tax effect) 153 153 153 153
Less unallocated ESOP shares and note receivable
from sale of common stock (1,851) (1,851) (1,851) (1,851)
--------- --------- --------- ---------
Total stockholders' equity $ 130,223 $ 134,049 $ 136,147 $ 139,973
========= ========= ========= =========
Book value per share of common stock $ 12.16 $ 12.31 $ 12.40 $ 12.54
========= ========= ========= =========
TOTAL CAPITALIZATION(2) $ 170,600 $ 171,828 $ 172,724 $ 173,952
========= ========= ========= =========
TOTAL CAPITAL FUNDS(3) $ 222,151 $ 223,379 $ 224,275 $ 225,503
========= ========= ========= =========
CAPITAL RATIOS:
Stockholders' equity to total assets 5.83% 6.00% 6.09% 6.27%
Total capitalization to total assets 7.64% 7.69% 7.73% 7.79%
Total capital funds to total assets 9.95% 10.00% 10.04% 10.10%
- ----------
(1) Does not include approximately 2.1 million shares of common stock issuable
upon exercise of stock options. See "Management--Stock Option Program."
Also, does not include approximately 59,000 warrants each of which permits
the holder to purchase a share of Capitol 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) Amounts are also adjusted for Capitol's pending share exchange with the
minority shareholders of Indiana Community Bancorp Limited (ICBL) (about
48%) which, if completed, would result in the issuance of 180,993 shares of
Capitol's common stock. Does not include 108,000 stock options of ICBL
which will convert to stock options of Capitol at the same ratio applicable
to the pending ICBL exchange. See "Unaudited Pro Forma Consolidated
Financial Data."
(5) Assumes issuance of 271,555 shares of Capitol common stock upon completion
of Sunrise exchange. Does not include 250,087 stock options of Sunrise
which will convert to stock options of Capitol at the same ratio applicable
to the Sunrise exchange. See "Unaudited Pro Forma Consolidated Financial
Data."
22
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 $20.51 on July 30, 2002.
Cash Dividends
2000 High Low Paid
- ---- ---- --- ----
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 ended September 30 17.500 12.250 0.10
Quarter ended December 31 15.200 12.800 0.10
2002
- ----
Quarter ended March 31 16.820 13.300 0.10
Quarter ended June 30 23.860 16.450 0.10
Quarter ending September 30
(through July 30, 2002) 24.250 18.250 --
As of May 13, 2002, there were approximately 4,128 beneficial holders of
record of Capitol's common stock based on information supplied by its stock
transfer agent and other sources.
23
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".
24
INFORMATION ABOUT CAPITOL
This proxy statement/prospectus is accompanied by a copy of the following
documents:
- Report on Form 10-Q for period ended June 30, 2002
- Report on Form 10-Q for period ended March 31, 2002
- Annual Report to Shareholders for year ended December 31, 2001
- Annual Report on Form 10-K for year ended December 31, 2001
- Proxy statement for Capitol's Annual Meeting of Shareholders held on
May 2, 2002
INFORMATION ABOUT SUNRISE
BRIEF DISCUSSION OF BUSINESS
Sunrise is now and has been, since it commenced business, an affiliate and
a controlled subsidiary of Capitol. Sunrise became a bank holding company in
November 1999 when it acquired Sunrise Bank of Arizona (formed in 1998) through
a one-for-one stock exchange transaction with that bank's shareholders. Sunrise
subsequently expanded through the addition of two bank subsidiaries, Sunrise
Bank of Albuquerque (formed in 2000 and 87% owned by Sunrise) and Sunrise Bank
of San Diego (formed in 2001 and 64% owned by Sunrise). Most recently, Sunrise
has announced expansion into Dallas and Houston, Texas and Atlanta, Georgia,
through loan production offices opened in the first half of 2002 and a private
banking center in Scottsdale, Arizona, each of which are associated with Sunrise
Bank of Arizona. Up to July 31, 2002, Sunrise was a majority-owned subsidiary of
Sun Community Bancorp Limited. Sun was previously a 50% owned subsidiary of
Capitol Bancorp Ltd. Effective March 31, 2002, Sun became a wholly-owned
subsidiary of Capitol as the result of a share exchange transaction and,
effective July 31, 2002, Sun was merged into Capitol. As a result of the merger,
Sunrise became a majority-owned subsidiary of Capitol, and Capitol directly owns
70.6% of the outstanding shares of Sunrise common stock (1,054,095 shares as of
December 31, 2001).
MARKET PRICE AND DIVIDENDS
There is no active public trading market for Sunrise common stock. As of
July 15, 2002, Sunrise common stock was held by 231 holders of record. Sunrise
has never paid a dividend on its common stock.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Management's discussion and analysis of financial condition and results of
operations for the periods ended June 30, 2002 and December 31, 2001 are
included in this proxy statement/prospectus as part of Annex D.
FINANCIAL STATEMENTS
Unaudited interim condensed consolidated financial statements of Sunrise as
of June 30, 2002 and for the six months ended June 30, 2002 and 2001 are
included in this proxy statement/prospectus as part of Annex D. Audited
consolidated financial statements of Sunrise as of and for the years ended
December 31, 2001, 2000 and 1999 are included in this proxy statement/prospectus
as part of Annex D.
25
VOTING SECURITIES AND PRINCIPAL HOLDERS
The following table shows the share holdings of each director and officer
of Sunrise and all directors and officers as a group. Where applicable, the
table includes shares held by members of their immediate families.
Sunrise shares beneficially owned
---------------------------------------------------
Percentage of all
Sunrise shares
Percentage of excluding
all Sunrise shares owned
Name of Beneficial owner Number Sunrise Shares by Capitol
- ------------------------ ------ -------------- ----------
Capitol Bancorp Limited 1,054,095 70.6% N/A
========= ========= =========
Sunrise's Directors and Officers:
Steven K. Black 0
Michael J. Devine 400 0.03% 0.09%
Cristin Reid English 200 0.01% 0.05%
William D. Hinz, II 17,400 1.17% 3.97%
Michael L. Kasten 8,000 0.54% 1.82%
John S. Lewis 0
Joseph D. Reid 4,000 0.27% 0.91%
Douglas N. Reynolds 4,500 0.30% 1.03%
--------- --------- ---------
Total of Sunrise shares held by Sunrise's
Directors and Officers 34,500 2.31% 7.86%
========= ========= =========
Other than the directors and officers of Sunrise, no individual owns
greater than 5% of the outstanding shares of Sunrise, exclusive of the shares
owned by Capitol.
[The remainder of this page intentionally left blank]
26
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
Sunrise 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 Sunrise (adjusted
for Capitol's pending share exchange with the minority shareholders of Indiana
Community Bancorp Limited), which is being accounted for under the purchase
method of accounting, as if it had occurred effective June 30, 2002 (shown on
page 28) and at the beginning of 2001 (shown on page 30). 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 June 30, 2002 are not necessarily
indicative of results for the year ending December 31, 2002 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 Sunrise 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.
[The remainder of this page intentionally left blank]
27
Unaudited Pro Forma Condensed Consolidated Balance Sheet
Capitol Bancorp Ltd. And Subsidiaries
June 30, 2002
(in $1,000s, except share and per-share data) Pro Forma Pro Forma Pro Forma
Adjustments Amounts Adjustments
Regarding After Regarding
Historical Pending Pending Proposed
Amounts ICBL ICBL Sunrise
ASSETS As Reported Exchange Exchange Exchange
------------ ------------ ------------ ------------
Cash and cash equivalents $ 219,660 $ 219,660
Loans held for resale 25,873 25,873
Investment securities 44,241 44,241
Portfolio loans 1,897,776 1,897,776
Less allowance for loan losses (26,310) (26,310)
------------ ------------
Net portfolio loans 1,871,466 1,871,466
Premises and equipment, net 17,159 17,159
Goodwill and other intangibles 15,390 $ 1,228 A 16,618 $ 2,159 B
Other assets 39,977 39,977
------------ ------------ ------------ ------------
TOTAL ASSETS $ 2,233,766 $ 1,228 $ 2,234,994 $ 2,159
============ ============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 1,908,359 $ 1,908,359
Debt obligations 88,248 88,248
Other liabilities 15,008 15,008 $ 35 C
------------ ------------ ------------ ------------
Total liabilities 2,011,615 -- 2,011,615 35
Trust-preferred securities 51,551 51,551
Minority interests in consolidated subsidiaries 40,377 $ (2,598) A 37,779 (3,800) D
Stockholders' equity:
Common stock 112,648 3,826 A 116,474 5,924 E
Retained earnings 19,273 19,273
Other, net (1,698) (1,698)
------------ ------------ ------------ ------------
Total stockholders' equity 130,223 3,826 134,049 5,924
------------ ------------ ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,233,766 $ 1,228 $ 2,234,994 $ 2,159
============ ============ ============ ============
Number of common shares issued and outstanding 10,705,378 180,993 10,886,371 271,555
============ ============ ============ ============
Book value per Capitol share $ 12.16 $ 12.31
============ ============
Pro forma equivalent per Sunrise share
(in $1,000s, except share and per-share data) Pro Forma Pro Forma Pro Forma
Amounts Adjustments Amounts
After Regarding After
Proposed Both ICBL Both ICBL
Sunrise and Sunrise and Sunrise
ASSETS Exchange Exchanges Exchanges
------------ ------------ ------------
Cash and cash equivalents $ 219,660 $ 219,660
Loans held for resale 25,873 25,873
Investment securities 44,241 44,241
Portfolio loans 1,897,776 1,897,776
Less allowance for loan losses (26,310) (26,310)
------------ ------------
Net portfolio loans 1,871,466 1,871,466
Premises and equipment, net 17,159 17,159
Goodwill and other intangibles 17,549 $ 3,387 18,777
Other assets 39,977 39,977
------------ ------------ ------------
TOTAL ASSETS $ 2,235,925 $ 3,387 $ 2,237,153
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 1,908,359 $ 1,908,359
Debt obligations 88,248 88,248
Other liabilities 15,043 $ 35 15,043
------------ ------------ ------------
Total liabilities 2,011,650 35 2,011,650
Trust-preferred securities 51,551 51,551
Minority interests in consolidated subsidiaries 36,577 (6,398) 33,979
Stockholders' equity:
Common stock 118,572 9,750 122,398
Retained earnings 19,273 19,273
Other, net (1,698) (1,698)
------------ ------------ ------------
Total stockholders' equity 136,147 9,750 139,973
------------ ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,235,925 $ 3,387 $ 2,237,153
============ ============ ============
Number of common shares issued and outstanding 10,976,933 452,548 11,157,926
============ ============ ============
Book value per Capitol share $ 12.40 $ 12.54
============ ============
Pro forma equivalent per Sunrise share $ 7.67 $ 7.76
============ ============
THE ACCOMPANYING NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE
SHEET ARE AN INTEGRAL PART OF THIS PRO FORMA PRESENTATION.
28
Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet
(in $1,000s, except share data)
A -- Adjustments to reflect pro forma impact of pending share exchange regarding
minority shareholders of Indiana Community Bancorp Limited (about 48%).
If the pending ICBL share exchange is completed, Capitol would own 100%
of ICBL.
B -- Goodwill arising from proposed Sunrise exchange. Based on current
estimates, there are no material identifiable intangible assets regarding
the proposed Sunrise exchange. The net book value of all other assets and
liabilities of Sunrise and its subsidiaries approximate fair value.
C -- Estimated expenses of the proposed Sunrise exchange:
Legal counsel $ 10
Independent accountants 10
Filing fees, printing and other costs 15
-------
Total $ 35
=======
D -- Elimination of minority interests associated with Sunrise's shareholders
other than Capitol.
E -- Estimated purchase price applicable to proposed share exchange with
Sunrise's shareholders other than Capitol:
Issuance of 271,555 shares of Capitol common
stock in proposed share exchange $ 5,924
Estimated fair value of approximately 155,000
stock options of Capitol to be issued in
exchange for stock options of Sunrise as part
of proposed share exchange 851
-------
Total $ 6,775
=======
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29
Unaudited Pro Forma Condensed Consolidated Statements of Operations
Capitol Bancorp Ltd. And Subsidiaries
(in $1,000s, except share and per-share data)
Six Months Ended June 30, 2002 Year Ended December 31, 2001
--------------------------------------- ----------------------------------------
Historical Historical
Amounts Pro Forma Pro Forma Amounts Pro Forma Pro Forma
As Reported Adjustments Amounts As Reported Adjustments Amounts
---------- ---------- ----------- ----------- ----------- -----------
Interest income $ 75,816 $ 75,816 $ 153,797 $ 153,797
Interest expense 28,572 28,572 73,292 73,292
---------- ----------- ----------- -----------
Net interest income 47,244 47,244 80,505 80,505
Provision for loan losses 4,774 4,774 8,167 8,167
---------- ----------- ----------- -----------
Net interest income after provision
for loan losses 42,470 42,470 72,338 72,338
Noninterest income 6,222 6,222 9,585 9,585
Noninterest expense 37,833 37,833 64,136 64,136
---------- ----------- ----------- -----------
Income before federal income taxes and
minority interest 10,859 10,859 17,787 17,787
Federal income taxes 3,694 3,694 5,824 5,824
---------- ----------- ----------- -----------
Income before minority interest 7,165 7,165 11,963 11,963
Minority interest in net income of
consolidated subsidiaries (208) 72 A (136) (1,245) (26)A (1,271)
---------- ---------- ----------- ----------- ----------- -----------
NET INCOME $ 6,957 $ 72 $ 7,029 $ 10,718 $ (26) $ 10,692
========== ========== =========== =========== =========== ===========
NET INCOME PER SHARE:
Basic $ 0.75 $ 0.73 $ 1.38 $ 1.33
========== =========== =========== ===========
Diluted $ 0.73 $ 0.71 $ 1.35 $ 1.30
========== =========== =========== ===========
Pro forma equivalent per Sunrise share:
Basic $ 0.45 $ 0.82
=========== ===========
Diluted $ 0.44 $ 0.80
=========== ===========
Average number of common shares
outstanding for purposes of computing
basic net income per share--denominator
for basic net income per share 9,300,756 271,555 B 9,572,311 7,784,000 271,555 B 8,055,555
Effect of dilutive securities--stock
options and warrants 240,472 49,524 C 289,996 151,000 49,524 C 200,524
---------- ---------- ----------- ----------- ----------- -----------
Average number of common shares and
dilutive securities for purposes of
computing diluted net income per share--
denominator for diluted net income per share 9,541,228 321,079 9,862,307 7,935,000 321,079 8,256,079
========== ========== =========== =========== =========== ===========
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS:
A -- Amount represents reduction in operating results attributable to minority
interest due to proposed share exchange between Sunrise and Capitol.
Excludes the pro forma effect of the pending ICBL share exchange due
to immateriality.
B -- Assumes issuance of 271,555 shares of Capitol common stock in proposed
share exchange with Sunrise's shareholders other than Capitol.
C -- Estimated pro forma effect of the issuance of approximately 155,000 stock
options of Capitol in exchange for stock options of Sunrise, in conjunction
with proposed share exchange, using the treasury-stock method.
30
THE ELECTION OF DIRECTORS
Sunrise's Certificate of Incorporation and By-Laws provide that the number
of Directors, as determined from time to time by the Board of Directors, shall
be no less than (5) and no more than (25). The Board of Directors has presently
fixed the number of Directors at eight.
The Board of Directors has nominated the eight (8) directors named below
for a one-year term. All nominees are willing to be elected and to serve in such
capacity for one year and until the election and qualification of their
successors. All of the nominees for election to the Board of Directors are
currently members of Sunrise's Board of Directors.
The proposed nominees for election as Directors are willing to be elected
and serve but in the event that any nominee at the time of election is unable to
serve or is otherwise unavailable for election, the Board of Directors may
select a substitute nominee, and in that event the persons named in the enclosed
proxy intend to vote such proxy for the person selected.
The affirmative vote of a plurality of the votes cast at the meeting is
required for the nominees to be elected.
The table following sets forth information regarding Sunrise's Directors
based on the data furnished by them:
NAME, PROFESSIONAL POSITIONS & POSITIONS HELD WITH SUNRISE
Steven K. Black, President, California Region, Sunrise Capital Corporation;
Director
Michael J. Devine, Attorney at Law; Director
Cristin Reid English, Executive Vice President, Capitol Bancorp Limited;
Director
William D. Hinz, II, President, Sunrise Bank of Arizona; Director
Michael L. Kasten, Managing Partner, Kasten Investments, LLC; Director
John S. Lewis, President, Western Region, Capitol Bancorp Limited; Director
Joseph D. Reid, Chairman & Chief Executive Officer, Capitol Bancorp Limited;
Director
Douglas N. Reynolds, Chief Credit Officer, Sunrise Bank of Arizona; Director
31
THE EXCHANGE
GENERAL
The Board of Directors of Sunrise is using this proxy statement/prospectus
to solicit proxies for use at the shareholders' meeting of Sunrise.
At the annual meeting of Sunrise's shareholders' to be held on September
___, 2002, Sunrise's shareholders will be asked to approve the exchange. The
Plan of Share Exchange provides for Sunrise's shareholders to exchange common
stock of Sunrise not owned by Capitol for Capitol common stock. Upon
consummation of the exchange, Sunrise will become a wholly-owned subsidiary of
Capitol. In the exchange, Sunrise shareholders will receive shares of Capitol's
common stock.
MATERIAL CONTRACTS OR UNDERSTANDINGS BETWEEN CAPITOL AND SUNRISE
Capitol and Sunrise 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 early 2002. Capitol expressed a
willingness to extend an offer of an exchange. The objectives of the potential
exchange are to enable shareholders of Sunrise 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 Sunrise will continue to
hold Sunrise stock which has no market activity and is illiquid. Capitol has
paid quarterly cash dividends throughout the past five years (although there is
no assurance cash dividends will be paid in the future).
Consensus between Capitol's and Sunrise's Directors was reached in May
2002, to approve the proposed exchange subject only to:
- obtaining an independent opinion that the proposed share exchange is
fair to Sunrise's shareholders from a financial point of view; and
- obtaining approval for the proposed exchange by a majority of
Sunrise's shares not already owned by Capitol.
In early June 2002, the Sunrise Board approved the Plan of Share Exchange
and agreed to call a shareholder meeting for a vote to approve the Plan of Share
Exchange.
Sunrise's Board of Directors has not solicited or received any other
proposals for the potential exchange or sale of Sunrise's shares of common stock
which are not owned by Capitol. If other proposals were under consideration for
sale or exchange of Sunrise's shares to an entity other than Capitol, Capitol
would be permitted to vote its shares of Sunrise. By virtue of Capitol's control
of Sunrise, it is likely that Capitol would not vote its shares of Sunrise in
favor of any other proposals regarding a share exchange or sale of the minority
interest in Sunrise to another party. In addition, Capitol currently has no
intentions of selling its interest in Sunrise. Hence, the only proposal under
consideration is Capitol's proposal.
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SUNRISE'S REASONS FOR THE EXCHANGE
Sunrise's reasons for the exchange are that the shareholders of Sunrise
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 Sunrise's sole emphasis in the
southwestern United States.
- the Sunrise shareholders will receive Capitol's common stock which is
more widely traded, providing Sunrise's shareholders improved
liquidity and a history of cash dividends. Sunrise common stock has no
market and has not paid any cash dividends. Sunrise 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 Sunrise's profitability will increase. As noted
elsewhere in this proxy statement/prospectus, while Sunrise's assets are
reported as part of Capitol's assets for purposes of its consolidated financial
statements, Sunrise's income or loss is attributed to Capitol only in the
percentage which Capitol owns of Sunrise common stock. Capitol desires to
acquire the remainder of Sunrise's common stock so that Capitol can include 100%
of Sunrise'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. If the exchange is
approved, each shareholder of Sunrise would receive in the exchange 0.618819
shares of Capitol common stock for each share of Sunrise common stock. This is
based on the Capitol Share Value of $21.816 per share and an assumed value of
$13.50 per Sunrise share. The actual exchange ratio will be determined by
dividing the Sunrise Share Value by the Capitol Share Value, where:
SUNRISE SHARE VALUE. The share value of each share of
Sunrise common stock shall be $13.50 per share, subject to
adjustment based on Capitol's due diligence review of
Sunrise's consolidated loan portfolio as of September 30,
2002.
CAPITOL SHARE VALUE. The share value of each share of
Capitol common stock shall be $21.816, the average of the
closing prices of Capitol's common stock for the thirty-day
period ended June 14, 2002, as reported by the Nasdaq
National Market.
The exchange ratio will be determined by dividing the Sunrise share value
by the Capitol share value. Each Sunrise shareholder (except Capitol) will
receive shares of Capitol common stock in exchange for his, her or their Sunrise
common stock calculated by multiplying the number of shares in Sunrise common
stock held by the shareholder by the exchange ratio. Any fractional shares will
be paid in cash.
SUNRISE'S BOARD RECOMMENDATION
SUNRISE'S BOARD HAS DETERMINED THAT THE EXCHANGE IS FAIR TO AND IN THE BEST
INTERESTS OF SUNRISE'S SHAREHOLDERS, HAS APPROVED THE PLAN OF SHARE EXCHANGE AND
RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" APPROVAL OF THE PLAN OF SHARE
EXCHANGE.
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ACCOUNTING TREATMENT
Capitol's acquisition of the shares of Sunrise 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 Sunrise 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
Sunrise (adjusted for Capitol's pending share exchange with the minority
shareholders of Indiana Community Bancorp Limited), which is being accounted for
under the purchase method of accounting, as if it had occurred effective June
30, 2002 (shown on page 28) and at the beginning of 2001 (shown on page 30). 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 June 30, 2002 are
not necessarily indicative of results for the year ending December 31, 2002 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 Sunrise and Capitol are already
related and already share some executives and common systems, potential cost
savings and other synergies are not expected to be material upon completion of
the share exchange.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The income tax discussion below represents the opinion of ________________,
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 do not 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 Sunrise
and Capitol. You should read carefully the full text of the tax opinion of
_______________. The opinion is included in this proxy statement/prospectus as
Annex C. This discussion also assumes that the exchange will be effected
pursuant to applicable state law and otherwise completed according to the terms
of the Plan of Share Exchange. You should not rely upon this discussion if any
of these factual assumptions or representations is, or later becomes,
inaccurate.
This discussion also assumes that shareholders hold their shares of Sunrise
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;
- Sunrise shareholders who received their Sunrise common stock through
the exercise of employee stock options or otherwise as compensation;
- Sunrise shareholders who are not U.S. persons; and
- Sunrise shareholders who hold Sunrise common stock as part of a hedge,
straddle or conversion transaction.
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The discussion also does not address any consequences arising under the
laws of any state, locality or foreign jurisdiction. No rulings have been or
will be sought from the Internal Revenue Service regarding any matters relating
to the exchange.
Based on the assumptions and representations above, it is the opinion of
______________________, tax counsel to Capitol, that:
* the exchange will qualify as a reorganization within the meaning of
Section _________ of the Internal Revenue Code;
* no gain or loss will be recognized by the shareholders of Sunrise who
exchange their Sunrise 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
Sunrise shareholders who exchange all of their Sunrise common stock
for Capitol common stock in the exchange will be the same as the
aggregate tax basis of the Sunrise common stock surrendered in
exchange (reduced by any amount allocable to a fractional share of
Capitol common stock for which cash is received);
* the holding period of the Capitol common stock received will include
the holding period of shares of Sunrise common stock surrendered in
exchange; and
* a holder of Sunrise 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 Sunrise 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 Sunrise common stock exchanged for the
fractional share of Capitol common stock satisfies the long-term
holding period requirement.
The tax opinion of ______________________ is not binding upon the Internal
Revenue Service or the courts.
TAX MATTERS ARE VERY COMPLICATED, AND THE TAX CONSEQUENCES OF THE EXCHANGE
TO YOU WILL DEPEND ON YOUR PARTICULAR SITUATION. YOU ARE ENCOURAGED TO CONSULT
YOUR OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES OF THE EXCHANGE,
INCLUDING TAX RETURN REPORTING REQUIREMENTS, THE APPLICABILITY OF FEDERAL,
STATE, LOCAL AND FOREIGN TAX LAWS AND THE EFFECT OF ANY PROPOSED CHANGE IN THE
TAX LAWS.
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, Sun (and,
hence Capitol) received permission to acquire its controlling ownership of
Sunrise prior to Sunrise 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 Sunrise common stock will
be publicly tradable upon consummation of the exchange. There will be no
restriction on the ability of a former Sunrise shareholder to sell in the open
market the Capitol common stock received (unless the Sunrise shareholder is also
an officer, director or affiliate of either Sunrise 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).
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DISSENTERS' RIGHTS
By following the specific procedures set forth in the New Mexico Business
Corporation Act ("NMBCA"), Sunrise shareholders have a statutory right to
dissent from the Plan of Share Exchange. If the Plan of Share Exchange is
approved and consummated, any Sunrise shareholder who properly perfects his
dissenters' rights will be entitled, upon consummation of the Plan of Share
Exchange, to receive an amount of cash equal to the fair value of his shares of
Sunrise Common Stock rather than receiving the consideration set forth in the
Plan of Share Exchange. The following summary is not a complete statement of
statutory dissenters' rights of appraisal, and such summary is qualified by
reference to the applicable provisions of the NMBCA, which are reproduced in
full in Annex E to this Proxy Statement/Prospectus. A shareholder must complete
each step in the precise order prescribed by the statute to perfect his
dissenter's rights of appraisal.
Any holder of Sunrise Common Stock electing to exercise his right of
dissent (a "Dissenting Shareholder") shall file with Sunrise, prior to or at the
shareholders meeting, a written objection to the Plan of Share Exchange. If the
Plan of Share Exchange is approved by the required vote and the Dissenting
Shareholder has not voted in favor thereof, the Dissenting Shareholder may,
within ten days after the date on which the vote was taken, make written demand
on Sunrise for payment of the fair value of the Dissenting Shareholder's shares.
If the Plan of Share Exchange is effected, Sunrise shall pay to the Dissenting
Shareholder, upon the determination of the fair value, and, in the case of
shares represented by certificates, the surrender of such certificates, the fair
value thereof as of the day prior to the Special Meeting. Any Dissenting
Shareholder failing to make demand within the prescribed ten day period shall be
bound by the terms of the Plan of Share Exchange. Any Dissenting Shareholder
making such demand shall thereafter be entitled only to payment and shall not be
entitled to vote or to exercise any other rights of a shareholder.
No such demand may be withdrawn unless Sunrise consents thereto. If,
however, the demand is withdrawn upon consent, or if the Plan of Share Exchange
is abandoned or rescinded or the shareholders revoke the authority to effect the
Plan of Share Exchange, or if no demand or petition for the determination of
fair value by a court has been made or filed within the time provided in the
NMBCA, or if a court of competent jurisdiction determines that the Dissenting
Shareholder is not entitled to the relief provided by the NMBCA, then the right
of the Dissenting Shareholder to be paid the fair value of his shares will cease
and his status as a shareholder will be restored.
Within ten days after the Plan of Share Exchange is effected Sunrise shall
give written notice thereof to each Dissenting Shareholder who has made demand
as provided in the NMBCA and shall make a written offer to each such Dissenting
Shareholder to pay for such shares at a specified price deemed by Sunrise to be
the fair value thereof.
If, within thirty days after the date on which the Plan of Share Exchange
was effected, the fair value of such shares is agreed upon between a Dissenting
Shareholder and Sunrise, payment therefor shall be made within ninety days after
the date on which the Plan of Share Exchange was effected, and, in the case of
shares represented by certificates, upon surrender of the certificates. Upon
payment of the agreed value, the Dissenting Shareholder shall cease to have any
interest in the shares.
If, within the period of thirty days, such Dissenting Shareholder and
Sunrise do not so agree, then Sunrise, within thirty days after receipt of
written demand from any Dissenting Shareholder given within sixty days after the
date on which the Plan of Share Exchange was effected, shall, or at its election
at any time within the period of sixty days may, file a petition in any court of
competent jurisdiction in the county in New Mexico where the registered office
of Sunrise is located asking that the fair value of such shares be determined.
If Sunrise fails to institute the proceeding as provided in the NMBCA, any
Dissenting Shareholder may do so in the name of Sunrise. All Dissenting
Shareholders, wherever residing, shall be made parties to the proceeding as an
action against their shares. A copy of the petition shall be served on each
Dissenting Shareholder who is a resident of New Mexico and shall be served by
registered or certified mail on each Dissenting Shareholder who is a
nonresident. Service on nonresidents shall also be made by publication as
provided by law. All Dissenting Shareholders who are parties to the proceeding
shall be entitled to judgment against Sunrise for the amount of the fair value
of their shares. The court may, if it so elects, appoint one or more persons as
appraisers to receive evidence and recommend a decision on the question of fair
value. The judgment shall be payable to the holders of uncertified shares
immediately, but to the holders of shares represented by certificates only upon
the surrender to Sunrise of certificates. Upon payment of the judgment, the
Dissenting Shareholder shall cease to have any interest in such shares.
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The judgment shall include an allowance for interest at such rate as the
court may find to be fair and equitable, in all the circumstances, from the date
on which the vote was taken on the Plan of Share Exchange to the date of
payment. The costs and expenses of any such proceeding shall be determined by
the court and shall be assessed against Sunrise, but all or any part of the
costs and expenses may be apportioned and assessed as the court deems equitable
against any or all of the Dissenting Shareholders who are parties to the
proceeding to whom Sunrise shall have made an offer to pay for the shares if the
court shall find that the action of such Dissenting Shareholders in failing to
accept such offer was not in good faith. Such expenses shall include reasonable
compensation for and reasonable expenses of the appraisers, but exclude the fees
and expenses of counsel for and experts employed by any party; but if the fair
value of the shares as determined materially exceeds the amount which Sunrise
offered to pay therefor, or if no offer was made, the court in its discretion
may award to any Dissenting Shareholder who is a party to the proceeding such
sum as the court determines to be reasonable compensation to any expert employed
by the Dissenting Shareholder in the proceeding, together with reasonable fees
of legal counsel.
Upon receiving a demand for payment from any Dissenting Shareholder,
Sunrise shall make an appropriate notation thereof in its shareholder records.
Within twenty days after demanding payment for his shares, each holder of shares
represented by certificates demanding payment shall submit the certificates to
Sunrise for notation thereon that such demand has been made. His failure to do
so shall, at the option of Sunrise, terminate his rights under the NMBCA unless
a court of competent jurisdiction otherwise directs. If uncertificated shares
for which payment has been demanded or shares represented by a certificate on
which notation has been so made is transferred, any new certificate issued
therefor shall bear similar notation, together with the name of the original
dissenting holder of the shares, and a transferee of the shares acquires by such
transfer no rights in Sunrise other than those which the original Dissenting
Shareholder had after making demand for payment of the fair value thereof.
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
Sunrise 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 Sunrise for those purposes generally include
individuals or entities that control, are controlled by, or are under common
control with, Sunrise, and would not include shareholders who are not officers,
directors or principal shareholders of Sunrise.
The affiliates of Sunrise may not offer, sell or otherwise dispose of any
of the shares of Capitol common stock issued to that affiliate in the exchange
or otherwise owned or acquired by that affiliate:
(1) for a period beginning 30 days prior to the exchange and continuing
until financial results covering at least 30 days of post-exchange
combined operations of Capitol and Sunrise have been publicly filed by
Capitol; or
(2) in violation of the Securities Act.
37
OPINION OF FINANCIAL ADVISOR
Sunrise has retained JMP Financial, Inc. to provide a financial fairness
opinion in connection with the exchange. The Sunrise board selected JMP
Financial, Inc. to act as Sunrise's financial advisor based on its
qualifications, expertise and reputation. JMP Financial, Inc. has rendered its
opinion, in writing, that, based upon and subject to the various considerations
set forth in the opinion, the consideration to be received pursuant to the
exchange by the holders of Sunrise common stock is fair from a financial point
of view.
The full text of the written opinion of JMP Financial, Inc. is attached as
Annex B to this proxy statement/prospectus and sets forth, among other things,
the assumptions made, procedures followed, matters considered and limitations on
the scope of the review undertaken by JMP Financial, Inc. in rendering its
opinion. Sunrise shareholders are urged to, and should, read the opinion
carefully and in its entirety. The opinion is directed to the Sunrise board and
addresses only the fairness from a financial point of view of the consideration
received pursuant to the exchange as of the date of the opinion. It does not
address any other aspect of the exchange and does not constitute a
recommendation to any holder of Sunrise common stock as to how to vote at the
special shareholders meeting. The summary of the opinion of JMP Financial, Inc.
set forth in this document is qualified in its entirety by reference to the full
text of the opinion.
In connection with rendering its opinion, JMP Financial, Inc. among other
things:
- reviewed certain internal financial statements and other financial and
operating data concerning Sunrise prepared by the management of
Sunrise;
- discussed the past and current operations and financial condition and
the prospects of Sunrise with senior executives of Sunrise;
- reviewed certain publicly available financial statements and other
information of Capitol;
- discussed the past and current operations and financial condition and
the prospects of Capitol with senior executives of Capitol;
- reviewed the reported prices and trading activity for Capitol common
stock;
- compared the financial performance of Sunrise and Capitol and the
prices and trading activity of Capitol common stock with that of
certain other comparable publicly traded companies and their
securities;
- reviewed the financial terms, to the extent publicly available, of
certain comparable transactions;
- reviewed the Plan of Share Exchange; and
- performed such other analyses and considered such other factors as JMP
Financial, Inc. deemed appropriate.
In rendering its opinion, JMP Financial, Inc. performed the following
analyses:
(1) JMP Financial, Inc. reviewed the performance of a sample of publicly
traded stocks of other banks and bank holding companies. No bank or
bank holding company was identical to Sunrise or Capitol. JMP
Financial, Inc. did, however, note that the Sunrise and the Capitol
share value were generally within the range of the share values of
comparable size banks and bank holding companies.
(2) JMP Financial, Inc. also consulted a private database to construct a
group of banks and bank holding companies it deemed to be similar to
either Sunrise or Capitol, considering, but not limiting its analysis
to, such factors as size, financial condition and performance,
geography and market performance. Once again, although no bank or bank
holding company was identical to Sunrise or Capitol, JMP Financial,
Inc. noted that the estimated share value of Capitol was within the
range of trading prices of institutions of a similar size and in a
similar market or markets.
38
(3) JMP Financial, Inc. reviewed the pricing ratios in those mergers and
acquisitions of banks and bank holding companies pending or completed
during the past six months for which public information was
available. JMP Financial, Inc. found that the premium to book value
ratios offered to selling shareholders generally ranged from 107
percent to 308 percent, with both median and average premium to book
values falling between 165 percent and 211 percent. All of these
transactions involved the transfer of control to the acquiring
institution. JMP Financial, Inc. also reviewed the trading prices and
histories of small publicly traded banks it deemed comparable to
Sunrise to determine the approximate fair market value of small
minority positions in those institutions and found that price-to-book
value ratios ranged from 65 percent to 287 percent with averages and
medians ranging from 119 to 181 percent. The banks which JMP
Financial, Inc. reviewed and which it defined as "small publicly
traded banks" are all listed on the Nasdaq National Market System and
average a weekly trading volume of about one-half of one percent of
their outstanding stock. Among the significant differences between
these small publicly traded banks and Sunrise is that the Sunrise
stock is illiquid. A number of historical studies and valuation
practices estimate liquidity discounts in a range from 10 to 30
percent. The transaction at issue is somewhere between the sale of all
of the stock of an entire financial institution and the sale of a
minority block of stock in a community bank; however, JMP Financial,
Inc. believes the exchange bears more characteristics of the latter
than the former. The most dramatic difference, in the view of JMP
Financial, Inc., between the exchange and an acquisition of all of the
stock of an entire institution is the "change of control" by which the
acquiring institution acquires all of the outstanding stock of the
acquired institution. In such transactions, control of the acquired
institution changes hands, for which the acquiring institution may pay
a significant premium. In the present transaction, JMP Financial, Inc.
noted that Capitol has had control of Sunrise from the outset and
would not be expected to pay a "premium" for control, since it already
owns substantial control of Sunrise. JMP Financial, Inc. would expect
that the premium over book value would be closer to the price paid in
the sale of a minority block of stock in a small publicly traded bank,
which in fact is the case. JMP Financial, Inc. therefore concluded
that the exchange was fair to the shareholders of Sunrise from a
financial point of view.
The opinion and presentation of JMP Financial, Inc. to the Sunrise board
was one of many factors taken into consideration by Sunrise's board in making
its decision to approve the exchange. The analyses as described above should not
be viewed as determinative of the opinion of the Sunrise board with respect to
the exchange or of whether the Sunrise board would have been willing to agree to
a transaction with a different form or amount of consideration.
The Sunrise board retained JMP Financial, Inc. based upon its
qualifications, experience and expertise. JMP Financial, Inc. is a recognized
investment banking and advisory firm which has special expertise in the
valuation of banks.
Under the engagement letter, JMP Financial, Inc. provided financial
advisory services and a financial fairness opinion in connection with the
exchange, and Sunrise agreed to pay JMP Financial, Inc. a fee of $8,500 plus
out-of-pocket expenses. In addition, Sunrise has agreed to indemnify JMP
Financial, Inc. and its affiliates, against certain liabilities and expenses,
including certain liabilities under the federal securities laws.
39
THE CLOSING
EFFECTIVE TIME
The exchange will be effective at 5:00 p.m., Mountain Time, on September
30, 2002 and will be closed as soon as possible thereafter. If the Plan of Share
Exchange is approved, as of the effective date, each outstanding share of
Sunrise common stock will be automatically converted into the right to receive
Capitol common stock according to the exchange ratio. Outstanding stock options
of Sunrise will similarly be exchanged for stock options of Capitol with similar
vesting and expiration dates.
SHARES HELD BY CAPITOL
Shares of Sunrise common stock previously owned by Capitol 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 Sunrise's shareholders a letter of
transmittal. The letter of transmittal will contain instructions with respect to
the surrender of Sunrise 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 Sunrise 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 Sunrise 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 Sunrise stock will represent only the right to receive the shares of
Capitol common stock into which shares of Sunrise 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 Sunrise 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 Sunrise 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.
Sunrise'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 Sunrise stock that is not registered in the
records of Sunrise has occurred, then, so long as the Sunrise 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 Sunrise shares. Instead, Capitol will
pay an amount in cash determined by multiplying the fractional share interest to
which a Sunrise shareholder would otherwise be entitled by the Capitol share
value used in determining the exchange ratio.
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FEES AND EXPENSES
Whether or not the exchange is completed, Capitol and Sunrise 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 Sunrise 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.
AMENDMENT AND TERMINATION
Capitol and Sunrise 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 Sunrise in the manner described in
this proxy statement/prospectus.
41
THE SHAREHOLDERS' MEETING
DATE, TIME AND PLACE
The shareholders' meeting will be held on September ___, 2002 at the
offices of Sunrise Bank of Arizona at 4350 East Camelback Road, Suite 100A,
Phoenix, Arizona 85018 at 9:00 a.m., local time.
MATTERS TO BE CONSIDERED AT THE SHAREHOLDERS' MEETING
At the shareholders' meeting, holders of Sunrise common stock will vote on
whether to approve the exchange. See "The Exchange". Shareholders will also vote
on the election of directors for Sunrise. See "Election of Directors".
RECORD DATE; STOCK ENTITLED TO VOTE; QUORUM
Holders of record of Sunrise common stock at the close of business on
August ___, 2002, the record date for the shareholders' meeting, are entitled to
receive notice of and to vote at the shareholders' meeting. At June 30, 2002,
1,492,923 shares of Sunrise common stock were issued and outstanding. Capitol
held 1,054,095 shares of Sunrise common stock on that date and 438,828 were held
by shareholders other than Capitol.
A majority of the shares of the Sunrise 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 Sunrise common stock on the record date are each entitled
to one vote per share with respect to approval of the exchange at Sunrise's
shareholders' meeting.
Sunrise does not expect any other matters to come before the shareholders'
meeting. However, if any other matters are properly presented at the meeting for
consideration, the persons named in the enclosed form of proxy, and acting
thereunder, will have discretion to vote or not vote on those matters in
accordance with their best judgment, unless authorization to use that discretion
is withheld. If a proposal to adjourn the meeting is properly presented,
however, the persons named in the enclosed form of proxy will not have
discretion to vote in favor of the adjournment proposal any shares which have
been voted against the proposal(s) to be presented at the meeting. Sunrise is
not aware of any matters expected to be presented at the meeting 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, Sunrise and Capitol have agreed that
approval of the exchange will require the affirmative vote of a majority of the
shares of Sunrise common stock outstanding on the record date, excluding the
shares of Sunrise held by Capitol. Abstentions and broker non-votes will have
the same effect as a vote against the proposal to approve the exchange.
SHARE OWNERSHIP OF MANAGEMENT
As of the close of business on July 15, 2002, the directors and executive
officers of Sunrise and their affiliates were entitled to vote approximately
34,500 shares of Sunrise common stock (excluding Sunrise's shares held by
Capitol). These shares represent approximately 2.31% of the outstanding shares
of Sunrise common stock and 7.86% of Sunrise's shares held by shareholders other
than Capitol. The directors and executive officers have agreed to vote their
shares of Sunrise common stock in favor of the exchange.
42
VOTING OF PROXIES
SUBMITTING PROXIES
You may vote by attending the shareholders' meeting and voting your shares
in person at the meeting, or by completing the enclosed proxy card, signing and
dating it, and mailing it in the enclosed postage pre-paid envelope. If you sign
a written proxy card and return it without instructions, your shares will be
voted FOR the exchange at the shareholders' meeting.
If your shares are held in the name of a trustee, bank, broker or other
record holder, you must either direct the record holder of your shares as to how
to vote your shares or obtain a proxy from the record holder to vote at the
shareholders' meeting.
Shareholders who submit proxy cards should not send in any stock
certificates with their proxy cards. A transmittal form with instructions for
the surrender of certificates representing shares of Sunrise stock will be
mailed by Capitol's transfer agent to former Sunrise 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 Sunrise, by a later-dated proxy signed and returned by mail or by attending
the shareholders' meeting and voting in person. Attendance at the shareholders'
meeting will not in and of itself constitute a revocation of a proxy. Any
written notice of a revocation of a proxy must be sent so as to be delivered
before the taking of the vote at the shareholders' meeting to:
Sunrise Capital Corporation
c/o Sunrise Bank of Arizona
4350 East Camelback Road, Suite 100A
Phoenix, Arizona 85018
Attn: Cristin Reid English, Secretary
If you require assistance in changing or revoking a proxy, you should
contact William Hinz II, at the address above or at phone number (602) 956-6250.
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 or Sunrise will pay the cost of solicitation of proxies. In
addition to solicitation by mail, the directors, officers and employees of
Sunrise may also solicit proxies from shareholders by telephone, telecopy,
telegram or in person.
43
COMPARISON OF SHAREHOLDER RIGHTS
As a result of the exchange, holders of shares of Sunrise 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 New Mexico
Statutes Annotated, as well as to Sunrise's articles of incorporation and
by-laws and the Michigan Business Corporation Act as well as to Capitol's
articles of incorporation and by-laws, (copies of Capitol's articles of
incorporation and by-laws are on file with the SEC).
The following summary compares various rights, privileges and restrictions
applicable to shareholders of Sunrise and Capitol:
Sunrise Capitol
------- -------
Authorized Capital Stock 25,000,000 25,000,000
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 filled by a majority of May be filled 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, Yes Yes
Employees or Agents
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 New Mexico law provides for No
dissenters' rights
44
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 June 30, 2002, 10,705,378 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 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.
45
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.
46
As of _________, 2002 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.
47
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 Sunrise 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 Sunrise for the shareholders' meeting. As allowed by SEC rules,
this proxy statement/prospectus does not contain all the information you can
find in the registration statement or the exhibits to the registration
statement.
In addition, Capitol files reports, proxy statements and other information
with the SEC under the Exchange Act. Please call the SEC at 1-800-SEC-0330 for
further information on the public reference rooms. You may read and copy this
information at the following locations of the SEC:
Public Reference Room 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 Sunrise, 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 Sunrise 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 Period ended June 30, 2002
* Quarterly Report on Form 10-Q Period ended March 31, 2002
* Current Report on Form 8-K Filed March 29, 2002
* Proxy Statement on Schedule 14A Annual Meeting Held May 2, 2002
* Annual Report on Form 10-K Year ended December 31, 2001
* Registration Statement on Form 8-A Filed April 19, 1990
filed April 19, 1990
In addition, all subsequent documents filed with the SEC by Capitol
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
meeting 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.
48
IF YOU WOULD LIKE TO REQUEST DOCUMENTS, PLEASE DO SO BY SEPTEMBER ___, 2002
TO RECEIVE THEM BEFORE THE SHAREHOLDERS' MEETING. If you request exhibits to any
documents incorporated by reference, Capitol 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 Sunrise, 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 Sunrise has been supplied by Sunrise.
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
_____________________.
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 have been audited by BDO Seidman, LLP,
independent certified public accountants, to the extent and for the periods set
forth 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 Sunrise Capital Corporation
included in this proxy statement/prospectus have been audited by BDO Seidman,
LLP, independent certified public accountants, to the extent and for the periods
set forth in their report appearing elsewhere herein and is included in reliance
upon such report given upon the authority of said firm as experts in accounting
and auditing.
49
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50
ANNEX A
PLAN OF SHARE EXCHANGE
THIS PLAN OF SHARE EXCHANGE ("Plan") is entered into effective July ___,
2002 between and among CAPITOL BANCORP LIMITED, a Michigan corporation
("Capitol") and the SHAREHOLDERS of SUNRISE CAPITAL CORPORATION ("Sunrise").
R E C I T A L S
A. Sunrise is a New Mexico corporation which commenced operations in
1999.
B. Capitol is now the holder of a controlling interest in the duly issued
and outstanding common stock of Sunrise.
C. Capitol's common stock ("Capitol common stock") is traded on the
National Market System of the NASDAQ Stock Market, Inc.
D. Sunrise's Board of Directors has determined that it would be in the
best interest of Sunrise's stockholders to exchange their shares of stock in
Sunrise 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 Sunrise common stock will
exchange his, her or their shares of Sunrise common stock for shares of Capitol
common stock according to an exchange ratio determined as follows:
SUNRISE SHARE VALUE. The share value of each share of
Sunrise common stock shall be $13.50 per share, subject to
adjustment based on Capitol's due diligence review of
Sunrise's consolidated loan portfolio as of September 30,
2002.
CAPITOL SHARE VALUE. The share value of each share of
Capitol common stock shall be $21.816, the average of the
closing prices of Capitol's common stock for the thirty-day
period ended June 14, 2002, as reported by the Nasdaq
National Market.
EXCHANGE RATIO. The exchange ratio will be determined by
dividing the Sunrise Share Value by the Capitol Share Value.
Each Sunrise shareholder (except Capitol) will receive shares of Capitol
common stock in exchange for his, her or their Sunrise common stock calculated
by multiplying the number of shares of Sunrise 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 Sunrise 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 Sunrise (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. 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 Board of Directors of Sunrise 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 Sunrise.
4. TAX OPINION. ______________________, shall have issued its legal
opinion that the share exchange will constitute a reorganization within the
means of Section 368 of the Internal Revenue Code of 1986, as amended, and that
the exchange shall not be a taxable event to the shareholders of Sunrise (except
to the extent of cash received in lieu of fractional shares).
5. SURRENDER OF CERTIFICATES. Each shareholder of Sunrise common stock
shall surrender to Capitol his, her or their certificate(s) for shares of
Sunrise 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 Sunrise common stock surrendered in exchange
therefor, and shall thereafter be transferable in the same manner as otherwise
provided for Capitol common stock. Shareholders of Sunrise 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 SUNRISE CERTIFICATE. Sunrise shall issue its certificate
registering in the name of Capitol all shares of stock now registered to
shareholders other than Capitol.
7. The transaction will be governed by the laws of the State of Michigan.
ANNEX B
JMP FINANCIAL, INC.
753 GRAND MARAIS
GROSSE POINTE PARK, MI 48230
TEL/FAX (313) 824-1711
July ___, 2002
Board of Directors
Sunrise Capital Corporation
225 Gold SW
Albuquerque, NM 87102
Ladies and Gentlemen:
We have examined the proposed Plan of Share Exchange (the "Agreement")
dated July ___, 2002, to be entered into between Capitol Bancorp Limited, a
Michigan Corporation ("CBCL") and the shareholders (the "Shareholders") of
Sunrise Capital Corporation ("Sunrise"), a New Mexico Corporation by which CBCL
shall acquire from the Shareholders their outstanding shares of Sunrise, not
already owned by CBCL, in exchange for shares of CBCL (the "Exchange").
The terms of the transaction contemplated by the Agreement provide that
each share of Sunrise's common stock, not already owned by CBCL and issued and
outstanding as of September 30, 2002 (the "Effective Date") shall be exchanged,
pursuant to the Exchange Ratio specified in the Agreement, into shares of CBCL.
You have requested our opinion as to the fairness, from a financial point of
view, of the Exchange.
JMP Financial, Inc. ("JMP"), as a regular part of its investment banking
business, is engaged in the valuation of the securities of commercial and
savings banks as well as the holding companies of commercial and savings banks
in connection with mergers, acquisition, and divestitures, and for other
purposes.
In connection with this engagement and rendering this opinion, we reviewed
materials deemed necessary and appropriate by us under the circumstances,
including;
* Audited consolidated financial statements of Sunrise and CBCL for the years
ended December 31, 2001, 2000 and 1999 as available;
* Unaudited financial statements of Sunrise for the period ended June 30,
2002;
* Certain unaudited internal financial information concerning the capital
ratios of Sunrise;
* Publicly available information concerning CBCL;
* Publicly available information with respect to certain other bank holding
companies, which we deemed, appropriate, including competitors of CBCL and
Sunrise.
* Publicly available information with respect to the nature and terms of
certain other transactions which we consider relevant;
* The Agreement;
* Reviewed certain historical market prices and trading volumes of Sunrise's
and CBCL's common stock to the extent reasonably available. As to Sunrise,
such review was limited to its initial offering of common stock.
Page Two
Sunrise Board of Directors
July ___, 2002
We have assumed and relied upon, without independent verification, the
accuracy and completeness of all of the financial statements and other
information reviewed by us for the purposes of the opinion expressed herein. We
have not made an independent evaluation or appraisal of the assets and
liabilities of Sunrise or CBCL or any of its subsidiaries and we have not been
furnished with any such evaluation or appraisal, except as referenced above.
Additionally, we are not experts in the evaluation of reserves for loan losses,
and we have not reviewed any individual credit files. For purposes of this
opinion, we have assumed, based solely on management representations, that
CBCL's and Sunrise's loan loss reserves are adequate in all material respects
and that, in the aggregate, other conditions at CBCL and Sunrise are
satisfactory and this opinion is conditioned upon such assumption. We have also
assumed that there has been no material change in Sunrise's or CBCL's assets,
financial condition, results of operations, business, or prospects since the
date of the last financial statements made available to us for Sunrise and CBCL,
respectively. This opinion is necessarily based on economic, market and other
conditions in effect on, and the information made available to us as of, the
date hereof. It should be understood that subsequent developments may effect the
opinion and that JMP does not have any litigation to update, revise or reaffirm
it.
The opinion expressed herein is being rendered to the Board of Directors of
Sunrise for its use in evaluation of the proposed transaction, assuming the
transaction is consummated upon the terms set forth in the Agreement.
Based upon the terms and conditions of the Exchange and the current market
value of CBCL's common stock, and based further upon such other considerations
as we deem relevant, JMP is, subject to the foregoing, of the opinion on the
date hereof, that the consideration to be received by the Shareholders in the
Exchange would be fair from a financial point of view if the transaction
contemplated by the Agreement is in fact consummated pursuant to the terms
thereof.
Sincerely,
/s/ John Palffy
John Palffy
President
JMP Financial, Inc.
ANNEX C
[Letterhead of ______________________]
[TO BE FILED BY AMENDMENT]
July ___, 2002
Capitol Bancorp Ltd.
200 Washington Sq. N., Fourth Floor
Lansing, MI 48933
Re: Plan of Share Exchange
Tax Considerations
Ladies and Gentlemen:
[The remainder of this page intentionally left blank]
ANNEX D
FINANCIAL INFORMATION REGARDING SUNRISE CAPITAL CORPORATION
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................ D-2
Condensed Consolidated Interim Financial Statements:
Consolidated Balance Sheets as of June 30, 2002 and December 31, 2001.... D-6
Consolidated Statements of Operations for the Six Months
Ended June 30, 2002 and 2001........................................... D-7
Consolidated Statements of Changes in Stockholders' Equity for the
Six Months Ended June 30, 2002 and 2001................................ D-8
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 2002 and 2001........................................... D-9
Notes to Consolidated Interim Financial Statements....................... D-10
Audited Consolidated Financial Statements:
Report of Independent Auditors........................................... D-12
Consolidated Balance Sheets as of December 31, 2001 and 2000............. D-13
Consolidated Statements of Operations for the Years
Ended December 31, 2001, 2000 and 1999................................. D-14
Consolidated Statements of Changes in Stockholders' Equity for the Years
Ended December 31, 2001, 2000 and 1999................................. D-15
Consolidated Statements of Cash Flows for the Years
Ended December 31, 2001, 2000 and 1999................................. D-16
Notes to Consolidated Financial Statements................................. D-17
D-1
Management's Discussion and Analysis of Financial Condition
and Results of Operations
SUNRISE CAPITAL CORPORATION
PERIODS ENDED JUNE 30, 2002 AND DECEMBER 31, 2001
FINANCIAL CONDITION
Sunrise Capital Corporation is engaged in commercial banking activities through
its subsidiaries Sunrise Bank of Arizona (wholly-owned), Sunrise Bank of
Albuquerque (87% owned) and Sunrise Bank of San Diego (64% owned). The
Corporation's banks provide a full array of banking services, principally loans
and deposits, to entrepreneurs, professionals and other high net worth
individuals in their communities.
Total assets approximated $154.2 million at June 30, 2002, an increase from
$137.2 million at December 31, 2001; no new banks were added during this period;
however new loan production offices have been recently added. Total assets
approximated $84.9 million at year-end 2000. Asset increases during 1999, 2000
and 2001 were very significant due to banks added during these periods and their
respective growth.
Total portfolio loans approximated $131.9 million at June 30, 2002, an increase
of approximately $15.2 million from the $116.7 million level at December 31,
2001. At December 31, 2000, total portfolio loans approximated $75.8 million.
Commercial loans approximated 95% of total portfolio loans at June 30, 2002
consistent with the Corporation's emphasis on commercial lending activities.
Real estate mortgage and installment loans approximated 5% of total portfolio
loans at June 30, 2002.
The allowance for loan losses at June 30, 2002 approximated $1.8 million or
1.35% of total portfolio loans, a slight decrease over the year-end 2001 ratio
of 1.36%.
The allowance for loan losses is maintained at a level believed adequate by
management to absorb potential losses inherent in the loan portfolio at the
balance sheet date. Management's determination of the adequacy of the allowance
is based on evaluation of the portfolio (including volume, amount and
composition, potential impairment of individual loans and concentrations of
credit), past loss experience, current economic conditions, loan commitments
outstanding and other factors.
Net charge-offs totaled $3,000 for the first six months of 2002 (none in the
corresponding period in 2001). Net charge-offs totaled $56,000 and $236,000 for
the year ended December 31, 2001 and 2000, respectively (none in 1999).
Other assets decreased in early 2001, due to the write-off of pre-opening and
other start-up costs associated with Sunrise Bank of San Diego upon its
commencement of operations.
The Corporation's growth has been funded primarily by deposits, most of which
are interest-bearing. Total deposits approximated $136.1 million at June 30,
2002, an increase of approximately $16.8 million from the $119.3 million level
at December 31, 2001. Deposits increased significantly in 2001 from the $74.5
million level at the beginning of the year.
The Corporation's Banks generally do not rely upon brokered deposits as a key
funding source; deposits are generally obtained within the Banks' communities.
The Banks emphasize obtaining noninterest-bearing deposits as a means to reduce
their cost of funds. Noninterest-bearing deposits approximated $18.9 million at
June 30, 2002 or about 14% of total deposits, an increase of approximately $2.6
million from December 31, 2001. Noninterest-bearing deposits fluctuate
significantly from day to day, depending upon customer account activity.
Stockholders' equity approximated $12.9 million at June 30, 2002 or
approximately 8.4% of total assets. Capital adequacy is discussed elsewhere in
this narrative.
D-2
RESULTS OF OPERATIONS
Net income for the six months ended June 30, 2002 approximated $245,000,
compared with a net loss of $398,000 in the six-month 2001 period. Net losses
for 2001, 2000 and 1999 were $88,000, $243,000 and $634,000, respectively.
Operating losses during these periods are attributed to the start-up nature of
the Corporation's Banks. The associated charge or credit to operations relating
to minority interests in income or loss of consolidated subsidiaries varies
based on the operating results of those subsidiaries and the respective
ownership percentage.
During the interim 2002 period, the Corporation's profitability has been the
result of the Banks' loan and deposit portfolios reaching a sufficient size to
generate an adequate margin to cover operating expenses and produce earnings.
Interim 2002 operating results are not necessarily indicative of results
expected for the year ending December 31, 2002. Earlier in 2002, Sunrise Bank of
Arizona has opened new loan production offices which will not initially
contribute earnings and are expected to incur losses in the near term.
The principal source of operating revenues is interest income. Total interest
income for the six months ended June 30, 2002 approximated $5.9 million,
compared with $5.8 million in the first six months of 2001. For the year ended
December 31, 2001, total interest income approximated $11.8 million, compared
with $6.3 million in 2000 and $1.5 million in 1999.
Total interest expense approximated $1.8 million for the six months ended June
30, 2002, compared with $2.6 million for the first six months of 2001; the
decrease in interest expense is the result of lower interest rates on deposits.
For the year ended December 31, 2001, total interest expense approximated $5.1
million, compared with $2.7 million in 2000 and $500,000 in 1999.
Net interest income approximated $4.1 million for the six months ended June 30,
2002, compared with $3.2 million for the corresponding 2001 period. Net interest
income for the year ended December 31, 2001 approximated $6.7 million,
significantly more than the $3.6 million in 2000 and $1.1 million in 1999.
Provisions for loan losses have been based primarily upon amounts necessary to
increase the allowance for loan losses to the regulatorily-imposed ratio
requirement of not less than 1% of total portfolio loans outstanding and
management's analysis of other allowance requirements discussed previously. For
the interim 2002 and 2001 periods, provisions for loan losses fluctuated
significantly ($198,000 and $520,000 for the six months ended June 30, 2002 and
2001, respectively) due to changes in loan origination volume. Provisions for
loan losses on an annual basis have varied ($755,000 for the year ended December
31, 2001, $874,000 in 2000 and $232,000 in 1999) mainly due to portfolio growth
and changes in asset quality.
Total noninterest income approximated $186,000 for the six months ended June 30,
2002 ($46,000 in the corresponding 2001 period) and approximated $129,000 for
the year ended December 31, 2001, $142,000 in 2000 and $14,000 in 1999. The 2002
increase relates to gains on sale of government-guaranteed loans.
Total noninterest expense approximated $3.6 million for the six months ended
June 30, 2002, closely approximating the corresponding 2001 period. However,
noninterest expense in the interim 2001 period included start-up costs
associated with Sunrise Bank of San Diego. For the year ended December 31, 2001,
total noninterest expense approximated $6.5 million, compared with $3.3 million
in 2000 and $1.5 million in the 1999 period. Increases in noninterest expense in
each year relate to the number and size of the Banks.
The principal component of noninterest expense is salaries and employee benefits
which has increased during these periods based upon the increased staffing
required to serve customers and to facilitate growth.
D-3
LIQUIDITY AND CAPITAL RESOURCES
The principal funding source for asset growth and loan origination activities is
deposits. Growth in deposits and loans was previously discussed in this
narrative. As stated previously, most of the deposit growth has been deployed
into commercial loans, consistent with the Bank's emphasis on commercial lending
activities.
Cash and cash equivalents approximated $20.6 million at June 30, 2002, compared
with $19.4 million at December 31, 2001 and $6.8 million at December 31, 2000.
As liquidity levels vary continuously based upon customer activities, amounts of
cash and cash equivalents can vary widely at any given point in time. Management
believes the Corporation's liquidity position at June 30, 2002 is adequate to
fund loan demand and to meet depositor needs.
At June 30, 2002 and December 31, 2001, the Corporation had approximately
$397,000 and $122,000, respectively, of investment securities classified as
available for sale which can be utilized to meet various liquidity needs as they
arise.
All banks are subject to a complex series of capital ratio requirements which
are imposed by state and federal banking agencies. In the case of Sunrise
Capital Corporation, its Banks are subject to a more restrictive requirement
than is applicable to most banks inasmuch as the Banks must maintain a
capital-to-asset ratio of not less than 8% for their first three years of
operation. In the opinion of management, the Corporation and its Banks are in
compliance with the regulatory capital requirements to which they are subject as
of June 30, 2002 and preceding balance-sheet dates.
IMPACT OF NEW ACCOUNTING STANDARDS
In July 2001, the Financial Accounting Standards Board (FASB) issued Statement
No. 141, BUSINESS COMBINATIONS, and No. 142, GOODWILL AND OTHER INTANGIBLE
ASSETS. Statement No. 141 requires that all business combinations be accounted
for under a prior standard of purchase accounting, eliminating the so-called
pooling-method which was used to account for some business combinations.
Statement No. 141 requires that the purchase method be used for business
combinations initiated after June 30, 2001. This standard did not have a
material effect on the Corporation's consolidated financial statements.
Statement No. 142 requires that goodwill no longer be amortized and charged
against earnings, but instead be reviewed for impairment. Amortization of
goodwill ceases upon adoption of the Statement which, for most companies, will
be January 1, 2002. This new standard requires that goodwill be reviewed
periodically for impairment and, accordingly, impairment adjustments of goodwill
be charged against earnings, when determined. As of June 30, 2002 and December
31, 2001, the Corporation had no recorded goodwill.
A variety of proposed or otherwise potential accounting standards are currently
under study by standard-setting organizations and various regulatory agencies.
Because of the tentative and preliminary nature of these proposed standards,
management has not determined whether implementation of such proposed standards
would be material to Sunrise's consolidated financial statements.
D-4
SUNRISE CAPITAL CORPORATION
----------
INTERIM FINANCIAL STATEMENTS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2002 AND 2001
D-5
CONSOLIDATED BALANCE SHEETS
SUNRISE CAPITAL CORPORATION
June 30 December 31
2002 2001
------------- -------------
(unaudited)
ASSETS
Cash and due from banks $ 6,260,813 $ 2,383,786
Interest-bearing deposits with banks 1,086 507,540
Federal funds sold 14,379,000 16,545,000
------------- -------------
Cash and cash equivalents 20,640,899 19,436,326
Loans held for resale 34,785
Investment securities:
Available for sale, carried at market value 396,730 122,086
Held for long-term investment, carried at amortized
cost which approximates market value 72,400 30,000
------------- -------------
Total investment securities 469,130 152,086
Portfolio loans:
Commercial 125,186,425 110,018,614
Real estate mortgage 4,820,790 4,613,974
Installment 1,876,365 2,068,503
------------- -------------
Total portfolio loans 131,883,580 116,701,091
Less allowance for loan losses (1,782,000) (1,587,000)
------------- -------------
Net portfolio loans 130,101,580 115,114,091
Premises and equipment 1,062,168 990,594
Accrued interest income 519,540 465,957
Other assets 1,331,809 1,072,569
------------- -------------
TOTAL ASSETS $ 154,159,911 $ 137,231,623
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 18,865,040 $ 16,253,081
Interest-bearing 117,188,765 103,046,224
------------- -------------
Total deposits 136,053,805 119,299,305
Debt obligations payable to majority shareholder 1,406,596 1,406,596
Accrued interest on deposits and other liabilities 611,325 740,546
------------- -------------
Total liabilities 138,071,726 121,446,447
MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES 3,161,087 3,103,304
STOCKHOLDERS' EQUITY:
Common stock, no par value;
25,000,000 shares authorized;
1,492,923 issued and outstanding 13,669,900 13,669,900
Retained-earnings deficit (744,679) (989,763)
Market value adjustment (net of tax effect) for
investment securities available for sale 1,877 1,735
------------- -------------
Total stockholders' equity 12,927,098 12,681,872
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 154,159,911 $ 137,231,623
============= =============
See notes to interim financial statements.
D-6
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
SUNRISE CAPITAL CORPORATION
Six Months Ended
June 30
-------------------------
2002 2001
----------- -----------
Interest income:
Portfolio loans (including fees) $ 5,767,523 $ 5,348,041
Taxable investment securities 9,874 4,988
Federal funds sold 108,007 330,634
Other 3,789 119,968
----------- -----------
Total interest income 5,889,193 5,803,631
Interest expense:
Deposits 1,760,222 2,570,890
Other 52,314 61,416
----------- -----------
Total interest expense 1,812,536 2,632,306
----------- -----------
Net interest income 4,076,657 3,171,325
Provision for loan losses 198,056 520,000
----------- -----------
Net interest income after
provision for loan losses 3,878,601 2,651,325
Noninterest income:
Service charges on deposit accounts 62,191 29,665
Other 124,069 16,330
----------- -----------
Total noninterest income 186,260 45,995
Noninterest expense:
Salaries and employee benefits 2,191,014 1,524,411
Occupancy 278,116 227,927
Other 1,158,864 1,805,266
----------- -----------
Total noninterest expense 3,627,994 3,557,604
----------- -----------
Income (loss) before federal income taxes
and minority interest 436,867 (860,284)
Federal income taxes (benefit) 134,000 (201,000)
----------- -----------
Income (loss) before minority interest 302,867 (659,284)
Charge (credit) resulting from minority interest in
net income (loss) of consolidated subsidiaries 57,783 (260,850)
----------- -----------
NET INCOME (LOSS) $ 245,084 $ (398,434)
=========== ===========
NET INCOME (LOSS) PER SHARE $ 0.16 $ (0.40)
=========== ===========
See notes to interim financial statements.
D-7
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
SUNRISE CAPITAL CORPORATION
Accumulated
Retained- Other
Common Earnings Comprehensive
Stock Deficit Income Total
------------ ------------ ------------- ------------
SIX MONTHS ENDED JUNE 30, 2001
- ------------------------------
Balances at January 1, 2001 $ 8,669,896 $ (902,152) $ -0- $ 7,767,744
Issuance of 416,667 shares of common stock
for cash consideration of $12 per share 5,000,004 5,000,004
Components of comprehensive income:
Net loss for the period (398,434) (398,434)
Market value adjustment for investment
securities available for sale (net of tax effect) 1,821 1,821
------------
Comprehensive income (loss) for the period (396,613)
------------ ------------ ------------ ------------
BALANCES AT JUNE 30, 2001 $ 13,669,900 $ (1,300,586) $ 1,821 $ 12,371,135
============ ============ ============ ============
SIX MONTHS ENDED JUNE 30, 2002
- ------------------------------
Balances at January 1, 2002 $ 13,669,900 $ (989,763) $ 1,735 $ 12,681,872
Components of comprehensive income:
Net income for the period 245,084 245,084
Market value adjustment for investment
securities available for sale (net of tax effect) 142 142
------------
Comprehensive income for the period 245,226
------------ ------------ ------------ ------------
BALANCES AT JUNE 30, 2002 $ 13,669,900 $ (744,679) $ 1,877 $ 12,927,098
============ ============ ============ ============
See notes to interim financial statements.
D-8
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SUNRISE CAPITAL CORPORATION
Six Months Ended
June 30
----------------------------
2002 2001
------------ ------------
OPERATING ACTIVITIES
Net income (loss) for the period $ 245,084 $ (398,434)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Provision for loan losses 198,056 520,000
Depreciation of premises and equipment 130,630 132,739
Minority interest in net income (loss) of consolidated
subsidiaries 57,783 (260,850)
Net amortization of investment security premiums 525 84
Deferred income taxes 80,000 (183,000)
Originations and purchases of loans held for resale (1,391,785)
Proceeds from sales of loans held for resale 1,357,000
Decrease (increase) in accrued interest income and other
assets (392,897) 1,021,580
Increase (decrease) in accrued interest on deposits and
other liabilities (129,221) 130,672
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 155,175 962,791
INVESTING ACTIVITIES
Proceeds from maturities of investment securities
available for sale 38,393 21,286
Purchases of investment securities (355,802)
Net increase in portfolio loans (15,185,489) (29,220,064)
Purchases of premises and equipment (202,204) (516,129)
------------ ------------
NET CASH USED BY INVESTING ACTIVITIES (15,705,102) (29,714,907)
FINANCING ACTIVITIES
Net increase in demand deposits, NOW accounts
and savings accounts 3,407,230 20,568,454
Net increase in certificates of deposit 13,347,270 19,046,727
Repayment of debt obligations (448,404)
Net proceeds from issuance of common stock 5,000,004
Resources provided by minority interests 2,910,600
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 16,754,500 47,077,381
------------ ------------
INCREASE IN CASH AND CASH EQUIVALENTS 1,204,573 18,325,265
Cash and cash equivalents at beginning of period 19,436,326 6,793,868
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 20,640,899 $ 25,119,133
============ ============
See notes to interim financial statements.
D-9
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SUNRISE CAPITAL CORPORATION
NOTE A--BASIS OF PRESENTATION
The accompanying condensed financial statements of Sunrise Capital
Corporation have been prepared in accordance with generally accepted accounting
principles for interim financial information. Accordingly, they do not include
all information and footnotes necessary for a fair presentation of financial
position, results of operations and cash flows in conformity with generally
accepted accounting principles.
The statements do, however, include all adjustments of a normal recurring
nature which Sunrise considers necessary for a fair presentation of the interim
periods.
The results of operations for the six-month period ended June 30, 2002 are
not necessarily indicative of the results to be expected for the year ending
December 31, 2002.
NOTE B--NEW ACCOUNTING STANDARDS
In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement No. 141, BUSINESS COMBINATIONS, and No. 142, GOODWILL AND OTHER
INTANGIBLE ASSETS. Statement No. 141 requires that all business combinations be
accounted for under a prior standard of purchase accounting, eliminating the
so-called pooling-method which was used to account for some business
combinations. Statement No. 141 requires that the purchase method be used for
business combinations initiated after June 30, 2001. This standard did not have
a material effect on the Corporation's consolidated financial statements.
Statement No. 142 requires that goodwill no longer be amortized and charged
against earnings, but instead be reviewed for impairment. Amortization of
goodwill ceases upon adoption of the Statement which, for most companies, will
be January 1, 2002. This new standard requires that goodwill be reviewed
periodically for impairment and, accordingly, impairment adjustments of goodwill
be charged against earnings, when determined. As of December 31, 2001 and June
30, 2002, the Corporation had no recorded goodwill.
A variety of proposed or otherwise potential accounting standards are
currently under study by standard-setting organizations and various regulatory
agencies. Because of the tentative and preliminary nature of these proposed
standards, management has not determined whether implementation of such proposed
standards would be material to Sunrise's consolidated financial statements.
D-10
SUNRISE CAPITAL CORPORATION
----------
FINANCIAL STATEMENTS
PERIODS ENDED DECEMBER 31, 2001, 2000 AND 1999
D-11
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Sunrise Capital Corporation
We have audited the accompanying consolidated balance sheets of Sunrise Capital
Corporation and subsidiaries as of December 31, 2001 and 2000, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for each of the three years in the period ended December 31, 2001. These
financial statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Sunrise Capital
Corporation and subsidiaries as of December 31, 2001 and 2000, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States of America.
/s/ BDO Seidman, LLP
Los Angeles, California
January 31, 2002
D-12
CONSOLIDATED BALANCE SHEETS
SUNRISE CAPITAL CORPORATION
- December 31 -
2001 2000
------------- -------------
ASSETS
Cash and due from banks $ 2,383,786 $ 3,613,868
Interest-bearing deposits with banks 507,540
Federal funds sold 16,545,000 3,180,000
------------- -------------
Cash and cash equivalents 19,436,326 6,793,868
Investment securities--Note C:
Available for sale, carried at market value 122,086 151,239
Held for long-term investment, carried at amortized
cost which approximates market value 30,000
------------- -------------
Total investment securities 152,086 151,239
Portfolio loans--Note D:
Commercial 110,018,614 73,792,135
Real estate mortgage 4,613,974 1,790,697
Installment 2,068,503 250,270
------------- -------------
Total portfolio loans 116,701,091 75,833,102
Less allowance for loan losses (1,587,000) (888,000)
------------- -------------
Net portfolio loans 115,114,091 74,945,102
Premises and equipment--Note F 990,594 692,208
Accrued interest income 465,957 401,715
Other assets 1,072,569 1,923,682
------------- -------------
TOTAL ASSETS $ 137,231,623 $ 84,907,814
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 16,253,081 $ 8,561,720
Interest-bearing--Note H 103,046,224 65,913,268
------------- -------------
Total deposits 119,299,305 74,474,988
Debt obligations payable to majority shareholder--Note E 1,406,596 1,855,000
Accrued interest on deposits and other liabilities 740,546 319,042
------------- -------------
Total liabilities 121,446,447 76,649,030
MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARY--Note A 3,103,304 491,040
STOCKHOLDERS' EQUITY--Notes I and M:
Common stock, no par value,
25,000,000 shares authorized;
issued and outstanding:
2001--1,492,923 shares
2000--1,076,256 shares 13,669,900 8,669,896
Retained-earnings deficit (989,763) (902,152)
Market value adjustment (net of tax effect) for
investment securities available for sale 1,735
------------- -------------
Total stockholders' equity 12,681,872 7,767,744
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 137,231,623 $ 84,907,814
============= =============
See notes to consolidated financial statements.
D-13
CONSOLIDATED STATEMENTS OF OPERATIONS
SUNRISE CAPITAL CORPORATION
- Year Ended December 31 -
--------------------------------------------
2001 2000 1999
------------ ------------ ------------
Interest income:
Portfolio loans (including fees) $ 11,103,306 $ 5,866,345 $ 1,292,927
Taxable investment securities 8,590 972
Federal funds sold 607,879 417,860 212,236
Other 126,273 1,783 38,129
------------ ------------ ------------
Total interest income 11,846,048 6,286,960 1,543,292
Interest expense:
Deposits 5,038,114 2,640,992 477,030
Other 107,605 31,820 719
------------ ------------ ------------
Total interest expense 5,145,719 2,672,812 477,749
------------ ------------ ------------
Net interest income 6,700,329 3,614,148 1,065,543
Provision for loan losses--Note D 754,672 873,895 232,000
------------ ------------ ------------
Net interest income after provision for loan losses 5,945,657 2,740,253 833,543
Noninterest income:
Service charges on deposit accounts 73,474 41,701 12,176
Other 55,535 100,367 1,589
------------ ------------ ------------
Total noninterest income 129,009 142,068 13,765
Noninterest expense:
Salaries and employee benefits 3,159,093 1,641,935 842,986
Occupancy 485,456 211,674 98,425
Equipment rent, depreciation and maintenance 356,273 182,246 93,596
Other 2,478,581 1,250,638 504,667
------------ ------------ ------------
Total noninterest expense 6,479,403 3,286,493 1,539,674
------------ ------------ ------------
Loss before federal income tax benefit, minority interest and
cumulative effect of change in accounting principle (404,737) (404,172) (692,366)
Federal income tax benefit--Note G 28,000 109,000 235,000
------------ ------------ ------------
Loss before minority interest and cumulative effect of
change in accounting principle (376,737) (295,172) (457,366)
Credit resulting from minority interest in net loss of
consolidated subsidiaries 289,126 52,460
------------ ------------ ------------
Loss before cumulative effect of change in accounting
principle (87,611) (242,712) (457,366)
Cumulative effect of change in accounting principle--
Note B ($0.25 per share) (176,307)
------------ ------------ ------------
NET LOSS $ (87,611) $ (242,712) $ (633,673)
============ ============ ============
NET LOSS PER SHARE $ (0.06) $ (0.23) $ (0.91)
============ ============ ============
See notes to consolidated financial statements.
D-14
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
SUNRISE CAPITAL CORPORATION
Accumulated
Retained- Other
Common Earnings Comprehensive
Stock Deficit Income Total
------------ ------------ ------------- ------------
Balances at January 1, 1999 $ 4,200,000 $ (25,767) $ 4,174,233
Issuance of 97,550 shares of common stock
upon formation of bank subsidiary for cash
consideration of $7.00 per share 682,836 682,836
Issuance of 300,000 shares of common stock
for cash consideration of $10.00 per share 3,000,000 3,000,000
Net loss for 1999 (633,673) (633,673)
------------ ------------ ------------
BALANCES AT DECEMBER 31, 1999 7,882,836 (659,440) 7,223,396
Issuance of 78,706 shares of common stock for
cash consideration of $10.00 per share 787,060 787,060
Net loss for 2000 (242,712) (242,712)
------------ ------------ ------------
BALANCES AT DECEMBER 31, 2000 8,669,896 (902,152) 7,767,744
Issuance of 416,667 shares of common stock
for cash consideration of $12 per share 5,000,004 5,000,004
Components of comprehensive loss:
Net loss for 2001 (87,611) (87,611)
Market value adjustment for investment
securities available for sale (net of
income tax effect) $ 1,735 1,735
------------
Comprehensive loss for 2001 (85,876)
------------ ------------ ------------ ------------
BALANCES AT DECEMBER 31, 2001 $ 13,669,900 $ (989,763) $ 1,735 $ 12,681,872
============ ============ ============ ============
See notes to consolidated financial statements.
D-15
CONSOLIDATED STATEMENTS OF CASH FLOWS
SUNRISE CAPITAL CORPORATION
- Year Ended December 31 -
--------------------------------------------
2001 2000 1999
------------ ------------ ------------
OPERATING ACTIVITIES
Net loss $ (87,611) $ (242,712) $ (633,673)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Provision for loan losses 754,672 873,895 232,000
Depreciation of premises and equipment 270,957 143,095 72,652
Net amortization of investment security premiums 265
Minority interest in net losses of consolidated
subsidiaries (289,126) (52,460)
Deferred income taxes (133,000) (109,000) (326,000)
Cumulative effect of change in accounting
principle 176,307
Decrease (increase) in accrued interest income and
other assets 918,922 (1,857,646) (104,989)
Increase (decrease) in accrued interest on deposits
and other liabilities 421,504 213,995 (6,820)
------------ ------------ ------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 1,856,583 (1,030,833) (590,523)
INVESTING ACTIVITIES
Proceeds from calls and maturities of investment
securities available for sale 31,572
Purchases of investment securities available for sale (151,239)
Purchases of investment securities held for
long-term investment (30,000)
Net increase in portfolio loans (40,923,661) (50,881,382) (23,207,135)
Purchases of premises and equipment (569,343) (482,377) (355,895)
------------ ------------ ------------
NET CASH USED BY INVESTING ACTIVITIES (41,491,432) (51,514,998) (23,563,030)
FINANCING ACTIVITIES
Net increase in demand deposits, NOW accounts
and savings accounts 39,357,545 10,106,006 9,377,964
Net increase in certificates of deposit 5,466,772 41,082,283 12,625,884
Net proceeds from (payments on) debt obligations (448,404) 1,855,000
Net proceeds from issuance of common stock 5,000,004 787,060 3,682,836
Resources provided by minority interests 2,901,390 543,500
------------ ------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 52,277,307 54,373,849 25,686,684
------------ ------------ ------------
INCREASE IN CASH AND CASH EQUIVALENTS 12,642,458 1,828,018 1,533,131
Cash and cash equivalents at beginning of year 6,793,868 4,965,850 3,432,719
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 19,436,326 $ 6,793,868 $ 4,965,850
============ ============ ============
See notes to consolidated financial statements.
D-16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUNRISE CAPITAL CORPORATION
NOTE A--NATURE OF OPERATIONS, BASIS OF PRESENTATION AND PRINCIPLES OF
CONSOLIDATION
Sunrise Capital Corporation (the "Corporation") is a bank development company.
At December 31, 2001, it had three subsidiaries (collectively, the "Banks"),
Sunrise Bank of Arizona (wholly-owned), Sunrise Bank of Albuquerque (87% owned)
and Sunrise Bank of San Diego (64% owned).
Sunrise Bank of Arizona commenced operations in December 1998. The Corporation
became a bank holding company in 1999, and Sunrise Bank of Arizona became its
wholly-owned subsidiary, through a one-for-one stock exchange transaction with
the Bank's shareholders. Sunrise Bank of Albuquerque commenced operations in
2000. Sunrise Bank of San Diego commenced operations in 2001. The Corporation is
approximately 71% owned by Sun Community Bancorp Limited, a bank development
company headquartered in Phoenix, Arizona.
The Corporation and the Banks are engaged in a single business
activity--banking. The Banks provide a full range of banking services to
individuals, businesses and other customers located in their respective
communities. The Banks focus their activities on meeting the various credit and
other banking needs of entrepreneurs, professionals and other high net-worth
individuals. A variety of deposit products are offered, including checking,
savings, money market, individual retirement accounts and certificates of
deposit. The principal markets for the Bank's financial services are the
communities in which the Banks are located and the areas immediately surrounding
those communities. The Banks also emphasize loan programs of the U.S. Small
Business Administration.
The consolidated financial statements include the accounts of the Corporation
and its majority-owned subsidiaries, after elimination of intercompany accounts
and transactions, and after giving effect to applicable minority interests.
NOTE B--SIGNIFICANT ACCOUNTING POLICIES
ESTIMATES: The preparation of consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
certain estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
CASH AND CASH EQUIVALENTS: Cash and cash equivalents include cash on hand,
amounts due from banks (interest-bearing and noninterest-bearing) and federal
funds sold. Generally, federal funds transactions are entered into for a one-day
period.
D-17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUNRISE CAPITAL CORPORATION
NOTE B--SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
INVESTMENT SECURITIES: Investment securities available for sale are carried at
market value with unrealized gains and losses reported as a separate component
of stockholders' equity, net of tax effect (accumulated other comprehensive
income). All other investment securities are classified as held for long-term
investment and are carried at amortized cost, which approximates market value.
Investments are classified at the date of purchase based on management's
analysis of liquidity and other factors. The adjusted cost of the specific
securities sold is used to compute realized gains or losses. Premiums and
discounts are recognized in interest income using the interest method over the
period to maturity.
LOANS, CREDIT RISK AND ALLOWANCE FOR LOAN LOSSES: Portfolio loans are carried at
their principal balance based on management's intent and ability to hold such
loans for the foreseeable future until maturity or repayment.
Credit risk arises from making loans and loan commitments in the ordinary course
of business. Consistent with the Banks' emphasis on business lending, there are
concentrations of credit in loans secured by commercial real estate, equipment
and other business assets. The maximum potential credit risk to the Corporation,
without regard to underlying collateral and guarantees, is the total of loans
and loan commitments outstanding. Management reduces the Corporation's exposure
to losses from credit risk by requiring collateral and/or guarantees for loans
granted and by monitoring concentrations of credit, in addition to recording
provisions for loan losses and maintaining an allowance for loan losses.
The allowance for loan losses is maintained at a level believed adequate by
management to absorb estimated losses in the portfolio at the balance sheet
date. Management's determination of the adequacy of the allowance is based on
evaluation of the portfolio (including potential impairment of individual loans
and concentrations of credit), past loss experience, current economic
conditions, volume, amount and composition of the loan portfolio, loan
commitments outstanding and other factors. The allowance is increased by
provisions charged to operations and reduced by net charge-offs.
INTEREST AND FEES ON LOANS: Interest income on loans is recognized based upon
the principal balance of loans outstanding. Fees from origination of portfolio
loans generally approximate the direct costs of successful loan originations.
The accrual of interest is generally discontinued when a loan becomes 90 days
past due as to interest. When interest accruals are discontinued, interest
previously accrued (but unpaid) is reversed. Management may elect to continue
the accrual of interest when the estimated net realizable value of collateral is
sufficient to cover the principal balance and accrued interest and the loan is
in process of collection.
D-18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUNRISE CAPITAL CORPORATION
NOTE B--SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
STOCK-BASED COMPENSATION: No stock-based compensation expense is recorded upon
granting of stock options because such stock options are accounted for under the
provisions of Accounting Principles Board (APB) Opinion 25 (and related
interpretations) and are granted at an exercise price equal to the market price
of common stock at grant date. Pro forma disclosure of alternative accounting
recognition is made in Note I.
PREMISES AND EQUIPMENT: Premises and equipment are stated on the basis of cost.
Depreciation is computed principally by the straight-line method based upon
estimated useful lives of the respective assets. Leasehold improvements are
generally depreciated over the respective lease term.
OTHER REAL ESTATE: Other real estate ($79,000 and $23,000 at December 31, 2001
and 2000, respectively) comprises properties acquired through a foreclosure
proceeding or acceptance of a deed in lieu of foreclosure. These properties held
for sale are carried at the lower of cost or estimated fair value (net of
estimated selling cost) at the date acquired and are periodically reviewed for
subsequent impairment.
TRUST ASSETS AND RELATED INCOME: Customer property, other than funds on deposit,
held in a fiduciary or agency capacity by the Banks is not included in the
consolidated balance sheet because it is not an asset of the Banks or the
Corporation. Trust fee income is recorded on the accrual method.
FEDERAL INCOME TAXES: The Corporation and its subsidiaries owned 80% or more
file a consolidated federal income tax return. Deferred income taxes are
recognized for the tax consequences of temporary differences by applying enacted
tax rates applicable to future years to differences between the financial
statement carrying amounts and the tax bases of existing assets and liabilities.
The effect on deferred income taxes of a change in tax laws or rates is
recognized in income in the period that includes the enactment date.
NET LOSS PER SHARE: Net loss per share is based on the weighted average number
of common shares outstanding (1,457,535 shares in 2001, 1,051,388 shares in 2000
and 697,550 shares in 1999), as adjusted for the Corporation's 2000 2-for-1
stock split (see Note I).
COMPREHENSIVE LOSS: Comprehensive loss is the sum of net loss and certain other
items which are charged or credited to stockholders' equity. For the periods
presented, the Corporation's only element of comprehensive loss other than net
loss was the net change in the market value adjustment for investment securities
available for sale. Accordingly, the elements and total of comprehensive loss
are shown within the statement of changes in stockholders' equity presented
herein.
D-19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUNRISE CAPITAL CORPORATION
NOTE B--SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
COSTS OF START-UP ACTIVITIES: In 1998, the American Institute of CPAs issued
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities". It
requires start-up costs and organizational costs to be charged to expense when
incurred. The initial application of the statement required a cumulative effect
adjustment for those companies that had previously capitalized start-up and
organization costs. In the circumstances of the Corporation and its Banks, this
new accounting standard applies to previously capitalized preopening and other
start-up costs of Sunrise Bank of Arizona which, net of amortization,
approximated $265,000 at December 31, 1998. Implementation of this standard is
reflected as a cumulative effect of an accounting change at January 1, 1999 (net
of tax effect).
NEW ACCOUNTING STANDARDS: Financial Accounting Standards Board (FASB) Statement
No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, requires
all derivatives to be recognized in financial statements and to be measured at
fair value. Gains and losses resulting from changes in fair value are included
in income, or in comprehensive income, depending on whether the instrument
qualifies for hedge accounting and the type of hedging instrument involved. This
new standard became effective January 1, 2001 and had no effect on the
Corporation's financial statements.
In 2001, the Securities and Exchange Commission, American Institute of Certified
Public Accountants and Federal Financial Institutions Examination Council each
issued new guidance (some of which remains to be finalized) on accounting for
allowances for loan losses. While the new guidance does not change prior
accounting rules in this area, it provides additional clarification and guidance
on how the calculation, adequacy and approval of the allowances should be
documented by management.
In July 2001, the FASB issued Statement No. 141, BUSINESS COMBINATIONS, and No.
142, GOODWILL AND OTHER INTANGIBLE ASSETS. Statement No. 141 requires that all
business combinations be accounted for under a prior standard of purchase
accounting, eliminating the so-called pooling-method which was used to account
for some business combinations. Statement No. 141 requires that the purchase
method be used for business combinations initiated after June 30, 2001. This new
standard is not expected to have a material effect on the Corporation's
financial statements.
Statement No. 142 requires that goodwill no longer be amortized and charged
against earnings, but instead be reviewed for impairment. Amortization of
goodwill ceases upon adoption of the Statement which, for most companies, will
be January 1, 2002. This new standard requires that goodwill be reviewed
periodically for impairment and, accordingly, impairment adjustments of goodwill
be charged against earnings, when determined. As of December 31, 2001, the
Corporation had no recorded goodwill.
D-20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUNRISE CAPITAL CORPORATION
NOTE B--SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
The FASB has also recently issued Statement No. 143, ACCOUNTING FOR ASSET
RETIREMENT OBLIGATIONS, and No. 144, ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL
OF LONG-LIVED ASSETS. Management has not completed its review of these new
standards; however, implementation of the new guidance is not expected to have a
material effect on the Corporation's financial statements.
NOTE C--INVESTMENT SECURITIES
Investment securities consisted of the following at December 31:
2001 2000
-------------------- ---------------------
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
--------- --------- --------- ---------
Available for sale:
United States government
agency securities $ 119,402 $ 122,086 $ 151,239 $ 151,239
Held for long-term investment:
Federal Home Loan Bank stock 30,000 30,000 -- --
--------- --------- --------- ---------
$ 149,402 $ 152,086 $ 151,239 $ 151,239
========= ========= ========= =========
Investment in Federal Home Loan Bank stock is restricted and may only be resold
to or redeemed by the issuer.
Gross unrealized gains on investment securities available for sale were $2,684
at December 31, 2001 (no unrealized losses)(none at December 31, 2000).
Gross realized gains and losses from sales and calls of investment securities
were insignificant for each of the periods presented.
Scheduled maturities of investment securities held as of December 31, 2001 were
as follows:
Estimated
Amortized Market
Cost Value
--------- ---------
After ten years $ 119,402 $ 122,086
Securities held for long-term investment,
without stated maturities 30,000 30,000
--------- ---------
$ 149,402 $ 152,086
========= =========
D-21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUNRISE CAPITAL CORPORATION
NOTE D--LOANS
Transactions in the allowance for loan losses are summarized below:
2001 2000 1999
---------- ---------- ----------
Balance at beginning of period $ 888,000 $ 250,000 $ 18,000
Provision charged to operations 754,672 873,895 232,000
Loans charged off (deduction) (55,672) (235,895) --
Recoveries -- -- --
---------- ---------- ----------
Balance at December 31 $1,587,000 $ 888,000 $ 250,000
========== ========== ==========
Impaired loans (i.e., loans for which there is a reasonable probability that
borrowers would be unable to repay all principal and interest due under the
contractual terms of the loan documents) were not material. Nonperforming loans
(i.e., loans which are 90 days or more past due and loans on nonaccrual status)
are summarized below:
December 31
-------------------------
2001 2000
---------- ----------
Nonaccrual loans:
Commercial $1,943,000 $ 144,000
Real estate -- --
Installment -- --
---------- ----------
Total nonaccrual loans 1,943,000 144,000
Past due (>90 days) loans:
Commercial -- --
Real estate -- --
Installment -- --
---------- ----------
Total past due loans -0- -0-
---------- ----------
Total nonperforming loans $1,943,000 $ 144,000
========== ==========
If nonperforming loans had performed in accordance with their contractual terms
during the year, additional interest income of approximately $99,000 would have
been recorded in 2001 (none in 2000 and 1999). Interest income recognized on
loans in nonaccrual status in 2001 operations approximated $172,000 (none in
2000 and 1999). At December 31, 2001, there were no material amounts of loans
which were restructured or otherwise renegotiated as a concession to troubled
borrowers.
D-22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUNRISE CAPITAL CORPORATION
NOTE D--LOANS--CONTINUED
The amounts of the allowance for loan losses allocated in the following table
are based on management's estimate of losses inherent in the portfolio at the
balance sheet date, and should not be interpreted as an indication of future
charge-offs:
December 31, 2001 December 31, 2000
----------------------- -----------------------
Percentage Percentage
of Total of Total
Portfolio Portfolio
Amount Loans Amount Loans
---------- ---------- ---------- ----------
Commercial $1,492,000 1.28% $ 870,000 1.15%
Real estate mortgage 63,000 0.05 18,000 0.02
Installment 32,000 0.03 -- --
---------- ---------- ---------- ----------
Total allowance for loan losses $1,587,000 1.36% $ 888,000 1.17%
========== ========== ========== ==========
NOTE E--RELATED PARTIES TRANSACTIONS
In the ordinary course of business, the Banks make loans to officers and
directors of the Corporation and its subsidiaries including their immediate
families and companies in which they are principal owners. At December 31, 2001
and 2000, total loans to these persons approximated $2.5 million and $1.2
million, respectively. During 2001, $1.6 million of new loans were made to these
persons and repayments approximated $300,000. Such loans are made at the banking
subsidiaries' normal credit terms.
Such officers and directors of the Corporation (and their associates, family
and/or affiliates) are also depositors of the banking subsidiaries. Such
deposits are similarly made at the Banks' normal terms as to interest rate, term
and deposit insurance.
The Corporation and its Banks purchase certain data processing and management
services from Sun Community Bancorp Limited. Amounts paid for such services
aggregated $664,000, $371,000 and $192,000 in 2001, 2000 and 1999, respectively.
The Corporation has borrowed $1.4 million and $1.9 million from its
majority-owner as of December 31, 2001 and 2000, respectively. These unsecured
borrowings are due on demand and bear interest, payable monthly at a current
rate.
D-23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUNRISE CAPITAL CORPORATION
NOTE F--PREMISES AND EQUIPMENT
Major classes of premises and equipment consisted of the following at December
31:
2001 2000
----------- -----------
Leasehold improvements $ 410,248 $ 268,071
Equipment and furniture 1,067,050 639,884
----------- -----------
1,477,298 907,955
Less accumulated depreciation (486,704) (215,747)
----------- -----------
$ 990,594 $ 692,208
=========== ===========
The Banks rent office space under operating leases. Rent expense (net of
sublease income) under these lease agreements approximated $448,000, $229,000
and $93,000 in 2001, 2000 and 1999, respectively.
At December 31, 2001, future minimum rental payments under operating leases that
have initial or remaining noncancelable lease terms in excess of one year were
as follows:
2002 $ 463,000
2003 468,000
2004 486,000
2005 454,000
2006 446,000
2007 and thereafter 1,228,000
-----------
Total $ 3,545,000
===========
NOTE G--INCOME TAXES
Federal income tax benefit consists of the following components:
2001 2000 1999
--------- --------- ---------
Current $ 105,000 $ -0- $ -0-
Deferred credit (133,000) (109,000) (326,000)
--------- --------- ---------
$ (28,000) $(109,000) $(326,000)
========= ========= =========
The federal income tax benefit in 1999 includes $91,000 relating to the
cumulative effect of the change in accounting principle. Federal income taxes of
$52,000 were paid in 2001 (none in 2000 or 1999).
D-24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUNRISE CAPITAL CORPORATION
NOTE G--INCOME TAXES--CONTINUED
Net deferred income tax assets consisted of the following at December 31:
2001 2000 1999
--------- --------- ---------
Allowance for loan losses $ 276,000 $ 231,000 $ 85,000
Net operating loss carryforwards
of subsidiaries 235,000 202,000 255,000
Market value adjustment for investment
securities available for sale (1,000)
Other, net 71,000 16,000
--------- --------- ---------
$ 581,000 $ 449,000 $ 340,000
========= ========= =========
Consolidated subsidiaries have net operating loss carryforwards, which may
reduce income taxes payable in future periods. Such carryforwards approximate
$692,000 at December 31, 2001, of which $185,000 expires in 2020 and $507,000
expires in 2021.
NOTE H--DEPOSITS
The aggregate amount of time deposits of $100,000 or more approximated $36.5
million and $29.7 million as of December 31, 2001 and 2000, respectively.
At December 31, 2001, the scheduled maturities of time deposits of $100,000 or
more were as follows:
2002 $30,067,000
2003 5,281,000
2005 1,200,000
-----------
Total $36,548,000
===========
Interest paid approximates amounts charged to operations on an accrual basis for
the periods presented.
NOTE I--COMMON STOCK AND STOCK OPTIONS
In August 2000, the Corporation issued a 2-for-1 stock split. All share, per
share and stock option data in the financial statements have been restated to
reflect the stock split as if it occurred at the beginning of the periods
presented.
Stock options have been granted to certain officers and directors which provide
for the purchase of shares of common stock. Stock options are granted at an
exercise price equal to the fair value of common stock on the grant date, are
currently exercisable and principally expire approximately eight years from date
of grant.
D-25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUNRISE CAPITAL CORPORATION
NOTE I--COMMON STOCK AND STOCK OPTIONS--CONTINUED
Stock option activity is summarized as follows:
Weighted
Number of Average
Options Exercise Exercise
Outstanding Price Price
----------- --------------- --------
Outstanding at January 1, 1999 113,528 $7.00 $ 7.00
Granted in 1999 56,792 10.00 10.00
Exercised in 1999 -- -- --
------- -------------- -------
Outstanding at December 31, 1999 170,320 7.00 to 10.00 8.00
Granted in 2000 12,000 10.00 10.00
Exercised in 2000 -- -- --
------- -------------- -------
Outstanding at December 31, 2000 182,320 7.00 to 10.00 8.13
Granted in 2001 67,767 12.00 12.00
Exercised in 2001 -- -- --
------- -------------- -------
Outstanding at December 31, 2001 250,087 $7.00 to $12.00 $ 9.18
As of December 31, 2001, stock options outstanding had a weighted average
remaining contractual life of 7.5 years.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation", establishes a fair value method of accounting for stock options
whereby compensation expense is recognized based on the computed fair value of
the options on the grant date. However, as permitted by Statement No. 123, the
Corporation has elected to continue to account for its stock options under the
earlier accounting standard and, therefore, has not recognized compensation
expense. By electing this alternative, certain pro forma disclosures of the
expense recognition provisions are required, which are as follows:
2001 2000 1999
--------- --------- ---------
Fair value assumptions:
Risk-free interest rate 5.00% 7.00% 6.25%
Dividend yield 0% 0% 0%
Stock price volatility .10 .10 .10
Expected option life 7.5 years 8 years 10 years
Aggregate estimated fair value
of options granted $261,500 $51,500 $235,000
Pro forma net loss $(260,000) $(277,000) $(789,000)
Pro forma net loss per diluted share $(.18) $(.26) $(1.13)
D-26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUNRISE CAPITAL CORPORATION
NOTE J--EMPLOYEE RETIREMENT PLAN
Eligible employees participate in a multi-employer employee 401(k) retirement
plan. The Plan provides for employer contributions in amounts determined
annually by the Corporation's board of directors. Eligible employees make
voluntary contributions to the Plan. Contributions to the Plan charged to
expense approximated $57,000, $22,000 and $9,000 in 2001, 2000 and 1999,
respectively.
NOTE K--ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
Carrying values and estimated fair values of financial instruments were as
follows at December 31 (in thousands):
2001 2000
---------------------- ----------------------
Estimated Estimated
Carrying Fair Carrying Fair
Value Value Value Value
--------- --------- --------- ---------
Financial Assets:
Cash and cash equivalents $ 19,436 $ 19,436 $ 6,794 $ 6,794
Investment securities:
Available for sale 122 122 151 151
Held for long-term investment 30 30
--------- --------- --------- ---------
152 152 151 151
Portfolio loans:
Fixed rate 78,583 78,596 4,333 4,394
Variable rate 38,118 38,503 71,500 71,176
--------- --------- --------- ---------
Total portfolio loans 116,701 117,099 75,833 75,570
Less allowance for loan losses (1,587) (1,587) (888) (888)
--------- --------- --------- ---------
Net portfolio loans 115,114 115,512 74,945 74,682
Financial Liabilities:
Deposits:
Noninterest-bearing 16,253 16,253 8,562 8,562
Interest-bearing:
Demand accounts 43,870 43,824 12,204 12,372
Time certificates of deposit less
than $100,000 22,628 22,670 24,049 24,306
Time certificates of deposit of
$100,000 or more 36,548 36,473 29,660 29,890
--------- --------- --------- ---------
Total interest-bearing deposits 103,046 102,967 65,913 66,568
--------- --------- --------- ---------
Total deposits 119,299 119,220 74,475 75,130
Debt obligations payable to
majority shareholder 1,407 1,407 1,855 1,855
D-27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUNRISE CAPITAL CORPORATION
NOTE K--ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS--CONTINUED
Estimated fair values of financial assets and liabilities are based upon a
comparison of current interest rates on financial instruments and the timing of
related scheduled cash flows to the estimated present value of such cash flows
using current estimated market rates of interest (unless quoted market values or
other fair value information is more readily available). Such estimates of fair
value are not intended to represent market value or portfolio liquidation value,
and only represent an estimate of fair values based on current financial
reporting requirements.
NOTE L--COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, loan commitments are made to accommodate the
financial needs of bank customers. Loan commitments include stand-by letters of
credit, lines of credit, and other commitments for commercial, installment and
mortgage loans. Stand-by letters of credit, when issued, commit the Banks to
make payments on behalf of customers if certain specified future events occur
and are used infrequently by the Banks ($140,000 at December 31, 2001; none at
December 31, 2000). Other loan commitments outstanding consist of unused lines
of credit and approved, but unfunded, specific loan commitments ($34.7 million
and $16.9 million at December 31, 2001 and 2000, respectively). These loan
commitments (stand-by letters of credit and unfunded loans) generally expire
within one year and are reviewed periodically for continuance or renewal.
All loan commitments have credit risk essentially the same as that involved in
routinely making loans to customers and are made subject to the banks' normal
credit policies. In making these loan commitments, collateral and/or personal
guarantees of the borrowers are generally obtained based on management's credit
assessment. Such loan commitments are also included in management's evaluation
of the adequacy of the allowance for loan losses.
The banking subsidiaries are required to maintain an average reserve balances in
the form of cash on hand and balances due from the Federal Reserve Bank and
certain correspondent banks. The amount of reserve balances required as of
December 31, 2001 was $185,000.
Deposits at each of the banks are insured up to the maximum amount covered by
FDIC insurance.
D-28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUNRISE CAPITAL CORPORATION
NOTE M--DIVIDEND LIMITATIONS OF SUBSIDIARIES AND OTHER CAPITAL REQUIREMENTS
Current banking regulations restrict the ability to transfer funds from
subsidiaries to their parent in the form of cash dividends, loans or advances.
Subject to various regulatory capital requirements, bank subsidiaries' current
and retained earnings are available for distribution as dividends to the
Corporation (and other bank shareholders, as applicable) without prior approval
from regulatory authorities. Substantially all of the remaining net assets of
the subsidiary are restricted as to payments to the Corporation.
The Banks and the Corporation are subject to certain other capital requirements.
Federal financial institution regulatory agencies have established certain
risk-based capital guidelines for banks and bank holding companies. Those
guidelines require all banks and bank holding companies to maintain certain
minimum ratios and related amounts based on "Tier 1" and "Tier 2" capital and
"risk-weighted assets" as defined and periodically prescribed by the respective
regulatory agencies. Failure to meet these capital requirements can result in
severe regulatory enforcement action or other adverse consequences for a
depository institution and, accordingly, could have a material impact on the
Corporation's consolidated financial statements.
Under the regulatory capital adequacy guidelines and related framework for
prompt corrective action, the specific capital requirements involve quantitative
measures of assets, liabilities and certain off-balance-sheet items calculated
under regulatory accounting practices. The capital amounts and classifications
are also subject to qualitative judgements by regulatory agencies with regard to
components, risk weighting and other factors.
As a condition of their charter approval, DE NOVO banks are generally required
to maintain a core capital (Tier 1) to average total assets ratio of not less
than 8% and an allowance for loan losses of not less than 1% for the first three
years of operations.
As of December 31, 2001, the most recent notifications received by the Banks
from regulatory agencies have advised that the Banks are classified as "well
capitalized" as defined by the applicable agencies. There are no conditions or
events since those notifications that management believes would change the
regulatory classification of the Banks.
Management believes, as of December 31, 2001, that the Corporation and the Banks
meet all capital adequacy requirements to which the entities are subject.
D-29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUNRISE CAPITAL CORPORATION
NOTE M--DIVIDEND LIMITATIONS OF SUBSIDIARIES AND OTHER CAPITAL
REQUIREMENT--CONTINUED
The following table summarizes the amounts (in thousands) and related ratios of
the Banks and consolidated regulatory capital position as of December 31, 2001
and 2000:
Sunrise Sunrise Sunrise
Bank of Bank of Bank of
Albuquerque Arizona San Diego Consolidated
------------ ------------ ------------ ------------
December 31, 2001
Tier 1 capital to average total assets:
Minimum required amount >= $ 2,951 >= $ 2,622 >= $ 2,916 >= $ 5,242
Actual amount $ 3,451 $ 5,964 $ 6,781 $ 15,783
Ratio 9.36% 9.10% 18.60% 12.04%
Tier 1 capital to risk-weighted assets:
Minimum required amount(1) >= $ 1,141 >= $ 2,143 >= $ 1,397 >= $ 4,685
Actual amount $ 3,451 $ 5,964 $ 6,781 $ 15,783
Ratio 12.09% 11.13% 19.41% 13.48%
Combined Tier 1 and Tier 2 capital to
risk-weighted assets:
Minimum required amount(2) >= $ 2,283 >= $ 4,286 >= $ 2,795 >= $ 9,369
Amount required to meet "Well-
Capitalized" category(3) >= $ 2,854 >= $ 5,358 >= $ 3,494 >= $ 11,712
Actual amount $ 3,808 $ 6,635 $ 7,218 $ 17,248
Ratio 13.34% 12.38% 20.66% 14.73%
December 31, 2000
Tier 1 capital to average total assets:
Minimum required amount >= $ 1,261 >= $ 4,779 >= $ 2,561
Actual amount $ 3,416 $ 4,851 $ 8,255
Ratio 21.67% 8.12% 12.90%
Tier 1 capital to risk-weighted assets:
Minimum required amount(1) >= $ 703 >= $ 2,199 >= $ 2,944
Actual amount $ 3,416 $ 4,851 $ 8,255
Ratio 19.43% 8.82% 11.22%
Combined Tier 1 and Tier 2 capital to
risk-weighted assets:
Minimum required amount(2) >= $ 1,406 >= $ 4,398 >= $ 5,888
Amount required to meet "Well-
Capitalized" category(3) >= $ 1,758 >= $ 5,497 >= $ 7,360
Actual amount $ 3,654 $ 5,501 $ 9,143
Ratio 20.79% 10.01% 12.42%
(1) The minimum required ratio of Tier 1 capital to risk-weighted assets is 4%.
(2) The minimum required ratio of Tier 1 and Tier 2 capital to risk-weighted
assets is 8%.
(3) In order to be classified as a 'well-capitalized' institution, the ratio of
Tier 1 and Tier 2 capital to risk-weighted assets must be 10% or more.
D-30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUNRISE CAPITAL CORPORATION
NOTE N--PARENT COMPANY FINANCIAL INFORMATION
CONDENSED BALANCE SHEETS
December 31
--------------------------
2001 2000
----------- -----------
ASSETS
Cash on deposit with subsidiary banks $ 173,043 $ 10,601
Money market funds on deposit with affiliated banks 367,322 6,137
----------- -----------
Total cash and cash equivalents 540,365 16,738
Commercial loans 109,236
Investment in subsidiaries 13,687,706 8,226,808
Other assets 118,139 1,281,043
----------- -----------
TOTAL ASSETS $14,346,210 $ 9,633,825
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable, accrued expenses and other liabilities $ 257,742 $ 11,081
Debt obligations 1,406,596 1,855,000
Stockholders' equity 12,681,872 7,767,744
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $14,346,210 $ 9,633,825
=========== ===========
CONDENSED STATEMENTS OF OPERATIONS
Year Ended December 31
-----------------------------------------
2001 2000 1999
----------- ----------- -----------
Income:
Intercompany fees $ 529,596 $ 390,884
Interest 17,637 34,506
----------- -----------
Total income 547,233 425,390
Expenses:
Salaries and employee benefits 518,981 86,429
Interest 107,497 31,527
Other 418,863 453,059
----------- -----------
Total expenses 1,045,341 571,015
----------- -----------
Loss before federal income taxes and equity in
net loss (income) of consolidated subsidiaries (498,108) (145,625)
Equity in net income (loss) of consolidated
subsidiaries 341,497 (128,087) $ (633,673)
Federal income tax benefit (69,000) (31,000)
----------- ----------- -----------
NET LOSS $ (87,611) $ (242,712) $ (633,673)
=========== =========== ===========
D-31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUNRISE CAPITAL CORPORATION
NOTE N--PARENT COMPANY FINANCIAL INFORMATION--CONTINUED
CONDENSED STATEMENTS OF CASH FLOWS
Year Ended December 31
-------------------------------------------
2001 2000 1999
----------- ----------- -----------
OPERATING ACTIVITIES
Net loss $ (87,611) $ (242,712) $ (633,673)
Adjustment to reconcile net loss to net cash provided
(used) by operating activities--equity in net loss
(income) of consolidated subsidiaries (341,497) 128,087 633,673
Decrease (increase) in other assets 1,164,639 (1,281,043)
Increase in accounts payable, accrued expenses and
other liabilities 246,661 11,081
----------- ----------- -----------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 982,192 (1,384,587) -0-
INVESTING ACTIVITIES
Net cash investment in subsidiaries (5,119,401) (4,131,499) (682,836)
Net decrease (increase) in loans 109,236 (109,236)
----------- ----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (5,010,165) (4,240,735) (682,836)
FINANCING ACTIVITIES
Net proceeds from (payments on) debt obligations (448,404) 1,855,000
Net proceeds from issuance of common stock 5,000,004 787,060 3,682,836
----------- ----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 4,551,600 2,642,060 3,682,836
----------- ----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 523,627 (2,983,262) 3,000,000
Cash and cash equivalents at beginning of year 16,738 3,000,000 -0-
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 540,365 $ 16,738 $ 3,000,000
=========== =========== ===========
D-32
ANNEX E
EXCERPTS OF NEW MEXICO BUSINESS CORPORATION ACT
REGARDING DISSENTERS' RIGHTS
53-15-3. RIGHT OF SHAREHOLDERS TO DISSENT AND OBTAIN PAYMENT FOR SHARES.
A. Any shareholder of a corporation may dissent from, and obtain payment for the
shareholder's shares in the event of, any of the following corporate actions:
(1) any plan of merger or consolidation to which the corporation is a party,
except as provided in Subsection C of this section;
(2) any sale or exchange of all or substantially all of the property and assets
of the corporation not made in the usual and regular course of its business,
including a sale in dissolution, but not including a sale pursuant to an order
of a court having jurisdiction in the premises or a sale for cash on terms
requiring that all or substantially all of the net proceeds of sale be
distributed to the shareholders in accordance with their respective interests
within one year after the date of sale;
(3) any plan of exchange to which the corporation is a party as the corporation
the shares of which are to be acquired;
(4) any amendment of the articles of incorporation which materially and
adversely affects the rights appurtenant to the shares of the dissenting
shareholder in that it:
(a) alters or abolishes a preferential right of such shares;
(b) creates, alters or abolishes a right in respect of the redemption of
such shares, including a provision respecting a sinking fund for the
redemption or repurchase of such shares;
(c) alters or abolishes an existing preemptive right of the holder of such
shares to acquire shares or other securities; or
(d) excludes or limits the right of the holder of such shares to vote on
any matter, or to cumulate his votes, except as such right may be
limited by dilution through the issuance of shares or other securities
with similar voting rights; or
(5) any other corporate action taken pursuant to a shareholder vote with respect
to which the articles of incorporation, the bylaws or a resolution of the board
of directors directs that dissenting shareholders shall have a right to obtain
payment for their shares.
B. (1) A record holder of shares may assert dissenters' rights as to less than
all of the shares registered in his name only if the holder dissents with
respect to all the shares beneficially owned by any one person and discloses the
name and address of the person or persons on whose behalf the holder dissents.
In that event, his rights shall be determined as if the shares as to which he
has dissented and his other shares were registered in the names of different
shareholders.
(2) A beneficial owner of shares who is not the record holder may assert
dissenters' rights with respect to shares held on his behalf, and shall be
treated as a dissenting shareholder under the terms of this section and Section
53-15-4 NMSA 1978 if he submits to the corporation at the time of or before the
assertion of these rights a written consent of the record holder.
C. The right to obtain payment under this section shall not apply to the
shareholders of the surviving corporation in a merger if a vote of the
shareholders of such corporation is not necessary to authorize such merger.
D. A shareholder of a corporation who has a right under this section to obtain
payment for his shares shall have no right at law or in equity to attack the
validity of the corporate action that gives rise to his right to obtain payment,
nor to have the action set aside or rescinded, except when the corporate action
is unlawful or fraudulent with regard to the complaining shareholder or to the
corporation.
53-15-4. RIGHTS OF DISSENTING SHAREHOLDERS.
A. Any shareholder electing to exercise his right of dissent shall file with the
corporation, prior to or at the meeting of shareholders at which the proposed
corporate action is submitted to a vote, a written objection to the proposed
corporate action. If the proposed corporate action is approved by the required
vote and the shareholder has not voted in favor thereof, the shareholder may,
within ten days after the date on which the vote was taken or if a corporation
is to be merged without a vote of its shareholders into another corporation any
of its shareholders may, within twenty-five days after the plan of the merger
has been mailed to the shareholders, make written demand on the corporation, or,
in the case of a merger or consolidation, on the surviving or new corporation,
domestic or foreign, for payment of the fair value of the shareholder's shares,
and, if the proposed corporate action is effected, the corporation shall pay to
the shareholder, upon the determination of the fair value, by agreement or
judgment as provided herein, and, in the case of shares represented by
certificates, the surrender of such certificates the fair value thereof as of
the day prior to the date on which the vote was taken approving the proposed
corporate action, excluding any appreciation or depreciation in anticipation of
the corporate action. Any shareholder failing to make demand within the
prescribed ten-day or twenty-five-day period shall be bound by the terms of the
proposed corporate action. Any shareholder making such demand shall thereafter
be entitled only to payment as in this section provided and shall not be
entitled to vote or to exercise any other rights of a shareholder.
B. No such demand may be withdrawn unless the corporation consents thereto. If,
however, the demand is withdrawn upon consent, or if the proposed corporate
action is abandoned or rescinded or the shareholders revoke the authority to
effect the action, or if, in the case of a merger, on the date of the filing of
the articles of merger the surviving corporation is the owner of all the
outstanding shares of the other corporation, domestic and foreign, that are
parties to the merger, or if no demand or petition for the determination of fair
value by a court has been made or filed within the time provided in this
section, or if a court of competent jurisdiction determines that the shareholder
is not entitled to the relief provided by this section, then the right of the
shareholder to be paid the fair value of his shares ceases and his status as a
shareholder shall be restored, without prejudice, to any corporate proceedings
which may have been taken during the interim.
C. Within ten days after such corporate action is effected, the corporation, or,
in the case of a merger or consolidation, the surviving or new corporation,
domestic or foreign, shall give written notice thereof to each dissenting
shareholder who has made demand as provided in this section and shall make a
written offer to each such shareholder to pay for such shares at a specified
price deemed by the corporation to be the fair value thereof. The notice and
offer shall be accompanied by a balance sheet of the corporation, the shares of
which the dissenting shareholder holds, as of the latest available date and not
more than twelve months prior to the making of the offer, and a profit and loss
statement of the corporation for the twelve-months' period ended on the date of
the balance sheet.
D. If within thirty days after the date on which the corporate action was
effected the fair value of the shares is agreed upon between any dissenting
shareholder and the corporation, payment therefor shall be made within ninety
days after the date on which the corporate action was effected, and, in the case
of shares represented by certificates, upon surrender of the certificates. Upon
payment of the agreed value, the dissenting shareholder shall cease to have any
interest in the shares.
E. If, within the period of thirty days, a dissenting shareholder and the
corporation do not so agree, then the corporation, within thirty days after
receipt of written demand from any dissenting shareholder, given within sixty
days after the date on which corporate action was effected, shall, or at its
election at any time within the period of sixty days may, file a petition in any
court of competent jurisdiction in the county in this state where the registered
office of the corporation is located praying that the fair value of the shares
be found and determined. If, in the case of a merger or consolidation, the
surviving or new corporation is a foreign corporation without a registered
office in this state, the petition shall be filed in the county where the
registered office of the domestic corporation was last located. If the
corporation fails to institute the proceeding as provided in this section, any
dissenting shareholder may do so in the name of the corporation. All dissenting
shareholders, wherever residing, shall be made parties to the proceeding as an
action against their shares quasi in rem. A copy of the petition shall be served
on each dissenting shareholder who is a resident of this state and shall be
served by registered or certified mail on each dissenting shareholder who is a
nonresident. Service on nonresidents shall also be made by publication as
provided by law. The jurisdiction of the court shall be plenary and exclusive.
All shareholders who are parties to the proceeding shall be entitled to judgment
against the corporation for the amount of the fair value of their shares. The
court may, if it so elects, appoint one or more persons as appraisers to receive
evidence and recommend a decision on the question of fair value. The appraisers
shall have such power and authority as specified in the order of their
appointment or on an amendment thereof. The judgment shall be payable to the
holders of uncertificated shares immediately, but to the holders of shares
represented
by certificates only upon and concurrently with the surrender to the corporation
of certificates. Upon payment of the judgment, the dissenting shareholder ceases
to have any interest in the shares.
F. The judgment shall include an allowance for interest at such rate as the
court may find to be fair and equitable, in all the circumstances, from the date
on which the vote was taken on the proposed corporate action to the date of
payment.
G. The costs and expenses of any such proceeding shall be determined by the
court and shall be assessed against the corporation, but all or any part of the
costs and expenses may be apportioned and assessed as the court deems equitable
against any or all of the dissenting shareholders who are parties to the
proceeding to whom the corporation made an offer to pay for the shares if the
court finds that the action of the shareholders in failing to accept the offer
was arbitrary or vexatious or not in good faith. Such expenses include
reasonable compensation for and reasonable expenses of the appraisers, but
exclude the fees and expenses of counsel for and experts employed by any party;
but if the fair value of the shares as determined materially exceeds the amount
which the corporation offered to pay therefor, or if no offer was made, the
court in its discretion may award to any shareholder who is a party to the
proceeding such sum as the court determines to be reasonable compensation to any
expert employed by the shareholder in the proceeding, together with reasonable
fees of legal counsel.
H. Upon receiving a demand for payment from any dissenting shareholder, the
corporation shall make an appropriate notation thereof in its shareholder
records. Within twenty days after demanding payment for his shares, each holder
of shares represented by certificates demanding payment shall submit the
certificates to the corporation for notation thereon that such demand has been
made. His failure to do so shall, at the option of the corporation, terminate
his rights under this section unless a court of competent jurisdiction, for good
and sufficient cause shown, otherwise directs. If uncertificated shares for
which payment has been demanded or shares represented by a certificate on which
notation has been so made is [are] transferred, any new certificate issued
therefor shall bear similar notation, together with the name of the original
dissenting holder of the shares, and a transferee of the shares acquires by such
transfer no rights in the corporation other than those which the original
dissenting shareholder had after making demand for payment of the fair value
thereof.
I. Shares acquired by a corporation pursuant to payment of the agreed value
therefor or to payment of the judgment entered therefor, as in this section
provided, may be held and disposed of by the corporation as in the case of other
treasury shares, except that, in the case of a merger or consolidation, they may
be held and disposed of as the plan of merger or consolidation may otherwise
provide.
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, 2001
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.
II-2
(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 July 31, 2002.
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 July 31, 2002.
II-4
Signature Title
- --------- -----
/s/ JOSEPH D. REID Chairman of the Board and
- ------------------------------- Chief Executive Officer,
JOSEPH D. REID Director (Principal Executive
Officer)
/s/ LEE W. HENDRICKSON Executive Vice President and
- ------------------------------- Chief Financial Officer (Principal
LEE W. HENDRICKSON Financial and Accounting Officer)
/s/ ROBERT C. CARR Executive Vice President, Treasurer, Director
- -------------------------------
ROBERT C. CARR
/s/ DAVID O'LEARY 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
Director
- -------------------------------
JAMES C. EPOLITO
/s/ GARY A. FALKENBERG Director
- -------------------------------
GARY A. FALKENBERG
/s/ JOEL I. FERGUSON 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/ JOHN S. LEWIS Director
- -------------------------------
JOHN S. LEWIS
/s/ LEONARD MAAS Director
- -------------------------------
LEONARD MAAS
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 ___________________ as to the validity of the shares.
8 Tax Opinion of ___________________ (to be filed by amendment and
in the proxy statement/prospectus as Annex C).
23.1a Consent of BDO Seidman, LLP.
23.1b Consent of BDO Seidman, LLP.
23.2 Consent of ___________________ (included in Exhibits 5 and 8).
23.4 Consent of JMP Financial, Inc. (Sunrise's financial advisor).
24 Power of Attorney (included on the signature page of the
Registration Statement).
99 Form of proxy for the Annual Meeting of Shareholders of Sunrise
Capital Corporation.
KEY:
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(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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