As filed with the Securities and Exchange Commission on May 26, 2000
Registration No. 333-____________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
Form S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
----------
Sun Community Bancorp Limited
(Exact name of registrant as specified in its charter)
ARIZONA 6711 86-0878747
(State or Other Jurisdiction (Primary Standard (I.R.S. Employer
of Incorporation or Organization) Industrial Identification No.)
Classification
Code Number)
2777 East Camelback Road, Suite 375
Phoenix, Arizona 85016
(602) 955-6100
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Cristin Reid English
2777 East Camelback Road, Suite 375
Phoenix, Arizona 85016
(602) 955-6100
(Name and address, including zip code, and telephone number,
including area code, of agent for service)
----------
Copy to:
Terry Morris Roman, Esq.
Snell & Wilmer, L.L.P.
One Arizona Center
Phoenix, Arizona 85004-001
(602) 382-6000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this Registration
Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
<PAGE>
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
<TABLE>
<CAPTION>
Title Of Each Proposed Maximum Proposed Maximum
Class Of Securities Being Amount To Be Offering Price Aggregate Offering Amount Of
Registered Registered (1) Per Share (2) Price (2) Registration Fee
---------- -------------- ------------- --------- ----------------
<S> <C> <C> <C> <C>
Common stock (no par value) $256,707 $9.50 $2,438,717 $644.00
</TABLE>
- ----------
(1) Based on 151,990 shares of common stock, $5.00 par value, of Valley First
Community Bank, which is the maximum number of shares of Valley First
common stock (excluding shares held by Sun) that may be outstanding
immediately prior to the consummation of the exchange transaction, assuming
exercise of all outstanding options to purchase shares of Valley First
common stock. Based also on an assumed exchange ratio of shares of Sun
common stock for each share of Valley First common stock.
(2) Pursuant to Rules 457(f)(1) and 457(c) under the Securities Act of 1933, as
amended, the registration fee has been calculated based on a price of
$9.50 per share of Sun common stock (the average of the high and low
price per share of common stock of Sun as reported on the Nasdaq National
Market on May 24, 2000), and the maximum number of shares of Sun common
stock that may be issued in the consummation of the exchange transaction
contemplated.
================================================================================
2
<PAGE>
PROXY STATEMENT/PROSPECTUS
PROPOSED PLAN OF SHARE EXCHANGE
The Board of Directors of Valley First Community Bank has approved a
Plan of Share Exchange that contemplates the exchange of the shares of Valley
First common stock held by all shareholders other than Sun Community Bancorp
Limited. Sun currently holds 51.8% of Valley First's common stock. As a result
of the exchange, Valley First will become a wholly-owned subsidiary of Sun.
If the exchange is approved, each share of Valley First common stock
will be converted into the right to receive Sun common stock according to an
exchange ratio. The exchange ratio is calculated by dividing one and one-half
times the adjusted pro forma fully diluted net book value per share of Valley
First common stock as of June 30, 2000, by the average price at closing of Sun
common stock on each trading day in the 30 day calendar period ending on June
30, 2000. If the exchange ratio was calculated based on the information
currently available, each shareholder of Valley First would receive in the
exchange 1.6890 shares of Sun common stock for each share of Valley First common
stock. This is based on an assumed average trading price of Sun common stock of
$10.75 per share. The actual exchange ratio will be based on information as of
June 30, 2000, and will be different.
Sun estimates that Sun will issue approximately 256,707 shares of Sun
common stock to Valley First shareholders in the exchange. Those shares will
represent less than 5% of the outstanding Sun common stock after the exchange.
Sun's common stock trades on the Nasdaq National Market System under the symbol
"SCBL."
Valley First's Board of Directors has scheduled the annual meeting of
Valley First shareholders to vote on the Plan of Share Exchange. The attached
proxy statement/prospectus includes detailed information about the time, date
and place of the shareholders meeting.
This document gives you detailed information about the meeting and the
proposed exchange. You are encouraged to read this document carefully. IN
PARTICULAR, YOU SHOULD READ THE "RISK FACTORS" SECTION FOR A DESCRIPTION OF
VARIOUS RISKS YOU SHOULD CONSIDER IN EVALUATING THE EXCHANGE OF YOUR VALLEY
FIRST COMMON STOCK FOR SUN'S COMMON STOCK.
- --------------------------------------------------------------------------------
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED
THE SECURITIES TO BE ISSUED UNDER THIS PROXY STATEMENT/PROSPECTUS OR DETERMINED
IF THIS PROXY STATEMENT/PROSPECTUS IS ACCURATE OR ADEQUATE. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
This proxy statement/prospectus is dated June __, 2000, and is first
being mailed to shareholders of Valley First on or about June __ 2000.
3
<PAGE>
[VALLEY FIRST LOGO]
----------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held On June __, 2000
To the Shareholders of Valley First Community Bank:
The annual meeting of the shareholders of Valley First Community Bank
will be held at Valley First Community Bank at 7501 East McCormick Parkway,
North Court, Suite 105N, Scottsdale, Arizona 85258-3495 on June __, 2000, at
9:00 a.m., local time, for the following purposes:
1. To consider and vote on a proposal to adopt and approve a Plan of
Share Exchange, dated as of June 30, 2000, between Sun Community Bancorp Limited
and Valley First Community Bank under which all shareholders of Valley First
(other than Sun) will exchange their stock in Valley First for stock in Sun,
according to an exchange ratio, as described in the attached proxy
statement/prospectus. A copy of the Plan of Share Exchange is attached to the
proxy statement/prospectus as Annex A. Under the Arizona Business Corporation
Act, shareholders of Valley First will have the right to assert dissenters'
rights in connection with the proposed Plan of Share Exchange. See "Dissenters'
Rights" in the proxy statement/prospectus accompanying this notice.
2. Election of Directors.
3. To act on any other matters that may properly be brought before the
shareholders' meeting or any adjournment or postponement.
Only shareholders of record at the close of business on May 31, 2000
are entitled to notice of, and to vote at, the meeting or any adjournment or
postponement.
You are cordially invited to attend the meeting of Valley First's
shareholders. Whether or not you plan to attend, please act promptly to vote
your shares with respect to the proposals described above. You may vote your
shares by completing, signing, dating and returning the enclosed proxy card as
promptly as possible in the enclosed postage-paid envelope.
If you attend the shareholders' meeting, you may vote your shares in
person even if you have previously submitted a proxy.
By Order of the Board of Directors,
/s/ Gary W. Hickel
President
4
<PAGE>
TABLE OF CONTENTS
SUMMARY..................................................................... 10
Reasons for the Exchange.................................................. 10
The Annual Shareholders' Meeting.......................................... 10
Recommendation to Shareholders............................................ 10
Votes Required............................................................ 11
Record Date; Voting Power................................................. 11
What Shareholders will Receive in the Exchange............................ 11
Accounting Treatment...................................................... 11
Tax Consequences of the Exchange to Valley First Shareholders............. 12
Dissenters' Rights........................................................ 12
Opinion of Financial Advisor.............................................. 12
The Plan of Share Exchange................................................ 12
Termination of the Exchange............................................... 12
Your Rights as a Shareholder Will Change.................................. 12
SELECTED CONSOLIDATED FINANCIAL DATA........................................ 13
RISK FACTORS................................................................ 15
RECENT DEVELOPMENTS......................................................... 20
CAPITALIZATION.............................................................. 21
DIVIDENDS AND MARKET FOR COMMON STOCK....................................... 22
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS................... 23
INFORMATION ABOUT SUN....................................................... 24
INFORMATION ABOUT VALLEY FIRST.............................................. 24
THE ELECTION OF DIRECTORS................................................... 26
THE EXCHANGE................................................................ 27
General................................................................... 27
Background of the Exchange................................................ 27
Valley First's Reasons for the Exchange................................... 28
Sun's Reasons for the Exchange............................................ 28
Terms of Exchange......................................................... 28
Valley First Board Recommendation......................................... 28
Accounting Treatment...................................................... 29
Pro Forma Data............................................................ 29
Material Federal Income Tax Consequences.................................. 29
Regulatory Matters........................................................ 31
Dissenters' Rights........................................................ 31
Federal Securities Laws Consequences; Stock Transfer Restrictions......... 32
OPINION OF FINANCIAL ADVISOR................................................ 33
5
<PAGE>
THE CLOSING................................................................. 35
Effective Time............................................................ 35
Shares Held by Sun........................................................ 35
Procedures for Surrender of Certificates; Fractional Shares............... 35
Fees and Expenses......................................................... 36
Nasdaq Stock Market Listing............................................... 36
Amendment and Termination................................................. 36
THE SHAREHOLDERS' MEETING................................................... 37
Date, Time and Place...................................................... 37
Matters to be Considered at the Shareholders' Meeting..................... 37
Record Date; Stock Entitled to Vote; Quorum............................... 37
Votes Required............................................................ 37
Share Ownership of Management............................................. 37
Voting of Proxies......................................................... 38
General Information....................................................... 38
Solicitation of Proxies; Expenses......................................... 38
COMPARISON OF SHAREHOLDER RIGHTS............................................ 39
DESCRIPTION OF CAPITAL STOCK OF SUN......................................... 40
Rights of Common Stock.................................................... 40
Shares Available for Issuance............................................. 40
Anti-Takeover Provisions.................................................. 41
WHERE YOU CAN FIND MORE INFORMATION......................................... 43
LEGAL MATTERS............................................................... 44
EXPERTS..................................................................... 44
LIST OF ANNEXES
ANNEX A Plan of Share Exchange........................................... A-1
ANNEX B Opinion of Financial Advisor..................................... B-1
ANNEX C Tax Opinion of Snell & Wilmer, L.L.P............................. C-1
ANNEX D Financial Information Regarding Valley First
Community Bank................................................. D-1
ANNEX E Financial and Other Information Regarding Sun
Community Bancorp Limited...................................... E-1
ANNEX F Excerpts of Arizona Revised Statutes Regarding
Dissenters' Rights............................................. F-1
6
<PAGE>
ANSWERS TO
FREQUENTLY ASKED QUESTIONS
Q: Why am I receiving these materials?
A: Valley First's Board of Directors has approved the exchange of the 48.2% of
Valley First's common stock not owned by Sun for shares of common stock of
Sun. The exchange requires the approval of Valley First's shareholders.
Valley First is sending you these materials to help you decide whether to
approve the exchange. These materials also include information regarding
Valley First's election of directors.
Q: What will I receive in the exchange?
A: You will receive shares of Sun common stock, which are publicly traded on
the National Market System of the Nasdaq Stock Market, Inc. under the
symbol "SCBL." If the exchange is approved, an exchange ratio will be
calculated based on the actual results of operations of Valley First and
actual market prices of Sun common stock as of June 30, 2000, as described
in the Plan of Share Exchange. If the exchange ratio were calculated based
on currently available information, you would receive 1.6890 shares of Sun
common stock for each share of Valley First common stock you own, based on
an assumed average trading price of Sun common stock of $10.75 per share.
The actual exchange ratio will be different because it will be based on
information as of June 30, 2000. Fractional shares will be settled in cash.
Q: What do I need to do now?
A: After you have carefully read this document, indicate on the enclosed proxy
card how you want to vote. Sign and mail the proxy card in the enclosed
prepaid return envelope as soon as possible. You should indicate your vote
now even if you expect to attend the shareholders' meeting and vote in
person. Indicating your vote now will not prevent you from later canceling
or revoking your proxy right up to the day of the shareholders' meeting and
will ensure that your shares are voted if you later find you cannot attend
the special 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 Valley First 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 June __, 2000; 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
Valley First common stock (other than Sun) must approve the Plan of Share
Exchange. If you do not vote your Valley First shares, the effect will be a
vote against the Plan of Share Exchange.
7
<PAGE>
Q: Should I send in my stock certificates at this time?
A: No. After the exchange is approved, Sun or Sun's stock transfer agent will
send Valley First shareholders written instructions for exchanging their
stock certificates.
Q: When do you expect to complete the exchange?
A: As quickly as possible after June 30, 2000. Approval by Valley First's
shareholders at the shareholders' meeting must be obtained first. It is
anticipated the exchange will be completed by August 15, 2000.
Q: Where can I find more information about Sun?
A: This document incorporates important business and financial information
about Sun from documents filed with the SEC that have been delivered with
this document. Certain exhibits are not included in those documents;
however, Sun will provide you with copies of those exhibits, without
charge, upon written or oral request to:
Sun Community Bancorp Limited
2777 East Camelback Road, Suite 375
Phoenix, Arizona 85016
Attention: General Counsel
Telephone Number: (602) 955-6100
IN ORDER TO RECEIVE TIMELY DELIVERY OF THE DOCUMENTS IN ADVANCE OF THE
SHAREHOLDERS' MEETING, YOU SHOULD MAKE YOUR REQUEST NO LATER THAN JUNE __, 2000.
For more information on the matters incorporated by reference in this
document, see "Where You Can Find More Information".
8
<PAGE>
WHO CAN ANSWER YOUR QUESTIONS?
If you have additional questions, you should contact:
Valley First Community Bank
7501 East McCormick Parkway
North Court, Suite 105N
Scottsdale, Arizona 85258-3495
(480) 596-0883
Attention: Gary W. Hickel
President
or
Sun Community Bancorp Limited
2777 East Camelback Road, Suite 375
Phoenix, Arizona 85016
(602) 955-6100
Attention: Cristin Reid English
General Counsel
If you would like additional copies of this proxy
statement/prospectus you should contact:
Sun Community Bancorp Limited at the above address and phone number
9
<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROXY
STATEMENT/PROSPECTUS. IT DOES NOT CONTAIN ALL OF THE INFORMATION THAT MAY BE
IMPORTANT TO YOU. TO UNDERSTAND THE PROPOSED EXCHANGE FULLY AND THE CONSEQUENCES
TO YOU, YOU SHOULD READ CAREFULLY THE ENTIRE PROXY STATEMENT/PROSPECTUS AND THE
DOCUMENTS REFERRED TO IN THIS DOCUMENT. SEE "WHERE YOU CAN FIND MORE
INFORMATION".
Sun Community Bancorp Limited is a bank holding company with
headquarters located at 2777 East Camelback Road, Suite 375, Phoenix, Arizona
85010. Sun's telephone number is (602) 955-6100. Sun is a majority-owned
subsidiary of Capitol Bancorp Limited, a bank holding company headquartered in
Lansing, Michigan.
Sun is a uniquely structured affiliation of community banks. It
currently has 11 wholly or majority-owned bank subsidiaries, including Valley
First Community Bank. Each bank is viewed by management as being a separate
business from the perspective of monitoring performance and allocation of
financial resources. Sun uses a unique strategy of bank ownership and
development through a tiered structure.
Sun's operating strategy is to provide transactional, processing and
administrative support and mentoring to aid in the effective growth and
development of its banks. It provides access to support services and management
with significant experience in community banking. These administrative and
operational support services do not require a direct interface with the bank
customer and therefore can be consolidated more efficiently without affecting
the bank customer relationship. Subsidiary banks have full decision-making
authority in structuring and approving loans and in the delivery and pricing of
other banking services.
Valley First Community Bank is a commercial bank with its headquarters
at 7501 East McCormick Parkway, North Court, Suite 105N, Scottsdale, Arizona
85258-3495. Valley First's telephone number is (480) 596-0883.
Valley First is now and has been, since it commenced business, a 51.8%
owned subsidiary of Sun. Valley First commenced the business of banking on June
30, 1997. Valley First offers a full range of commercial banking services.
REASONS FOR THE EXCHANGE (PAGE 28)
It is believed that the exchange will provide you with greater
liquidity and flexibility because Sun's common stock is publicly traded. The
exchange will also provide you with greater diversification, since Sun is active
in more than one geographic area and across a broader customer base.
THE ANNUAL SHAREHOLDERS' MEETING (PAGE 36)
The meeting of Valley First shareholders will be held on June __, 2000
at 9:00 a.m., local time, at Valley First Community Bank at 7501 East McCormick
Parkway, North Court, Suite 105N, Scottsdale, Arizona 85258-3495. At the
shareholders' meeting, you will elect Valley First's Board of Directors and be
asked to approve the Plan of Share Exchange.
RECOMMENDATION TO SHAREHOLDERS (PAGE 28)
The Valley First board believes that the exchange is fair to you and in
the best interests of both you and Valley First and recommends that you vote FOR
approval of the share exchange.
10
<PAGE>
VOTES REQUIRED (PAGE 36)
Approval of the Plan of Share Exchange requires the favorable vote of a
majority of the outstanding shares of Valley First common stock excluding the
shares held by Sun. This is more than the vote required by law, but Valley
First's board has set the vote requirement to be sure the exchange is what you,
the shareholders of Valley First, want. Sun holds 51.8% of the outstanding
shares of Valley First common stock. Valley First's Board of Directors holds
5.33% of the outstanding shares of Valley First common stock, or 11.05% of all
shares not held by Sun. [The or a majority of the] Board of Directors have
agreed to vote their shares FOR approval of the Plan of Share Exchange.
RECORD DATE; VOTING POWER (PAGE 36)
Valley First shareholders may vote at the shareholders' meeting if they
owned shares of common stock at the close of business on May 31, 2000. At the
close of business on May 15, 2000, approximately 151,990 shares of Valley First
common stock were outstanding (excluding shares held by Sun). For each share of
Valley First 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 28)
In the exchange, each outstanding share of Valley First common stock
will be automatically converted into the right to receive Sun common stock,
according to an "exchange ratio". If the exchange ratio was calculated based on
the information currently available, each shareholder of Valley First would
receive in the exchange 1.8736 shares of Sun common stock for each share of
Valley First common stock. This assumes an average trading price for Sun common
stock of $10.75 per share. The actual exchange ratio will be based on
information as of June 30, 2000, and will be different. The exchange ratio will
be determined by dividing the Valley First Share Value by the Sun Share Value,
where:
VALLEY FIRST SHARE VALUE. The share value of each share of Valley
First common stock shall be determined by multiplying 1.5 times
the adjusted pro forma fully diluted net book value per share of
Valley First common stock as of the close of business on June 30,
2000. The adjusted pro forma net book value per share of Valley
First common stock as of the close of business on Friday, June
30, 2000 shall be calculated by (1) pro forma fully diluted
stockholders' equity as reflected in Valley First's internally
prepared financial statements as of June 30, 2000; and (2)
dividing Valley First's pro forma fully diluted stockholders'
equity by the number of shares of Valley First's common stock
outstanding as of the close of business on June 30, 2000.
SUN SHARE VALUE. The share value of each share of Sun common
stock will be the average of the closing prices of Sun common
stock for each trading day in the 30 calendar day period ending
on June 30, 2000, as reported by the NASDAQ Stock Market, Inc.
Each Valley First shareholder (except Sun) will receive shares of Sun
common stock in exchange for his, her or their Valley First common stock
calculated by multiplying the number of shares of Valley First common stock held
by the shareholder by the exchange ratio. Any fractional shares will be paid in
cash.
ACCOUNTING TREATMENT (PAGE 29)
Sun's acquisition of the minority interest of Valley First will be
accounted for under the purchase method of accounting. After the exchange, 100%
of Valley First's results from operations will be included in Sun's income
statement, as opposed to 51.8% as is currently reported, as well as amortization
of goodwill resulting from the exchange.
11
<PAGE>
TAX CONSEQUENCES OF THE EXCHANGE TO VALLEY FIRST SHAREHOLDERS (PAGE 29)
Sun's tax counsel has rendered its opinion that the exchange should be
treated as a reorganization for United States federal income tax purposes.
Accordingly, Valley First shareholders generally will not recognize any gain or
loss for United States federal income tax purposes on the exchange of their
Valley First shares for shares of Sun's common stock in the exchange, except for
any gain or loss recognized in connection with the receipt of cash instead of a
fractional share of Sun's common stock. Tax counsel's opinion is attached as
Annex C to this proxy statement/prospectus. Tax Counsel's opinion is subject to
certain assumptions which may limit its application in particular instances.
Tax matters are very complicated, and the tax consequences of the
exchange to each Valley First 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 31)
Arizona law entitles shareholders to dissent from and obtain fair value
for their shares in the event of the consummation of a plan of share exchange to
which the corporation is a party as the corporation whose shares will be
acquired, if the shareholders are entitled to vote on the plan. Since the
shareholders are entitled to vote on the plan, there are dissenters' rights.
OPINION OF FINANCIAL ADVISOR (PAGE 32)
Valley First retained JMP Financial, Inc. as its financial advisor and
agent in connection with the exchange to render a financial fairness opinion to
the Valley First shareholders.
In deciding to approve the exchange, the Valley First 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
Valley First 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 27)
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
Valley First and Sun can jointly agree to terminate the plan of
exchange at any time without completing the exchange.
Valley First can terminate the exchange if a majority of Valley First's
shareholders (other than Sun) fail to approve the exchange at the shareholders'
meeting; or a governmental authority prohibits the exchange.
YOUR RIGHTS AS A SHAREHOLDER WILL CHANGE
Your rights as a Valley First shareholder are determined by Arizona's
banking law and by Valley First's articles of incorporation and by-laws. When
the exchange is completed, your rights as a Sun stockholder will be determined
by Arizona law relating to business corporations (not the banking law) and by
Sun's articles of incorporation and by-laws. See "Comparison of Shareholders
Rights".
12
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The consolidated financial data below summarizes historical
consolidated financial information for the periods indicated and should be read
in conjunction with the financial statements and other information included in
Sun's Annual Report on Form 10-K for the year ended December 31, 1999, which is
attached as part of Annex E to this proxy statement/prospectus. The unaudited
consolidated financial data below for the interim periods indicated has been
derived from, and should be read in conjunction with, Sun's Quarterly Report on
Form 10-Q for the period ended March 31, 2000, which is attached as part of
Annex E in this proxy statement/prospectus. See "Where You Can Find More
Information". Interim results for the three months ended March 31, 2000 are not
necessarily indicative of results which may be expected in future periods,
including the year ending December 31, 2000. BECAUSE OF THE NUMBER OF BANKS
ADDED THROUGHOUT THE PERIOD OF SUN'S EXISTENCE, AND BECAUSE OF THE DIFFERING
OWNERSHIP PERCENTAGE OF BANKS INCLUDED IN THE CONSOLIDATED AMOUNTS, HISTORICAL
OPERATING RESULTS ARE OF LIMITED RELEVANCE IN EVALUATING HISTORICAL PERFORMANCE
AND PREDICTING SUN'S FUTURE OPERATING RESULTS.
Sun's audited consolidated financial statements as of and for the years
ended December 31, 1999 and 1998 and related statements of operations for the
years ended December 31, 1999, 1998 and 1997 are attached as part of Annex E in
this proxy statement/prospectus. The selected data provided below as of and for
the three months ended March 31, 2000 and 1999 have been derived from Sun's
unaudited consolidated financial statements which are attached as part of Annex
E in this proxy statement/prospectus. Results of operations data and selected
balance sheet data as of and for the years ended December 31, 1997 and 1996 were
derived from audited consolidated financial statements which are not presented
in this proxy statement/prospectus.
Under current accounting rules, entities which are more than 50% owned
by another are consolidated or combined for financial reporting purposes. This
means that all of the banks' assets (including Valley First's) are included in
Sun's consolidated balance sheet, regardless of whether Sun owns 51% or 100%.
Sun's net income, however, will only include its subsidiaries' (including Valley
First) net income or net loss to the extent of its ownership percentage. This
means that when a newly formed bank incurs early start-up losses, Sun will only
reflect that loss based on its ownership percentage. Conversely, when banks
generate income, Sun will only reflect that income based on its ownership
percentage.
<TABLE>
<CAPTION>
Sun Community Bancorp Limited
-------------------------------------------------------------------
As of and for the
Three Months Ended
March 31 As of and for the
(Unaudited) Years Ended December 31
----------------- ----------------------------------------
2000 1999 1999 1998 1997 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
(dollars in thousands, except per share data)
SELECTED RESULTS OF OPERATIONS DATA:
Interest income $ 7,243 $ 2,976 $ 17,920 $7,344 $ 2,871 $ 354
Interest expense 2,246 886 5,368 2,280 914 123
Net interest income 4,997 2,090 12,552 5,064 1,957 231
Provision for loan losses 632 209 1,753 379 268 49
Net interest income after
provision for loan losses 4,365 1,881 10,799 4,685 1,689 182
Noninterest income 243 119 759 334 125 10
Noninterest expense 4,627 2,463 14,503 5,330 2,037 440
Income (loss)before cumulative
effect of change in accounting
principle 116 (176) (1,207) 57 (72) (164)
Cumulative effect of change in
accounting principle (1) (386) (386)
Net income (loss) 116 (562) (1,593) 57 (72) (164)
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
As of and for the
Three Months Ended
March 31 As of and for the
(Unaudited) Years Ended December 31
-------------------- ---------------------------------------
2000 1999 1999 1998 1997 1996
-------- -------- -------- -------- ------- -------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net income (loss) per common share:
Before cumulative effect of
change in accounting principle(1):
Basic $ 0.02 $ (0.05) $ (0.26) $ 0.02 $ (0.05) $ (0.14)
Diluted 0.02 (0.05) (0.26) 0.02 (0.05) (0.14)
After cumulative effect of
change in accounting principle(1):
Basic 0.02 (0.15) (0.34) 0.02 (0.05) (0.14)
Diluted 0.02 (0.15) (0.34) 0.02 (0.05) (0.14)
Cash dividends paid -- -- -- -- -- --
Book value(5) 9.10 6.78 9.09 6.92 5.10 4.51
SELECTED BALANCE SHEET DATA:
Total assets $351,922 $159,121 $300,390 $135,578 $55,007 $17,276
Portfolio loans 263,872 86,166 206,232 68,080 31,236 4,850
Deposits 275,471 122,613 225,007 98,782 42,899 12,021
Debt obligations -- -- -- -- -- --
Minority interest in
consolidated subsidiaries 23,687 9,280 21,384 9,411 2,010 --
Stockholders' equity 50,087 26,128 50,003 26,627 9,690 5,189
PERFORMANCE RATIOS: (2)
Return on average equity 0.23% 8.60% -- 0.34% -- --
Return on average assets 0.14% 1.56% -- 0.06% -- --
Net interest margin (fully
taxable equivalent) 5.34% 4.88% 4.84% 4.51% 4.51% 1.33%
Efficiency ratio (3) 88.30% 111.50% 108.96% 98.74% 97.83% 64.94%
ASSET QUALITY:
Non-performing loans (4) $ 807 -- $ 34 -- -- --
Allowance for loan losses to
non-performing loans 371.62% -- -- -- -- --
Allowance for loan losses to
portfolio loans 1.14% 1.05% 1.15% 1.02% 1.01% 1.30%
Non-performing loans to total
portfolio loans 0.31% -- 0.02% -- -- --
Net loan losses to average
portfolio loans -- -- -- -- -- --
CAPITAL RATIOS:
Average equity to average assets 15.58% 18.16% 18.10% 18.35% 20.47% 8.24%
Tier 1 risk-based capital ratio 22.28% 33.81% 25.71% 42.43% 11.91% 9.80%
Total risk-based capital ratio 23.19% 34.68% 26.56% 43.25% 12.88% 10.91%
Leverage ratio 14.23% 16.59% 16.65% 19.64% 8.16% 7.16%
</TABLE>
- ----------
(1) Accounting change relates to new accounting standard which required
write-off of previously capitalized start-up costs as of January 1, 1999.
(2) These ratios are annualized for the periods indicated.
(3) Efficiency ratio is computed by dividing noninterest expense by the sum of
net interest income and noninterest income.
(4) Non-performing loans consist of loans on nonaccrual status and loans more
than 90 days delinquent.
14
<PAGE>
RISK FACTORS
THE SHARES OF COMMON STOCK THAT ARE BEING OFFERED ARE NOT SAVINGS
ACCOUNTS OR DEPOSITS OR OTHER OBLIGATIONS OF A BANK AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
INVESTING IN SUN'S COMMON STOCK WILL PROVIDE YOU WITH AN EQUITY
OWNERSHIP INTEREST IN SUN. AS A SUN SHAREHOLDER, YOUR INVESTMENT MAY BE IMPACTED
BY RISKS INHERENT IN ITS BUSINESS. YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING
FACTORS, AS WELL AS OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, BEFORE
DECIDING TO VOTE TO EXCHANGE YOUR VALLEY FIRST COMMON STOCK FOR SUN'S COMMON
STOCK.
THIS PROXY STATEMENT/PROSPECTUS ALSO CONTAINS CERTAIN FORWARD-LOOKING
STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THESE STATEMENTS RELATE TO
SUN'S FUTURE PLANS, OBJECTIVES, EXPECTATIONS AND INTENTIONS. THESE STATEMENTS
MAY BE IDENTIFIED BY THE USE OF WORDS SUCH AS "BELIEVES," "EXPECTS," "MAY,"
"WILL," "SHOULD," "SEEKS," "PRO FORMA," "ANTICIPATES," AND SIMILAR EXPRESSIONS.
ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED IN THESE STATEMENTS.
FACTORS THAT COULD CONTRIBUTE TO THESE DIFFERENCES INCLUDE THOSE DISCUSSED BELOW
AND ELSEWHERE IN THIS PROSPECTUS.
NEWLY FORMED BANKS ARE LIKELY TO INCUR SIGNIFICANT OPERATING LOSSES.
Four of Sun's bank subsidiaries are less than two years old and Sun's
oldest bank is less than four years old. Newly formed banks are expected to
incur operating losses in their early periods of operation because of an
inability to generate sufficient net interest income to cover operating costs.
Newly formed banks may never become profitable. An accounting rule change
effective January 1, 1999 requires immediate write-off, rather than
capitalization, of start-up costs and, as a result, future newly formed banks
are expected to report larger early period operating losses. Those operating
losses can be significant and can occur for longer periods than planned
depending upon the ability to control operating expenses and generate net
interest income, which could affect the availability of earnings retained to
support future growth.
SUN MAY BE UNABLE TO EFFECTIVELY MANAGE ITS GROWTH.
Sun has rapidly and significantly expanded its operations and
anticipates that further expansion will be required to realize its growth
strategy. Sun's rapid growth has placed significant demands on its management
and other resources which, given its expected future growth rate, are likely to
continue. To manage future growth, Sun will need to attract, hire and retain
highly skilled and motivated officers and employees and improve existing systems
and/or implement new systems for:
- transaction processing;
- operational and financial management; and
- training, integrating and managing Sun's growing employee base.
FAVORABLE ENVIRONMENT FOR FORMATION OF NEW BANKS COULD CHANGE ADVERSELY.
Sun's growth strategy includes the formation of additional new banks.
Thus far, Sun has experienced favorable business conditions for the formation of
its small, community and customer-focused banks. Those favorable conditions
could change suddenly or over an extended period of time. A change in the
availability of financial capital, human resources or general economic
conditions could eliminate or severely limit expansion opportunities. To the
extent Sun is unable to effectively attract personnel and deploy its capital in
new or existing banks, this could adversely affect future asset growth, earnings
and the value of Sun's common stock.
15
<PAGE>
SUN'S BANKS ARE SMALL, HAVE LIMITATIONS ON THE SIZE OF LOANS THEY CAN MAKE AND
HAVE MINIMAL MARKET SHARE.
Sun endeavors to capitalize its newly formed banks with the lowest
dollar amount permitted by regulatory agencies. As a result, the legal lending
limits of Sun's banks severely constrain the size of loans that those banks can
make. In addition, many of the banks' competitors have significantly larger
capitalization and, hence, an ability to make significantly larger loans.
Sun's banks are intended to be small in size. They each generally
operate from single locations. They are very small relative to the dynamic
markets in which they operate. Each of those markets has a variety of large and
small competitors that have resources far beyond those of Sun's banks. While it
is the intention of Sun's banks to operate as niche players within their
geographic markets, their continued existence is dependent upon being able to
attract and retain loan customers in those large markets that are dominated by
substantially larger regulated and unregulated financial institutions.
SUN IS DEPENDENT UPON THE CONTRIBUTIONS OF ITS KEY MANAGEMENT PERSONNEL.
Sun's future success depends, in large part, upon the continuing
contributions of its key management personnel, including bank presidents and
other senior officers. In particular, Sun is dependent upon the continuing
services of Joseph D. Reid, Sun's Chairman and Chief Executive Officer and John
S. Lewis, President. The loss of services of one or more key employees at Sun or
its subsidiaries could have a material adverse effect on Sun. Sun can provide no
assurance that it will be able to retain any of its key officers and employees
or attract and retain qualified personnel in the future.
Joseph D. Reid has an employment agreement which expires on November
20, 2000. The agreement automatically extends for one successive year unless Mr.
Reid or Sun gives written notice to the contrary. Certain members of Sun's
senior management also have employment agreements with Sun.
IF SUN CANNOT RECRUIT ADDITIONAL HIGHLY QUALIFIED PERSONNEL, SUN'S BUSINESS MAY
BE ADVERSELY IMPACTED.
Sun's strategy is also dependent upon its continuing ability to attract
and retain other highly qualified personnel. Competition for such employees
among financial institutions is intense. Availability of personnel with
appropriate community banking experience varies. If Sun does not succeed in
attracting new employees or retaining and motivating current and future
employees, Sun's business could suffer significantly.
SUN AND ITS BANKS OPERATE IN AN ENVIRONMENT HIGHLY REGULATED BY STATE AND
FEDERAL GOVERNMENT; CHANGES IN FEDERAL AND STATE BANKING LAWS AND REGULATIONS
COULD HAVE A NEGATIVE IMPACT ON SUN'S BUSINESS.
As a bank holding company, Sun is regulated primarily by the Federal
Reserve Board. Sun's majority-owner, Capitol Bancorp Ltd., is also a bank
holding company and regulated primarily by the Federal Reserve Board. Sun's
current bank affiliates are regulated primarily by the state banking regulators
and the FDIC.
Federal and the various state laws and regulations govern numerous
aspects of the banks' operations, including;
- adequate capital and financial condition,
- permissible types and amounts of extensions of credit and investments,
- permissible nonbanking activities, and
- restrictions on dividend payments.
Federal and state regulatory agencies have extensive discretion and
power to prevent or remedy unsafe or unsound practices or violations of law by
banks and bank holding companies. Sun and its banks also undergo periodic
examinations by one or more regulatory agencies. Following such examinations,
Sun may be required, among other things, to change its asset valuations or the
16
<PAGE>
amounts of required loan loss allowances or to restrict its operations. Those
actions would result from the regulators' judgments based on information
available to them at the time of their examination.
The banks' operations are required to follow a wide variety of state
and federal consumer protection and similar statutes and regulations. Federal
and state regulatory restrictions limit the manner in which Sun and its banks
may conduct business and obtain financing. Those laws and regulations can and do
change significantly from time to time, and any such change could adversely
affect Sun.
REGULATORY ACTION COULD SEVERELY LIMIT FUTURE EXPANSION PLANS.
To carry out some of its expansion plans, Sun is required to obtain
permission from the Federal Reserve Board. Applications for the formation of new
banks are submitted to the state and federal bank regulatory agencies for their
approval.
While Sun's recent experience with the regulatory application process
has been favorable, the future climate for regulatory approval is impossible to
predict. Regulatory agencies could prohibit or otherwise significantly restrict
the expansion plans of Sun, its current bank subsidiaries and future new
start-up banks.
THE BANKS' ALLOWANCES FOR LOAN LOSSES MAY PROVE INADEQUATE TO ABSORB ACTUAL LOAN
LOSSES.
Sun believes that its consolidated allowance for loan losses is
maintained at a level adequate to absorb any inherent losses in the loan
portfolios of its banks. Management's estimates are used to determine the
allowance that is considered adequate to absorb losses in the loan portfolios of
Sun's banks. Management's estimates are based on historical loan loss
experience, specific problem loans, value of underlying collateral and other
relevant factors. These estimates are subjective and their accuracy depends on
the outcome of future events. Actual losses may differ from current estimates.
Depending on changes in economic, operating and other conditions, including
changes in interest rates, that are generally beyond Sun's control, actual loan
losses could increase significantly. As a result, such losses could exceed
current allowance estimates. No assurance can be provided that the allowance
will be sufficient to cover actual future loan losses should such losses be
realized.
Because most of Sun's banks were formed recently, they do not have
seasoned loan portfolios, and it is likely that the ratio of the allowance for
loan losses to total loans will need to be increased in future periods as the
loan portfolios become more mature. If it becomes necessary to increase the
ratio of the allowance for loan losses to total loans, such increases would be
accomplished through higher provisions for loan losses, which will adversely
impact net income or will increase operating losses.
In addition, bank regulatory agencies, as an integral part of their
supervisory functions, periodically review the adequacy of the allowance for
loan losses. Regulatory agencies may require Sun or its banks to increase their
provision for loan losses or to recognize further loan charge-offs based upon
judgments different from those of management. Any increase in the allowance
required by regulatory agencies could have a negative impact on Sun's operating
results.
SUN'S COMMERCIAL LOAN CONCENTRATION INCREASES THE RISK OF DEFAULTS BY BORROWERS.
Sun's banks make various types of loans, including commercial,
consumer, residential mortgage and construction loans. Sun's strategy emphasizes
lending to small businesses and other commercial enterprises. Loans to small and
medium-sized businesses are generally riskier than single-family mortgage loans.
Typically, the success of a small or medium-sized business depends on the
management talents and efforts of one or two persons or a small group of
persons, and the death, disability or resignation of one or more of these
persons could have a material adverse impact on the business. In addition, small
and medium-sized businesses frequently have smaller market shares than their
competition, may be more vulnerable to economic downturns, often need
substantial additional capital to expand or compete and may experience
substantial variations in operating results, any of which may impair a
borrower's ability to repay a loan. Substantial credit losses could result,
which could cause you to lose your entire investment in the common stock.
17
<PAGE>
CHANGES IN INTEREST RATES MAY ADVERSELY AFFECT SUN'S BUSINESS.
CHANGES IN NET INTEREST INCOME. Sun's profitability is significantly
dependent on net interest income. Net interest income is the difference between
interest income on interest-earning assets, such as loans, and interest expense
on interest-bearing liabilities, such as deposits. Therefore, any change in
general market interest rates, whether as a result of changes in monetary
policies of the Federal Reserve Board or otherwise, can have a significant
effect on net interest income. Sun's assets and liabilities may react
differently to changes in overall market rates or conditions because there may
be mismatches between the repricing or maturity characteristic of assets and
liabilities. As a result, changes in interest rates can affect net interest
income in either a positive or negative way.
CHANGES IN THE YIELD CURVE. Changes in the difference between short and
long-term interest rates, commonly known as the yield curve, may also harm Sun's
business. For example, short-term deposits may be used to fund longer-term
loans. When differences between short-term and long-term interest rates shrink
or disappear, the spread between rates paid on deposits and received on loans
could narrow significantly, decreasing net interest income.
SUN IS MAJORITY-OWNED AND A SUBSIDIARY OF CAPITOL BANCORP LIMITED.
Capitol currently owns 51% of the common stock and has majority voting
control of Sun. Capitol's operating philosophy and investment in Sun could
change which could have an adverse impact on Sun.
EXISTING SUBSIDIARIES OF SUN MAY NEED ADDITIONAL FUNDS TO AID IN THEIR GROWTH OR
TO MEET OTHER ANTICIPATED NEEDS WHICH COULD REDUCE SUN'S FUNDS AVAILABLE FOR NEW
BANK DEVELOPMENT OR OTHER CORPORATE PURPOSES.
Sun's affiliated banks are generally capitalized at the minimum amount
permitted by regulatory agencies. Future growth of existing banks may require
additional capital infusions or other investment by Sun to maintain compliance
with regulatory capital requirements or to meet growth opportunities. Such
capital infusions could reduce funds available for development of new banks, or
other corporate purposes.
POSSIBLE VOLATILITY OF STOCK PRICE.
Sun became a public company in July 1999 and has a brief history of
trading activity. The market price of Sun's common stock may fluctuate in
response to numerous factors, including variations in the annual or quarterly
financial results of Sun, or its competitors, changes by financial research
analysts in their estimates of the earnings of Sun or its competitors or the
failure of Sun or its competitors to meet such estimates, conditions in the
economy in general or the banking industry in particular, or unfavorable
publicity affecting Sun, its banks, or the industry. In addition, equity markets
have, on occasion, experienced significant price and volume fluctuations that
have affected the market price for many companies' securities which have been
unrelated to the operating performance of those companies. Any fluctuation may
adversely affect the prevailing market price of Sun's common stock.
SUN RELIES ON COMPUTER HARDWARE, SOFTWARE, AND INTERNET-BASED TECHNOLOGY THAT
COULD HAVE YEAR 2000 PROBLEMS AND ADVERSELY AFFECT THE DELIVERY OF BANK SERVICES
TO CUSTOMERS.
Sun relies extensively on computer hardware, software and related
technology, together with data, in the operation of its business. This
technology and data are used in creating and delivering bank products and
services, and in Sun's internal operations, for example, its billing and
accounting. An enterprise-wide program has been initiated to evaluate the
technology and data used in the creation and delivery of bank products and
services in Sun's internal operations and no significant Year 2000 problems have
been experienced at Sun thus far. However, there can be no assurance that Year
2000 issues may not subsequently develop.
18
<PAGE>
RECENT DEVELOPMENTS
On April 6, 2000, Sun opened its eleventh bank subsidiary, Sunrise Bank
of Albuquerque located in Albuquerque, New Mexico and majority-owned by Sunrise
Capital Corporation which is a majority-owned subsidiary of Sun.
Nevada Community Bancorp Limited was formed as a majority-owned
subsidiary of Sun in April 1999. On March 27, 2000, Black Mountain Community
Bank commenced operations in Henderson, Nevada as the third majority owned
start-up banking subsidiary of Nevada Community Bancorp Limited.
Additional expansion through the development of new banks in the states
of Arizona, Nevada, California and others, is currently under consideration by
Sun or its subsidiary bank development entities.
In April 2000, Sun announced plans to purchase up to $3 million of its
common stock in open market purchases during the next several months. The shares
repurchased in this manner may be retained as treasury shares, retired, used for
implementation of an employee stock ownership plan or for other business
purposes. To the extent such share purchases are made, they will have the impact
of increasing the percentage ownership of Sun by Capitol Bancorp Ltd., which
currently owns 51% of Sun's common stock. The share purchase program will be
funded from Sun's existing resources, principally short-term loans and
investments.
On May 10, 2000, Capitol Bancorp Ltd., Sun's majority owner, announced
the formation of an intercorporate management group, naming six senior
executives to serve as the national management team (including some of Sun's
senior executives) for Capitol and its subsidiaries.
19
<PAGE>
CAPITALIZATION
The table presented below shows Sun's actual total capitalization as of
March 31, 2000, and as adjusted to reflect the exchange of Sun's common stock
for Valley First's common stock as described in this proxy statement/prospectus.
<TABLE>
<CAPTION>
As of March 31, 2000
-------------------------------
As Adjusted
for the Valley
First
Actual Exchange(2)
------------ ------------
<S> <C> <C>
DEBT OBLIGATIONS:
Notes payable to unaffiliated bank .................... $ -- $ --
Other
Total debt obligations ............................. -- --
MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES 23,687,193 21,646,374
STOCKHOLDERS' EQUITY(1):
Common stock, no par value; 10,000,000 shares
authorized; issued, and outstanding:
Actual - 5,503,870 shares ......................... 51,867,516
As adjusted for the Valley First exchange
5,760,577 shares ................................ 54,627,114
Retained-earnings deficit ............................. (1,656,773) (1,656,773)
Market value adjustment for available-for-sale
securities .......................................... (124,107) (124,107)
------------ ------------
Total stockholders' equity ........................ $ 50,086,636 $ 52,846,234
============ ============
TOTAL CAPITALIZATION .................................... $ 73,773,829 $ 74,492,608
============ ============
Book value per share of common stock .................. $ 9.10 $ 9.17
============ ============
CAPITAL RATIOS:
Stockholders' equity to total assets .................. 14.23% 14.99%
Total capitalization funds to total assets ............ 20.96% 21.11%
</TABLE>
- ----------
(1) Does not include 808,473 shares of common stock issuable upon exercise of
stock options. See "Management--Stock Option Program."
(2) Assumes issuance of 256,707 shares of Sun common stock upon completion of
Valley First exchange.
20
<PAGE>
DIVIDENDS AND MARKET FOR COMMON STOCK
Sun's common stock is listed on the Nasdaq National Market under the
symbol "SCBL." The following table shows the high and low sale prices per share
of common stock as reported on the Nasdaq National Market subsequent to Sun's
initial public offering of common stock in early July 1999. The table reflects
inter-dealer prices, without retail mark-up, mark-down or commission and may not
represent actual transactions. The last reported sale price of Sun's common
stock was $10.75 on May 15, 2000.
Cash Dividends
1999 High Low Paid
- ---- ------- ------- ----
Quarter ended September 30 ................ $20.000 $10.375 --
Quarter ended December 31 ................. 12.500 8.000 --
2000
- ----
Quarter ended March 31 .................... 9.750 7.125 --
Quarter ended June 30 (through May 15) .... 11.000 6.750 --
As of April 6, 2000, there were 1,088 beneficial holders of Sun's
common stock based on information supplied by its stock transfer agent and other
sources. Sun has never paid a cash dividend on its common stock.
In April 2000, Sun announced plans to purchase up to $3 million of its
common stock in open market purchases during the next several months. The shares
repurchased in this manner may be retained as treasury shares, retired, used for
implementation of an employee stock ownership plan or for other business
purposes. To the extent such share purchases are made, they will have the impact
of increasing the percentage ownership of Sun by Capitol Bancorp Ltd., which
currently owns 51% of Sun's common stock. The share purchase program will be
funded from Sun's existing resources, principally short-term loans and
investments.
There is no market for Valley First common stock. Any transfers have
been made privately and are not reported. Valley First has never paid a dividend
on its common stock.
21
<PAGE>
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement/prospectus includes forward-looking statements.
Sun has based these forward-looking statements on its current expectations and
projections about future events. These forward-looking statements may be
impacted by risks, uncertainties and assumptions. Examples of some of the risks,
uncertainties or assumptions that may impact the forward-looking statements are:
- the results of management's efforts to implement Sun's business
strategy including planned expansion into new markets in Arizona,
Nevada, New Mexico, California and elsewhere;
- adverse changes in the banks' loan portfolios and the resulting credit
risk-related losses and expenses;
- adverse changes in the economy of the banks' market areas that could
increase credit-related losses and expenses;
- adverse changes in real estate market conditions that could also
negatively affect credit risk;
- the possibility of increased competition for financial services in
Sun's markets;
- fluctuations in interest rates and market prices, which could
negatively affect net interest margins, asset valuations and expense
expectations;
- year 2000 (Y2K) computer, embedded chip and related data processing
issues; and
- other factors described in "Risk Factors".
22
<PAGE>
INFORMATION ABOUT SUN
This proxy statement/prospectus is accompanied by a copy of the
following documents as indicated in Annex E:
- Report on Form 10-Q for period ended March 31, 2000
- Annual Report to Shareholders for year ended December 31, 1999
- Annual Report on Form 10-K for year ended December 31, 1999
- Proxy statement for Sun's Annual Meeting of Shareholders held on May
26, 2000.
INFORMATION ABOUT VALLEY FIRST
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, 2000 and December 31, 1999 are
included in this proxy statement/prospectus as part of Annex D.
FINANCIAL STATEMENTS.
Unaudited interim condensed financial statements of Valley First as of
March 31, 2000 and for the three months ended March 31, 2000 and 1999 are
included in this proxy statement/prospectus as part of Annex D. Audited
financial statements of Valley First as of December 31, 1999 and for the years
ended December 31, 1999 and 1998 and period ended December 31, 1997 are included
in this proxy statement/prospectus as part of Annex D.
VOTING SECURITIES AND PRINCIPAL HOLDERS.
The following table shows the share holdings of each director and
officer of Valley First and all directors and officers as a group. Where
applicable, the table includes shares held by members of their immediate
families.
Valley First shares beneficially owned
-----------------------------------------
Percentage of all
Valley First
Percentage shares excluding
of all Valley First
Valley First shares owned
Name of Beneficial owner Number shares by Capitol
- ------------------------ ------ ------ ----------
Sun Community Bancorp Limited 163,348 51.8% N/A
======= ===== =====
Valley First's Directors
and Officers:
W. Craig Berger 2,500 0.79% 1.64%
Marilyn D. Cummings 200 0.06% 0.13%
Michael J. Devine 300 0.10% 0.20%
W. Randy Fitzpatrick 1,000 0.32% 0.66%
Patrick J. Harris 4,000 1.27% 2.63%
Gary W. Hickel 3,500 1.11% 2.30%
Michael L. Kasten 3,700 1.17% 2.43%
John S. Lewis 0 -- --
Donald J. Mahoney 0 -- --
Gordon D. Murphy 500 0.16% 0.33%
Harry Rosenzweig, Jr 2,000 0.63% 1.32%
Patricia B. Ternes 0 -- --
Joseph D. Reid 3,000 0.95% 1.97%
Edward T. Williams 100 0.03% 0.07%
Jeffrey S. Birkelo 0 -- --
Lance K. Wise 0 -- --
------- ----- -----
Total of Directors and Officers 20,800 6.60% 13.69%
======= ===== =====
Other than the directors and officers of Valley First, no individual
owns 5% of the outstanding shares of Valley First, exclusive of the shares owned
by Sun.
23
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
Because Valley First is already a majority-owned subsidiary of Sun, it
is already included in Sun's consolidated financial statements. Consummation of
the exchange is not expected to have a material impact on the consolidated
financial position or consolidated results of operation of Sun. Accordingly, pro
forma consolidated financial information illustrating the exchange and Sun's
purchase of the minority interest of Valley First is not required to be
presented in this prospectus.
24
<PAGE>
THE ELECTION OF DIRECTORS
Valley First's Certificate of Incorporation and By-Laws provide that
the number of Directors, as determined from time to time by the Board of
Directors, shall be no less than (5) and no more than (25). The Board of
Directors has presently fixed the number of Directors at twelve.
The Board of Directors has nominated W. Craig Berger, Marilyn D.
Cummings, Michael J. Devine, W. Randy Fitzpatrick, Patrick J. Harris, Gary W.
Hickel, Michael L. Kasten, John S. Lewis, Donald J. Mahoney, Gordon D. Murphy,
Harry Rosenzweig and Patrick B. Ternes for a one year term and upon election and
qualification of their successors. All of the nominees for election to the Board
of Directors are currently members of Valley First's Board of Directors.
The proposed nominees for election as Directors are willing to be
elected and serve but in the event that any nominee at the time of election is
unable to serve or is otherwise unavailable for election, the Board of Directors
may select a substitute nominee, and in that event the persons named in the
enclosed proxy intend to vote such proxy for the person selected.
The affirmative vote of a plurality of the votes cast at the meeting is
required for the nominees to be elected.
The table following sets forth information regarding Valley First's
Directors based on the data furnished by them:
NAME, PROFESSIONAL POSITIONS & POSITIONS HELD WITH VALLEY FIRST
W. Craig Berger, President, W. Craig Berger Financial Services, Ltd.; Director
Marilyn D. Cummings, Realtor, Russ Lyon Realty Company; Director
Michael J. Devine, Attorney at Law; Director
W. Randy Fitzpatrick, Certified Public Accountant, Fitzpatrick, Hopkins, Kelly &
Leonhard, PLC; Director
Patrick J. Harris, Vice President of Marketing, Skill Golf, Inc.; Director
Gary W. Hickel, President, Valley First Community Bank; President and Director
Michael L. Kasten, Managing Partner, Kasten Investments, LLC; Director
John S. Lewis, President, Sun Community Bancorp Limited; Director
Donald J. Mahoney, Managing Director, Trammel Crow Company; Director
Gordon D. Murphy, Chairman, Esperanca, Inc.; Director and Chairman of Board of
Directors
Harry Rosenzweig, Co-Owner, Harry's Fine Jewelry; Director
Patricia B. Ternes, Certified Financial Planner, Dain Rauscher, Incorporated
25
<PAGE>
THE EXCHANGE
GENERAL
The Valley First Board of Directors is using this proxy
statement/prospectus to solicit proxies from the holders of Valley First common
stock for use at the annual shareholders' meeting.
At the annual shareholders' meeting to be held on June __, 2000, Valley
First common shareholders will be asked to approve the exchange. The Plan of
Share Exchange provides for Valley First's minority shareholders to exchange the
48.2% of the common stock of Valley First not owned by Sun for Sun common stock.
Upon consummation of the exchange, Valley First will become a wholly-owned
subsidiary of Sun. In the exchange, Valley First shareholders will receive
shares of Sun's common stock.
BACKGROUND OF THE EXCHANGE
The concept of a potential share exchange transaction with Sun has been
discussed informally from time to time from the beginning of Valley First's
operations. Sun expressed a willingness to extend an offer of an exchange when
the Bank reached its 36th month of operations (that is, on June 30, 2000). These
discussions occurred at various Valley First board meetings during that period.
The objectives of the potential exchange would be to enable shareholders of
Valley First 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 Valley First will
continue to hold Valley First bank stock which has no market and is illiquid.
Valley First's board of directors has not solicited or received any
other proposals for the potential exchange or sale of Valley First's shares of
common stock which are not owned by Sun. If other proposals were under
consideration for sale or exchange of Valley First's shares to an entity other
than Sun, Sun would be permitted to vote its shares of Valley First. By virtue
of Sun's majority ownership of Valley First, it is likely that Sun would not
vote its shares of Valley First in favor of any other proposals regarding a
share exchange or sale of the minority interest in Valley First with another
party. In addition, Sun currently has no intentions of selling its majority
interest in Valley First. Hence, the only proposal under consideration is Sun's
proposal.
Sun based its proposal on the prior transactions of its parent, Capitol
Bancorp Ltd., 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 at an exchange ratio based on 150% of adjusted book value of the bank's
shares on or about the 36th month of the bank's operations. Although Sun is
under no contractual obligation to make such an offer to acquire the minority
interests in any of its present bank subsidiaries, it has made this proposal to
Valley First's board of directors consistent with its informal discussions with
Valley First's board during the past three years.
Consensus between Sun and Valley First's directors who are not
employees or officers of Sun was reached in May, 2000 to approve the proposed
exchange subject only to:
- obtaining an independent opinion that the proposed share exchange is
fair to Valley First's shareholders from a financial point of view;
and
- obtaining approval for the proposed exchange by a majority of Valley
First's shares not already owned by Sun.
In May, 2000, the Valley First board approved the Plan of Share
Exchange and agreed to call a shareholder meeting for a shareholder vote to
approve the Plan of Share Exchange.
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VALLEY FIRST'S REASONS FOR THE EXCHANGE.
Valley First's reasons for the exchange are that the shareholders of
Valley First will be best served by the exchange in order to maximize their
shareholder value and to provide them:
* better protection through diversification geographically and by
customer base through Sun's subsidiary banks rather than dependence
upon the resources of a single bank.
* the Valley First shareholders will receive publicly traded shares,
providing them liquidity as opposed to the Valley First common stock
for which there is no public market. Valley First shareholders who
choose to do so may continue to hold the Sun stock they receive in the
exchange without being forced to have their investment reduced by the
immediate recognition of a capital gains tax.
SUN'S REASONS FOR THE EXCHANGE
Sun believes that Valley First's profitability will increase. As noted
elsewhere in this proxy statement/prospectus, while Valley First's assets are
reported as part of Sun's assets for purposes of its consolidated financial
statements, Valley First's income is attributed to Sun only in the percentage
which Sun owns of Valley First common stock. Sun desires to acquire the
remainder of Valley First's common stock so that Sun can include 100% of Valley
First's income in Sun's consolidated income statement.
TERMS OF THE EXCHANGE
Terms of the exchange are set forth in the Plan of Share Exchange. The
Plan of Share Exchange is included an 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 41.8% of the
shares of Valley First held by shareholders other than Sun, each share
of Valley First common stock will be exchanged for shares of Sun
common stock according to an exchange ratio. The exchange ratio will
be determined by dividing the Valley First share value by the Sun
share value. The Valley First share value is one and one-half times
the adjusted pro forma fully diluted net book value per share of
Valley First common stock as of June 30, 2000. The net book value per
share of Valley First common stock as of June 30, 2000 will be
calculated by (1) pro forma fully diluted stockholders' equity as
reflected in Valley First's internally prepared financial statements
as of June 30, 2000 and (2) dividing Valley First's pro forma fully
diluted stockholders' equity by the number of shares of Valley First's
common stock outstanding as of June 30, 2000.
Sun's share value will be determined by averaging the closing
prices of Sun common stock for each trading day during the 30 calendar
day period ending June 30, 2000, as reported by the Nasdaq Stock
Market, Inc.
Once the Valley First share value and Sun share value are
determined, the exchange ratio will be determined by dividing the
Valley First share value by the Sun share value. Each Valley First
shareholder (except Sun) will receive shares of Sun common stock in
exchange for his, her or their Valley First common stock calculated by
multiplying the number of shares in Valley First common stock held by
the shareholder by the exchange ratio. Any fractional shares will be
paid in cash.
VALLEY FIRST BOARD RECOMMENDATION
THE VALLEY FIRST BOARD HAS DETERMINED THAT THE EXCHANGE IS FAIR TO AND
IN THE BEST INTERESTS OF THE VALLEY FIRST SHAREHOLDERS, HAS APPROVED THE PLAN OF
SHARE EXCHANGE AND RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" APPROVAL OF THE
PLAN OF SHARE EXCHANGE.
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ACCOUNTING TREATMENT
Sun expects the exchange to be treated as the acquisition of a minority
interest using the purchase method of accounting.
PRO FORMA DATA
In light of the respective total assets and net income of Sun and
Valley First and since Valley First has since its inception always been a
consolidated subsidiary of Sun, pro forma financial statements are not included
in this proxy statement/prospectus. The pro forma effect of the exchange is
deemed to be immaterial.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The income tax discussion below represents the opinion of Snell &
Wilmer, L.L.P., tax counsel to Sun, on the material federal income tax
consequences of the exchange. This discussion is not a comprehensive description
of all of the tax consequences that may be relevant to you. For example, counsel
did not address tax consequences that arise from rules that apply generally to
all taxpayers or to some classes of taxpayers or tax consequences that are
generally assumed to be known by investors. This discussion is based upon the
Internal Revenue Code, the regulations of the U.S. Treasury Department and court
and administrative rulings and decisions in effect on the date of this proxy
statement/prospectus. These laws may change, possibly retroactively, and any
change could affect the continuing validity of this discussion.
This discussion also is based upon certain representations made by
Valley First and Sun. You should read carefully the full text of the tax opinion
of Snell & Wilmer, L.L.P. The opinion is included in this proxy
statement/prospectus as Annex C. This discussion also assumes that the exchange
will be effected pursuant to applicable state law and otherwise completed
according to the terms of the Plan of Share Exchange. You should not rely upon
this discussion if any of these factual assumptions or representations is, or
later becomes, inaccurate.
This discussion also assumes that shareholders hold their shares of
Valley First 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;
* Valley First shareholders who received their Valley First common stock
through the exercise of employee stock options or otherwise as
compensation;
* Valley First shareholders who are not U.S. persons; and
* Valley First shareholders who hold Valley First 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 Snell & Wilmer, L.L.P., tax counsel to Sun, that:
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* the exchange will qualify as a reorganization within the meaning of
Section 368(a)(1)(B) of the Internal Revenue Code;
* no gain or loss will be recognized by the shareholders of Valley First
who exchange their Valley First common stock solely for Sun common
stock (except with respect to cash received instead of a fractional
share of Sun common stock);
* the aggregate tax basis of the Sun common stock received by Valley
First shareholders who exchange all of their Valley First common stock
for Sun common stock in the exchange will be the same as the aggregate
tax basis of the Valley First common stock surrendered in exchange
(reduced by any amount allocable to a fractional share of Sun common
stock for which cash is received);
* the holding period of the Sun common stock received will include the
holding period of shares of Valley First common stock surrendered in
exchange; and
* a holder of Valley First common stock that receives cash instead of a
fractional share of Sun common stock will, in general, provided the
redemption is not essentially equivalent to a dividend under Section
302(b)(1) of the Internal Revenue Code, recognize capital gain or loss
equal to the difference between the cash amount received and the
portion of the holder's tax basis in shares of Valley First 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 Valley First common stock exchanged for
the fractional share of Sun common stock satisfies the long-term
holding period requirement.
The tax opinion of Snell & Wilmer, L.L.P. is not binding upon the
Internal Revenue Service or the courts.
TAX MATTERS ARE VERY COMPLICATED, AND THE TAX CONSEQUENCES OF THE
EXCHANGE TO YOU WILL DEPEND ON YOUR PARTICULAR SITUATION. YOU ARE ENCOURAGED TO
CONSULT YOUR OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES OF THE
EXCHANGE, INCLUDING TAX RETURN REPORTING REQUIREMENTS, THE APPLICABILITY OF
FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS AND THE EFFECT OF ANY PROPOSED CHANGE
IN THE TAX LAWS.
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REGULATORY MATTERS
Valley First is subject to regulation by Arizona's State Banking
Department and the FDIC. The State Banking Department has been advised by Sun of
the proposed share exchange. The FDIC is not required to give permission or
otherwise review the exchange prior to consummation.
As a bank holding company, Sun is subject to regulation by the Federal
Reserve Board. Federal Reserve Board rules require Sun to obtain the Federal
Reserve Board's permission to acquire at least 51% of a subsidiary bank. The
rules of the Federal Reserve Board do not differentiate between ownership of 51%
and ownership of 100% of the stock of the subsidiary bank. Of course, Sun
received permission to acquire 51% or more ownership of Valley First prior to
Valley First commencing the business of banking. Accordingly, Sun will not be
required to seek any further approval from the Federal Reserve Board for the
exchange.
It is a condition of the exchange that the shares of Sun stock to be
issued pursuant to the Plan of Share Exchange be approved for listing on the
Nasdaq Stock Market, Inc., subject to official notice of issuance. An
application will be filed to list Sun's shares. Accordingly, the shares of Sun
common stock to be issued in exchange for the Valley First common stock will be
publicly tradable upon consummation of the exchange. There will be no
restriction on the ability of a former Valley First shareholder to sell in the
open market the Sun common stock received (unless the Valley First shareholder
is also an officer, director or affiliate of either Valley First or Sun, in
which case Rule 144 and Rule 145 issued by the SEC do impose certain
restrictions on sale of Sun common stock).
DISSENTERS' RIGHTS
Arizona law entitles shareholders to dissent from and obtain fair value
for their shares in the event of the consummation of a plan of share exchange to
which the Corporation is a party as the corporation whose shares will be
acquired, if the shareholders are entitled to vote on the plan. Since the
shareholders are entitled to vote on the plan, there are dissenters' rights.
By following the specific procedures set forth in the Arizona Business
Corporation Act (the "ABCA"), holders of Valley First common stock have a
statutory right to dissent from the Plan of Share Exchange. If the exchange is
approved and consummated, any holder of Valley First common stock who properly
perfects his dissenters' rights will be entitled, upon consummation of the
exchange, to receive an amount in cash equal to the fair value of his shares of
Valley First common stock rather than receiving the consideration set forth in
the Plan of Share Exchange. The following summary is not a complete statement of
statutory dissenters' rights of appraisal, and this summary is qualified by
reference to the applicable provisions of the ABCA, which are reproduced in full
in Annex F to this proxy statement/prospectus.
A shareholder must complete each step in the precise order prescribed
by the statute to perfect his dissenter's rights of appraisal.
Any holder of Valley First common stock who desires to dissent from the
Plan of Share Exchange shall (i) deliver to Valley First before the vote is
taken at the shareholders' meeting written notice of the shareholder's intent to
demand payment for the shareholder's shares if the Plan of Share Exchange is
effectuated and (ii) not vote his shares in favor of the Plan of Share Exchange.
If the Plan of Share Exchange is authorized at the shareholders'
meeting, Sun will be liable for discharging the rights of the shareholders who
dissented from the Plan of Share Exchange ("Dissenting Shareholder") and shall,
no later than ten (10) days after approval of the Plan of Share Exchange, notify
the Dissenting Shareholders in writing of the location to where the Dissenting
Shareholders' demand for payment must be sent. The written notice must also set
a date by which Sun must receive the payment demand (the "Notice Date"), which
date shall be at least thirty (30) but not more that sixty (60) days after the
date notice is provided to the Dissenting Shareholders. Each Dissenting
Shareholder so notified must demand payment, certify whether the shareholder
acquired beneficial ownership of the shares before the date of the first
announcement of the terms of the Plan of Share Exchange and deposit his
certificates representing shares of Valley First common stock in accordance with
the terms of the notice. A Dissenting Shareholder who does not demand payment or
deposit his certificates, if required, by the Notice Date is not entitled to
payment for his shares.
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Upon receipt of a payment demand, Sun shall pay each Dissenting
Shareholder the amount Sun estimates to be the fair value of the Dissenting
Shareholder's shares plus accrued interest.
A Dissenting Shareholder may notify Sun in writing of his own estimate
of the fair value of his shares and amount of interest due and either demand
payment of the Dissenting Shareholder's estimate, less any previous payment, or
reject Sun's offer and demand payment of the fair value of the Dissenting
Shareholder's shares and interest due if either (i) the Dissenting Shareholder
believes that the amount paid by Sun is less than the fair value of his shares
or that the interest due is incorrectly calculated, (ii) Sun fails to make
payment within sixty (60) days after the date set for demanding payment or (iii)
Sun, having failed to effectuate the exchange, does not return the Dissenting
Shareholder's deposited certificates within sixty (60) days after the date set
for demanding payment. A Dissenting Shareholder waives the right to demand
payment pursuant to his own estimate of the fair value of his shares unless he
notifies Sun of his demand in writing within thirty (30) days after Sun made or
offered payment for the Dissenting Shareholder's shares.
FEDERAL SECURITIES LAWS CONSEQUENCES; STOCK TRANSFER RESTRICTIONS
This proxy statement/prospectus does not cover any resales of the Sun
common stock you will receive in the exchange, and no person is authorized to
make any use of this proxy statement/prospectus in connection with any such
resale.
All shares of Sun common stock you will receive in the exchange will be
freely transferable, except that if you are deemed to be an "affiliate" of
Valley First under the Securities Act of 1933 at the time of the special
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 Valley First for those purposes
generally include individuals or entities that control, are controlled by, or
are under common control with, Valley First, and would not include shareholders
who are not officers, directors or principal shareholders of Valley First.
The affiliates of Valley First may not offer, sell or otherwise dispose
of any of the shares of Sun common stock issued to that affiliate in the
exchange or otherwise owned or acquired by that affiliate:
(1) for a period beginning 30 days prior to the exchange and continuing
until financial results covering at least 30 days of post-exchange
combined operations of Sun and Valley First have been publicly filed
by Sun; or
(2) in violation of the Securities Act.
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OPINION OF FINANCIAL ADVISOR
Valley First has retained JMP Financial, Inc. to provide a financial
fairness opinion in connection with the exchange. The Valley First board
selected JMP Financial, Inc. to act as Valley First'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 Valley First 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. Valley First shareholders are urged to, and should, read
the opinion carefully and in its entirety. The opinion is directed to the Valley
First 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 Valley First common stock as to how
to vote at the special shareholders meeting. The summary of the opinion of JMP
Financial, Inc. set forth in this document is qualified in its entirety by
reference to the full text of the opinion.
In connection with rendering its opinion, JMP Financial, Inc. among
other things:
* reviewed certain internal financial statements and other financial and
operating data concerning Valley First prepared by the management of
Valley First;
* discussed the past and current operations and financial condition and
the prospects of Valley First with senior executives of Valley First;
* reviewed certain publicly available financial statements and other
information of Sun;
* discussed the past and current operations and financial condition and
the prospects of Sun with senior executives of Sun;
* reviewed the reported prices and trading activity for Sun common
stock;
* compared the financial performance of Valley First and Sun and the
prices and trading activity of Sun common stock with that of certain
other comparable publicly traded companies and their securities;
* reviewed the financial terms, to the extent publicly available, of
certain comparable transactions;
* reviewed the Plan of Share Exchange; and
* performed such other analyses and considered such other factors as JMP
Financial, Inc. deemed appropriate.
In rendering its opinion, JMP Financial, Inc. performed the following
analyses:
(1) JMP Financial, Inc. reviewed the performance of a sample of publicly
traded stocks of other banks and bank holding companies. No bank or
bank holding company was identical to Valley First or Sun. JMP
Financial, Inc. did, however, note that the Valley First and the Sun
share value were generally within the range of the share values of
comparable size banks and bank holding companies.
(2) JMP Financial, Inc. also consulted a private database to construct a
group of banks and bank holding companies it deemed to be similar to
either Valley First or Sun, considering, but not limiting is analysis
to, such factors as size, financial condition and performance,
geography and market performance. Once again, although no bank or bank
holding company was identical to Valley First or Sun, JMP Financial,
Inc. noted that the estimated share value of Sun was within the range
of trading prices of institutions of a similar size and in a similar
market or markets.
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(3) JMP Financial, Inc. reviewed the pricing ratios in those mergers and
acquisitions of banks and bank holding companies pending or completed
during the past twelve months for which public information was
available. JMP Financial, Inc. found that the premium to book value
ratios offered to selling shareholders generally ranged from 125
percent to 300 percent, with both median and average premium to book
values falling between 225 percent and 250 percent. All of these
transactions involved the transfer of control to the acquiring
institution. JMP Financial, Inc. also reviewed the trading prices and
histories of small publicly traded banks it deemed comparable to
Valley First to determine the approximate fair market value of small
minority positions in those institutions and found that price-to-book
value ratios ranged from 79 percent to 281 percent with averages and
medians ranging from 161 to 173 percent. The banks which JMP
Financial, Inc. reviewed and which it defined as "small publicly
traded banks" are all listed on the Nasdaq National Market System and
average a weekly trading volume of about one-half of one percent of
their outstanding stock. Among the significant differences between
these small publicly traded banks and Valley First is that the Valley
First stock is illiquid. A number of historical studies and valuation
practices estimate liquidity discounts in a range from 10 to 30
percent. The transaction at issue is somewhere between the sale of all
of the stock of an entire financial institution and the sale of a
minority block of stock in a community bank; however, JMP Financial,
Inc. believes the exchange bears more characteristics of the latter
than the former. The most dramatic difference, in the view of JMP
Financial, Inc., between the exchange and an acquisition of all of the
stock of an entire institution is the "change of control" by which the
acquiring institution acquires all of the outstanding stock of the
acquired institution. In such transactions, control of the acquired
institution changes hands, for which the acquiring institution may pay
a significant premium. In the present transaction, JMP Financial, Inc.
noted that Sun has had control of Valley First from the outset and
would not be expected to pay a "premium" for control, since it already
owns control of Valley First. JMP Financial, Inc. would expect that
the premium over book value would be closer to the price paid in the
sale of a minority block of stock in a small publicly traded bank,
which in fact is the case. JMP Financial, Inc. therefore concluded
that the exchange was fair to the shareholders of Valley First from a
financial point of view.
The opinion and presentation of JMP Financial, Inc. to the Valley First
board was one of many factors taken into consideration by Valley First'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 Valley First board
with respect to the exchange or of whether the Valley First board would have
been willing to agree to a transaction with a different form or amount of
consideration.
The Valley First 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 Valley First agreed to pay JMP Financial, Inc. a fee of $8,500
plus out-of-pocket expenses. In addition, Valley First has agreed to indemnify
JMP Financial, Inc. and its affiliates, against certain liabilities and
expenses, including certain liabilities under the federal securities laws.
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THE CLOSING
EFFECTIVE TIME
The exchange will be effective at 5:00 p.m., Mountain Time, on June 30,
2000, and will be closed as soon as possible after the vote at the meeting of
Valley First's shareholders. If the Plan of Share Exchange is approved, as of
the effective date, each outstanding share of Valley First common stock will be
automatically converted into the right to receive Sun common stock according to
the exchange ratio.
SHARES HELD BY SUN
Shares of Valley First common stock owned by Sun since Valley First's
organization will be unaffected by the exchange. Those shares will not be
exchanged for any securities of Sun or other consideration.
PROCEDURES FOR SURRENDER OF CERTIFICATES; FRACTIONAL SHARES
As soon as reasonably practicable after the effective date of the
exchange, Sun or Sun's transfer agent will send you a letter of transmittal. The
letter of transmittal will contain instructions with respect to the surrender of
your Valley First 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 Valley First shares in
accordance with the instructions in the letter of transmittal, you will be
entitled to receive stock certificates representing shares of Sun common stock
into which those Valley First 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 Valley First stock will represent only the right to receive the shares
of Sun common stock into which shares of Valley First stock were converted in
the exchange, and the right to receive cash in lieu of fractional shares of Sun
common stock as described below.
Until your Valley First certificates are surrendered to Sun or Sun's
agent, you will not be paid any dividends or distributions on the Sun common
stock into which your Valley First shares have been converted with a record date
after the exchange, and will not be paid cash in lieu of a fractional share.
When those certificates are surrendered, any unpaid dividends and any cash in
lieu of fractional shares of Sun common stock payable as described below will be
paid to you without interest.
Valley First'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 Valley First stock that is not registered
in the records of Valley First has occurred, then, so long as the Valley First
stock certificates are accompanied by all documents required to evidence and
effect the transfer, as set forth in the transmittal letter and accompanying
instructions, a certificate representing the proper number of shares of Sun
common stock will be issued to a person other than the person in whose name the
certificate so surrendered is registered, together with a cash payment in lieu
of fractional shares, if any, and payment of dividends or distributions, if any.
No fractional share of Sun common stock will be issued upon surrender
of certificates previously representing Valley First shares. Instead, Sun will
pay you an amount in cash determined by multiplying the fractional share
interest to which you would otherwise be entitled by the Sun share value used in
determining the exchange ratio.
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FEES AND EXPENSES
Whether or not the exchange is completed, Sun and Valley First will
each pay its own costs and expenses incurred in connection with the exchange,
including the costs of (a) the filing fees in connection with Sun's Form S-4
registration statement and this proxy statement/prospectus, (b) the filing fees
in connection with any filing, permits or approvals obtained under applicable
state securities and "blue sky" laws, (c) the expenses in connection with
printing and mailing of the Sun Form S-4 registration statement and this proxy
statement/prospectus, and (d) all other expenses.
NASDAQ STOCK MARKET LISTING
Sun will promptly prepare and submit to the Nasdaq Stock Market, Inc. a
listing application with respect to the maximum number of shares of Sun common
stock issuable to Valley First shareholders in the exchange, and Sun must use
reasonable best efforts to obtain approval for the listing of Sun common shares
on the Nasdaq Stock Market, Inc.
AMENDMENT AND TERMINATION
Sun and Valley First 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.
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THE SHAREHOLDERS' MEETING
DATE, TIME AND PLACE
The special shareholders meeting will be held on June __, 2000 at
Valley First Community Bank, 7501 East McCormick Parkway, North Court, Suite
105N, Scottsdale, Arizona 85258-3495 at 9:00 a.m., local time.
MATTERS TO BE CONSIDERED AT THE SHAREHOLDERS' MEETING
At the shareholders' meeting, holders of Valley First common stock will
vote on whether to approve the exchange. See "The Exchange". Shareholders will
also vote on the election of directors for Valley First. See "Election of
Directors".
RECORD DATE; STOCK ENTITLED TO VOTE; QUORUM
Holders of record of Valley First common stock at the close of business
on May 31, 2000, the record date for the shareholders' meeting, are entitled to
receive notice of and to vote at the shareholders' meeting. At May 31, 2000,
315,338 shares of Valley First common stock were issued and outstanding and held
by approximately 154 holders of record. Sun held 163,348 shares of Valley First
common stock on that date and 151,990 were held by shareholders other than Sun.
A majority of the shares of the Valley First common stock (excluding
shares held by Sun) entitled to vote on the record date must be represented in
person or by proxy at the shareholders' meeting in order for a quorum to be
present for purposes of transacting business at the meeting. In the event that a
quorum of common stock is not represented at the shareholders' meeting, it is
expected that the meeting will be adjourned or postponed to solicit additional
proxies. Holders of record of Valley First common stock on the record date are
each entitled to one vote per share with respect to approval of the exchange at
Valley First's shareholders' meeting.
Valley First does not expect any other matters to come before the
shareholders' meeting. However, if any other matters are properly presented at
the special meeting for consideration, the persons named in the enclosed form of
proxy, and acting thereunder, will have discretion to vote or not vote on those
matters in accordance with their best judgment, unless authorization to use that
discretion is withheld. If a proposal to adjourn the meeting is properly
presented, however, the persons named in the enclosed form of proxy will not
have discretion to vote in favor of the adjournment proposal any shares which
have been voted against the proposal(s) to be presented at the meeting. Valley
First 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, Valley First and Sun have agreed that
approval of the exchange will require the affirmative vote of a majority of the
shares of Valley First common stock outstanding on the record date, excluding
the 51.8% of Valley First's shares held by Sun. Abstentions and broker non-votes
will have the same effect as a vote against the proposal to approve the
exchange.
SHARE OWNERSHIP OF MANAGEMENT
As of the close of business on May 15, 2000, the directors and
executive officers of Valley First and their affiliates were entitled to vote
approximately 20,800 shares of Valley First common stock. These shares represent
approximately 6.60% of the outstanding shares of Valley First common stock and
13.69% of Valley First's shares held by shareholders other than Sun. The
directors and executive officers have agreed to vote their shares of Valley
First common stock in favor of the exchange.
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VOTING OF PROXIES
SUBMITTING PROXIES
You may vote by attending the shareholders' meeting and voting your
shares in person at the meeting, or by completing the enclosed proxy card,
signing and dating it and mailing it in the enclosed postage pre-paid envelope.
If you sign a written proxy card and return it without instructions, your shares
will be voted FOR the exchange at the shareholders' meeting.
If your shares are held in the name of a trustee, bank, broker or other
record holder, you must either direct the record holder of your shares as to how
to vote your shares or obtain a proxy from the record holder to vote at the
shareholders' meeting.
Shareholders who submit proxy cards should not send in any stock
certificates with their proxy cards. A transmittal form with instructions for
the surrender of certificates representing shares of Valley First stock will be
mailed by Sun to former Valley First 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 Valley First, by a later-dated proxy signed and returned by mail or by
attending the shareholders' meeting and voting in person. Attendance at Valley
First's special shareholders meeting will not in and of itself constitute a
revocation of a proxy. Any written notice of a revocation of a proxy must be
sent so as to be delivered before the taking of the vote at the shareholders'
meeting to:
Valley First Community Bank
7501 East McCormick Parkway
North Court, Suite 105N
Scottsdale, Arizona 85258-3495
Attention: Gary W. Hickel, President
If you require assistance in changing or revoking a proxy, you should
contact Gary W. Hickel at the address above or at phone number (480) 596-0883.
GENERAL INFORMATION
Brokers who hold shares in street name for customers who are the
beneficial owners of those shares are prohibited from giving a proxy to vote on
non-routine matters, such as the proposal to be voted on at the shareholders'
meeting, unless they receive specific instructions from the customer. These
so-called broker non-votes will have the same effect as a vote against the
exchange.
Abstentions may be specified on all proposals. If you submit a proxy
with an abstention, you will be treated as present at the shareholders' meeting
for purposes of determining the presence or absence of a quorum for the
transaction of all business. An abstention will have the same effect as a vote
against the exchange
SOLICITATION OF PROXIES; EXPENSES
Sun or Valley First will pay the cost of solicitation of proxies. In
addition to solicitation by mail, the directors, officers and employees of
Valley First may also solicit proxies from shareholders by telephone, telecopy,
telegram or in person.
37
<PAGE>
COMPARISON OF SHAREHOLDER RIGHTS
As a result of the exchange, holders of shares of Valley First stock
will become holders of shares of Sun common stock. This comparison of
shareholder rights is not intended to be complete and is qualified by reference
to the Arizona Revised Statutes, as well as to Valley First's articles of
incorporation and by-laws (copies of which may be obtained from Valley First)
and Sun's articles of incorporation and by-laws, (copies of which are on file
with the SEC).
Valley First shareholders may share in dividends as and when declared
by the Valley First Board of Directors (although none have been to date).
Dividends payable other than in Valley First's own stock may be paid out of
capital surplus with approval of the superintendent.
Sun stockholders may share in dividends as and when declared by the
Board of Directors (see "Dividends and Market for Common Stock"); dividends may
be paid out of any funds available unless the payment of the dividend renders
the business corporation insolvent.
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<PAGE>
DESCRIPTION OF THE CAPITAL STOCK OF SUN
Sun's Articles of Incorporation, as amended to date, authorize the
issuance of up to 50,000,000 shares of common stock, without par value. Sun's
articles of incorporation do not authorize the issuance of any other class of
stock. As of March 31, 2000, 5,503,870 shares of common stock were outstanding.
American Securities Transfer & Trust, Inc., serves as transfer agent and
registrar for Sun's common stock.
Arizona law allows Sun's board of directors to issue additional shares
of stock up to the total amount of common stock authorized without obtaining the
prior approval of the shareholders.
Sun's board of directors has authorized the issuance of the shares of
common stock as described in this proxy statement/prospectus. All shares of
common stock offered will be, when issued, fully paid and nonassessable.
The following summary of the terms and provisions of the common stock
does not purport to be complete and is qualified in its entirety by reference to
Sun's articles of incorporation, as amended, a copy of which is on file with the
SEC, and to the [Arizona Revised Statutes ("A.R.S.")].
RIGHTS OF COMMON STOCK
All voting rights are vested in the holders of shares of common stock.
Each share of common stock is entitled to one vote. The shares of common stock
have cumulative voting rights, which means that a stockholder is entitled to
cumulate their votes by multiplying the number of votes they are entitled to
cast by the number of directors for whom they are entitled to vote, and to cast
the product for a single candidate or distribute the same amongst several
candidates. The holders of the common stock do not have any preemptive,
conversion or redemption rights. Holders of common stock are entitled to receive
dividends if and when declared by Sun's board of directors out of funds legally
available. Under Arizona law, dividends may be legally declared or paid only if
after the distribution the corporation can pay its debts as they come due in the
usual course of business and the corporation's total assets equal or exceed the
sum of its liabilities. In the event of liquidation, the holders of common stock
will be entitled, after payment of amounts due to creditors and senior security
holders, to share ratably in the remaining assets.
SHARES AVAILABLE FOR ISSUANCE
The availability for issuance of a substantial number of shares of
common stock at the discretion of the board of directors provides Sun with the
flexibility to take advantage of opportunities to issue additional stock in
order to obtain capital, as consideration for possible acquisitions and for
other purposes (including, without limitation, the issuance of additional shares
through stock splits and stock dividends in appropriate circumstances). There
are, at present, no plans, understandings, agreements or arrangements concerning
the issuance of additional shares of common stock, except as described in this
proxy statement/prospectus and for the shares of common stock reserved for
issuance under Sun's stock option program.
Uncommitted authorized but unissued shares of common stock may be
issued from time to time to persons and in amounts the board of directors of Sun
may determine and holders of the then outstanding shares of common stock may or
may not be given the opportunity to vote thereon, depending upon the nature of
those transactions, applicable law and the judgment of the board of directors of
Sun regarding the submission of an issuance to or vote by Sun's shareholders. As
noted, Sun's shareholders have no preemptive rights to subscribe to newly issued
shares.
Moreover, it will be possible that additional shares of common stock
would be issued for the purpose of making an acquisition by an unwanted suitor
of a controlling interest in Sun more difficult, time consuming or costly or
would otherwise discourage an attempt to acquire control of Sun. Under such
circumstances, the availability of authorized and unissued shares of common
stock may make it more difficult for shareholders to obtain a premium for their
shares. Such authorized and unissued shares could be used to create voting or
other impediments or to frustrate a person seeking to obtain control of Sun by
means of a merger, tender offer, proxy contest or other means. Such shares could
be privately placed with purchasers who might cooperate with the board of
directors of Sun in opposing such an attempt by a third party to gain control of
Sun. The issuance of new shares of common stock could also be used to dilute
ownership of a person or entity seeking to obtain control of Sun. Although Sun
does not currently contemplate taking that action, shares of Sun common stock
39
<PAGE>
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.
ANTI-TAKEOVER PROVISIONS
In addition to the utilization of authorized but unissued shares as
described above, the A.R.S. contains other provisions which could be utilized by
Sun to impede efforts to acquire control of Sun. Those provisions include the
following:
CONTROL SHARE ACQUISITIONS. The A.R.S. contains an article intended to
protect shareholders and prohibit or discourage certain types of hostile
takeover activities. These provisions regulate the acquisition of "control
shares" of large public Arizona corporations.
The Arizona article establishes procedures governing "control share
acquisitions." A control share acquisition is defined as an acquisition of
shares by an acquirer which, when combined with other shares held by that person
or entity, would give the acquirer voting power at or above any of the following
thresholds: 20%, 33-1/3% or 50%. Under the article, an acquirer may not vote
"control shares" unless the corporation's disinterested shareholders vote to
confer voting rights on the control shares. The acquiring person, officers of
the target corporation, and directors of the target corporation are precluded
from voting on the issue of whether the control shares shall be accorded voting
rights. The article does not affect the voting rights of shares owned by an
acquiring person prior to the control share acquisition.
The article entitles corporations to redeem control shares from the
acquiring person under certain circumstances.
The article applies only to an "issuing public corporation." Sun falls
within the statutory definition of an "issuing public corporation." The article
automatically applies to any "issuing public corporation" unless the corporation
"opts out" of the statute by so providing in its articles of incorporation or
bylaws. Sun has not "opted out" of the provisions of the article.
FAIR PRICE ACT. Certain provisions of the A.R.S. establish a statutory
scheme similar to the supermajority and fair price provisions found in many
corporate charters. The act provides that a super majority vote of 90% of the
shareholders and no less than two-thirds of the votes of non-interested
shareholders must approve a "business combination." The act defines a "business
combination" to encompass any merger, consolidation, share exchange, sale of
assets, stock issue, liquidation, or reclassification of securities involving an
"interested shareholder" or certain "affiliates." An "interested shareholder" is
generally any person who owns 10% or more of the outstanding voting shares of
the company. An "affiliate" is a person who directly or indirectly controls, is
controlled by, or is under common control with a specified person.
At this time, Sun's management beneficially owns (including immediately
exercisable stock options) control of approximately 63% of Sun's outstanding
common stock (which includes shares owned by Capitol Bancorp Ltd.). It is now
unknown what percentage will be owned by management upon completion of the
exchange. If management's shares are voted as a block, management will be able
to prevent the attainment of the required supermajority approval.
The supermajority vote required by the act does not apply to business
combinations that satisfy certain conditions. These conditions include, among
others, that: (i) the purchase price to be paid for the shares of the company is
at least equal to the greater of (a) the market value of the shares or (b) the
highest per share price paid by the interested shareholder within the preceding
two-year period or in the transaction in which the shareholder became an
interested shareholder, whichever is higher; and (ii) once a person has become
an interested shareholder, the person must not become the beneficial owner of
any additional shares of the company except as part of the transaction which
resulted in the interested shareholder becoming an interested shareholder or by
virtue of proportionate stock splits or stock dividends.
The requirements of the act do not apply to business combinations with
an interested shareholder that the Board of Directors has approved or exempted
from the requirements of the act by resolution at any time prior to the time
that the interested shareholder first became an interested shareholder.
40
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WHERE YOU CAN FIND MORE INFORMATION
Sun has filed a registration statement on Form S-4 to register with the
SEC the Sun common stock to be issued to Valley First shareholders in the
exchange. This proxy statement/prospectus is a part of that registration
statement and constitutes a prospectus of Sun in addition to being a proxy
statement of Valley First for the special meeting. As allowed by SEC rules, this
proxy statement/prospectus does not contain all the information you can find in
the registration statement or the exhibits to the registration statement.
In addition, Sun files reports, proxy statements and other information
with the SEC under the Exchange Act. Please call the SEC at 1-800-SEC-0330 for
further information on the public reference rooms. You may read and copy this
information at the following locations of the SEC:
<TABLE>
<S> <C> <C>
Public Reference Room New York Regional Office Chicago Regional Office Citicorp Center
450 Fifth Street, N.W. 7 World Trade Center 500 West Madison Street
Room 1024 Suite 1300 Suite 1400
Washington, D.C. 20549 New York, New York 10048 Chicago, Illinois 60661-2511
</TABLE>
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.
In addition, all subsequent documents filed with the SEC by Sun
pursuant 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 JUNE __, 2000
TO RECEIVE THEM BEFORE THE SHAREHOLDERS' MEETING. If you request exhibits to any
incorporated documents from us, Sun will mail them to you by first class mail,
or another equally prompt means, within one business day after Sun receives your
request.
No one has been authorized to give any information or make any
representation about Valley First, Sun or the exchange, that differs from, or
adds to, the information in this document or in documents that are publicly
filed with the SEC. Therefore, if anyone does give you different or additional
information, you should not rely on it.
If you are in a jurisdiction where it is unlawful to offer to exchange,
or to ask for offers of exchange, the securities offered by this proxy
statement/prospectus or to ask for proxies, or if you are a person to whom it is
unlawful to direct these activities, then the offer presented by this proxy
statement/prospectus does not extend to you.
The information contained in this proxy statement/prospectus speaks
only as of its date unless the information specifically indicates that another
date applies. Information in this document about Sun has been supplied by Sun,
and information about Valley First has been supplied by Valley First.
41
<PAGE>
LEGAL MATTERS
Certain legal matters relating to the validity of the shares of Sun
common stock offered by this proxy statement/prospectus and certain federal
income tax matters relating to the exchange will be passed upon for Sun by Snell
& Wilmer, L.L.P.
EXPERTS
The consolidated financial statements of Sun attached to this proxy
statement/prospectus included in Sun's annual report to shareholders and its
report on Form 10-K for the fiscal year ended December 31, 1999, have been
audited by BDO Seidman, LLP, independent certified public accountants, as stated
in their report, which is attached as part of Annex E, and are included in
reliance upon such report given upon their authority as experts in accounting
and auditing.
The financial statements of Valley First attached to this proxy
statement/prospectus as Annex D for the fiscal years ended December 31, 1999 and
1998 and the period ended December 31, 1997 have been audited by Semple &
Cooper, LLP, independent certified public accountants, as stated in their
report, which is attached as part of Annex D, and are included in reliance upon
such report given upon their authority as experts in accounting and auditing.
42
<PAGE>
ANNEX A
PLAN OF SHARE EXCHANGE
THIS PLAN OF SHARE EXCHANGE ("Plan") is entered into effective May 31, 2000
between and among SUN COMMUNITY BANCORP LIMITED, an Arizona corporation ("Sun")
and the SHAREHOLDERS of VALLEY FIRST COMMUNITY BANK ("Valley First").
RECITALS
A. Valley First is an Arizona banking corporation which commenced the
business of banking June 30, 1997.
B. Sun is now and has been since Valley First commenced the business of
banking the holder of fifty-one point eight (51.8%) percent of the duly issued
and outstanding common stock of Valley First ("Valley First common stock").
C. Valley First common stock is privately held and not traded in any
public market.
D. Sun's common stock ("Sun common stock") is traded on the National
Market System of the NASDAQ Stock Market, Inc.
E. Valley First's Board of Directors has determined that it would be in
the best interest of Valley First's stockholders to exchange their shares of
stock in Valley First for shares of Sun common stock as described in this Plan,
and Sun is willing to make an exchange on those terms.
The parties adopt this Plan as of the effective date.
1. THE EXCHANGE. Each shareholder who holds Valley First common stock
will exchange his, her or their shares of Valley First common stock for shares
of Sun common stock according to an exchange ratio determined as follows:
VALLEY FIRST SHARE VALUE. The share value of each share of Valley
First common stock shall be determined by multiplying 1.5 times
the adjusted pro forma fully diluted net book value per share of
Valley First common stock as of the close of business on Friday,
June 30, 2000. The adjusted pro forma fully diluted net book
value per share of Valley First common stock as of the close of
business on Friday, June 30, 2000 shall be calculated by (1) pro
forma fully diluted stockholders' equity as reflected in Valley
First's internally prepared financial statements as of June 30,
2000 and (2) dividing Valley First's pro forma fully diluted
stockholders' equity by the number of shares of Valley First's
common stock outstanding as of the close of business on June 30,
2000.
SUN SHARE VALUE. The share value of each share of Sun common
stock will be the average of the closing prices of Sun common
stock for each of the trading days in the thirty (30) calendar
day period prior to and ending on June 30, 2000, as reported by
the NASDAQ Stock Market, Inc.
EXCHANGE RATIO. The exchange ratio will be determined by dividing
the Valley First Share Value by the Sun Share Value.
Each Valley First shareholder (except Sun) will receive shares of Sun
common stock in exchange for his, her or their Valley First common stock
calculated by multiplying the number of shares of Valley First common stock held
by the shareholder by the exchange ratio. Any fractional shares will be paid in
cash.
<PAGE>
2. APPROVALS NECESSARY. The following approvals will be necessary prior
to the Plan becoming effective:
a. The Board of Directors of Valley First shall have approved and
adopted the Plan.
b. The Board of Directors of Sun (acting through its Executive
Committee or otherwise, Sun's Board having already approved the
exchange in principle) shall have approved and adopted the Plan.
c. A majority of the common stock of Valley First (exclusive of the
shares held by Sun) shall have been voted to approve and adopt
the Plan at a special meeting of the shareholders called for that
purpose.
d. The Securities and Exchange Commission shall have declared
effective the Registration Statement registering the shares of
stock of Sun's common stock to be issued in the exchange.
e. The Arizona State Banking Department shall not have issued any
objection to the Plan.
3. FAIRNESS OPINION. The Board of Directors of Valley First 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 Valley
First.
4. TAX OPINION. Snell & Wilmer, L.L.P. shall have issued its legal
opinion that the share exchange constitutes a reorganization within the meaning
of Section 368 of the Internal Revenue Code of 1986, as amended, and that the
exchange shall not be a taxable event to the shareholders of Valley First
(except to the extent of the cash received in lieu of fractional shares).
5. SURRENDER OF CERTIFICATES. Each shareholder of Valley First common
stock shall surrender to Sun his, her or their certificate(s) for shares of
Valley First common stock within thirty (30) days after the effective date of
this Plan. Sun shall direct its transfer agent, American Securities Transfer &
Trust, Inc., to issue certificate(s) of Sun common stock to be issued in the
exchange. Certificate(s) of Sun common stock shall be issued and registered in
the same name as the shares of Valley First common stock surrendered in exchange
therefor, and shall thereafter be transferable in the same manner as otherwise
provided for Sun common stock. In the event any shareholder of Valley First
common stock fails to surrender his, her or their certificate(s) within thirty
(30) days of the effective date of this Plan, such certificate(s) shall
nonetheless be canceled and deemed surrendered, and certificate(s) for Sun
common stock shall be issued and registered in the name of the person who is the
registered holder on the books of Valley First on the effective date of this
Plan, and the Valley First certificate(s) shall thereafter be null and void and
of no force or effect whatever.
6. NEW VALLEY FIRST CERTIFICATE. Valley First shall issue its
certificate registering in the name of Sun all shares of stock now registered to
shareholders other than Sun.
<PAGE>
ANNEX B
JMP FINANCIAL, INC.
753 GRAND MARAIS
GROSSE POINTE PARK, MI 48230
TEL/FAX (313) 824-1711
DRAFT/CONFIDENTIAL
June __, 2000
Board of Directors
Valley First Community Bank
7501 East McCormick Parkway, Suite 105N
Scottsdale, AZ 85258
Gentlemen:
We have examined the proposed Plan of Share Exchange (the "Agreement")
dated May 31, 2000, to be entered into between Sun Community Bancorp Limited, an
Arizona Corporation ("SCBL") and the shareholders (the "Shareholders") of Valley
First Community Bank ("Valley First"), an Arizona banking corporation by which
SCBL shall acquire from the Shareholders their outstanding shares of Valley
First, not already owned by SCBL, in exchange for shares of SCBL (the
"Exchange").
The terms of the transaction contemplated by the Agreement provide that
each share of Valley First's common stock, not already owned by SCBL and issued
and outstanding as of June 30, 2000 (the "Effective Date") shall be exchanged,
pursuant to the Exchange Ratio specified in the Agreement, into shares of SCBL.
You have requested our opinion as to the fairness, from a financial point of
view, of the Exchange.
JMP Financial, Inc. ("JMP"), as a regular part of its investment
banking business, is engaged in the valuation of the securities of commercial
and savings banks as well as the holding companies of commercial and savings
banks in connection with mergers, acquisition, and divestitures, and for other
purposes.
In connection with this engagement and rendering this opinion, we
reviewed materials deemed necessary and appropriate by us under the
circumstances, including;
* Audited financial statements of Valley First for the period ended December
31, 1997 through December 31, 1999;
* Unaudited financial statements of Valley First for the period ended March
31, 2000;
* Certain unaudited internal financial information concerning the capital
ratios of Valley First;
* Publicly available information concerning SCBL;
* Publicly available information with respect to certain other bank holding
companies, which we deemed appropriate, including competitors of SCBL and
Valley First;
* Publicly available information with respect to the nature and terms of
certain other transactions which we consider relevant;
* The Agreement; and
* Certain historical market prices and trading volumes of Valley First's and
SCBL's common stock to the extent reasonably available.
<PAGE>
Page Two
Valley First Board of Directors
June __, 2000
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 Valley First or SCBL or any of its subsidiaries and we have not
been furnished with any such evaluation or appraisal. Additionally, we are not
experts in the evaluation of reserves for loan losses, and we have not reviewed
any individual credit files; nor have we physically examined Valley First's
offices, real estate or property or met personally with management of the Bank,
other than via telephone. For purposes of this opinion, we have assumed that
SCBL's and Valley First's loan loss reserves are adequate in all material
respects and that, in the aggregate, other conditions at SCBL and Valley First
are satisfactory and this opinion is conditioned upon such assumption. We have
also assumed that there has been no material change in Valley First's or SCBL's
assets, financial condition, results of operations, business, or prospects since
the date of the last financial statements made available to us. This opinion is
necessarily based on economic, market and other conditions in effect on, and the
information made available to us as of, the date hereof. It should be understood
that subsequent developments may effect the opinion and that JMP does not have
any responsibility to update, revise or reaffirm it.
The opinion expressed herein is being rendered to the Board of
Directors of Valley First 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 SCBL'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,
John Palffy
President
JMP Financial, Inc.
<PAGE>
ANNEX C
FORM OF OPINION OF SNELL & WILMER L.L.P.
TO BE DELIVERED AT THE EFFECTIVE DATE OF
THE PLAN OF SHARE EXCHANGE
June ___, 2000
Sun Community Bancorp Limited
2777 East Camelback Rd., Suite 375
Phoenix, Arizona 85016
Re: Federal Tax Consequences of Plan of Share Exchange
Gentlemen:
We have acted as special counsel to Sun Community Bancorp Limited
("Sun") in connection with the Plan of Share Exchange (the "Plan") between Sun
and the shareholders of Valley First Community Bank ("Valley First") dated as of
___________ (the "Effective Date").
Sun has filed with the Securities and Exchange Commission under the
Securities Act of 1933, as amended (the "1933 Act"), a registration statement on
Form S-4 (the "Registration Statement"), with respect to the common shares of
Sun to be issued to holders of shares of common stock of Valley First in
connection with the Plan. In addition, Sun has prepared, and we have reviewed, a
Proxy Statement/Prospectus which is contained in and made a part of the
Registration Statement (the "Proxy Statement"). In rendering our opinion, we
have relied upon the facts stated in the Proxy Statement, the representations
provided to us by Sun and Valley First, as summarized below, and upon such other
documents as we have deemed appropriate, including the information about Sun and
Valley First referenced in the Proxy Statement.
We have assumed that (i) all parties to the Plan, and to any other
documents reviewed by us, have acted, and will act, in accordance with the terms
of the Plan, (ii) all facts, information, statements and representations
qualified by the knowledge and/or belief of Sun and/or Valley First will be
complete and accurate as of the Effective Date as though not so qualified, (iii)
the Plan will be consummated at the Effective Date 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 is authorized by and will be effected
pursuant to applicable state law. We have also assumed that each Valley First
shareholder holds the shares of Valley First common stock to be surrendered
under the Plan as a capital asset.
<PAGE>
Sun Community Bancorp Limited
June __, 2000
Page 2
This opinion does not address the specific tax consequences that may be
relevant to a particular shareholder receiving special treatment under some
federal income tax laws, including: (i) banks; (ii) tax-exempt organizations;
(iii) insurance companies; (iv) dealers in securities or foreign currencies; (v)
Valley First shareholders, if any, who received their Valley First common stock
through the exercise of employee stock options or otherwise as compensation;
(vi) Valley First shareholders who are not U.S. persons; and (vii) Valley First
shareholders who hold Valley First common stock as part of a hedge, straddle, or
conversion transaction.
Our opinion also does not address any consequences arising under the
laws of any state, locality, or foreign jurisdiction. No rulings have been or
will be sought from the Internal Revenue Service regarding any matters relating
to the exchange.
Our opinion is predicated on the accuracy of the following
representations provided to us by Sun:
1. The fair market value of the Sun common stock to be received by the
Valley First shareholders will be approximately equal to the fair market value
of the Valley First common stock surrendered under the Plan.
2. Sun has no plan or intention to liquidate Valley First; to merge
Valley First into another corporation; to cause Valley First 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
Valley First common stock acquired in the transaction.
3. Sun has no plan or intention to reacquire any of its common stock
issued under the Plan.
4. Sun, Valley First, and the shareholders of Valley First 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
Valley First for their common stock of Valley First is voting common stock of
Sun. Further, no liabilities of Valley First or any Valley First shareholder
will be assumed by Sun, nor will any of the Valley First stock acquired by Sun
be subject to any liabilities.
6. Sun will not own as of immediately before the Effective Date,
directly or indirectly, any Valley First common stock other than the Valley
First common stock first acquired by Sun upon the formation of Valley First on
June 30, 1997.
<PAGE>
Sun Community Bancorp Limited
June __, 2000
Page 3
7. Sun will not make any cash payments, directly or indirectly, to
dissenting shareholders of Valley First, nor will Sun, directly or indirectly,
reimburse Valley First for any payments made by Valley First to dissenting
shareholders.
8. Any cash payment made by Sun to Valley First shareholders in lieu of
fractional shares of Sun is solely for the purpose of avoiding the expense and
inconvenience to Sun of issuing fractional shares and does not represent
separately bargained-for consideration.
9. Sun is not an investment company as defined in Section
368(a)(2)(F)(iii) or (iv) of the Internal Revenue Code of 1986, as amended (the
"Code")
10. The Plan will be consummated in compliance with the material terms
contained in the Registration Statement, none of the material terms and
conditions therein have been or will be waived or modified and Sun has no plan
or intention to waive or modify any such material condition.
11. Sun has a stock repurchase program in place under which Sun is
repurchasing shares of its common stock on the open market ("Repurchase Plan").
Sun is not obligated to repurchase any of its shares, and has no obligation to
repurchase any shares issued under the Plan. To the best knowledge of Sun, the
Repurchase Plan does not represent an inducement to the Valley First
shareholders to consummate the Plan. Sun has no plan or intention to repurchase
through the Repurchase Plan any Sun common stock issued under the Plan.
12. To the best knowledge of Sun, there is no plan or intention on the
part of the stockholders of Valley First to utilize Sun's Repurchase Plan to
effect the redemption of any Sun common stock issued under the Plan.
13. Sun will not enlarge the Repurchase Plan in connection with
consummating the Plan.
Our opinion is also predicated on the accuracy of the following
representations provided to us by Valley First:
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 Valley First has
no plan or intention to waive or modify any such material condition.
2. The fair market value of the Sun common stock to be received by the
Valley First shareholders will be approximately equal to the fair market value
of the Valley First common stock surrendered under the Plan.
<PAGE>
Sun Community Bancorp Limited
June __, 2000
Page 4
3. Valley First has no plan or intention to issue additional shares of
its stock that would result in Sun losing "control" of Valley First within the
meaning of Section 368(c)(1) of the Code.
4. Sun, Valley First, and the shareholders of Valley First will pay
their respective expenses, if any, incurred in connection with the Plan.
5. At the time the Plan is executed, Valley First 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 Valley First.
6. Following the execution of the Plan, Valley First will continue its
historic business or use a significant portion of its historic business assets
in a business.
7. Valley First is not an investment company as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
8. Valley First will pay any dissenting shareholders the value of their
stock out of its own funds.
9. On the Effective Date, the fair market value of the assets of Valley
First 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 Internal Revenue Code;
2) No gain or loss will be recognized by the shareholders of
Valley First who exchange their Valley First common stock solely for Sun common
stock (except with respect to cash received instead of a fractional shares of
Sun common stock);
3) The aggregate tax basis of the Sun common stock received by
Valley First shareholders who exchange all of their Valley First common stock
for Sun common stock in the exchange will be the same as the aggregate tax basis
of the Valley First common stock surrendered in the exchange (reduced by any
adjusted basis allocable to a fractional share of Sun common stock for which
cash is received);
<PAGE>
Sun Community Bancorp Limited
June __, 2000
Page 5
4) The holding period of the Sun common stock received by a former
shareholder of Valley First will include the holding period of shares of Valley
First common stock surrendered in the exchange; and
5) A holder of Valley First common stock who receives a cash
payment instead of a fractional share of Sun common stock will recognize capital
gain or loss to the extent such cash payment is treated pursuant to Section 302
of the Code as made in exchange for the fractional share. Such gain or loss will
be equal to the difference between the cash amount received and the portion of
the holder's adjusted basis in shares of Valley First 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
Valley First 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,
Snell & Wilmer, L.L.P.
<PAGE>
ANNEX D
FINANCIAL INFORMATION REGARDING VALLEY FIRST COMMUNITY BANK
Management's discussion and analysis of financial
condition and results of operations.................................... D-2
Condensed interim financial statements as of and
for the periods ended March 31, 2000 and 1999 (unaudited).............. D-6
Audited financial statements as of and for the periods
ended December 31, 1999, 1998 and 1997................................. D-12
D-1
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
VALLEY FIRST COMMUNITY BANK
PERIODS ENDED MARCH 31, 2000 AND DECEMBER 31, 1999
FINANCIAL CONDITION
Valley First Community Bank is engaged in commercial banking activities from its
sole location in Scottsdale, Arizona. From its inception in June 1997, 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 $45.6 million at March 31, 2000, a slight decrease
from $45.7 million at December 31, 1999. The Bank's total assets approximated
$36.7 million at year-end 1998.
Total portfolio loans approximated $39.4 million at March 31, 2000, an increase
of approximately $3.1 million from the $36.3 million level at December 31, 1999.
At December 31, 1998, total portfolio loans approximated $20.9 million.
Portfolio loan growth has been significant and is consistent with the Bank's
overall balance sheet growth during these periods. Commercial loans approximated
91.4% of total portfolio loans at March 31, 2000 consistent with the Bank's
emphasis on commercial lending activities. Real estate mortgage loans
approximated 6.9% of total portfolio loans at March 31, 2000.
The allowance for loan losses at March 31, 2000 approximated $461,000 or 1.17%
of total portfolio loans, a slight increase over the year-end 1999 ratio of
1.15%.
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.
In 1999, net loan charge-offs approximated $75,300 (none in 1998 or 1997). Loan
losses in the first quarter of 2000 were minimal ($5,000). In April 2000, the
Bank incurred loan charge-offs of approximately $171,000 resulting from
management's analysis of the current status of a small number of loans
previously included in its analysis of the allowance for loan losses.
The Bank's growth has been funded primarily by deposits, most of which are
interest-bearing. Total deposits approximated $41 million at March 31, 2000, a
decrease of approximately $284,000 from the $41.3 million level at December 31,
1998. Deposits increased significantly in 1999 from the $32.4 million level at
the beginning of the year.
D-2
<PAGE>
The Bank generally does not rely upon brokered deposits as a key funding source;
deposits are generally obtained within the Bank's community.
The Bank emphasizes obtaining noninterest-bearing deposits as a means to reduce
its cost of funds. Noninterest-bearing deposits approximated $10.3 million at
March 31, 2000 or about 25% of total deposits, an increase of approximately $2.7
million from December 31, 1999. Noninterest-bearing deposits fluctuate
significantly from day to day, depending upon customer account activity.
Stockholders' equity approximated $4.2 million at March 31, 2000 or
approximately 9.3% of total assets. Capital adequacy is discussed elsewhere in
this narrative.
RESULTS OF OPERATIONS
Net income for the three months ended March 31, 2000 approximated $109,000,
compared with a net loss of $63,000 in the three-month 1999 period.
The Bank was modestly profitable in 1999 with net earnings from operations of
$147,000 (net income of $36,000 after the cumulative effect of a change in
accounting principle). 1998 represented the Bank's first full calendar year of
operations, with a net loss of $82,000, compared to a net loss of $245,000 in
the 1997 period of about six months.
During these most recent periods, the Bank's profitability has been the result
of its loan and deposit portfolios reaching a sufficient size to generate an
adequate margin to cover operating expenses and produce profits.
The principal source of operating revenues is interest income. Total interest
income for the three months ended March 31, 2000 approximated $986,000, compared
with $660,000 in the first three months of 1999. For the year ended December 31,
1999, total interest income approximated $3.2 million, compared with $1.9
million in 1998 and $320,000 in 1997.
Interest expense on deposits has also increased significantly during these
periods, consistent with the growth in the interest-bearing deposits. Total
interest expense approximated $355,000 for the three months ended March 31,
2000, compared with $238,000 for the first three months of 1999. For the year
ended December 31, 1999, total interest expense approximated $1.2 million,
compared with $648,000 in 1998 and $72,000 in 1997.
Net interest income approximated $631,000 for the three months ended March 31,
2000, compared with $422,000 for the 1999 corresponding period. Net interest
income for the year ended December 31, 1999 approximated $2.0 million,
significantly more than the $1.2 million in 1998 and $248,000 in 1997.
Provisions for loan losses ($47,000 and $44,000 for the three months ended March
31, 2000 and 1999, respectively; $284,000 for the year ended December 31, 1999,
$127,000 in 1998 and $82,000 in 1997) have been based primarily upon amounts
necessary to increase the allowance for loan losses to the regulatorily-imposed
ratio requirement of not less than 1% of total portfolio loans outstanding and
management's analysis of other allowance requirements discussed previously.
D-3
<PAGE>
Noninterest income has increased consistently during the Bank's period of
existence. Total noninterest income approximated $62,000 for the three months
ended March 31, 2000 ($52,000 in the corresponding period in 1999) and
approximated $244,000 for the year ended December 31, 1999, $119,000 in 1998 and
$18,000 in 1997.
Noninterest expenses have increased significantly during the period of the
Bank's existence. Total noninterest expense approximated $474,000 for the three
months ended March 31, 2000, compared with $353,000 for the corresponding 1999
period. For the year ended December 31, 1999, total noninterest expense
approximated $1.7 million, compared with $1.4 million in 1998 and $555,000 in
the 1997 period.
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. Growth in deposits and loans was previously discussed in this
narrative. As stated previously, most of the deposit growth has been deployed
into commercial loans, consistent with the Bank's emphasis on commercial lending
activities.
Cash and cash equivalents approximated $5 million at March 31, 2000, compared
with $5.7 million at December 31, 1999 and $9.6 million at December 31, 1998. 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, 2000 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. It also has not engaged in active trading of its investments
and has no intention of doing so in the foreseeable future. At March 31, 2000
and December 31, 1999, the Bank had approximately $995,000 and $2.8 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 Valley First
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.
CENTURY DATE CHANGE
Throughout 1999, significant attention was drawn to the century date change and
concerns about whether banks were prepared. What was predicted by some media to
become a catastrophic disaster of computer failures, proved to be a nonevent.
D-4
<PAGE>
The Bank was well prepared, far in advance of the regulatory initiatives, and
was pleased to celebrate the new year without any significant problems.
Bank regulatory agencies have advised that they remain somewhat concerned about
the banking industry on this matter for the remainder of 2000 and are likely to
perform some limited follow-up examinations during this period. Management
estimates additional future costs relating to the century date change will be
minimal.
IMPACT OF NEW ACCOUNTING STANDARDS
A new accounting standard which required the write-off of previously capitalized
start-up and preopening costs was implemented effective January 1, 1999.
FASB Statement No. 133, "Accounting For Derivative Instruments and Hedging
Activities", requires all derivatives to be recognized in financial statements
and to be measured at fair value. Gains and losses resulting from changes in
fair value will be included in income, or in comprehensive income, depending on
whether the instrument qualifies for hedge accounting and the type of hedging
instrument involved. This new standard will become effective in 2001 and,
because the Bank has typically not entered into derivative contracts either to
hedge existing risks or for speculative purposes, is not expected to have a
material effect on its financial statements.
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-5
<PAGE>
VALLEY FIRST COMMUNITY BANK
----------
INTERIM FINANCIAL STATEMENTS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
D-6
<PAGE>
BALANCE SHEETS
VALLEY FIRST COMMUNITY BANK
March 31 December 31
2000 1999
------------ ------------
ASSETS (unaudited)
Cash and due from banks $ 2,472,681 $ 2,134,480
Federal funds sold 2,500,000 3,600,000
------------ ------------
Cash and cash equivalents 4,972,681 5,734,480
Investment securities available for sale,
carried at market value 995,427 2,792,144
Portfolio loans:
Commercial 36,002,676 33,033,189
Real estate mortgage 2,734,697 2,700,360
Installment 665,418 599,982
------------ ------------
Total portfolio loans 39,402,791 36,333,531
Less allowance for loan losses (461,000) (418,000)
------------ ------------
Net portfolio loans 38,941,791 35,915,531
Premises and equipment 295,813 305,111
Accrued interest income 213,698 165,607
Other assets 138,536 765,336
------------ ------------
TOTAL ASSETS $ 45,557,946 $ 45,678,209
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 10,270,836 $ 7,615,429
Interest-bearing 30,767,274 33,707,001
------------ ------------
Total deposits 41,038,110 41,322,430
Accrued interest on deposits and
other liabilities 285,691 230,092
------------ ------------
Total liabilities 41,323,801 41,552,522
STOCKHOLDERS' EQUITY:
Common stock, $5 par value,
315,338 shares authorized,
issued and outstanding 1,576,690 1,576,690
Surplus 2,838,042 2,838,042
Retained-earnings deficit (180,587) (289,986)
Market value adjustment (net of tax
effect) for investment securities
available for sale (accumulated other
comprehensive income) -- 941
------------ ------------
Total stockholders' equity 4,234,145 4,125,687
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 45,557,946 $ 45,678,209
============ ============
See notes to interim financial statements
D-7
<PAGE>
STATEMENTS OF OPERATIONS (UNAUDITED)
VALLEY FIRST COMMUNITY BANK
Three Months Ended
March 31
------------------------
2000 1999
-------- ---------
Interest income:
Portfolio loans (including fees) $927,593 $ 526,190
Loans held for resale 12,518 13,263
Taxable investment securities 9,423 70,917
Federal funds sold 36,933 49,894
-------- ---------
Total interest income 986,467 660,264
Interest expense:
Demand deposits 130,761 145,823
Savings deposits 326 241
Time deposits 224,054 91,681
-------- ---------
Total interest expense 355,141 237,745
-------- ---------
Net interest income 631,326 422,519
Provision for loan losses 47,452 44,000
-------- ---------
Net interest income after
provision for loan losses 583,874 378,519
Noninterest income:
Service charges on deposit accounts 43,509 25,911
Fees from origination of non-portfolio
residential mortgage loans 12,268 21,702
Other 6,518 4,127
-------- ---------
Total noninterest income 62,295 51,740
Noninterest expense:
Salaries and employee benefits 238,329 164,759
Occupancy 39,419 37,139
Other 196,022 151,601
-------- ---------
Total noninterest expense 473,770 353,499
-------- ---------
Income before federal income taxes
and cumulative effect of change
in accounting principle 172,399 76,760
Federal income taxes 63,000 28,000
-------- ---------
Net income before cumulative effect
of change in accounting principle 109,399 48,760
Cumulative effect of change in
accounting principle -- (111,501)
-------- ---------
NET INCOME (LOSS) $109,399 $ (62,741)
======== =========
NET INCOME (LOSS) PER SHARE $ 0.35 $ (0.20)
======== =========
See notes to interim financial statements.
D-8
<PAGE>
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
VALLEY FIRST COMMUNITY BANK
<TABLE>
<CAPTION>
Accumulated
Retained- Other
Common Earnings Comprehensive
Stock Surplus Deficit Income Total
----- ------- ------- ------ -----
<S> <C> <C> <C> <C> <C>
Three Months Ended March 31, 1999
- ---------------------------------
Balances at January 1, 1999 $ 1,576,690 $ 2,838,042 $(325,637) $ 64 $4,089,159
Components of comprehensive income:
Net loss for the period (62,741) (62,741)
Market value adjustment
for investment securities
available for sale (net of
tax effect) 941 941
----------
Comprehensive income (loss)
for the period (61,800)
----------- ----------- --------- ------ ----------
BALANCES AT MARCH 31, 1999 $ 1,576,690 $ 2,838,042 $(388,378) $1,005 $4,027,359
=========== =========== ========= ====== ==========
Three Months Ended March 31, 2000
- ---------------------------------
Balances at January 1, 2000 $ 1,576,690 $ 2,838,042 $(289,986) $ 941 $4,125,687
Components of comprehensive income:
Net income for the period 109,399 109,399
Market value adjustment
for investment securities
available for sale (net of
tax effect) (941) (941)
----------
Comprehensive income
for the period 108,458
----------- ----------- --------- ------ ----------
BALANCES AT MARCH 31, 2000 $ 1,576,690 $ 2,838,042 $(180,587) $ -- $4,234,145
=========== =========== ========= ====== ==========
</TABLE>
See notes to interim financial statements.
D-9
<PAGE>
STATEMENTS OF CASH FLOWS (UNAUDITED)
VALLEY FIRST COMMUNITY BANK
<TABLE>
<CAPTION>
Three Months Ended
March 31
----------------------------
2000 1999
----------- -----------
OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) for the period $ 109,399 $ (62,741)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Cumulative effect of change in accounting principle -- 111,501
Provision for loan losses 47,452 44,000
Depreciation of premises and equipment 15,898 21,640
Net accretion of investment security discounts (4,573) (14,003)
Deferred income taxes -- (60,000)
Decrease (increase) in accrued interest income
and other assets 574,606 (13,296)
Increase in accrued interest on deposits and
other liabilities 55,599 57,357
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 798,381 84,458
INVESTING ACTIVITIES
Proceeds from maturities of investment securities
available for sale 1,800,000 5,495,000
Net increase in portfolio loans (3,069,260) (3,108,543)
Purchases of premises and equipment (6,600) (3,729)
----------- -----------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (1,275,860) 2,382,728
FINANCING ACTIVITIES
Net increase (decrease) in demand deposits, NOW accounts
and savings accounts 246,595 (4,703,488)
Net increase (decrease) in certificates of deposit (530,915) 1,205,949
----------- -----------
NET CASH USED BY FINANCING ACTIVITIES (284,320) (3,497,539)
----------- -----------
DECREASE IN CASH AND CASH EQUIVALENTS (761,799) (1,030,353)
Cash and cash equivalents at beginning of period 5,734,480 9,647,920
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,972,681 $ 8,617,567
=========== ===========
</TABLE>
See notes to interim financial statements.
D-10
<PAGE>
NOTES TO INTERIM FINANCIAL STATEMENTS (UNAUDITED)
VALLEY FIRST COMMUNITY BANK
NOTE A--BASIS OF PRESENTATION
The accompanying condensed financial statements of Valley First Community Bank
have been prepared in accordance with generally accepted accounting principles
for interim financial information. Accordingly, they do not include all
information and footnotes necessary for a fair presentation of financial
position, results of operations and cash flows in conformity with generally
accepted accounting principles.
The statements do, however, include all adjustments of a normal recurring nature
which Valley First considers necessary for a fair presentation of the interim
periods.
The results of operations for the three-month period ended March 31, 2000 are
not necessarily indicative of the results to be expected for the year ending
December 31, 2000.
NOTE B--IMPLEMENTATION OF NEW ACCOUNTING STANDARD
AICPA Statement of Position 98-5, REPORTING ON THE COSTS OF START-UP ACTIVITIES,
requires start-up, preopening and organizational costs to be charged to expense
when incurred. The initial application of this statement, which became effective
January 1, 1999, also required the write-off of any such costs previously
capitalized. Implementation of this new statement is reflected as a cumulative
effect of an accounting change (net of income tax effect) in the first quarter
of 1999.
NOTE C--PROSPECTIVE IMPACT OF NEW ACCOUNTING STANDARDS NOT YET ADOPTED
FASB Statement No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES, requires all derivatives to be recognized in financial statements
and to be measured at fair value. Gains and losses resulting from changes in
fair value will be included in income or in comprehensive income, depending on
whether the instrument qualifies for hedge accounting and the type of hedging
instrument involved. This new standard will become effective in 2001 and,
because Valley First Community Bank has not typically entered into derivative
contracts either to hedge existing risks or for speculative purposes, is not
expected to have a material effect on its financial statements.
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 Valley First Community Bank's financial statements.
D-11
<PAGE>
VALLEY FIRST COMMUNITY BANK
----------
FINANCIAL STATEMENTS
Periods ended December 31, 1999, 1998 and 1997
D-12
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors and Stockholders
Valley First Community Bank
We have audited the accompanying balance sheets of Valley First Community Bank
as of December 31, 1999 and 1998, and the related statements of operations,
changes in stockholders' equity and cash flows for the years ended December 31,
1999 and 1998 and the period from June 1, 1997 (date of inception) to December
31, 1997. 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 generally accepted auditing
standards. 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 Valley First Community Bank at
December 31, 1999 and 1998, and the results of its operations and its cash flows
for the year ended December 31, 1999 and 1998 and the period from June 1, 1997
(date of inception) to December 31, 1997, in conformity with generally accepted
accounting principles.
In accordance with a new accounting standard, as more fully described in Note A
to the financial statements, the Bank changed its method of accounting for
start-up and organization costs effective January 1, 1999.
/s/ Semple & Cooper, LLP
Phoenix, Arizona
January 31, 2000
D-13
<PAGE>
VALLEY FIRST COMMUNITY BANK
BALANCE SHEETS
December 31
-----------------------------
1999 1998
------------ ------------
ASSETS
Cash and due from banks $ 2,134,480 $ 3,297,920
Federal funds sold 3,600,000 6,350,000
------------ ------------
Cash and cash equivalents 5,734,480 9,647,920
Investment securities available for sale,
carried at market value--Note B 2,792,144 5,480,997
Portfolio loans--Note C:
Commercial 33,033,189 17,337,240
Real estate mortgage 2,700,360 2,814,940
Installment 599,982 726,612
------------ ------------
Total portfolio loans 36,333,531 20,878,792
Less allowance for loan losses (418,000) (209,000)
------------ ------------
Net portfolio loans 35,915,531 20,669,792
Premises and equipment--Note D 305,111 370,381
Accrued interest income 165,607 98,698
Other assets 765,336 415,676
------------ ------------
TOTAL ASSETS $ 45,678,209 $ 36,683,464
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 7,615,429 $ 11,343,502
Interest-bearing--Note G 33,707,001 21,101,392
------------ ------------
Total deposits 41,322,430 32,444,894
Accrued interest on deposits and other
liabilities 230,092 149,411
------------ ------------
Total liabilities 41,552,522 32,594,305
STOCKHOLDERS' EQUITY--Note K:
Common stock, par value $5 per share,
315,338 shares authorized,
issued and outstanding 1,576,690 1,576,690
Surplus 2,838,042 2,838,042
Retained-earnings deficit (289,986) (325,637)
Market value adjustment (net of tax effect)
for Investment securities available for sale
(accumulated other comprehensive income) 941 64
------------ ------------
Total stockholders' equity 4,125,687 4,089,159
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 45,678,209 $ 36,683,464
============ ============
See notes to financial statements
D-14
<PAGE>
VALLEY FIRST COMMUNITY BANK
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31 Period Ended
-------------------------- December 31
1999 1998 1997
----------- ----------- ---------
<S> <C> <C> <C>
Interest income:
Portfolio loans (including fees) $ 2,811,789 $ 1,500,953 $ 208,686
Loans held for resale 50,261 -- --
Taxable investment securities 135,126 103,607 13,241
Federal funds sold 162,653 280,941 97,814
----------- ----------- ---------
Total interest income 3,159,829 1,885,501 319,741
Interest expense:
Demand deposits 517,228 306,078 22,762
Savings deposits 2,421 527 66
Time deposits 640,020 341,812 49,221
----------- ----------- ---------
Total interest expense 1,159,669 648,417 72,049
----------- ----------- ---------
Net interest income 2,000,160 1,237,084 247,692
Provision for loan losses--Note C 284,288 127,000 82,000
----------- ----------- ---------
Net interest income after provision for loan losses 1,715,872 1,110,084 165,692
Noninterest income:
Service charges on deposit accounts 148,143 60,885 4,187
Other 95,798 57,753 14,286
----------- ----------- ---------
Total noninterest income 243,941 118,638 18,473
Noninterest expense:
Salaries and employee benefits 828,423 551,970 241,900
Occupancy 162,082 143,640 37,289
Equipment rent, depreciation and maintenance 108,445 98,129 40,762
Deposit insurance premiums 3,193 1,385 114
Other 622,518 557,369 234,966
----------- ----------- ---------
Total noninterest expense 1,724,661 1,352,493 555,031
----------- ----------- ---------
Income (loss) before federal income taxes and cumulative
effect of change in accounting principle 235,152 (123,771) (370,866)
Federal income taxes (benefit)--Note E 88,000 (43,000) (126,000)
----------- ----------- ---------
Net income (loss) before cumulative effect of change in
accounting principle 147,152 (80,771) (244,866)
Cumulative effect of change in accounting principle--Note A (111,501) -- --
----------- ----------- ---------
NET INCOME (LOSS) $ 35,651 $ (80,771) $(244,866)
=========== =========== =========
NET INCOME (LOSS) PER SHARE $ 0.11 $ (0.26) $ (0.78)
=========== =========== =========
</TABLE>
See notes to financial statements.
D-15
<PAGE>
VALLEY FIRST COMMUNITY BANK
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated
Retained- Comprehensive
Common Earnings Other
Stock Surplus Deficit Income Total
---------- ---------- --------- ------ -----------
<S> <C> <C> <C> <C> <C>
Balances at June 1, 1997, beginning of period $ -0- $ -0- $ -0- $-0- $ -0-
Issuance of 315,338 shares of common stock for
cash consideration of $14.00 per share in
conjunction with formation of Bank 1,576,690 2,838,042 4,414,732
Net loss for 1997 period (244,866) (244,866)
---------- ---------- --------- ---- -----------
BALANCES AT DECEMBER 31, 1997 1,576,690 2,838,042 (244,866) -0- 4,169,866
Components of comprehensive income (loss):
Net loss for 1998 (80,771) (80,771)
Market value adjustment (net of tax effect) for
investment securities available for sale 64 64
-----------
Total comprehensive loss for 1998 (80,707)
---------- ---------- --------- ---- -----------
BALANCES AT DECEMBER 31, 1998 1,576,690 2,838,042 (325,637) 64 4,089,159
Components of comprehensive income:
Net income for 1999 35,651 35,651
Market value adjustment (net of tax effect) for
investment securities available for sale 877 877
-----------
Total comprehensive income for 1999 36,528
---------- ---------- --------- ---- -----------
BALANCES AT DECEMBER 31, 1999 $1,576,690 $2,838,042 $(289,986) $941 $ 4,125,687
========== ========== ========= ==== ===========
</TABLE>
See notes to financial statements.
D-16
<PAGE>
VALLEY FIRST COMMUNITY BANK
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31 Period Ended
---------------------------- December 31
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) for the period $ 35,651 $ (80,771) $ (244,866)
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
Cumulative effect of change in accounting
principle 111,501
Provision for loan losses 284,288 127,000 82,000
Depreciation of premises and equipment 89,210 82,601 31,471
Net accretion of investment security discounts (9,424) (67,003)
Deferred income taxes 31,000 (43,000) (126,000)
Increase in accrued interest income and other assets (630,204) (15,305) (330,068)
Increase in accrued interest on deposits and other
liabilities 80,681 94,995 54,383
------------ ------------ ------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (7,297) 98,517 (533,080)
INVESTING ACTIVITIES
Proceeds from maturities of investment securities
available for sale 7,995,000 2,000,000
Purchases of investment securities available for sale (5,300,000) (5,413,898) (2,000,000)
Net increase in portfolio loans (15,454,739) (13,048,866) (7,829,925)
Purchases of premises and equipment (23,940) (34,564) (449,889)
------------ ------------ ------------
NET CASH USED BY INVESTING ACTIVITIES (12,783,679) (18,497,328) (8,279,814)
FINANCING ACTIVITIES
Net increase in demand deposits, NOW accounts
and savings accounts (94,336) 21,125,461 4,476,017
Net increase in certificates of deposit 8,971,872 2,716,799 4,126,616
Net proceeds from issuance of common stock 4,414,732
------------ ------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 8,877,536 23,842,260 13,017,365
------------ ------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3,913,440) 5,443,449 4,204,471
Cash and cash equivalents at beginning of period 9,647,920 4,204,471 -0-
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,734,480 $ 9,647,920 $ 4,204,471
============ ============ ============
</TABLE>
See notes to financial statements.
D-17
<PAGE>
VALLEY FIRST COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE A--SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS AND BASIS OF PRESENTATION: Valley First Community Bank (the
"Bank") is a full-service commercial bank located in Scottsdale, Arizona. The
Bank commenced operations in June 1997. The Bank is 51.8% owned by Sun Community
Bancorp Limited, a bank holding company headquartered in Phoenix, Arizona.
The Bank provides a full range of banking services to individuals, businesses
and other customers located in its community. A variety of deposit products are
offered, including checking, savings, money market, individual retirement
accounts and certificates of deposit. The principal market for the Bank's
financial services is the community in which it is located and the areas
immediately surrounding that community.
ESTIMATES: The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
CASH AND CASH EQUIVALENTS: Cash and cash equivalents include cash on hand,
amounts due from banks and federal funds sold. Generally, federal funds
transactions are entered into for a one-day period.
INVESTMENT SECURITIES: Investment securities "available for sale" (generally
most debt securities investments of the Bank) are carried at market value with
unrealized gains and losses reported as a separate component of stockholders'
equity, net of tax effect. All other investment securities are classified as
held for long-term investment (none at December 31, 1999 and 1998) and are
carried at amortized cost which approximates market value. Investments are
classified as available for sale at the date of purchase based on management's
analysis of liquidity and other factors. The adjusted cost of specific
securities sold is used to compute realized gains or losses. Premiums and
discounts are recognized in interest income using the interest method over the
period to maturity.
LOANS, CREDIT RISK AND ALLOWANCE FOR LOAN LOSSES: Portfolio loans are carried at
their principal balance based on management's intent and ability to hold such
loans for the foreseeable future until maturity or repayment.
Credit risk arises from making loans and loan commitments in the ordinary course
of business. Substantially all portfolio loans are made to borrowers in the
Bank's geographic area. Consistent with the Bank's emphasis on business lending,
there are concentrations of credit in loans secured by commercial real estate,
equipment and other business assets. The maximum potential credit risk to the
Bank, without regard to underlying collateral and guarantees, is the total of
loans and loan commitments outstanding. Management reduces the Bank's exposure
to losses from credit risk by requiring collateral and/or guarantees for loans
granted and by monitoring concentrations of credit, in addition to recording
provisions for loan losses and maintaining an allowance for loan losses.
The allowance for loan losses is maintained at a level believed adequate by
management to absorb estimated losses in the portfolio at the balance sheet
date. Management's determination of the adequacy of the allowance is based on
evaluation of the portfolio (including potential impairment of individual loans
D-18
<PAGE>
VALLEY FIRST COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS--CONTINUED
DECEMBER 31, 1999
NOTE A--SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
and concentrations of credit), past loss experience, current economic
conditions, volume, amount and composition of the loan portfolio, loan
commitments outstanding and other factors. The allowance is increased by
provisions charged to operations and reduced by net charge-offs.
INTEREST AND FEES ON LOANS: Interest income on loans is recognized based upon
the principal balance of loans outstanding. Fees from origination of loans
approximate related costs incurred.
The accrual of interest is generally discontinued when a loan becomes 90 days
past due as to interest. When interest accruals are discontinued, interest
previously accrued (but unpaid) is reversed. Management may elect to continue
the accrual of interest when the estimated net realizable value of collateral is
sufficient to cover the principal balance and accrued interest and the loan is
in process of collection.
PREMISES AND EQUIPMENT: Premises and equipment are stated on the basis of cost.
Depreciation is computed principally by the straight-line method based upon
estimated useful lives of the respective assets. Leasehold improvements are
generally depreciated over the respective lease term.
OTHER REAL ESTATE: Other real estate comprises properties acquired through a
foreclosure proceeding or acceptance of a deed in lieu of foreclosure (none at
December 31, 1999 or 1998). These properties held for sale are carried at the
lower of cost or estimated fair value at the date acquired, net of estimated
selling costs, and are periodically reviewed for subsequent impairment.
TRUST ASSETS AND RELATED INCOME: Customer property, other than funds on deposit,
held in a fiduciary or agency capacity by the Bank is not included in the
balance sheet because is not an asset of the Bank. Trust fee income is recorded
on the accrual method.
FEDERAL INCOME TAXES: Deferred income taxes are recognized for the tax
consequences of temporary differences by applying enacted tax rates applicable
to future years to differences between the financial statement carrying amounts
and the tax bases of existing assets and liabilities. The effect on deferred
income taxes of a change in tax laws or rates is recognized in income in the
period that includes the enactment date.
NET INCOME (LOSS) PER SHARE: Net income (loss) per share is based on the
weighted average number of common shares outstanding (315,338 shares).
COMPREHENSIVE INCOME: Comprehensive income is the sum of net income and certain
other items which are charged or credited to stockholders' equity. For the
periods presented, the Bank's only element of comprehensive income other than
net income was the net change in the market value adjustment for investment
securities available for sale. Accordingly, the elements and total of
comprehensive income are shown within the statement of changes in stockholders'
equity presented herein.
D-19
<PAGE>
VALLEY FIRST COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS--CONTINUED
DECEMBER 31, 1999
NOTE A--SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
COSTS OF START-UP ACTIVITIES: In 1998, the American Institute of CPAs issued
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities". It
requires start-up costs and organizational costs to be charged to expense when
incurred. The initial application of the statement requires a cumulative effect
adjustment for those companies that had previously capitalized start-up and
organization costs and became effective in 1999. In the circumstances of the
Bank, this new accounting standard applies to previously capitalized preopening
and other start-up costs which, net of amortization, approximated $170,000 at
December 31, 1998 and were classified as a component of other assets.
Implementation of this standard is reflected as a cumulative effect adjustment
(net of income tax effect) of approximately $112,000 in 1999.
NOTE B--INVESTMENT SECURITIES
Investment securities available for sale consisted of the following at December
31:
<TABLE>
<CAPTION>
1999 1998
--------------------------- ---------------------------
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
United States government
agency securities $ 2,790,576 $ 2,792,144 $ 5,480,901 $ 5,480,997
============ ============ ============ ============
</TABLE>
Gross realized gains and losses from sales and maturities of investment
securities were insignificant for each of the periods presented. Gross
unrealized gains (losses) of investment securities available for sale were as
follows at December 31:
1999 1998
--------------- ----------------
Gains Losses Gains Losses
------ ------ ------ ------
United States government
agency securities $1,568 $ -0- $1,100 $(1,000)
====== ===== ====== =======
Investment securities held at December 31, 1999 mature in one year or less.
NOTE C--LOANS
Transactions in the allowance for loan losses are summarized below:
1999 1998 1997
--------- -------- -------
Balance at beginning of period $ 209,000 $ 82,000 $ -0-
Provision charged to operations 284,288 127,000 82,000
Loans charged off (deduction) (75,288) -- --
Recoveries -- -- --
--------- -------- -------
Balance at December 31 $ 418,000 $209,000 $82,000
========= ======== =======
D-20
<PAGE>
VALLEY FIRST COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS--CONTINUED
DECEMBER 31, 1999
NOTE C--LOANS--CONTINUED
At December 31, 1999 and 1998, impaired loans (i.e., loans for which there is a
reasonable probability that borrowers would be unable to repay all principal and
interest due under the contractual terms of the loan documents) were not
material.
NOTE D--PREMISES AND EQUIPMENT
Major classes of premises and equipment consisted of the following at December
31:
1999 1998
--------- ---------
Leasehold improvements $ 116,090 $ 116,090
Equipment and furniture 392,303 368,363
--------- ---------
508,393 484,453
Less accumulated depreciation (203,282) (114,072)
--------- ---------
$ 305,111 $ 370,381
========= =========
The Bank rents office space under an operating lease. Rent expense under this
lease agreement approximated $138,000 and $126,000 for the periods ended
December 31, 1999 and 1998. Future minimum rental payments under operating
leases that have initial or remaining noncancelable lease terms in excess of one
year as of December 31, 1999 aggregate $1,051,000 due as follows: $132,000 each
in the years 2000-2001, $145,000 each in the years 2002, 2003 and 2004, and
$352,000 thereafter.
NOTE E--INCOME TAXES
Federal income taxes (benefit) consist of the following components:
1999 1998 1997
-------- --------- ----------
Current $ -- $ -- $ --
Deferred 31,000 (43,000) (126,000)
-------- --------- ----------
$ 31,000 $ (43,000) $ (126,000)
======== ========= ==========
The federal income tax expense in 1999 above is net of a $57,000 tax benefit
associated with the cumulative effect of the change in accounting principle.
Federal income taxes paid in 1999 approximated $30,000. No federal income taxes
were paid during 1998 and 1997.
D-21
<PAGE>
VALLEY FIRST COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS--CONTINUED
DECEMBER 31, 1999
NOTE E--INCOME TAXES--CONTINUED
Net deferred income tax assets consisted of the following:
December 31
-------------------------
1999 1998
--------- --------
Net operating loss carryforward $ 65,000 $ 95,000
Allowance for loan losses 117,000 71,000
Other, net (44,000) 3,000
--------- --------
$ 138,000 $169,000
========= ========
As of December 31, 1999, the Bank has a net operating loss carryforward for
federal income tax purposes of approximately $290,000 which is available to
offset future taxable income and expires at varying dates through 2019.
NOTE F--RELATED PARTIES TRANSACTIONS
In the ordinary course of business, the Bank makes loans to officers and
directors of the Bank including their immediate families and companies in which
they are principal owners. At December 31, 1999 and 1998, total loans to these
persons approximated $1,153,000 and $843,000, respectively. During 1999,
$694,000 of new loans were made to these persons and repayments totaled
$384,000. 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 Sun
Community Bancorp Limited. Amounts paid for such services aggregated $239,205,
$132,294 and $96,000 for the periods ended December 31, 1999, 1998 and 1997,
respectively.
NOTE G--DEPOSITS
The aggregate amount of time deposits of $100,000 or more approximated
$13,830,000 and $5,843,000 as of December 31, 1999 and 1998.
At December 31, 1999, the scheduled maturities of time deposits of $100,000 or
more were as follows (in $1,000s):
2000 $11,419
2001 2,411
-------
Total $13,830
=======
Interest paid approximates amounts charged to operations on an accrual basis for
the periods presented.
D-22
<PAGE>
VALLEY FIRST COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS--CONTINUED
DECEMBER 31, 1999
NOTE H--EMPLOYEE BENEFIT PLANS
Subject to eligibility requirements, the Bank's employees participate in a
multi-employer employee benefit plan. Amounts charged to expense by the Bank for
these defined contribution plans approximated $11,405 in 1999 and $9,344 in 1998
(none in 1997).
NOTE I--ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
Carrying values and estimated fair values of financial instruments at December
31 were as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
--------------------- ---------------------
Estimated Estimated
Carrying Fair Carrying Fair
Value Value Value Value
----- ----- ----- -----
<S> <C> <C> <C> <C>
Financial Assets:
Cash and cash equivalents $ 5,734 $ 5,734 $ 9,648 $ 9,648
Investment securities available for sale 2,792 2,792 5,481 5,481
Portfolio loans:
Fixed rate 8,257 8,357 4,626 4,565
Variable rate 28,077 27,975 16,253 16,253
------- ------- ------- -------
Total portfolio loans 36,334 36,332 20,879 20,818
Less allowance for loan losses (418) (418) (209) (209)
------- ------- ------- -------
Net portfolio loans 35,916 35,914 20,670 20,609
Financial Liabilities:
Deposits:
Noninterest-bearing deposits 7,615 7,615 11,344 11,344
Interest-bearing deposits:
Demand accounts 17,891 17,864 14,258 14,587
Time certificates of deposit less 1,986 1,952 1,000 1,021
Time certificates of deposit 13,830 13,842 5,843 5,935
------- ------- ------- -------
Total interest-bearing deposits 33,707 33,658 21,101 21,543
------- ------- ------- -------
Total deposits 41,322 41,273 32,445 32,887
</TABLE>
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-23
<PAGE>
VALLEY FIRST COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS--CONTINUED
DECEMBER 31, 1999
NOTE J--COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, various loan commitments are made to
accommodate the financial needs of Bank customers. Such loan commitments 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 ($221,000 and $85,000
outstanding at December 31, 1999 and 1998, respectively). Other loan commitments
outstanding consist of unused lines of credit and approved, but unfunded,
specific loan commitments ($7,838,000 and $6,828,000 at December 31, 1999 and
1998, respectively).
These loan commitments (stand-by letters of credit and unfunded loans) generally
expire within one year and are reviewed periodically for continuance or renewal.
All loan commitments have credit risk essentially the same as that involved in
routinely making loans to customers and are made subject to the Bank's normal
credit policies. In making these loan commitments, collateral and/or personal
guarantees of the borrowers are generally obtained based on management's credit
assessment. Such loan commitments are also included in management's evaluation
of the adequacy of the allowance for loan losses.
Deposits at the Bank are insured up to the maximum amount covered by FDIC
insurance.
NOTE K--CAPITAL REQUIREMENTS
The Bank is subject to certain capital requirements. Federal financial
institution regulatory agencies have established certain risk-based capital
guidelines for banks. Those guidelines require all banks to maintain certain
minimum ratios and related amounts based on "Tier 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.
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 of December 31, 1999, 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, 1999, that the Bank meets all capital
adequacy requirements to which it is subject.
D-24
<PAGE>
VALLEY FIRST COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS--CONTINUED
DECEMBER 31, 1999
NOTE K--CAPITAL REQUIREMENTS--CONTINUED
The Bank's various amounts of regulatory capital and related ratios as of
December 31 are summarized below (amounts in thousands):
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Total capital to total assets:
Actual amount $ 4,126 $ 4,089
Ratio 9.03% 11.15%
Minimum required amount (8%) => $ 1,827 => $ 2,934
Tier 1 capital to risk-weighted assets:
Actual amount $ 3,958 $ 3,705
Ratio 9.93% 15.76%
Minimum required amount (4%) => $ 1,595 => $ 940
Combined Tier 1 and Tier 2 capital to risk-weighted assets:
Actual amount $ 4,376 $ 3,914
Ratio 10.97% 16.65%
Minimum required amount (8%) => $ 3,190 => $ 1,880
Amount required to meet "Well-Capitalized" category (10%) $ 3,988 $ 2,351
</TABLE>
As a condition of charter approval, the Bank is required to maintain a ratio of
Tier 1 capital to total assets of not less than 8% and an allowance for loan
losses of not less than 1% of portfolio loans for the first three years of
operations.
D-25
<PAGE>
ANNEX E
FINANCIAL AND OTHER INFORMATION REGARDING
SUN COMMUNITY BANCORP LIMITED
The following items, incorporated herein by reference, accompany this Proxy
Statement/Prospectus as mailed to the shareholders of Valley First Community
Bank:
- Report on Form 10-Q for period ended March 31, 2000
- Annual report to shareholders for year ended December 31, 1999
- Annual report on Form 10-K for year ended December 31, 1999
- Proxy statement for Sun's Annual Meeting of Shareholders held on May
26, 2000
<PAGE>
ANNEX F
EXCERPTS OF ARIZONA REVISED STATUTES
(SECTIONS 10-1301 THROUGH 10-1331)
REGARDING DISSENTERS' RIGHTS
10-1301. DEFINITIONS
In this article, unless the context otherwise requires:
1. "Beneficial shareholder" means the person who is a beneficial owner of shares
held in a voting trust or by a nominee as the record shareholder.
2. "Corporation" means the issuer of the shares held by a dissenter before the
corporate action or the surviving or acquiring corporation by merger or share
exchange of that issuer.
3. "Dissenter" means a shareholder who is entitled to dissent from corporate
action under section 10-1302 and who exercises that right when and in the manner
required by article 2 of this chapter.
4. "Fair value" with respect to a dissenter's shares means the value of the
shares immediately before the effectuation of the corporate action to which the
dissenter objects, excluding any appreciation or depreciation in anticipation of
the corporate action unless exclusion is inequitable.
5. "Interest" means interest from the effective date of the corporate action
until the date of payment at the average rate currently paid by the corporation
on its principal bank loans or, if none, at a rate that is fair and equitable
under the circumstances.
6. "Record shareholder" means the person in whose name shares are registered in
the records of a corporation or the beneficial owner of shares to the extent of
the rights granted by a nominee certificate on file with a corporation.
7. "Shareholder" means the record shareholder or the beneficial shareholder.
10-1302. RIGHT TO DISSENT
A. A shareholder is entitled to dissent from and obtain payment of the fair
value of the shareholder's shares in the event of any of the following corporate
actions:
1. Consummation of a plan of merger to which the corporation is a party if
either:
(a) Shareholder approval is required for the merger by section 10-1103 or the
articles of incorporation and if the shareholder is entitled to vote on the
merger.
(b) The corporation is a subsidiary that is merged with its parent under section
10-1104.
2. Consummation of a plan of share exchange to which the corporation is a party
as the corporation whose shares will be acquired, if the shareholder is entitled
to vote on the plan.
<PAGE>
3. Consummation of a sale or exchange of all or substantially all of the
property of the corporation other than in the usual and regular course of
business, if the shareholder is entitled to vote on the sale or exchange,
including a sale in dissolution, but not including a sale pursuant to a court
order or a sale for cash pursuant to a plan by which all or substantially all of
the net proceeds of the sale will be distributed to the shareholders within one
year after the date of sale.
4. An amendment of the articles of incorporation that materially and adversely
affects rights in respect of a dissenter's shares because it either:
(a) Alters or abolishes a preferential right of the shares.
(b) Creates, alters or abolishes a right in respect of redemption, including a
provision respecting a sinking fund for the redemption or repurchase, of the
shares.
(c) Alters or abolishes a preemptive right of the holder of the shares to
acquire shares or other securities.
(d) Excludes or limits the right of the shares to vote on any matter or to
cumulate votes other than a limitation by dilution through issuance of shares or
other securities with similar voting rights.
(e) Reduces the number of shares owned by the shareholder to a fraction of a
share if the fractional share so created is to be acquired for cash under
section 10-604.
5. Any corporate action taken pursuant to a shareholder vote to the extent the
articles of incorporation, the bylaws or a resolution of the board of directors
provides that voting or nonvoting shareholders are entitled to dissent and
obtain payment for their shares.
B. A shareholder entitled to dissent and obtain payment for his shares under
this chapter may not challenge the corporate action creating the shareholder's
entitlement unless the action is unlawful or fraudulent with respect to the
shareholder or the corporation.
C. This section does not apply to the holders of shares of any class or series
if the shares of the class or series are redeemable securities issued by a
registered investment company as defined pursuant to the investment company act
of 1940 (15 United States Code section 80a-1 through 80a-64).
D. Unless the articles of incorporation of the corporation provide otherwise,
this section does not apply to the holders of shares of a class or series if the
shares of the class or series were registered on a national securities exchange,
were listed on the national market systems of the national association of
securities dealers automated quotation system or were held of record by at least
two thousand shareholders on the date fixed to determine the shareholders
entitled to vote on the proposed corporate action.
10-1303. DISSENT BY NOMINEES AND BENEFICIAL OWNERS
A. A record shareholder may assert dissenters' rights as to fewer than all of
the shares registered in the record shareholder's name only if the record
shareholder dissents with respect to all shares beneficially owned by any one
<PAGE>
person and notifies the corporation in writing of the name and address of each
person on whose behalf the record shareholder asserts dissenters' rights. The
rights of a partial dissenter under this subsection are determined as if the
shares as to which the record shareholder dissents and the record shareholder's
other shares were registered in the names of different shareholders.
B. A beneficial shareholder may assert dissenters' rights as to shares held on
the beneficial shareholder's behalf only if both:
1. The beneficial shareholder submits to the corporation the record
shareholder's written consent to the dissent not later than the time the
beneficial shareholder asserts dissenters' rights.
2. The beneficial shareholder does so with respect to all shares of which the
beneficial shareholder is the beneficial shareholder or over which the
beneficial shareholder has power to direct the vote.
10-1320. NOTICE OF DISSENTERS' RIGHTS
A. If proposed corporate action creating dissenters' rights under section
10-1302 is submitted to a vote at a shareholders' meeting, the meeting notice
shall state that shareholders are or may be entitled to assert dissenters'
rights under this article and shall be accompanied by a copy of this article.
B. If corporate action creating dissenters' rights under section 10-1302 is
taken without a vote of shareholders, the corporation shall notify in writing
all shareholders entitled to assert dissenters' rights that the action was taken
and shall send them the dissenters' notice described in section 10-1322.
10-1321. NOTICE OF INTENT TO DEMAND PAYMENT
A. If proposed corporate action creating dissenters' rights under section
10-1302 is submitted to a vote at a shareholders' meeting, a shareholder who
wishes to assert dissenters' rights shall both:
1. Deliver to the corporation before the vote is taken written notice of the
shareholder's intent to demand payment for the shareholder's shares if the
proposed action is effectuated.
2. Not vote the shares in favor of the proposed action.
B. A shareholder who does not satisfy the requirements of subsection A of this
section is not entitled to payment for the shares under this article.
10-1322. DISSENTERS' NOTICE
A. If proposed corporate action creating dissenters' rights under section
10-1302 is authorized at a shareholders' meeting, the corporation shall deliver
a written dissenters' notice to all shareholders who satisfied the requirements
of section 10-1321.
B. The dissenters' notice shall be sent no later than ten days after the
corporate action is taken and shall:
<PAGE>
1. State where the payment demand must be sent and where and when certificates
for certificated shares shall be deposited.
2. Inform holders of uncertificated shares to what extent transfer of the shares
will be restricted after the payment demand is received.
3. Supply a form for demanding payment that includes the date of the first
announcement to news media or to shareholders of the terms of the proposed
corporate action and that requires that the person asserting dissenters' rights
certify whether or not the person acquired beneficial ownership of the shares
before that date.
4. Set a date by which the corporation must receive the payment demand, which
date shall be at least thirty but not more than sixty days after the date the
notice provided by subsection A of this section is delivered.
5. Be accompanied by a copy of this article.
10-1323. DUTY TO DEMAND PAYMENT
A. A shareholder sent a dissenters' notice described in section 10-1322 shall
demand payment, certify whether the shareholder acquired beneficial ownership of
the shares before the date required to be set forth in the dissenters' notice
pursuant to section 10-1322, subsection B, paragraph 3 and deposit the
shareholder's certificates in accordance with the terms of the notice.
B. A shareholder who demands payment and deposits the shareholder's certificates
under subsection A of this section retains all other rights of a shareholder
until these rights are canceled or modified by the taking of the proposed
corporate action.
C. A shareholder who does not demand payment or does not deposit the
shareholder's certificates if required, each by the date set in the dissenters'
notice, is not entitled to payment for the shareholder's shares under this
article.
10-1324. SHARE RESTRICTIONS
A. The corporation may restrict the transfer of uncertificated shares from the
date the demand for their payment is received until the proposed corporate
action is taken or the restrictions are released under section 10-1326.
B. The person for whom dissenters' rights are asserted as to uncertificated
shares retains all other rights of a shareholder until these rights are canceled
or modified by the taking of the proposed corporate action.
10-1325. PAYMENT
A. Except as provided in section 10-1327, as soon as the proposed corporate
action is taken, or if such action is taken without a shareholder vote, on
receipt of a payment demand, the corporation shall pay each dissenter who
complied with section 10-1323 the amount the corporation estimates to be the
fair value of the dissenter's shares plus accrued interest.
<PAGE>
B. The payment shall be accompanied by all of the following:
1. The corporation's balance sheet as of the end of a fiscal year ending not
more than sixteen months before the date of payment, an income statement for
that year, a statement of changes in shareholders' equity for that year and the
latest available interim financial statements, if any.
2. A statement of the corporation's estimate of the fair value of the shares.
3. An explanation of how the interest was calculated.
4. A statement of the dissenter's right to demand payment under section 10-1328.
5. A copy of this article.
10-1326. FAILURE TO TAKE ACTION
A. If the corporation does not take the proposed action within sixty days after
the date set for demanding payment and depositing share certificates, the
corporation shall return the deposited certificates and release the transfer
restrictions imposed on uncertificated shares.
B. If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it shall send a new
dissenters' notice under section 10-1322 and shall repeat the payment demand
procedure.
10-1327. AFTER-ACQUIRED SHARES
A. A corporation may elect to withhold payment required by section 10-1325 from
a dissenter unless the dissenter was the beneficial owner of the shares before
the date set forth in the dissenters' notice as the date of the first
announcement to news media or to shareholders of the terms of the proposed
corporate action.
B. To the extent the corporation elects to withhold payment under subsection A
of this section, after taking the proposed corporate action, it shall estimate
the fair value of the shares plus accrued interest and shall pay this amount to
each dissenter who agrees to accept it in full satisfaction of his demand. The
corporation shall send with its offer a statement of its estimate of the fair
value of the shares, an explanation of how the interest was calculated and a
statement of the dissenters' right to demand payment under section 10-1328.
10-1328. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER
A. A dissenter may notify the corporation in writing of the dissenter's own
estimate of the fair value of the dissenter's shares and amount of interest due
and either demand payment of the dissenter's estimate, less any payment under
section 10- 1325, or reject the corporation's offer under section 10-1327 and
demand payment of the fair value of the dissenter's shares and interest due, if
either:
1. The dissenter believes that the amount paid under section 10-1325 or offered
under section 10-1327 is less than the fair value of the dissenter's shares or
that the interest due is incorrectly calculated.
<PAGE>
2. The corporation fails to make payment under section 10-1325 within sixty days
after the date set for demanding payment.
3. The corporation, having failed to take the proposed action, does not return
the deposited certificates or does not release the transfer restrictions imposed
on uncertificated shares within sixty days after the date set for demanding
payment.
B. A dissenter waives the right to demand payment under this section unless the
dissenter notifies the corporation of the dissenter's demand in writing under
subsection A of this section within thirty days after the corporation made or
offered payment for the dissenter's shares.
10-1330. COURT ACTION
A. If a demand for payment under section 10-1328 remains unsettled, the
corporation shall commence a proceeding within sixty days after receiving the
payment demand and shall petition the court to determine the fair value of the
shares and accrued interest. If the corporation does not commence the proceeding
within the sixty day period, it shall pay each dissenter whose demand remains
unsettled the amount demanded.
B. The corporation shall commence the proceeding in the court in the county
where a corporation's principal office or, if none in this state, its known
place of business is located. If the corporation is a foreign corporation
without a known place of business in this state, it shall commence the
proceeding in the county in this state where the known place of business of the
domestic corporation was located.
C. The corporation shall make all dissenters, whether or not residents of this
state, whose demands remain unsettled parties to the proceeding as in an action
against their shares, and all parties shall be served with a copy of the
petition. Nonresidents may be served by certified mail or by publication as
provided by law or by the Arizona rules of civil procedure.
D. The jurisdiction of the court in which the proceeding is commenced under
subsection B of this section is plenary and exclusive. There is no right to
trial by jury in any proceeding brought under this section. The court may
appoint a master to have the powers and authorities as are conferred on masters
by law, by the Arizona rules of civil procedure or by the order of appointment.
The master's report is subject to exceptions to be heard before the court, both
on the law and the facts. The dissenters are entitled to the same discovery
rights as parties in other civil proceedings.
E. Each dissenter made a party to the proceeding is entitled to judgment either:
1. For the amount, if any, by which the court finds the fair value of his shares
plus interest exceeds the amount paid by the corporation.
2. For the fair value plus accrued interest of the dissenter's after-acquired
shares for which the corporation elected to withhold payment under section
10-1327.
<PAGE>
10-1331. COURT COSTS AND ATTORNEY FEES
A. The court in an appraisal proceeding commenced under section 10-1330 shall
determine all costs of the proceeding, including the reasonable compensation and
expenses of any master appointed by the court. The court shall assess the costs
against the corporation, except that the court shall assess costs against all or
some of the dissenters to the extent the court finds that the fair value does
not materially exceed the amount offered by the corporation pursuant to sections
10-1325 and 10-1327 or that the dissenters acted arbitrarily, vexatiously or not
in good faith in demanding payment under section 10-1328.
B. The court may also assess the fees and expenses of attorneys and experts for
the respective parties in amounts the court finds equitable either:
1. Against the corporation and in favor of any or all dissenters if the court
finds that the corporation did not substantially comply with the requirements of
article 2 of this chapter.
2. Against the dissenter and in favor of the corporation if the court finds that
the fair value does not materially exceed the amount offered by the corporation
pursuant to sections 10-1325 and 10-1327.
3. Against either the corporation or a dissenter in favor of any other party if
the court finds that the party against whom the fees and expenses are assessed
acted arbitrarily, vexatiously or not in good faith with respect to the rights
provided by this chapter.
C. If the court finds that the services of an attorney for any dissenter were of
substantial benefit to other dissenters similarly situated and that the fees for
those services should not be assessed against the corporation, the court may
award to these attorneys reasonable fees to be paid out of the amounts awarded
the dissenters who were benefitted.
<PAGE>
PART II
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Sections 10-850 - 10-858 of the Arizona Revised Statutes ("A.R.S."),
grant the Registrant broad powers to indemnify any person in connection with
legal proceedings brought against him by reason of his present or past status as
an officer or director of the Registrant, provided that the person acted in good
faith and in a manner he reasonably believed to be in (when acting in an
official capacity) or not opposed to (when acting in all other circumstances)
the best interests of the Registrant, and with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
A.R.S. also gives the Registrant powers to indemnify any such person against
reasonable expenses in connection with any action by or in the right of the
Registrant, provided the person acted in good faith and in a manner he
reasonably believed to be in (when acting in an official capacity) or not
opposed to (when acting in all other circumstances) the best interests of the
Registrant, except that no indemnification may be made if such person is
adjudged to be liable to the Registrant, or in connection with any proceeding
charging improper personal benefit to the director whether or not involving
action in the director's official capacity, in which the director was held
liable on the basis that the personal benefit was improperly received by the
director. In addition, to the extent that any such person is successful in the
defense of any such legal proceeding, the Registrant is required by the A.R.S.
to indemnify him against expenses, including attorneys' fees, that are actually
and reasonably incurred by him in connection therewith.
The Registrant's Articles of Incorporation contain provisions entitling
directors and executive officers of the Registrant to indemnification against
certain liabilities and expenses to the full extent permitted by Arizona law.
Under an insurance policy maintained by the Registrant, the directors
and officers of the Registrant are insured within the limits and subject to the
limitations of the policy, against certain expenses in connection with the
defense of certain claims, actions, suits or proceedings, and certain
liabilities which might be imposed as a result of such claims, actions, suits or
proceedings, which may be brought against them by reason of being or having been
such directors and officers.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
Reference is made to the Exhibit Index at Page II-7 of the
Registration Statement.
(b) Financial Statement Schedules included in the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1999 are
incorporated herein by reference.
All other schedules are omitted because they are not applicable or the
required information is shown in the consolidated financial statements
or notes thereto that are incorporated herein by reference.
ITEM 22. UNDERTAKINGS.
(A) The undersigned Registrant hereby undertakes:
II-1
<PAGE>
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933 (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising
after the effective date of this registration statement
(or) the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a
fundamental change in the information set forth in this
registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered
(if the total dollar value of securities offered would
not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum
offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule
424(b) under the Securities Act, if, in the aggregate,
the changes in volume and price represent no more than a
20% change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in
the effective registration statement; and
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in this
registration statement or any material change to such
information in this Registration Statement; provided,
however, that the undertakings set forth in paragraphs
(1)(i) and (ii) above do not apply if the information
required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed
by the registrant pursuant to Section 13 or Section
15(d) of the Securities Exchange Act of 1934 (the
"Exchange Act") that are incorporated by reference in
this registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
(B) The undersigned Registrant hereby undertakes, that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the
Exchange Act (and, where applicable, each filing of an employee
benefit plan's annual report pursuant to Section 15(d) of the Exchange
Act) that is incorporated by reference in the Registration Statement
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
(C) The undersigned Registrant hereby undertakes:
(1) That, prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this
Registration Statement, by any person or party who is deemed to
be an underwriter within the meaning of Rule 145(c), the issuer
undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters,
in addition to the information called for by the other items of
the applicable form.
II-2
<PAGE>
(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
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Phoenix, Arizona on May
__, 2000.
SUN COMMUNITY BANCORP LIMITED
By: /s/ JOSEPH D. REID
------------------------------------
JOSEPH D. REID
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Joseph D. Reid, John S. Lewis, and Lee W.
Hendrickson and each of them (with full power to each of them to act alone), his
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all amendments (including post-effective amendments)
to this Registration Statement, including any Registration Statement for the
same offering that is to be effective upon filing pursuant to Rule 462(b) under
the Securities Act of 1933, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on May 26, 2000.
<PAGE>
Signature Title
- --------- -----
/s/ Joseph D. Reid Chairman of the Board and
- --------------------------- Chief Executive Officer,
Joseph D. Reid Director (Principal Executive
Officer)
/s/ Lee W. Hendrickson Executive Vice President and
- --------------------------- Chief Financial Officer (Principal
Lee W. Hendrickson Financial and Accounting Officer)
/s/ John S. Lewis President, Director
- ---------------------------
John S. Lewis
/s/ Richard N. Flynn Secretary, Director
- ---------------------------
Richard N. Flynn
/s/ Michael L. Kasten Vice Chairman, Director
- ---------------------------
Michael L. Kasten
/s/ Michael J. Devine Director
- ---------------------------
Michael J. Devine
/s/ Michael F. Hannley Director
- ---------------------------
Michael F. Hannley
Director
- ---------------------------
Richard F. Imwalle
/s/ Gary W. Hickel Director
- ---------------------------
Gary W. Hickel
/s/ Humberto S. Lopez Director
- ---------------------------
Humberto S. Lopez
/s/ Kathryn L. Munro Director
- ---------------------------
Kathryn L. Munro
Director
- ---------------------------
Ronald K. Sable
II-6
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
2.1 Plan of Share Exchange (included in the Proxy
Statement/Prospectus as Annex A).
5 Opinion of Snell & Wilmer, L.L.P. as to the validity of the
shares. (to be filed by amendment)
8 Tax Opinion of Snell & Wilmer, L.L.P. (included in the Proxy
Statement/Prospectus as Annex C).
23.1a Consent of BDO Seidman, LLP.
23.1b Consent of Semple & Cooper, LLP.
23.2 Consent of Snell & Wilmer, L.L.P. (included in Exhibit 5).
23.3 Consent of Snell & Wilmer, L.L.P. (included in Exhibit 8).
23.4 Consent of JMP Financial, Inc. (financial advisor).
24 Power of Attorney (included on the signature page of the
Registration Statement).*
99 Form of proxy for the Special Meeting of Shareholders of
Valley First Community Bank.*
II-7
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Sun Community Bancorp Limited
Phoenix, Arizona
We hereby consent to the use in the Prospectus constituting a part of the
Registration Statement on Form S-4 of Sun Community Bancorp Limited of our
report dated January 31, 2000 relating to the consolidated financial statements
of Sun Community Bancorp Limited which is contained in that Prospectus. We also
consent to the reference to us under the caption "Experts" in the Prospectus.
BDO SEIDMAN, LLP
Grand Rapids, Michigan
May 26, 2000
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Valley First Community Bank
Scottsdale, Arizona
We hereby consent to the use in the Prospectus constituting a part of the
Registration Statement on Form S-4 of Sun Community Bancorp Limited of our
report dated January 29, 1999 relating to the financial statements of Valley
First Community Bank which is contained in that Prospectus. We also consent to
the reference to us under the caption "Experts" in the Prospectus.
SEMPLE & COOPER, LLP
Phoenix, Arizona
May 26, 2000
May 26, 2000
Sun Community Bancorp Limited
2777 East Camelback Road
Suite 375
Phoenix, Arizona 85016
RE: VALLEY FIRST COMMUNITY BANK
Ladies and Gentlemen:
JMP Financial, Inc. hereby consents to your including a copy of the
fairness opinion in the proxy statement/prospectus with regards to Valley First
Community Bank and to the reference to this firm in the proxy
statement/prospectus as financial advisor to Valley First Community Bank and
under the caption "Opinion of Financial Adviser".
Very truly yours,
/s/ John Paiffy
----------------------------------------
John Paiffy
President
VALLEY FIRST COMMUNITY BANK
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
To Be Held On June __, 2000
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS.
The undersigned shareholder of VALLEY FIRST COMMUNITY BANK hereby
appoints GARY W. HICKEL and MICHAEL J. DEVINE, or either of them, to represent
the undersigned at the annual meeting of the shareholders of VALLEY FIRST
COMMUNITY BANK to be held on JUNE __, 2000, at 9:00 a.m. (local time), at Valley
First Community Bank, 7501 East McCormick Parkway, North Court, Suite 105N,
Scottsdale, Arizona 85258-3495, and at any adjournments or postponements
thereof, and to vote the number of shares the undersigned would be entitled to
vote if personally present at the meeting on the matters listed below.
When properly executed, this proxy will be voted in the manner directed
by the undersigned shareholder and in the discretion of the proxy holder as to
any other matter that may come before the special meeting of shareholders and at
any adjournment or postponement thereof. If no direction is given, this proxy
will be voted "FOR" the proposal to approve and adopt the Plan of Share Exchange
and in the discretion of the proxy holder as to any other matter that may
properly come before the meeting or any adjournments or postponements thereof.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, YOU ARE URGED TO
COMPLETE, DATE, AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED POSTAGE-PAID
ENVELOPE SO THAT YOUR SHARES MAY BE REPRESENTED AT THE MEETING.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE PLAN
OF SHARE EXCHANGE.
1. Proposal to approve and adopt the Plan of Share Exchange, dated as
of May 31, 2000, between and among SUN COMMUNITY BANCORP LIMITED and the
shareholders of VALLEY FIRST COMMUNITY BANK to exchange the shares of common
stock of VALLEY FIRST COMMUNITY BANK not now held by SUN COMMUNITY BANCORP
LIMITED for shares of common stock of SUN COMMUNITY BANCORP LIMITED according to
the terms of the Plan of Share Exchange. After the share exchange, VALLEY FIRST
COMMUNITY BANK will be a wholly owned subsidiary of SUN COMMUNITY BANCORP
LIMITED.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
<PAGE>
2. Election of Directors:
Number of votes entitled to cast for directors (equal number of shares
multiplied by 12):________
CHOOSE A OR B
A ________ Vote for twelve of the nominees listed, in such manner in
accordance with cumulative voting as will assure the
election of twelve of the listed nominees, with the number
of votes to be allocated among twelve nominees to be
determined by the proxy holders.
B ________ Distribute my votes among the nominees for director only as
indicated. (Print a number in the blank opposite the name of
each nominee for whom you wish the proxy to vote in order to
specify the number of votes to be cast for each nominee; the
sum of all votes must be equal to the number of shares
multiplied by twelve. You are entitled to vote for twelve
(12) nominees.)
________ John S. Lewis ________ W. Craig Berger
________ Donald J. Mahoney ________ Michael J. Devine
________ Patricia B. Ternes ________ Randy W. Fitzpatrick
________ Marilyn D. Cummings ________ Patrick J. Harris
________ Gary W. Hickel ________ Michael L. Kasten
________ Gordon D. Murphy ________ Harry Rosenzweig
3. In their discretion, the Proxies are authorized to vote upon such
other business as may properly come before the Meeting.
THIS PROXY WILL BE VOTED AS DIRECTED, OR IF NO DIRECTION IS INDICATED, IT SHALL
BE VOTED FOR ITEM A FOR PROPOSAL 2.
Dated: JUNE ________, 2000
------------------------------------
Number of Shares of Common Stock
------------------------------------
Signature (and title if applicable)
------------------------------------
Signature (if held jointly)
Please sign your name exactly as it
appears on your stock certificate.
When shares are held by joint
tenants, both should sign. When
signing as attorney, executor,
administrator, trustee or guardian,
please give full title as such. If a
corporation, please sign in full
corporate name by the President or
other authorized officer. If a
partnership, please sign in
partnership name by authorized
person.
