As filed with the Securities and Exchange Commission on June 25, 2003
Registration No. 333-105680
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
AMENDMENT NO. 1 TO
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 STANDARD (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) INDUSTRIAL IDENTIFICATION NO.)
CLASSIFICATION
CODE NUMBER)
Capitol Bancorp Center
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 Ave.
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 (3)
- --------------------------------------------------------------------------------------------------------------
Common stock (no par value) 223,010 N/A $5,221,779 $423
==============================================================================================================
(1) Based on 245,000 shares of common stock, $6.00 par value, of Black Mountain
Community Bank, which is the maximum number of shares of Black Mountain
common stock (excluding shares held by Capitol) that may be issued and
outstanding immediately prior to the consummation of the exchange
transaction and 72,500 stock options of Black Mountain Community Bank
outstanding, multiplied by the proposed fixed exchange ratio of .702393.
(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 a price of
$23.415 per share of Capitol common stock (the average of the high and low
price per share of common stock of Capitol as reported on the Nasdaq
National Market on May 28, 2003), and the fixed exchange ratio of .702393
Capitol shares that may be issued in the consummation of the exchange
transaction contemplated.
(3) Previously remitted.
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.
PROXY STATEMENT/PROSPECTUS
PROPOSED PLAN OF SHARE EXCHANGE
The Board of Directors of Black Mountain Community Bank has approved a Plan
of Share Exchange that contemplates the exchange of the shares of Black Mountain
common stock held by all shareholders other than Capitol Bancorp Limited.
Capitol currently holds 51% of Black Mountain's common stock. As a result of the
exchange, Black Mountain will become a wholly-owned subsidiary of Capitol.
If the exchange is approved, each share of Black Mountain common stock will
be converted into the right to receive Capitol common stock according to a fixed
exchange ratio. The exchange ratio is calculated by dividing $14.691259, the per
share value of Black Mountain common stock, by $20.916, the average closing
prices of Capitol's common stock for the month ended March 31, 2003. At March
31, 2003, the book value per share of Black Mountain common stock was $10.71,
compared to share value of Black Mountain of $14.691259 based on the proposed
exchange. If the share exchange is approved, each shareholder of Black Mountain
would receive in the exchange .702393 shares of Capitol common stock for each
share of Black Mountain common stock. The share value of Black Mountain has been
determined and offered by Capitol solely based on its arbitrary valuation for
purposes of this proposed exchange.
Capitol has made similar share exchanges with minority shareholders of some
of its banks previously. It also has other similar share exchange proposals
pending currently. In these share exchange proposals, including the proposed
Black Mountain share exchange, Capitol's proposal is based on some premium over
the book value of the bank's common stock. However, the share values for the
bank's common stock always are different and, as stated previously, Capitol's
offer is based on its arbitrary valuation solely for purposes of the proposed
exchange(s).
Capitol estimates that Capitol will issue approximately 172,086 shares of
Capitol common stock to Black Mountain shareholders in the exchange, but could
be more if any of Black Mountain's stock options are exercised prior to the
exchange. Those shares will represent less than 5% of the outstanding Capitol
common stock after the exchange. Capitol's common stock currently trades on the
New York Stock Exchange under the symbol "CBC".
Black Mountain's Board of Directors has scheduled a meeting of Black
Mountain 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 13 FOR
A DESCRIPTION OF VARIOUS RISKS YOU SHOULD CONSIDER IN EVALUATING THE EXCHANGE OF
YOUR BLACK MOUNTAIN 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 _________, 2003, and is first
being mailed to shareholders of Black Mountain on or about __________, 2003.
1
[This page intentionally left blank]
2
TABLE OF CONTENTS
ANSWERS TO FREQUENTLY ASKED QUESTIONS.................................................................. 5
SUMMARY................................................................................................ 8
Reasons for the Exchange......................................................................... 8
The Annual Shareholders' Meeting................................................................. 8
Recommendation to Shareholders................................................................... 8
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 Black Mountain 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................................................................... 11
RISK FACTORS........................................................................................... 13
RECENT DEVELOPMENTS.................................................................................... 18
COMPARATIVE HISTORICAL, PRO FORMA AND PRO FORMA EQUIVALENT
PER SHARE INFORMATION.............................................................................. 19
CAPITALIZATION......................................................................................... 20
DIVIDENDS AND MARKET FOR COMMON STOCK.................................................................. 22
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS.............................................. 23
INFORMATION ABOUT CAPITOL.............................................................................. 24
INFORMATION ABOUT BLACK MOUNTAIN....................................................................... 24
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION........................................................... 26
THE ELECTION OF DIRECTORS.............................................................................. 29
THE EXCHANGE........................................................................................... 30
General.......................................................................................... 30
Background of the Exchange....................................................................... 30
Black Mountain's Reasons for the Exchange........................................................ 31
Capitol's Reasons for the Exchange............................................................... 31
Terms of Exchange................................................................................ 31
Black Mountain Board Recommendation.............................................................. 31
Accounting Treatment............................................................................. 32
Pro Forma Data................................................................................... 32
Material Federal Income Tax Consequences......................................................... 32
Regulatory Matters............................................................................... 34
Dissenters' Rights............................................................................... 34
Federal Securities Laws Consequences; Stock Transfer Restrictions................................ 35
3
TABLE OF CONTENTS - Continued
OPINION OF FINANCIAL ADVISOR........................................................................... 36
THE CLOSING............................................................................................ 39
Effective Time................................................................................... 39
Shares Held by Capitol........................................................................... 39
Procedures for Surrender of Certificates; Fractional Shares...................................... 39
Fees and Expenses................................................................................ 40
Stock Market Listing............................................................................. 40
Amendment and Termination........................................................................ 40
THE SHAREHOLDERS' MEETING.............................................................................. 41
Date, Time and Place............................................................................. 41
Matters to be Considered at the Shareholders' Meeting............................................ 41
Record Date; Stock Entitled to Vote; Quorum...................................................... 41
Votes Required................................................................................... 41
Share Ownership of Management.................................................................... 41
Voting of Proxies................................................................................ 42
General Information.............................................................................. 42
Solicitation of Proxies; Expenses................................................................ 42
COMPARISON OF SHAREHOLDER RIGHTS....................................................................... 43
DESCRIPTION OF CAPITAL STOCK OF CAPITOL................................................................ 44
Rights of Common Stock........................................................................... 44
Shares Available for Issuance.................................................................... 44
Capitol's Preferred Securities................................................................... 45
Anti-Takeover Provisions......................................................................... 45
WHERE YOU CAN FIND MORE INFORMATION.................................................................... 47
LEGAL MATTERS.......................................................................................... 48
EXPERTS................................................................................................ 48
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 Black Mountain Community Bank........................... D-1
ANNEX E Financial and Other Information Regarding Capitol Bancorp Ltd........................... E-1
ANNEX F Excerpts of Nevada Revised Statutes Regarding Dissenters' Rights........................ F-1
4
ANSWERS TO
FREQUENTLY ASKED QUESTIONS
Q: Why am I receiving these materials?
A: Black Mountain's Board of Directors has approved the exchange of the 49% of
Black Mountain's common stock not owned by Capitol for shares of common
stock of Capitol. The exchange requires the approval of Black Mountain's
shareholders. Black Mountain is sending you these materials to help you
decide whether to approve the exchange.
Q: What will I receive in the exchange?
A: You will receive shares of Capitol common stock, which are publicly traded
currently on the New York Stock Exchange under the symbol "CBC". If the
exchange is approved, you would receive .702393 shares of Capitol common
stock for each share of Black Mountain common stock you own. Any fractional
shares will be paid in cash.
Q: What do I need to do now?
A: After you have carefully read this document, indicate on the enclosed proxy
card how you want to vote. Sign and mail the proxy card in the enclosed
prepaid return envelope as soon as possible. You should indicate your vote
now even if you expect to attend the shareholders' meeting and vote in
person. Indicating your vote now will not prevent you from later canceling
or revoking your proxy right up to the day of the shareholders' meeting and
will ensure that your shares are voted if you later find you cannot attend
the shareholders' meeting.
Q: What do I do if I want to change my vote?
A: You may change your vote:
. by sending a written notice to the President of Black Mountain 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 July 15, 2003; or
. by attending the shareholders' meeting and voting in person.
Q: What vote is required to approve the exchange?
A: In order to complete the exchange, holders of a majority of the shares of
Black Mountain common stock (other than Capitol) must approve the Plan of
Share Exchange. If you do not vote your Black Mountain shares, the effect
will be a vote against the Plan of Share Exchange.
Q: Should I send in my stock certificates at this time?
A: No. After the exchange is approved, Capitol or Capitol's stock transfer
agent will send Black Mountain shareholders written instructions for
exchanging their stock certificates.
5
Q: When do you expect to complete the exchange?
A: As quickly as possible after July 25, 2003. Approval by Black Mountain's
shareholders at the shareholders' meeting must be obtained first. It is
anticipated the exchange will be completed by August 31, 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 or included with this document. This information is available to
you without charge upon written or oral request. You can obtain the
documents incorporated by reference in this proxy statement/prospectus
through the Securities and Exchange Commission website at WWW.SEC.GOV or by
requesting them in writing or by telephone from Capitol at the following
address:
Capitol Bancorp Limited
Capitol Bancorp Center
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
JULY 15, 2003.
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:
Black Mountain Community Bank
1700 West Horizon Ridge Parkway
Suite 101
Las Vegas, Nevada 89012
(702) 990-5900
Attention: Peter M. Atkinson
President
or
Capitol Bancorp Limited
Capitol Bancorp Center
200 Washington Square North, Fourth Floor
Lansing, Michigan 48933
(517) 487-6555
Attention: Brian K. English
General Counsel
If you would like additional copies of this
proxy statement/prospectus you should contact:
Capitol Bancorp Ltd. 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 the Capitol Bancorp Center, 200 Washington Square North, Fourth Floor,
Lansing, Michigan 48933. Capitol's telephone number is (517) 487-6555.
Additionally, Capitol has its Western Region headquarters located at 2777 East
Camelback Road, Suite 375, Phoenix, Arizona 85016. Capitol's telephone number at
its Western Region headquarters is (602) 955-6100.
Capitol is a uniquely structured affiliation of community banks. It
currently has 29 wholly or majority-owned bank subsidiaries, including Black
Mountain Community Bank. 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 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.
Black Mountain Community Bank is a commercial bank with its headquarters at
1700 West Horizon Ridge Parkway, Suite 101, Las Vegas, Nevada 89012. Black
Mountain's telephone number is (702) 990-5900.
Black Mountain has been, since it commenced business, an affiliate and
controlled subsidiary of Capitol. Black Mountain commenced the business of
banking in March 2000. Black Mountain offers a full range of commercial banking
services. For periods from its inception through December 31, 2002, Black
Mountain was a majority-owned subsidiary of Nevada Community Bancorp Limited.
Nevada was previously a 54% owned subsidiary of Capitol Bancorp Limited. In
January 2003, Nevada became a wholly-owned subsidiary of Capitol as of the
result of a share exchange transaction and was merged into Capitol.
REASONS FOR THE EXCHANGE (PAGE 31)
It is believed that the exchange will provide you with greater liquidity
and flexibility because Capitol's common stock is publicly traded. The exchange
will also provide you with greater diversification, since Capitol is active in
more than one geographic area and across a broader customer base.
THE SHAREHOLDERS' MEETING (PAGE 41)
The meeting of Black Mountain shareholders will be held on July 25, 2003 at
10:00 a.m., local time, at Black Mountain Community Bank at 1700 West Horizon
Ridge Parkway, Suite 101, Las Vegas, Nevada 89012. At the shareholders' meeting,
you will elect Black Mountain's Board of Directors and be asked to approve the
Plan of Share Exchange.
RECOMMENDATION TO SHAREHOLDERS (PAGE 31)
The Black Mountain board believes that the exchange is fair to you and in
the best interests of both you and Black Mountain and recommends that you vote
FOR approval of the share exchange.
8
VOTES REQUIRED (PAGE 41)
Approval of the Plan of Share Exchange requires the favorable vote of a
majority of the outstanding shares of Black Mountain common stock excluding the
shares held by Capitol. This is more than the vote required by law, but Black
Mountain's board has set the vote requirement to be sure the exchange is what
you, the shareholders of Black Mountain, want. Capitol holds 51% of the
outstanding shares of Black Mountain common stock. Black Mountain's Board of
Directors and officers hold 7.47% of the outstanding shares of Black Mountain
common stock, or 15.24% 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 41)
Black Mountain shareholders may vote at the shareholders' meeting if they
owned shares of common stock at the close of business on May 15, 2003. At the
close of business on March 31, 2003, 245,000 shares of Black Mountain common
stock were outstanding (excluding shares held by Capitol). For each share of
Black Mountain 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 31)
In the exchange, each outstanding share of Black Mountain common stock will
be automatically converted into the right to receive Capitol common stock,
according to an "exchange ratio". The exchange ratio is fixed, and if the
exchange is approved, each shareholder of Black Mountain would receive in the
exchange .702393 shares of Capitol common stock for each share of Black Mountain
common stock. The exchange ratio is determined by dividing the Black Mountain
Share Value by the Capitol Share Value, where:
BLACK MOUNTAIN SHARE VALUE. The value of each share of Black Mountain
common stock shall be $14.691259.
CAPITOL SHARE VALUE. The share value of each share of Capitol common
stock shall be $20.916, the average of the closing prices of Capitol
common stock for the month ended March 31, 2003, as reported by the
Nasdaq Stock Market, Inc.
The Black Mountain Share Value of $14.691259 compares to the book value per
Black Mountain share of $10.71 as of March 31, 2003. Based on the fixed exchange
ratio, and if the exchange is approved, each shareholder would receive .702393
shares of Capitol common stock for each share of Black Mountain common stock.
Each Black Mountain shareholder (except Capitol) will receive shares of
Capitol common stock in exchange for his, her or their Black Mountain common
stock calculated by multiplying the number of shares of Black Mountain common
stock held by the shareholder by the exchange ratio. Any fractional shares will
be paid in cash.
ACCOUNTING TREATMENT (PAGE 32)
Capitol's acquisition of the minority interest of Black Mountain will be
accounted for under the purchase method of accounting. After the exchange, all
of Black Mountain's results from operations will be included in Capitol's income
statement, as opposed to only a portion, which is currently reported.
9
TAX CONSEQUENCES OF THE EXCHANGE TO BLACK MOUNTAIN SHAREHOLDERS (PAGE 32)
Capitol's tax counsel has rendered its opinion that the exchange should be
treated as a reorganization for United States federal income tax purposes.
Accordingly, Black Mountain shareholders generally will not recognize any gain
or loss for United States federal income tax purposes on the exchange of their
Black Mountain shares for shares of Capitol's common stock in the exchange,
except for any gain or loss recognized in connection with the receipt of cash
instead of a fractional share of Capitol's common stock. Tax counsel's opinion
is attached as Annex 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 Black Mountain 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 34)
Under Nevada law, shareholders of Black Mountain 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 36)
Black Mountain retained JMP Financial, Inc. as its financial advisor and
agent in connection with the exchange to render a financial fairness opinion to
the Black Mountain shareholders.
In deciding to approve the exchange, the Black Mountain board considered
this opinion, which stated that as of its date and subject to the considerations
described in it, the consideration to be received in the exchange by holders of
Black Mountain common stock is fair from a financial point of view. The opinion
is attached as Annex B to this proxy statement/prospectus.
THE PLAN OF SHARE EXCHANGE (PAGE 30)
The Plan of Share Exchange is attached as Annex A to this proxy
statement/prospectus. You are encouraged to read the Plan of Share Exchange
because it is the legal document that governs the exchange.
TERMINATION OF THE EXCHANGE (PAGE 40)
Black Mountain and Capitol can jointly agree to terminate the plan of
exchange at any time without completing the exchange.
Black Mountain can terminate the exchange if a majority of Black Mountain's
shareholders (other than Capitol) fail to approve the exchange at the
shareholders' meeting; or a governmental authority prohibits the exchange.
YOUR RIGHTS AS A SHAREHOLDER WILL CHANGE (PAGE 43)
Your rights as a Black Mountain shareholder are determined by Nevada's
banking law and by Black Mountain's articles of incorporation and by-laws. When
the exchange is completed, your rights as a Capitol stockholder will be
determined by Michigan law relating to business corporations (not the banking
law) and by Capitol's articles of incorporation and by-laws. See "Comparison of
Shareholders Rights".
10
SELECTED CONSOLIDATED FINANCIAL DATA
The consolidated financial data below summarizes historical consolidated
financial information for the periods indicated and should be read in
conjunction with the financial statements and other information included in
Capitol's Annual Report on Form 10-K for the year ended December 31, 2002, 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
March 31, 2003, 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 three months ended March 31,
2003 are not necessarily indicative of results which may be expected in future
periods, including the year ending December 31, 2003. 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, 2002 and 2001, and
the related consolidated statements of income, changes in stockholders' equity
and cash flows for the years ended December 31, 2002, 2001 and 2000 are
incorporated herein by reference. The selected financial data provided below as
of March 31, 2003 and for the three months ended March 31, 2003 and 2002 have
been derived from Capitol's consolidated financial statements which are
incorporated herein by reference. Selected balance sheet data as of March 31,
2002 and December 31, 2000, 1999 and 1998 and results of operations data for the
years ended December 31, 1999 and 1998 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 Black
Mountain) are included in Capitol's consolidated balance sheet. Capitol's
consolidated net income, however, only includes its subsidiaries' (including
Black Mountain) 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
THREE MONTHS ENDED AS OF AND FOR THE
MARCH 31 YEARS ENDED DECEMBER 31
---------------------- ------------------------------------------------------------
2003 2002 2002 2001 2000 1999 1998
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
SELECTED RESULTS OF OPERATIONS DATA:
Interest income $ 39,986 $ 37,255 $ 156,454 $ 153,797 $ 132,311 $ 93,602 $ 69,668
Interest expense 12,999 14,432 55,860 73,292 65,912 46,237 36,670
Net interest income 26,987 22,823 100,594 80,505 66,399 47,365 32,998
Provision for loan losses 1,890 2,090 12,676 8,167 7,216 4,710 3,523
Net interest income after provision
for loan losses 25,097 20,733 87,918 72,338 59,183 42,655 29,475
Noninterest income 4,529 2,798 14,982 9,585 6,137 4,714 3,558
Noninterest expense 21,156 18,793 77,151 64,136 52,846 40,257 26,325
Income before income tax expense,
minority interest and cumulative
effect of change in accounting
principle 8,470 4,738 25,749 17,787 12,474 7,112 6,708
Income tax expense 2,944 1,543 8,701 5,824 4,289 3,213 2,584
Income before minority interest and
cumulative effect of change in
accounting principle 5,526 3,195 17,048 11,963 8,185 3,899 4,124
Minority interest in net losses
(income) of consolidated
subsidiaries (213) (151) (395) (1,245) (150) 1,707 504
Income before cumulative effect
of change in accounting
principle 5,313 3,044 16,653 10,718 8,035 5,606 4,628
Cumulative effect of change in
accounting principle (1) (197)
Net income 5,313 3,044 16,653 10,718 8,035 5,409 4,628
11
CAPITOL BANCORP LIMITED
----------------------------------------------------------------------------------------
AS OF AND FOR THE
THREE MONTHS ENDED AS OF AND FOR THE
MARCH 31 YEARS ENDED DECEMBER 31
----------------------- --------------------------------------------------------------
2003 2002 2002 2001 2000 1999 1998
---------- ---------- ---------- ---------- ---------- ---------- ----------
(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 $ 0.45 $ 0.39 $ 1.64 $ 1.38 $ 1.14 $ 0.87 $ 0.74
Diluted 0.44 0.38 1.57 1.35 1.13 0.86 0.72
After cumulative effect of
change in accounting
principle (1):
Basic 0.45 0.39 1.64 1.38 1.14 0.84 0.74
Diluted 0.44 0.38 1.57 1.35 1.13 0.83 0.72
Cash dividends declared 0.12 0.10 0.44 0.40 0.36 0.36 0.33
Book value 14.01 11.88 13.72 10.24 9.18 8.08 7.77
Pro forma equivalent book
value (2) 14.11 N/A N/A N/A N/A N/A N/A
Dividend payout ratio 26.67% 25.64% 26.83% 28.99% 31.58% 42.86% 43.63%
Weighted average number of
common shares outstanding 11,698 7,901 10,139 7,784 7,065 6,455 6,284
SELECTED BALANCE SHEET DATA:
Total assets $2,540,289 $2,174,334 $2,409,288 $2,044,006 $1,630,076 $1,305,987 $1,024,444
Investment securities 40,517 44,144 34,139 43,687 68,926 107,145 86,464
Portfolio loans 2,052,157 1,794,207 1,991,372 1,734,589 1,355,798 1,049,204 724,280
Allowance for loan losses (30,034) (24,744) (28,953) (23,238) (17,449) (12,639) (8,817)
Deposits 2,181,440 1,853,343 2,062,072 1,740,385 1,400,899 1,112,793 890,890
Debt obligations 84,348 89,361 93,398 89,911 58,150 47,400 23,600
Minority interests in
consolidated subsidiaries 31,808 40,320 28,016 70,673 62,575 54,593 27,576
Trust preferred securities 61,299 48,636 51,583 48,621 24,327 24,291 24,255
Stockholders' equity 164,471 126,364 160,037 80,172 70,404 54,668 49,292
PERFORMANCE RATIOS: (3)
Return on average equity 13.09% 14.80% 13.33% 15.22% 13.78% 10.66% 10.19%
Return on average assets 0.87% 0.58% 0.75% 0.58% 0.55% 0.47% 0.55%
Net interest margin (fully
taxable equivalent) 4.76% 4.69% 4.80% 4.60% 4.80% 4.44% 4.15%
Efficiency ratio (4) 67.13% 73.35% 66.75% 71.19% 72.85% 77.30% 70.63%
ASSET QUALITY:
Non-performing loans (5) $ 25,981 $ 22,304 $ 22,890 $ 17,238 $ 6,757 $ 4,124 $ 7,242
Allowance for loan losses to
non-performing loans 115.60% 110.94% 126.49% 134.81% 258.24% 306.47% 121.75%
Allowance for loan losses to
portfolio loans 1.46% 1.38% 1.45% 1.34% 1.29% 1.20% 1.22%
Non-performing loans to total
portfolio loans 1.27% 1.24% 1.15% 0.99% 0.50% 0.39% 1.00%
Net loan losses to average
portfolio loans 0.16% 0.13% 0.37% 0.15% 0.20% 0.10% 0.15%
CAPITAL RATIOS:
Average equity to average assets 6.64% 3.84% 5.59% 3.78% 4.26% 4.46% 5.36%
Tier 1 risk-based capital ratio 10.68% 10.74% 10.52% 10.54% 11.10% 10.78% 13.42%
Total risk-based capital ratio 12.12% 11.99% 11.77% 11.85% 12.35% 11.62% 14.60%
Leverage ratio 6.47% 5.81% 6.64% 3.92% 4.32% 4.35% 4.88%
- ----------
(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 exchange ratio of .702393 shares of Capitol for each share of
Black Mountain. Excludes the pro forma effect of other share exchange
transactions or proposals of Capitol (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
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 YOUR BLACK MOUNTAIN 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.
Black Mountain is already a majority-owned and controlled subsidiary of
Capitol. By virtue of the existing relationship between Black Mountain 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 Black Mountain shares against any other share
exchange proposals. Capitol's proposal to value Black Mountain shares at
$14.691259 in the proposed share exchange is based solely on its judgment in
making such proposal. Accordingly, the Black Mountain Share Value and related
exchange ratio have not been determined absent the inherent conflicts of
interest between Capitol and Black Mountain. It is unknown what exchange ratio
or Black Mountain Share Value, if any, that might be negotiated between Black
Mountain 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 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, 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 has rapidly and significantly expanded its operations and
anticipates that further expansion will be required to realize its growth
strategy. Capitol's rapid growth has placed significant demands on its
management and other resources which, given its expected future growth rate, are
likely to continue. To manage future growth, Capitol will need to attract, hire
and retain highly skilled and motivated officers and employees and improve
existing systems and/or implement new systems for:
- transaction processing;
- operational and financial management; and
- training, integrating and managing Capitol's growing employee base.
13
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 BANK'S SMALL SIZE MAY MAKE IT DIFFICULT TO COMPETE WITH LARGER
INSTITUTIONS BECAUSE CAPITOL IS NOT ABLE TO COMPETE WITH LARGE BANKS IN THE
OFFERING OF SIGNIFICANTLY LARGER LOANS.
Capitol endeavors to capitalize its newly formed banks with the lowest
dollar amount permitted by regulatory agencies. As a result, the legal lending
limits of Capitol's 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 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 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. Capitol's current bank affiliates are regulated primarily by the
state banking regulators and the FDIC and, in the case of one national bank, the
Office of the Comptroller of the Currency (OCC).
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.
14
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 prior experience with the regulatory application process
has been favorable, the future climate for regulatory approval is impossible to
predict. Regulatory agencies could prohibit or otherwise significantly restrict
the expansion plans of Capitol, its current bank subsidiaries and future new
start-up banks.
THE BANKS' ALLOWANCES FOR LOAN LOSSES MAY PROVE INADEQUATE TO ABSORB ACTUAL LOAN
LOSSES, 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 at the balance sheet date. Management's estimates are used to
determine the allowance and are based on historical loan loss experience,
specific problem loans, value of underlying collateral and other relevant
factors. These estimates are subjective and their accuracy depends on the
outcome of future events. Actual losses may differ from current estimates.
Depending on changes in economic, operating and other conditions, including
changes in interest rates, that are generally beyond Capitol's control, actual
loan losses could increase significantly. As a result, such losses could exceed
current allowance estimates. No assurance can be provided that the allowance
will be sufficient to cover actual future loan losses should such losses be
realized.
Loan loss experience, which is helpful in estimating the requirements for
the allowance for loan losses at any given balance sheet date, has been minimal
at many of Capitol's banks. Because many of Capitol'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 in 2003. Capitol's loan losses in 2002 increased.
Further, nonperforming loans have increased and it is anticipated that levels of
nonperforming loans and related loan losses may increase as economic conditions,
locally and nationally, evolve.
In addition, bank regulatory agencies, as an integral part of their
supervisory functions, periodically review the adequacy of the allowance for
loan losses. Regulatory agencies may require Capitol or its banks to increase
their provision for loan losses or to recognize further loan charge-offs based
upon judgments different from those of management. Any increase in the allowance
required by regulatory agencies could have a negative impact on Capitol's
operating results.
15
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 banks make various types of loans, including commercial,
consumer, residential mortgage and construction loans. Capitol'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 DECREASES IN
INTEREST RATES MAY ADVERSELY AFFECT CAPITOL'S NET INTEREST INCOME.
CHANGES IN NET INTEREST INCOME. Capitol's profitability is significantly
dependent on net interest income. Net interest income is the difference between
interest income on interest-earning assets, such as loans, and interest expense
on interest-bearing liabilities, such as deposits. Therefore, any change in
general market interest rates, whether as a result of changes in monetary
policies of the Federal Reserve Board or otherwise, can have a significant
effect on net interest income. Capitol's assets and liabilities may react
differently to changes in overall market rates or conditions because there may
be mismatches between the repricing or maturity characteristic of assets and
liabilities. As a result, changes in interest rates can affect net interest
income in either a positive or negative way.
In 2001, the FRBOMC decreased interbank interest rates 11 times, which was
an unprecedented action to reduce rates 475 basis points within a year. Interest
rates have remained relatively stable in 2002 with only one rate change from
FRBOMC. Through June 24, 2003 there have been no interest rate changes initiated
by FRBOMC. Future stability of interest rates and FRBOMC policy are uncertain.
CHANGES IN THE YIELD CURVE. Changes in the difference between short and
long-term interest rates, commonly known as the yield curve, may also harm
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.
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.
16
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 March 31, 2003, Capitol had notes payable to an unaffiliated bank
outstanding in the amount of approximately $4 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 $61 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.
17
RECENT DEVELOPMENTS
In April 2003, Capitol announced the completion of an $11 million private
placement of its common stock to select institutional investors and the issuance
of approximately 550,000 shares of previously unissued common stock. Proceeds
from the offering have been used to reduce borrowings from an unaffiliated bank
and investment in short-term investments.
In addition to the proposed Black Mountain share exchange, Capitol has
proposed share exchange transactions regarding Red Rock Community Bank ("Red
Rock"), Desert Community Bank ("Desert") and Elkhart Community Bank ("Elkhart"),
which are majority-owned subsidiaries of Capitol, subject to the approval of
their shareholders (other than Capitol). If the Red Rock share exchange is
approved, Capitol estimates issuing approximately 295,000 shares of Capitol
common stock. If the Desert share exchange is approved, Capitol estimates
issuing approximately 161,000 shares of Capitol common stock. If the Elkhart
share exchange is approved, Capitol estimates issuing approximately 169,000
shares of Capitol common stock.
On May 15, 2003, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 150, ACCOUNTING FOR CERTAIN FINANCIAL
INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND Equity. Management has
not completed its analysis of this very recently issued standard which becomes
effective for Capitol's financial statements for periods beginning July 1, 2003.
Based on management's preliminary analysis of this new standard, the primary
impact of it on Capitol's consolidated financial statements will be the
reclassification of trust-preferred securities as liabilities from their prior
mezzanine capital treatment, although those securities will continue to be
treated as qualifying capital for regulatory purposes.
Bank development efforts are currently under consideration at June 24, 2003
in several states including pre-development exploratory discussions, lease and
employment negotiations and preparation of preliminary regulatory applications
for formation and/or acquisition of community banks.
In early May 2003, Capitol filed an application with the New York Stock
Exchange (NYSE) for the listing of its common stock. On June 24, 2003, Capitol's
common stock began trading on the NYSE under the symbol CBC and its listing on
the Nasdaq Stock Market was terminated.
18
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
Three Months Ended For the Year Ended
March 31, 2003 December 31, 2002
-------------- -----------------
Capitol common stock:
Net income per share:
Basic:
Historical $ 0.45 $ 1.64
Pro forma consolidated(1) 0.46 1.64
Diluted:
Historical 0.44 1.57
Pro forma consolidated(1) 0.44 1.57
Cash dividends per share:
Historical 0.12 0.44
Pro forma consolidated(2) 0.12 $ 0.44
Book value per share at March 31, 2003:
Historical 14.01
Pro forma consolidated(1) $14.11
Black Mountain common stock:
Net income per share:
Basic:
Historical $ 0.36 $ 0.88
Pro forma equivalent(3) 0.32 1.15
Diluted:
Historical 0.36 0.88
Pro forma equivalent(3) 0.31 1.10
Cash dividends per share:
Historical -- --
Pro forma equivalent(3) 0.08 $ 0.31
Book value per share at March 31, 2003:
Historical 10.71
Pro forma equivalent(3) $ 9.91
1 -- Assumes completion of proposed Black Mountain exchange and excludes the pro
forma effect of other pending share exchange transactions or proposals of
Capitol (see "Recent Developments").
2 -- The Capitol pro forma consolidated dividends per share represent historical
dividends per share.
3 -- The Black Mountain pro forma equivalent per share amounts are calculated by
multiplying Capitol pro forma consolidated per share amounts by the
exchange ratio of .702393.
19
CAPITALIZATION
The table presented below shows Capitol's actual total capitalization as of
March 31, 2003, and the proposed exchange of Capitol's common stock for Black
Mountain's common stock as described in this proxy statement/prospectus and
pending share exchanges regarding three other subsidiaries of Capitol (as
described below).
AS OF MARCH 31, 2003
-------------------------------------------------------------------
AS ADJUSTED FOR THE PROPOSED
BLACK MOUNTAIN
AS ADJUSTED FOR THE EXCHANGE(4) AND PENDING
PROPOSED BLACK RED ROCK, DESERT
ACTUAL MOUNTAIN EXCHANGE(4) AND ELKHART EXCHANGES(5)
------ -------------------- ------------------------
DEBT OBLIGATIONS ....................................... $ 84,348 $ 84,348 $ 84,348
========= ========= =========
TRUST-PREFERRED SECURITIES ............................. $ 61,299 $ 61,299 $ 61,299
MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES ........ 31,808 29,277 20,115
STOCKHOLDERS' EQUITY(1):
Common stock, no par value; 25,000,000
shares authorized; issued, and outstanding:
Actual - 11,737,860 shares ....................... 134,211
As adjusted for the proposed Black
Mountain exchange - 11,909,946 shares(4) ....... 137,810
As adjusted for proposed Black
Mountain(4) and pending Red Rock, Desert
and Elkhart exchanges - 12,535,310 shares(5) ... 150,890
Retained earnings .................................. 30,228 30,228 30,228
Market value adjustment for
available-for-sale securities
(net of tax effect) .............................. 177 177 177
Less unallocated ESOP shares ....................... (145) (145) (145)
--------- --------- ---------
Total stockholders' equity ..................... $ 164,471 $ 168,070 $ 181,150
========= ========= =========
Book value per share of common stock ................. $ 14.01 $ 14.11 $ 14.45
========= ========= =========
TOTAL CAPITALIZATION(2) ................................ $ 196,279 $ 197,347 $ 201,265
========= ========= =========
TOTAL CAPITAL FUNDS(3) ................................. $ 257,578 $ 258,646 $ 262,564
========= ========= =========
CAPITAL RATIOS:
Stockholders' equity to total assets ................. 6.47% 6.61% 7.12%
Total capitalization to total assets ................. 7.28% 7.77% 7.91%
Total capital funds to total assets .................. 10.14% 10.18% 10.32%
Footnotes regarding the above presentation appear on the following page.
20
FOOTNOTES TO CAPITALIZATION TABLE
(1) Does not include approximately 2.4 million shares of common stock issuable
upon exercise of stock options.
(2) Total capitalization includes stockholders' equity and minority interests
in consolidated subsidiaries.
(3) Total capital funds include stockholders' equity, minority interests in
consolidated subsidiaries and trust-preferred securities.
(4) Assumes issuance of 172,086 shares of Capitol common stock upon completion
of the proposed Black Mountain exchange. See "Unaudited Pro Forma
Consolidated Financial Information."
(5) Assumes issuance of Capitol common stock upon completion of proposed Black
Mountain share exchange. Also assumes issuance of approximately 625,000
shares of Capitol's common stock which may be issued upon completion of the
pending share exchange transactions regarding Red Rock Community Bank,
Desert Community Bank and Elkhart Community Bank. The pending Red Rock,
Desert and Elkhart share exchanges are subject to the approval of those
respective banks' shareholders other than Capitol.
[The remainder of this page intentionally left blank]
21
DIVIDENDS AND MARKET FOR COMMON STOCK
Capitol's common stock was listed on the Nasdaq National Market under the
symbol "CBCL" through June 23, 2003. On June 24, 2003, Capitol's common stock
began trading on the New York Stock Exchange (NYSE) under the symbol "CBC". 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 $25.950
on June 24, 2003.
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 ended December 31 23.780 15.130 0.12
2003
- ----
Quarter ended March 31 24.250 19.000 0.12
Quarter ended June 30 (through June 24) $ 27.880 $ 20.000 $ 0.12
As of March 17, 2003, there were 5,228 beneficial holders of Capitol's
common stock based on information supplied by its stock transfer agent and other
sources.
Holders of common stock are entitled to receive dividends when, as and if
declared by Capitol's Board of Directors out of funds legally available.
Although Capitol has paid dividends on its common stock for the preceding five
years, there is no assurance that dividends will be paid in the future. The
declaration and payment of dividends on Capitol's common stock depends upon the
earnings and financial condition of Capitol, liquidity and capital requirements,
the general economic and regulatory climate, Capitol's ability to service debt
obligations senior to the common stock and other factors deemed relevant by
Capitol's Board of Directors. Regulatory authorities impose limitations on the
ability of banks to pay dividends to Capitol and the ability of Capitol to pay
dividends to its shareholders.
There is no market for Black Mountain's common stock. Any transfers have
been made privately and are not reported. Black Mountain has never paid a
dividend on its common stock.
22
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 planned expansion into new markets;
- 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".
23
INFORMATION ABOUT CAPITOL
This proxy statement/prospectus is accompanied by a copy of the following
documents as indicated in Annex E:
- Report on Form 10-Q for period ended March 31, 2003
- Annual Report to Shareholders for year ended December 31, 2002
- Annual Report on Form 10-K for year ended December 31, 2002
- Proxy statement for Capitol's Annual Meeting of Shareholders held on
May 8, 2003
INFORMATION ABOUT BLACK MOUNTAIN
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 March 31, 2003 and December 31, 2002 are
included in this proxy statement/prospectus as part of Annex D.
FINANCIAL STATEMENTS.
Unaudited interim condensed financial statements of Black Mountain as of
March 31, 2003 and for the three months ended March 31, 2003 and 2002 are
included in this proxy statement/prospectus as part of Annex D. Audited
financial statements of Black Mountain as of and for the periods ended December
31, 2002, 2001 and 2000 are included in this proxy statement/prospectus as part
of Annex D.
[The remainder of this page intentionally left blank]
24
VOTING SECURITIES AND PRINCIPAL HOLDERS.
The following table shows the share holdings of entities and/or individuals
owning 5% or more of Black Mountain's common stock and the shares of Black
Mountain owned by each director and officer of Black Mountain and all directors
and officers as a group. Where applicable, the table includes shares held by
members of their immediate families.
Black Mountain shares beneficially owned
-----------------------------------------------------------------
Percentage of all
Black Mountain shares
Percentage of all excluding Black
Black Mountain Mountain shares owned
Name of Beneficial owner Number Shares by Capitol
- ------------------------ ------ ----------------- ---------------------
Entities and/or individuals owning 5% or
more of Black Mountain's common stock:
Capitol Bancorp Limited 255,000 51.00% N/A
======= ===== =====
Black Mountain's Directors and Officers:
Peter M. Atkinson 1,350 0.27% 0.55%
Michael D. Ballard 100 0.02% 0.04%
Michael J. Devine 200 0.04% 0.08%
Betty A. Kincaid 5,000 1.0% 2.04%
Charles L. Lasky 500 0.10% 0.20%
Clare M. MacDonald 20,000 4.0% 8.16%
Thomas C. Mangione 1,200 0.24% 0.49%
Michael J. Mixer 1,000 0.20% 0.41%
Colleen C O'Callaghan-Miele 500 0.10% 0.20%
Philip N. Ralston 1,000 0.20% 0.41%
Joseph D. Reid III 0 -- --
Christopher G. Samson 500 0.10% 0.20%
David S. Rennick 1,100 0.22% 0.45%
Dennis L. Monson 0 -- --
Kathy M. Lucero 400 0.08% 0.16%
RaMon McBride 2,500 0.50% 1.02%
Shari A. Smith 2,000 0.40% 0.82%
------- ------ ------
Total of Directors and Officers 37,350 7.47% 15.24%
======= ====== ======
Other than those entities and/or individuals indicated above, no individual
owns greater than 5% of the outstanding shares of Black Mountain.
25
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
Black Mountain is already included in Capitol's consolidated financial
statements. Unaudited pro forma consolidated financial information follow,
adjusted for the proposed Black Mountain exchange, which will be accounted for
under the purchase method of accounting (if consummated), as if it had occurred
effective March 31, 2003 (shown on page 27) and at the beginning of 2002 (shown
on page 28). 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
March 31, 2003 are not necessarily indicative of results for the year ending
December 31, 2003 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.
[The remainder of this page intentionally left blank]
26
Unaudited Pro Forma Condensed Consolidated Balance Sheet
Capitol Bancorp Ltd. And Subsidiaries
March 31, 2003
(in $1,000s, except share and per-share data)
PRO FORMA PRO FORMA
ADJUSTMENTS AMOUNTS
REGARDING AFTER
HISTORICAL PROPOSED PROPOSED
AMOUNTS SHARE SHARE
ASSETS AS REPORTED EXCHANGE EXCHANGES
------------ ------------ ------------
Cash and cash equivalents $ 323,945 $ 323,945
Loans held for resale 65,465 65,465
Investment securities 40,517 40,517
Portfolio loans 2,052,157 2,052,157
Less allowance for loan losses (30,034) (30,034)
------------ ------------
Net portfolio loans 2,022,123 2,022,123
Premises and equipment, net 20,565 20,565
Goodwill and other intangibles 24,606 $ 1,068 A 25,674
Other assets 43,068 43,068
------------ ------------ ------------
TOTAL ASSETS $ 2,540,289 $ 1,068 $ 2,541,357
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 2,181,440 $ 2,181,440
Debt obligations 84,348 84,348
Other liabilities 16,923 16,923
------------ ------------ ------------
Total liabilities 2,282,711 -- 2,282,711
Trust-preferred securities 61,299 61,299
Minority interests in consolidated subsidiaries 31,808 $ (2,531) B 29,277
Stockholders' equity:
Common stock 134,211 3,599 C 137,810
Retained earnings 30,228 30,228
Other, net 32 32
------------ ------------ ------------
Total stockholders' equity 164,471 3,599 168,070
------------ ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,540,289 $ 1,068 $ 2,541,357
============ ============ ============
Number of common shares issued and outstanding 11,737,860 172,086 11,909,946
============ ============ ============
Book value per Capitol share $ 14.01 $ 14.11
============ ============
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET:
A -- Goodwill arising from proposed share exchange. Based on current estimates,
there are no material identifiable intangible assets regarding the proposed
share exchange. No deposit core intangible asset has been estimated due to
the brief period of Bank's operation. The net carrying values of all assets
and liabilities approximate fair value.
B -- Elimination of minority interests associated with Bank's shareholders other
than Capitol.
C -- Estimated net proceeds applicable to proposed share exchanges with Bank's
shareholders other than Capitol.
27
Unaudited Pro Forma Condensed Consolidated Statements of Operations
Capitol Bancorp Ltd. And Subsidiaries
(in $1,000s, except share and per-share data)
THREE MONTHS ENDED MARCH 31, 2003
---------------------------------------------
HISTORICAL PRO FORMA PRO FORMA
AMOUNTS ADJUSTMENTS AMOUNTS
------------ ------------ ------------
Interest income $ 39,986 $ 39,986
Interest expense 12,999 12,999
------------ ------------
Net interest income 26,987 26,987
Provision for loan losses 1,890 1,890
------------ ------------
Net interest income after provision
for loan losses 25,097 25,097
Noninterest income 4,529 4,529
Noninterest expense 21,156 21,156
------------ ------------
Income before federal income taxes and
minority interest 8,470 8,470
Federal income taxes 2,944 2,944
------------ ------------
Income before minority interest 5,526 5,526
Minority interest in net income of
consolidated subsidiaries (213) $ 88 A (125)
------------ ------------ ------------
NET INCOME $ 5,313 $ 88 $ 5,401
============ ============ ============
NET INCOME PER SHARE:
Basic $ 0.45 $ 0.46
============ ============
Diluted $ 0.44 $ 0.44
============ ============
Average number of common shares outstanding
for purposes of computing basic net income per
share--denominator for basic net income per share 11,697,756 172,086 B 11,869,842
Effect of dilutive securities--stock options and warrants 438,359 438,359
------------ ------------ ------------
Average number of common shares and dilutive securities
for purposes of computing diluted net income per share--
denominator for diluted net income per share 12,136,115 172,086 12,308,201
============ ============ ============
YEAR ENDED DECEMBER 31, 2002
---------------------------------------------
HISTORICAL PRO FORMA PRO FORMA
AMOUNTS ADJUSTMENTS AMOUNTS
------------ ------------ ------------
Interest income $ 156,454 $ 156,454
Interest expense 55,860 55,860
------------ ------------
Net interest income 100,594 100,594
Provision for loan losses 12,676 12,676
------------ ------------
Net interest income after provision
for loan losses 87,918 87,918
Noninterest income 14,982 14,982
Noninterest expense 77,151 77,151
------------ ------------
Income before federal income taxes and
minority interest 25,749 25,749
Federal income taxes 8,701 8,701
------------ ------------
Income before minority interest 17,048 17,048
Minority interest in net income of
consolidated subsidiaries (395) $ 215 A (180)
------------ ------------ ------------
NET INCOME $ 16,653 $ 215 $ 16,868
============ ============ ============
NET INCOME PER SHARE:
Basic $ 1.64 $ 1.64
============ ============
Diluted $ 1.57 $ 1.57
============ ============
Average number of common shares outstanding
for purposes of computing basic net income per
share--denominator for basic net income per share 10,139,000 172,086 B 10,311,086
Effect of dilutive securities--stock options and warrants 461,000 461,000
------------ ------------ ------------
Average number of common shares and dilutive securities
for purposes of computing diluted net income per share--
denominator for diluted net income per share 10,600,000 172,086 10,772,086
============ ============ ============
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS:
A -- Amount represents improvement in operating results attributable to minority
interest due to proposed share exchange regarding Black Mountain Community
Bank.
B -- Assumes issuance of 172,086 shares of Capitol common stock in the proposed
share exchange described in Note A above.
28
THE ELECTION OF DIRECTORS
Black Mountain's Articles of Incorporation and By-Laws provide that the
number of Directors, as determined from time to time by the Board of Directors,
shall be no less than (5) and no more than (25). The Board of Directors has
presently fixed the number of Directors at thirteen.
The Board of Directors has nominated the thirteen (13) directors named
below for a one-year term. All nominees are willing to be elected and to serve
in such capacity for one year and until the election and qualification of their
successors. All of the nominees for election to the Board of Directors are
currently members of Black Mountain's Board of Directors.
The proposed nominees for election as Directors are willing to be elected
and serve but in the event that any nominee at the time of election to serve or
is otherwise unavailable for election, the Board of Directors may select a
substitute nominee, and in that event the persons named in the enclosed proxy
intend to vote such proxy for the person selected.
The affirmative vote of a plurality of the votes cast at the meeting is
required for the nominees to be elected.
The table following sets for information regarding Black Mountain's
Directors based on the date furnished by them:
NAME, PROFESSIONAL POSITIONS & POSITIONS HELD WITH BLACK MOUNTAIN
Pete M. Atkinson, President, Black Mountain Community Bank; Director
Michael L. Ballard, President, Ballard Communications, Inc; Director
Michael J. Devine, Attorney at Law; Director
Betty A. Kincaid, President, Southwest Exchange Corporation; Director
Charles L. Lasky, President, Lasky, Fifarek & Hogan, P.C.; Director
John S. Lewis, President - Western Regions, Capitol Bancorp Limited; Director
Claire M. McDonald, McDonald Properties; Director
Thomas C. Mangione, Chairman, President & CEO, Red Rock Community Bank; Director
Michael J. Mixer, Corporate Broker, Colliers International; Director
Colleen C. O'Callaghan-Miele, VP/Circulation Manager, H.B.C. Publications;
Director
Phillip N. Ralston, Chief Financial Officer/Treasurer, American Nevada Company;
Director
Joseph D. Reid III, Corporate Counsel, Capitol Bancorp Limited; Director
Christopher G. Samson, President & Owner, FN Investments Inc.; Director
29
THE EXCHANGE
GENERAL
The Black Mountain Board of Directors is using this proxy
statement/prospectus to solicit proxies from the holders of Black Mountain
common stock for use at the annual shareholders' meeting.
At the shareholders' meeting to be held on July 25, 2003, Black Mountain
common shareholders will be asked to approve the exchange. The Plan of Share
Exchange provides for Black Mountain's minority shareholders to exchange the 49%
of the common stock of Black Mountain not owned by Capitol for Capitol common
stock. Upon consummation of the exchange, Black Mountain will become a
wholly-owned subsidiary of Capitol. In the exchange, Black Mountain shareholders
will receive shares of Capitol's common stock.
BACKGROUND OF THE EXCHANGE
The concept of a potential share exchange transaction with Capitol has been
discussed informally from time to time from the beginning of Black Mountain's
operations. Capitol, through its CEO, expressed a willingness to extend an offer
of an exchange around the Bank's 36th month of operation. These discussions,
between the bank's board, and Capitol's CEO and other executive officers of
Capitol, occurred at various Black Mountain board meetings during that period.
The objectives of the potential exchange would be to enable shareholders of
Black Mountain to achieve liquidity in their investment, a reasonable return on
their investment in the form of a `premium' and to accomplish such an exchange
on a tax-free basis. Without the exchange, shareholders of Black Mountain will
continue to hold Black Mountain stock which has no market and is illiquid.
Black Mountain's board of directors has not solicited or received any other
proposals for the potential exchange or sale of Black Mountain's shares of
common stock which are not owned by Capitol. If other proposals were under
consideration for sale or exchange of Black Mountain's shares to an entity other
than Capitol, Capitol would be permitted to vote its shares of Black Mountain.
By virtue of Capitol's majority ownership of Black Mountain, it is likely that
Capitol would not vote its shares of Black Mountain in favor of any other
proposals regarding a share exchange or sale of the minority interest in Black
Mountain with another party. In addition, Capitol currently has no intentions of
selling its majority interest in Black Mountain. Hence, the only proposal under
consideration is Capitol's proposal.
Capitol based its proposal on its prior transactions, whereby it has
acquired the minority interest in banks it controls. In those prior
transactions, Capitol has offered those minority shareholders an opportunity to
exchange their bank shares for Capitol common stock on or about the 36th month
of the bank's operations. Although Capitol is under no contractual obligation to
make such an offer to acquire the minority interests in any of its present bank
subsidiaries, it has made this proposal to Black Mountain's board of directors
consistent with its informal discussions with Black Mountain's board during the
past three years. As in other share exchange transactions, Capitol based its
proposal at some premium over the book value of the bank's common stock.
However, Capitol's determination of the share value of Black Mountain, for
purposes of the proposed exchange, is solely based on its arbitrary valuation as
offered by Capitol.
Consensus between Capitol and Black Mountain's directors who are not
employees or officers of Capitol was reached in May 2003, to approve the
proposed exchange subject only to:
- obtaining an independent opinion that the proposed share exchange is
fair to Black Mountain's shareholders from a financial point of view;
and
- obtaining approval for the proposed exchange by a majority of Black
Mountain's shares not already owned by Capitol.
In May 2003, the Black Mountain board approved the Plan of Share Exchange
and agreed to call a shareholder meeting for a shareholder vote to approve the
Plan of Share Exchange.
30
BLACK MOUNTAIN'S REASONS FOR THE EXCHANGE.
Black Mountain's reasons for the exchange are that the shareholders of
Black Mountain 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 a single bank.
. the Black Mountain shareholders will receive publicly traded shares,
providing them liquidity as opposed to the Black Mountain common stock
for which there is no public market. Black Mountain 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 Black Mountain's profitability will increase. As
noted elsewhere in this proxy statement/prospectus, while Black Mountain's
assets are reported as part of Capitol's assets for purposes of its consolidated
financial statements, Black Mountain's income is attributed to Capitol only in
the percentage which Capitol owns of Black Mountain common stock. Capitol
desires to acquire the remainder of Black Mountain's common stock so that
Capitol can include 100% of Black Mountain's income in Capitol's consolidated
income statement.
TERMS OF THE EXCHANGE
Terms of the exchange are set forth in the Plan of Share Exchange. The Plan
of Share Exchange is included as Annex A to this proxy statement/prospectus. You
should review the Plan of Share Exchange in its entirety.
The terms of the exchange can be summarized as follows:
Upon approval of the exchange by a majority of the 49% of the shares
of Black Mountain held by shareholders other than Capitol, each share
of Black Mountain common stock will be exchanged for shares of Capitol
common stock according to a fixed exchange ratio. The exchange ratio
is determined by dividing the Black Mountain share value by the
Capitol share value. The Black Mountain share value shall be
$14.691259 per share.
The share value of each share of Capitol common stock shall be
$20.916, the average of the closing prices of Capitol common stock for
the month ended March 31, 2003, as reported by the Nasdaq Stock
Market, Inc.
The exchange ratio is determined by dividing the Black Mountain share value
by the Capitol share value. Each Black Mountain shareholder (except Capitol)
will receive shares of Capitol common stock in exchange for his, her or their
Black Mountain common stock calculated by multiplying the number of shares in
Black Mountain common stock held by the shareholder by the exchange ratio. Any
fractional shares will be paid in cash.
BLACK MOUNTAIN BOARD RECOMMENDATION
In determining whether to recommend the proposed share exchange to Black
Mountain's shareholders, Black Mountain's board considered the matters discussed
in "Black Mountain's Reasons for the Exchange". In addition, Black Mountain's
board considered:
. no other exchange proposals would be offered either by Capitol or
unaffiliated parties;
. Capitol already has a majority ownership of Black Mountain;
31
. there is no assurance Capitol would repeat or improve its share
exchange proposal at any time in the future;
. absent any potential alternatives other than rejecting Capitol's
proposal, which could result in Black Mountain's minority shareholders
having no future opportunities to exchange, sell or otherwise dispose
of their Black Mountain shares; and
. Black Mountain's board obtained an opinion from its financial advisor
that the exchange would be fair to the shareholders of Black Mountain
from a financial point of view.
THE BLACK MOUNTAIN BOARD HAS DETERMINED THAT THE EXCHANGE IS FAIR TO AND IN
THE BEST INTERESTS OF THE BLACK MOUNTAIN SHAREHOLDERS, HAS APPROVED THE PLAN OF
SHARE EXCHANGE AND RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" APPROVAL OF THE
PLAN OF SHARE EXCHANGE.
ACCOUNTING TREATMENT
Capitol expects the exchange to be treated as the acquisition of a minority
interest using the purchase method of accounting.
PRO FORMA DATA
Because Black Mountain 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, adjusted
for the proposed Black Mountain exchange, which will be accounted for under the
purchase method of accounting (if consummated), as if it had occurred effective
March 31, 2003 (shown on page 27) and at the beginning of 2002 (shown on page
28). 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
March 31, 2003 are not necessarily indicative of results for the year ending
December 31, 2003 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.
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
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 Black
Mountain 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.
32
This discussion also assumes that shareholders hold their shares of Black
Mountain 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;
. Black Mountain shareholders who received their Black Mountain common
stock through the exercise of employee stock options or otherwise as
compensation;
. Black Mountain shareholders who are not U.S. persons; and
. Black Mountain shareholders who hold Black Mountain common stock as
part of a hedge, straddle or conversion transaction.
The discussion also does not address any consequences arising under the
laws of any state, locality or foreign jurisdiction. 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:
o the exchange will qualify as a reorganization within the meaning of
Section 368(a)(1)(B) of the Internal Revenue Code;
o no gain or loss will be recognized by the shareholders of Black
Mountain who exchange their Black Mountain common stock solely for
Capitol common stock (except with respect to cash received instead of
a fractional share of Capitol common stock);
o the aggregate tax basis of the Capitol common stock received by Black
Mountain shareholders who exchange all of their Black Mountain common
stock for Capitol common stock in the exchange will be the same as the
aggregate tax basis of the Black Mountain common stock surrendered in
exchange (reduced by any amount allocable to a fractional share of
Capitol common stock for which cash is received);
o the holding period of the Capitol common stock received will include
the holding period of shares of Black Mountain common stock
surrendered in exchange; and
o a holder of Black Mountain 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 Black Mountain
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 Black Mountain common stock
exchanged for the fractional share of Capitol common stock satisfies
the long-term holding period requirement.
33
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, Capitol
received permission to acquire 51% or more ownership of Black Mountain prior to
Black Mountain commencing the business of banking. 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. or the New York Stock Exchange, as the case may be
(see "Recent Developments"), 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 Black Mountain common
stock will be publicly tradable upon consummation of the exchange. There will be
no restriction on the ability of a former Black Mountain shareholder to sell in
the open market the Capitol common stock received (unless the Black Mountain
shareholder is also an officer, director or affiliate of either Black Mountain
or Capitol, in which case Rule 144 and Rule 145 issued by the SEC do impose
certain restrictions on the sale of Capitol common stock).
DISSENTERS' RIGHTS
By following the specific procedures set forth in the NRS 92A.300 to
92A.500 ("Statutes"), Black Mountain shareholders have a statutory right to
dissent from the Plan of Share Exchange. If the Plan of Share Exchange is
approved and consummated, any Black Mountain 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
Black Mountain 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 Black Mountain common stock electing to exercise his, her or
its right of dissent (a "Dissenting Shareholder") shall file with Black
Mountain, 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
Black Mountain for payment of the fair value of the Dissenting Shareholder's
shares. If the Plan of Share Exchange is effected, Black Mountain 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, Black
Mountain 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.
34
Within thirty days after receipt of a demand for payment, Black Mountain
shall pay to each dissenter who complied with NRS 92A.440 the amount Black
Mountain estimates to be the fair value of the shares plus accrued interest.
The Dissenting Shareholder may notify Black Mountain 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, Black Mountain 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, Black
Mountain shall pay to each dissenter the amount demanded. The assessment of the
cost of the proceedings will be assessed against Black Mountain unless the court
finds the dissenters acted arbitrarily, vexatiously or not in good faith in
demanding payment.
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 Black
Mountain under the Securities Act of 1933 at the time of the annual
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 Black Mountain for those
purposes generally include individuals or entities that control, are controlled
by, or are under common control with, Black Mountain, and would not include
shareholders who are not officers, directors or principal shareholders of Black
Mountain.
The affiliates of Black Mountain 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 Black Mountain have been publicly
filed by Capitol; or
(2) in violation of the Securities Act.
35
OPINION OF FINANCIAL ADVISOR
Black Mountain has retained JMP Financial, Inc. to provide a financial
fairness opinion in connection with the exchange. The Black Mountain board
selected JMP Financial, Inc. to act as Black Mountain'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 Black Mountain 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. Black Mountain shareholders are urged to, and should, read the opinion
carefully and in its entirety. The opinion is directed to the Black Mountain
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 Black Mountain common stock as to how to vote at
the annual 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 audited financial statements and unaudited financial
statements of Black Mountain as set forth in Annex D
. discussed the past and current operations and financial condition and
the prospects of Black Mountain with senior executives of Black
Mountain;
. 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 Black Mountain 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 publicly traded U.S.
banks, Midwest banks of similar size to CBCL ($1 billion to $5 billion
in assets) and all publicly traded banks in the nation in the $1
billion to $5 billion range. 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. The summary data for this analysis is presented below and
demonstrates that CBCL common stock price sells at Multiples just
below the aggregate averages of the various Comparable Groups.
Accordingly, there is a presumption that CBCL was fairly priced in the
securities market at the time of evaluation.
36
COMPARABLE GROUP COUNT P/BV P/E
$1b-$5b Assets in MW 40 182.5 15.1
$1b-$5b Assets Natl 85 189.6 14.9
All Natl 453 184.9 15.6
All MI 16 163.8 17.8
------ -----
Average 180.1 15.8
CBCL 171.2 14.6
P/BV AND P/E FIGURES COMPARABLE GROUPS ARE THE AVERAGE OF THE AVERAGE AND
MEDIAN FOR THE ENTIRE GROUP.
(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 229 percent and 231 percent.
All of these transactions involved the transfer of control to the
acquiring institution.
(3) BLACK MOUNTAIN 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 Black Mountain, 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 Black Mountain 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 one publicly traded bank in the entire southwest region with
assets below $500 million. The price-to-book multiple value to be paid
to Black Mountain is greater than that paid to the average or median
of the aggregate group of publicly traded banks throughout the country
with assets less than $250 million. The trailing twelve month P/E
Multiple for Black Mountain, approximately 17x 2002 earnings and 13x
trailing twelve month earnings, are comparable to averages and median
paid to publicly traded banks across the nation and marginally below
the 20x multiple paid to publicly traded banks with assets less than
$250 million in the southwest.
COUNT P/BV P/E
All National 453 184.9 15.6
All Southwest 71 190.7 14.3
All National < $250m assets 39 132.8 20.2
------ -----
Average 169.5 16.7
Black Mountain 142.3 13.0
P/BV AND P/E FIGURES COMPARABLE GROUPS ARE THE AVERAGE OF THE AVERAGE AND
MEDIAN FOR THE ENTIRE GROUP.
(4) ILLIQUDITY. On an individual basis there are substantial differences
between the financial and market condition and performance of Black
Mountain stock and most other institutions. In the aggregate, the most
striking difference between Black Mountain and the various comparative
groups was liquidity. Most other commercial banks had significant
positive earnings records, as opposed to a history of growing, but low
earnings for Black Mountain. It may be argued that Black Mountain is
still a maturing institution and therefore direct comparisons of
earnings performance may be difficult. 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 2/5 of one percent of their outstanding stock. In other
words, these institutions provided minority shareholders with
reasonable liquidity. Black Mountain stock, on the
37
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 Black Mountain 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 Black Mountain
in this transaction 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, Black Mountain is now
and has been since it commenced business, an affiliate and controlled
subsidiary of Capitol. CBCL was acquiring less than 50 percent of the
Black Mountain stock. Given that the transaction thus represented
purchase of a minority position, direct comparison to
change-of-control premiums, is misleading.
(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 Black Mountain from the outset and would not be expected to
pay a "premium" for control, since it already owns control of Black
Mountain. Accordingly, and especially in light of the fact that the
aggregate block to-be-acquired by CBCL from outsiders is only
approximately 43 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 Black Mountain shareholders to be paid
Multiples much more similar to those paid for minority shares in
Comparative Group institutions then the Multiples paid in
change-of-control transactions.
(7) JMP Financial, Inc. therefore concluded that the exchange was fair to
the shareholders of Black Mountain from a financial point of view.
The opinion and presentation of JMP Financial, Inc. to the Black Mountain
board was one of many factors taken into consideration by Black Mountain'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 Black Mountain board
with respect to the exchange or of whether the Black Mountain board would have
been willing to agree to a transaction with a different form or amount of
consideration.
The Black Mountain 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 Black Mountain agreed to pay JMP Financial, Inc. a fee of $9,000
plus out-of-pocket expenses. In addition, Black Mountain has agreed to indemnify
JMP Financial, Inc. and its affiliates, against certain liabilities and
expenses, including certain liabilities under the federal securities laws.
JMP Financial, Inc. has also been engaged to provide financial advisory
services in connection with other pending share exchanges with other affiliates
of Capitol (see "Recent Developments"). JMP Financial, Inc. has been engaged to
provide financial advisory services in connection with previous share exchange
transactions with other affiliates of Capitol. In total, JMP Financial, Inc. has
issued fairness opinions on 12 transactions of similar structure with affiliates
of Capitol. In each opinion, JMP Financial, Inc. opined that those transactions
were fair from a financial point of view to the shareholders of those entities.
For those engagements, through June 17, 2003, JMP Financial, Inc. was paid a
total of $117,500. JMP Financial, Inc. has performed no services directly for
Capitol. Further, there are no agreements between Capitol or any of its
affiliates and JMP Financial, Inc. regarding future fairness opinions or other
financial advisory services. JMP Finanical, Inc. is aware of no conflicts of
interest that JMP Financial, Inc. has at arriving at a fairness opinion.
38
THE CLOSING
EFFECTIVE TIME
The exchange will be effective at 5:00 p.m., Mountain Time, on July 31,
2003, and will be closed as soon as possible after the vote at the meeting of
Black Mountain's shareholders. If the Plan of Share Exchange is approved, as of
the effective date, each outstanding share of Black Mountain common stock will
be automatically converted into the right to receive Capitol common stock
according to the exchange ratio.
SHARES HELD BY CAPITOL
Shares of Black Mountain common stock owned by Capitol since Capitol's
organization 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 you a letter of transmittal. The
letter of transmittal will contain instructions with respect to the surrender of
your Black Mountain 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 Black Mountain 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 Black Mountain 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 Black Mountain stock will represent only the right to receive the
shares of Capitol common stock into which shares of Black Mountain 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 your Black Mountain 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 your Black Mountain 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.
Black Mountain'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 Black Mountain stock that is not registered
in the records of Black Mountain has occurred, then, so long as the Black
Mountain 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 Black Mountain shares. Instead, Capitol
will pay you an amount in cash determined by multiplying the fractional share
interest to which you would otherwise be entitled by the Capitol share value
used in determining the exchange ratio.
39
FEES AND EXPENSES
Whether or not the exchange is completed, Capitol and Black Mountain 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.
STOCK MARKET LISTING
Capitol will promptly prepare and submit a listing application with respect
to the maximum number of shares of Capitol common stock issuable to Black
Mountain shareholders in the exchange, and Capitol must use reasonable best
efforts to obtain approval for the listing of Capitol common shares on the
Nasdaq Stock Market, Inc. or the New York Stock Exchange, as the case may be
(see "Recent Developments").
AMENDMENT AND TERMINATION
Capitol and Black Mountain 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 remainder of this page intentionally left blank]
40
THE SHAREHOLDERS' MEETING
DATE, TIME AND PLACE
The shareholders' meeting will be held on July 25, 2003 at Black Mountain
Community Bank, 1700 West Horizon Ridge Parkway, Suite 101, Las Vegas, Nevada
89012 at 10:00 a.m., local time.
MATTERS TO BE CONSIDERED AT THE SHAREHOLDERS' MEETING
At the shareholders' meeting, holders of Black Mountain common stock will
vote on whether to approve the exchange. See "The Exchange". Shareholders will
also vote on the election of directors for Black Mountain. See "Election of
Directors".
RECORD DATE; STOCK ENTITLED TO VOTE; QUORUM
Holders of record of Black Mountain common stock at the close of business
on May 15, 2003, the record date for the shareholders' meeting, are entitled to
receive notice of and to vote at the shareholders' meeting. At March 31, 2003,
500,000 shares of Black Mountain common stock were issued and outstanding and
held by approximately 149 holders of record. Capitol held 255,000 shares of
Black Mountain common stock on that date and 245,000 were held by shareholders
other than Capitol.
A majority of the shares of the Black Mountain 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 Black Mountain common stock on the record date are
each entitled to one vote per share with respect to approval of the exchange at
Black Mountain's shareholders' meeting.
Black Mountain 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. Black
Mountain is not aware of any matters expected to be presented at the meeting
other than as described in the notice of the meeting.
VOTES REQUIRED
Although approval of the exchange by two-thirds of the shares entitled to
vote is all that is required by law, Black Mountain and Capitol have agreed that
approval of the exchange will require the affirmative vote of a majority of the
shares of Black Mountain common stock outstanding on the record date, excluding
the 51% of Black Mountain's shares 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 March 31, 2003, the directors and executive
officers of Black Mountain and their affiliates were entitled to vote
approximately 37,350 shares of Black Mountain common stock. These shares
represent approximately 7.47% of the outstanding shares of Black Mountain common
stock and 15.24% of Black Mountain's shares held by shareholders other than
Capitol. The directors and executive officers have agreed to vote their shares
of Black Mountain common stock in favor of the exchange.
41
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 Black Mountain stock will
be mailed by Capitol to former Black Mountain shareholders shortly after the
exchange is effective.
REVOKING PROXIES
If you are a shareholder of record, you may revoke your proxy at any time
prior to the time it is voted at the shareholders' meeting. Proxies may be
revoked by written notice, including by telegram or telecopy, to the president
of Black Mountain, by a later-dated proxy signed and returned by mail or by
attending the shareholders' meeting and voting in person. Attendance at Black
Mountain's annual 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:
Black Mountain Community Bank
1700 West Horizon Ridge Parkway
Suite 101
Las Vegas, Nevada 89012
Attn: Peter M. Atkinson, President
If you require assistance in changing or revoking a proxy, you should
contact Peter Atkinson at the address above or at phone number (702) 990-5900.
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 Black Mountain will pay the cost of solicitation of proxies. In
addition to solicitation by mail, the directors, officers and employees of Black
Mountain may also solicit proxies from shareholders by telephone, telecopy,
telegram or in person.
42
COMPARISON OF SHAREHOLDER RIGHTS
As a result of the exchange, holders of shares of Black Mountain 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 Black Mountain'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 which are on file
with the SEC).
The following summary compares various rights, privileges and restrictions
applicable to shareholders of Black Mountain and Capitol:
---------------------------------------------------------------------
BLACK MOUNTAIN CAPITOL
- -----------------------------------------------------------------------------------------------------------------------
Authorized Capital Stock 1,000,000 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
- -----------------------------------------------------------------------------------------------------------------------
43
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 March 31, 2003, 11,737,860 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 or 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 Capitol 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.
44
CAPITOL'S 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, through June 23, 2003, were traded on
the Nasdaq National Stock Market under the symbol "CBCLP"; after June 23, 2003,
such securities are listed on NYSE under the symbol "CBCPrA"). 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 $61 million at an average
interest rate currently approximating 7% 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 ACQUISITIONS. The MBCA contains an article intended to
protect shareholders and prohibit or discourage certain types of hostile
takeover activities. These provisions regulate the acquisition of "control
shares" of large public 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.
45
As of March 17, 2003 Capitol's management beneficially owned (including
immediately exercisable stock options and warrants) control of approximately
28.89% 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.
[The remainder of this page intentionally left blank]
46
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 Black Mountain 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 Black Mountain for the annual 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
--------------------------------------- -------------------------------
o Quarterly Report on Form 10-Q Quarter ended March 31, 2003
o Proxy Statement on Schedule 14A Annual Meeting Held May 8, 2003
o Annual Report on Form 10-K Year ended December 31, 2002
o Registration Statement on Form 8-A Filed April 19, 1990
filed April 19, 1990
47
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 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 JULY 15, 2003 TO
RECEIVE THEM BEFORE THE SHAREHOLDERS' MEETING. If you request exhibits to any
incorporated documents from us, Capitol will mail them to you by first class
mail, or another equally prompt means, within one business day after Capitol
receives your request.
No one has been authorized to give any information or make any
representation about Black Mountain, 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 Black Mountain has been supplied by Black
Mountain.
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 in
reliance upon such report given upon the authority of said firm as experts in
accounting and auditing.
The financial statements of Black Mountain 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
stated 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.
48
ANNEX A
PLAN OF SHARE EXCHANGE
THIS PLAN OF SHARE EXCHANGE ("Plan") is entered into effective May 29, 2003
between and among CAPITOL BANCORP LIMITED, a Michigan corporation ("Capitol")
and the SHAREHOLDERS of BLACK MOUNTAIN COMMUNITY BANK ("Black Mountain").
R E C I T A L S
A. Black Mountain is a Nevada banking corporation which commenced the
business of banking March 27, 2000.
B. Capitol is the holder of 255,000 shares (51%) of the duly issued and
outstanding common stock of Black Mountain ("Black Mountain common stock").
C. Black Mountain common stock is privately held and not traded in any
public market.
D. Capitol's common stock ("Capitol common stock") is traded on the
National Market System of the Nasdaq Stock Market, Inc.
E. Black Mountain's Board of Directors has determined that it would be in
the best interest of Black Mountain's stockholders to exchange their shares of
stock in Black Mountain 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 Black Mountain common stock
will exchange his, her or their shares of Black Mountain common stock for shares
of Capitol common stock according to an exchange ratio determined as follows:
BLACK MOUNTAIN SHARE VALUE. The value of each share of Black
Mountain common stock shall be $14.691259.
CAPITOL SHARE VALUE. The share value of each share of
Capitol common stock shall be $20.916, the average of the
closing prices of Capitol's common stock for the month ended
March 31, 2003, as reported by the Nasdaq Stock Market, Inc.
EXCHANGE RATIO. The exchange ratio will be determined by
dividing the Black Mountain Share Value by the Capitol Share
Value.
Each Black Mountain shareholder (except Capitol) will receive shares of
Capitol common stock in exchange for his, her or their Black Mountain common
stock calculated by multiplying the number of shares of Black Mountain 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 Black Mountain 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 Black Mountain (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 Black Mountain 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 Black
Mountain.
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 Black Mountain (except to the extent of cash received in lieu of fractional
shares).
5. SURRENDER OF CERTIFICATES. Each shareholder of Black Mountain common
stock shall surrender to Capitol his, her or their certificate(s) for shares of
Black Mountain 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 Black Mountain common stock surrendered in
exchange therefor, and shall thereafter be transferable in the same manner as
otherwise provided for Capitol common stock. Shareholders of Black Mountain 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 BLACK MOUNTAIN CERTIFICATE. Black Mountain shall issue its
certificate registering in the name of Capitol all shares of stock now
registered to shareholders other than Capitol.
ANNEX B
JMP FINANCIAL, INC.
753 GRAND MARAIS
GROSSE POINTE PARK, MI 48230
TEL/FAX (313) 824-1711
June 25, 2003
Board of Directors
Black Mountain Community Bank
1700 West Horizon Ridge Parkway
Suite 101
Las Vegas, Nevada 89012
Ladies and Gentlemen:
We have examined the proposed Plan of Share Exchange (the "Agreement")
dated May 29, 2003, to be entered into between Capitol Bancorp Limited, a
Michigan Corporation ("CBCL") and the shareholders (the "Shareholders") of Black
Mountain Community Bank ("Black Mountain"), a Nevada Corporation by which CBCL
shall acquire from the Shareholders their outstanding shares of Black Mountain,
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 Black Mountain's common stock, not already owned by CBCL, and
issued and outstanding as of July 31, 2003 (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:
o Audited consolidated financial statements of Black Mountain and CBCL
for the years ended December 31, 2002, 2001 and 2000, as available;
o Unaudited financial statements of Black Mountain for the period ended
March 31, 2003;
o Certain unaudited internal financial information concerning the
capital ratios of Black Mountain;
o Publicly available information concerning CBCL;
o Publicly available information with respect to certain other bank
holding companies, which we deemed, appropriate, including competitors
of CBCL and Black Mountain;
o Publicly available information with respect to the nature and terms of
certain other transactions which we consider relevant;
o The Agreement;
o Reviewed certain historical market prices and trading volumes of Black
Mountain's and CBCL's common stock to the extent reasonably available.
As to Black Mountain, such review was limited to its initial offering
of common stock.
Page Two
Board of Directors
Black Mountain Community Bank
June 25, 2003
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 Black Mountain 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 that CBCL's and Black Mountain's loan loss
reserves are adequate in all material respects and that, in the aggregate, other
conditions at CBCL and Black Mountain are satisfactory and this opinion is
conditioned upon such assumption. We have also assumed that there has been no
material change in Black Mountain'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 Black Mountain 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
Black Mountain 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
OPINION OF MILLER, CANFIELD, PADDOCK AND STONE, PLC
June 25, 2003
Capitol Bancorp Limited
200 Washington Square North, 4th Floor
Lansing, Michigan 48933
Re: Federal Tax Consequences of Plan of Share Exchange
Gentlemen:
We have acted as special counsel to Capitol Bancorp Limited ("Capitol") in
connection with the Plan of Share Exchange (the "Plan") between Capitol and the
shareholders of Black Mountain Community Bank ("Black Mountain") dated as of May
29, 2003.
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 Black Mountain 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 Black Mountain, as summarized below, and upon such
other documents as we have deemed appropriate, including the information about
Capitol and Black Mountain 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 Black Mountain will
be complete and accurate as of the effective date of the Plan as though not so
qualified, (iii) the Plan will be consummated pursuant to the terms and
conditions set forth in the Plan without the waiver or modification of any such
terms and conditions, and (iv) the Plan will be authorized by and will be
effected pursuant to applicable state law. We have also assumed that each Black
Mountain shareholder holds the shares of Black Mountain 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)
Black Mountain shareholders, if any, who received their Black Mountain common
stock through the exercise of employee stock options or otherwise as
compensation; (vi) Black Mountain shareholders who are not U.S. persons; and
(vii) Black Mountain shareholders who hold Black Mountain 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
June 25, 2003
Page 2
Our opinion is predicated on the accuracy of the following representations
provided to us by Capitol:
1. The fair market value of the Capitol common stock to be received by the
Black Mountain shareholders will be approximately equal to the fair market value
of the Black Mountain common stock surrendered under the Plan.
2. Capitol has no plan or intention to liquidate Black Mountain; to merge
Black Mountain into another corporation; to cause Black Mountain 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 Black
Mountain common stock acquired in the transaction.
3. Capitol has no plan or intention to reacquire any of its common stock
issued under the Plan.
4. Capitol, Black Mountain, and the shareholders of Black Mountain will pay
their respective expenses, if any, incurred in connection with the Plan.
5. The only consideration that will be received by the shareholders of
Black Mountain for their common stock of Black Mountain is voting common stock
of Capitol. Further, no liabilities of Black Mountain or any Black Mountain
shareholder will be assumed by Capitol, nor will any of the Black Mountain stock
acquired by Capitol be subject to any liabilities.
6. Capitol will not own as of immediately before the effective date of the
Plan, directly or indirectly, any Black Mountain common stock other than the
Black Mountain common stock first acquired by Capitol upon the formation of
Black Mountain in August of 1999.
7. Capitol will not make any cash payments, directly or indirectly, to
dissenting shareholders of Black Mountain, nor will Capitol, directly or
indirectly, reimburse Black Mountain for any payments made by Black Mountain to
dissenting shareholders.
8. Any cash payment made by Capitol to Black Mountain 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. The total cash consideration
that will be paid under the Plan to the Black Mountain shareholders instead of
issuing fractional shares of Capitol common stock will not exceed one percent of
the total consideration that will be issued under the Plan to the Black Mountain
shareholders in exchange for their Black Mountain common stock. The fractional
share interests of each Black Mountain shareholder will be aggregated and no
Black Mountain shareholder will receive cash in an amount greater to or greater
than the value of one full share of Capitol common stock.
9. 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").
10. The Plan will be consummated in compliance with the material terms
contained in the Registration Statement, none of the material terms and
conditions therein have been or will be waived or modified and Capitol has no
plan or intention to waive or modify any such material condition.
Capitol Bancorp Limited
June 25, 2003
Page 3
Our opinion is also predicated on the accuracy of the following
representations provided to us by Black Mountain:
1. The Plan will be consummated in compliance with the material terms
contained in the Registration Statement, none of the material terms and
conditions therein have been or will be waived or modified and Black Mountain
has no plan or intention to waive or modify any such material condition.
2. The fair market value of the Capitol common stock to be received by the
Black Mountain shareholders will be approximately equal to the fair market value
of the Black Mountain common stock surrendered under the Plan.
3. Black Mountain has no plan or intention to issue additional shares of
its stock that would result in Capitol losing "control" of Black Mountain within
the meaning of Section 368(c) of the Code.
4. Capitol, Black Mountain, and the shareholders of Black Mountain will pay
their respective expenses, if any, incurred in connection with the Plan.
5. Black Mountain has only one class of stock authorized, being voting
common stock. At the time the Plan is executed, Black Mountain 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 Black Mountain.
6. Following the execution of the Plan, Black Mountain will continue its
historic business or use a significant portion of its historic business assets
in a business.
7. Black Mountain is not an investment company as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
8. Black Mountain will pay any dissenting shareholders the value of their
stock out of its own funds.
9. On the effective date of the Plan, the fair market value of the assets
of Black Mountain will exceed the sum of its liabilities plus, the liabilities,
if any, to which the assets are subject.
Based upon and subject to the foregoing, and subject to the qualifications,
limitations, representations and assumptions contained in the portion of the
Proxy Statement captioned "Material Federal Income Tax Consequences" and
incorporated by reference in this opinion, we are of the opinion that:
1) The exchange will qualify as a reorganization within the meaning of
Section 368(a)(1)(B) of the Code;
2) No gain or loss will be recognized by the shareholders of Black
Mountain who exchange their Black Mountain common stock solely for Capitol
common stock (except with respect to cash received instead of fractional shares
of Capitol common stock);
3) The aggregate tax basis of the Capitol common stock received by
Black Mountain shareholders who exchange all of their Black Mountain common
stock for Capitol common stock in the exchange will be the same as the aggregate
tax basis of the Black Mountain 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);
Capitol Bancorp Limited
June 25, 2003
Page 4
4) The holding period of the Capitol common stock received by a former
shareholder of Black Mountain will include the holding period of shares of Black
Mountain common stock surrendered in the exchange; and
5) A holder of Black Mountain 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 Black Mountain 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 Black
Mountain 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 BLACK MOUNTAIN COMMUNITY BANK
Management's discussion and analysis of financial condition and
results of operations................................................... D-2
Condensed interim financial statements as of and for the three months
ended March 31, 2003 and 2002 (unaudited)............................... D-5
Audited financial statements as of and for the periods ended
December 31, 2002, 2001 and 2000 ....................................... D-11
D-1
Management's Discussion and Analysis of Financial Condition
and Results of Operations
BLACK MOUNTAIN COMMUNITY BANK
PERIODS ENDED MARCH 31, 2003 AND 2002 AND DECEMBER 31, 2002, 2001 AND 2000
FINANCIAL CONDITION
Black Mountain Community Bank is engaged in commercial banking activities from
its sole location in Henderson, Nevada. From its inception in March 2000, the
Bank provides a full array of banking services, principally loans and deposits,
to entrepreneurs, professionals and other high net worth individuals in its
community.
Total assets approximated $67.6 million at March 31, 2003, an increase from
$63.2 million at December 31, 2002. The Bank's total assets approximated $50.9
million at year-end 2001.
Total portfolio loans approximated $50.8 million at March 31, 2003, a marginal
decrease of approximately $1.4 million from the $52.2 million level at December
31, 2002. At December 31, 2001, total portfolio loans approximated $40.1
million. Portfolio loan growth since inception has been significant. Commercial
loans approximated 99% of total portfolio loans at March 31, 2003 consistent
with the Bank's emphasis on commercial lending activities.
The allowance for loan losses at March 31, 2003 approximated $786,000 or 1.55%
of total portfolio loans, an increase over the year-end 2002 ratio of 1.50%.
The allowance for loan losses is maintained at a level believed adequate by
management to absorb potential losses inherent in the loan portfolio at the
balance sheet date. Management's determination of the adequacy of the allowance
is based on evaluation of the portfolio (including volume, amount and
composition, potential impairment of individual loans and concentrations of
credit), past loss experience, current economic conditions, loan commitments
outstanding and other factors.
There were no loan charge-offs for the three-month 2003 and 2002 periods. Net
loan charge-offs totaled $3,000 for the year ended December 31, 2002 (none in
2001 or 2000).
The Bank's growth has been funded primarily by deposits, most of which are
interest-bearing. Total deposits approximated $62.1 million at March 31, 2003,
an increase of approximately $4.2 million from the $57.9 million level at
December 31, 2002. Deposits increased significantly in 2002 from the $46.3
million level at the beginning of the year.
The Bank obtains noninterest-bearing deposits as a means to reduce its cost of
funds. Noninterest-bearing deposits approximated $8.9 million at March 31, 2003
or about 14.3% of total deposits, a slight decrease of approximately $421,000
from December 31, 2002. Noninterest-bearing deposits can fluctuate significantly
from day to day, depending upon customer account activity.
Stockholders' equity approximated $5.4 million at March 31, 2003 or
approximately 7.9% of total assets. Capital adequacy is discussed elsewhere in
this narrative.
RESULTS OF OPERATIONS
The Bank's net income for the three months ended March 31, 2003 approximated
$180,000, compared with $55,000 in the corresponding 2002 period.
Net income for the Bank in 2002 was $439,000. 2001 represented the Bank's first
full calendar year of operations, with a net income of $12,000, compared to a
net loss of $468,000 in the 2000 period of about nine months.
D-2
The principal source of operating revenues is interest income. Total interest
income for the three months ended March 31, 2003 approximated $1.1 million,
compared with $827,000 in the three-month 2002 period. For the year ended
December 31, 2002, total interest income approximated $4.0 million, compared
with $3.2 million in 2001 and $1.1 million in the 2000 period.
Interest expense on deposits has also changed during these periods, consistent
with changes in interest rates and the growth in the interest-bearing deposits.
Total interest expense approximated $337,000 for the three months ended March
31, 2003, compared with $331,000 for the three-month 2002 period. For the year
ended December 31, 2002, total interest expense approximated $1.3 million,
compared with $1.4 million in 2001 and $436,000 in the 2000 period. While the
level of interest-bearing deposits has increased since December 31, 2001,
interest expense has been offset by decreases in the interest rates on deposits.
Net interest income approximated $748,000 for the three months ended March 31,
2003, compared with $496,000 for the 2002 corresponding period. Net interest
income for the year ended December 31, 2002 approximated $2.6 million,
significantly more than the $1.8 million in 2001 and $656,000 in 2000.
Provisions for loan losses were $2,000 and $8,000 for the three months ended
March 31, 2003 and 2002, respectively ($185,000 for the year ended December 31,
2002, $345,000 in 2001 and $257,000 in 2000). The amount of the provision for
loan losses has been related primarily to loan growth as loan charge-offs have
been minimal since the Bank's inception. The provision for loan losses is based
upon amounts necessary to maintain the allowance for loan losses based on
management's analysis of allowance requirements discussed previously.
Noninterest income has increased consistently during the Bank's period of
existence. Total noninterest income approximated $19,000 for the three months
ended March 31, 2003 ($9,000 in the corresponding period in 2002) and
approximated $45,000 for the year ended December 31, 2002 ($15,000 in 2001 and
$3,000 in 2000).
Noninterest expenses have increased significantly during the period of the
Bank's existence. Total noninterest expense approximated $492,000 for the three
months ended March 31, 2003, compared with $412,000 for the corresponding 2002
period. For the year ended December 31, 2002, total noninterest expense
approximated $1.8 million, compared with $1.5 million in 2001 and $1.1 million
in 2000. 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.
LIQUIDITY AND CAPITAL RESOURCES
The principal funding source for asset growth and loan origination activities is
deposits. Changes in deposits and loans were previously discussed in this
narrative. 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 $16.0 million at March 31, 2003, compared
with $10.0 million at December 31, 2002 and $6.3 million at December 31, 2001.
As liquidity levels vary continuously based upon customer activities, amounts of
cash and cash equivalents can vary widely at any given point in time. Management
believes the Bank's liquidity position at March 31, 2003 is adequate to fund
loan demand and to meet depositor needs.
In addition to cash and cash equivalents, a source of long-term liquidity is the
Bank's portfolio of marketable investment securities. Liquidity requirements
have not historically necessitated the sale of investments in order to meet
liquidity needs. The Bank also has not engaged in active trading of its
investments and has no intention of doing so in the foreseeable future. At March
31, 2003 and December 31, 2002, the Bank had approximately $228,000 and $1.0
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 Black Mountain
Community Bank, as a young bank, it is subject to a more restrictive requirement
than is applicable to most banks inasmuch as the Bank must maintain a
capital-to-asset ratio of not less than 8% for its first three years of
operation. In the opinion of management, the Bank meets or exceeds regulatory
capital requirements to which it is subject.
D-3
IMPACT OF NEW ACCOUNTING STANDARDS
There are certain new accounting standards either becoming effective or being
issued in 2003. They are discussed in Note B of the accompanying interim
financial statements.
(The remainder of this page intentionally left blank)
D-4
BLACK MOUNTAIN COMMUNITY BANK
------
CONDENSED INTERIM FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2003 AND 2002
D-5
BALANCE SHEETS
BLACK MOUNTAIN COMMUNITY BANK
March 31 December 31
2003 2002
------------ ------------
(unaudited)
ASSETS:
Cash and due from banks $ 2,096,182 $ 2,226,865
Money market and mutual funds 4,005,606 2,266,056
Federal funds sold 9,923,000 5,517,000
------------ ------------
Cash and cash equivalents 16,024,788 10,009,921
Loans held for resale 669,500
Investment securities:
Available for sale, carried at market value 227,888 1,030,748
Held for long-term investment, carried at amortized
cost which approximated market value 24,800 24,800
------------ ------------
Total investment securities 252,688 1,055,548
Portfolio loans:
Commercial 50,282,501 51,357,744
Real estate mortgage 128,316 502,043
Installment 385,068 380,677
------------ ------------
Total portfolio loans 50,795,885 52,240,464
Less allowance for loan losses (786,000) (784,000)
------------ ------------
Net portfolio loans 50,009,885 51,456,464
Premises and equipment 306,609 324,362
Accrued interest income 225,054 232,252
Other assets 137,436 123,298
------------ ------------
TOTAL ASSETS $ 67,625,960 $ 63,201,845
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Deposits:
Noninterest-bearing $ 8,887,132 $ 9,307,918
Interest-bearing 53,193,163 48,599,523
------------ ------------
Total deposits 62,080,295 57,907,441
Accrued interest on deposits and other liabilities 188,986 116,430
------------ ------------
Total liabilities 62,269,281 58,023,871
STOCKHOLDERS' EQUITY:
Common stock, par value $6.00 per share,
1,000,000 shares authorized;
500,000 shares issued and outstanding 3,000,000 3,000,000
Surplus 2,191,000 2,191,000
Retained earnings (deficit) 163,219 (16,772)
Market value adjustment (net of tax effect) for
investment securities available for sale
(accumulated other comprehensive income) 2,460 3,746
------------ ------------
Total stockholders' equity 5,356,679 5,177,974
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 67,625,960 $ 63,201,845
============ ============
See notes to interim financial statements
D-6
STATEMENTS OF OPERATIONS (UNAUDITED)
BLACK MOUNTAIN COMMUNITY BANK
Three Months Ended
March 31
-----------------------
2003 2002
---------- ----------
Interest income:
Portfolio loans (including fees) $1,051,147 $ 769,464
Money market and mutual funds 12,972 4,434
Taxable investment securities 5,138 40,886
Federal funds sold and other 16,564 11,733
---------- ----------
Total interest income 1,085,821 826,517
Interest expense:
Demand deposits 83,106 110,352
Savings deposits 317 309
Time deposits 254,070 220,275
---------- ----------
Total interest expense 337,493 330,936
---------- ----------
Net interest income 748,328 495,581
Provision for loan losses 2,000 8,000
---------- ----------
Net interest income after
provision for loan losses 746,328 487,581
Noninterest income:
Service charges on deposit accounts 12,568 6,551
Other 6,474 2,426
---------- ----------
Total noninterest income 19,042 8,977
Noninterest expense:
Salaries and employee benefits 250,944 198,734
Occupancy 43,560 36,574
Other 197,875 176,920
---------- ----------
Total noninterest expense 492,379 412,228
---------- ----------
Income before federal income taxes 272,991 84,330
Federal income taxes 93,000 29,000
---------- ----------
NET INCOME $ 179,991 $ 55,330
========== ==========
NET INCOME PER SHARE (basic and diluted) $ 0.36 $ 0.11
========== ==========
See notes to interim financial statements
D-7
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
BLACK MOUNTAIN COMMUNITY BANK
Accumulated
Retained Other
Common Earnings Comprehensive
Stock Surplus (Deficit) Income Total
----------- ----------- ----------- ----------- -----------
THREE MONTHS ENDED MARCH 31, 2002
Balances at January 1, 2002 $ 3,000,000 $ 2,000,000 $ (455,722) $ 1,376 $ 4,545,654
Components of comprehensive income:
Net income for the period 55,330 55,330
Market value adjustment for investment
securities available for
sale (net of tax effect) (11,465) (11,465)
-----------
Comprehensive income for the period 43,865
----------- ----------- ----------- ----------- -----------
BALANCES AT MARCH 31, 2002 $ 3,000,000 $ 2,000,000 $ (400,392) $ (10,089) $ 4,589,519
=========== =========== =========== =========== ===========
THREE MONTHS ENDED MARCH 31, 2003
Balances at January 1, 2003 $ 3,000,000 $ 2,191,000 $ (16,772) $ 3,746 $ 5,177,974
Components of comprehensive income:
Net income for the period 179,991 179,991
Market value adjustment for investment
securities available for
sale (net of tax effect) (1,286) (1,286)
-----------
Comprehensive income for the period 178,705
----------- ----------- ----------- ----------- -----------
BALANCES AT MARCH 31, 2003 $ 3,000,000 $ 2,191,000 $ 163,219 $ 2,460 $ 5,356,679
=========== =========== =========== =========== ===========
See notes to interim financial statements.
D-8
STATEMENTS OF CASH FLOWS (UNAUDITED)
BLACK MOUNTAIN COMMUNITY BANK
Three Months Ended
March 31
----------------------------
2003 2002
------------ ------------
OPERATING ACTIVITIES
Net income for the period $ 179,991 $ 55,330
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Provision for loan losses 2,000 8,000
Depreciation of premises and equipment 22,815 16,779
Net amortization of investment security premiums 2,631 15,978
Originations and purchases of loans
held for resale (669,500)
Decrease (increase) in accrued interest income
and other assets (6,278) 55,160
Increase (decrease) in accrued interest on deposits
and other liabilities 72,556 (760)
------------ ------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (395,785) 150,487
INVESTING ACTIVITIES
Proceeds from maturities of investment securities
available for sale 798,281 2,522,659
Purchases of investment securities available for sale (3,000,000)
Net decrease (increase) in portfolio loans 1,444,579 (89,535)
Purchases of premises and equipment (5,062) (5,339)
------------ ------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 2,237,798 (572,215)
FINANCING ACTIVITIES
Net increase (decrease) in demand deposits, NOW accounts
and savings accounts 2,408,858 (562,190)
Net increase in certificates of deposit 1,763,996 97,880
------------ ------------
NET CASH PROVIDED(USED) BY FINANCING ACTIVITIES 4,172,854 (464,310)
------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 6,014,867 (886,038)
Cash and cash equivalents at beginning of period 10,009,921 6,338,505
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 16,024,788 $ 5,452,467
============ ============
See notes to interim financial statements
D-9
NOTES TO INTERIM FINANCIAL STATEMENTS (UNAUDITED)
BLACK MOUNTAIN COMMUNITY BANK
NOTE A--BASIS OF PRESENTATION
The accompanying condensed financial statements of Black Mountain Community
Bank have been prepared in accordance with accounting principles generally
accepted in the United States of America 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 accounting principles generally accepted in the United States of
America.
The statements do, however, include all adjustments of a normal recurring
nature which Black Mountain considers necessary for a fair presentation of the
interim periods.
The results of operations for the three-month period ended March 31, 2003
are not necessarily indicative of the results to be expected for the year ending
December 31, 2003.
Statement of Financial Accounting Standards No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION, establishes an alternative fair value method of
accounting for stock options whereby compensation expense would be recognized
based on the computed fair value of the options on the grant date. By not
electing this alternative, certain pro forma disclosures of the expense
recognition provisions of Statement No. 123 are required, which are as follows:
2003 2002
--------- ---------
Net income:
As reported $ 179,991 $ 55,330
Less pro forma compensation
expense regarding fair value
of stock option awards, net
of income tax effect (20,242) (20,242)
--------- ---------
Pro forma 159,749 35,088
Net income per share:
Basic:
As reported 0.36 0.11
Pro forma 0.32 0.07
Diluted:
As reported 0.36 0.11
Pro forma $ 0.32 $ 0.07
NOTE B--NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board (FASB) recently issued Statement
No. 149, AMENDMENT OF STATEMENT NO. 133 ON DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES. This new standard, which clarifies the accounting for derivative
instruments including certain derivative instruments embedded in other
contracts, hedging activities under Statement No. 133 and aligns current
accounting with other FASB projects, intends to create more consistent
accounting treatment to derivative instruments and hedging activities. It is
effective for contracts entered into after June 30, 2003 and is not expected to
have a material impact on the Bank's financial position or results of operation,
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 the Bank's financial statements.
D-10
BLACK MOUNTAIN COMMUNITY BANK
------
FINANCIAL STATEMENTS
PERIODS ENDED DECEMBER 31, 2002, 2001 AND 2000
D-11
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Black Mountain Community Bank
We have audited the accompanying balance sheets of Black Mountain Community Bank
as of December 31, 2002 and 2001, and the related statements of operations,
changes in stockholders' equity and cash flows for the years ended December 31,
2002 and 2001, and the period from March 27, 2000 (date of inception) to
December 31, 2000. These financial statements are the responsibility of the
Bank's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Black Mountain Community Bank
as of December 31, 2002 and 2001, and the results of its operations and its cash
flows for the years ended December 31, 2002 and 2001, and the period from March
27, 2000 (date of inception) to December 31, 2000, in conformity with accounting
principles generally accepted in the United States of America.
/s/ BDO Seidman, LLP
Los Angeles, California
January 31, 2003
D-12
BALANCE SHEETS
BLACK MOUNTAIN COMMUNITY BANK
December 31
----------------------------
2002 2001
------------ ------------
ASSETS
Cash and due from banks $ 2,226,865 $ 1,186,321
Money market and mutual funds 2,266,056 52,184
Federal funds sold 5,517,000 5,100,000
------------ ------------
Cash and cash equivalents 10,009,921 6,338,505
Investment securities--Note B:
Available for sale, carried at market value 1,030,748 4,234,171
Held for long-term investment, carried at amortized
cost which approximates market value 24,800
------------ ------------
Total investment securities 1,055,548 4,234,171
Portfolio loans--Note C:
Commercial 51,357,744 39,202,616
Real estate mortgage 502,043 548,107
Installment 380,677 360,016
------------ ------------
Total portfolio loans 52,240,464 40,110,739
Less allowance for loan losses (784,000) (602,000)
------------ ------------
Net portfolio loans 51,456,464 39,508,739
Premises and equipment--Note E 324,362 277,023
Accrued interest income 232,252 258,990
Other assets 123,298 291,271
------------ ------------
TOTAL ASSETS $ 63,201,845 $ 50,908,699
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 9,307,918 $ 5,179,376
Interest-bearing--Note F 48,599,523 41,122,067
------------ ------------
Total deposits 57,907,441 46,301,443
Accrued interest on deposits and other liabilities 116,430 61,602
------------ ------------
Total liabilities 58,023,871 46,363,045
STOCKHOLDERS' EQUITY--Notes G and L:
Common stock, par value $6.00 per share,
1,000,000 shares authorized;
500,000 shares issued and outstanding 3,000,000 3,000,000
Surplus 2,191,000 2,000,000
Retained-earnings deficit (16,772) (455,722)
Market value adjustment (net of tax) for
investment securities available for sale
(accumulated other comprehensive income) 3,746 1,376
------------ ------------
Total stockholders' equity 5,177,974 4,545,654
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 63,201,845 $ 50,908,699
============ ============
See notes to financial statements
D-13
STATEMENTS OF OPERATIONS
BLACK MOUNTAIN COMMUNITY BANK
Year Ended December 31 Period Ended
------------------------- December 31
2002 2001 2000
----------- ----------- -----------
Interest income:
Portfolio loans (including fees) $ 3,805,100 $ 2,977,368 $ 808,448
Taxable investment securities 85,393 32,257 23,339
Federal funds sold 56,583 158,777 154,595
Other 11,648 75,479 105,694
----------- ----------- -----------
Total interest income 3,958,724 3,243,881 1,092,076
Interest expense:
Deposits 1,343,397 1,424,019 435,903
Other 388
----------- ----------- -----------
Total interest expense 1,343,785 1,424,019 435,903
----------- ----------- -----------
Net interest income 2,614,939 1,819,862 656,173
Provision for loan losses--Note C 185,284 345,000 257,000
----------- ----------- -----------
Net interest income after provision
for loan losses 2,429,655 1,474,862 399,173
Noninterest income:
Service charges on deposit accounts 24,648 10,007 1,293
Other 20,654 5,361 1,522
----------- ----------- -----------
Total noninterest income 45,302 15,368 2,815
Noninterest expense:
Salaries and employee benefits 928,157 709,538 455,118
Occupancy 162,542 148,707 86,167
Equipment rent, depreciation and maintenance 102,449 101,032 63,783
Other 614,859 511,671 504,924
----------- ----------- -----------
Total noninterest expense 1,808,007 1,470,948 1,109,992
----------- ----------- -----------
Income (loss) before federal income taxes (benefit) 666,950 19,282 (708,004)
Federal income taxes (benefit)--Note I 228,000 7,000 (240,000)
----------- ----------- -----------
NET INCOME (LOSS) $ 438,950 $ 12,282 $ (468,004)
=========== =========== ===========
NET INCOME (LOSS) PER SHARE (basic and diluted) $ 0.88 $ 0.02 $ (0.94)
=========== =========== ===========
See notes to financial statements.
D-14
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
BLACK MOUNTAIN COMMUNITY BANK
Accumulated
Retained- Other
Common Earnings Comprehensive
Stock Surplus Deficit Income Total
----------- ----------- ----------- ----------- -----------
Balances at March 27, 2000, beginning of period $ -0- $ -0- $ -0- $ -0-
Issuance of 500,000 shares of common stock for cash
consideration of $10.00 per share in conjunction
with formation of Bank 3,000,000 2,000,000 5,000,000
Net loss for the 2000 period (468,004) (468,004)
----------- ----------- ----------- -----------
BALANCES AT DECEMBER 31, 2000 3,000,000 2,000,000 (468,004) 4,531,996
Components of comprehensive income:
Net income for 2001 12,282 12,282
Market value adjustment (net of tax) for
investment securities available for sale $ 1,376 1,376
-----------
Comprehensive income for 2001 13,658
----------- ----------- ----------- ----------- -----------
BALANCES AT DECEMBER 31, 2001 3,000,000 2,000,000 (455,722) 1,376 4,545,654
Supplemental capital infusions from majority
stockholder 191,000 191,000
Components of comprehensive income:
Net income for 2002 438,950 438,950
Market value adjustment (net of tax) for
investment securities available for sale 2,370 2,370
-----------
Comprehensive income for 2002 441,320
----------- ----------- ----------- ----------- -----------
BALANCES AT DECEMBER 31, 2002 $ 3,000,000 $ 2,191,000 $ (16,772) $ 3,746 $ 5,177,974
=========== =========== =========== =========== ===========
See notes to financial statements.
D-15
STATEMENTS OF CASH FLOWS
BLACK MOUNTAIN COMMUNITY BANK
Year Ended December 31 Period Ended
---------------------------- December 31
2002 2001 2000
------------ ------------ ------------
OPERATING ACTIVITIES
Net income (loss) $ 438,950 $ 12,282 $ (468,004)
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
Provision for loan losses 185,284 345,000 257,000
Depreciation of premises and equipment 76,498 64,484 45,473
Net amortization (accretion) of investment
security premiums (discounts) 23,439 (31,927)
Deferred income taxes 190,000 7,000 (240,000)
Decrease (increase) in accrued interest income and
other assets 4,711 (183,458) (134,511)
Increase in accrued interest expense on deposits
and other liabilities 53,607 41,372 20,230
------------ ------------ ------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 972,489 254,753 (519,812)
INVESTING ACTIVITIES
Proceeds from sales of investment securities
available for sale 5,255,625
Proceeds from calls and maturities of investment
securities available for sale 4,842,950
Purchases of investment securities available for sale (6,915,000) (4,200,160)
Purchases of investment securities held for long-term
investment (24,800)
Net increase in portfolio loans (12,133,009) (23,059,015) (17,051,724)
Purchases of premises and equipment (123,837) (36,124) (350,856)
------------ ------------ ------------
NET CASH USED BY INVESTING ACTIVITIES (9,098,071) (27,295,299) (17,402,580)
FINANCING ACTIVITIES
Net increase in demand deposits, NOW accounts and
savings accounts 3,137,429 11,176,339 16,229,059
Net increase in certificates of deposit 8,468,569 13,617,130 5,278,915
Net proceeds from issuance of common stock 5,000,000
Supplemental capital infusions from majority
shareholder 191,000
------------ ------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 11,796,998 24,793,469 26,507,974
------------ ------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,671,416 (2,247,077) 8,585,582
Cash and cash equivalents at beginning of period 6,338,505 8,585,582 -0-
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 10,009,921 $ 6,338,505 $ 8,585,582
============ ============ ============
See notes to financial statements
D-16
NOTES TO FINANCIAL STATEMENTS
BLACK MOUNTAIN COMMUNITY BANK
DECEMBER 31, 2002
NOTE A--SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS AND BASIS OF PRESENTATION: Black Mountain Community Bank
(the "Bank") is a full-service commercial bank located in Henderson, Nevada. The
Bank commenced operations in March 2000. The Bank is 51% owned by Capitol
Bancorp Limited, a bank development company headquartered in Phoenix, Arizona
and Lansing, Michigan.
The Bank provides a full range of banking services to individuals, businesses
and other customers located in its community. A variety of deposit products are
offered, including checking, savings, money market, individual retirement
accounts and certificates of deposit. The principal market for the Bank's
financial services is the community in which it is located and the areas
immediately surrounding that community.
ESTIMATES: The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make certain estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS: Cash and cash equivalents include cash on hand,
amounts due from banks (interest-bearing and noninterest-bearing), money-market
funds and federal funds sold. Generally, federal funds transactions are entered
into for a one-day period.
INVESTMENT SECURITIES: Investment securities available for sale are carried at
market value with unrealized gains and losses reported as a separate component
of stockholders' equity, net of tax effect (accumulated other comprehensive
income). All other investment securities 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 specific
securities sold is used to compute realized gains or losses. Premiums and
discounts are recognized in interest income using the interest method over the
period to maturity.
LOANS, CREDIT RISK AND ALLOWANCE FOR LOAN LOSSES: Portfolio loans are carried at
their principal balance based on management's intent and ability to hold such
loans for the foreseeable future until maturity or repayment.
D-17
NOTES TO FINANCIAL STATEMENTS
BLACK MOUNTAIN COMMUNITY BANK
DECEMBER 31, 2002
NOTE A--SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
Credit risk arises from making loans and loan commitments in the ordinary course
of business. Consistent with the Bank's emphasis on business lending, there are
concentrations of credit in loans secured by commercial real estate, equipment
and other business assets. The maximum potential credit risk to the Bank,
without regard to underlying collateral and guarantees, is the total of loans
and loan commitments outstanding. Management reduces the Bank's exposure to
losses from credit risk by requiring collateral and/or guarantees for loans
granted and by monitoring concentrations of credit, in addition to recording
provisions for loan losses and maintaining an allowance for loan losses.
The allowance for loan losses is maintained at a level believed adequate by
management to absorb estimated losses inherent in the portfolio at the balance
sheet date. Management's determination of the adequacy of the allowance is based
on evaluation of the portfolio (including potential impairment of individual
loans and concentrations of credit), past loss experience, current economic
conditions, volume, amount and composition of the loan portfolio, loan
commitments outstanding and other factors. The allowance is increased by
provisions charged to operations and reduced by net charge-offs.
INTEREST AND FEES ON LOANS: Interest income on loans is recognized based upon
the principal balance of loans outstanding. Fees from origination of portfolio
loans generally approximate the direct costs of successful loan originations.
The accrual of interest is generally discontinued when a loan becomes 90 days
past due as to interest. When interest accruals are discontinued, interest
previously accrued (but unpaid) is reversed. Management may elect to continue
the accrual of interest when the estimated net realizable value of collateral is
sufficient to cover the principal balance and accrued interest and the loan is
in process of collection.
PREMISES AND EQUIPMENT: Premises and equipment are stated on the basis of cost.
Depreciation is computed principally by the straight-line method based upon
estimated useful lives of the respective assets. Leasehold improvements are
generally depreciated over the respective lease term.
OTHER REAL ESTATE: Other real estate (included as a component of other assets;
none at December 31, 2002 and 2001) 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 costs) at the date acquired and are periodically
reviewed for subsequent impairment.
D-18
NOTES TO FINANCIAL STATEMENTS
BLACK MOUNTAIN COMMUNITY BANK
DECEMBER 31, 2002
NOTE A--SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
STOCK-BASED COMPENSATION: No stock-based compensation expense is recorded upon
granting of stock options because such stock options are accounted for under the
provisions of Accounting Principles Board (APB) Opinion 25 (and related
interpretations) and are granted at an exercise price equal to the market price
of common stock at grant date.
Statement of Financial Accounting Standards No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION, establishes an alternative fair value method of accounting for
stock options whereby compensation expense would be recognized based on the
computed fair value of the options on the grant date. By not electing this
alternative, certain pro forma disclosures of the expense recognition provisions
of Statement No. 123 are required, which are as follows:
2002 2001 2000
--------- --------- ---------
Fair value assumptions:
Risk-free interest rate 4.5% 5.0% 7.0%
Dividend yield -- -- --
Stock price volatility .46 .39 .83
Expected option life -- 8 years 9 years
Aggregate estimated fair value of
options granted -- $ 2,000 $ 611,000
Net income (loss):
As reported $ 438,950 12,282 (468,004)
Less pro forma compensation
expense regarding fair value
of stock option awards, net
of income tax effect (80,966) (80,966) (80,705)
--------- --------- ---------
Pro forma 357,984 (68,684) (548,709)
Net income (loss) per share:
Basic:
As reported 0.88 0.02 (0.94)
Pro forma 0.72 (0.14) (1.10)
Diluted:
As reported 0.88 0.02 (0.94)
Pro forma $ 0.72 $ (0.14) $ (1.10)
TRUST ASSETS AND RELATED INCOME: Customer property, other than funds on deposit,
held in a fiduciary or agency capacity by the Bank is not included in the
balance sheet because it is not an asset of the Bank. Trust fee income is
recorded on the accrual method.
FEDERAL INCOME TAXES: Deferred income taxes are recognized for the tax
consequences of temporary differences by applying enacted tax rates applicable
to future years to differences between the financial statement carrying amounts
and the tax bases of existing assets and liabilities. The effect on deferred
income taxes of a change in tax laws or rates is recognized in income in the
period that includes the enactment date.
D-19
NOTES TO FINANCIAL STATEMENTS
BLACK MOUNTAIN COMMUNITY BANK
DECEMBER 31, 2002
NOTE A--SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
NET INCOME (LOSS) PER SHARE: Net income (loss) per share is based on the
weighted average number of common shares outstanding (500,000 shares). Diluted
net income (loss) per share includes the dilutive effect of stock options (see
Note G).
COMPREHENSIVE INCOME (LOSS): 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 Bank's only element of
comprehensive income (loss) 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 (loss) are shown
within the statement of changes in stockholders' equity presented herein.
NEW ACCOUNTING STANDARDS: Financial Accounting Standards Board (FASB) Statement
No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS, requires that goodwill no longer
be amortized and charged against earnings, but instead be reviewed for
impairment. Amortization of goodwill ceased upon adoption of the Statement. 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, 2002, the Bank had no recorded goodwill.
The FASB has also recently issued Statements No. 143 (ACCOUNTING FOR ASSET
RETIREMENT OBLIGATIONS), No. 144 (ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF
LONG-LIVED ASSETS), 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) and No. 146 (ACCOUNTING
FOR COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES). These new standards have
varying effective dates in 2002 and 2003 and, based on management's analysis,
are not expected to have a material effect on the Bank's 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. It had no material effect on the Bank's financial statements, upon
implementation.
Statement No. 148, ACCOUNTING FOR STOCK-BASED COMPENSATION - TRANSITION AND
DISCLOSURE, provides alternative methods of transition for a voluntary change to
the fair-value based method of accounting for stock-based employee compensation
and it amends the prior disclosure requirements of Statement No. 123 to require
more prominent and frequent disclosures about the effects of stock-based
compensation. As permitted, the Bank has retained its prior method of accounting
for stock-based employee compensation.
D-20
NOTES TO FINANCIAL STATEMENTS
BLACK MOUNTAIN COMMUNITY BANK
DECEMBER 31, 2002
NOTE A--SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
FASB Interpretation No. 45, GUARANTOR'S ACCOUNTING AND DISCLOSURE REQUIREMENTS
FOR GUARANTEES, INCLUDING INDIRECT GUARANTEES AND INDEBTEDNESS OF OTHERS,
expands disclosures about obligations under certain guarantees and, in addition,
requires recording a liability for the fair value of the obligations undertaken
in issuing the guarantee, applicable to guarantees issued or modified after
December 31, 2002. This new guidance had no material impact on the Bank's
financial position or results of operations, upon implementation.
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.
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 the Bank's financial statements.
NOTE B--INVESTMENT SECURITIES
Investment securities consisted of the following at December 31:
2002 2001
----------------------- -----------------------
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
---------- ---------- ---------- ----------
Available for sale:
United States government
agency securities $1,025,072 $1,030,748 $4,232,087 $4,234,171
Held for long-term investment:
Federal Home Loan Bank stock 24,800 24,800
---------- ---------- ---------- ----------
$1,049,872 $1,055,548 $4,232,087 $4,234,171
========== ========== ========== ==========
Investment in Federal Home Loan Bank stock is restricted and may only be resold
to or redeemed by the issuer.
D-21
NOTES TO FINANCIAL STATEMENTS
BLACK MOUNTAIN COMMUNITY BANK
DECEMBER 31, 2002
NOTE B--INVESTMENT SECURITIES --CONTINUED
Gross unrealized gains and losses on investment securities available for sale
were as follows at December 31:
2002 2001
----------------- -----------------
Gains Losses Gains Losses
------- ------- ------- -------
United States government
agency securities $ 5,676 $ -- $10,015 $ 7,931
======= ======= ======= =======
Gross realized gains from sales of investment securities were $5,497 for the
year ended December 31, 2002 (none in 2001 and 2000).
Scheduled maturities of investment securities held as of December 31, 2002 were
as follows:
Estimated
Amortized Market
Cost Value
---------- ----------
After one year, through five years $ 720,461 $ 721,800
After five years, through ten years
After ten years 304,611 308,948
Securities held for long-term
investment, without stated
maturities 24,800 24,800
---------- ----------
$1,049,872 $1,055,548
========== ==========
NOTE C--LOANS
Transactions in the allowance for loan losses are summarized below:
2002 2001 2000
--------- --------- ---------
Balance at beginning of period $ 602,000 $ 257,000 $ -0-
Provision charged to operations 185,284 345,000 257,000
Loans charged off (deduction) (3,284) -- --
Recoveries -- -- --
--------- --------- ---------
Balance at December 31 $ 784,000 $ 602,000 $ 257,000
========= ========= =========
D-22
NOTES TO FINANCIAL STATEMENTS
BLACK MOUNTAIN COMMUNITY BANK
DECEMBER 31, 2002
NOTE C--LOANS--CONTINUED
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
-------------------
2002 2001
-------- --------
Nonaccrual loans:
Commercial $324,000 $240,000
Real estate -- --
Installment -- --
-------- --------
Total nonaccrual loans 324,000 240,000
Past due (>90 days) loans:
Commercial -- --
Real estate -- --
Installment -- --
-------- --------
Total past due loans -0- -0-
-------- --------
Total nonperforming loans $324,000 $240,000
======== ========
If nonperforming loans had performed in accordance with their contractual terms
during the year, additional interest income of $21,000 and $42,000 would have
been recorded in 2002 and 2001, respectively (none in 2000). Interest income
recognized on loans in nonaccrual status in 2002 and 2001 operations
approximated $48,000 and $1,000, respectively (none in 2000). At December 31,
2002, there were no material amounts of loans which were restructured or
otherwise renegotiated as a concession to troubled borrowers.
D-23
NOTES TO FINANCIAL STATEMENTS
BLACK MOUNTAIN COMMUNITY BANK
DECEMBER 31, 2002
NOTE C--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, 2002 December 31, 2001
----------------------- -----------------------
Percentage Percentage
of Total of Total
Portfolio Portfolio
Amount Loans Amount Loans
-------- -------- -------- --------
Commercial $770,300 1.47% $589,960 1.46%
Real estate mortgage 8,700 0.02 6,020 0.02
Installment 5,000 0.01 6,020 0.02
-------- -------- -------- --------
Total allowance for loan losses $784,000 1.50% $602,000 1.50%
======== ======== ======== ========
NOTE D--RELATED PARTIES TRANSACTIONS
In the ordinary course of business, the Bank makes loans to officers and
directors of the Bank including their immediate families and companies in which
they are principal owners. At December 31, 2002 and 2001, total loans to these
persons approximated $1,922,000 and $2,017,000, respectively. During 2002,
$867,000 of new loans were made to these persons and repayments totaled
$962,000. Such loans are made at the Bank's normal credit terms.
Such officers and directors of the Bank (and their associates, family and/or
affiliates) are also depositors of the Bank. Such deposits are similarly made at
the Bank's normal terms as to interest rate, term and deposit insurance.
The Bank purchases certain data processing and management services from Capitol
Bancorp Limited. Amounts paid for such services approximated $361,000, $334,000
and $224,000 in 2002, 2001 and 2000, respectively.
D-24
NOTES TO FINANCIAL STATEMENTS
BLACK MOUNTAIN COMMUNITY BANK
DECEMBER 31, 2002
NOTE E--PREMISES AND EQUIPMENT
Major classes of premises and equipment consisted of the following at December
31:
2002 2001
--------- ---------
Leasehold improvements $ 118,982 $ 83,271
Equipment and furniture 391,835 303,709
--------- ---------
510,817 386,980
Less accumulated depreciation (186,455) (109,957)
--------- ---------
$ 324,362 $ 277,023
========= =========
The Bank rents office space under an operating lease. Rent expense under this
lease agreement approximated $130,000, $119,000 and $68,000 in 2002, 2001 and
2000, respectively.
At December 31, 2002, future minimum rental payments under operating leases that
have initial or remaining noncancelable lease terms in excess of one year were
as follows:
2003 $ 125,000
2004 129,000
2005 133,000
2006 137,000
2007 141,000
2008 and thereafter 244,000
---------
Total $ 909,000
=========
NOTE F--DEPOSITS
The aggregate amount of time deposits of $100,000 or more approximated $21.9
million and $13.8 million as of December 31, 2002 and 2001, respectively.
At December 31, 2002, the scheduled maturities of time deposits of $100,000 or
more were as follows:
2003 $13,617,000
2004 6,186,000
2005 988,000
2006 201,000
2007 921,000
-----------
Total $21,913,000
===========
Interest paid approximates amounts charged to operations on an accrual basis for
the periods presented.
D-25
NOTES TO FINANCIAL STATEMENTS
BLACK MOUNTAIN COMMUNITY BANK
DECEMBER 31, 2002
NOTE G--STOCK OPTIONS
During 2001, 350 stock options were granted and 72,150 stock options were
granted in 2000. At December 31, 2001 and 2002, 72,500 stock options were
outstanding which expire in 2009, of which 25,300 and 39,800 were currently
exercisable, respectively. At December 31, 2000, 72,150 stock options were
outstanding, of which 10,800 were currently exercisable. Each option vests
ratably over a five-year period and enables the holder to purchase one share of
the Bank's common stock at $10.00 per share.
NOTE H--EMPLOYEE RETIREMENT PLAN
Subject to eligibility requirements, the Bank's employees participate in a
multi-employer employee 401(k) retirement plan. Amounts charged to expense by
the Bank for this plan approximated $15,000 and $13,000 in 2002 and 2001,
respectively (none in 2000).
NOTE I--INCOME TAXES
Federal income taxes (benefit) consist of the following components:
2002 2001 2000
---------- ---------- ----------
Current $ 38,000 $ -- $ --
Deferred 190,000 7,000 (240,000)
---------- ---------- ----------
$ 228,000 $ 7,000 $ (240,000)
========== ========== ==========
Net deferred income tax assets consisted of the following at December 31:
2002 2001
--------- ---------
Allowance for loan losses $ 132,000 $ 98,000
Net operating loss carryforward -- 202,000
Market value adjustment for investment
securities available for sale (2,000) (1,000)
Other, net (89,000) (67,000)
--------- ---------
$ 41,000 $ 232,000
========= =========
Federal income taxes of $15,000 were paid during 2002 (none in 2001 and 2000).
D-26
NOTES TO FINANCIAL STATEMENTS
BLACK MOUNTAIN COMMUNITY BANK
DECEMBER 31, 2002
NOTE J--ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
Carrying values and estimated fair values of financial instruments at December
31 were as follows (in thousands):
2002 2001
---------------------- ----------------------
Estimated Estimated
Carrying Fair Carrying Fair
Value Value Value Value
--------- --------- --------- ---------
Financial Assets:
Cash and cash equivalents $ 10,010 $ 10,010 $ 6,339 $ 6,339
Investment securities:
Available for sale 1,031 1,031 4,234 4,234
Held for long-term investment 25 25
--------- ---------
1,056 1,056
Portfolio loans:
Fixed rate 40,866 41,021 21,222 21,298
Variable rate 11,374 11,443 18,889 18,931
--------- --------- --------- ---------
Total portfolio loans 52,240 52,464 40,111 40,229
Less allowance for loan losses (784) (784) (602) (602)
--------- --------- --------- ---------
Net portfolio loans 51,456 51,680 39,509 39,627
Financial Liabilities:
Deposits:
Noninterest-bearing 9,308 9,308 5,179 5,179
Interest-bearing:
Demand accounts 21,234 21,223 22,226 22,223
Time certificates of deposit less
than $100,000 5,452 5,475 5,125 5,113
Time certificates of deposit
$100,000 or more 21,913 21,991 13,771 13,773
--------- --------- --------- ---------
Total interest-bearing deposits 48,599 48,689 41,122 41,109
--------- --------- --------- ---------
Total deposits 57,907 57,997 46,301 46,288
Estimated fair values of financial assets and liabilities are based upon a
comparison of current interest rates on financial instruments and the timing of
related scheduled cash flows to the estimated present value of such cash flows
using current estimated market rates of interest unless quoted market values or
other fair value information is more readily available. Such estimates of fair
value are not intended to represent market value or portfolio liquidation value,
and only represent an estimate of fair values based on current financial
reporting requirements.
D-27
NOTES TO FINANCIAL STATEMENTS
BLACK MOUNTAIN COMMUNITY BANK
DECEMBER 31, 2002
NOTE K--COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, various loan commitments are made to
accommodate the financial needs of Bank customers. Such loan commitments include
stand-by letters of credit, lines of credit, and various commitments for other
commercial, consumer and mortgage loans. Stand-by letters of credit, when
issued, commit the Bank to make payments on behalf of customers when certain
specified future events occur and are used infrequently ($8,000 at December 31,
2002 and 2001). Other loan commitments outstanding consist of unused lines of
credit and approved, but unfunded, specific loan commitments ($12.8 million and
$13 million at December 31, 2002 and 2001, respectively).
These loan commitments (stand-by letters of credit and unfunded loans) generally
expire within one year and are reviewed periodically for continuance or renewal.
All loan commitments have credit risk essentially the same as that involved in
routinely making loans to customers and are made subject to the Bank's normal
credit policies. In making these loan commitments, collateral and/or personal
guarantees of the borrowers are generally obtained based on management's credit
assessment. Such loan commitments are also included in management's evaluation
of the adequacy of the allowance for loan losses.
The Bank is required to maintain an average reserve balance in the form of cash
on hand and balances due from the Federal Reserve Bank and certain correspondent
banks. The amount of reserve balances required as of December 31, 2002 and 2001
were $70,000 and $25,000, respectively.
Deposits at the Bank are insured up to the maximum amount covered by FDIC
insurance.
NOTE L--CAPITAL REQUIREMENTS
The Bank is subject to certain capital requirements. Federal financial
institution regulatory agencies have established certain risk-based capital
guidelines for banks. Those guidelines require all banks to maintain certain
minimum ratios and related amounts based on "Tier 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
Bank's financial statements.
D-28
NOTES TO FINANCIAL STATEMENTS
BLACK MOUNTAIN COMMUNITY BANK
DECEMBER 31, 2002
NOTE L--CAPITAL REQUIREMENTS--CONTINUED
Under the regulatory capital adequacy guidelines and related framework for
prompt corrective action, the specific capital requirements involve quantitative
measures of assets, liabilities and certain off-balance-sheet items calculated
under regulatory accounting practices. The capital amounts and classifications
are also subject to qualitative judgments by regulatory agencies about
components, risk weighting and other factors.
As a condition of charter approval, the Bank is required to maintain a core
capital (Tier 1) to average total assets of not less than 8% and an allowance
for loan losses of not less than 1% of portfolio loans for the first three years
of operations.
As of December 31, 2002, the most recent notification received by the Bank from
regulatory agencies has advised that the Bank is classified as
"well-capitalized" as that term is defined by the applicable agencies. There are
no conditions or events since those notifications that management believes would
change the regulatory classification of the Bank.
Management believes, as of December 31, 2002, that the Bank meets all capital
adequacy requirements to which it is subject.
The Bank's various amounts of regulatory capital and related ratios as of
December 31, 2002 and 2001 are summarized below (amounts in thousands):
2002 2001
------------ ------------
Tier 1 capital to average total assets:
Minimum required amount >= $ 4,930 >= $ 4,079
Actual amount $ 5,174 $ 4,544
Ratio 8.40% 8.91%
Tier 1 capital to risk-weighted assets:
Minimum required amount(1) >= $ 2,274 >= $ 1,745
Actual amount $ 5,174 $ 4,544
Ratio 9.10% 10.42%
Combined Tier 1 and Tier 2 capital to risk-weighted assets:
Minimum required amount(2) >= $ 4,549 >= $ 3,489
Amount required to meet "Well-Capitalized" category(3) >= $ 5,686 >= $ 4,362
Actual amount $ 5,886 $ 5,090
Ratio 10.35% 11.67%
(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-29
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ANNEX E
FINANCIAL AND OTHER INFORMATION REGARDING
CAPITOL BANCORP LIMITED
The following items accompany this Proxy Statement/Prospectus as mailed to the
shareholders of Black Mountain Community Bank:
- Report on Form 10-Q for period ended March 31, 2003
- Annual report to shareholders for year ended December 31, 2002
- Annual report on Form 10-K for year ended December 31, 2002
- Proxy statement for Capitol's Annual Meeting of Shareholders held on
May 8, 2003
ANNEX F
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)
F-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
F-2
(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)
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)
F-3
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.
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
F-4
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)
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)
F-5
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, 2002
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 Amendment No. 1 to Registration Statement on Form S-4 to be
signed on its behalf by the undersigned, thereunto duly authorized, in Lansing,
Michigan on June 25, 2003.
CAPITOL BANCORP LIMITED
By: /s/ JOSEPH D. REID
------------------------------
JOSEPH D. REID
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Registration Statement on Form S-4 has been signed by the following
persons in the capacities indicated on June 25, 2003.
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
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
* By: /s/ Joseph D. Reid
-----------------------
Joseph D. Reid
Attorney-in-Fact
II-6
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
2.1 Plan of Share Exchange (included in the Proxy
Statement/Prospectus as Annex A).
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. (financial advisor).
24 Power of Attorney.*
99 Form of proxy for the Annual Meeting of Shareholders of Black
Mountain Community Bank.
* previously filed.
II-7