As filed with the Securities and Exchange Commission on December 9, 2002
Registration No. 333-______
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
CAPITOL BANCORP LTD.
(Exact name of registrant as specified in its charter)
MICHIGAN 6711 38-2761672
(STATE OR OTHER JURISDICTION OF (PRIMARY (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) STANDARD IDENTIFICATION NO.)
INDUSTRIAL
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)
Copy to:
Phillip D. Torrence, Esq.
Miller, Canfield, Paddock and Stone, PLC
444 W. Michigan Avenue
Kalamazoo, Michigan 49007
(269) 383-5804
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this Registration
Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.[ ]
CALCULATION OF REGISTRATION FEE
===================================================================================================
Title Of Each Proposed Maximum Proposed Maximum
Class Of Securities Being Amount To Be Offering Price Aggregate Offering Amount Of
Registered Registered (1) Per Share Price (2) Registration Fee
- ---------------------------------------------------------------------------------------------------
Common stock (no par value) 382,761 N/A $7,682,013 $707
===================================================================================================
(1) Based on 819,706 shares of common stock, no par value, of Nevada Community
Bancorp Limited, which is the maximum number of shares of Nevada 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 .466949 shares of
Capitol common stock for each share of Nevada 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 $20.07, the
average of the high and low price per share of Capitol common stock, as
reported on the Nasdaq National Market on December 6, 2002, multiplied by
382,761, 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.
[NEVADA LOGO]
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held On ______________, 2003
To the Shareholders of Nevada Community Bancorp Limited:
A special meeting of the shareholders of Nevada Community Bancorp Limited
will be held at Nevada Community Bancorp Limited at 10000 West Charleston, Suite
110, Las Vegas, Nevada 89135 on ___________, 2003, at 9:00 a.m., local time, for
the following purposes:
1. To consider and vote on a proposal to adopt and approve a Plan of
Share Exchange, dated as of November 14, 2002, between Capitol Bancorp Limited
and Nevada Community Bancorp Limited under which all shareholders of Nevada
(other than Capitol) will exchange their common stock in Nevada 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 Nevada law, shareholders of Nevada
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. To act on any other matters that may properly be brought before the
shareholders' meeting or any adjournment or postponement.
Only shareholders of record at the close of business on December 15, 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 Nevada'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/ Michael F. Hannley
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 Nevada Community Bancorp Limited and Capitol
Bancorp Limited have each approved a Plan of Share Exchange that contemplates
the exchange of the shares of Nevada common stock held by all shareholders other
than Capitol for shares of Capitol common stock. Capitol currently has a
controlling interest in Nevada's common stock. As a result of the exchange,
Nevada will become a wholly-owned subsidiary of Capitol.
If the exchange is approved, each share of Nevada 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 the Nevada share
value by the Capitol share value. If the exchange is approved, each shareholder
of Nevada (other than Capitol) would receive in the exchange .466949 shares of
Capitol common stock for each share of Nevada common stock. The exchange ratio
is fixed. Capitol share value, $21.951, is based on the average of the closing
prices of the common stock of Capitol for the month ended July 31, 2002 as
reported by the Nasdaq National Market. Nevada share value is fixed based on
$10.25 per Nevada share. At September 30, 2002, the book value per share of
Nevada common stock was $6.96, compared to $10.25 per share based on the
proposed exchange. In addition, outstanding stock options of Nevada will be
exchanged for stock options of Capitol with the same vesting and expiration
dates.
Capitol estimates that Capitol will issue approximately 382,761 shares of
Capitol common stock to Nevada 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."
Nevada's Board of Directors has scheduled a special meeting of Nevada
shareholders to vote on the Plan of Share Exchange. The attached proxy
statement/prospectus includes detailed information about the time, date and
place of the shareholders' meeting.
This document gives you detailed information about the meeting and the
proposed exchange. You are encouraged to read this document carefully. IN
PARTICULAR, YOU SHOULD READ THE "RISK FACTORS" SECTION BEGINNING ON PAGE 16 FOR
A DESCRIPTION OF VARIOUS RISKS YOU SHOULD CONSIDER IN EVALUATING THE EXCHANGE OF
YOUR NEVADA 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 __________, 2002, and is first
being mailed to shareholders of Nevada on or about ___________, 2002.
1
[This page intentionally left blank]
2
TABLE OF CONTENTS
ANSWERS TO FREQUENTLY ASKED QUESTIONS....................................... 5
SUMMARY..................................................................... 8
Reasons for the Exchange.................................................. 8
The 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 Nevada 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 NEVADA.............................. 14
RISK FACTORS................................................................ 16
COMPARATIVE HISTORICAL, PRO FORMA AND PRO FORMA EQUIVALENT
PER SHARE INFORMATION................................................... 21
RECENT DEVELOPMENTS......................................................... 22
CAPITALIZATION.............................................................. 23
DIVIDENDS AND MARKET FOR COMMON STOCK....................................... 24
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS................... 25
INFORMATION ABOUT CAPITOL................................................... 26
INFORMATION ABOUT NEVADA.................................................... 26
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION...................... 28
THE EXCHANGE................................................................ 32
General................................................................... 32
Material Contracts or Understandings Between Capitol and Nevada........... 32
Background of the Exchange................................................ 32
Nevada's Reasons for the Exchange......................................... 33
Capitol's Reasons for the Exchange........................................ 33
Terms of the Plan of Share Exchange....................................... 33
Nevada's Board Recommendation............................................. 33
Accounting Treatment...................................................... 34
Pro Forma Data............................................................ 34
Material Federal Income Tax Consequences.................................. 34
Regulatory Matters........................................................ 35
Dissenters' Rights........................................................ 36
Federal Securities Laws Consequences; Stock Transfer Restrictions......... 37
3
TABLE OF CONTENTS - Continued
OPINION OF FINANCIAL ADVISOR................................................ 38
THE CLOSING................................................................. 41
Effective Time............................................................ 41
Shares Held by Capitol.................................................... 41
Procedures for Surrender of Certificates; Fractional Shares............... 41
Fees and Expenses......................................................... 42
Nasdaq Stock Market Listing............................................... 42
Amendment and Termination................................................. 42
THE SHAREHOLDERS' MEETING................................................... 43
Date, Time and Place...................................................... 43
Matters to be Considered at the Shareholders' Meeting..................... 43
Record Date; Stock Entitled to Vote; Quorum............................... 43
Votes Required............................................................ 43
Share Ownership of Management............................................. 43
Voting of Proxies......................................................... 44
General Information....................................................... 44
Solicitation of Proxies; Expenses......................................... 44
COMPARISON OF SHAREHOLDER RIGHTS............................................ 45
DESCRIPTION OF THE CAPITAL STOCK OF CAPITOL................................. 46
Rights of Common Stock.................................................... 46
Shares Available for Issuance............................................. 46
Capitol's Trust-Preferred Securities...................................... 47
Anti-Takeover Provisions.................................................. 47
WHERE YOU CAN FIND MORE INFORMATION......................................... 49
LEGAL MATTERS............................................................... 50
EXPERTS..................................................................... 50
LIST OF ANNEXES
ANNEX A Plan of Share Exchange............................................ A-1
ANNEX B Opinion of Financial Advisor...................................... B-1
ANNEX C Tax Opinion of Miller, Canfield, Paddock and Stone, PLC........... C-1
ANNEX D Financial Information Regarding Nevada Community Bancorp Limited.. D-1
ANNEX E Excerpts of Nevada Revised Statutes Regarding Dissenters' Rights.. E-1
4
ANSWERS TO
FREQUENTLY ASKED QUESTIONS
Q: Why am I receiving these materials?
A: Nevada's Board of Directors has approved the exchange of Nevada's common
stock not owned by Capitol for shares of common stock of Capitol. The
exchange requires the approval of Nevada's shareholders. Nevada is sending
you these materials to help you decide whether to approve the exchange.
Q: What will Nevada'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 Nevada 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 the Nevada share value by the Capitol share value. If the exchange
is approved, each shareholder of Nevada (other than Capitol) would receive
in the exchange .466949 shares of Capitol common stock for each share of
Nevada common stock. The exchange ratio is fixed. Capitol share value,
$21.951, is based on the average of the closing prices of the common stock
of Capitol for the month ended July 31, 2002 as reported by the Nasdaq
National Market. Nevada share value is based on $10.25 per Nevada share.
Each Nevada shareholder (except Capitol) will receive shares of Capitol
common stock in exchange for his, her or their Nevada common stock
calculated by multiplying the number of shares of Nevada common stock held
by the shareholder by the exchange ratio. Any fractional shares will be
paid in cash. In addition, outstanding stock options of Nevada 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 Nevada 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 ___________, 200__; 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
Nevada common stock (other than Capitol) must approve the Plan of Share
Exchange. If you do not vote your Nevada shares, the effect will be a vote
against the Plan of Share Exchange.
Q: Should I send in my Nevada stock certificates at this time?
A: No. If the proposed share exchange is approved, Capitol or Capitol's stock
transfer agent will send Nevada'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 Nevada's shareholders at the
shareholders' meeting. It is anticipated the exchange will be completed by
____________, 2003.
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
______________, 200__.
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:
Nevada Community Bancorp Limited
10000 West Charleston, Suite 110
Las Vegas, Nevada 89135
(702) 938-0521
Attention: Thomas C. Mangione
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 4 bank
subsidiaries which are wholly or majority-owned directly or indirectly by
Nevada. 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 Nevada and its bank subsidiaries. Capitol and Nevada are already
closely related in several important ways.
Nevada Community Bancorp Limited is a bank holding company with its
headquarters at 10000 West Charleston, Suite 110, Las Vegas, Nevada 89135.
Nevada's telephone number is (702) 938-0521.
Nevada is now and has been, since it commenced business, an affiliate and a
controlled subsidiary of Capitol. Nevada became a bank holding company in August
1999. Nevada subsequently expanded through the addition of four bank
subsidiaries, Bank of Las Vegas (formed in 2002 and 51% owned by Nevada), Black
Mountain Community Bank (formed in 2000 and 51% owned by Nevada), Desert
Community Bank (formed in 1999 and 51% owned by Nevada) and Red Rock Community
Bank (formed in 1999 and 51% owned by Nevada). Up to July 31, 2002, Nevada 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, Nevada became a majority-owned subsidiary of Capitol, and
Capitol directly owns 54.46% of the outstanding shares of Nevada common stock
(980,294 shares as of September 30, 2002). Nevada's executive management and
Board of Directors holds 13.94% of the outstanding shares of Nevada common
stock, or 30.61% of all shares not held by Capitol. Capitol's executive
management and Board of Directors that are not executive management and
directors of Nevada hold less than 1% of the outstanding shares of Nevada'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 Nevada have entered into a Plan of Share Exchange which, if
approved by Nevada's shareholders, would result in the exchange of Nevada'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 Nevada's shareholders with
greater liquidity and flexibility because Capitol's common stock is publicly
traded. The exchange will also provide Nevada'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). Nevada has never paid a cash dividend. Capitol has been
paying quarterly cash dividends of $0.12 per share most recently ($0.10 per
share in 2001 and early 2002 and $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 SHAREHOLDERS' MEETING (PAGE 43)
The meeting of Nevada shareholders will be held on ____________, 2003 at
9:00 a.m., local time, at Nevada Community Bancorp Limited at 10000 West
Charleston, Suite 110, Las Vegas, Nevada 89135. At the shareholders' meeting,
you will be asked to approve the Plan of Share Exchange.
RECOMMENDATION TO SHAREHOLDERS (PAGE 33)
The Nevada board believes that the exchange is fair to you and in the best
interests of both you and Nevada and recommends that you vote FOR approval of
the share exchange.
VOTES REQUIRED (PAGE 43)
Approval of the Plan of Share Exchange requires the favorable vote of a
majority of the outstanding shares of Nevada common stock excluding the shares
held by Capitol. This is more than the vote required by law, but Nevada's board
has set the vote requirement to be sure the exchange is what you, the
shareholders of Nevada, want. Capitol holds 54.46% of the outstanding shares of
Nevada common stock. Nevada's Board of Directors holds 13.94% of the outstanding
shares of Nevada common stock, or 30.61% 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 43)
Nevada shareholders may vote at the shareholders' meeting if they owned
shares of common stock at the close of business on December 15, 2002. At the
close of business on November 15, 2002, 819,706 shares of Nevada common stock
were outstanding (excluding shares held by Capitol). For each share of Nevada
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 Nevada 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 Nevada (other than Capitol) would receive in the exchange .466949 shares of
Capitol common stock for each share of Nevada common stock. The exchange ratio
is fixed. This is based on the Capitol Share Value of $21.951 per share and a
fixed value of $10.25 per Nevada share. The exchange ratio is determined by
dividing the Nevada Share Value by the Capitol Share Value, where:
NEVADA SHARE VALUE. The share value of each share of Nevada common
stock shall be $10.25 per share.
CAPITOL SHARE VALUE. The share value of each share of Capitol common
stock shall be $21.951, the average of the closing prices of Capitol's
common stock for the month ended July 31, 2002, as reported by the
Nasdaq National Market.
Each Nevada shareholder (except Capitol) will receive shares of Capitol
common stock in exchange for his, her or their Nevada common stock calculated by
multiplying the number of shares of Nevada common stock held by the shareholder
by the exchange ratio. Any fractional shares will be paid in cash. In addition,
outstanding stock options of Nevada will be exchanged for stock options of
Capitol with the same vesting and expiration dates.
ACCOUNTING TREATMENT (PAGE 34)
Capitol's acquisition of the minority interest of Nevada will be accounted
for under the purchase method of accounting. After the exchange, 100% of
Nevada's results from operations will be included in Capitol's income statement,
as opposed to 54.46% as is currently reported.
9
TAX CONSEQUENCES OF THE EXCHANGE TO NEVADA SHAREHOLDERS (PAGE 34)
Capitol's tax counsel has rendered its opinion that Nevada shareholders
will not recognize any gain or loss for federal income tax purposes on the
exchange of their Nevada 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 Nevada 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 Nevada law, shareholders of Nevada 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)
Nevada retained JMP Financial, Inc. as its financial advisor and agent in
connection with the exchange to render a financial fairness opinion to the
Nevada shareholders.
In deciding to approve the exchange, Nevada'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
Nevada common stock is fair from a financial point of view. Nevada's Board of
Directors adopted the fairness opinion as its own when forming its
recommendation that Nevada'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 Nevada'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 (PAGE 42)
Nevada and Capitol can jointly agree to terminate the plan of exchange at
any time without completing the exchange.
Nevada can terminate the exchange if a majority of Nevada's shareholders
(other than Capitol) fail to approve the exchange at Nevada's shareholders'
meeting or any adjournment or postponement thereof; or a governmental authority
prohibits the exchange.
YOUR RIGHTS AS A SHAREHOLDER WILL CHANGE (PAGE 45)
Your rights as a Nevada shareholder are currently determined by Nevada law
relating to business corporations and by Nevada'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
September 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 nine months ended
September 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
COMPARING 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 September 30, 2002 and for the nine months ended September 30, 2002 and 2001
have been derived from Capitol's consolidated financial statements which are
incorporated herein by reference. Selected balance sheet data as of September
30, 2001 and December 31, 1999, 1998 and 1997 and results of operations data for
the years ended December 31, 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 Nevada)
are included in Capitol's consolidated balance sheet. Capitol's consolidated net
income, however, only includes its subsidiaries' (including Nevada) net income
or net loss to the extent of its ownership percentage. This means that when a
newly formed bank incurs early start-up losses, Capitol will only reflect that
loss based on its ownership percentage. Conversely, when banks generate income,
Capitol will only reflect that income based on its ownership percentage.
CAPITOL BANCORP LIMITED
---------------------------------------------------------------------------------------------
AS OF AND FOR THE
NINE MONTHS ENDED AS OF AND FOR THE
SEPTEMBER 30 YEARS ENDED DECEMBER 31
------------------------- -----------------------------------------------------------------
2002 2001 2001 2000 1999 1998 1997
----------- ----------- ----------- ----------- ----------- ----------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
SELECTED RESULTS OF OPERATIONS DATA:
Interest income $ 116,278 $ 115,766 $ 153,797 $ 132,311 $ 93,602 $ 69,668 $ 49,549
Interest expense 42,841 56,894 73,292 65,912 46,237 36,670 24,852
Net interest income 73,437 58,872 80,505 66,399 47,365 32,998 24,697
Provision for loan losses 8,692 5,637 8,167 7,216 4,710 3,523 2,049
Net interest income after provision
for loan losses 64,745 53,235 72,338 59,183 42,655 29,475 22,648
Noninterest income 10,375 6,994 9,585 6,137 4,714 3,558 2,157
Noninterest expense 56,762 47,358 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 18,358 12,871 17,787 12,474 7,112 6,708 8,084
Income tax expense 6,380 4,238 5,824 4,289 3,213 2,584 2,888
Income before minority interest and
cumulative effect of change in
accounting principle 11,978 8,633 11,963 8,185 3,899 4,124 5,196
Minority interest in net losses
(income) of consolidated
subsidiaries (574) (878) (1,245) (150) 1,707 504 361
Income before cumulative effect
of change in accounting principle 11,404 7,755 10,718 8,035 5,606 4,628 5,557
Cumulative effect of change in
accounting principle (1) (197)
Net income 11,404 7,755 10,718 8,035 5,409 4,628 5,557
11
CAPITOL BANCORP LIMITED
---------------------------------------------------------------------------------------------
AS OF AND FOR THE
NINE MONTHS ENDED AS OF AND FOR THE
SEPTEMBER 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 (1):
Basic $ 1.17 $ 1.00 $ 1.38 $ 1.14 $ 0.87 $ 0.74 $ 0.91
Diluted 1.12 0.98 1.35 1.13 0.86 0.72 0.88
After cumulative effect of
change in accounting
principle (1):
Basic 1.17 1.00 1.38 1.14 0.84 0.74 0.91
Diluted 1.12 0.98 1.35 1.13 0.83 0.72 0.88
Cash dividends declared 0.32 0.30 0.40 0.36 0.36 0.33 0.30
Book value 12.95 9.96 10.24 9.18 8.08 7.77 7.22
Pro forma equivalent book value (2) 13.33 N/A N/A N/A N/A N/A N/A
Dividend payout ratio 27.35% 30.00% 28.99% 31.58% 42.86% 43.63% 32.95%
Weighted average number of
common shares outstanding 9,777 7,769 7,784 7,065 6,455 6,284 6,130
SELECTED BALANCE SHEET DATA:
Total assets $ 2,347,594 $ 1,975,379 $ 2,044,006 $ 1,630,076 $ 1,305,987 $ 1,024,444 $ 690,556
Investment securities 45,878 43,865 43,687 68,926 107,145 86,464 64,470
Portfolio loans 1,958,820 1,660,042 1,734,589 1,355,798 1,049,204 724,280 502,755
Allowance for loan losses (27,898) (21,849) (23,238) (17,449) (12,639) (8,817) (6,229)
Deposits 2,018,051 1,687,494 1,740,385 1,400,899 1,112,793 890,890 604,407
Debt obligations 83,168 77,437 89,911 58,150 47,400 23,600
Minority interests in
consolidated subsidiaries 34,342 67,182 70,673 62,575 54,593 27,576 11,020
Trust preferred securities 51,567 48,606 48,621 24,327 24,291 24,255 24,126
Stockholders' equity 144,838 77,902 80,172 70,404 54,668 49,292 45,032
PERFORMANCE RATIOS: (3)
Return on average equity 13.78% 14.82% 15.22% 13.78% 10.66% 10.19% 13.28%
Return on average assets 0.70% 0.57% 0.58% 0.55% 0.47% 0.55% 0.96%
Net interest margin (fully taxable
equivalent) 4.79% 4.60% 4.60% 4.80% 4.44% 4.15% 4.54%
Efficiency ratio (4) 67.73% 71.90% 71.19% 72.85% 77.30% 70.63% 60.92%
ASSET QUALITY:
Non-performing loans (5) $ 26,301 $ 11,642 $ 17,238 $ 6,757 $ 4,124 $ 7,242 $ 4,011
Allowance for loan losses to
non-performing loans 106.07% 187.67% 134.81% 258.24% 306.47% 121.75% 155.30%
Allowance for loan losses to
portfolio loans 1.42% 1.32% 1.34% 1.29% 1.20% 1.22% 1.24%
Non-performing loans to total
portfolio loans 1.34% 0.70% 0.99% 0.50% 0.39% 1.00% 0.80%
Net loan losses to average
portfolio loans 0.29% 0.11% 0.15% 0.20% 0.10% 0.15% 0.09%
CAPITAL RATIOS:
Average equity to average assets 5.12% 4.11% 3.78% 4.26% 4.46% 5.36% 7.22%
Tier 1 risk-based capital ratio 10.60% 10.69% 10.54% 11.10% 10.78% 13.42% 14.26%
Total risk-based capital ratio 11.85% 12.12% 11.85% 12.35% 11.62% 14.60% 16.61%
Leverage ratio 6.17% 3.94% 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) Based on the estimated exchange ratio of .466949 shares of Capitol for each
share of Nevada. Excludes the pro forma effect of pending share exchange
proposals regarding Detroit Commerce Bank and East Valley Community Bank
due to immateriality (see "Recent Developments").
(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) 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 September
30, 2002, the net carrying amount of reporting-unit goodwill approximated $17.9
million and other intangible assets approximated $2.4 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):
Nine Months Ended
September 30 Year Ended December 31
-------- -------- ------------------------------
2002 2001 2001 2000 1999(1)
-------- -------- -------- -------- --------
Net income, as reported $ 11,404 $ 7,755 $ 10,718 $ 8,035 $ 5,409
Add back -- goodwill
amortization -- 602 979 561 318
-------- -------- -------- -------- --------
Net income, as adjusted $ 11,404 $ 8,357 $ 11,697 $ 8,596 $ 5,727
======== ======== ======== ======== ========
Net income per share,
as reported:
Basic $ 1.17 $ 1.00 $ 1.38 $ 1.14 $ 0.84
======== ======== ======== ======== ========
Diluted $ 1.12 $ 0.98 $ 1.35 $ 1.13 $ 0.83
======== ======== ======== ======== ========
Add back -- goodwill
amortization per share:
Basic -- $ 0.08 $ 0.12 $ 0.08 $ 0.05
======== ======== ======== ========
Diluted -- $ 0.08 $ 0.12 $ 0.08 $ 0.05
======== ======== ======== ========
Net income per share,
as adjusted:
Basic $ 1.17 $ 1.08 $ 1.50 $ 1.22 $ 0.89
======== ======== ======== ======== ========
Diluted $ 1.12 $ 1.06 $ 1.47 $ 1.21 $ 0.88
======== ======== ======== ======== ========
(1) Including cumulative effect of change in accounting principle, which
required write-off of previously capitalized start-up costs as of January
1, 1999 ($197, net of income tax effect, or $.03 per share).
13
SELECTED CONSOLIDATED FINANCIAL DATA OF NEVADA
The consolidated financial data below summarizes historical consolidated
financial information for the periods indicated and should be read in
conjunction with Nevada's consolidated financial statements as of December 31,
2001 and 2000 and for the years ended December 31, 2001 and 2000 and period
ended December 31, 1999, 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 nine months ended
September 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 NEVADA'S EXISTENCE,
HISTORICAL OPERATING RESULTS ARE OF LIMITED RELEVANCE IN COMPARING FINANCIAL
PERFORMANCE AND PREDICTING NEVADA'S FUTURE OPERATING RESULTS.
Nevada'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 nine months ended September 30, 2002 and 2001 have been derived
from Nevada's consolidated financial statements which appear elsewhere 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 Nevada's
consolidated balance sheet. Nevada'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, Nevada will only reflect that loss based on its ownership percentage.
Conversely, when banks generate income, Nevada will only reflect that income
based on its ownership percentage.
NEVADA COMMUNITY BANCORP LIMITED
----------------------------------------------------------------
AS OF AND FOR THE
NINE MONTHS ENDED AS OF AND FOR THE
SEPTEMBER 30 YEARS ENDED DECEMBER 31
----------------------- ------------------------------------
2002 2001 2001 2000 1999
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
SELECTED RESULTS OF OPERATIONS DATA:
Interest income $ 11,383 $ 9,573 $ 12,850 $ 7,088 $ 690
Interest expense 3,940 4,019 5,449 2,695 114
Net interest income 7,443 5,554 7,401 4,393 576
Provision for loan losses 1,258 922 1,230 1,024 310
Net interest income after provision
for loan losses 6,185 4,632 6,171 3,369 266
Noninterest income 544 303 408 92 6
Noninterest expense 6,075 4,170 5,875 4,419 1,292
Income (loss) before income tax
expense and minority interest 654 765 704 (958) (1,020)
Income tax expense (benefit) 134 164 191 (249) (345)
Income (loss) before minority interest 520 601 513 (709) (675)
Minority interest in net losses (income)
of consolidated subsidiaries (276) (307) (332) 226 206
Net income (loss) 244 294 181 (483) (469)
14
NEVADA COMMUNITY BANCORP LIMITED
----------------------------------------------------------------
AS OF AND FOR THE
NINE MONTHS ENDED AS OF AND FOR THE
SEPTEMBER 30 YEARS ENDED DECEMBER 31
----------------------- ------------------------------------
2002 2001 2001 2000 1999
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
PER SHARE DATA:
Net income (loss) per common share:
Basic $ 0.14 $ 0.16 $ 0.10 $ (0.31) $ (0.31)
Diluted 0.14 0.16 0.10 (0.31) (0.31)
Cash dividends paid -- -- -- -- --
Book value--historical 6.96 6.86 6.78 6.69 6.35
Pro forma equivalent book value
per Capitol share (1) 6.22 N/A N/A N/A N/A
Weighted average number of
common shares outstanding 1,800 1,800 1,800 1,800 1,500
SELECTED BALANCE SHEET DATA:
Total assets $ 242,235 $ 179,056 $ 193,212 $ 106,155 $ 33,720
Investment securities 18,622 5,042 8,689 -- --
Portfolio loans 192,027 147,028 157,589 85,143 19,299
Allowance for loan losses 3,078 2,206 2,416 1,284 310
Deposits 214,620 157,355 171,515 85,587 18,061
Debt obligations 2,441 -- -- -- --
Minority interests in consolidated
subsidiaries 12,132 8,596 8,622 8,253 6,028
Stockholders' equity 12,533 12,342 12,213 12,048 9,531
PERFORMANCE RATIOS: (2)
Return on average equity 2.63% 3.21% 1.49% N/A N/A
Return on average assets 0.15% 0.27% 0.12% N/A N/A
Net interest margin (fully taxable
equivalent) 4.78% 5.40% 5.23% 6.59% 3.65%
Efficiency ratio (3) 76.07% 71.20% 75.24% 98.53% 221.93%
ASSET QUALITY:
Non-performing loans (4) $ 2,382 $ 1,533 $ 2,171 $ 1,330 --
Allowance for loan losses to
non-performing loans 129.22% 132.16% 111.29% 96.54% N/A
Allowance for loan losses to
portfolio loans 1.60% 1.50% 1.53% 1.51% 1.61%
Non-performing loans to total
portfolio loans 1.24% 1.04% 1.38% 1.56% 0.00%
Net loan losses to average
portfolio loans 0.45% 0.00% 0.08% 0.10% 0.00%
CAPITAL RATIOS:
Average equity to average assets 5.68% 8.55% 8.10% 15.43% 28.27%
Tier 1 risk-based capital ratio 11.83% 13.38% 11.98% 22.10% 50.28%
Total risk-based capital ratio 13.09% 14.63% 13.23% 23.35% 51.18%
Leverage ratio 5.17% 6.89% 6.32% 11.35% 28.27%
- ----------
N/A - Not applicable
(1) Based on the estimated exchange ratio of .466949 shares of Capitol for each
share of Nevada. Excludes the pro forma effect of pending share exchange
proposals regarding Detroit Commerce Bank and East Valley Community Bank
due to immateriality (see "Recent Developments").
(2) These ratios are annualized for the periods indicated.
(3) Efficiency ratio is computed by dividing noninterest expense by the sum of
net interest income and noninterest income.
(4) Non-performing loans consist of loans on nonaccrual status and loans more
than 90 days delinquent.
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 NEVADA'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.
INHERENT CONFLICTS OF INTEREST IN THE PROPOSED SHARE EXCHANGE.
Nevada is already a majority-owned and controlled subsidiary of Capitol. By
virtue of the existing relationship between Nevada and Capitol, the proposed
share exchange presents inherent conflicts of interest. For example, no other
share exchanges are being considered and, if there were any, Capitol would
likely vote its Nevada shares against any other share exchange proposals.
Capitol's proposal to value Nevada shares at $10.25 in the proposed share
exchange is based solely on its judgment in making such proposal. Accordingly,
the Nevada Share Value and related exchange ratio have not been determined
absent the inherent conflicts of interest between Capitol and Nevada. It is
unknown what exchange ratio or Nevada Share Value, if any, that might be
negotiated between Nevada and unaffiliated entities.
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 Nevada's) bank subsidiaries are less than
three years old and Capitol's oldest bank is 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 Nevada have rapidly and significantly expanded their operations
and anticipate that further expansion will be required to realize their growth
strategies. Capitol's (and Nevada'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.
16
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.
CAPITOL'S (AND NEVADA'S) SMALL SIZE MAY MAKE IT DIFFICULT TO COMPETE WITH LARGER
INSTITUTIONS BECAUSE CAPITOL (AND NEVADA) 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 Nevada'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 Nevada'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. Nevada is also a bank holding company and regulated primarily by
the Federal Reserve Board. Capitol's and Nevada'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.
17
Federal and state regulatory agencies have extensive discretion and power
to prevent or remedy unsafe or unsound practices or violations of law by banks
and bank holding companies. Capitol and its banks also undergo periodic
examinations by one or more regulatory agencies. Following such examinations,
Capitol may be required, among other things, to change its asset valuations or
the amounts of required loan loss allowances or to restrict its operations.
Those actions would result from the regulators' judgments based on information
available to them at the time of their examination.
The banks' operations are required to follow a wide variety of state and
federal consumer protection and similar statutes and regulations. Federal and
state regulatory restrictions limit the manner in which Capitol and its banks
may conduct business and obtain financing. Those laws and regulations can and do
change significantly from time to time, and any such change could adversely
affect Capitol.
REGULATORY ACTION COULD SEVERELY LIMIT FUTURE EXPANSION PLANS.
To carry out some of its expansion plans, Capitol is required to obtain
permission from the Federal Reserve Board. Applications for the formation of new
banks are submitted to the state and federal bank regulatory agencies for their
approval.
While Capitol's recent experience with the regulatory application process
has been favorable, the future climate for regulatory approval is impossible to
predict. Regulatory agencies could prohibit or otherwise significantly restrict
the expansion plans of Capitol, its current bank subsidiaries and future new
start-up banks, 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 varied at
Capitol's (and Nevada's) banks. Because many of Capitol's (and Nevada'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 interim periods of 2002. While local
economic conditions appear to indicate a weakening environment, Capitol's loan
losses in the interim 2002 periods have increased in comparison to the level
with the prior year and nonperforming loans have also 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.
18
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 Nevada's) banks make various types of loans,
including commercial, consumer, residential mortgage and construction loans.
Capitol's (as well as Nevada'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.
THE OPEN MARKET COMMITTEE OF THE FEDERAL RESERVE BOARD (FRBOMC) HAS TAKEN
UNPRECEDENTED ACTIONS TO SIGNIFICANTLY REDUCE INTEREST RATES AND CHANGES 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 interim periods of 2002, until a 50
basis points decrease in November; 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 Nevada'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.
19
CAPITOL HAS DEBT SECURITIES OUTSTANDING WHICH MAY PROHIBIT FUTURE CASH DIVIDENDS
ON CAPITOL'S COMMON STOCK OR OTHERWISE ADVERSELY AFFECT REGULATORY CAPITAL
COMPLIANCE.
As of September 30, 2002, Capitol had notes payable to an unaffiliated bank
outstanding in the amount of approximately $15 million. Under this credit
facility, borrowings of up to $25 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, 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.
POSSIBLE VOLATILITY OF STOCK PRICE.
The market price of Capitol's common stock may fluctuate in response to
numerous factors, including variations in the annual or quarterly financial
results of Capitol, or its competitors, changes by financial research analysts
in their estimates of the earnings of Capitol or its competitors or the failure
of Capitol or its competitors to meet such estimates, conditions in the economy
in general or the banking industry in particular, or unfavorable publicity
affecting Capitol, its banks, or the industry. In addition, equity markets have,
on occasion, experienced significant price and volume fluctuations that have
affected the market price for many companies' securities which have been
unrelated to the operating performance of those companies. Any fluctuation may
adversely affect the prevailing market price of Capitol's common stock.
CAPITOL'S BANK SUBSIDIARIES HAVE DECENTRALIZED MANAGEMENT WHICH COULD HAVE A
NEGATIVE IMPACT ON THE RATE OF GROWTH AND PROFITABILITY OF CAPITOL AND ITS BANK
SUBSIDIARIES.
Capitol's bank subsidiaries have independent boards of directors and
management teams. This decentralized structure gives the banks control over the
day-to-day management of the institution including the selection of management
teams, the pricing of loans and deposits, marketing decisions and the strategy
in handling problem loans. This decentralized structure may impact Capitol's
ability to uniformly implement holding company strategy at the bank level. It
may slow Capitol's ability to react to changes in strategic direction due to
outside factors such as rate changes and changing economic conditions. The
structure may cause additional management time to be spent on internal issues
and could negatively impact the growth and profitability of the banks
individually and the holding company.
20
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
Nine Months Ended Year Ended
September 30, 2002 December 31, 2001
------------------ -----------------
Capitol common stock:
Net income per share:
Basic:
Historical $ 1.17 $ 1.38
Pro forma consolidated(1) 1.13 1.32
Diluted:
Historical 1.12 1.35
Pro forma consolidated(1) 1.09 1.29
Cash dividends per share:
Historical 0.32 0.40
Pro forma consolidated(2) 0.32 0.40
Book value per share at period end:
Historical 12.95 10.24
Pro forma consolidated(1) $ 13.33 $ 10.89
Nevada common stock:
Net income per share:
Basic:
Historical $ 0.14 $ 0.10
Pro forma equivalent(3) 0.53 0.62
Diluted:
Historical 0.14 0.10
Pro forma equivalent(3) 0.51 0.60
Cash dividends per share:
Historical -- --
Pro forma equivalent(3) 0.15 0.19
Book value per share at period end:
Historical 6.96 6.78
Pro forma equivalent(3) $ 6.22 $ 5.09
1 -- Assumes completion of proposed Nevada exchange. Excludes the pro forma
effect of pending exchanges regarding Detroit Commerce Bank and East Valley
Community Bank due to immateriality (see "Recent Developments").
2 -- The Capitol pro forma consolidated dividends per share represent historical
dividends per share.
3 -- The Nevada pro forma equivalent per share amounts are calculated by
multiplying Capitol pro forma consolidated per share amounts by the
exchange ratio of .466949.
21
RECENT DEVELOPMENTS
Capitol and Nevada 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 Nevada, as applicable)
have started new banks using a similar strategy. Because Nevada was formed by
Sun and Capitol, and Capitol and Nevada share management and common systems,
Nevada'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 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
announced the 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.
On August 1, 2002, Capitol announced a 20% increase in its quarterly cash
dividend to $0.12 per share.
Effective September 30, 2002, two share exchange transactions were
consummated, resulting in Capitol issuing about 450,000 shares of common stock.
These two share exchanges related to Sunrise Capital Corporation and Indiana
Community Bancorp Ltd., which were previously majority-owned subsidiaries of
Capitol.
Effective November 30, 2002, two share exchange transaction proposals were
pending which, if consummated, would result in Capitol issuing about 54,000
shares of common stock. These two share exchange proposals relate to Detroit
Commerce Bank and East Valley Community Bank, subject to approval of their
shareholders (other than Capitol), which are currently majority-owned
subsidiaries of Capitol.
Bank development efforts are currently under consideration at December ___,
2002 in the states of California, Indiana and Michigan. Activities also include
pre-development exploratory discussions in a number of other states.
22
CAPITALIZATION
The table presented below shows Capitol's actual total capitalization as of
September 30, 2002, as adjusted to reflect the exchange of Capitol's common
stock for Nevada's common stock as described in this proxy statement/prospectus.
AS OF SEPTEMBER 30, 2002
--------------------------------------------------------------
(dollars in thousands, except per share data)
AS ADJUSTED FOR
NEVADA
AS ADJUSTED FOR EXCHANGE(4) AND
THE PENDING EAST PENDING EAST
VALLEY AND AS ADJUSTED FOR VALLEY AND
DETROIT THE NEVADA DETROIT
ACTUAL EXCHANGES(4) EXCHANGE(5) EXCHANGES(5)
--------- ------------ ----------- ------------
DEBT OBLIGATIONS ..................................... $ 83,168 $ 83,168 $ 83,168 $ 83,168
========= ========= ========= =========
TRUST-PREFERRED SECURITIES ........................... 51,567 51,567 51,567 51,567
MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES ...... 34,342 33,780 28,634 28,071
STOCKHOLDERS' EQUITY(1):
Common stock, no par value; 25,000,000 shares
authorized; issued, and outstanding:
Actual - 11,181,368 shares ....................... 124,022
As adjusted for the pending East Valley
and Detroit exchanges - 11,235,665 shares(4) ... 125,400
As adjusted for the Nevada exchange -
11,564,129 shares(5) ........................... 133,310
As adjusted for pending East Valley and
Detroit exchanges and Nevada exchange -
11,618,426 shares(4)(5) ........................ 134,688
Retained earnings .................................. 22,435 22,435 22,435 22,435
Market value adjustment for available-for-sale
securities (net of tax effect) ................... 232 232 232 232
Less unallocated ESOP shares and note
receivable from sale of common stock ............. (1,851) (1,851) (1,851) (1,851)
--------- --------- --------- ---------
Total stockholders' equity ..................... $ 144,838 $ 146,216 $ 154,126 $ 155,504
========= ========= ========= =========
Book value per share of common stock ............... $ 12.95 $ 13.01 $ 13.33 $ 13.38
========= ========= ========= =========
TOTAL CAPITALIZATION(2) .............................. $ 179,180 $ 179,996 $ 182,760 $ 183,575
========= ========= ========= =========
TOTAL CAPITAL FUNDS(3) ............................... $ 230,747 $ 231,563 $ 234,327 $ 235,142
========= ========= ========= =========
CAPITAL RATIOS:
Stockholders' equity to total assets ............... 6.17% 6.23% 6.56% 6.61%
Total capitalization to total assets ............... 7.63% 7.66% 7.77% 7.81%
Total capital funds to total assets ................ 9.83% 9.86% 9.97% 10.00%
- ----------
(1) Does not include approximately 2.1 million shares of common stock issuable
upon exercise of stock options. 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 adjusted for Capitol's pending share exchange with the minority
shareholders of Detroit Commerce Bank and East Valley Community Bank which,
if completed, would result in the issuance of 54,297 shares of Capitol's
common stock. Includes estimated fair value of 42,000 stock options of East
Valley which will convert to stock options of Capitol at the same ratio
applicable to the pending East Valley exchange. See "Recent Developments."
(5) Assumes issuance of 382,761 shares of Capitol common stock upon completion
of Nevada exchange. Includes estimated fair value of 99,000 stock options
of Nevada which will convert to stock options of Capitol at the same ratio
applicable to the Nevada exchange. See "Unaudited Pro Forma Consolidated
Financial Information."
23
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 $20.57 on December 6, 2002.
Cash Dividends
2001 High Low Paid
- ---- ------- ------- -------
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 ended September 30 24.250 15.810 0.12
Quarter ending December 31
(through December 6, 2002) 21.690 15.130 0.12
As of October 17, 2002, there were approximately 4,572 beneficial holders
of Capitol's common stock based on information supplied by its stock transfer
agent and other sources.
There is no market for Nevada's common stock. Any transfers have been made
privately and are not reported. Nevada has never paid a dividend on its common
stock.
24
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".
25
INFORMATION ABOUT CAPITOL
This proxy statement/prospectus is accompanied by a copy of the following
documents:
- Report on Form 10-Q for periods ended September 30, 2002
- Report on Form 10-Q for periods 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 NEVADA
BRIEF DISCUSSION OF BUSINESS
Nevada is now and has been, since it commenced business, an affiliate and a
controlled subsidiary of Capitol. Nevada became a bank holding company in August
1999. Nevada subsequently expanded through the addition of four bank
subsidiaries, Bank of Las Vegas (formed in 2002 and 51% owned by Nevada), Black
Mountain Community Bank (formed in 2000 and 51% owned by Nevada), Desert
Community Bank (formed in 1999 and 51% owned by Nevada) and Red Rock Community
Bank (formed in 1999 and 51% owned by Nevada). Up to July 31, 2002, Nevada 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, Nevada became a majority-owned subsidiary of Capitol, and
Capitol directly owns 54.46% of the outstanding shares of Nevada common stock
(980,294 shares as of September 30, 2002).
MARKET PRICE AND DIVIDENDS
There is no active public trading market for Nevada common stock. As of
November 15, 2002, Nevada common stock was held by 127 holders of record. Nevada
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 September 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 Nevada as
of September 30, 2002 and for the nine months ended September 30, 2002 and 2001
are included in this proxy statement/prospectus as part of Annex D. Audited
consolidated financial statements of Nevada as of and for the years ended
December 31, 2001 and 2000 and period ended December 31, 1999 are included in
this proxy statement/prospectus as part of Annex D.
26
VOTING SECURITIES AND PRINCIPAL HOLDERS
The following table shows the share holdings of each director and officer
of Nevada and all directors and officers as a group as of November 15, 2002.
Where applicable, the table includes shares held by members of their immediate
families.
Nevada shares beneficially owned
---------------------------------------------------
Percentage of all
Percentage of Nevada shares excluding
all Nevada shares owned
Name of Beneficial owner Number Nevada Shares by Capitol
- ------------------------ ------- ------------- ----------
Capitol Bancorp Limited 980,294 54.46% N/A
======= ======= =======
Nevada's Directors and Officers:
Glenn C. Cristenson 6,000 0.33% 0.73%
Michael J. Devine 750 0.04% 0.09%
Cristin Reid English 750 0.04% 0.09%
Joel I. Ferguson 15,000 0.83% 1.83%
Michael F. Hannley 750 0.04% 0.09%
Mark A. James 1,500 0.08% 0.18%
Lewis D. Johns 37,200 2.07% 4.54%
Michael L. Kasten 15,000 0.83% 1.83%
Larry W. Kifer 37,500 2.08% 4.57%
John S. Lewis 5,250 0.29% 0.64%
Humberto S. Lopez 25,001 1.39% 3.05%
Thomas C. Mangione 10,350 0.58% 1.26%
Joseph D. Reid 21,000 1.17% 2.56%
Edward D. Smith 75,000 4.17% 9.15%
------- ------- -------
Total of Nevada shares held by Nevada's
Directors and Officers 251,051 13.94% 30.61%
======= ======= =======
Other than the directors and officers of Nevada, no individual owns greater
than 5% of the outstanding shares of Nevada, exclusive of the shares owned by
Capitol.
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27
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
Nevada 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 Nevada (and
Capitol's pending share exchanges with the minority shareholders of Detroit
Commerce Bank and East Valley Community Bank - see "Recent Developments"), which
is being accounted for under the purchase method of accounting, as if it had
occurred effective September 30, 2002 (shown on page 29) and (excluding
Capitol's pending share exchanges with Detroit and East Valley, due to
immateriality) at the beginning of 2001 (shown on page 31). The accompanying
notes to the unaudited pro forma consolidated financial statements are an
integral part of the unaudited pro forma financial information. The unaudited
pro forma results of operations for the period ended September 30, 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 Nevada 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]
28
Unaudited Pro Forma Condensed Consolidated Balance Sheet
Capitol Bancorp Ltd. And Subsidiaries
September 30, 2002
(in $1,000s, except share and per-share data)
Pro Forma Pro Forma
Adjustments Amounts Pro Forma Pro Forma
Regarding After Adjustments Amounts
Pending Pending Regarding After
Historical Detroit and Detroit and Proposed Proposed
Amounts East Valley East Valley Nevada Nevada
As Reported Exchanges Exchanges Exchange Exchange
----------- ----------- ----------- ----------- -----------
ASSETS
Cash and cash equivalents $ 227,161 $ 227,161 $ 227,161
Loans held for resale 65,496 65,496 65,496
Investment securities 45,878 45,878 45,878
Portfolio loans 1,958,820 1,958,820 1,958,820
Less allowance for loan losses (27,898) (27,898) (27,898)
----------- ----------- -----------
Net portfolio loans 1,930,922 1,930,922 1,930,922
Premises and equipment, net 19,232 19,232 19,232
Goodwill and other intangibles, net 20,286 $ 815 A 21,101 $ 3,580 B 23,866
Other assets 38,619 38,619 38,619
----------- --------- ----------- ----------- -----------
TOTAL ASSETS $ 2,347,594 $ 815 $ 2,348,409 $ 3,580 $ 2,351,174
=========== ========= =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 2,018,051 $ 2,018,051 $ 2,018,051
Debt obligations 83,168 83,168 83,168
Other liabilities 15,628 15,628 15,628
----------- --------- ----------- ----------- -----------
Total liabilities 2,116,847 -- 2,116,847 -- 2,116,847
Trust-preferred securities 51,567 51,567 51,567
Minority interests in consolidated subsidiaries 34,342 $ (562) A 33,780 (5,708) C 28,634
Stockholders' equity:
Common stock 124,022 1,377 A 125,400 9,288 D 133,310
Retained earnings 22,435 22,435 22,435
Other, net (1,619) (1,619) (1,619)
----------- --------- ----------- ----------- -----------
Total stockholders' equity 144,838 815 146,216 9,288 154,126
----------- --------- ----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,347,594 $ 815 $ 2,348,409 $ 3,580 $ 2,351,174
=========== ========= =========== =========== ===========
Number of common shares issued and outstanding 11,181,368 54,297 11,235,665 382,761 11,564,129
=========== ========= =========== =========== ===========
Book value per Capitol share $ 12.95 $ 13.01 $ 13.33
=========== =========== ===========
Pro forma equivalent per Nevada share $ 6.22
===========
Pro Forma Pro Forma
Adjustments Amounts
Regarding After
Nevada, Nevada,
Detroit and Detroit and
East Valley East Valley
Exchanges Exchanges
----------- -----------
ASSETS
Cash and cash equivalents $ 227,161
Loans held for resale 65,496
Investment securities 45,878
Portfolio loans 1,958,820
Less allowance for loan losses (27,898)
-----------
Net portfolio loans 1,930,922
Premises and equipment, net 19,232
Goodwill and other intangibles, net $ 4,395 24,681
Other assets 38,619
--------- -----------
TOTAL ASSETS $ 4,395 $ 2,351,989
========= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 2,018,051
Debt obligations 83,168
Other liabilities $ -- 15,628
--------- -----------
Total liabilities -- 2,116,847
Trust-preferred securities 51,567
Minority interests in consolidated subsidiaries (6,270) 28,071
Stockholders' equity:
Common stock 10,665 134,688
Retained earnings 22,435
Other, net (1,619)
--------- -----------
Total stockholders' equity 10,665 155,504
--------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,395 $ 2,351,989
========= ===========
Number of common shares issued and outstanding 437,058 11,618,426
========= ===========
Book value per Capitol share $ 13.38
===========
Pro forma equivalent per Nevada share $ 6.25
===========
THE ACCOMPANYING NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
BALANCE SHEET ARE AN INTEGRAL PART OF THIS PRO FORMA PRESENTATION.
29
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 exchanges
regarding minority shareholders of Detroit Commerce Bank and East Valley
Community Bank which, if consummated, such banks would become wholly-owned
subsidiaries.
B -- Goodwill arising from proposed Nevada exchange. Based on current estimates,
there are no identifiable intangible assets regarding the proposed Nevada
exchange. No deposit core intangible asset has been estimated due to the
brief periods of Nevada's banks' operations. The net book value of all
other assets and liabilities of Nevada and its subsidiaries approximate
fair value.
C -- Elimination of minority interests associated with Nevada's shareholders
other than Capitol.
D -- Estimated net proceeds applicable to proposed share exchange with Nevada's
shareholders other than Capitol:
Issuance of 382,761 shares of Capitol common stock in
proposed Nevada share exchange $ 8,402
Estimated fair value of approximately 99,000 stock options
of Capitol to be issued in exchange for stock options of
Nevada as part of proposed share exchange 886
-------
Total $ 9,288
=======
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30
Unaudited Pro Forma Condensed Consolidated Statements of Operations
Capitol Bancorp Ltd. And Subsidiaries
(in $1,000s, except share and per-share data)
Nine Months Ended September 30, 2002
-------------------------------------------
Historical Pro Forma Pro Forma
Amounts Adjustments Amounts
----------- ----------- -----------
Interest income $ 116,278 $ 116,278
Interest expense 42,841 42,841
----------- -----------
Net interest income 73,437 73,437
Provision for loan losses 8,692 8,692
----------- -----------
Net interest income after provision for loan losses 64,745 64,745
Noninterest income 10,375 10,375
Noninterest expense 56,762 56,762
----------- -----------
Income before federal income taxes and
minority interest 18,358 18,358
Federal income taxes 6,380 6,380
----------- -----------
Income before minority interest 11,978 11,978
Minority interest in net income of
consolidated subsidiaries (574) 111 A (463)
----------- ----------- -----------
NET INCOME $ 11,404 $ 111 $ 11,515
=========== =========== ===========
NET INCOME PER SHARE:
Basic $ 1.17 $ 1.13
=========== ===========
Diluted $ 1.12 $ 1.09
=========== ===========
Pro forma equivalent per Nevada share:
Basic $ 0.53
===========
Diluted $ 0.51
===========
Average number of common shares outstanding
for purposes of computing basic net income per
share--denominator for basic net income per share 9,776,774 382,761 B 10,159,535
Effect of dilutive securities--stock options and warrants 420,179 29,205 C 449,384
----------- ----------- -----------
Average number of common shares and dilutive securities
for purposes of computing diluted net income per share--
denominator for diluted net income per share 10,196,953 411,966 10,608,919
=========== =========== ===========
Year Ended December 31, 2001
-------------------------------------------
Historical Pro Forma Pro Forma
Amounts Adjustments Amounts
----------- ----------- -----------
Interest income $ 153,797 $ 153,797
Interest expense 73,292 73,292
----------- -----------
Net interest income 80,505 80,505
Provision for loan losses 8,167 8,167
----------- -----------
Net interest income after provision for loan losses 72,338 72,338
Noninterest income 9,585 9,585
Noninterest expense 64,136 64,136
----------- -----------
Income before federal income taxes and
minority interest 17,787 17,787
Federal income taxes 5,824 5,824
----------- -----------
Income before minority interest 11,963 11,963
Minority interest in net income of
consolidated subsidiaries (1,245) 82 A (1,163)
----------- ----------- -----------
NET INCOME $ 10,718 $ 82 $ 10,800
=========== =========== ===========
NET INCOME PER SHARE:
Basic $ 1.38 $ 1.32
=========== ===========
Diluted $ 1.35 $ 1.29
=========== ===========
Pro forma equivalent per Nevada share:
Basic $ 0.62
===========
Diluted $ 0.60
===========
Average number of common shares outstanding
for purposes of computing basic net income per
share--denominator for basic net income per share 7,784,000 382,761 B 8,166,761
Effect of dilutive securities--stock options and warrants 151,000 29,205 C 180,205
----------- ----------- -----------
Average number of common shares and dilutive securities
for purposes of computing diluted net income per share--
denominator for diluted net income per share 7,935,000 411,966 8,346,966
=========== =========== ===========
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 Nevada and Capitol.
Excludes the pro forma effect of the pending Detroit Commerce Bank and East
Valley Community Bank share exchanges due to immateriality.
B -- Assumes issuance of 382,761 shares of Capitol common stock in proposed
share exchange with Nevada's shareholders other than Capitol.
C -- Estimated pro forma effect of the issuance of approximately 99,000 stock
options of Capitol in exchange for stock options of Nevada, in conjunction
with proposed share exchange, using the treasury-stock method.
31
THE EXCHANGE
GENERAL
The Board of Directors of Nevada is using this proxy statement/prospectus
to solicit proxies for use at the shareholders' meeting of Nevada.
At the special meeting of Nevada's shareholders' to be held on __________,
2003, Nevada's shareholders will be asked to approve the exchange. The Plan of
Share Exchange provides for Nevada's shareholders to exchange common stock of
Nevada not owned by Capitol for Capitol common stock. Upon consummation of the
exchange, Nevada will become a wholly-owned subsidiary of Capitol. In the
exchange, Nevada shareholders will receive shares of Capitol's common stock.
MATERIAL CONTRACTS OR UNDERSTANDINGS BETWEEN CAPITOL AND NEVADA
Capitol and Nevada 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 Nevada 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 Nevada will continue to
hold Nevada 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 Nevada's Directors was reached in November
2002, to approve the proposed exchange subject only to:
- obtaining an independent opinion that the proposed share exchange is
fair to Nevada's shareholders from a financial point of view; and
- obtaining approval for the proposed exchange by a majority of Nevada's
shares not already owned by Capitol.
In November 2002, the Nevada Board approved the Plan of Share Exchange and
agreed to call a shareholder meeting for a vote to approve the Plan of Share
Exchange.
Nevada's Board of Directors has not solicited or received any other
proposals for the potential exchange or sale of Nevada's shares of common stock
which are not owned by Capitol. If other proposals were under consideration for
sale or exchange of Nevada's shares to an entity other than Capitol, Capitol
would be permitted to vote its shares of Nevada. By virtue of Capitol's control
of Nevada, it is likely that Capitol would not vote its shares of Nevada in
favor of any other proposals regarding a share exchange or sale of the minority
interest in Nevada to another party. In addition, Capitol currently has no
intentions of selling its interest in Nevada. Hence, the only proposal under
consideration is Capitol's proposal.
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NEVADA'S REASONS FOR THE EXCHANGE
Nevada's reasons for the exchange are that the shareholders of Nevada 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 Nevada's sole emphasis in the
southwestern United States.
- the Nevada shareholders will receive Capitol's common stock which is
more widely traded, providing Nevada's shareholders improved liquidity
and a history of cash dividends. Nevada common stock has no market and
has not paid any cash dividends. Nevada 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 Nevada's profitability will increase. As noted
elsewhere in this proxy statement/prospectus, while Nevada's assets are reported
as part of Capitol's assets for purposes of its consolidated financial
statements, Nevada's income or loss is attributed to Capitol only in the
percentage which Capitol owns of Nevada common stock. Capitol desires to acquire
the remainder of Nevada's common stock so that Capitol can include 100% of
Nevada'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 Nevada would receive in the exchange .466949
shares of Capitol common stock for each share of Nevada common stock. The
exchange ratio is fixed. This is based on the Capitol Share Value of $21.951 per
share and a fixed value of $10.25 per Nevada share. The exchange ratio is
determined by dividing the Nevada Share Value by the Capitol Share Value, where:
NEVADA SHARE VALUE. The share value of each share of Nevada
common stock shall be $10.25 per share.
CAPITOL SHARE VALUE. The share value of each share of
Capitol common stock shall be $21.951, the average of the
closing prices of Capitol's common stock for the month ended
July 31, 2002, as reported by the Nasdaq National Market.
Each Nevada shareholder (except Capitol) will receive shares of Capitol
common stock in exchange for his, her or their Nevada common stock calculated by
multiplying the number of shares in Nevada common stock held by the shareholder
by the exchange ratio. Any fractional shares will be paid in cash. In addition,
outstanding stock options of Nevada will be exchanged for stock options of
Capitol with the same vesting and expiration dates.
NEVADA'S BOARD RECOMMENDATION
NEVADA'S BOARD HAS DETERMINED THAT THE EXCHANGE IS FAIR TO AND IN THE BEST
INTERESTS OF NEVADA'S SHAREHOLDERS, HAS APPROVED THE PLAN OF SHARE EXCHANGE AND
RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" APPROVAL OF THE PLAN OF SHARE
EXCHANGE.
33
ACCOUNTING TREATMENT
Capitol's acquisition of the shares of Nevada 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 Nevada 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 Nevada (and
Capitol's pending share exchanges with the minority shareholders of Detroit
Commerce Bank and East Valley Community Bank - see "Recent Developments"), which
is being accounted for under the purchase method of accounting, as if it had
occurred effective September 30, 2002 (shown on page 29) and (excluding
Capitol's pending share exchanges with Detroit and East Valley, due to
immateriality) at the beginning of 2001 (shown on page 31). The accompanying
notes to the unaudited pro forma consolidated financial statements are an
integral part of the unaudited pro forma financial information. The unaudited
pro forma results of operations for the period ended September 30, 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 Nevada 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.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The income tax discussion below represents the opinion of Miller, Canfield,
Paddock and Stone, PLC, 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 Nevada
and Capitol. You should read carefully the full text of the tax opinion of
Miller, Canfield, Paddock and Stone, PLC. 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 Nevada
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;
- Nevada shareholders who received their Nevada common stock through the
exercise of employee stock options or otherwise as compensation;
- Nevada shareholders who are not U.S. persons; and
- Nevada shareholders who hold Nevada common stock as part of a hedge,
straddle or conversion transaction.
34
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
Miller, Canfield, Paddock and Stone, PLC, tax counsel to Capitol, that:
* the exchange will qualify as a reorganization within the meaning of
Section 368 of the Internal Revenue Code;
* no gain or loss will be recognized by the shareholders of Nevada who
exchange their Nevada 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 Nevada
shareholders who exchange all of their Nevada common stock for Capitol
common stock in the exchange will be the same as the aggregate tax
basis of the Nevada 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 Nevada common stock surrendered in
exchange; and
* a holder of Nevada 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 Nevada 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 Nevada common stock exchanged for the fractional
share of Capitol common stock satisfies the long-term holding period
requirement.
The tax opinion of Miller, Canfield, Paddock and Stone, PLC 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
Nevada prior to Nevada 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 Nevada common stock will
be publicly tradable upon consummation of the exchange. There will be no
restriction on the ability of a former Nevada shareholder to sell in the open
market the Capitol common stock received (unless the Nevada shareholder is also
an officer, director or affiliate of either Nevada 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 NRS 92A.300 to
92A.500 ("Statutes"), Nevada shareholders have a statutory right to dissent from
the Plan of Share Exchange. If the Plan of Share Exchange is approved and
consummated, any Nevada 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 Nevada 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 Nevada Revised Statutes, 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, her or
its dissenter's rights of appraisal.
Any holder of Nevada Common Stock electing to exercise his, her or its
right of dissent (a "Dissenting Shareholder") shall file with Nevada, prior to
or at the shareholders meeting, a written notice of intent to demand payment for
shares if the exchange is effectuated. 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 make written demand on Nevada for
payment of the fair value of the Dissenting Shareholder's shares. If the Plan of
Share Exchange is effected, Nevada 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. 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.
Within ten days after the Plan of Share Exchange is effected, Nevada shall
give written notice thereof to each Dissenting Shareholder who has made demand
as provided in the Nevada Revised Statutes and shall include in such written
notice the place where the demand for payment must be sent and where and when
certificates for shares must be deposited; supply a form for demanding payment;
set a date by which the demand must be received which is not less than thirty
days nor more than sixty days after delivery of the notice.
Within thirty days after receipt of a demand for payment, Nevada shall pay
to each dissenter who complied with NRS 92A.440 the amount Nevada estimates to
be the fair value of the shares plus accrued interest.
The Dissenting Shareholder may notify Nevada in writing of its own estimate
of the fair value of its shares if it believes that the amount paid pursuant to
NRS 92A.460 is less than the fair value or incorrectly calculated.
If the demand for payment remains unsettled, Nevada shall commence a
proceeding within sixty days after receipt of the demand petitioning the court
to determine the fair value. If a petition is not filed within sixty days,
Nevada shall pay to each dissenter the amount demanded. The assessment of the
cost of the proceedings will be assessed against Nevada unless the court finds
the dissenters acted arbitrarily, vexatiously or not in good faith in demanding
payment.
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36
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
Nevada 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 Nevada for those purposes generally include individuals or
entities that control, are controlled by, or are under common control with,
Nevada, and would not include shareholders who are not officers, directors or
principal shareholders of Nevada.
The affiliates of Nevada 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 Nevada have been publicly filed by
Capitol; or
(2) in violation of the Securities Act.
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37
OPINION OF FINANCIAL ADVISOR
Nevada has retained JMP Financial, Inc. to provide a financial fairness
opinion in connection with the exchange. The Nevada board selected JMP
Financial, Inc. to act as Nevada'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 Nevada 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. Nevada shareholders are urged to, and should, read the opinion
carefully and in its entirety. The opinion is directed to the Nevada 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 Nevada 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 Nevada prepared by the management of Nevada;
- discussed the past and current operations and financial condition and
the prospects of Nevada with senior executives of Nevada;
- 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 Nevada 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) CBCL SHARE MULTIPLES. In order to evaluate the value of CBCL share
price, JMP Financial, Inc. reviewed the price-to-book value and
price-to-earnings ratios ("Multiples") and performance data of
publicly traded stocks of all Michigan banks, all bank holding
companies and Midwest banks of similar size to CBCL ($1 billion to $5
billion in assets). No bank or bank holding company was identical to
Capitol. JMP Financial, Inc. did, however, note that the Capitol share
value Multiples were generally within the range of, or below, the
Multiples of comparable size banks and bank holding companies. In
particular, the price-to-book value and the price-to-earnings ratio of
CBCL stock as of the date of evaluation were each 152 percent and
13.2x respectively, both below the median and average ratios of a
comparative group of publicly traded banks comprised of all 37 banks
located in the Midwest ("Midwest") with assets greater than $1 billion
and less than $5 billion. Those similarly sized Midwest banks averaged
183 percent of book value and 15.1x earnings. Multiples for All
Publicly Traded Banks in the country in that size range
38
and for All Publicly Traded Banks in the state of Michigan for that
size range were in the same range as those in the Midwest.
Accordingly, there is a presumption that CBCL was fairly priced in the
securities market at the time of evaluation.
(2) CHANGE-OF-CONTROL MULTIPLES. 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 157 percent to 296 percent, with both median and average
premium to book values falling between 230 percent and 233 percent.
All of these transactions involved the transfer of control to the
acquiring institution.
(3) NEVADA SHARE MULTIPLES. JMP Financial, Inc. also consulted a private
database to construct several groups of banks and bank holding
companies it deemed to be similar to Nevada, considering, but not
limiting its analysis to, such factors as size, financial condition
and performance, geography, and market performance. JMP Financial,
Inc. compared the price-to-book value and price-to-earnings ratios of
these comparative groups to the acquisition Multiples applicable to
the proposed Nevada exchange. There are no publicly traded banks in
Nevada, no publicly traded banks in the entire southwest region with
less than $250 million in assets, and only two publicly traded banks
in the entire southwest region with assets below $500 million. On an
aggregate basis, however, asset size and other financial
characteristics are more generally more reliable determinants of value
than geography. A comparative group of all publicly traded banks with
assets greater than $150 million and less than $350 million, comprised
of 61 institutions ("Comparative Group") provided average/median
price-to-book values of 138 percent and price-to-earnings multiple of
15.9. Given the historically very low earnings per share of Nevada,
applying comparative price-to-earnings ratio to historical Nevada
earnings would yield a value for Nevada of less than $1.27 and even
applying the maximum price-to-earnings ratio in the Comparative Group
would yield a value of only $3.22. More appropriately, Nevada
shareholders are to receive a value of approximately 147 percent of
book value per share. Once again, although no bank or bank holding
company was identical to Nevada, JMP Financial, Inc. noted that the
average and/or median price-to-book of most publicly traded banks was
less than 147 percent and that nearly two-thirds of the Comparative
Group institutions earned price-to-book value ratios below 147
percent.
(4) ILLIQUDITY. On an individual basis there are substantial differences
between the financial and market condition and performance of Nevada
stock and most other institutions. In the aggregate, the most striking
differences between Nevada and the various comparative groups were
earnings performance and illiquidity. Most other commercial banks had
significant positive earnings records, as opposed to a history of
growing, but low earnings for Nevada. It may be argued that Nevada is
still a maturing institution and therefore direct comparisons of
earnings performance may be difficult. However, all of the publicly
traded banks which JMP Financial, Inc. reviewed and which it defined
as "small publicly traded banks" were listed on the Nasdaq National
Market System. The average weekly trading volume of these institutions
was about 1/3 of one percent of their outstanding stock. In other
words, these institutions provided minority shareholders with
reasonable liquidity. Nevada stock, on the other hand, was not
publicly traded and was virtually, illiquid. A number of historical
studies and valuation practices estimate liquidity discounts in a
range from 10 to 30 percent, suggesting that, ceteras paribus, the
Multiples paid for Nevada should be lower than those of comparable
institutions by that margin.
(5) NOT AN "ACQUISITION" PREMIUM. The transaction at issue may be
characterized, at least casually, as an "acquisition". There is a
tendency to compare the acquisition Multiples paid to Nevada in this
transaction (147 percent of book value) to "acquisition" Multiples for
other commercial banks as reported in the media and private database.
It is important to note, however, that the "acquisition" Multiples
reported in the media are for change-of-control transactions,
generally for 100 percent of the acquisition stock. In this case,
Nevada is now and has been since it commenced business, an affiliate
and controlled subsidiary of Capitol. CBCL was acquiring less than 45
percent of the Nevada stock, one-third of which was already owned by
Nevada "insiders". Given that the transaction thus represented
purchase of a minority position, direct comparison to
change-of-control premiums, is misleading.
39
(6) A MINORITY SALE. In fact, the transaction bears more of a resemblance
to the sale of a minority block of stock then to a change-of-control
acquisition. The most dramatic difference, as discussed above, between
the exchange of minority shares and an acquisition of all of the stock
of an entire institution is the "change of control". In the latter
transaction, 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 Nevada from the outset and would not be expected to pay a
"premium" for control, since it already owns control of Nevada.
Accordingly, and especially in light of the fact that the aggregate
block to-be-acquired by CBCL from outsiders is only approximately 30
percent and comprised of numerous very small blocks, JMP Financial,
Inc. would expect that the premium over book value to be paid by CBCL
would be closer to the price paid in the sale of a minority block of
stock in a small publicly traded bank. In other words, one would
expect Nevada shareholders to be paid Multiples much more similar to
those paid for minority shares in Comparative Group institutions (138
percent of book value as referenced above) then the Multiples paid in
change-of-control transactions (180 to 182 percent of book value as
referenced above).
(7) JMP Financial, Inc. therefore concluded that the exchange was fair to
the shareholders of Nevada from a financial point of view.
The opinion and presentation of JMP Financial, Inc. to the Nevada board was
one of many factors taken into consideration by Nevada'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 Nevada board with respect to the
exchange or of whether the Nevada board would have been willing to agree to a
transaction with a different form or amount of consideration.
The Nevada 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 Nevada agreed to pay JMP Financial, Inc. a fee of $______ plus
out-of-pocket expenses. In addition, Nevada has agreed to indemnify JMP
Financial, Inc. and its affiliates, against certain liabilities and expenses,
including certain liabilities under the federal securities laws.
40
THE CLOSING
EFFECTIVE TIME
The exchange will be effective at 5:00 p.m., Mountain Time, on February 28,
2003 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 Nevada
common stock will be automatically converted into the right to receive Capitol
common stock according to the exchange ratio. Outstanding stock options of
Nevada will similarly be exchanged for stock options of Capitol with similar
vesting and expiration dates.
SHARES HELD BY CAPITOL
Shares of Nevada 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 Nevada's shareholders a letter of
transmittal. The letter of transmittal will contain instructions with respect to
the surrender of Nevada 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 Nevada 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 Nevada 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 Nevada stock will represent only the right to receive the shares of
Capitol common stock into which shares of Nevada 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 Nevada 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 Nevada 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.
Nevada'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 Nevada stock that is not registered in the
records of Nevada has occurred, then, so long as the Nevada 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 Nevada shares. Instead, Capitol will pay
an amount in cash determined by multiplying the fractional share interest to
which a Nevada shareholder would otherwise be entitled by the Capitol share
value used in determining the exchange ratio.
41
FEES AND EXPENSES
Whether or not the exchange is completed, Capitol and Nevada 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 Nevada 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 Nevada 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 Nevada in the manner described in
this proxy statement/prospectus.
42
THE SHAREHOLDERS' MEETING
DATE, TIME AND PLACE
The shareholders' meeting will be held on _____________, 2003 at Nevada
Community Bancorp Limited at 10000 West Charleston, Suite 110, Las Vegas, Nevada
89135 at 9:00 a.m., local time.
MATTERS TO BE CONSIDERED AT THE SHAREHOLDERS' MEETING
At the shareholders' meeting, holders of Nevada common stock will vote on
whether to approve the exchange. See "The Exchange".
RECORD DATE; STOCK ENTITLED TO VOTE; QUORUM
Holders of record of Nevada common stock at the close of business on
December 15, 2002, the record date for the shareholders' meeting, are entitled
to receive notice of and to vote at the shareholders' meeting. At November 15,
2002, 1,800,000 shares of Nevada common stock were issued and outstanding.
Capitol held 980,294 shares of Nevada common stock on that date and 819,706 were
held by shareholders other than Capitol.
A majority of the shares of the Nevada 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 Nevada common stock on the record date are each entitled to
one vote per share with respect to approval of the exchange at Nevada's
shareholders' meeting.
Nevada 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. Nevada is not
aware of any matters expected to be presented at the meeting other than as
described in the notice of the meeting.
VOTES REQUIRED
Although approval of the exchange by a majority of the shares entitled to
vote is all that is required by law, Nevada and Capitol have agreed that
approval of the exchange will require the affirmative vote of a majority of the
shares of Nevada common stock outstanding on the record date, excluding the
shares of Nevada 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 November 15, 2002, the directors and
executive officers of Nevada and their affiliates were entitled to vote
approximately 251,051 shares of Nevada common stock (excluding Nevada's shares
held by Capitol). These shares represent approximately 13.94% of the outstanding
shares of Nevada common stock and 30.61% of Nevada's shares held by shareholders
other than Capitol. The directors and executive officers have agreed to vote
their shares of Nevada common stock in favor of the exchange.
43
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 Nevada stock will be mailed
by Capitol's transfer agent to former Nevada 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 Nevada, 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:
Nevada Community Bancorp Limited
10000 West Charleston, Suite 110
Las Vegas, Nevada 89135
Attn: Michael F. Hannley, Secretary
If you require assistance in changing or revoking a proxy, you should
contact Michael F. Hannley, at the address above or at phone number (702)
938-0521.
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 Nevada will pay the cost of solicitation of proxies. In addition
to solicitation by mail, the directors, officers and employees of Nevada may
also solicit proxies from shareholders by telephone, telecopy, telegram or in
person.
44
COMPARISON OF SHAREHOLDER RIGHTS
As a result of the exchange, holders of shares of Nevada 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 Nevada
Revised Statutes, as well as to Nevada'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 Nevada and Capitol:
Nevada Capitol
------------------------------ ------------------------------
Authorized Capital Stock 10,000,000 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 No 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,
Employees or Agents Yes Yes
Amendments to Articles of Incorporation By a majority of the By a majority of the
outstanding shares outstanding shares
Amendments to Bylaws By majority of directors By majority of directors
Appraisal/Dissenters' Rights Nevada law provides for
dissenters' rights No
45
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 September 30, 2002, 11,181,368 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.
46
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 $52 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.
47
As of October 31, 2002 Capitol's management beneficially owned (including
immediately exercisable stock options and warrants) control of approximately
30.26% 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.
48
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 Nevada 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 Nevada 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, 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 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 Periods ended September 30, 2002
* Quarterly Report on Form 10-Q Periods 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
49
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.
IF YOU WOULD LIKE TO REQUEST DOCUMENTS, PLEASE DO SO BY ____________, 200__
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 Nevada, 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 Nevada has been supplied by Nevada.
LEGAL MATTERS
Certain legal matters relating to the validity of the shares of Capitol
common stock offered by this proxy statement/prospectus will be passed upon for
Capitol by Brian English, Capitol's General Counsel. Certain federal income tax
matters relating to the exchange will be passed upon for Capitol by Miller,
Canfield, Paddock and Stone, PLC.
EXPERTS
The consolidated financial statements of Capitol attached and incorporated
by reference 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
incorporated herein by reference, and is attached and 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 Nevada Community Bancorp Limited
attached to this proxy statement/prospectus as Annex D have been audited by BDO
Seidman, LLP, independent certified public accountants, to the extent and for
the periods set forth in their report which is attached as part of Annex D and
included in reliance upon such report given upon the authority of said firm as
experts in accounting and auditing.
50
ANNEX A
PLAN OF SHARE EXCHANGE
THIS PLAN OF SHARE EXCHANGE ("Plan") is entered into effective November 14,
2002 between and among CAPITOL BANCORP LIMITED, a Michigan corporation
("Capitol") and the SHAREHOLDERS of NEVADA COMMUNITY BANCORP LIMITED ("NCBL").
RECITALS
A. NCBL is a Nevada 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 NCBL.
C. Capitol's common stock ("Capitol common stock") is traded on the
National Market System of the Nasdaq Stock Market, Inc.
D. NCBL's Board of Directors has determined that it would be in the best
interest of NCBL's stockholders to exchange their shares of stock in NCBL 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 NCBL common stock will exchange
his, her or their shares of NCBL common stock for shares of Capitol common stock
according to an exchange ratio determined as follows:
NCBL SHARE VALUE. The value of each share of NCBL common stock shall
be $10.25.
CAPITOL SHARE VALUE. The share value of each share of Capitol common
stock shall be $21.951, the average of the closing prices of Capitol's
common stock for the month ended July 31, 2002, as reported by the
Nasdaq National Market.
EXCHANGE RATIO. The exchange ratio will be determined by dividing the
NCBL Share Value by the Capitol Share Value.
Each NCBL shareholder (except Capitol) will receive shares of Capitol
common stock in exchange for his, her or their NCBL common stock calculated by
multiplying the number of shares of NCBL 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 NCBL 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 NCBL (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 NCBL 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 NCBL.
4. TAX OPINION. Miller, Canfield, Paddock and Stone, PLC, 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 NCBL (except to the extent of cash received in lieu of fractional shares).
5. SURRENDER OF CERTIFICATES. Each shareholder of NCBL common stock shall
surrender to Capitol his, her or their certificate(s) for shares of NCBL 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 NCBL common stock surrendered in exchange therefor,
and shall thereafter be transferable in the same manner as otherwise provided
for Capitol common stock. Shareholders of NCBL 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 NCBL CERTIFICATE. NCBL 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
December 9, 2002
Board of Directors
Nevada Community Bancorp Limited
10000 West Charleston, Suite 110
Las Vegas, Nevada 89135
Ladies and Gentlemen:
We have examined the proposed Plan of Share Exchange (the "Agreement")
dated ____________, 2002, to be entered into between Capitol Bancorp Limited, a
Michigan Corporation ("CBCL") and the shareholders (the "Shareholders") of
Nevada Community Bancorp Limited ("NCBL"), a Nevada Corporation by which CBCL
shall acquire from the Shareholders their outstanding shares of NCBL, 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 NCBL's common stock, not already owned by CBCL and issued and
outstanding as of _____________, 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 NCBL and CBCL for the
years ended December 31, 2001, 2000 and 1999 as available;
* Unaudited financial statements of NCBL for the period ended September
30, 2002;
* Certain unaudited internal financial information concerning the
capital ratios of NCBL;
* 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 NCBL.
* 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
NCBL's and CBCL's common stock to the extent reasonably available. As
to NCBL, such review was limited to its initial offering of common
stock.
Page Two
Nevada Board of Directors
December 9, 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 NCBL 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 NCBL's loan loss reserves are adequate in all material respects and
that, in the aggregate, other conditions at CBCL and NCBL are satisfactory and
this opinion is conditioned upon such assumption. We have also assumed that
there has been no material change in NCBL'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 NCBL 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 affect 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
NCBL 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
TAX OPINION OF MILLER, CANFIELD, PADDOCK AND STONE, PLC
December 9, 2002
Capitol Bancorp Limited
One Business & Trade Center
200 Washington Square North, 4th Floor
Lansing, MI 48933
Re: Federal Tax Consequences of Plan of Share Exchange and Merger
Ladies and Gentlemen:
We have acted as special counsel to Capitol Bancorp Ltd ("Capitol") in
connection with the Plan of Share Exchange between Capitol, Nevada Community
Bancorp Limited ("Nevada") and the shareholders of Nevada dated as of
_____________, 2002 and a subsequent planned merger of Nevada into Capitol
(collectively, the "Plan").
Capitol has filed with the Securities and Exchange Commission under the
Securities Act of 1933, as amended (the "1933 Act"), a registration statement on
Form S-4 (the "Registration Statement"), with respect to the common shares of
Capitol to be issued to holders of shares of common stock of Nevada in
connection with the Plan. In addition, Capitol has prepared, and we have
reviewed, a Proxy Statement/Prospectus which is contained in and made a part of
the Registration Statement (the "Proxy Statement"). In rendering our opinion, we
have relied upon the facts stated in the Proxy Statement, the representations
provided to us by Capitol and Nevada, as summarized below, and upon such other
documents as we have deemed appropriate, including the information about Capitol
and Nevada referenced in the Proxy Statement.
We have assumed that (i) all parties to the Plan, and to any other
documents reviewed by us, have acted, and will act, in accordance with the terms
of the Plan, (ii) all facts, information, statements and representations
qualified by the knowledge and/or belief of Capitol and/or Nevada will be
complete and accurate as of the effective date of the Plan as though not so
qualified, (iii) the share exchange and subsequent merger will be consummated
pursuant to the terms and conditions set forth in the Plan and the
representations made to us by Capitol and Nevada without the waiver or
modification of any such terms and conditions, and (iv) the Plan, including the
subsequent merger, will be authorized by and will be effected pursuant to
applicable state law. We have also assumed that each Nevada shareholder (not
including Capitol) holds the shares of Nevada common stock to be surrendered
under the Plan as a capital asset.
This opinion does not address the specific tax consequences that may be
relevant to a particular shareholder receiving special treatment under some
federal income tax laws, including: (i) banks; (ii) tax-exempt organizations;
(iii) insurance companies; (iv) dealers in securities or foreign currencies; (v)
Nevada shareholders, if any, who received their Nevada common stock through the
exercise of employee stock options or otherwise as compensation; (vi) Nevada
shareholders who are not U.S. persons; and (vii) Nevada shareholders who hold
Nevada common stock as part of a hedge, straddle, or conversion transaction.
Our opinion also does not address any consequences arising under the laws
of any state, locality, or foreign jurisdiction. No rulings have been or will be
sought from the Internal Revenue Service regarding any matters relating to the
exchange.
Capitol Bancorp Limited
December 9, 2002
Page 2
Our opinion is predicated on the accuracy of the following representations
provided to us by Capitol:
1. The share exchange will be consummated in compliance with the material
terms contained in the Registration Statement, none of the material terms and
conditions therein have been or will be waived or modified and Capitol has no
plan or intention to waive or modify any such material conditions except that
prior to the closing of the share exchange, the Boards of Directors of Capitol
and Nevada will approve the upstream merger of Nevada into Capitol, which merger
will be consummated within 120 days after the closing of the share exchange and
at a time with Capitol as the sole shareholder of Nevada.
2. The fair market value of the Capitol common stock to be received by
the Nevada shareholders (other than Capitol) will be approximately equal to the
fair market value of the Nevada common stock surrendered under the Plan.
3. Nevada will merge with and into Capitol pursuant to the Plan within
120 days after the consummation of Capitol's acquisition of the remaining
outstanding common shares of Nevada. Capitol has no plan or intention to
liquidate Nevada or to merge Nevada into another corporation other than Capitol.
Capitol will not cause Nevada to sell or otherwise dispose of any of its assets,
except for dispositions made in the ordinary course of business, or to sell or
otherwise dispose of any of the Nevada common stock acquired in the transaction.
4. Capitol has no plan or intention to reacquire any of its common stock
issued under the Plan.
5. Capitol, Nevada, and the shareholders of Nevada will pay their
respective expenses, if any, incurred in connection with the Plan.
6. The only consideration that will be received by the shareholders of
Nevada (not including Capitol) for their common stock of Nevada is voting common
stock of Capitol. Further, no liabilities of any Nevada shareholder will be
assumed by Capitol, nor will any of the Nevada stock acquired by Capitol be
subject to any liabilities.
7. Capitol will not own as of immediately before the effective date of
the share exchange, directly or indirectly, any Nevada common stock other than
the Nevada common stock acquired directly by Capitol on July 31, 2002.
8. Capitol will not make any cash payments, directly or indirectly, to
dissenting shareholders of Nevada, nor will Capitol, directly or indirectly,
reimburse Nevada for any payments made by Nevada to dissenting shareholders.
9. Any cash payment made by Capitol to Nevada shareholders in lieu of
fractional shares of Capitol is solely for the purpose of avoiding the expense
and inconvenience to Capitol of issuing fractional shares and does not represent
separately bargained-for consideration.
10. Capitol is not an investment company as defined in Section
368(a)(2)(F)(iii) or (iv) of the Internal Revenue Code of 1986, as amended (the
"Code").
11. Capitol's acquisition of the remaining outstanding shares of Nevada
and the subsequent related merger of Nevada into Capitol is being effected for
bona fide business purposes and not for the purpose of tax avoidance.
12. The liabilities of Nevada assumed by Capitol and the liabilities to
which the transferred assets of Nevada are subject were incurred by Nevada in
the ordinary course of its business.
13. Capitol is not indebted to Nevada, and to the extent Nevada is
indebted to Capitol as of the closing of the merger, Capitol will have an
adjusted tax basis in such debt equal to the principal amount being deemed
satisfied by Nevada as a result of the merger of Nevada into Capitol.
Capitol Bancorp Limited
December 9, 2002
Page 3
14. There will be no intercorporate indebtedness existing between Capitol
and Nevada as of the closing of the planned merger that was issued, acquired, or
will be settled at a discount.
15. None of the compensation received by any stockholder-employee of
Nevada pursuant to any employment, consulting or similar arrangement is or will
be separate consideration for, or allocable to, any of his or her shares of
Nevada stock. None of the shares of common stock of Capitol received by any
stockholder-employee of Nevada pursuant to the planned merger are or will be
separate consideration for, or allocable to, any such employment, consulting or
similar arrangement. The compensation paid to any stockholder-employee of Nevada
pursuant to any such employment, consulting or similar arrangement is or will be
for services actually rendered and will be commensurate with amounts paid to
third parties bargaining at arm's length for similar services.
16. Capitol is not under the jurisdiction of a court in a Title 11 case
within the meaning of Section 368(a)(3)(A) of the Code.
Our opinion is also predicated on the accuracy of the following
representations provided to us by Nevada:
1. The share exchange will be consummated in compliance with the material
terms contained in the Registration Statement, none of the material terms and
conditions therein have been or will be waived or modified and Nevada has no
plan or intention to waive or modify any such material conditions except that
prior to the closing of the share exchange, the Boards of Directors of Capitol
and Nevada will approve the upstream merger of Nevada into Capitol, which merger
will be consummated within 120 days after the closing of the share exchange and
at a time when all of the outstanding stock of Nevada is owned by Capitol.
2. The fair market value of the Capitol common stock to be received by
the Nevada shareholders will be approximately equal to the fair market value of
the Nevada common stock surrendered under the Plan.
3. Nevada has no plan or intention to issue additional shares of its
stock that would result in Capitol losing "control" of Nevada within the meaning
of Section 368(c) of the Code.
4. Capitol, Nevada, and the shareholders of Nevada will pay their
respective expenses, if any, incurred in connection with the Plan.
5. At the time the Plan is executed, Nevada will not have outstanding any
warrants, options, convertible securities, or any other type of right pursuant
to which any person could acquire any stock in Nevada.
6. In connection with the Plan, Nevada has not sold, transferred or
otherwise disposed of any of its assets as would prevent Capitol from either
continuing the historic business of Nevada or using a significant portion of
Nevada's historic business assets in a business following the merger of Nevada
into Capitol, both within the meaning of Treasury Regulation Section 1.368-1(d).
7. Nevada is not an investment company as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
8. Nevada will pay any dissenting shareholders the value of their stock
out of its own funds.
9. On the closing dates of the share exchange and the subsequent merger,
the fair market value of the assets of Nevada will exceed the sum of its
liabilities plus, the liabilities, if any, to which the assets are subject.
10. At any time prior to the time both phases of the Plan are executed,
Capitol will not have acquired any Nevada stock for cash or for consideration
other than Capitol voting stock.
11. Nevada is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code.
Capitol Bancorp Limited
December 9, 2002
Page 4
Based upon and subject to the foregoing, and subject to the qualifications,
limitations, representations and assumptions contained in the portion of the
Proxy Statement captioned "Material Federal Income Tax Consequences" and
incorporated by reference in this opinion, we are of the opinion that:
1) The exchange by shareholders of Nevada (other than Capitol) of
common stock shares of Nevada for common stock shares of Capitol followed by the
merger of Nevada into Capitol pursuant to the Plan will qualify as a
reorganization within the meaning of Section 368(a) of the Code;
2) No gain or loss will be recognized by the shareholders of Nevada
who exchange their Nevada common stock solely for Capitol common stock (except
with respect to cash received instead of fractional shares of Capitol common
stock) in connection with the Plan and related merger of Nevada into Capitol;
3) The aggregate tax basis of the Capitol common stock received by
Nevada shareholders who exchange all of their Nevada common stock for Capitol
common stock in the exchange will be the same as the aggregate tax basis of the
Nevada common stock surrendered in the exchange (reduced by any adjusted basis
allocable to a fractional share of Capitol common stock for which cash is
received);
4) The holding period of the Capitol common stock received by a
former shareholder of Nevada will include the holding period of shares of Nevada
common stock surrendered in the exchange; and
5) A holder of Nevada common stock who receives a cash payment
instead of a fractional share of Capitol common stock will recognize capital
gain or loss to the extent such cash payment is treated pursuant to Section 302
of the Code as made in exchange for the fractional share. Such gain or loss will
be equal to the difference between the cash amount received and the portion of
the holder's adjusted basis in shares of Nevada common stock allocable to the
fractional share, and such gain or loss will be long-term capital gain or loss
for federal income tax purposes if the holder's holding period in the Nevada
common stock satisfies the long-term holding period requirement.
No opinion is expressed on any matters other than those specifically
stated. This opinion is furnished to you for use in connection with the
Registration Statement and may not be used for any other purpose without our
prior express written consent. We hereby consent to the inclusion of this
opinion as an appendix to the Proxy Statement and to the use of our name in that
portion of the Proxy Statement captioned "Material Federal Income Tax
Consequences." In giving such consent, we do not thereby admit that we are in
the category of persons whose consent is required under Section 7 of the 1933
Act.
Very truly yours,
/s/ Miller, Canfield, Paddock and Stone, PLC
Miller, Canfield, Paddock and Stone, PLC
ANNEX D
FINANCIAL INFORMATION REGARDING NEVADA COMMUNITY BANCORP LIMITED
Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................ D-2
Condensed Consolidated Interim Financial Statements:
Consolidated Balance Sheets as of September 30, 2002 and
December 31, 2001.................................................. D-7
Consolidated Statements of Operations for the Nine Months
Ended September 30, 2002 and 2001.................................. D-8
Consolidated Statements of Changes in Stockholders' Equity for the
Nine Months Ended September 30, 2002 and 2001...................... D-9
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 2002 and 2001.................................. D-10
Notes to Consolidated Interim Financial Statements................... D-11
Audited Consolidated Financial Statements:
Report of Independent Auditors....................................... D-14
Consolidated Balance Sheets as of December 31, 2001 and 2000......... D-15
Consolidated Statements of Operations for the Years
Ended December 31, 2001, 2000 and 1999............................. D-16
Consolidated Statements of Changes in Stockholders' Equity for the
Years Ended December 31, 2001, 2000 and 1999....................... D-17
Consolidated Statements of Cash Flows for the Years
Ended December 31, 2001, 2000 and 1999............................. D-18
Notes to Consolidated Financial Statements............................. D-19
D-1
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
NEVADA COMMUNITY BANCORP LIMITED
PERIODS ENDED SEPTEMBER 30, 2002 AND 2001 AND DECEMBER 31, 2001, 2000 AND 1999
FINANCIAL CONDITION
Nevada Community Bancorp Limited is engaged in commercial banking activities
through its subsidiaries Bank of Las Vegas (51% owned), Black Mountain Community
Bank (51% owned), Desert Community Bank (51% owned) and Red Rock Community Bank
(51% 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 $242.2 million at September 30, 2002, an increase from
$193.2 million at December 31, 2001; one new bank was added during this period.
Total assets approximated $106.2 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 $192.0 million at September 30, 2002, an
increase of approximately $34.4 million from the $157.6 million level at
December 31, 2001. At December 31, 2000, total portfolio loans approximated
$85.1 million. Commercial loans approximated 97% of total portfolio loans at
September 30, 2002 consistent with the Corporation's emphasis on commercial
lending activities. Real estate mortgage and installment loans approximated 3%
of total portfolio loans at September 30, 2002.
The allowance for loan losses at September 30, 2002 approximated $3.1 million or
1.60% of total portfolio loans, a slight increase over the year-end 2001 ratio
of 1.53%.
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 $596,000 for the first nine months of 2002 (none in the
corresponding period in 2001). Net charge-offs totaled $98,000 and $50,000 for
the year ended December 31, 2001 and 2000, respectively (none in 1999).
The Corporation's growth has been funded primarily by deposits, most of which
are interest-bearing. Total deposits approximated $214.6 million at September
30, 2002, an increase of approximately $43.1 million from the $171.5 million
level at December 31, 2001. Deposits increased significantly in 2001 from the
$85.6 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 $45.1 million at
September 30, 2002 or about 21% of total deposits, an increase of approximately
$20.0 million from December 31, 2001. Noninterest-bearing deposits fluctuate
significantly from day to day, depending upon customer account activity.
Stockholders' equity approximated $12.5 million at September 30, 2002 or
approximately 5.2% of total assets. Capital adequacy is discussed elsewhere in
this narrative.
D-2
RESULTS OF OPERATIONS
Net income for the nine months ended September 30, 2002 approximated $244,000,
compared with a net income of $294,000 in the nine-month 2001 period. The
interim 2002 results included about $300,000 of organization and pre-opening
expenses relating to Bank of Las Vegas, which opened in February 2002. Net
income (loss) for 2001, 2000 and 1999 were $181,000, $(483,000) and $(469,000),
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.
The principal source of operating revenues is interest income. Total interest
income for the nine months ended September 30, 2002 approximated $11.4 million,
compared with $9.6 million in the first nine months of 2001. For the year ended
December 31, 2001, total interest income approximated $12.9 million, compared
with $7.1 million in 2000 and $690,000 in 1999.
Total interest expense approximated $3.9 million for the nine months ended
September 30, 2002, compared with $4.0 million for the first nine 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 $5.4 million, compared with $2.7 million in 2000 and $114,000 in
1999.
Net interest income approximated $7.4 million for the nine months ended
September 30, 2002, compared with $5.6 million for the corresponding 2001
period. Net interest income for the year ended December 31, 2001 approximated
$7.4 million, significantly more than the $4.4 million in 2000 and $576,000 in
1999.
For the interim 2002 and 2001 periods, provisions for loan losses fluctuated
significantly ($1.3 million and $922,000 for the nine months ended September 30,
2002 and 2001, respectively). Provisions for loan losses for the year have also
varied significantly ($1.2 million in 2001, $1.0 million in 2000 and $310,000 in
1999). Increases in provisions for loan losses in 2000 and 2001 relate primarily
to portfolio growth. In the interim 2002 period such increase relates to
portfolio growth, changes in asset quality and loan charge-offs.
Total noninterest income approximated $544,000 for the nine months ended
September 30, 2002 ($303,000 in the corresponding 2001 period) and approximated
$408,000 for the year ended December 31, 2001, $92,000 in 2000 and $6,000 in
1999. These increases relate primarily to service charge revenues on deposit
accounts.
Total noninterest expense approximated $6.1 million for the nine months ended
September 30, 2002, compared with $4.2 million for the corresponding 2001
period. For the year ended December 31, 2001, total noninterest expense
approximated $5.9 million, compared with $4.4 million in 2000 and $1.3 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 $31.0 million at September 30, 2002,
compared with $26.2 million at December 31, 2001 and $19.6 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 September 30, 2002
is adequate to fund loan demand and to meet depositor needs.
The Corporation's Banks have secured lines of credit with the Federal Home Loan
Bank of San Francisco totaling $5.8 million, of which none had been borrowed at
September 30, 2002. As of September 30, 2002, short-term borrowings approximated
$2.4 million, including $941,000 borrowed from Capitol Bancorp, the
Corporation's majority shareholder, and $1.5 million borrowed on an overnight
basis from unaffiliated banks.
At September 30, 2002 and December 31, 2001, the Corporation had approximately
$18.6 million and $8.6 million, 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 Nevada
Community Bancorp Limited, 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 September 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 September 30, 2002 and
December 31, 2001, the Corporation had no recorded goodwill.
Statement No. 143, ACCOUNTING FOR ASSET RETIREMENT OBLIGATIONS, becomes
effective January 1, 2003. Management has not completed its analysis of this new
standard; however, implementation of this new standard is not expected to have a
material impact on the Corporation's consolidated financial statements.
Statement No. 144, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR
LONG-LIVED ASSETS TO BE DISPOSED OF, became effective on January 1, 2002. This
new standard did not have a material impact on the Corporation's consolidated
financial statements.
Statement No. 145, which updates, clarifies and simplifies certain existing
accounting pronouncements (rescission of Statements No. 4, 44 and 64, amendment
of Statement No. 13 and technical corrections) beginning at various dates in
2002/2003 is not expected to have a material effect on the Corporation's
consolidated financial statements.
D-4
Statement No. 146, ACCOUNTING FOR COSTS ASSOCIATED WITH EXIT OR DISPOSAL
ACTIVITIES, becomes effective January 1, 2003. Management has not completed its
analysis of this new standard; however, it is not expected to have a material
impact on the Corporation's consolidated financial statements, upon
implementation.
Statement No. 147, ACQUISITIONS OF CERTAIN FINANCIAL INSTITUTIONS, amends prior
standards relating to some acquisitions of financial institutions, requiring
such transactions to be accounted for in accordance with Statements No. 141 and
142 and is generally effective October 1, 2002. Management has not completed its
analysis of this new standard; however, it is not expected to have a material
effect on the Corporation's consolidated financial statements, upon
implementation.
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 Nevada's consolidated financial statements.
[The remainder of this page intentionally left blank]
D-5
NEVADA COMMUNITY BANCORP LIMITED
------
INTERIM FINANCIAL STATEMENTS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
D-6
CONSOLIDATED BALANCE SHEETS
NEVADA COMMUNITY BANCORP LIMITED
September 30 December 31
2002 2001
------------- -------------
(unaudited)
ASSETS
Cash and due from banks $ 7,511,419 $ 11,025,376
Interest-bearing deposits with banks 9,355,354 2,041,359
Federal funds sold 14,167,000 13,125,000
------------- -------------
Cash and cash equivalents 31,033,773 26,191,735
Investment securities:
Available for sale, carried at market value 18,575,678 8,646,961
Held for long-term investment, carried at amortized
cost which approximates market value 46,700 41,960
------------- -------------
Total investment securities 18,622,378 8,688,921
Portfolio loans:
Commercial 186,157,425 153,671,992
Real estate mortgage 3,385,485 1,733,640
Installment 2,484,511 2,183,401
------------- -------------
Total portfolio loans 192,027,421 157,589,033
Less allowance for loan losses (3,078,000) (2,416,000)
------------- -------------
Net portfolio loans 188,949,421 155,173,033
Premises and equipment 1,308,329 1,100,533
Accrued interest income 994,716 869,599
Other assets 1,326,363 1,188,600
------------- -------------
TOTAL ASSETS $ 242,234,980 $ 193,212,421
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 45,117,618 $ 25,149,515
Interest-bearing 169,502,667 146,365,690
------------- -------------
Total deposits 214,620,285 171,515,205
Accrued interest on deposits and other liabilities 508,795 862,190
Debt obligations 2,441,000
------------- -------------
Total liabilities 217,570,080 172,377,395
MINORITY INTERESTS IN CONSOLIDATED
SUBSIDIARIES 12,132,251 8,622,094
STOCKHOLDERS' EQUITY:
Common stock, no par value;
10,000,000 shares authorized;
1,800,000 issued and outstanding 13,000,000 13,000,000
Retained-earnings deficit (527,704) (771,311)
Market value adjustment (net of tax effect) for
investment securities available for sale 60,353 (15,757)
------------- -------------
Total stockholders' equity 12,532,649 12,212,932
------------- -------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 242,234,980 $ 193,212,421
============= =============
See notes to interim financial statements.
D-7
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
NEVADA COMMUNITY BANCORP LIMITED
Nine Months Ended
September 30
----------------------------
2002 2001
----------- -----------
Interest income:
Portfolio loans (including fees) $10,770,587 $ 8,855,031
Taxable investment securities 346,388 84,586
Federal funds sold 157,551 390,044
Other 108,631 243,432
----------- -----------
Total interest income 11,383,157 9,573,093
Interest expense:
Deposits 3,893,710 4,017,696
Other 46,317 1,498
----------- -----------
Total interest expense 3,940,027 4,019,194
----------- -----------
Net interest income 7,443,130 5,553,899
Provision for loan losses 1,257,593 922,000
----------- -----------
Net interest income after
provision for loan losses 6,185,537 4,631,899
Noninterest income:
Service charges on deposit accounts 409,672 284,628
Other 133,936 18,463
----------- -----------
Total noninterest income 543,608 303,091
Noninterest expense:
Salaries and employee benefits 3,213,935 2,367,592
Occupancy 524,028 334,472
Other 2,337,418 1,468,285
----------- -----------
Total noninterest expense 6,075,381 4,170,349
----------- -----------
Income before federal income taxes and
minority interest 653,764 764,641
Federal income taxes 134,000 164,000
----------- -----------
Income before minority interest 519,764 600,641
Charge resulting from minority interest in
net income of consolidated subsidiaries 276,157 306,596
----------- -----------
NET INCOME $ 243,607 $ 294,045
=========== ===========
NET INCOME PER SHARE
(basic and diluted) $ 0.14 $ 0.16
=========== ===========
See notes to interim financial statements.
D-8
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
NEVADA COMMUNITY BANCORP LIMITED
Accumulated
Retained- Other
Common Earnings Comprehensive
Stock Deficit Income Total
----------- ----------- ----------- -----------
Nine Months Ended September 30, 2001
- ------------------------------------
Balances at January 1, 2001 $13,000,000 $ (952,302) $ -0- $12,047,698
Net income for the period 294,045 294,045
----------- ----------- ----------- -----------
BALANCES AT SEPTEMBER 30, 2001 $13,000,000 $ (658,257) $ -0- $12,341,743
=========== =========== =========== ===========
Nine Months Ended September 30, 2002
- ------------------------------------
Balances at January 1, 2002 $13,000,000 $ (771,311) $ (15,757) $12,212,932
Components of comprehensive income:
Net income for the period 243,607 243,607
Market value adjustment for investment
securities available for sale (net of tax effect) 76,110 76,110
-----------
Comprehensive income for the period 319,717
----------- ----------- ----------- -----------
BALANCES AT SEPTEMBER 30, 2002 $13,000,000 $ (527,704) $ 60,353 $12,532,649
=========== =========== =========== ===========
See notes to interim financial statements.
D-9
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NEVADA COMMUNITY BANCORP LIMITED
Nine Months Ended
September 30
------------------------------
2002 2001
------------ ------------
OPERATING ACTIVITIES
Net income for the period $ 243,607 $ 294,045
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 1,257,593 922,000
Depreciation of premises and equipment 286,142 203,207
Minority interest in net income of consolidated
subsidiaries 276,157 306,596
Net amortization of investment security premiums 116,918 1,365
Deferred income taxes (14,000) (240,000)
Increase in accrued interest income and other assets (257,709) (240,654)
Increase (decrease) in accrued interest on deposits and
other liabilities (383,777) 495,575
------------ ------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 1,524,931 1,742,134
INVESTING ACTIVITIES
Proceeds from maturities of investment securities
available for sale 31,724,680
Purchases of investment securities available for sale (41,659,734) (5,043,420)
Net increase in portfolio loans (35,033,981) (61,884,273)
Purchases of premises and equipment (493,938) (94,642)
------------ ------------
NET CASH USED BY INVESTING
ACTIVITIES (45,462,973) (67,022,335)
FINANCING ACTIVITIES
Net increase in demand deposits, NOW accounts
and savings accounts 35,677,103 38,674,214
Net increase in certificates of deposit 7,427,977 33,093,513
Proceeds from debt obligations 2,441,000
Resources provided by minority interests 3,234,000 37,158
------------ ------------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 48,780,080 71,804,885
------------ ------------
INCREASE IN CASH AND CASH
EQUIVALENTS 4,842,038 6,524,684
Cash and cash equivalents at beginning of period 26,191,735 19,610,437
------------ ------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 31,033,773 $ 26,135,121
============ ============
See notes to interim financial statements.
D-10
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NEVADA COMMUNITY BANCORP LIMITED
NOTE A--BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements of Nevada
Community Bancorp Limited 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 Nevada considers necessary for a fair presentation of the interim
periods.
The results of operations for the nine-month period ended September 30,
2002 are not necessarily indicative of the results to be expected for the year
ending December 31, 2002.
NOTE B--DEBT OBLIGATIONS
As of September 30, 2002, short-term borrowings consisted of the following:
Borrowings from parent $ 941,000
Federal funds purchased 1,500,000
-----------
$ 2,441,000
===========
NOTE C--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
September 30, 2002, the Corporation had no recorded goodwill.
Statement No. 143, ACCOUNTING FOR ASSET RETIREMENT OBLIGATIONS, becomes
effective January 1, 2003. Management has not completed its analysis of this new
standard; however, implementation of this new standard is not expected to have a
material impact on the Corporation's consolidated financial statements.
Statement No. 144, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND
FOR LONG-LIVED ASSETS TO BE DISPOSED OF, became effective on January 1, 2002.
This new standard did not have a material impact on the Corporation's
consolidated financial statements.
D-11
Statement No. 145, which updates, clarifies and simplifies certain existing
accounting pronouncements (rescission of Statements No. 4, 44 and 64, amendment
of Statement No. 13 and technical corrections) beginning at various dates in
2002/2003 is not expected to have a material effect on the Corporation's
consolidated financial statements.
Statement No. 146, ACCOUNTING FOR COSTS ASSOCIATED WITH EXIT OR DISPOSAL
ACTIVITIES, becomes effective January 1, 2003. Management has not completed its
analysis of this new standard; however, it is not expected to have a material
impact on the Corporation's consolidated financial statements, upon
implementation.
Statement No. 147, ACQUISITIONS OF CERTAIN FINANCIAL INSTITUTIONS, amends
prior standards relating to some acquisitions of financial institutions,
requiring such transactions to be accounted for in accordance with Statements
No. 141 and 142 and is generally effective October 1, 2002. Management has not
completed its analysis of this new standard; however, it is not expected to have
a material effect on the Corporation's consolidated financial statements, upon
implementation.
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 Nevada's consolidated financial statements.
[The remainder of this page intentionally left blank]
D-12
NEVADA COMMUNITY BANCORP LIMITED
------
FINANCIAL STATEMENTS
PERIODS ENDED DECEMBER 31, 2001, 2000 AND 1999
D-13
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Nevada Community Bancorp Limited
We have audited the accompanying consolidated balance sheets of Nevada Community
Bancorp Limited and subsidiaries as of December 31, 2001 and 2000, and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for the years ended December 31, 2001 and 2000, and the period
from August 1, 1999 (date of inception) to December 31, 1999. 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 Nevada Community
Bancorp Limited and subsidiaries as of December 31, 2001 and 2000, and the
consolidated results of their operations and their cash flows for the years
ended December 31, 2001 and 2000 and the period from August 1, 1999 (date of
inception) to December 31, 1999, in conformity with accounting principles
generally accepted in the United States of America.
/s/ BDO Seidman, LLP
Los Angeles, California
January 31, 2002
D-14
CONSOLIDATED BALANCE SHEETS
NEVADA COMMUNITY BANCORP LIMITED
December 31
------------------------------
2001 2000
------------- -------------
ASSETS
Cash and due from banks $ 11,025,376 $ 3,053,021
Interest-bearing deposits with banks 2,041,359 6,667,416
Federal funds sold 13,125,000 9,890,000
------------- -------------
Cash and cash equivalents 26,191,735 19,610,437
Investment securities--Note C:
Available for sale, carried at market value 8,646,961
Held for long-term investment, carried at amortized
cost which approximates market value 41,960
-------------
Total investment securities 8,688,921
Portfolio loans--Note D:
Commercial 153,671,992 82,156,469
Real estate mortgage 1,733,640 1,516,411
Installment 2,183,401 1,470,424
------------- -------------
Total portfolio loans 157,589,033 85,143,304
Less allowance for loan losses (2,416,000) (1,284,000)
------------- -------------
Net portfolio loans 155,173,033 83,859,304
Premises and equipment--Note F 1,100,533 1,080,870
Accrued interest income 869,599 510,098
Other assets 1,188,600 1,094,286
------------- -------------
TOTAL ASSETS $ 193,212,421 $ 106,154,995
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 25,149,515 $ 12,925,267
Interest-bearing--Note H 146,365,690 72,662,145
------------- -------------
Total deposits 171,515,205 85,587,412
Accrued interest on deposits and other liabilities 862,190 267,161
------------- -------------
Total liabilities 172,377,395 85,854,573
MINORITY INTERESTS IN CONSOLIDATED
SUBSIDIARIES--Note A 8,622,094 8,252,724
STOCKHOLDERS' EQUITY--Notes I and M:
Common stock, no par value,
10,000,000 shares authorized;
1,800,000 shares issued and outstanding 13,000,000 13,000,000
Retained-earnings deficit (771,311) (952,302)
Market value adjustment (net of tax effect) for
investment securities available for sale (15,757)
------------- -------------
Total stockholders' equity 12,212,932 12,047,698
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 193,212,421 $ 106,154,995
============= =============
See notes to consolidated financial statements.
D-15
CONSOLIDATED STATEMENTS OF OPERATIONS
NEVADA COMMUNITY BANCORP LIMITED
Year Ended December 31 Period Ended
---------------------------- December 31
2001 2000 1999
------------ ------------ ------------
Interest income:
Portfolio loans (including fees) $ 11,963,428 $ 6,095,443 $ 478,052
Taxable investment securities 142,641 106,530
Federal funds sold 433,753 589,577 97,580
Other 310,305 296,462 114,731
------------ ------------ ------------
Total interest income 12,850,127 7,088,012 690,363
Interest expense:
Deposits 5,447,222 2,695,266 114,462
Other 1,953
------------ ------------ ------------
Total interest expense 5,449,175 2,695,266 114,462
------------ ------------ ------------
Net interest income 7,400,952 4,392,746 575,901
Provision for loan losses--Note D 1,229,525 1,024,000 310,000
------------ ------------ ------------
Net interest income after provision for
loan losses 6,171,427 3,368,746 265,901
Noninterest income:
Service charges on deposit accounts 381,988 89,495 3,160
Other 26,223 2,645 3,208
------------ ------------ ------------
Total noninterest income 408,211 92,140 6,368
Noninterest expense:
Salaries and employee benefits 3,192,257 2,261,365 460,902
Occupancy 486,559 390,051 59,289
Equipment rent, depreciation and maintenance 382,725 297,932 469,368
Other 1,813,894 1,469,647 302,682
------------ ------------ ------------
Total noninterest expense 5,875,435 4,418,995 1,292,241
------------ ------------ ------------
Income (loss) before federal income taxes and
minority interest 704,203 (958,109) (1,019,972)
Federal income taxes (benefit)--Note G 191,000 (249,000) (345,000)
------------ ------------ ------------
Income (loss) before minority interest 513,203 (709,109) (674,972)
Credit (charge) resulting from minority interest in net
losses (income) of consolidated subsidiaries (332,212) 225,736 206,043
------------ ------------ ------------
NET INCOME (LOSS) $ 180,991 $ (483,373) $ (468,929)
============ ============ ============
NET INCOME (LOSS) PER SHARE
(basic and diluted) $ 0.10 $ (0.31) $ (0.31)
============ ============ ============
See notes to consolidated financial statements.
D-16
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
NEVADA COMMUNITY BANCORP LIMITED
Accumulated
Retained- Other
Common Earnings Comprehensive
Stock Deficit Income Total
------------ ------------ ------------ ------------
Balances at August 1, 1999, beginning of period $ -0- $ -0- $ -0-
Issuance of 1,500,000 shares of common stock
for cash consideration of $6.67 per share 10,000,000 10,000,000
Net loss for the 1999 period (468,929) (468,929)
------------ ------------ ------------
BALANCES AT DECEMBER 31, 1999 10,000,000 (468,929) 9,531,071
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 2000 (483,373) (483,373)
------------ ------------ ------------
BALANCES AT DECEMBER 31, 2000 13,000,000 (952,302) 12,047,698
Components of comprehensive income:
Net income for 2001 180,991 180,991
Market value adjustment for investment
securities available for sale (net of
income tax effect) $ (15,757) (15,757)
------------
Comprehensive income for 2001 165,234
------------ ------------ ------------ ------------
BALANCES AT DECEMBER 31, 2001 $ 13,000,000 $ (771,311) $ (15,757) $ 12,212,932
============ ============ ============ ============
See notes to consolidated financial statements.
D-17
CONSOLIDATED STATEMENTS OF CASH FLOWS
NEVADA COMMUNITY BANCORP LIMITED
Year Ended December 31 Period Ended
---------------------------- December 31
2001 2000 1999
------------ ------------ ------------
OPERATING ACTIVITIES
Net income (loss) $ 180,991 $ (483,373) $ (468,929)
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
Provision for loan losses 1,229,525 1,024,000 310,000
Depreciation of premises and equipment 274,351 230,144 43,037
Net accretion of investment security discounts (32,648)
Loss on sales of premises and equipment 4,105
Minority interests in net income (loss) of
consolidated subsidiaries 332,212 (225,736) (206,043)
Deferred income taxes (108,000) (249,000) (345,000)
Increase in accrued interest income and other assets (337,698) (835,741) (224,643)
Increase in accrued interest on deposits and other liabilities 595,029 166,912 100,249
------------ ------------ ------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 2,137,867 (372,794) (791,329)
INVESTING ACTIVITIES
Proceeds from calls and maturities of investment
securities available for sale 8,335,000 14,000,000
Purchases of investment securities available for sale (16,973,187) (14,000,000)
Purchases of investment securities held for long-term
investment (41,960)
Net increase in portfolio loans (72,543,254) (65,844,216) (19,299,088)
Proceeds from sales of premises and equipment 8,044
Purchases of premises and equipment (306,163) (478,917) (875,134)
------------ ------------ ------------
NET CASH USED BY INVESTING ACTIVITIES (81,521,520) (66,323,133) (20,174,222)
FINANCING ACTIVITIES
Net increase in demand deposits, NOW accounts
and savings accounts 48,133,433 37,106,323 11,878,041
Net increase in certificates of deposit 37,794,360 30,420,526 6,182,522
Resources provided by minority interest 37,158 2,450,002 6,234,501
Net proceeds from issuance of common stock 3,000,000 10,000,000
------------ ------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 85,964,951 72,976,851 34,295,064
------------ ------------ ------------
INCREASE IN CASH AND CASH EQUIVALENTS 6,581,298 6,280,924 13,329,513
Cash and cash equivalents at beginning of period 19,610,437 13,329,513 --
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 26,191,735 $ 19,610,437 $ 13,329,513
============ ============ ============
See notes to consolidated financial statements.
D-18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NEVADA COMMUNITY BANCORP LIMITED
NOTE A--NATURE OF OPERATIONS, BASIS OF PRESENTATION AND PRINCIPLES OF
CONSOLIDATION
Nevada Community Bancorp Limited (the "Corporation") is a bank development
company headquartered in Las Vegas, Nevada. Its consolidated subsidiaries at
December 31, 2001 consisted of Desert Community Bank, Red Rock Community Bank
and Black Mountain Community Bank (collectively, the "Banks"), each of which are
51% owned by the Corporation and are located in Nevada. The Corporation, Desert
Community Bank and Red Rock Community Bank commenced operations in 1999. Black
Mountain Community Bank commenced operations in 2000. The Corporation is 54%
owned by Sun Community Bancorp Limited, a multi-bank holding 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. Each of
the Banks operate from a single location and 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 Banks' financial services
are the communities in which the Banks are located and the areas immediately
surrounding those communities.
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-19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NEVADA COMMUNITY BANCORP LIMITED
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. Substantially all portfolio loans are made to borrowers in the
banks' geographic areas. 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.
D-20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NEVADA COMMUNITY BANCORP LIMITED
NOTE B--SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
The accrual of interest is generally discontinued when a loan becomes 90 days
past due as to interest. When interest accruals are discontinued, interest
previously accrued (but unpaid) is reversed. Management may elect to continue
the accrual of interest when the estimated net realizable value of collateral is
sufficient to cover the principal balance and accrued interest and the loan is
in process of collection.
PREMISES AND EQUIPMENT: Premises and equipment are stated on the basis of cost.
Depreciation is computed principally by the straight-line method based upon
estimated useful lives of the respective assets. Leasehold improvements are
generally depreciated over the respective lease term.
OTHER REAL ESTATE: Other real estate (none at December 31, 2001 and 2000)
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.
NET INCOME (LOSS) PER SHARE: Net income (loss) per share is based on the
weighted average number of common shares outstanding (1,800,000 shares in 2001,
1,579,726 shares in 2000 and 1,500,000 shares in 1999), as adjusted for the
Corporation's 2000 3-for-2 stock split (see Note I). Diluted net income (loss)
per share includes the dilutive effect of stock options (see Note I).
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.
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: 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.
D-21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NEVADA COMMUNITY BANCORP LIMITED
NOTE B--SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
COMPREHENSIVE INCOME: Comprehensive income (loss) is the sum of net income
(loss) and certain other items which are charged or credited to stockholders'
equity. For the periods presented, the Corporation's only element of
comprehensive income other than net income (loss) was the net change in the
market value adjustment for investment securities available for sale.
Accordingly, the elements and total of comprehensive income are shown within the
statement of changes in stockholders' equity presented herein.
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.
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.
D-22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NEVADA COMMUNITY BANCORP LIMITED
NOTE C--INVESTMENT SECURITIES
Investment securities consisted of the following at December 31, 2001:
Estimated
Amortized Market
Cost Value
---------- ----------
Available for sale:
United States government agency
securities $8,670,835 $8,646,961
Held for long-term investment:
Federal Home Loan Bank stock 41,960 41,960
---------- ----------
$8,712,795 $8,688,921
========== ==========
Investment in Federal Home Loan Bank stock is restricted and may only be resold
to or redeemed by the issuer.
Gross unrealized gains and losses on investment securities available for sale
were as follows at December 31, 2001:
Gains Losses
------- -------
United States government agency
securities $13,060 $36,934
======= =======
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 one year, through five years $5,419,527 $5,422,260
After five years, through ten years 2,017,378 2,022,426
After ten years 1,233,930 1,202,275
Securities held for long-term investment,
without stated maturities 41,960 41,960
---------- ----------
$8,712,795 $8,688,921
========== ==========
D-23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NEVADA COMMUNITY BANCORP LIMITED
NOTE D--LOANS
Transactions in the allowance for loan losses are summarized below:
2001 2000 1999
----------- ----------- -----------
Balance at January 1 $ 1,284,000 $ 310,000 $ -0-
Provision charged to operations 1,229,525 1,024,000 310,000
Loans charged off (deduction) (97,540) (50,000) --
Recoveries 15 -- --
----------- ----------- -----------
Balance at December 31 $ 2,416,000 $ 1,284,000 $ 310,000
=========== =========== ===========
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 $2,164,000 $1,330,000
Real estate -- --
Installment -- --
---------- ----------
Total nonaccrual loans 2,164,000 1,330,000
Past due (>90 days) loans:
Commercial -- --
Real estate -- --
Installment 7,000 --
---------- ----------
Total past due loans 7,000 -0-
---------- ----------
Total nonperforming loans $2,171,000 $1,330,000
========== ==========
If nonperforming loans had performed in accordance with their contractual terms
during the year, additional interest income of approximately $77,000 and $1,000
would have been recorded in 2001 and 2000 (none in 1999). Interest income
recognized on loans in nonaccrual status in 2001 operations approximated $64,000
(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-24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NEVADA COMMUNITY BANCORP LIMITED
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 $2,344,000 1.48% $1,232,000 1.45%
Real estate mortgage 24,000 0.02 26,000 0.03
Installment 48,000 0.03 26,000 0.03
---------- ---- ---------- ----
Total allowance for loan losses $2,416,000 1.53% $1,284,000 1.51%
========== ==== ========== ====
NOTE E--RELATED PARTIES TRANSACTIONS
In the ordinary course of business, the Corporation's banking subsidiaries 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
$10.3 million and $4.4 million, respectively. During 2001, $8.6 million of new
loans were made to these persons and repayments totaled $2.7 million. 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) and the Corporation's parent 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.
Certain management and data processing functions for the Corporation and the
Banks are provided by Sun Community Bancorp Limited. Fees paid for such services
approximated $711,000, $678,000 and $123,000 in 2001, 2000 and 1999,
respectively.
NOTE F--PREMISES AND EQUIPMENT
Major classes of premises and equipment consisted of the following at December
31:
2001 2000
----------- -----------
Leasehold improvements $ 377,030 $ 290,152
Equipment and furniture 1,268,153 1,063,899
----------- -----------
1,645,183 1,354,051
Less accumulated depreciation (544,650) (273,181)
----------- -----------
$ 1,100,533 $ 1,080,870
=========== ===========
D-25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NEVADA COMMUNITY BANCORP LIMITED
NOTE F--PREMISES AND EQUIPMENT--CONTINUED
The Banks rent office space under operating leases. Rent expense under these
lease agreements approximated $326,000, $319,000 and $42,000 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 $ 382,000
2003 386,000
2004 397,000
2005 410,000
2006 422,000
2007 and thereafter 1,131,000
-----------
Total $ 3,128,000
===========
NOTE G--INCOME TAXES
Federal income taxes consist of the following components:
2001 2000 1999
--------- --------- ---------
Current $ 299,000 $ -- $ --
Deferred credit (108,000) (249,000) (345,000)
--------- --------- ---------
$ 191,000 $(249,000) $(345,000)
========= ========= =========
Federal income taxes paid during 2001 and 1999 approximated $12,000 and $5,000,
respectively (none in 2000).
Net deferred income tax assets consisted of the following at December 31:
2001 2000 1999
--------- --------- ---------
Allowance for loan losses $ 478,000 $ 201,000 $ 105,400
Net operating loss carryforwards
of subsidiaries 499,000 417,000 242,000
Accrual to cash temporary differences (248,000) (148,000) (58,000)
Market value adjustment for investment
securities available for sale 8,000
Other, net (27,000) 124,000 55,600
--------- --------- ---------
$ 710,000 $ 594,000 $ 345,000
========= ========= =========
D-26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NEVADA COMMUNITY BANCORP LIMITED
NOTE G--INCOME TAXES--CONTINUED
The Corporation and certain bank subsidiaries have net operating loss
carryforwards, which may reduce income taxes payable in future periods. Such
carryforwards approximate $1,466,000 at December 31, 2001, which expire at the
following dates and amounts:
2019 $ 326,000
2020 949,000
2021 191,000
-----------
$ 1,466,000
===========
NOTE H--DEPOSITS
The aggregate amount of time deposits of $100,000 or more approximated $51.5
million and $21.4 million as of December 31, 2001 and 2000, respectively.
At December 31, 2001, the scheduled maturities of such time deposits were as
follows:
2002 $36,220,000
2003 7,808,000
2004 3,962,000
2005 3,000,000
2006 505,000
-----------
Total $51,495,000
===========
Interest paid approximates amounts charged to operations on an accrual basis for
the periods presented.
NOTE I--COMMON STOCK AND STOCK OPTIONS
In November 2000, the Corporation issued a 3-for-2 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, expire
ten years after grant and become exercisable ratably over a five-year period
from date of grant.
D-27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NEVADA COMMUNITY BANCORP LIMITED
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
----------- --------------- --------
Granted in 1999 135,000 $6.67 $ 6.67
Exercised in 1999 -- -- --
-------- --------------- --------
Outstanding at December 31, 1999 135,000 6.67 6.67
Granted in 2000 80,993 6.67 to 10.00 8.15
Exercised in 2000 -- -- --
-------- --------------- --------
Outstanding at December 31, 2000 215,993 6.67 to 10.00 7.22
Granted in 2001 -- -- --
Cancelled in 2001 (4,418) -- 7.29
Exercised in 2001 -- -- --
-------- --------------- --------
Outstanding at December 31, 2001 211,575 $6.67 to $10.00 $ 7.22
As of December 31, 2001, stock options outstanding had a weighted average
remaining contractual life of 7 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 7.0% 6.25%
Dividend yield 0% 0%
Stock price volatility .10 .10
Expected option life 10 years 10 years
Aggregate estimated fair value
of options granted $333,000 $420,000
Pro forma net income (loss) $ 83,000 $(581,000) $(524,000)
Pro forma net income (loss) per
diluted share $ .05 $(.37) $(.35)
D-28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NEVADA COMMUNITY BANCORP LIMITED
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, which are an
employer match (50%, subject to certain limitations) for employee contributions,
charged to expense approximated $64,000 and $20,000 in 2001 and 2000,
respectively (none in 1999).
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 $ 26,192 $ 26,192 $ 19,610 $ 19,610
Investment securities:
Available for sale 8,647 8,647
Held for long-term investment 42 42
--------- ---------
8,689 8,689
Portfolio loans:
Fixed rate 80,273 80,495 28,247 28,641
Variable rate 77,316 77,502 56,896 56,639
--------- --------- --------- ---------
Total portfolio loans 157,589 157,997 85,143 85,280
Less allowance for loan losses (2,416) (2,416) (1,284) (1,284)
--------- --------- --------- ---------
Net portfolio loans 155,173 155,581 83,859 83,996
Financial Liabilities:
Deposits:
Noninterest-bearing 25,150 25,150 12,925 12,925
Interest-bearing:
Demand accounts 71,968 71,951 36,059 39,224
Time certificates of deposit less
than $100,000 22,902 22,829 15,176 15,386
Time certificates of deposit of
$100,000 or more 51,495 51,534 21,427 21,739
--------- --------- --------- ---------
Total interest-bearing deposits 146,365 146,314 72,662 76,349
--------- --------- --------- ---------
Total deposits 171,515 171,464 85,587 89,274
D-29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NEVADA COMMUNITY BANCORP LIMITED
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 ($88,000 at December 31, 2001; $125,000
at December 31, 2000). Other loan commitments outstanding consist of unused
lines of credit and approved, but unfunded, specific loan commitments ($40.8
million and $24.3 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 average reserve balances in
the form of cash on hand and balances due from the Federal Reserve Bank and
correspondent banks. The amount of reserve balance required as of December 31,
2001 was $75,000.
Deposits at each of the Banks are insured up to the maximum amount covered by
FDIC insurance.
D-30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NEVADA COMMUNITY BANCORP LIMITED
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 subsidiaries 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-31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NEVADA COMMUNITY BANCORP LIMITED
NOTE M--DIVIDEND LIMITATIONS OF SUBSIDIARIES AND OTHER CAPITAL
REQUIREMENTS--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:
Black Mountain Desert Red Rock
Community Community Community
Bank Bank Bank Consolidated
----------- ----------- ----------- ------------
DECEMBER 31, 2001
- -----------------
Tier 1 capital to average total assets:
Minimum required amount >= $ 4,079 >= $ 4,500 >= $ 6,295 >= $ 6,544
Actual amount $ 4,544 $ 4,721 $ 8,555 $ 20,851
Ratio 8.91% 8.39% 10.87% 12.74%
Tier 1 capital to risk-weighted assets:
Minimum required amount(1) >= $ 1,745 >= $ 2,151 >= $ 3,045 >= $ 6,961
Actual amount $ 4,544 $ 4,721 $ 8,555 $ 20,851
Ratio 10.42% 8.78% 11.24% 11.98%
Combined Tier 1 and Tier 2 capital to
risk-weighted assets:
Minimum required amount(2) >= $ 3,489 >= $ 4,303 >= $ 6,091 >= $ 13,921
Amount required to meet "Well-Capitalized"
category(3) >= $ 4,362 >= $ 5,378 >= $ 7,614 >= $ 17,402
Actual amount $ 5,090 $ 5,395 $ 9,507 $ 23,029
Ratio 11.67% 10.03% 12.49% 13.23%
DECEMBER 31, 2000
- -----------------
Tier 1 capital to average total assets:
Minimum required amount >= $ 1,699 >= $ 2,767 >= $ 3,437 >= $ 3,266
Actual amount $ 4,292 $ 4,184 $ 7,877 $ 20,301
Ratio 20.21% 12.10% 18.33% 24.87%
Tier 1 capital to risk-weighted assets:
Minimum required amount(1) >= $ 804 >= $ 1,251 >= $ 1,700 >= $ 3,675
Actual amount $ 4,292 $ 4,184 $ 7,877 $ 20,301
Ratio 21.36% 13.38% 18.53% 22.10%
Combined Tier 1 and Tier 2 capital to
risk-weighted assets:
Minimum required amount(2) >= $ 1,608 >= $ 2,502 >= $ 3,401 >= $ 7,349
Amount required to meet "Well-Capitalized"
category(3) >= $ 2,010 >= $ 3,128 >= $ 4,251 >= $ 9,186
Actual amount $ 4,543 $ 4,576 $ 8,409 $ 21,449
Ratio 22.61% 14.63% 19.78% 23.35%
(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-32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NEVADA COMMUNITY BANCORP LIMITED
NOTE N--PARENT COMPANY FINANCIAL INFORMATION
CONDENSED BALANCE SHEETS
December 31
--------------------------
2001 2000
----------- -----------
ASSETS
Cash on deposit with subsidiary banks $ 66,648 $ --
Money market funds on deposit with affiliate banks 2,645,559 3,076,642
----------- -----------
Total cash and cash equivalents 2,712,207 3,076,642
Equipment and furniture, net 59,448 17,665
Investments in subsidiaries 9,236,177 8,661,294
Other assets 371,878 389,334
----------- -----------
TOTAL ASSETS $12,379,710 $12,144,935
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable, accrued expenses and other liabilities 166,778 97,237
Stockholders' equity 12,212,932 12,047,698
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $12,379,710 $12,144,935
=========== ===========
CONDENSED STATEMENTS OF OPERATIONS
Year Ended December 31 Period Ended
----------- ----------- December 31
2001 2000 1999
----------- ----------- -----------
Income:
Intercompany fees $ 806,784 $ 652,679 $ 146,000
Interest 150,869 138,783 112,598
----------- ----------- -----------
Total income 957,653 791,462 258,598
Expenses:
Salaries and employee benefits 600,883 433,742 110,391
Occupancy 26,863 30,445 12,000
Amortization, equipment rent and depreciation 163,537 6,428 2,148
Other 509,262 584,985 201,017
----------- ----------- -----------
Total expenses 1,300,545 1,055,600 325,556
----------- ----------- -----------
Loss before federal income taxes (benefit) and equity
in income (loss) of consolidated subsidiaries (342,892) (264,138) (66,958)
Equity in income (loss) of consolidated subsidiaries 349,883 (233,235) (320,971)
Federal income taxes (benefit) (174,000) (14,000) 81,000
----------- ----------- -----------
NET INCOME (LOSS) $ 180,991 $ (483,373) $ (468,929)
=========== =========== ===========
D-33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NEVADA COMMUNITY BANCORP LIMITED
NOTE N--PARENT COMPANY FINANCIAL INFORMATION--CONTINUED
CONDENSED STATEMENTS OF CASH FLOWS
Year Ended December 31 Period Ended
---------------------------- December 31
2001 2000 1999
------------ ------------ ------------
OPERATING ACTIVITIES
Net income (loss) $ 180,991 $ (483,373) $ (468,929)
Adjustments to reconcile net income (loss) to net cash used
by operating activities:
Equity in net loss (income) of consolidated subsidiaries (349,883) 233,235 320,971
Depreciation and amortization 7,579 4,421 2,148
Decrease (increase) in other assets 1,699 (329,713) (59,621)
Increase in accounts payable, accrued expenses and other
liabilities 69,541 15,411 81,826
------------ ------------ ------------
NET CASH USED BY OPERATING ACTIVITIES (90,073) (560,019) (123,605)
INVESTING ACTIVITIES
Investments in subsidiaries (225,000) (2,550,001) (6,665,500)
Proceeds from sales of premises and equipment 6,835
Purchases of equipment and furniture (56,197) (7,445) (16,788)
------------ ------------ ------------
NET CASH USED BY INVESTING ACTIVITIES (274,362) (2,557,446) (6,682,288)
FINANCING ACTIVITIES
Net proceeds from issuance of common stock 3,000,000 10,000,000
------------ ------------ ------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (364,435) (117,465) 3,194,107
Cash and cash equivalents at beginning of period 3,076,642 3,194,107 --
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 2,712,207 $ 3,076,642 $ 3,194,107
============ ============ ============
NOTE O--NEW BANK OPENED IN FEBRUARY 2002
An additional majority-owned subsidiary of Nevada Community Bancorp Limited,
Bank of Las Vegas, opened in February 2002 and is located in Las Vegas, Nevada.
D-34
ANNEX E
EXCERPTS OF NEVADA REVISED STATUTES
REGARDING DISSENTERS' RIGHTS
NRS 92A.300 DEFINITIONS. As used in NRS 92A.300 to 92A.500, inclusive, unless
the context otherwise requires, the words and terms defined in NRS 92A.305 to
92A.335, inclusive, have the meanings ascribed to them in those sections.
(Added to NRS by 1995, 2086)
NRS 92A.305 "BENEFICIAL STOCKHOLDER" DEFINED. "Beneficial stockholder" means a
person who is a beneficial owner of shares held in a voting trust or by a
nominee as the stockholder of record.
(Added to NRS by 1995, 2087)
NRS 92A.310 "CORPORATE ACTION" DEFINED. "Corporate action" means the action of a
domestic corporation.
(Added to NRS by 1995, 2087)
NRS 92A.315 "DISSENTER" DEFINED. "Dissenter" means a stockholder who is entitled
to dissent from a domestic corporation's action under NRS 92A.380 and who
exercises that right when and in the manner required by NRS 92A.400 to 92A.480,
inclusive.
(Added to NRS by 1995, 2087; A 1999, 1631)
NRS 92A.320 "FAIR VALUE" DEFINED. "Fair value," with respect to a dissenter's
shares, means the value of the shares immediately before the effectuation of the
corporate action to which he objects, excluding any appreciation or depreciation
in anticipation of the corporate action unless exclusion would be inequitable.
(Added to NRS by 1995, 2087)
NRS 92A.325 "STOCKHOLDER" DEFINED. "Stockholder" means a stockholder of record
or a beneficial stockholder of a domestic corporation.
(Added to NRS by 1995, 2087)
NRS 92A.330 "STOCKHOLDER OF RECORD" DEFINED. "Stockholder of record" means the
person in whose name shares are registered in the records of a domestic
corporation or the beneficial owner of shares to the extent of the rights
granted by a nominee's certificate on file with the domestic corporation.
(Added to NRS by 1995, 2087)
NRS 92A.335 "SUBJECT CORPORATION" DEFINED. "Subject corporation" means the
domestic corporation which is the issuer of the shares held by a dissenter
before the corporate action creating the dissenter's rights becomes effective or
the surviving or acquiring entity of that issuer after the corporate action
becomes effective.
(Added to NRS by 1995, 2087)
NRS 92A.340 COMPUTATION OF INTEREST. Interest payable pursuant to NRS 92A.300 to
92A.500, inclusive, must be computed from the effective date of the action until
the date of payment, at the average rate currently paid by the entity on its
principal bank loans or, if it has no bank loans, at a rate that is fair and
equitable under all of the circumstances.
(Added to NRS by 1995, 2087)
NRS 92A.350 RIGHTS OF DISSENTING PARTNER OF DOMESTIC LIMITED PARTNERSHIP. A
partnership agreement of a domestic limited partnership or, unless otherwise
provided in the partnership agreement, an agreement of merger or exchange, may
provide that contractual rights with respect to the partnership interest of a
dissenting general or limited partner of a domestic limited partnership are
available for any class or group of partnership interests in connection with any
merger or exchange in which the domestic limited partnership is a constituent
entity.
(Added to NRS by 1995, 2088)
E-1
NRS 92A.360 RIGHTS OF DISSENTING MEMBER OF DOMESTIC LIMITED-LIABILITY COMPANY.
The articles of organization or operating agreement of a domestic
limited-liability company or, unless otherwise provided in the articles of
organization or operating agreement, an agreement of merger or exchange, may
provide that contractual rights with respect to the interest of a dissenting
member are available in connection with any merger or exchange in which the
domestic limited-liability company is a constituent entity.
(Added to NRS by 1995, 2088)
NRS 92A.370 RIGHTS OF DISSENTING MEMBER OF DOMESTIC NONPROFIT CORPORATION.
1. Except as otherwise provided in subsection 2, and unless otherwise provided
in the articles or bylaws, any member of any constituent domestic nonprofit
corporation who voted against the merger may, without prior notice, but within
30 days after the effective date of the merger, resign from membership and is
thereby excused from all contractual obligations to the constituent or surviving
corporations which did not occur before his resignation and is thereby entitled
to those rights, if any, which would have existed if there had been no merger
and the membership had been terminated or the member had been expelled.
2. Unless otherwise provided in its articles of incorporation or bylaws, no
member of a domestic nonprofit corporation, including, but not limited to, a
cooperative corporation, which supplies services described in chapter 704 of NRS
to its members only, and no person who is a member of a domestic nonprofit
corporation as a condition of or by reason of the ownership of an interest in
real property, may resign and dissent pursuant to subsection 1.
(Added to NRS by 1995, 2088)
NRS 92A.380 RIGHT OF STOCKHOLDER TO DISSENT FROM CERTAIN CORPORATE ACTIONS AND
TO OBTAIN PAYMENT FOR SHARES.
1. Except as otherwise provided in NRS 92A.370 and 92A.390, a stockholder is
entitled to dissent from, and obtain payment of the fair value of his shares in
the event of any of the following corporate actions:
(a) Consummation of a plan of merger to which the domestic corporation is a
constituent entity:
(1) If approval by the stockholders is required for the merger by NRS 92A.120 to
92A.160, inclusive, or the articles of incorporation, regardless of whether the
stockholder is entitled to vote on the plan of merger; or
(2) If the domestic corporation is a subsidiary and is merged with its parent
pursuant to NRS 92A.180.
(b) Consummation of a plan of exchange to which the domestic corporation is a
constituent entity as the corporation whose subject owner's interests will be
acquired, if his shares are to be acquired in the plan of exchange.
(c) Any corporate action taken pursuant to a vote of the stockholders to the
event that the articles of incorporation, bylaws or a resolution of the board of
directors provides that voting or nonvoting stockholders are entitled to dissent
and obtain payment for their shares.
2. A stockholder who is entitled to dissent and obtain payment pursuant to NRS
92A.300 to 92A.500, inclusive, may not challenge the corporate action creating
his entitlement unless the action is unlawful or fraudulent with respect to him
or the domestic corporation.
(Added to NRS by 1995, 2087; A 2001, 1414, 3199)
NRS 92A.390 LIMITATIONS ON RIGHT OF DISSENT: STOCKHOLDERS OF CERTAIN CLASSES OR
SERIES; ACTION OF STOCKHOLDERS NOT REQUIRED FOR PLAN OF MERGER.
1. There is no right of dissent with respect to a plan of merger or exchange in
favor of stockholders of any class or series which, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting at which the plan of merger or exchange is to be acted on, were either
listed on a national securities exchange, included in the national market system
by the National Association of Securities Dealers, Inc., or held by at least
2,000 stockholders of record, unless:
(a) The articles of incorporation of the corporation issuing the shares provide
otherwise; or
(b) The holders of the class or series are required under the plan of merger or
exchange to accept for the shares anything except:
(1) Cash, owner's interests or owner's interests and cash in lieu of fractional
owner's interests of:
(I) The surviving or acquiring entity; or
(II) Any other entity which, at the effective date of the plan of merger or
exchange, were either listed on a national securities exchange, included in the
national market system by the National Association of Securities Dealers, Inc.,
or held of record by a least 2,000 holders of owner's interests of record; or
(2) A combination of cash and owner's interests of the kind described in
sub-subparagraphs (I) and (II) of subparagraph (1) of paragraph (b).
2. There is no right of dissent for any holders of stock of the surviving
domestic corporation if the plan of merger does not require action of the
stockholders of the surviving domestic corporation under NRS 92A.130.
(Added to NRS by 1995, 2088)
E-2
NRS 92A.400 LIMITATIONS ON RIGHT OF DISSENT: ASSERTION AS TO PORTIONS ONLY TO
SHARES REGISTERED TO STOCKHOLDER; ASSERTION BY BENEFICIAL STOCKHOLDER.
1. A stockholder of record may assert dissenter's rights as to fewer than all of
the shares registered in his name only if he dissents with respect to all shares
beneficially owned by any one person and notifies the subject corporation in
writing of the name and address of each person on whose behalf he asserts
dissenter's rights. The rights of a partial dissenter under this subsection are
determined as if the shares as to which he dissents and his other shares were
registered in the names of different stockholders.
2. A beneficial stockholder may assert dissenter's rights as to shares held on
his behalf only if:
(a) He submits to the subject corporation the written consent of the stockholder
of record to the dissent not later than the time the beneficial stockholder
asserts dissenter's rights; and
(b) He does so with respect to all shares of which he is the beneficial
stockholder or over which he has power to direct the vote.
(Added to NRS by 1995, 2089)
NRS 92A.410 NOTIFICATION OF STOCKHOLDERS REGARDING RIGHT OF DISSENT.
1. If a proposed corporate action creating dissenters' rights is submitted to a
vote at a stockholders' meeting, the notice of the meeting must state that
stockholders are or may be entitled to assert dissenters' rights under NRS
92A.300 to 92A.500, inclusive, and be accompanied by a copy of those sections.
2. If the corporate action creating dissenters' rights is taken by written
consent of the stockholders or without a vote of the stockholders, the domestic
corporation shall notify in writing all stockholders entitled to assert
dissenters' rights that the action was taken and send them the dissenter's
notice described in NRS 92A.430.
(Added to NRS by 1995, 2089; A 1997, 730)
NRS 92A.420 PREREQUISITES TO DEMAND FOR PAYMENT FOR SHARES.
1. If a proposed corporate action creating dissenters' rights is submitted to a
vote at a stockholders' meeting, a stockholder who wishes to assert dissenter's
rights:
(a) Must deliver to the subject corporation, before the vote is taken, written
notice of his intent to demand payment for his shares if the proposed action is
effectuated; and
(b) Must not vote his shares in favor of the proposed action.
2. A stockholder who does not satisfy the requirements of subsection 1 and NRS
92A.400 is not entitled to payment for his shares under this chapter.
(Added to NRS by 1995, 2089; 1999, 1631)
NRS 92A.430 DISSENTER'S NOTICE: DELIVERY TO STOCKHOLDERS ENTITLED TO ASSERT
RIGHTS; CONTENTS.
1. If a proposed corporate action creating dissenters' rights is authorized at a
stockholders' meeting, the subject corporation shall deliver a written
dissenter's notice to all stockholders who satisfied the requirements to assert
those rights.
2. The dissenter's notice must be sent no later than 10 days after the
effectuation of the corporate action, and must:
(a) State where the demand for payment must be sent and where and when
certificates, if any, for shares must be deposited;
(b) Inform the holders of shares not represented by certificates to what extent
the transfer of the shares will be restricted after the demand for payment is
received;
(c) Supply a form for demanding payment that includes the date of the first
announcement to the news media or to the stockholders of the terms of the
proposed action and requires that the person asserting dissenter's rights
certify whether or not he acquired beneficial ownership of the shares before
that date;
(d) Set a date by which the subject corporation must receive the demand for
payment, which may not be less than 30 nor more than 60 days after the date the
notice is delivered; and
(e) Be accompanied by a copy of NRS 92A.300 to 92A.500, inclusive.
(Added to NRS by 1995, 2089)
NRS 92A.440 DEMAND FOR PAYMENT AND DEPOSIT OF CERTIFICATES; RETENTION OF RIGHTS
OF STOCKHOLDER.
1. A stockholder to whom a dissenter's notice is sent must:
(a) Demand payment;
(b) Certify whether he acquired beneficial ownership of the shares before the
date required to be set forth in the dissenter's notice for this certification;
and
(c) Deposit his certificates, if any, in accordance with the terms of the
notice.
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2. The stockholder who demands payment and deposits his certificates, if any,
before the proposed corporate action is taken retains all other rights of a
stockholder until those rights are canceled or modified by the taking of the
proposed corporate action.
3. The stockholder who does not demand payment or deposit his certificates where
required, each by the date set forth in the dissenter's notice, is not entitled
to payment for his shares under this chapter.
(Added to NRS by 1995, 2090; A 1997, 730)
NRS 92A.450 UNCERTIFICATED SHARES: AUTHORITY TO RESTRICT TRANSFER AFTER DEMAND
FOR PAYMENT; RETENTION OF RIGHTS OF STOCKHOLDER.
1. The subject corporation may restrict the transfer of shares not represented
by a certificate from the date the demand for their payment is received.
2. The person for whom dissenter's rights are asserted as to shares not
represented by a certificate retains all other rights of a stockholder until
those rights are canceled or modified by the taking of the proposed corporate
action.
(Added to NRS by 1995, 2090)
NRS 92A.460 PAYMENT FOR SHARES: GENERAL REQUIREMENTS.
1. Except as otherwise provided in NRS 92A.470, within 30 days after receipt of
a demand for payment, the subject corporation shall pay each dissenter who
complied with NRS 92A.440 the amount the subject corporation estimates to be the
fair value of his shares, plus accrued interest. The obligation of the subject
corporation under this subsection may be enforced by the district court:
(a) Of the county where the corporation's registered office is located; or
(b) At the election of any dissenter residing or having its registered office in
this state, of the county where the dissenter resides or has its registered
office. The court shall dispose of the complaint promptly.
2. The payment must be accompanied by:
(a) The subject corporation's balance sheet as of the end of a fiscal year
ending not more than 16 months before the date of payment, a statement of income
for that year, a statement of changes in the stockholders' equity for that year
and the latest available interim financial statements, if any;
(b) A statement of the subject corporation's estimate of the fair value of the
shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's rights to demand payment under NRS 92A.480;
and
(e) A copy of NRS 92A.300 to 92A.500, inclusive.
(Added to NRS by 1995, 2090)
NRS 92A.470 PAYMENT FOR SHARES: SHARES ACQUIRED ON OR AFTER DATE OF DISSENTER'S
NOTICE.
1. A subject corporation may elect to withhold payment from a dissenter unless
he was the beneficial owner of the shares before the date set forth in the
dissenter's notice as the date of the first announcement to the news media or to
the stockholders of the terms of the proposed action.
2. To the extent the subject corporation elects to withhold payment, after
taking the proposed action, it shall estimate the fair value of the shares, plus
accrued interest, and shall offer to pay this amount to each dissenter who
agrees to accept it in full satisfaction of his demand. The subject corporation
shall send with its offer a statement of its estimate of the fair value of the
shares, an explanation of how the interest was calculated, and a statement of
the dissenters' right to demand payment pursuant to NRS 92A.480.
(Added to NRS by 1995, 2091)
NRS 92A.480 DISSENTER'S ESTIMATE OF FAIR VALUE: NOTIFICATION OF SUBJECT
CORPORATION; DEMAND FOR PAYMENT OF ESTIMATE.
1. A dissenter may notify the subject corporation in writing of his own estimate
of the fair value of his shares and the amount of interest due, and demand
payment of his estimate, less any payment pursuant to NRS 92A.460, or reject the
offer pursuant to NRS 92A.470 and demand payment of the fair value of his shares
and interest due, if he believes that the amount paid pursuant to NRS 92A.460 or
offered pursuant to NRS 92A.470 is less than the fair value of his shares or
that the interest due is incorrectly calculated.
2. A dissenter waives his right to demand payment pursuant to this section
unless he notifies the subject corporation of his demand in writing within 30
days after the subject corporation made or offered payment for his shares.
(Added to NRS by 1995, 2091)
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NRS 92A.490 LEGAL PROCEEDING TO DETERMINE FAIR VALUE: DUTIES OF SUBJECT
CORPORATION; POWERS OF COURT; RIGHTS OF DISSENTER.
1. If a demand for payment remains unsettled, the subject corporation shall
commence a proceeding within 60 days after receiving the demand and petition the
court to determine the fair value of the shares and accrued interest. If the
subject corporation does not commence the proceeding within the 60 day period,
it shall pay each dissenter whose demand remains unsettled the amount demanded.
2. A subject corporation shall commence the proceeding in the district court of
the county where its registered office is located. If the subject corporation is
a foreign entity without a resident agent in the state, it shall commence the
proceeding in the county where the registered office of the domestic corporation
merged with or whose shares were acquired by the foreign entity was located.
3. The subject corporation shall make all dissenters, whether or not residents
of Nevada, whose demands remain unsettled, parties to the proceeding as in an
action against their shares. All parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
4. The jurisdiction of the court in which the proceeding is commenced under
subsection 2 is plenary and exclusive. The court may appoint one or more persons
as appraisers to receive evidence and recommend a decision on the question of
fair value. The appraisers have the powers described in the order appointing
them, or any amendment thereto. The dissenters are entitled to the same
discovery rights as parties in other civil proceedings.
5. Each dissenter who is made a party to the proceeding is entitled to a
judgment:
(a) For the amount, if any, by which the court finds the fair value of his
shares, plus interest, exceeds the amount paid by the subject corporation; or
(b) For the fair value, plus accrued interest, of his after-acquired shares for
which the subject corporation elected to withhold payment pursuant to NRS
92A.470.
(Added to NRS by 1995, 2091)
NRS 92A.500 LEGAL PROCEEDING TO DETERMINE FAIR VALUE: ASSESSMENT OF COSTS AND
FEES.
1. The court in a proceeding to determine fair value shall determine all of the
costs of the proceeding, including the reasonable compensation and expenses of
any appraisers appointed by the court. The court shall assess the costs against
the subject corporation, except that the court may assess costs against all or
some of the dissenters, in amounts the court finds equitable, to the extent the
court finds the dissenters acted arbitrarily, vexatiously or not in good faith
in demanding payment.
2. The court may also assess the fees and expenses of the counsel and experts
for the respective parties, in amounts the court finds equitable:
(a) Against the subject corporation and in favor of all dissenters if the court
finds the subject corporation did not substantially comply with the requirements
of NRS 92A.300 to 92A.500, inclusive; or
(b) Against either the subject corporation or a dissenter in favor of any other
party, if the court finds that the party against whom the fees and expenses are
assessed acted arbitrarily, vexatiously or not in good faith with respect to the
rights provided by NRS 92A.300 to 92A.500, inclusive.
3. If the court finds that the services of counsel for any dissenter were of
substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the subject corporation, the
court may award to those counsel reasonable fees to be paid out of the amounts
awarded to the dissenters who were benefited.
4. In a proceeding commenced pursuant to NRS 92A.460, the court may assess the
costs against the subject corporation, except that the court may assess costs
against all or some of the dissenters who are parties to the proceeding, in
amounts the court finds equitable, to the extent the court finds that such
parties did not act in good faith in instituting the proceeding.
5. This section does not preclude any party in a proceeding commenced pursuant
to NRS 92A.460 or 92A.490 from applying the provisions of N.R.C.P. 68 or NRS
17.115.
(Added to NRS by 1995, 2092)
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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:
(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-1
(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 December 9,
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 December 9, 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
Director
- ------------------------------
LOUIS G. ALLEN
/s/ PAUL R. BALLARD Director
- ------------------------------
PAUL R. BALLARD
/s/ DAVID L. BECKER Director
- ------------------------------
DAVID L. BECKER
/s/ DOUGLAS E. CRIST Director
- ------------------------------
DOUGLAS E. CRIST
/s/ MICHAEL J. DEVINE Director
- ------------------------------
MICHAEL J. DEVINE
/s/ JAMES C. EPOLITO Director
- ------------------------------
JAMES C. EPOLITO
/s/ GARY A. FALKENBERG Director
- ------------------------------
GARY A. FALKENBERG
/s/ JOEL I. FERGUSON Director
- ------------------------------
JOEL I. FERGUSON
II-5
Signature Title
- --------- -----
/s/ KATHLEEN A. GASKIN Director
- ------------------------------
KATHLEEN A. GASKIN
/s/ H. NICHOLAS GENOVA Director
- ------------------------------
H. NICHOLAS GENOVA
/s/ MICHAEL F. HANNLEY Director
- ------------------------------
MICHAEL F. HANNLEY
/s/ LEWIS D. JOHNS Director
- ------------------------------
LEWIS D. JOHNS
/s/ MICHAEL L. KASTEN Director
- ------------------------------
MICHAEL L. KASTEN
/s/ JOHN S. LEWIS President, Western Regions, Director
- ------------------------------
JOHN S. LEWIS
/s/ HUMBERTO S. LOPEZ Director
- ------------------------------
HUMBERTO S. LOPEZ
/s/ LEONARD MAAS Director
- ------------------------------
LEONARD MAAS
/s/ LYLE W. MILLER Director
- ------------------------------
LYLE W. MILLER
/s/ KATHRYN L. MUNRO Director
- ------------------------------
KATHRYN L. MUNRO
/s/ CRISTIN REID ENGLISH Chief Administrative Officer, Director
- ------------------------------
CRISTIN REID ENGLISH
/s/ RONALD K. SABLE Director
- ------------------------------
RONALD K. SABLE
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 Brian K. English, General Counsel,
as to the validity of the shares.
8 Tax Opinion of Miller, Canfield, Paddock and
Stone, PLC (included in the proxy statement/
prospectus as Annex C).
23.1a Consent of BDO Seidman, LLP.
23.1b Consent of BDO Seidman, LLP.
23.2 Consent of Miller, Canfield, Paddock and Stone, PLC
(included in Exhibit 8).
23.4 Consent of JMP Financial, Inc. (Nevada'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 Nevada Community Bancorp Limited.
KEY:
- ----
(1) Form S-18, Reg. No. 33-24728C, filed September 15, 1988.
(2) Post Effective Amendment No. 1 to Form S-3, Reg. No. 333-41215 and
333-41215-01 filed February 9, 1998.
II-7