As filed with the Securities and Exchange Commission on December 2, 1999
Registration No. 333-____________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
CAPITOL BANCORP LTD.
(Exact name of registrant as specified in its charter)
MICHIGAN 6711 38-2761672
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
200 Washington Square North, Fourth Floor
Lansing, Michigan 48933
(517) 487-6555
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Joseph D. Reid
200 Washington Square North, Fourth Floor
Lansing, Michigan 48933
(517) 487-6555
(Name and address, including zip code, and telephone number,
including area code, of agent for service)
Copy to:
John Sharp
Strobl Cunningham Caretti & Sharp, P.C.
300 E. Long Lake Road, Suite 200
Bloomfield Hills, MI 48304
(248) 540-2300
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this Registration
Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box.[ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering.[ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.[ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==========================================================================================================
Title Of Each Proposed Maximum Proposed Maximum
Class Of Securities Amount To Be Offering Price Aggregate Offering Amount Of
Being Registered Registered(1) Per Share(2) Price(2) Registration Fee
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common stock (no par value) 100,947 $11.563 $1,167,250 $325
==========================================================================================================
</TABLE>
(1) Based on 98,907 shares of common stock, $6.50 par value, of Brighton
Commerce Bank, which is the maximum number of shares of Brighton common
stock (excluding shares held by Capitol) that may be outstanding
immediately prior to the consummation of the exchange transaction, assuming
exercise of all outstanding options to purchase shares of Brighton common
stock. Based also on an assumed exchange ratio of shares of Capitol common
stock for each share of Brighton 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
$11.563 per share of Capitol common stock (the average of the high and low
price per share of common stock of Capitol as reported on the Nasdaq
National Market on November 29, 1999), and the maximum number of shares of
Capitol common stock that may be issued in the consummation of the exchange
transaction contemplated.
================================================================================
<PAGE>
PROXY STATEMENT/PROSPECTUS
PROPOSED PLAN OF SHARE EXCHANGE
The Board of Directors of Brighton Commerce Bank has approved a Plan of
Share Exchange that contemplates the exchange of the shares of Brighton common
stock held by all shareholders other than Capitol Bancorp Ltd. Capitol currently
holds 59% of Brighton's common stock. As a result of the exchange, Brighton will
become a wholly-owned subsidiary of Capitol.
If the exchange is approved, each share of Brighton common stock will be
converted into the right to receive Capitol common stock according to an
exchange ratio. The exchange ratio is calculated by dividing one and one-half
times the adjusted pro forma net book value per share of Brighton common stock
as of January 8, 2000, by the average price at closing of Capitol common stock
on each trading day in the 30 day calendar period ending on January 8, 2000. If
the exchange ratio was calculated based on the information currently available,
each shareholder of Brighton would receive in the exchange 1.020623 shares of
Capitol common stock for each share of Brighton common stock. This is based on
an assumed average trading price of Capitol common stock of $12.997 per share.
The actual exchange ratio will be based on information as of January 8, 2000,
and will probably be different.
Capitol estimates that Capitol will issue approximately 100,947 shares of
Capitol common stock to Brighton shareholders in the exchange. Those shares will
represent less than 1.5 percent of the outstanding Capitol common stock after
the exchange. Capitol's common stock trades on the Nasdaq National Market System
under the symbol "CBCL."
Brighton's Board of Directors has scheduled a special meeting of Brighton
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 special 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 BRIGHTON
COMMON STOCK FOR CAPITOL'S COMMON STOCK.
- --------------------------------------------------------------------------------
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED
THE SECURITIES TO BE ISSUED UNDER THIS PROXY STATEMENT/PROSPECTUS OR DETERMINED
IF THIS PROXY STATEMENT/PROSPECTUS IS ACCURATE OR ADEQUATE. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
This proxy statement/prospectus is dated ______________, and is first being
mailed to shareholders of Brighton on or about _________________.
<PAGE>
[BRIGHTON LOGO]
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held On January 26, 2000
To the Shareholders of Brighton Commerce Bank:
A special meeting of the shareholders of Brighton Commerce Bank will be
held at Brighton Commerce Bank at 8700 North Second Street, Brighton, Michigan
48116 on January 26, 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 January 31, 2000, between Capitol Bancorp Ltd. and
Brighton Commerce Bank under which all shareholders of Brighton (other than
Capitol) will exchange their stock in Brighton for stock in Capitol, according
to an exchange ratio, as described in the attached proxy statement/prospectus. A
copy of the Plan of Share Exchange is attached to the proxy statement/prospectus
as Annex A.
2. To act on any other matters that may properly be brought before the
special shareholders meeting or any adjournment or postponement.
Only shareholders of record at the close of business on December 31, 1999
are entitled to notice of, and to vote at, the meeting or any adjournment or
postponement.
You are cordially invited to attend the special meeting of Brighton'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 special 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 Nickerson
President and Chief Executive Officer
<PAGE>
TABLE OF CONTENTS
SUMMARY.................................................................... 7
Reasons for the Exchange. ............................................ 7
The Special Shareholders Meeting...................................... 7
Recommendation to Shareholders........................................ 7
Votes Required........................................................ 7
Record Date; Voting Power............................................. 8
What Shareholders will Receive in the Exchange........................ 8
Accounting Treatment.................................................. 9
Tax Consequences of the Exchange to Brighton Shareholders............. 9
Dissenters' Rights.................................................... 9
Opinion of Financial Advisor.......................................... 9
The Plan of Share Exchange............................................ 9
Termination of the Exchange........................................... 9
Your Rights as a Shareholder Will Change.............................. 9
SELECTED CONSOLIDATED FINANCIAL DATA....................................... 10
RISK FACTORS............................................................... 12
RECENT DEVELOPMENTS........................................................ 17
CAPITALIZATION............................................................. 18
DIVIDENDS AND MARKET FOR COMMON STOCK...................................... 19
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS................. 20
INFORMATION ABOUT CAPITOL.................................................. 21
INFORMATION ABOUT BRIGHTON................................................. 21
THE EXCHANGE............................................................... 23
General............................................................... 23
Background of the Exchange............................................ 23
Brighton's Reasons for the Exchange................................... 24
Capitol's Reasons for the Exchange.................................... 24
Terms of Exchange..................................................... 24
Brighton Board Recommendation......................................... 25
Accounting Treatment.................................................. 25
Pro Forma Data........................................................ 25
Material Federal Income Tax Consequences.............................. 25
Regulatory Matters.................................................... 27
Dissenters' Rights.................................................... 27
Federal Securities Laws Consequences; Stock Transfer Restrictions..... 27
OPINION OF FINANCIAL ADVISOR............................................... 28
2
<PAGE>
THE CLOSING................................................................ 30
Effective Time........................................................ 30
Shares Held by Capitol................................................ 30
Procedures for Surrender of Certificates; Fractional Shares........... 30
Fees and Expenses..................................................... 31
Nasdaq Stock Market Listing........................................... 31
Amendment and Termination............................................. 31
THE SPECIAL SHAREHOLDERS MEETING........................................... 32
Date, Time and Place.................................................. 32
Matters to be Considered at the Special Shareholders Meeting.......... 32
Record Date; Stock Entitled to Vote; Quorum........................... 32
Votes Required........................................................ 32
Share Ownership of Management......................................... 32
Voting of Proxies..................................................... 33
General Information................................................... 33
Solicitation of Proxies; Expenses..................................... 33
COMPARISON OF SHAREHOLDER RIGHTS........................................... 34
DESCRIPTION OF CAPITAL STOCK OF CAPITOL.................................... 36
Rights of Common Stock................................................ 36
Shares Available for Issuance......................................... 36
Capitol's Preferred Securities........................................ 37
Anti-Takeover Provisions.............................................. 37
WHERE YOU CAN FIND MORE INFORMATION........................................ 39
LEGAL MATTERS.............................................................. 40
EXPERTS.................................................................... 40
LIST OF ANNEXES
ANNEX A Plan of Share Exchange........................................ A-1
ANNEX B Opinion of Financial Advisor.................................. B-1
ANNEX C Tax Opinion of Strobl Cunningham Caretti & Sharp, P.C......... C-1
ANNEX D Financial Information Regarding Brighton Commerce Bank........ D-1
ANNEX E Financial and Other Information Regarding Capitol Bancorp Ltd. E-1
3
<PAGE>
ANSWERS TO
FREQUENTLY ASKED QUESTIONS
Q: Why am I receiving these materials?
A: Brighton's Board of Directors has approved the exchange of the 41% of
Brighton's common stock not owned by Capitol for shares of common stock of
Capitol. The exchange requires the approval of Brighton's shareholders.
Brighton is sending you these materials to help you decide whether to
approve the exchange.
Q: What will I receive in the exchange?
A: You will receive shares of Capitol common stock, which are publicly traded
on the National Market System of the Nasdaq Stock Market, Inc. under the
symbol "CBCL." If the exchange is approved, an exchange ratio will be
calculated based on the actual results of operations of Brighton and actual
market prices of Capitol common stock as of January 8, 2000, as described
in the Plan of Share Exchange. If the exchange ratio were calculated based
on currently available information, you would receive 1.020623 shares of
Capitol common stock for each share of Brighton common stock you own, based
on an assumed average trading price of Capitol common stock of $12.997 per
share. The actual exchange ratio will be different because it will be based
on information as of January 8, 2000.
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 special 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 special
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 Brighton prior to the
special 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 special shareholders meeting, no later than January 19, 2000; or
* by attending the special 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
Brighton common stock (other than Capitol) must approve the Plan of Share
Exchange. If you do not vote your Brighton shares, the effect will be a
vote against the Plan of Share Exchange.
4
<PAGE>
Q: Should I send in my stock certificates at this time?
A: No. After the exchange is approved, Capitol or Capitol's stock transfer
agent will send Brighton shareholders written instructions for exchanging
their stock certificates.
Q: When do you expect to complete the exchange?
A: As quickly as possible after January 31, 2000. Approval by Brighton's
shareholders at the special shareholders meeting must be obtained first. It
is anticipated the exchange will be completed by February 29, 2000.
Q: Where can I find more information about Capitol?
A: This document incorporates important business and financial information
about Capitol from documents filed with the SEC that have been delivered
with this document. Certain exhibits are not included in those documents;
however, Capitol will provide you with copies of those exhibits, without
charge, upon written or oral request to:
Capitol Bancorp Ltd.
200 Washington Square North, Fourth Floor
Lansing, Michigan 48933
Attention: General Counsel
Telephone Number: (517) 487-6555
IN ORDER TO RECEIVE TIMELY DELIVERY OF THE DOCUMENTS IN ADVANCE OF THE
SPECIAL STOCKHOLDERS MEETING, YOU SHOULD MAKE YOUR REQUEST NO LATER THAN JANUARY
19, 2000.
For more information on the matters incorporated by reference in this
document, see "Where You Can Find More Information".
5
<PAGE>
WHO CAN ANSWER YOUR QUESTIONS?
If you have additional questions, you should contact:
Brighton Commerce Bank
8700 North Second Street
Brighton, Michigan, 48116
(810) 220-1199
Attention: Gary Nickerson
President and Chief Executive Officer
or
Capitol Bancorp Ltd.
200 Washington Square North, Fourth Floor
Lansing, Michigan 48533
(517) 487-6555
Attention: Cristin Reid English
General Counsel
If you would like additional copies of this
proxy statement/prospectus you should contact:
Capitol Bancorp Ltd. at the above address and phone number
6
<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".
Capitol Bancorp Ltd. is a bank holding company with headquarters located at
200 Washington Square North, Fourth Floor, Lansing, Michigan 48533. Capitol's
telephone number is (517) 487-6555.
Capitol is a uniquely structured affiliation of community banks. It
currently has 21 wholly or majority-owned bank subsidiaries, including Brighton
Commerce Bank. Each bank is viewed by management as being a separate business
from the perspective of monitoring performance and allocation of financial
resources. Capitol uses a unique strategy of bank ownership and development
through a tiered structure.
Capitol's operating strategy is to provide transactional, processing and
administrative support and mentoring to aid in the effective growth and
development of its banks. It provides access to support services and management
with significant experience in community banking. These administrative and
operational support services do not require a direct interface with the bank
customer and therefore can be consolidated more efficiently without affecting
the bank customer relationship. Subsidiary banks have full decision-making
authority in structuring and approving loans and in the delivery and pricing of
other banking services.
Brighton Commerce Bank is a commercial bank with its headquarters at 8700
North Second Street, Brighton, Michigan 48116. Brighton's telephone number is
(810) 220-1199.
Brighton is now and has been, since it commenced business, a 59% owned
subsidiary of Capitol. Brighton commenced the business of banking on January 8,
1997. Brighton offers a full range of commercial banking services.
REASONS FOR THE EXCHANGE (PAGE 23)
It is believed that the exchange will provide you with greater liquidity
and flexibility because Capitol's common stock is publicly traded. The exchange
will also provide you with greater diversification, since Capitol is active in
more than one geographic area and across a broader customer base.
THE SPECIAL SHAREHOLDERS MEETING (PAGE 32)
The special meeting of Brighton shareholders will be held on January 26,
2000 at 9:00 a.m., local time, at Brighton Commerce Bank at 8700 North Second
Street, Brighton, Michigan 48116. At the special shareholders meeting, you will
be asked to approve the Plan of Share Exchange.
RECOMMENDATION TO SHAREHOLDERS (PAGE 25)
The Brighton board believes that the exchange is fair to you and in the
best interests of both you and Brighton and recommends that you vote FOR
approval of the share exchange.
VOTES REQUIRED (PAGE 32)
Approval of the Plan of Share Exchange requires the favorable vote of a
majority of the outstanding shares of Brighton common stock excluding the shares
held by Capitol. This is more than the vote required by law, but Brighton's
board has set the vote requirement to be sure the exchange is what you, the
shareholders of Brighton, want. Capitol holds 59% of the outstanding shares of
Brighton common stock. The Board of Directors holds 4.59% of the outstanding
shares of Brighton common stock, or 11.2% of all shares not held by Capitol. A
majority of the Board of Directors have agreed to vote their shares FOR approval
of the Plan of Share Exchange.
7
<PAGE>
RECORD DATE; VOTING POWER (PAGE 32)
Brighton shareholders may vote at the special shareholders meeting if they
owned shares of common stock at the close of business on December 31, 1999. At
the close of business on November 29, 1999, approximately 98,907 shares of
Brighton common stock were outstanding (excluding shares held by Capitol). For
each share of Brighton 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
special shareholders meeting on the proposal to approve the Plan of Share
Exchange.
WHAT SHAREHOLDERS WILL RECEIVE IN THE EXCHANGE (PAGE 24)
In the exchange, each outstanding share of Brighton common stock will be
automatically converted into the right to receive Capitol common stock,
according to an "exchange ratio". If the exchange ratio was calculated based on
the information currently available, each shareholder of Brighton would receive
in the exchange 1.020623 shares of Capitol common stock for each share of
Brighton common stock. This assumes an average trading price for Capitol common
stock of $12.997 per share. The actual exchange ratio will be based on
information as of January 8, 2000, and will probably be different. The exchange
ratio will be determined by dividing the Brighton Share Value by the Capitol
Share Value, where:
BRIGHTON SHARE VALUE. The share value of each share of Brighton common
stock shall be determined by multiplying 1.5 times the adjusted pro
forma net book value per share of Brighton common stock as of the
close of business on Friday, January 7, 2000. The adjusted pro forma
net book value per share of Brighton common stock as of the close of
business on Friday, January 7, 2000 shall be calculated by (1) adding
stockholders' equity as reflected in Brighton's internally prepared
financial statements as of December 31, 1999 and Brighton's actual net
income for the month of January, 2000, prorated for the first 7 days
of the month; (2) subtracting from that sum the principal amounts of
Capitol's capital contributions to Brighton during the period from
January, 8, 1997 to January 8, 2000 (aggregating $2,307,000 through
November 30, 1999) for which Capitol did not receive shares of
Brighton's common stock and also subtracting an interest factor to
impute to Capitol an appropriate return on its capital contributions
equivalent to Capitol's interest cost through January 31, 2000; and
(3) dividing the remainder reached by the number of shares of
Brighton's common stock outstanding as of the close of business on
January 31, 2000.
CAPITOL SHARE VALUE. The share value of each share of Capitol common
stock will be the average of the closing prices of Capitol common
stock for each trading day in the 30 calendar day period ending on
January 8, 2000, as reported by the NASDAQ Stock Market, Inc.
Each Brighton shareholder (except Capitol) will receive shares of Capitol
common stock in exchange for his, her or their Brighton common stock calculated
by multiplying the number of shares of Brighton common stock held by the
shareholder by the exchange ratio. Any fractional shares will be paid in cash.
8
<PAGE>
ACCOUNTING TREATMENT (PAGE 25)
Capitol's acquisition of the minority interest of Brighton will be
accounted for under the purchase method of accounting. After the exchange, 100%
of Brighton's results from operations will be included in Capitol's income
statement, as opposed to 59% as is currently reported, less amortization of
goodwill resulting from the exchange.
TAX CONSEQUENCES OF THE EXCHANGE TO BRIGHTON SHAREHOLDERS (PAGE 25)
Capitol's tax counsel has rendered its opinion that the exchange should be
treated as a reorganization for United States federal income tax purposes.
Accordingly, Brighton shareholders generally will not recognize any gain or loss
for United States federal income tax purposes on the exchange of their Brighton
shares for shares of Capitol's common stock in the exchange, except for any gain
or loss recognized in connection with the receipt of cash instead of a
fractional share of Capitol's common stock. Tax counsel's opinion is attached as
Annex C to this proxy statement/prospectus.
Tax matters are very complicated, and the tax consequences of the exchange
to each Brighton 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 27)
Michigan law provides that if the consideration in a share exchange is
shares listed on a national securities exchange or held of record by 2,000 or
more persons, the holders of the stock to be exchanged are not entitled to
dissenters' rights. Since Capitol's common stock is listed in a national
securities exchange, there are no dissenters' rights.
OPINION OF FINANCIAL ADVISOR (PAGE 28)
Brighton retained JMP Financial, Inc. as its financial advisor and agent in
connection with the exchange to render a financial fairness opinion to the
Brighton shareholders.
In deciding to approve the exchange, the Brighton 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
Brighton 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 23)
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
Brighton and Capitol can jointly agree to terminate the plan of exchange at
any time without completing the exchange.
Brighton can terminate the exchange if a majority of Brighton's
shareholders (other than Capitol) fail to approve the exchange at the special
shareholders meeting; or a governmental authority prohibits the exchange.
YOUR RIGHTS AS A SHAREHOLDER WILL CHANGE
Your rights as a Brighton shareholder are determined by Michigan's banking
law and by Brighton's articles of incorporation and by-laws. When the exchange
is completed, your rights as a Capitol stockholder will be determined by
Michigan law relating to business corporations (not the banking law) and by
Capitol's articles of incorporation and by-laws. See "Comparison of Shareholders
Rights".
9
<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
Capitol's Annual Report on Form 10-K for the year ended December 31, 1998, 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, Capitol's Quarterly Report
on Form 10-Q for the period ended September 30, 1999, which is attached as part
of Annex E in this proxy statement/prospectus. See "Where You Can Find More
Information". Interim results for the nine months ended September 30, 1999 are
not necessarily indicative of results which may be expected in future periods,
including the year ending December 31, 1999. BECAUSE OF THE NUMBER OF BANKS
ADDED IN 1997, 1998 AND 1999, 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
CAPITOL'S FUTURE OPERATING RESULTS.
Results of operations data and selected balance sheet data as of and for
the years ended December 31, 1998, 1997, 1996, 1995 and 1994 were derived from
audited consolidated financial statements which are not presented in this proxy
statement/prospectus. Capitol's audited consolidated financial statements as of
and for the years ended December 31, 1998 and 1997 and related statements of
operations for the years ended December 31, 1998, 1997 and 1996 are attached as
part of Annex E in this proxy statement/prospectus. The selected data provided
below as of and for the nine months ended September 30, 1999 and 1998 have been
derived from Capitol's unaudited consolidated financial statements which are
attached as part of Annex E 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 Brighton's) are included in
Capitol's consolidated balance sheet, regardless of whether Capitol owns 59% or
100%. Capitol's net income, however, will only include its subsidiaries'
(including Brighton) net income or net loss to the extent of its ownership
percentage. This means that when a newly formed bank incurs early start-up
losses, Capitol will only reflect that loss based on its ownership percentage.
Conversely, when banks generate income, Capitol will only reflect that income
based on its ownership percentage.
<TABLE>
<CAPTION>
AS OF AND FOR THE
NINE MONTHS ENDED
SEPTEMBER 30 AS OF AND FOR THE
(UNAUDITED) YEARS ENDED DECEMBER 31
------------------ -----------------------------------------------
1999 1998 1998 1997 1996 1995 1994
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
SELECTED RESULTS OF OPERATIONS DATA:
Interest income $66,970 $50,202 $69,668 $49,549 $36,479 $29,914 $21,480
Interest expense 33,251 26,356 36,670 24,852 17,800 15,079 9,397
Net interest income 33,719 23,846 32,998 24,697 18,679 14,835 12,083
Provision for loan losses 2,931 2,458 3,523 2,049 1,196 839 473
Net interest income after provision
for loan losses 30,788 21,388 29,475 22,648 17,483 13,996 11,610
Noninterest income 3,135 2,558 3,558 2,157 1,705 1,272 2,189
Noninterest expense 27,884 18,423 25,821 16,360 12,307 10,460 10,563
Income before income tax expense
and cumulative effect of change
in accounting priniple 6,628 5,523 7,212 8,445 6,881 4,808 3,236
Income tax expense 2,450 1,996 2,584 2,888 2,245 1,735 1,160
Income before cumulative effect
of change in accounting principle 4,178 3,527 4,628 5,557 4,636 3,073 2,076
Cumulative effect of change in
accounting principle (1) (197)
Net income 3,981 3,527 4,628 5,557 4,636 3,073 2,076
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
AS OF AND FOR THE
NINE MONTHS ENDED
SEPTEMBER 30 AS OF AND FOR THE
(UNAUDITED) YEARS ENDED DECEMBER 31
------------------- -----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
PER SHARE DATA:
Earnings per common share(5):
Before cumulative effect of
accounting change:
Basic $ 0.66 $ 0.56 $ 0.74 $ 0.91 $ 0.85 $ 0.63 $ 0.52
Diluted 0.66 0.55 0.72 0.88 0.82 0.62 0.52
After cumulative effect of
accounting change:
Basic 0.63 0.56 0.74 0.91 0.85 0.63 0.52
Diluted 0.63 0.55 0.72 0.88 0.82 0.62 0.52
Cash dividends declared(5) 0.27 0.25 0.33 0.30 0.25 0.19 0.19
Book value(5) 7.98 7.68 7.77 7.22 7.43 7.58 6.79
Tangible book value per share(5) 7.45 7.32 7.35 6.87 6.99 6.95 5.60
Dividend payout ratio 43.02% 44.42% 43.63% 32.95% 29.05% 30.37% 37.15%
Weighted average number of
common shares outstanding(5) 6,358 6,270 6,284 6,130 5,477 4,841 4,000
SELECTED BALANCE SHEET DATA:
Total assets $1,224,686 $922,718 $1,024,444 $690,556 $492,263 $384,070 $316,312
Investment securities 102,044 68,100 86,464 64,470 48,725 36,329 33,802
Portfolio loans 952,774 662,283 724,280 502,755 357,623 283,471 241,583
Allowance for loan losses (11,529) (8,092) (8,817) (6,229) (4,578) (3,687) (3,220)
Deposits 1,040,461 818,774 890,890 604,407 436,166 340,287 279,650
Debt obligations 46,000 4,000 23,600 6,500 8,712 7,924
Trust preferred securities 24,282 24,246 24,255 24,126
Stockholders' equity 54,014 48,474 49,292 45,032 40,159 30,865 25,714
PERFORMANCE RATIOS: (2)
Return on average equity 10.70% 10.28% 10.19% 13.28% 12.01% 10.55% 9.45%
Return on average assets 0.48% 0.58% 0.55% 0.96% 1.08% 0.87% 0.75%
Net interest margin (fully
taxable equivalent) 4.36% 4.19% 4.15% 4.54% 4.62% 4.46% 4.71%
Efficiency ratio (3) 75.66% 70.44% 70.63% 60.92% 60.38% 64.94% 74.01%
ASSET QUALITY:
Non-performing loans (4) $ 5,250 $ 4,522 $ 7,242 $ 4,011 $ 2,699 $ 1,341 $ 1,930
Allowance for loan losses to
non-performing loans 219.60% 137.75% 121.75% 155.30% 169.62% 274.94% 166.84%
Allowance for loan losses to
portfolio loans 1.21% 1.22% 1.22% 1.24% 1.28% 1.30% 1.33%
Non-performing loans to total
portfolio loans 0.55% 0.90% 1.00% 0.80% 0.75% 0.47% 0.80%
Net loan losses to average
portfolio loans 0.03% 0.10% 0.15% 0.09% 0.10% 0.14% 0.13%
CAPITAL RATIOS:
Average equity to average assets 4.51% 5.66% 5.36% 7.22% 8.97% 8.24% 7.93%
Tier 1 risk-based capital ratio 11.26% 12.86% 13.42% 14.26% 11.91% 9.80% 9.27%
Total risk-based capital ratio 12.28% 14.38% 14.60% 16.61% 12.88% 10.91% 10.51%
Leverage ratio 4.41% 9.46% 4.88% 6.65% 8.16% 7.16% 6.95%
</TABLE>
- ----------
(1) Accounting change relates to new accounting standard which requires
write-off of previously capitalized start-up costs as of January 1, 1999.
(2) These ratios are annualized for the periods indicated.
(3) Efficiency ratio is computed by dividing noninterest expense by the sum of
net interest income and noninterest income.
(4) Nonperforming loans consist of loans on nonaccrual status and loans more
than 90 days delinquent.
(5) As restated to reflect Capitol's 1998 6-for-5 stock split as if it occurred
at the beginning of the periods presented.
11
<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 CAPITOL'S COMMON STOCK WILL PROVIDE YOU WITH AN EQUITY
OWNERSHIP INTEREST IN CAPITOL. AS A CAPITOL SHAREHOLDER, YOUR INVESTMENT MAY BE
IMPACTED BY RISKS INHERENT IN ITS BUSINESS. YOU SHOULD CAREFULLY CONSIDER THE
FOLLOWING FACTORS, AS WELL AS OTHER INFORMATION CONTAINED IN THIS PROSPECTUS,
BEFORE DECIDING TO VOTE TO EXCHANGE YOUR BRIGHTON COMMON STOCK FOR CAPITOL'S
COMMON STOCK.
THIS PROXY STATEMENT/PROSPECTUS ALSO CONTAINS CERTAIN FORWARD-LOOKING
STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THESE STATEMENTS RELATE TO
CAPITOL'S FUTURE PLANS, OBJECTIVES, EXPECTATIONS AND INTENTIONS. THESE
STATEMENTS MAY BE IDENTIFIED BY THE USE OF WORDS SUCH AS "BELIEVES," "EXPECTS,"
"MAY," "WILL," "SHOULD," "SEEKS," "PRO FORMA," "ANTICIPATES," AND SIMILAR
EXPRESSIONS. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED IN
THESE STATEMENTS. FACTORS THAT COULD CONTRIBUTE TO THESE DIFFERENCES INCLUDE
THOSE DISCUSSED BELOW AND ELSEWHERE IN THIS PROSPECTUS.
NEWLY FORMED BANKS ARE LIKELY TO INCUR SIGNIFICANT OPERATING LOSSES.
Five of Capitol's bank subsidiaries are less than one year 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.
CAPITOL MAY BE UNABLE TO EFFECTIVELY MANAGE ITS GROWTH.
Capitol has rapidly and significantly expanded its operations and
anticipates that further expansion will be required to realize its growth
strategy. Capitol's rapid growth has placed significant demands on its
management and other resources which, given its expected future growth rate, are
likely to continue. To manage future growth, Capitol will need to attract, hire
and retain highly skilled and motivated officers and employees and improve
existing systems and/or implement new systems for:
- transaction processing;
- operational and financial management; and
- training, integrating and managing Capitol's growing employee base.
FAVORABLE ENVIRONMENT FOR FORMATION OF NEW BANKS COULD CHANGE ADVERSELY.
Capitol's growth strategy includes the formation of additional new banks.
Thus far, Capitol has experienced favorable business conditions for the
formation of its small, community and customer-focused banks. Those favorable
conditions could change suddenly or over an extended period of time. A change in
the availability of financial capital, human resources or general economic
conditions could eliminate or severely limit expansion opportunities. To the
extent Capitol is unable to effectively attract personnel and deploy its capital
in new or existing banks, this could adversely affect future asset growth,
earnings and the value of Capitol's common stock.
12
<PAGE>
CAPITOL'S BANKS ARE SMALL, HAVE LIMITATIONS ON THE SIZE OF LOANS THEY CAN MAKE
AND HAVE MINIMAL MARKET SHARE.
Capitol endeavors to capitalize its newly formed banks with the lowest
dollar amount permitted by regulatory agencies. As a result, the legal lending
limits of Capitol's banks severely constrain the size of loans that those banks
can make. In addition, many of the banks' competitors have significantly larger
capitalization and, hence, an ability to make significantly larger loans.
Capitol's banks are intended to be small in size. They each generally
operate from single locations. They are very small relative to the dynamic
markets in which they operate. Each of those markets has a variety of large and
small competitors that have resources far beyond those of Capitol's banks. While
it is the intention of Capitol's banks to operate as niche players within their
geographic markets, their continued existence is dependent upon being able to
attract and retain loan customers in those large markets that are dominated by
substantially larger regulated and unregulated financial institutions.
CAPITOL IS DEPENDENT UPON THE CONTRIBUTIONS OF ITS KEY MANAGEMENT PERSONNEL.
Capitol's future success depends, in large part, upon the continuing
contributions of its key management personnel, including bank presidents and
other senior officers. In particular, Capitol is dependent upon the continuing
services of Joseph D. Reid, Capitol's Chairman, President and Chief Executive
Officer. The loss of services of one or more key employees at Capitol or its
subsidiaries could have a material adverse effect on Capitol. Capitol can
provide no assurance that it will be able to retain any of its key officers and
employees or attract and retain qualified personnel in the future.
Joseph D. Reid has an employment agreement which expires on December 31,
2001. The agreement automatically extends for one year unless Mr. Reid or
Capitol gives written notice 45 days prior to December 31 of each year. Certain
members of Capitol's senior management also have employment agreements with
Capitol.
IF CAPITOL CANNOT RECRUIT ADDITIONAL HIGHLY QUALIFIED PERSONNEL, CAPITOL'S
BUSINESS MAY BE ADVERSELY IMPACTED.
Capitol's strategy is also dependent upon its continuing ability to attract
and retain other highly qualified personnel. Competition for such employees
among financial institutions is intense. Availability of personnel with
appropriate community banking experience varies. If Capitol does not succeed in
attracting new employees or retaining and motivating current and future
employees, Capitol's business could suffer significantly.
CAPITOL AND ITS BANKS OPERATE IN AN ENVIRONMENT HIGHLY REGULATED BY STATE AND
FEDERAL GOVERNMENT; CHANGES IN FEDERAL AND STATE BANKING LAWS AND REGULATIONS
COULD HAVE A NEGATIVE IMPACT ON CAPITOL'S BUSINESS.
As a bank holding company, Capitol is regulated primarily by the Federal
Reserve Board. Capitol's current bank affiliates are regulated primarily by the
state banking regulators and the FDIC and, in the case of one national bank, the
Office of the Comptroller of the Currency (OCC).
Federal and the various state laws and regulations govern numerous aspects
of the banks' operations, including;
- adequate capital and financial condition,
- permissible types and amounts of extensions of credit and investments,
- permissible nonbanking activities, and
- restrictions on dividend payments.
13
<PAGE>
Federal and state regulatory agencies have extensive discretion and power
to prevent or remedy unsafe or unsound practices or violations of law by banks
and bank holding companies. Capitol and its banks also undergo periodic
examinations by one or more regulatory agencies. Following such examinations,
Capitol may be required, among other things, to change its asset valuations or
the amounts of required loan loss allowances or to restrict its operations.
Those actions would result from the regulators' judgments based on information
available to them at the time of their examination.
The banks' operations are required to follow a wide variety of state and
federal consumer protection and similar statutes and regulations. Federal and
state regulatory restrictions limit the manner in which Capitol and its banks
may conduct business and obtain financing. Those laws and regulations can and do
change significantly from time to time, and any such change could adversely
affect Capitol.
REGULATORY ACTION COULD SEVERELY LIMIT FUTURE EXPANSION PLANS.
To carry out some of its expansion plans, Capitol is required to obtain
permission from the Federal Reserve Board. Applications for the formation of new
banks are submitted to the state and federal bank regulatory agencies for their
approval.
While Capitol's recent experience with the regulatory application process
has been favorable, the future climate for regulatory approval is impossible to
predict. Regulatory agencies could prohibit or otherwise significantly restrict
the expansion plans of Capitol, its current bank subsidiaries and future new
start-up banks.
THE BANKS' ALLOWANCES FOR LOAN LOSSES MAY PROVE INADEQUATE TO ABSORB ACTUAL LOAN
LOSSES.
Capitol believes that its consolidated allowance for loan losses is
maintained at a level adequate to absorb any inherent losses in the loan
portfolios of its banks. Management's estimates are used to determine the
allowance that is considered adequate to absorb losses in the loan portfolios of
Capitol'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 Capitol's control, actual
loan losses could increase significantly. As a result, such losses could exceed
current allowance estimates. No assurance can be provided that the allowance
will be sufficient to cover actual future loan losses should such losses be
realized.
Because some of Capitol's banks were formed more 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 Capitol or its banks to increase
their provision for loan losses or to recognize further loan charge-offs based
upon judgments different from those of management. Any increase in the allowance
required by regulatory agencies could have a negative impact on Capitol's
operating results.
14
<PAGE>
CAPITOL'S COMMERCIAL LOAN CONCENTRATION INCREASES THE RISK OF DEFAULTS BY
BORROWERS.
Capitol's banks make various types of loans, including commercial,
consumer, residential mortgage and construction loans. Capitol's strategy
emphasizes lending to small businesses and other commercial enterprises. Loans
to small and medium-sized businesses are generally riskier than single-family
mortgage loans. Typically, the success of a small or medium-sized business
depends on the management talents and efforts of one or two persons or a small
group of persons, and the death, disability or resignation of one or more of
these persons could have a material adverse impact on the business. In addition,
small and medium-sized businesses frequently have smaller market shares than
their competition, may be more vulnerable to economic downturns, often need
substantial additional capital to expand or compete and may experience
substantial variations in operating results, any of which may impair a
borrower's ability to repay a loan. Substantial credit losses could result,
which could cause you to lose your entire investment in the common stock.
CHANGES IN INTEREST RATES MAY ADVERSELY AFFECT CAPITOL'S BUSINESS.
CHANGES IN NET INTEREST INCOME. Capitol's profitability is significantly
dependent on net interest income. Net interest income is the difference between
interest income on interest-earning assets, such as loans, and interest expense
on interest-bearing liabilities, such as deposits. Therefore, any change in
general market interest rates, whether as a result of changes in monetary
policies of the Federal Reserve Board or otherwise, can have a significant
effect on net interest income. Capitol's assets and liabilities may react
differently to changes in overall market rates or conditions because there may
be mismatches between the repricing or maturity characteristic of assets and
liabilities. As a result, changes in interest rates can affect net interest
income in either a positive or negative way.
CHANGES IN THE YIELD CURVE. Changes in the difference between short and
long-term interest rates, commonly known as the yield curve, may also harm
Capitol's business. For example, short-term deposits may be used to fund
longer-term loans. When differences between short-term and long-term interest
rates shrink or disappear, the spread between rates paid on deposits and
received on loans could narrow significantly, decreasing net interest income.
CAPITOL'S INVESTMENT IN SUN IS ILLIQUID AND MAY REQUIRE ADDITIONAL
INVESTMENT BY CAPITOL.
Capitol currently owns 51% of the common stock of Sun Community Bancorp
Limited, a bank development subsidiary headquartered in Phoenix, Arizona. Sun
completed its initial public offering (IPO) in July 1999 and its common stock is
listed on the Nasdaq National Market. Capitol's investment in Sun is likely to
remain illiquid because:
* Capitol has entered into an agreement with the underwriters of Sun's IPO
which prohibits Capitol from selling any of its shares in Sun for a six
month period after Sun's IPO;
* Capitol is currently encouraged by the Federal Reserve Board to maintain an
investment of not less than 51% of Sun's common stock; and
* Market conditions may limit the ability for Capitol to sell any large
blocks of Sun's common stock.
In addition, Capitol might be required by regulatory agencies, such as the
Federal Reserve Board, to increase its investment in Sun by investing additional
capital to meet unexpected needs at Sun or at one or more of its subsidiaries.
EXISTING SUBSIDIARIES OF CAPITOL MAY NEED ADDITIONAL FUNDS TO AID IN THEIR
GROWTH OR TO MEET OTHER ANTICIPATED NEEDS WHICH COULD REDUCE CAPITOL'S FUNDS
AVAILABLE FOR NEW BANK DEVELOPMENT OR OTHER CORPORATE PURPOSES.
Capitol's affiliated banks are generally capitalized at the minimum amount
permitted by regulatory agencies. Future growth of existing banks may require
additional capital infusions or other investment by Capitol to maintain
compliance with regulatory capital requirements or to meet growth opportunities.
Such capital infusions could reduce funds available for development of new
banks, or other corporate purposes.
15
<PAGE>
POSSIBLE VOLATILITY OF STOCK PRICE.
The market price of Capitol's common stock may fluctuate in response to
numerous factors, including variations in the annual or quarterly financial
results of Capitol, or its competitors, changes by financial research analysts
in their estimates of the earnings of Capitol or its competitors or the failure
of Capitol or its competitors to meet such estimates, conditions in the economy
in general or the banking industry in particular, or unfavorable publicity
affecting Capitol, its banks, or the industry. In addition, equity markets have,
on occasion, experienced significant price and volume fluctuations that have
affected the market price for many companies' securities which have been
unrelated to the operating performance of those companies. Any fluctuation may
adversely affect the prevailing market price of Capitol's common stock.
CAPITOL 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.
Capitol 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 Capitol'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 Capitol's and Sun's internal operations. If Capitol or Sun fail to
complete the implementation of its Year 2000 plan prior to the commencement of
the Year 2000, or bank customers and suppliers fail to successfully remediate
their own Year 2000 issues, it could materially adversely affect Capitol, Sun
and their banks. The planned enterprise-wide program includes resolving any Year
2000 issues that are related to Capitol and its banks' systems, customers and
suppliers. However, there can be no assurances that third parties will
successfully remedy their own Year 2000 issues over which Capitol has no
control.
16
<PAGE>
RECENT DEVELOPMENTS
On June 30, 1999, Capitol opened its eighteenth bank subsidiary, East
Valley Community Bank located in Chandler, Arizona.
Nevada Community Bancorp Limited was formed as a majority-owned subsidiary
of Sun in April 1999. Indiana Community Bancorp Limited was formed as a
majority-owned subsidiary of Capitol in May 1999. On August 6, 1999, Desert
Community Bank commenced operations in Las Vegas, Nevada as a majority owned
start-up banking subsidiary of Nevada Commerce Bancorp Limited. Red Rock
Community Bank commenced operations in Las Vegas as a majority-owned subsidiary
of Nevada Community Bancorp Limited on November 29, 1999.
Nevada Community Bancorp Limited completed a $10 million private placement
stock offering in which Sun invested $5.1 million; Indiana Community Bancorp
Limited also completed a private placement stock offering of $5 million, of
which $2.6 million was invested by Capitol.
On September 9, 1999, Elkhart Community Bank commenced operations in
Elkhart, Indiana, as a subsidiary of Indiana Community Bancorp Limited.
Applications are also currently pending for additional banks in the states
of Nevada and New Mexico.
Sunrise Bank of Arizona, a majority-owned banking subsidiary of Sun, opened
a loan production office in Albuquerque, New Mexico in July 1999. Sunrise
Capital Corporation and Sunrise Bank of Arizona have entered into a share
exchange agreement providing for a one for one share exchange which will make
Sunrise Capital Corporation a majority-owned subsidiary of Sun, and Sunrise Bank
of Arizona a wholly-owned subsidiary of Sunrise Capital Corporation.
Sunrise Capital Corporation is engaged in a private placement of its shares
and expects to raise between $3 million and $4 million. The proceeds will be
used for future bank expansion and general corporate purposes. Sun intends to
maintain its 51% ownership in Sunrise Capital Corporation by purchasing 51% of
the proposed offering.
Additional expansion through the development of new banks in the states of
Indiana, Nevada, California and others, is currently under consideration by
Capitol or its subsidiary bank development entities.
17
<PAGE>
CAPITALIZATION
The table presented below shows Capitol's actual total capitalization as of
September 30, 1999, and as adjusted to reflect the exchange of Capitol's common
stock for Brighton's common stock as described in this proxy
statement/prospectus.
AS OF SEPTEMBER 30, 1999
------------------------
AS ADJUSTED
FOR THE
BRIGHTON
ACTUAL EXCHANGE(3)
--------- ---------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
DEBT OBLIGATIONS:
Notes payable to unaffiliated bank $ 30,000 $ 30,000
Other 16,000 16,000
--------- ---------
Total debt obligations 46,000 46,000
GUARANTEED PREFERRED BENEFICIAL INTERESTS IN THE
CORPORATION'S SUBORDINATED DEBENTURES 24,282 24,282
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES 50,266 49,332
STOCKHOLDERS' EQUITY(1):
Common stock, no par value; 25,000,000 shares
authorized; issued, and outstanding:
Actual - 6,769,521 shares
As adjusted for the Brighton exchange
6,870,468 shares 56,649 57,961
Retained earnings 249 249
Market value adjustment for
available-for-sale securities (598) (598)
Less unallocated ESOP shares and note
receivable from sale of common stock (2,286) (2,286)
--------- ---------
Total stockholders' equity $ 54,014 $ 55,326
========= ---------
TOTAL CAPITALIZATION $ 174,562 $ 174,940
========= =========
Book value per share of common stock $ 7.98 $ 8.05
========= =========
CAPITAL RATIOS:
Stockholders' equity to total assets 4.41% 4.52%
Total capital funds to total assets (2) 10.50% 10.53%
- ----------
(1) Does not include 473,963 shares of common stock issuable upon exercise of
stock options. See "Management--Stock Option Program."
(2) Total capital funds includes guaranteed preferred beneficial interests in
Capitol's subordinated debentures, minority interest in consolidated
subsidiaries and stockholders' equity.
(3) Assumes issuance of 100,947 shares of Capitol common stock upon completion
of Brighton exchange.
18
<PAGE>
DIVIDENDS AND MARKET FOR COMMON STOCK
Capitol's common stock is listed on the Nasdaq National Market under the
symbol "CBCL." The following table shows the high and low sale prices per share
of common stock as reported on the Nasdaq National Market and cash dividends
paid for the periods indicated. The table reflects inter-dealer prices, without
retail mark-up, mark-down or commission and may not represent actual
transactions and have been restated, where appropriate, for Capitol's 6-for-5
stock split in December 1998. The last reported sale price of Capitol's common
stock was $11.563 on November 29, 1999.
CASH DIVIDENDS
1997 HIGH LOW PAID
- ---- ------- ------- --------------
1st Quarter $13.542 $12.083 $0.075
2nd Quarter 15.000 11.458 0.075
3rd Quarter 22.083 14.375 0.075
4th Quarter 27.500 20.104 0.075
1998
- ----
1st Quarter 25.625 20.833 0.083
2nd Quarter 25.417 20.104 0.083
3rd Quarter 21.667 18.333 0.083
4th Quarter 22.500 16.250 0.083
1999
- ----
1st Quarter 21.750 18.000 0.090
2nd Quarter 20.000 16.875 0.090
3rd Quarter 18.250 10.875 0.090
4th Quarter (through November 29) 14.625 11.063 --
As of November 29, 1999, there were a total of approximately 2,400
beneficial holders of Capitol's common stock based on information supplied by
its stock transfer agent and other sources.
Holders of common stock are entitled to receive dividends when, as and if
declared by Capitol's Board of Directors out of funds legally available.
Although Capitol has paid dividends on its common stock for the preceding five
years, there is no assurance that dividends will be paid in the future. The
declaration and payment of dividends on Capitol's common stock depends upon the
earnings and financial condition of Capitol, liquidity and capital requirements,
the general economic and regulatory climate, Capitol's ability to service debt
obligations senior to the common stock and other factors deemed relevant by
Capitol's Board of Directors. Regulatory authorities impose limitations on the
ability of banks to pay dividends to Capitol and the ability of Capitol to pay
dividends to its shareholders.
There is no market for Brighton common stock. Any transfers have been made
privately and are not reported. Brighton has never paid a dividend on its common
stock.
19
<PAGE>
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement/prospectus includes forward-looking statements.
Capitol has based these forward-looking statements on its current expectations
and projections about future events. These forward-looking statements may be
impacted by risks, uncertainties and assumptions. Examples of some of the risks,
uncertainties or assumptions that may impact the forward-looking statements are:
- the results of management's efforts to implement Capitol's business
strategy including planned expansion into new markets in Arizona,
Nevada, New Mexico, Indiana, 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
Capitol'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".
20
<PAGE>
INFORMATION ABOUT CAPITOL
This proxy statement/prospectus is accompanied by a copy of the following
documents as indicated in Annex E:
- Report on Form 10-Q for period ended September 30, 1999
- Report on Form 10-Q for period ended June 30, 1999
- Report on Form 10-Q for period ended March 31, 1999
- Annual Report to Shareholders for year ended December 31, 1998
- Annual Report on Form 10-K for year ended December 31, 1998
- Proxy statement for Capitol's Annual Meeting of Shareholders held on
May 4, 1999.
INFORMATION ABOUT BRIGHTON
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
Management's discussion and analysis of financial condition and results of
operations for the periods ended September 30, 1999 and December 31, 1998 are
included in this proxy statement/prospectus as part of Annex D.
FINANCIAL STATEMENTS.
Unaudited interim condensed financial statements of Brighton as of
September 30, 1999 and for the nine months ended September 30, 1999 and 1998 are
included in this proxy statement/prospectus as part of Annex D. Audited
financial statements of Brighton as of December 31, 1998 and for the years ended
December 31, 1998 and 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 Brighton and all directors and officers as a group. Where applicable, the
table includes shares held by members of their immediate families.
21
<PAGE>
BRIGHTON SHARES BENEFICIALLY OWNED
---------------------------------------
PERCENTAGE OF
PERCENTAGE ALL BRIGHTON
OF ALL SHARES EXCLUDING
BRIGHTON BRIGHTON SHARES
NAME OF BENEFICIAL OWNER NUMBER SHARES OWNED BY CAPITOL
- ------------------------ ------- ------ ----------------
Capitol Bancorp Ltd. 142,639 59.05% N/A
Robert C. Carr 100 0.04% 0.10%
Michael B. Corrigan 1,364 0.56% 1.38%
Scott C. Griffith 1,365 0.57% 1.38%
Mark A. Latterman 100 0.04% 0.10%
Piet W. Lindhout 1,000 0.41% 1.01%
Gary T. Nickerson 6,200 2.57% 6.27%
Mitchell J. Stanley 500 0.21% 0.51%
James A. Winchel 250 0.10% 0.25%
William R.Anderson 0 N/A N/A
Joseph M. Petrucci 0 N/A N/A
Candice Randolph 200 0.08% 0.20%
------- ----- ------
Total of Officers and Directors 11,079 4.59% 11.20%
======= ===== ======
Other than the directors and officers of Brighton, no individual owns 5% of
the outstanding shares of Brighton, exclusive of the shares owned by Capitol.
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
Because Brighton is already a majority-owned subsidiary of Capitol, it is
already included in Capitol'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 Capitol. Accordingly,
pro forma consolidated financial information illustrating the exchange and
Capitol's purchase of the minority interest of Brighton is not required to be
presented in this prospectus.
22
<PAGE>
THE EXCHANGE
GENERAL
The Brighton Board of Directors is using this proxy statement/prospectus to
solicit proxies from the holders of Brighton common stock for use at the special
shareholders meeting.
At the special shareholders meeting to be held on January 26, 2000,
Brighton common shareholders will be asked to approve the exchange. The Plan of
Share Exchange provides for Brighton's minority shareholders to exchange the 41%
of the common stock of Brighton not owned by Capitol for Capitol common stock.
Upon consummation of the exchange, Brighton will become a wholly-owned
subsidiary of Capitol. In the exchange, Brighton shareholders will receive
shares of Capitol's common stock.
BACKGROUND OF THE EXCHANGE
The concept of a potential share exchange transaction with Capitol has been
discussed informally from time to time from the beginning of Brighton's
operations. Capitol expressed a willingness to extend an offer of an exchange
when the Bank reached its 36th month of operations (that is, on January 8,
2000). These discussions occurred at various Brighton board meetings during that
period. The objectives of the potential exchange would be to enable shareholders
of Brighton 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 Brighton will
continue to hold Commerce bank stock which has no market and is illiquid.
Brighton's board of directors has not solicited or received any other
proposals for the potential exchange or sale of Brighton's shares of common
stock which are not owned by Capitol. If other proposals were under
consideration for sale or exchange of Brighton's shares to an entity other than
Capitol, Capitol would be permitted to vote its shares of Brighton. By virtue of
Capitol's majority ownership of Brighton, it is likely that Capitol would not
vote its shares of Brighton in favor of any other proposals regarding a share
exchange or sale of the minority interest in Brighton with another party. In
addition, Capitol currently has no intentions of selling its majority interest
in Brighton. Hence, the only proposal under consideration is Capitol's proposal.
Capitol based its proposal on its prior transactions whereby it has
acquired the minority interest in banks it controls. In those prior
transactions, Capitol has offered the 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 Capitol is under no contractual obligation to
make such an offer to acquire the minority interests in any of its present bank
subsidiaries, it has made this proposal to Brighton's board of directors
consistent with its informal discussions with Brighton's board during the past
three years.
Consensus between Capitol and Brighton's directors who are not employees or
officers of Capitol was reached in November, 1999 to approve the proposed
exchange subject only to:
- obtaining an independent opinion that the proposed share exchange is
fair to Brighton's shareholders from a financial point of view; and
- obtaining approval for the proposed exchange by a majority of
Brighton's shares not already owned by Capitol.
In November, 1999, the Brighton board approved the Plan of Share Exchange
and agreed to call a special shareholder meeting for a shareholder vote to
approve the Plan of Share Exchange.
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BRIGHTON'S REASONS FOR THE EXCHANGE.
Brighton's reasons for the exchange are that the shareholders of Brighton
will be best served by the exchange in order to maximize their shareholder value
and to provide them:
* better protection through diversification geographically and by
customer base through Capitol's subsidiary banks rather than
dependence upon the resources of a single bank.
* the Brighton shareholders will receive publicly traded shares,
providing them liquidity as opposed to the Brighton common stock for
which there is no public market. Brighton shareholders who choose to
do so may continue to hold the Capitol stock they receive in the
exchange without being forced to have their investment reduced by the
immediate recognition of a capital gains tax.
* Brighton's shareholders will receive stock upon which historically
there has been a dividend paid. See "Dividends and Market for Common
Stock." The fact that Capitol has paid dividends for the past five
years is not a guaranty that dividends will continue to be paid.
Capitol's Board of Directors will declare and pay dividends as and
when it appears to Capitol's board that dividends are appropriate.
CAPITOL'S REASONS FOR THE EXCHANGE
Capitol believes that Brighton's profitability will continue to increase.
As noted elsewhere in this proxy statement/prospectus, while Brighton's assets
are reported as part of Capitol's assets for purposes of its consolidated
financial statements, Brighton's income is attributed to Capitol only in the
percentage which Capitol owns of Brighton common stock. Capitol desires to
acquire the remainder of Brighton's common stock so that Capitol can include
100% of Brighton's income in Capitol's consolidated income statement.
TERMS OF THE EXCHANGE
Terms of the exchange are set forth in the Plan of Share Exchange. The Plan
of Share Exchange is included 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% of the shares
of Brighton held by shareholders other than Capitol, each share of Brighton
common stock will be exchanged for shares of Capitol common stock according
to an exchange ratio. The exchange ratio will be determined by dividing the
Brighton share value by the Capitol share value. The Brighton share value
is one and one-half times the adjusted pro forma net value per share of
Brighton common stock as of January 8, 2000. The adjusted pro forma net
book value per share of Brighton common stock as of January 8, 2000 will be
calculated by (1) adding stockholders equity as reflected in Brighton's
internally prepared financial statements as of December 31, 1999 and actual
results for the month of January, 2000 prorated to Friday, January 7, 2000;
(2) subtracting from that sum the principal amounts of Capitol's capital
contributions to Brighton during the period from January 8, 1997 to January
31, 2000 (aggregating $2,307,000 through November 30, 1999) for which
Capitol did not receive shares of Brighton's common stock, and also
subtracting an interest factor to compute the approximate interest cost to
Capitol of the capital contributions made to Brighton during that period;
and (3) dividing the remainder reached by the number of shares of
Brighton's common stock outstanding as of January 31, 2000.
Capitol's share value will be determined by averaging the closing
prices of Capitol common stock for each trading day during the 30 calendar
day period ending January 8, 2000, as reported by the Nasdaq Stock Market,
Inc.
Once the Brighton share value and Capitol share value are determined,
the exchange ratio will be determined by dividing the Brighton share value
by the Capitol share value. Each Brighton shareholder (except Capitol) will
receive shares of Capitol common stock in exchange for his, her or their
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Brighton common stock calculated by multiplying the number of shares in
Brighton common stock held by the shareholder by the exchange ratio. Any
fractional shares will be paid in cash.
BRIGHTON BOARD RECOMMENDATION
THE BRIGHTON BOARD HAS DETERMINED THAT THE EXCHANGE IS FAIR TO AND IN THE
BEST INTERESTS OF THE BRIGHTON SHAREHOLDERS, HAS APPROVED THE PLAN OF SHARE
EXCHANGE AND RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" APPROVAL OF THE PLAN OF
SHARE EXCHANGE.
ACCOUNTING TREATMENT
Capitol expects the exchange to be treated as the acquisition of a minority
interest using the purchase method of accounting.
PRO FORMA DATA
In light of the respective total assets and net income of Capitol and
Brighton and since Brighton has since its inception always been a consolidated
subsidiary of Capitol, 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 Strobl Cunningham
Caretti & Sharp, P.C., tax counsel to Capitol, on the material federal income
tax consequences of the exchange. This discussion is not a comprehensive
description of all of the tax consequences that may be relevant to you. For
example, counsel did not address tax consequences that arise from rules that
apply generally to all taxpayers or to some classes of taxpayers or tax
consequences that are generally assumed to be known by investors. This
discussion is based upon the Internal Revenue Code, the regulations of the U.S.
Treasury Department and court and administrative rulings and decisions in effect
on the date of this proxy statement/prospectus. These laws may change, possibly
retroactively, and any change could affect the continuing validity of this
discussion.
This discussion also is based upon certain representations made by Brighton
and Capitol. You should read carefully the full text of the tax opinion of
Strobl Cunningham Caretti & Sharp, P.C. The opinion is included in this proxy
statement/prospectus as Annex 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
Brighton 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;
* Brighton shareholders who received their Brighton common stock through
the exercise of employee stock options or otherwise as compensation;
* Brighton shareholders who are not U.S. persons; and
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* Brighton shareholders who hold Brighton 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
Strobl Cunningham Caretti & Sharp, P.C., tax counsel to Capitol, that:
* the exchange will qualify as a reorganization within the meaning of
Section 368(a)(1)(B) of the Internal Revenue Code;
* no gain or loss will be recognized by the shareholders of Brighton who
exchange their Brighton common stock solely for Capitol common stock
(except with respect to cash received instead of a fractional share of
Capitol common stock);
* the aggregate tax basis of the Capitol common stock received by
Brighton shareholders who exchange all of their Brighton common stock
for Capitol common stock in the exchange will be the same as the
aggregate tax basis of the Brighton common stock surrendered in
exchange (reduced by any amount allocable to a fractional share of
Capitol common stock for which cash is received);
* the holding period of the Capitol common stock received will include
the holding period of shares of Brighton common stock surrendered in
exchange; and
* a holder of Brighton common stock that receives cash instead of a
fractional share of Capitol common stock will, in general, 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
Brighton 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 Brighton common stock
exchanged for the fractional share of Capitol common stock is more
than the long-term holding period.
The tax opinion of Strobl Cunningham Caretti & Sharp, P.C. 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
Brighton is subject to regulation by the Michigan Financial Institutions
Bureau and the FDIC. The Financial Institutions Bureau has been advised by
Capitol 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, Capitol is subject to regulation by the Federal
Reserve Board. Federal Reserve Board rules require Capitol to obtain the Federal
Reserve Board's permission to acquire at least 51% of a subsidiary bank. The
rules of the Federal Reserve Board do not differentiate between ownership of 51%
and ownership of 100% of the stock of the subsidiary bank. Of course, Capitol
received permission to acquire 59% or more ownership of Brighton prior to
Brighton commencing the business of banking. Accordingly, Capitol will not be
required to seek any further approval from the Federal Reserve Board for the
exchange.
It is a condition of the exchange that the shares of Capitol stock to be
issued pursuant to the Plan of Share Exchange be approved for listing on the
Nasdaq Stock Market, Inc., subject to official notice of issuance. An
application will be filed to list Capitol's shares. Accordingly, the shares of
Capitol common stock to be issued in exchange for the Brighton common stock will
be publicly tradable upon consummation of the exchange. There will be no
restriction on the ability of a former Brighton shareholder to sell in the open
market the Capitol common stock received (unless the Brighton shareholder is
also an officer, director or affiliate of either Brighton or Capitol, in which
case Rule 144 and Rule 145 issued by the SEC do impose certain restrictions on
sale of Capitol common stock).
DISSENTERS' RIGHTS
Michigan law provides that where the consideration to be received in a
share exchange is common stock which is publicly tradable on a national
securities exchange, or held of record by 2,000 or more persons, dissenters'
rights are not available. Capitol's common stock is tradable on the National
Market System of the Nasdaq Stock Market, Inc. and, accordingly, qualifies as
stock traded on a national securities exchange. Therefore, no dissenters' rights
will be available in the exchange.
FEDERAL SECURITIES LAWS CONSEQUENCES; STOCK TRANSFER RESTRICTIONS
This proxy statement/prospectus does not cover any resales of the Capitol
common stock you will receive in the exchange, and no person is authorized to
make any use of this proxy statement/prospectus in connection with any such
resale.
All shares of Capitol common stock you will receive in the exchange will be
freely transferable, except that if you are deemed to be an "affiliate" of
Brighton 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 Brighton for those purposes
generally include individuals or entities that control, are controlled by, or
are under common control with, Brighton, and would not include shareholders who
are not officers, directors or principal shareholders of Brighton.
The affiliates of Brighton may not offer, sell or otherwise dispose of any
of the shares of Capitol common stock issued to that affiliate in the exchange
or otherwise owned or acquired by that affiliate:
(1) for a period beginning 30 days prior to the exchange and continuing
until financial results covering at least 30 days of post-exchange
combined operations of Capitol and Brighton have been publicly filed
by Capitol; or
(2) in violation of the Securities Act.
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OPINION OF FINANCIAL ADVISOR
Brighton has retained JMP Financial, Inc. to provide a financial fairness
opinion in connection with the exchange. The Brighton board selected JMP
Financial, Inc. to act as Brighton'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 Brighton 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. Brighton shareholders are urged to, and should, read the opinion
carefully and in its entirety. The opinion is directed to the Brighton 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 Brighton 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 Brighton prepared by the management of
Brighton;
* discussed the past and current operations and financial condition and
the prospects of Brighton with senior executives of Brighton;
* reviewed certain publicly available financial statements and other
information of Capitol;
* discussed the past and current operations and financial condition and
the prospects of Capitol with senior executives of Capitol;
* reviewed the reported prices and trading activity for Capitol common
stock;
* compared the financial performance of Brighton and Capitol and the
prices and trading activity of Capitol common stock with that of
certain other comparable publicly traded companies and their
securities;
* reviewed the financial terms, to the extent publicly available, of
certain comparable transactions;
* reviewed the Plan of Share Exchange; and
* performed such other analyses and considered such other factors as JMP
Financial, Inc. deemed appropriate.
In rendering its opinion, JMP Financial, Inc. performed the following
analyses:
(1) JMP Financial, Inc., reviewed the performance of a sample of publicly
traded stocks of Michigan banks and bank holding companies. No bank or
bank holding company was identical to Brighton or Capitol. JMP
Financial, Inc., did, however, note that the Brighton and the Capitol
share value were generally within the range of the share values of
comparable size banks and bank holding companies.
(2) JMP Financial, Inc., also consulted a private database to construct a
group of banks and bank holding companies it deemed to be similar to
either Brighton or Capitol, considering, but not limiting is analysis
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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 Brighton or Capitol, JMP Financial,
Inc., noted that the estimated share value of Capitol was within the
range of trading prices of institutions of a similar size and in a
similar market or markets.
(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 also reviewed the trading prices and histories of
small publicly traded banks it deemed comparable to Brighton 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 Brighton is that the Brighton stock is illiquid. A
number of historical studies and valuation practices estimate
liquidity discounts in a range from 10 to 30 percent. The transaction
at issue is somewhere between the sale of all of the stock of an
entire financial institution and the sale of a minority block of stock
in a community bank; however, JMP Financial, Inc., believes the
exchange bears more characteristics of the latter than the former. The
most dramatic difference, in the view of JMP Financial, Inc., between
the exchange and an acquisition of all of the stock of an entire
institution is the "change of control" by which the acquiring
institution acquires all of the outstanding stock of the acquired
institution. In such transactions, control of the acquired institution
changes hands, for which the acquiring institution may pay a
significant premium. In the present transaction, JMP Financial, Inc.,
noted that Capitol has had control of Brighton from the outset and
would not be expected to pay a "premium" for control, since it already
owns control of Brighton. 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 Brighton from a financial
point of view.
The opinion and presentation of JMP Financial, Inc. to the Brighton board
was one of many factors taken into consideration by Brighton'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 Brighton board with respect to
the exchange or of whether the Brighton board would have been willing to agree
to a transaction with a different form or amount of consideration.
The Brighton 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 especial 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 Brighton agreed to pay JMP Financial a fee of $7,000 plus
out-of-pocket expenses. In addition, Brighton 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., Eastern Time, on January 31,
2000, and will be closed as soon as possible after the vote at the special
meeting of Brighton's shareholders. If the Plan of Share Exchange is approved,
as of the effective date, each outstanding share of Brighton common stock will
be automatically converted into the right to receive Capitol common stock
according to the exchange ratio.
SHARES HELD BY CAPITOL
Shares of Brighton common stock owned by Capitol since Brighton's
organization will be unaffected by the exchange. Those shares will not be
exchanged for any securities of Capitol or other consideration.
PROCEDURES FOR SURRENDER OF CERTIFICATES; FRACTIONAL SHARES
As soon as reasonably practicable after the effective date of the exchange,
Capitol or Capitol's transfer agent will send you a letter of transmittal. The
letter of transmittal will contain instructions with respect to the surrender of
your Brighton 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 Brighton shares in
accordance with the instructions in the letter of transmittal, you will be
entitled to receive stock certificates representing shares of Capitol common
stock into which those Brighton 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 Brighton stock will represent only the right to receive the shares of
Capitol common stock into which shares of Brighton stock were converted in the
exchange, and the right to receive cash in lieu of fractional shares of Capitol
common stock as described below.
Until your Brighton certificates are surrendered to Capitol or Capitol's
agent, you will not be paid any dividends or distributions on the Capitol common
stock into which your Brighton shares have been converted with a record date
after the exchange, and will not be paid cash in lieu of a fractional share.
When those certificates are surrendered, any unpaid dividends and any cash in
lieu of fractional shares of Capitol common stock payable as described below
will be paid to you without interest.
Brighton'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 Brighton stock that is not registered in
the records of Brighton has occurred, then, so long as the Brighton stock
certificates are accompanied by all documents required to evidence and effect
the transfer, as set forth in the transmittal letter and accompanying
instructions, a certificate representing the proper number of shares of Capitol
common stock will be issued to a person other than the person in whose name the
certificate so surrendered is registered, together with a cash payment in lieu
of fractional shares, if any, and payment of dividends or distributions, if any.
No fractional share of Capitol common stock will be issued upon surrender
of certificates previously representing Brighton shares. Instead, Capitol will
pay you an amount in cash determined by multiplying the fractional share
interest to which you would otherwise be entitled by the Capitol share value
used in determining the exchange ratio.
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FEES AND EXPENSES
Whether or not the exchange is completed, Capitol and Brighton will each
pay its own costs and expenses incurred in connection with the exchange,
including the costs of (a) the filing fees in connection with Capitol's Form S-4
registration statement and this proxy statement/prospectus, (b) the filing fees
in connection with any filing, permits or approvals obtained under applicable
state securities and "blue sky" laws, (c) the expenses in connection with
printing and mailing of the Capitol Form S-4 registration statement and this
proxy statement/prospectus, and (d) all other expenses.
Nasdaq STOCK MARKET LISTING
Capitol will promptly prepare and submit to the Nasdaq Stock Market, Inc. a
listing application with respect to the maximum number of shares of Capitol
common stock issuable to Brighton shareholders in the exchange, and Capitol must
use reasonable best efforts to obtain approval for the listing of Capitol common
shares on the Nasdaq Stock Market, Inc.
AMENDMENT AND TERMINATION
Capitol and Brighton 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 SPECIAL SHAREHOLDERS' MEETING
DATE, TIME AND PLACE
The special shareholders meeting will be held on January 26, 2000 at
Brighton Commerce Bank, 8700 North Second Street, Brighton, Michigan 48116 at
9:00 a.m., local time.
MATTERS TO BE CONSIDERED AT THE SPECIAL SHAREHOLDERS MEETING
At the special shareholders meeting, holders of Brighton common stock will
vote on whether to approve the exchange. See "The Exchange".
RECORD DATE; STOCK ENTITLED TO VOTE; QUORUM
Holders of record of Brighton common stock at the close of business on
December 31, 1999, the record date for the special shareholders meeting, are
entitled to receive notice of and to vote at the special shareholders meeting.
At November 29, 1999, 241,546 shares of Brighton common stock were issued and
outstanding and held by approximately _____ holders of record. Capitol held
142,639 shares of Brighton common stock on that date and 98,907 were held by
shareholders other than Capitol.
A majority of the shares of the Brighton common stock (excluding shares
held by Capitol) entitled to vote on the record date must be represented in
person or by proxy at the special 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 special shareholders
meeting, it is expected that the meeting will be adjourned or postponed to
solicit additional proxies. Holders of record of Brighton common stock on the
record date are each entitled to one vote per share with respect to approval of
the exchange at Brighton's special shareholders meeting.
Brighton does not expect any other matters to come before the special
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 special 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 special meeting.
Brighton is not aware of any matters expected to be presented at the special
meeting other than as described in the notice of special meeting.
VOTES REQUIRED
Although approval of two-thirds of the shares entitled to vote is all that
is required by law, Brighton and Capitol have agreed that approval of the
exchange will require the affirmative vote of a majority of the shares of
Brighton common stock outstanding on the record date, excluding the 59% of
Brighton's shares held by Capitol. Thus, the exchange will require over 80%
approval, since Capitol will vote for the exchange. 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 December 31, 1999, the directors and
executive officers of Brighton and their affiliates were entitled to vote
approximately 11,079 shares of Brighton common stock. These shares represent
approximately 4.59% of the outstanding shares of Brighton common stock and 11.2%
of Brighton's shares held by shareholders other than Capitol. The directors and
executive officers have agreed to vote their shares of Brighton common stock in
favor of the exchange.
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VOTING OF PROXIES
Submitting Proxies
You may vote by attending the special 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 special 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
special 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 Brighton stock will be
mailed by Capitol to former Brighton 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 special shareholders meeting. Proxies may
be revoked by written notice, including by telegram or telecopy, to the
president of Brighton, by a later-dated proxy signed and returned by mail or by
attending the special shareholders meeting and voting in person. Attendance at
Brighton'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 special
shareholders meeting to:
Brighton Commerce Bank
8700 North Second Street
Brighton, Michigan 48116
Attention: Gary Nickerson, President
If you require assistance in changing or revoking a proxy, you should
contact Gary Nickerson at the address above or at phone number (810) 220-1199.
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 special 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 special shareholders
meeting for purposes of determining the presence or absence of a quorum for the
transaction of all business. An abstention will have the same effect as a vote
against the exchange
SOLICITATION OF PROXIES; EXPENSES
Capitol or Brighton will pay the cost of solicitation of proxies. In
addition to solicitation by mail, the directors, officers and employees of
Brighton may also solicit proxies from shareholders by telephone, telecopy,
telegram or in person.
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COMPARISON OF SHAREHOLDER RIGHTS
As a result of the exchange, holders of shares of Brighton stock will
become holders of shares of Capitol common stock. The following chart summarizes
the material differences between the rights of Brighton shareholders (left
column), and the rights of shareholders of Capitol (right column). This summary
is not intended to be complete and is qualified by reference to the Michigan
Banking Code and the Michigan Business Corporation Act, as well as to Brighton's
articles of incorporation and by-laws (copies of which may be obtained from
Brighton) and Capitol's articles of incorporation and by-laws, (copies of which
are on file with the SEC).
BRIGHTON: CAPITOL:
- --------------------------------------------------------------------------------
GOVERNING LAW: Michigan Banking Code Michigan Business
Public Act 319 of 1969 Corporation Act Public
Act 284 of 1972
ASSESSABILITY OF SHARES: Shareholders may be Shares of common stock
assessed to restore the are non-assessable and
capital of Brighton up to shareholders have no
its stated capital in the liability in excess of
event of losses. MCLA their initial investment.
487.501 MCLA 450.1317
AUTHORIZED BUT Under the Banking Code, Capitol has authorized
UNISSUED SHARES: banks cannot have but unissued shares,
authorized but unissued which may be issued by
shares. the Board of Directors in
the Board's discretion
and without a shareholder
vote. MCLA 450.1202
DIVIDENDS: Brighton shareholders may Capitol common
share in dividends as and stockholders may share in
when declared by the dividends as and when
Brighton Board of declared by the Board of
Directors (although none Directors (see "Dividends
have been to date). The and Market for Common
Board of Directors may Stock"); dividends may be
only declare dividends paid out of any funds
out of net profits from available unless the
operations and must have payment of the dividend
a surplus equal to 20% of renders the business
Brighton's stated capital corporation insolvent.
on hand after the MCLA 450.1345
declaration and payment
of any dividend. MCLA
487.385
AMENDMENT TO ARTICLES Needs approval of the Approval of a majority of
OF INCORPORATION: Banking Commissioner and the shareholders. MCLA
approval of a majority of 450.1611
the shareholders to amend
the articles. MCLA
487.405
ISSUANCE OF NEW SHARES: Approval of the Banking Capitol's Board of
Commissioner and a Directors may issue new
two-thirds vote of the shares without a vote of
shareholders of Brighton. the shareholders under
MCLA 487.379 Michigan law up to the
authorized but unissued
shares; any additional
shares in excess of the
authorized but unissued
shares would require
approval of a majority of
the shareholders. MCLA
450.1611
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<PAGE>
BRIGHTON: CAPITOL:
- --------------------------------------------------------------------------------
VOTE ON DIRECTORS: Brighton has 8 Directors Capitol has 18 directors
who are elected annually who are elected annually
for one year terms. There to one year terms. There
is no cumulative voting. is no cumulative voting.
BUSINESS COMBINATIONS: A consolidation of A business combination
Brighton with any other involving Capitol would
banking institution would require the approval of a
require the approval of majority of the
the Banking Commissioner outstanding shareholders.
and the approval of a MCLA 450.1703A; the
two-thirds vote of the Michigan Business
Brighton shareholders. Corporation Act has
MCLA 487.425 certain anti-takeover
provisions as described
in "Description of the
Capital Stock of Capitol"
which are not included in
the Michigan Banking
Code.
INDEMNIFICATION OF The Michigan Banking Code Indemnification of
DIRECTORS AND OFFICERS: provides for the directors and officers is
indemnification of provided for under the
directors and officers. Michigan Business
See MCLA 487.401-405. Corporation Act in
substantially similar
language to that in the
Michigan Banking code.
See MCLA 450.1561-.1567.
LIMITATION OF LIABILITY: The Michigan Banking Code The Michigan Business
permits banking Corporation Act allows
corporations to limit the corporations to limit the
liability of directors liabilities of the
and officers. MCLA directors and officers in
487.400. Brighton has substantially similar
adopted a provision in language to the Michigan
its Articles of Banking Code. MCLA
Incorporation which 450.1209. Capitol has
limits the liability of adopted a provision in
directors and officers to its Articles of
the greatest extent Incorporation which
permitted by law. limits directors and
officers liability to the
greatest extent permitted
by law.
35
<PAGE>
DESCRIPTION OF THE CAPITAL STOCK OF CAPITOL
Capitol's Articles of Incorporation, as amended to date, authorize the
issuance of up to 25,000,000 shares of common stock, without par value.
Capitol's articles of incorporation do not authorize the issuance of any other
class of stock. As of September 30, 1999, 6,769,521 shares of common stock were
outstanding. UMB Bank, n.a., serves as transfer agent and registrar for
Capitol's common stock.
Michigan law allows Capitol's board of directors to issue additional shares
of stock up to the total amount of common stock authorized without obtaining the
prior approval of the shareholders.
Capitol's board of directors has authorized the issuance of the shares of
common stock as described in this proxy statement/prospectus. All shares of
common stock offered will be, when issued, fully paid and nonassessable.
The following summary of the terms and provisions of the common stock does
not purport to be complete and is qualified in its entirety by reference to
Capitol's articles of incorporation, as amended, a copy of which is on file with
the SEC, and to the Michigan Business Corporation Act ("MBCA").
RIGHTS OF COMMON STOCK
All voting rights are vested in the holders of shares of common stock. Each
share of common stock is entitled to one vote. The shares of common stock do not
have cumulative voting rights, which means that a stockholder is entitled to
vote each of his or her shares once for each director to be elected at any
election of directors and may not cumulate shares in order to cast more than one
vote per share for any one director. The holders of the common stock do not have
any preemptive, conversion or redemption rights. Holders of common stock are
entitled to receive dividends if and when declared by Capitol's board of
directors out of funds legally available. Under Michigan law, dividends may be
legally declared or paid only if after the distribution the corporation can pay
its debts as they come due in the usual course of business and the corporation's
total assets equal or exceed the sum of its liabilities. In the event of
liquidation, the holders of common stock will be entitled, after payment of
amounts due to creditors and senior security holders, to share ratably in the
remaining assets.
SHARES AVAILABLE FOR ISSUANCE
The availability for issuance of a substantial number of shares of common
stock at the discretion of the board of directors provides Capitol with the
flexibility to take advantage of opportunities to issue additional stock in
order to obtain capital, as consideration for possible acquisitions and for
other purposes (including, without limitation, the issuance of additional shares
through stock splits and stock dividends in appropriate circumstances). There
are, at present, no plans, understandings, agreements or arrangements concerning
the issuance of additional shares of common stock, except as described in this
proxy statement/prospectus and for the shares of common stock reserved for
issuance under Capitol's stock option program.
Uncommitted authorized but unissued shares of common stock may be issued
from time to time to persons and in amounts the board of directors of Capitol
may determine and holders of the then outstanding shares of common stock may or
may not be given the opportunity to vote thereon, depending upon the nature of
those transactions, applicable law and the judgment of the board of directors of
Capitol regarding the submission of an issuance to or vote by Capitol's
shareholders. As noted, Capitol's shareholders have no preemptive rights to
subscribe to newly issued shares.
Moreover, it will be possible that additional shares of common stock would
be issued for the purpose of making an acquisition by an unwanted suitor of a
controlling interest in Capitol more difficult, time consuming or costly or
would otherwise discourage an attempt to acquire control of Capitol. Under such
circumstances, the availability of authorized and unissued shares of common
stock may make it more difficult for shareholders to obtain a premium for their
36
<PAGE>
shares. Such authorized and unissued shares could be used to create voting or
other impediments or to frustrate a person seeking to obtain control of Capitol
by means of a merger, tender offer, proxy contest or other means. Such shares
could be privately placed with purchasers who might cooperate with the board of
directors of Capitol in opposing such an attempt by a third party to gain
control of Capitol. The issuance of new shares of common stock could also be
used to dilute ownership of a person or entity seeking to obtain control of
Capitol. Although Capitol does not currently contemplate taking that action,
shares of Company common stock could be issued for the purposes and effects
described above, and the board of directors reserves its rights (if consistent
with its fiduciary responsibilities) to issue shares for such purposes.
CAPITOL'S PREFERRED SECURITIES
Capitol has issued debentures to Capitol Trust I, a Delaware business trust
subsidiary of Capitol. Capitol Trust I purchased the debentures with the
proceeds of preferred securities (which are traded on the NASDAQ National Stock
Market under the symbol "CBCLP"). Capitol has guaranteed the preferred
securities. The documents governing these securities, including the indenture
under which the debentures were issued, restrict Capitol's right to pay a
dividend on its common stock under certain circumstances and give the holders of
the preferred securities preference on liquidation over the holders of Capitol's
common stock. Specifically, Capitol may not declare or pay a cash dividend on
its common stock if (a) an event of default has occurred as defined in the
indenture, (b) Capitol is in default under its guarantee, or (c) Capitol has
exercised its right under the debentures and the preferred securities to extend
the interest payment period. In addition, if any of these conditions have
occurred and until they are cured, Capitol is restricted from redeeming or
purchasing any shares of its common stock except under very limited
circumstances. Capitol's obligation under the debentures, the preferred
securities and the guarantee is $25.3 million and the interest rate is 8.5% per
annum, payable quarterly.
ANTI-TAKEOVER PROVISIONS
In addition to the utilization of authorized but unissued shares as
described above, the MBCA contains other provisions which could be utilized by
Capitol to impede efforts to acquire control of Capitol. Those provisions
include the following:
CONTROL SHARE ACT. The MBCA contains provisions intended to protect
shareholders and prohibit or discourage certain types of hostile takeover
activities. These provisions regulate the acquisition of "control shares" of
large public Michigan corporations.
The act establishes procedures governing "control share acquisitions." A
control share acquisition is defined as an acquisition of shares by an acquirer
which, when combined with other shares held by that person or entity, would give
the acquirer voting power at or above any of the following thresholds: 20%,
33-1/3% or 50%. Under that act, an acquirer may not vote "control shares" unless
the corporation's disinterested shareholders vote to confer voting rights on the
control shares. The acquiring person, officers of the target corporation, and
directors of the target corporation who are also employees of the corporation
are precluded from voting on the issue of whether the control shares shall be
accorded voting rights. The act does not affect the voting rights of shares
owned by an acquiring person prior to the control share acquisition.
The act entitles corporations to redeem control shares from the acquiring
person under certain circumstances. In other cases, the act confers dissenters'
rights upon all of a corporation's shareholders except the acquiring person.
The act applies only to an "issuing public corporation." Capitol falls
within the statutory definition of an "issuing public corporation." The act
automatically applies to any "issuing public corporation" unless the corporation
"opts out" of the statute by so providing in its articles of incorporation or
bylaws. Capitol has not "opted out" of the provisions of the act.
37
<PAGE>
FAIR PRICE ACT. Certain provisions of the MBCA establish a statutory scheme
similar to the supermajority and fair price provisions found in many corporate
charters. The act provides that a super majority vote of 90% of the shareholders
and no less than two-thirds of the votes of non-interested shareholders must
approve a "business combination." The act defines a "business combination" to
encompass any merger, consolidation, share exchange, sale of assets, stock
issue, liquidation, or reclassification of securities involving an "interested
shareholder" or certain "affiliates." An "interested shareholder" is generally
any person who owns 10% or more of the outstanding voting shares of the company.
An "affiliate" is a person who directly or indirectly controls, is controlled
by, or is under common control with a specified person.
At this time, Capitol's management beneficially owns (including immediately
exercisable stock options) control of approximately _____% of Capitol's
outstanding common stock. It is now unknown what percentage will be owned by
management upon completion of the exchange. If management's shares are voted as
a block, management will be able to prevent the attainment of the required
supermajority approval.
The supermajority vote required by the act does not apply to business
combinations that satisfy certain conditions. These conditions include, among
others, that: (i) the purchase price to be paid for the shares of the company is
at least equal to the greater of (a) the market value of the shares or (b) the
highest per share price paid by the interested shareholder within the preceding
two-year period or in the transaction in which the shareholder became an
interested shareholder, whichever is higher; and (ii) once a person has become
an interested shareholder, the person must not become the beneficial owner of
any additional shares of the company except as part of the transaction which
resulted in the interested shareholder becoming an interested shareholder or by
virtue of proportionate stock splits or stock dividends.
The requirements of the act do not apply to business combinations with an
interested shareholder that the Board of Directors has approved or exempted from
the requirements of the act by resolution at any time prior to the time that the
interested shareholder first became an interested shareholder.
38
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
Capitol has filed a registration statement on Form S-4 to register with the
SEC the Capitol common stock to be issued to Brighton shareholders in the
exchange. This proxy statement/prospectus is a part of that registration
statement and constitutes a prospectus of Capitol in addition to being a proxy
statement of Brighton 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, Capitol files reports, proxy statements and other information
with the SEC under the Exchange Act. Please call the SEC at 1-800-SEC-0330 for
further information on the public reference rooms. You may read and copy this
information at the following locations of the SEC:
<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 Capitol
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 JANUARY 19, 2000 TO
RECEIVE THEM BEFORE THE SPECIAL SHAREHOLDERS MEETING. If you request exhibits to
any incorporated documents from us, Capitol will mail them to you by first class
mail, or another equally prompt means, within one business day after Capitol
receives your request.
No one has been authorized to give any information or make any
representation about Brighton, Capitol or the exchange, that differs from, or
adds to, the information in this document or in documents that are publicly
filed with the SEC. Therefore, if anyone does give you different or additional
information, you should not rely on it.
If you are in a jurisdiction where it is unlawful to offer to exchange, or
to ask for offers of exchange, the securities offered by this proxy
statement/prospectus or to ask for proxies, or if you are a person to whom it is
unlawful to direct these activities, then the offer presented by this proxy
statement/prospectus does not extend to you.
39
<PAGE>
The information contained in this proxy statement/prospectus speaks only as
of its date unless the information specifically indicates that another date
applies. Information in this document about Capitol has been supplied by
Capitol, and information about Brighton has been supplied by Brighton.
LEGAL MATTERS
Certain legal matters relating to the validity of the shares of Capitol
common stock offered by this proxy statement/prospectus and certain federal
income tax matters relating to the exchange will be passed upon for Capitol by
Strobl Cunningham Caretti & Sharp, P.C.
EXPERTS
The consolidated financial statements of Capitol attached to this proxy
statement/prospectus included in Capitol's annual report to shareholders and its
report on Form 10-K for the fiscal year ended December 31, 1998, 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 Brighton attached to this proxy
statement/prospectus as Annex D for the fiscal year ended December 31, 1998 and
the period ended December 31, 1997 have been audited by BDO Seidman, 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.
40
<PAGE>
ANNEX A
PLAN OF SHARE EXCHANGE
THIS PLAN OF SHARE EXCHANGE ("Plan") is entered into effective January 31,
2000 between and among CAPITOL BANCORP LTD., a Michigan corporation ("Capitol")
and the SHAREHOLDERS of BRIGHTON COMMERCE BANK ("Brighton").
R E C I T A L S
A. Brighton is a Michigan banking corporation which commenced the business
of banking January 8, 1997.
B. Capitol is now and has been since Brighton commenced the business of
banking the holder of fifty-nine (59%) percent of the duly issued and
outstanding common stock of Brighton ("Brighton common stock").
C. Brighton common stock is privately held and not traded in any public
market.
D. Capitol's common stock ("Capitol common stock") is traded on the
National Market System of the NASDAQ Stock Market, Inc.
E. Brighton's Board of Directors has determined that it would be in the
best interest of Brighton's stockholders to exchange their shares of stock in
Brighton for shares of Capitol common stock as described in this Plan, and
Capitol is willing to make an exchange on those terms.
The parties adopt this Plan as of the effective date.
1. THE EXCHANGE. Each shareholder who holds Brighton common stock will
exchange his, her or their shares of Brighton common stock for shares of Capitol
common stock according to an exchange ratio determined as follows:
BRIGHTON SHARE VALUE. The share value of each share of Brighton
common stock shall be determined by multiplying 1.5 times the
adjusted pro forma net book value per share of Brighton common
stock as of the close of business on Friday, January 7, 2000.
The adjusted pro forma net book value per share of Brighton
common stock as of the close of business on Friday, January 7,
2000 shall be calculated by (1) adding stockholders' equity as
reflected in Brighton's internally prepared financial statements
as of December 31, 1999 and Brighton's actual net income for the
month of January, 2000, prorated for the first 7 days of the
month; (2) subtracting from that sum the principal amounts of
Capitol's capital contributions to Brighton during the period
from January 8, 2000 to January 31, 2000 (aggregating $2,307,000
through November 30, 1999) for which Capitol did not receive
shares of Brighton's common stock and also subtracting an
interest factor to impute to Capitol an appropriate return on
its capital contributions equivalent to Capitol's interest cost
through January 31, 2000; and (3) dividing the remainder reached
by the number of shares of Brighton's common stock outstanding
as of the close of business on January 31, 2000.
CAPITOL SHARE VALUE. The share value of each share of Capitol
common stock will be the average of the closing prices of
Capitol common stock for each of the trading days in the thirty
(30) calendar day period prior to and ending on January 8, 2000,
as reported by the NASDAQ Stock Market, Inc.
A-1
<PAGE>
EXCHANGE RATIO. The exchange ratio will be determined by
dividing the Brighton Share Value by the Capitol Share Value.
Each Brighton shareholder (except Capitol) will receive shares of
Capitol common stock in exchange for his, her or their Brighton common stock
calculated by multiplying the number of shares of Brighton common stock held by
the shareholder by the exchange ratio. Any fractional shares will be paid in
cash.
2. APPROVALS NECESSARY. The following approvals will be necessary
prior to the Plan becoming effective:
a. The Board of Directors of Brighton shall have approved and
adopted the Plan.
b. The Board of Directors of Capitol (acting through its Executive
Committee or otherwise, Capitol's Board having already approved
the exchange in principle) shall have approved and adopted the
Plan.
c. A majority of the common stock of Brighton (exclusive of the
shares held by Capitol) 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 Capitol's common stock to be issued in the exchange.
e. The Financial Institutions Bureau of the State of Michigan shall
not have issued any objection to the Plan (a letter indicating
the Financial Institutions Bureau does not object has already
been received).
3. FAIRNESS OPINION. The Board of Directors of Brighton 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 Brighton.
4. TAX OPINION. Strobl Cunningham Caretti & Sharp, P.C. 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 Brighton (except to the extent of the cash received in lieu of fractional
shares).
5. SURRENDER OF CERTIFICATES. Each shareholder of Brighton common
stock shall surrender to Capitol his, her or their certificate(s) for shares of
Brighton common stock within thirty (30) days after the effective date of this
Plan. Capitol shall direct its transfer agent, UMB Bank, n.a., to issue
certificate(s) of Capitol common stock to be issued in the exchange.
Certificate(s) of Capitol common stock shall be issued and registered in the
same name as the shares of Brighton common stock surrendered in exchange
therefor, and shall thereafter be transferable in the same manner as otherwise
provided for Capitol common stock. In the event any shareholder of Brighton
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 Capitol
common stock shall be issued and registered in the name of the person who is the
registered holder on the books of Brighton on the effective date of this Plan,
and the Brighton certificate(s) shall thereafter be null and void and of no
force or effect whatever.
6. NEW BRIGHTON CERTIFICATE. Brighton shall issue its certificate
registering in the name of Capitol all shares of stock now registered to
shareholders other than Capitol.
A-2
<PAGE>
ANNEX B
JMP FINANCIAL, INC.
753 GRAND MARAIS
GROSSE POINTE PARK, MI 48230
TEL/FAX (313) 824-1711
____________ , 1999
Board of Directors
Brighton Commerce Bank
8700 North Second Street
Brighton, Michigan 48116
Gentlemen:
We have examined the proposed Plan of Share Exchange (the "Agreement")
dated January 31, 2000, to be entered into between Capitol Bancorp, Ltd., a
Michigan Corporation ("CBCL") and the shareholders (the "Shareholders") of
Brighton Commerce Bank ("Brighton"), a Michigan Corporation by which CBCL shall
acquire from the Shareholders their outstanding shares of Brighton, not already
owned by CBCL, in exchange for shares of CBCL (the "Exchange").
The terms of the transaction contemplated by the Agreement provide that
each share of Brighton's common stock, not already owned by CBCL and issued and
outstanding as of January 31, 2000 (the "Effective Date") shall be exchanged,
pursuant to the Exchange Ratio specified in the Agreement, into shares of CBCL
You have requested our opinion as to the fairness, from a financial point of
view, of the Exchange.
JMP Financial, Inc. ("JMP"), as a regular part of its investment banking
business, is engaged in the valuation of the securities of commercial and
savings banks as well as the holding companies of commercial and savings banks
in connection with mergers, acquisition, and divestitures, and for other
purposes.
In connection with this engagement and rendering this opinion, we reviewed
materials deemed necessary and appropriate by us under the circumstances,
including;
* Audited consolidated financial statements of Brighton for the period
ended December 31, 1997 and the year ended December 31, 1998;
* Unaudited financial statements of Brighton for the period ended
September 30, 1999;
B-1
<PAGE>
Page Two
Brighton Board of Directors
* Certain unaudited internal financial information concerning the
capital ratios of Brighton;
* Publicly available information concerning CBCL;
* Publicly available information with respect to certain other bank
holding companies, which we deemed, appropriate, including competitors
of CBCL and Brighton.
* Publicly available information with respect to the nature and terms of
certain other transactions which we consider relevant;
* The Agreement;
* Reviewed certain historical market prices and trading volumes of
Brighton's and CBCL's common stock to the extent reasonably available.
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 Brighton or CBCL 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. For purposes of this opinion, we have assumed that
CBCL's and Brighton's loan loss reserves are adequate in all material respects
and that, in the aggregate, other conditions at CBCL and Brighton are
satisfactory and this opinion is conditioned upon such assumption. We have also
assumed that there has been no material change in Brighton's or CBCL's assets,
financial condition. Results of operations, business, or prospects since the
date of the last financial statements made available to us for Brighton and
CBCL, respectively. This opinion is necessarily based on economic, market and
other conditions in effect on, and the information made available to us as of,
the date hereof. It should be understood that subsequent developments may effect
the opinion and that JMP does not have any litigation to update, revise or
reaffirm it.
The opinion expressed herein is being rendered to the Board of Directors of
Brighton for its use in evaluation of the proposed transaction, assuming the
transaction is consummated upon the terms set forth in the Agreement.
B-2
<PAGE>
Page Three
Brighton Board of Directors
Based upon the terms and conditions of the Exchange and the current market
value of CBCL's common stock, and based further upon such other considerations
as we deem relevant, JMP is, subject to the foregoing, of the opinion on the
date hereof, that the consideration to be received by the Shareholders in the
Exchange would be fair from a financial point of view if the transaction
contemplated by the Agreement is in fact consummated pursuant to the terms
thereof.
Sincerely,
John Palffy
President
JMP Financial, Inc.
B-3
<PAGE>
ANNEX C
[Letterhead of Strobl Cunningham Caretti & Sharp, P.C.]
_____________________, 1999
Capitol Bancorp Ltd.
200 Washington Sq. N., Fourth Floor
Lansing, MI 48933
Re: Brighton Commerce Bank
Plan of Share Exchange
Tax Considerations
Ladies and Gentlemen:
We have acted as special counsel in connection with the Plan of Share
Exchange between Capitol Bancorp Ltd. ("Capitol") and the shareholders of
Brighton Commerce Bank ("Brighton").
Capitol will file with the Securities and Exchange Commission under the
Securities Act of 1933, as amended (the "1933 Act"), a registration statement on
Form S-4 (the "Registration Statement"), with respect to the common shares of
Capitol to be issued to holders of shares of common stock of Brighton in
connection with the Plan of Share Exchange. In addition, Capitol has prepared,
and we have reviewed, a Proxy Statement/Prospectus which is contained in and
made a part of the Registration Statement (the "Proxy Statement"), and the
Appendices thereto, including the Plan of Share Exchange and this letter. In
rendering our opinion, we have relied upon the facts stated in the Proxy
Statement and upon such other documents as we have deemed appropriate, including
the information about Capitol and Brighton included or incorporated by reference
in the Proxy Statement.
We have assumed that (i) all parties to the Plan of Share Exchange, and to
any other documents reviewed by us, have acted, and will act, in accordance with
the terms of the Plan of Share Exchange and such other documents, (ii) all
facts, information, statements and representations qualified by the knowledge
and/or belief of Capitol and/or Brighton will be complete and accurate as of the
effective time as though not so qualified, (iii) the Plan of Share Exchange will
be consummated at the effective date pursuant to the terms and conditions set
forth in the Plan of Share Exchange without the waiver or modification of any
such terms and conditions, and (iv) the Plan of Share Exchange is authorized by
and will be effected pursuant to applicable state law.
Based upon and subject to the foregoing, and to the qualifications,
limitations, representations and assumptions contained in the portion of the
Proxy Statement captioned "Material Federal Income Tax Consequences," we are of
the opinion that:
* the exchange will qualify as a reorganization within the meaning of
Section 368(a)(1)(B) of the Internal Revenue Code;
C-1
<PAGE>
* no gain or loss will be recognized by the shareholders of Brighton who
exchange their Brighton common stock solely for Capitol common stock
(except with respect to cash received instead of a fractional share of
Capitol common stock);
* the aggregate tax basis of the Capitol common stock received by
Brighton shareholders who exchange all of their Brighton common stock
for Capitol common stock in the exchange will be the same as the
aggregate tax basis of the Brighton common stock surrendered in
exchange (reduced by any amount allocable to a fractional share of
Capitol common stock for which cash is received);
* the holding period of the Capitol common stock received will include
the holding period of shares of Brighton common stock surrendered in
exchange; and
* a holder of Brighton common stock that receives cash instead of a
fractional share of Capitol common stock will, in general, 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
Brighton 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 Brighton common stock
exchanged for the fractional share of Capitol common stock is more
than the long-term holding period.
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.
Sincerely,
/s/ STROBL CUNNINGHAM CARETTI & SHARP, P.C.
C-2
<PAGE>
ANNEX D
FINANCIAL INFORMATION REGARDING BRIGHTON COMMERCE 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 September 30, 1999 and 1998 (unaudited)................... D-8
Audited financial statements as of and for the periods
ended December 31, 1998 and 1997........................................ D-15
D-1
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
BRIGHTON COMMERCE BANK
PERIODS ENDED SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
FINANCIAL CONDITION
Brighton Commerce Bank is engaged in commercial banking activities from its sole
location in Brighton, Michigan. From its inception in January 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 $53.6 million at September 30, 1999, compared with
$42.9 million at December 31, 1998. The Bank's total assets approximated $23.8
million at year-end 1997.
Total portfolio loans approximated $43.7 million at September 30, 1999, an
increase of approximately $9.6 million from the $34.0 million level at December
31, 1998. At December 31, 1997, total portfolio loans approximated $13.8
million. Portfolio loan growth during these periods has been significant and is
consistent with the Bank's overall balance sheet growth during these periods.
Commercial loans approximated 96.7% of total portfolio loans at September 30,
1999 consistent with the Bank's emphasis on commercial lending activities. Real
estate mortgage loans approximated 2.4% of total portfolio loans at September
30, 1999.
The allowance for loan losses at September 30, 1999 approximated $437,000 or
1.00% of total portfolio loans.
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.
Since the Bank's inception, there were no net charge-offs (loans written-off,
less recoveries) through September 30, 1999. In November 1999, the Bank incurred
its first loan charge-off of approximately $42,000.
The Bank's growth has been funded primarily by deposits, most of which are
interest-bearing. Total deposits approximated $48.8 million at September 30,
1999, an increase of approximately $9.8 million from the $39.0 million level at
December 31, 1998. Deposits also increased significantly in 1998 from the $21.5
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 $6.2 million at
September 30, 1999 or about 12.7% of total deposits, an increase of
approximately $848,000 from December 31, 1998. Noninterest-bearing deposits
fluctuate significantly from day to day, depending upon customer account
activity.
Stockholders' equity approximated $4.6 million at September 30, 1999 or
approximately 8.6% of total assets. Capital adequacy is discussed elsewhere in
this narrative.
RESULTS OF OPERATIONS
Net income for the nine months ended September 30, 1999 approximated $349,000,
compared with a net loss of $103,000 in the nine month 1998 period.
1998 represented the Bank's first full calendar year of operations, with a net
loss of $48,000, compared to a net loss of $505,000 in 1997.
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 nine months ended September 30, 1999 approximated $2.9 million,
compared with $1.8 million in the first nine months of 1998. For the year ended
December 31, 1998, total interest income approximated $2.6 million, compared
with $747,000 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 $1.2 million for the nine months ended September
30, 1999, compared with $916,000 for the first nine months of 1998. For the year
ended December 31, 1998, total interest expense approximated $1.2 million,
compared with $363,000 in 1997.
Net interest income approximated $1.7 million for the nine months ended
September 30, 1999, compared with $887,000 for the 1998 corresponding period.
Net interest income for the year ended December 31, 1998 approximated $1.3
million, significantly more than the $384,000 in 1997.
Provisions for loan losses ($96,000 for the nine months ended September 30,
1999, $202,000 for the year ended December 31, 1998 and $139,000 for the period
ended December 31, 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.
D-3
<PAGE>
Noninterest income has also increased significantly during the Bank's period of
existence. Total noninterest income approximated $207,000 for the nine months
ended September 30, 1999 ($164,000 in the corresponding period in 1998) and
approximated $245,000 for the year ended December 31, 1998 and $15,000 for the
period ended December 31, 1997.
Noninterest expenses have increased significantly during the period of the
Bank's existence. Total noninterest expense approximated $1.2 million for the
nine months ended September 30, 1999, compared with $1.1 million for the
corresponding 1998 period. For the year ended December 31, 1998, total
noninterest expense approximated $1.4 million, compared with $1.0 million for
the period ended December 31, 1997.
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 $7.5 million at September 30, 1999,
compared with $6.4 million at December 31, 1998 and $7.9 million at December 31,
1997. 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 September 30, 1999 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 September 30,
1999 and December 31, 1998, the Bank had approximately $2.0 million and $1.8
million, respectively, of investment securities classified as available for sale
which can be utilized to meet various liquidity needs as they arise.
The Bank has secured lines of credit with the Federal Home Loan Bank of
Indianapolis. As of the balance sheet dates of September 30, 1999, December 31,
1998 and December 31, 1997, no amounts had been drawn on those credit
facilities. Availability on this credit facility approximated $ 1.9 million at
September 30, 1999.
D-4
<PAGE>
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 Brighton
Commerce 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 early years of operation.
Since inception, the Bank's asset growth has been significant. In order to
maintain compliance with the above-mentioned ratio requirement, Capitol Bancorp
Ltd., the Bank's 59% majority owner, has made capital infusions amounting to
$2,307,000 through September 30, 1999. Those capital infusions have been
accounted for as an increase in the Bank's surplus account, specifically
earmarked as supplemental capital infusions from the Bank's parent. Such capital
infusions, however, have not been treated as a change in the parent's ownership
percentage of the Bank.
YEAR 2000
The year 2000 issue confronting the Bank and its suppliers, customers and
competitors, centers on the inability of computer systems and embedded
technology to properly recognize dates near the end of and beyond the year 1999.
Brighton Commerce Bank utilizes the information technology systems of Capitol
Bancorp Ltd., its 59% majority owner. Capitol has been actively implementing a
comprehensive plan throughout 1998 and 1999, as required by bank regulatory
guidelines, to address potential impacts of the year 2000 issue on its
information technology (IT) and non-IT systems. Capitol's and the Bank's year
2000 plans are subject to modification and are revised periodically as
additional information is developed.
READINESS. Capitol has completed the inventory, assessment, remediation and
planning phases for its mission-critical IT and non-IT systems, which are those
systems that pose risks to Capitol's ability to process data for its loans,
deposits, general ledger, revenues and operating results. Of the 17
mission-critical systems, all have tested as being year 2000 compliant.
Capitol recognizes that its ability to be year 2000 compliant is somewhat
dependent upon the year 2000 efforts of its vendors. Capitol and its banks
(including Brighton) sent questionnaires to its significant vendors in 1998.
Follow-up letters requesting additional information of the vendors' year 2000
readiness were sent when necessary. All mission-critical vendors have responded
to the questionnaires or have otherwise represented that they are year 2000
compliant. Capitol also routinely monitors its nonmission-critical vendors to
determine their level of year 2000 readiness.
Capitol and its banks (including Brighton) have been required by bank regulatory
agencies to update their customers on the banks' year 2000 compliance efforts.
Letters and informational brochures have been, and will continue to be, sent to
customers heightening their awareness of the year 2000 issue and notifying them
of the banks' efforts in addressing year 2000 issues. Compliance efforts are
also communicated to customers on their account statements and through brochures
available in bank lobbies.
D-5
<PAGE>
Capitol and its banks (including Brighton) are also following regulatory
requirements that require an assessment of loan customers' year 2000 readiness.
Letters and questionnaires have been utilized to assess material loan customers'
readiness based on the size of their loan type. The number of existing customers
that have not responded to the letters and questionnaires is minimal. Follow-up
letters or phone calls are being made when necessary to obtain additional
information from these customers. Of those who have responded, all material
customers represented that they are year 2000 compliant or are working toward
compliance. The number of customers still working towards year 2000 compliance
is minimal and, in Capitol's opinion, their inability to become compliant will
not have a material adverse effect on Capitol's business or operating results.
Capitol and its banks (including Brighton) also monitor customers applying for
new loans that exceed a certain dollar amount by requiring a written
representation that the customer is year 2000 compliant.
WORST CASE SCENARIO AND CONTINGENCY PLANS. Capitol and its banks (including
Brighton) have determined the most reasonably likely worst case scenario is the
possibility of the lack of power or communication services for a period of time
in excess of one day. If this scenario were to occur, Capitol and its banks'
operations could be interrupted. Capitol and its banks have developed plans and
procedures to address this scenario, ranging from producing complete printed
reports from the core banking systems prior to January 1, 2000, to ensure that a
hard copy of the data is available in the event of a failure, to preparations
for failures of voice and data communications through the use of manual posting
and courier services, use of generators, alternative customer service locations
and/or reduced lobby hours.
Contingency planning, including the type discussed above, is an integral part of
Capitol's year 2000 readiness plan. Capitol's contingency plans address
alternative courses of action in the event that mission-critical systems do not
function properly with the date change. Development of the contingency plans was
recently completed. The year 2000 contingency plans were tested during the third
quarter of 1999 to validate the effectiveness of contingent procedures. This
validation of the contingency plans showed the plans to operate as designed,
with no apparent problems.
COSTS. The costs associated with Capitol's year 2000 compliance in 1999 are
estimated at approximately $250,000, of which approximately $225,000 has been
incurred through September 30, 1999. A similar amount was incurred in 1998.
These costs principally relate to the added personnel costs, the employment of
external consultants, and the purchase of software upgrades.
These estimated costs are part of Capitol's information technology budget.
Capitol's information technology staff and senior management have devoted
significant time and resources to year 2000 activities. While this has resulted
in allocating resources that would have otherwise been devoted to other
information technology projects, no projects have been delayed or postponed that
would have a material adverse impact on Capitol or its banks' operations.
D-6
<PAGE>
REGULATORY OVERSIGHT. Bank regulators have issued numerous statements and
guidance on year 2000 compliance issues and the responsibilities of senior
management and directors of banks and bank holding companies. In addition, the
bank regulators have issued safety and soundness guidelines to be followed by
insured depository institutions, including Capitol and its banks, to ensure
resolution of any year 2000 problems. Periodic year 2000 reviews are performed
by various bank regulatory agencies. Most of the recent examinations have been
performed by the FDIC and it is expected that the FDIC will continue its
frequent examinations throughout 1999. The banking regulatory agencies have
asserted that year 2000 testing and certification is a key safety and soundness
issue in conjunction with regulatory examinations. Consequently, Capitol's or
its banks' failure to address appropriately the year 2000 issue could result in
supervisory action, including the reduction of the banks' supervisory ratings,
the denial of applications for expansion, or the imposition of civil money
penalties.
Numerous regulatory on-site and over-the-phone examinations have taken place at
Capitol and its banks during the past two quarters of 1999. At each examination
completed thus far, Capitol and its banks have been deemed to be sufficiently
following regulatory guidelines.
IMPACT OF NEW ACCOUNTING STANDARDS
A new accounting standard requiring the write-off of previously capitalized
start-up and preopening costs was implemented effective January 1, 1999.
Implementation of that accounting standard had no impact on the Bank's financial
statements in 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 would 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-7
<PAGE>
BRIGHTON COMMERCE BANK
----------
INTERIM FINANCIAL STATEMENTS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
D-8
<PAGE>
BALANCE SHEETS
BRIGHTON COMMERCE BANK
<TABLE>
<CAPTION>
September 30 December 31
1999 1998
------------ ------------
(unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 2,209,159 $ 1,869,184
Interest-bearing deposits with banks 52,261
Federal funds sold 5,250,000 4,550,000
------------ ------------
Cash and cash equivalents 7,511,420 6,419,184
Investment securities:
Available for sale, carried at market value 1,979,062 1,754,843
Held for long-term investment, carried at amortized
cost which approximates market value 106,900 --
------------ ------------
Total investment securities 2,085,962 1,754,843
Portfolio loans:
Commercial 42,194,255 32,629,070
Real estate mortgage 1,039,587 950,976
Installment 418,617 443,928
------------ ------------
Total portfolio loans 43,652,459 34,023,974
Less allowance for loan losses (437,000) (341,000)
------------ ------------
Net portfolio loans 43,215,459 33,682,974
Premises and equipment 456,921 476,441
Accrued interest income 203,841 184,172
Other assets 174,261 353,706
------------ ------------
TOTAL ASSETS $ 53,647,864 $ 42,871,320
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 6,215,953 $ 5,368,074
Interest-bearing 42,568,710 33,654,759
------------ ------------
Total deposits 48,784,663 39,022,833
Accrued interest on deposits and other liabilities 274,781 141,559
------------ ------------
Total liabilities 49,059,444 39,164,392
STOCKHOLDERS' EQUITY:
Common stock, $6.50 par value,
241,546 shares authorized,
issued and outstanding 1,570,049 1,570,049
Surplus 3,236,952 2,686,952
Retained-earnings deficit (204,923) (553,517)
Market value adjustment (net of tax effect) for
investment securities available for sale
(accumulated other comprehensive income) (13,658) 3,444
------------ ------------
Total stockholders' equity 4,588,420 3,706,928
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 53,647,864 $ 42,871,320
============ ============
</TABLE>
See notes to interim financial statements.
D-9
<PAGE>
STATEMENTS OF OPERATIONS (UNAUDITED)
BRIGHTON COMMERCE BANK
Nine Months Ended
September 30
-------------------------
1999 1998
----------- -----------
Interest income:
Portfolio loans (including fees) $ 2,633,830 $ 1,423,212
Taxable investment securities 83,969 100,770
Federal funds sold 159,086 278,560
Interest-bearing deposits with banks and other 4,554 --
----------- -----------
Total interest income 2,881,439 1,802,542
Interest expense:
Demand deposits 430,156 244,300
Savings deposits 11,853 13,251
Time deposits 766,609 657,968
Other 4,471 --
----------- -----------
Total interest expense 1,213,089 915,519
----------- -----------
Net interest income 1,668,350 887,023
Provision for loan losses 96,000 142,000
----------- -----------
Net interest income after
provision for loan losses 1,572,350 745,023
Noninterest income:
Service charges on deposit accounts 47,189 25,767
Fees from origination of non-portfolio
residential mortgage loans 127,001 121,220
Other 32,869 17,389
----------- -----------
Total noninterest income 207,059 164,376
Noninterest expense:
Salaries and employee benefits 520,102 420,972
Occupancy 194,739 198,273
Equipment rent, depreciation and maintenance 84,541 46,601
Deposit insurance premiums 3,390 2,194
Other 445,043 394,224
----------- -----------
Total noninterest expense 1,247,815 1,062,264
----------- -----------
Income (loss) before federal income taxes 531,594 (152,865)
Federal income taxes (credit) 183,000 (50,000)
----------- -----------
NET INCOME (LOSS) $ 348,594 $ (102,865)
=========== ===========
NET INCOME (LOSS) PER SHARE $ 1.44 $ (0.43)
=========== ===========
See notes to interim financial statements.
D-10
<PAGE>
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
BRIGHTON COMMERCE BANK
<TABLE>
<CAPTION>
Accumulated
Retained- Other
Common Earnings Comprehensive
Stock Surplus Deficit Income Total
----- ------- ------- ------ -----
<S> <C> <C> <C> <C> <C>
Nine Months Ended September 30, 1998
Balances at January 1, 1998 $ 1,570,049 $ 1,129,952 $ (505,358) $ (506) $ 2,194,137
Supplemental capital infusions from
Capitol Bancorp Ltd. 1,097,000 1,097,000
Components of comprehensive income:
Net loss for the period (102,865) (102,865)
Market value adjustment for investment
securities available for sale
(net of tax effect) 7,624 7,624
-----------
Comprehensive income for the period (95,241)
----------- ----------- ----------- ----------- -----------
BALANCES AT SEPTEMBER 30, 1998 $ 1,570,049 $ 2,226,952 $ (608,223) $ 7,118 $ 3,195,896
=========== =========== =========== =========== ===========
Nine Months Ended September 30, 1999
Balances at January 1, 1999 $ 1,570,049 $ 2,686,952 $ (553,517) $ 3,444 $ 3,706,928
Supplemental capital infusions from
Capitol Bancorp Ltd. 550,000 550,000
Components of comprehensive income:
Net income for the period 348,594 348,594
Market value adjustment for investment
securities available for sale
(net of tax effect) (17,102) (17,102)
-----------
Comprehensive income for period 331,492
----------- ----------- ----------- ----------- -----------
BALANCES AT SEPTEMBER 30, 1999 $ 1,570,049 $ 3,236,952 $ (204,923) $ (13,658) $ 4,588,420
=========== =========== =========== =========== ===========
</TABLE>
See notes to interim financial statements.
D-11
<PAGE>
STATEMENTS OF CASH FLOWS (UNAUDITED)
BRIGHTON COMMERCE BANK
<TABLE>
<CAPTION>
Nine Months Ended September 30
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) for the period $ 348,594 $ (102,865)
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
Provision for loan losses 96,000 142,000
Depreciation of premises and equipment 60,584 41,877
Net accretion of investment security discounts (131) (7)
Loss on sale of premises and equipment 1,555
Increase in accrued interest income and other assets 168,586 (143,457)
Increase (decrease) in accrued interest on deposits and other
liabilities 133,222 30,219
------------ ------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 808,410 (32,233)
INVESTING ACTIVITIES
Proceeds from maturities of investment securities available for sale 750,000 1,745,000
Purchases of investment securities available for sale (1,106,900) (2,499,062)
Net increase in portfolio loans (9,628,485) (14,192,483)
Purchases of premises and equipment (42,619) (148,338)
------------ ------------
NET CASH USED BY INVESTING ACTIVITIES (10,028,004) (15,094,883)
FINANCING ACTIVITIES
Net increase (decrease) in demand deposits, NOW accounts
and savings accounts (2,186,378) 5,530,402
Net increase in certificates of deposit 11,948,208 5,510,075
Supplemental capital infusions from majority stockholder 550,000 1,097,000
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 10,311,830 12,137,477
------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,092,236 (2,989,639)
Cash and cash equivalents at beginning of period 6,419,184 7,889,248
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 7,511,420 $ 4,899,609
============ ============
</TABLE>
See notes to interim financial statements.
D-12
<PAGE>
NOTES TO INTERIM FINANCIAL STATEMENTS (UNAUDITED)
BRIGHTON COMMERCE BANK
NOTE A--BASIS OF PRESENTATION
The accompanying condensed financial statements of Brighton Commerce 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 Brighton considers necessary for a fair presentation of the interim
periods.
The results of operations for the nine-month period ended September 30,
1999 are not necessarily indicative of the results to be expected for the year
ending December 31, 1999.
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 requires the write-off of any such costs
previously capitalized. Implementation of this new statement had no effect on
the 1999 financial statements of Brighton Commerce Bank.
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 would 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 Brighton Commerce 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 Brighton Commerce Bank's financial statements.
D-13
<PAGE>
BRIGHTON COMMERCE BANK
----------
FINANCIAL STATEMENTS
PERIODS ENDED DECEMBER 31, 1998, AND 1997
D-14
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors and Stockholders
Brighton Commerce Bank
We have audited the accompanying balance sheets of Brighton Commerce Bank as of
December 31, 1998 and 1997, and the related statements of operations, changes in
stockholders' equity and cash flows for the years ended December 31, 1998 and
the period from January 8, 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 Brighton Commerce Bank at
December 31, 1998 and 1997, and the results of its operations and its cash flows
for the year ended December 31, 1998 and the period from January 8, 1997 (date
of inception) to December 31, 1997, in conformity with generally accepted
accounting principles.
/s/ BDO Seidman, LLP
January 29, 1999
D-15
<PAGE>
BALANCE SHEETS
BRIGHTON COMMERCE BANK
December 31
----------------------------
1998 1997
------------ ------------
ASSETS
Cash and due from banks $ 1,869,184 $ 1,039,248
Federal funds sold 4,550,000 6,850,000
------------ ------------
Cash and cash equivalents 6,419,184 7,889,248
Investment securities available for sale,
carried at market value--Note B 1,754,843 1,494,767
Portfolio loans--Note C:
Commercial 32,629,070 12,900,476
Real estate mortgage 950,976 540,506
Installment 443,928 375,720
------------ ------------
Total portfolio loans 34,023,974 13,816,702
Less allowance for loan losses (341,000) (139,000)
------------ ------------
Net portfolio loans 33,682,974 13,677,702
Premises and equipment--Note D 476,441 385,648
184,172 91,103
Accrued interest income 353,706 314,236
Other assets ------------ ------------
TOTAL ASSETS $ 42,871,320 $ 23,852,704
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 5,368,074 $ 3,897,365
Interest-bearing--Note G 33,654,759 17,620,209
------------ ------------
Total deposits 39,022,833 21,517,574
Accrued interest on deposits
and other liabilities 141,559 140,993
------------ ------------
Total liabilities 39,164,392 21,658,567
STOCKHOLDERS' EQUITY--Note K:
Common stock, par value $6.50 per share,
241,546 shares authorized,
issued and outstanding 1,570,049 1,570,049
Surplus 2,686,952 1,129,952
Retained-earnings deficit (553,517) (505,358)
Market value adjustment (net of tax effect)
for investment securities available for sale
(accumulated other comprehensive income) 3,444 (506)
------------ ------------
Total stockholders' equity 3,706,928 2,194,137
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 42,871,320 $ 23,852,704
============ ============
See notes to financial statements.
D-16
<PAGE>
STATEMENTS OF OPERATIONS
BRIGHTON COMMERCE BANK
Year Ended December 31
--------------------------
1998 1997
----------- -----------
Interest income:
Portfolio loans (including fees) $ 2,128,326 $ 586,612
Taxable investment securities 123,366 33,174
Federal funds sold 317,318 127,064
----------- -----------
Total interest income 2,569,010 746,850
Interest expense:
Demand deposits 353,302 79,976
Savings deposits 17,037 14,573
Time deposits 874,985 268,426
----------- -----------
Total interest expense 1,245,324 362,975
----------- -----------
Net interest income 1,323,686 383,875
Provision for loan losses--Note C 202,000 139,000
----------- -----------
Net interest income after
provision for loan losses 1,121,686 244,875
Noninterest income:
Service charges on deposit accounts 40,025 6,903
Fees from origination of non-portfolio
residential mortgage loans 180,130
Other 25,727 7,753
----------- -----------
Total noninterest income 245,882 14,656
Noninterest expense:
Salaries and employee benefits 584,153 351,444
Occupancy 259,524 166,846
Equipment rent, depreciation and maintenance 67,642 40,109
Deposit insurance premiums 2,738 1,595
Other 523,670 477,895
----------- -----------
Total noninterest expense 1,437,727 1,037,889
----------- -----------
Loss before federal income taxes (70,159) (778,358)
Federal income tax benefit--Note E (22,000) (273,000)
----------- -----------
NET LOSS $ (48,159) $ (505,358)
=========== ===========
NET LOSS PER SHARE $ (0.20) $ (2.09)
=========== ===========
See notes to financial statements.
D-17
<PAGE>
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
BRIGHTON COMMERCE BANK
<TABLE>
<CAPTION>
Accumulated
Retained- Other
Common Earnings Comprehensive
Stock Surplus Deficit Income Total
----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balances at January 8, 1997, beginning of period $ -0- $ -0- $ -0- $ -0- $ -0-
Issuance of 241,546 shares of common stock in
conjunction with formation of Bank 1,570,049 929,952 2,500,001
Supplemental capital infusions from Capitol
Bancorp Ltd 200,000 200,000
Components of comprehensive income (loss):
Net loss for the 1997 period (505,358) (505,358)
Market value adjustment (net of tax effect) for
investment securities available for sale (506) (506)
----------
Total comprehensive loss for 1997 (505,864)
---------- ---------- --------- ------- ----------
BALANCES AT DECEMBER 31, 1997 $1,570,049 $1,129,952 $(505,358) $ (506) $2,194,137
========== ========== ========= ======= ==========
Supplemental capital infusions from Capitol
Bancorp Ltd 1,557,000 1,557,000
Components of comprehensive income (loss):
Net loss for 1998 (48,159) (48,159)
Market value adjustment (net of tax effect) for
investment securities available for sale 3,950 3,950
----------
Total comprehensive loss for 1998 (44,209)
---------- ---------- --------- ------- ----------
BALANCES AT DECEMBER 31, 1998 $1,570,049 $2,686,952 (553,517) $ 3,444 $3,706,928
========== ========== ========= ======= ==========
</TABLE>
See notes to financial statements.
D-18
<PAGE>
STATEMENTS OF CASH FLOWS
BRIGHTON COMMERCE BANK
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss for the period $ (48,159) $ (505,358)
Adjustments to reconcile net loss to net
cash provided (used) by operating activities:
Provision for loan losses 202,000 139,000
Depreciation of premises and equipment 60,081 25,224
Net accretion of investment security discounts (28) (291)
Deferred income taxes (22,000) (273,000)
Increase in accrued interest income and other assets (112,574) (132,078)
Increase in accrued interest on deposits and other liabilities 566 140,993
------------ ------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 79,886 (605,510)
INVESTING ACTIVITIES
Proceeds from maturities of investment securities available for sale 3,245,000 245,000
Purchases of investment securities available for sale (3,499,063) (1,740,243)
Net increase in portfolio loans (20,207,272) (13,816,702)
Purchases of premises and equipment (150,874) (410,872)
------------ ------------
NET CASH USED BY INVESTING ACTIVITIES (20,612,209) (15,722,817)
FINANCING ACTIVITIES
Net increase in demand deposits, NOW accounts
and savings accounts 15,327,143 9,644,893
Net increase in certificates of deposit 2,178,116 11,872,681
Net proceeds from issuance of common stock 2,500,001
Supplemental capital infusions from majority stockholder 1,557,000 200,000
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 19,062,259 24,217,575
------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,470,064) 7,889,248
Cash and cash equivalents at beginning of period 7,889,248 -0-
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 6,419,184 $ 7,889,248
============ ============
</TABLE>
See notes to financial statements.
D-19
<PAGE>
NOTES TO FINANCIAL STATEMENTS
BRIGHTON COMMERCE BANK
DECEMBER 31, 1998
NOTE A--SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS AND BASIS OF PRESENTATION: Brighton Commerce Bank (the
"Bank") is a full-service commercial bank located in Brighton, Michigan. The
Bank commenced operations in January 1997. The Bank is 59% owned by Capitol
Bancorp Ltd., a bank holding company headquartered in Lansing, Michigan.
The Bank provides a full range of banking services to individuals, businesses
and other customers located in its community. A variety of deposit products are
offered, including checking, savings, money market, individual retirement
accounts and certificates of deposit. The principal market for the Bank's
financial services is the community in which it is located and the areas
immediately surrounding that community.
ESTIMATES: The preparation of financial statements in conformity with 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 are carried at
market value with unrealized gains and losses reported as a separate component
of stockholders' equity, net of tax effect. 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.
D-20
<PAGE>
NOTES TO FINANCIAL STATEMENTS--CONTINUED
BRIGHTON COMMERCE BANK
DECEMBER 31, 1998
NOTE A--SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
The allowance for loan losses is maintained at a level believed adequate by
management to absorb potential losses in the portfolio. Management's
determination of the adequacy of the allowance is based on evaluation of the
portfolio (including potential impairment of individual loans and concentrations
of credit), past loss experience, current economic conditions, volume, amount
and composition of the loan portfolio, loan commitments outstanding and other
factors. The allowance is increased by provisions charged to operations and
reduced by net charge-offs.
INTEREST AND FEES ON LOANS: Interest income on loans is recognized based upon
the principal balance of loans outstanding. Fees from origination of 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. These
properties held for sale are carried at the lower of cost or estimated fair
value at the date acquired and are periodically reviewed for subsequent
impairment.
TRUST ASSETS AND RELATED INCOME: Customer property, other than funds on deposit,
held in a fiduciary or agency capacity by the Bank is not included in the
balance sheet because such property 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 LOSS PER SHARE: Net loss per share is based on the weighted average number
of common shares outstanding (241,546 shares).
D-21
<PAGE>
NOTES TO FINANCIAL STATEMENTS--CONTINUED
BRIGHTON COMMERCE BANK
DECEMBER 31, 1998
NOTE A--SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
COMPREHENSIVE INCOME: "Comprehensive income", as that term is defined in FASB
Statement No. 130, 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.
Implementation of this new accounting standard in 1998 had no impact on the
Bank's financial position or results of operations.
NOTE B--INVESTMENT SECURITIES
Investment securities available for sale consisted of the following at December
31:
<TABLE>
<CAPTION>
1998 1997
----------------------- -----------------------
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
United States Treasury securities $ 749,625 $ 756,718 $ 495,533 $ 495,549
United States government
agency securities 1,000,000 998,125 1,000,000 999,218
---------- ---------- ---------- ----------
$1,749,625 $1,754,843 $1,495,533 $1,494,767
========== ========== ========== ==========
</TABLE>
At December 31, 1998, no securities were pledged to secure public and trust
deposits and for other purposes as required by law.
Gross unrealized gains (losses) of investment securities available for sale were
as follows at December 31:
<TABLE>
<CAPTION>
1998 1997
----------------------- -----------------------
Gains Losses Gains Losses
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
United States Treasury securities $ 7,093 $ 16
United States government agency
securities $ 1,875 $ (782)
---------- ---------- ---------- ----------
$ 7,093 $ 1,875 $ 16 $ (782)
========== ========== ========== ==========
</TABLE>
There were no gross realized gains and losses from sales and maturities of
investment securities available for sale during the periods ended December 31,
1998 and 1997.
D-22
<PAGE>
NOTES TO FINANCIAL STATEMENTS--CONTINUED
BRIGHTON COMMERCE BANK
DECEMBER 31, 1998
NOTE B--INVESTMENT SECURITIES--CONTINUED
Scheduled maturities of investment securities available for sale as of December
31, 1998 follows:
Estimated
Amortized Market
Cost Value
---------- ----------
Due in one year or less $ 250,236 $ 251,718
After one year, through five years 1,499,389 1,503,125
---------- ----------
$1,749,625 $1,754,843
========== ==========
NOTE C--LOANS
Transactions in the allowance for loan losses are summarized below:
1998 1997
---------- ----------
Balance at beginning of period $ 139,000 $-0-
Provision charged to operations 202,000 139,000
Loans charged off (deduction) -- --
Recoveries -- --
---------- ----------
$ 341,000 $ 139,000
========== ==========
At December 31, 1998 and 1997, 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:
1998 1997
---------- ----------
Leasehold improvements $ 289,953 $ 205,227
Equipment and furniture 271,793 205,645
---------- ----------
561,746 410,872
Less accumulated depreciation (85,305) (25,224)
---------- ----------
$ 476,441 $ 385,648
========== ==========
D-23
<PAGE>
NOTES TO FINANCIAL STATEMENTS--CONTINUED
BRIGHTON COMMERCE BANK
DECEMBER 31, 1998
NOTE D--PREMISES AND EQUIPMENT--CONTINUED
The Bank rents office space under an operating lease. Rent expense under this
lease agreement approximated $225,000 and $129,000 for the periods ended
December 31, 1998 and 1997, respectively. Future minimum rental payments under
operating leases that have initial or remaining noncancelable lease terms in
excess of one year as of December 31, 1998 aggregate $2,219,000 due as follows:
$236,000 in 1999, $243,000 in 2000, $250,000 in 2001, $258,000 in 2002, $265,000
in 2003 and $967,000 thereafter.
NOTE E--INCOME TAXES
Federal income taxes (benefit) consist of the following components:
1998 1997
---------- ----------
Current $ -0- $ -0-
Deferred (22,000) (273,000)
---------- ----------
$ (22,000) $ (273,000)
========== ==========
No federal income taxes were paid during 1998 or 1997.
Net deferred income tax assets consisted of the following at December 31:
1998 1997
---------- ----------
Net operating loss carryforward $ 216,000 $ 217,000
Allowance for loan losses 93,000 47,000
Other, net (14,000) 9,000
---------- ----------
Net deferred tax assets $ 295,000 $ 273,000
========== ==========
At December 31, 1998, the Bank has a net operating loss carryforward for federal
income tax purposes of approximately $634,000 which is available to offset
future taxable income through 2013.
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, 1998 and 1997, total loans to these
persons approximated $11,670,000 and $5,816,000, respectively. During 1998,
$8,793,000 of new loans were made to these persons and repayments totaled
$2,939,000. Such loans are made at the Bank's normal credit terms.
D-24
<PAGE>
NOTES TO FINANCIAL STATEMENTS--CONTINUED
BRIGHTON COMMERCE BANK
DECEMBER 31, 1998
NOTE F--RELATED PARTIES TRANSACTIONS--CONTINUED
Such officers and directors of the Bank (and their associates, family and/or
affiliates) are also depositors of the Bank. Such deposits are similarly made at
the Bank's normal terms as to interest rate, term and deposit insurance.
The Bank purchases certain data processing and management services from Capitol
Bancorp Ltd. Amounts paid for such services aggregated $269,000 and $269,000 for
the periods ended December 31, 1998 and 1997, respectively.
NOTE G--DEPOSITS
The aggregate amount of time deposits of $100,000 or more approximated
$7,530,000 and $6,043,000 as of December 31, 1998 and 1997, respectively.
At December 31, 1998, the scheduled maturities of time deposits of $100,000 or
more were as follows:
1999 $7,019,089
2000 410,911
Thereafter 100,000
----------
Total $7,530,000
==========
Interest paid approximates amounts charged to operations on an accrual basis for
the periods presented.
NOTE H--EMPLOYEE BENEFIT PLANS
Subject to eligibility requirements, the Bank's employees participate in the
employee benefit plans of Capitol Bancorp Ltd. Amounts charged to expense by the
Bank for these defined contribution plans approximated $22,400 in 1998 and
$8,600 in 1997.
D-25
<PAGE>
NOTES TO FINANCIAL STATEMENTS--CONTINUED
BRIGHTON COMMERCE BANK
DECEMBER 31, 1998
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>
1998 1997
-------------------- --------------------
Estimated Estimated
Carrying Fair Carrying Fair
Value Value Value Value
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Financial Assets:
Cash and cash equivalents $ 6,419 $ 6,419 $ 7,889 $ 7,889
Investment securities available for sale 1,755 1,755 1,495 1,495
Portfolio loans:
Fixed rate 21,792 21,808 10,224 10,228
Variable rate 12,232 12,229 3,593 3,565
-------- -------- -------- --------
Total portfolio loans 34,024 34,037 13,817 13,793
Less allowance for loan losses (341) (341) (139) (139)
-------- -------- -------- --------
Net portfolio loans 33,683 33,696 13,678 13,654
Financial Liabilities:
Deposits:
Noninterest-bearing deposits 5,368 5,368 3,897 3,897
Interest-bearing deposits
Demand accounts 19,605 19,618 5,748 5,748
Time certificates of deposit less
than $100,000 6,520 6,521 5,829 5,796
Time certificates of deposit
$100,000 or more 7,530 7,537 6,043 6,060
-------- -------- -------- --------
Total interest-bearing deposits 33,655 33,676 17,620 17,604
-------- -------- -------- --------
Total deposits 39,023 39,044 21,517 21,501
</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-26
<PAGE>
NOTES TO FINANCIAL STATEMENTS--CONTINUED
BRIGHTON COMMERCE BANK
DECEMBER 31, 1998
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 ($258,000 outstanding at
December 31, 1998 and none in 1997). Other loan commitments outstanding consist
of unused lines of credit and approved, but unfunded, specific loan commitments
($9,950,000 and $2,215,000 at December 31, 1998 and 1997, 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.
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 I' and `Tier II' 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, 1998, 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, 1998, that the Bank meets all capital
adequacy requirements to which it is subject.
D-27
<PAGE>
NOTES TO FINANCIAL STATEMENTS--CONTINUED
BRIGHTON COMMERCE BANK
DECEMBER 31, 1998
NOTE K--CAPITAL REQUIREMENTS--CONTINUED
The Bank's various amounts of regulatory capital and related ratios as of
December 31, 1998 and 1997 are summarized below (amounts in thousands):
1998 1997
------ ------
Total capital to total assets:
Actual amount $3,412 $1,921
Ratio 8.01% 8.15%
Minimum required amount (8%) > $3,406 > $1,886
- -
Tier I capital to risk-weighted assets:
Actual amount $3,408 $1,922
Ratio 9.59% 11.99%
Minimum required amount (4%) > $1,422 > $ 641
- -
Combined Tier I and Tier II capital to risk-
weighted assets:
Actual amount $3,749 $2,061
Ratio 10.55% 12.86%
Minimum required amount (8%) > $2,844 > $1,282
- -
Amount required to meet "Well-Capitalized"
category (10%) $3,554 $1,603
As a condition of charter approval, the Bank is required to maintain a Tier I
capital to assets ratio of not less than 8% and an allowance for loan losses of
not less than 1% of portfolio loans for its first three years of operations.
D-28
<PAGE>
ANNEX E
FINANCIAL AND OTHER INFORMATION REGARDING CAPITOL BANCORP LTD.
The following items accompany this Proxy Statement/Prospectus as mailed to the
shareholders of Brighton Commerce Bank:
- Report on Form 10-Q for period ended September 30, 1999
- Report on Form 10-Q for period ended June 30, 1999
- Report on Form 10-Q for period ended March 31, 1999
- Annual report to shareholders for year ended December 31, 1998
- Annual report on Form 10-K for year ended December 31, 1998
- Proxy statement for Capitol's Annual Meeting of Shareholders held on
May 4, 1999
E-1
<PAGE>
PART II
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Sections 561-571 of the Michigan Business Corporation Act, as amended (the
"MBCA"), grant the Registrant broad powers to indemnify any person in connection
with legal proceedings brought against him by reason of his present or past
status as an officer or director of the Registrant, provided that the person
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Registrant, and with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. The MBCA also gives the Registrant broad powers to indemnify any
such person against expenses and reasonable settlement payments 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 or not opposed to
the best interests of the Registrant, except that no indemnification may be made
if such person is adjudged to be liable to the Registrant unless and only to the
extent the court in which such action was brought determines upon application
that, despite such adjudication, but in view of all the circumstances of the
case, the person is fairly and reasonably entitled to indemnity for reasonable
expenses as the court deems proper. In addition, to the extent that any such
person is successful in the defense of any such legal proceeding, the Registrant
is required by the MBCA to indemnify him against expenses, including attorneys'
fees, that are actually and reasonably incurred by him in connection therewith.
The Registrant's Articles of Incorporation contain provisions entitling
directors and executive officers of the Registrant to indemnification against
certain liabilities and expenses to the full extent permitted by Michigan law.
Under an insurance policy maintained by the Registrant, the directors and
officers of the Registrant are insured within the limits and subject to the
limitations of the policy, against certain expenses in connection with the
defense of certain claims, actions, suits or proceedings, and certain
liabilities which might be imposed as a result of such claims, actions, suits or
proceedings, which may be brought against them by reason of being or having been
such directors and officers.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
Reference is made to the Exhibit Index at Page II-7 of the
Registration Statement.
(b) Financial Statement Schedules included in the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1998 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:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933 (the "Securities Act");
II-1
<PAGE>
(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.
(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
II-2
<PAGE>
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 Lansing, Michigan on December 1,
1999.
CAPITOL BANCORP LTD.
By: /s/ Joseph D. Reid
-------------------------------------
JOSEPH D. REID
Chairman of the Board
President 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, Robert C. Carr, and Lee W.
Hendrickson and each of them (with full power to each of them to act alone), his
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all amendments (including post-effective amendments)
to this Registration Statement, including any Registration Statement for the
same offering that is to be effective upon filing pursuant to Rule 462(b) under
the Securities Act of 1933, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on December 1, 1999.
II-4
<PAGE>
Signature Title
- --------- -----
/s/ Joseph D. Reid Chairman of the Board, President
- --------------------------- and Chief Executive Officer,
Joseph D. Reid Director (Principal Executive Officer)
/s/ Lee W. Hendrickson Chief Financial Officer (Principal
- --------------------------- Financial and Accounting Officer)
Lee W. Hendrickson
/s/ Robert C. Carr Executive Vice President, Treasurer, Director
- ---------------------------
Robert C. Carr
/s/ David O'Leary Secretary, Director
- ---------------------------
David O'Leary
Director
- ---------------------------
Louis G. Allen
/s/ Paul R. Ballard Director
- ---------------------------
Paul R. Ballard
/s/ David L. Becker Director
- ---------------------------
David L. Becker
/s/ Douglas E. Crist Director
- ---------------------------
Douglas E. Crist
Director
- ---------------------------
James C. Epolito
/s/ Gary A. Falkenberg Director
- ---------------------------
Gary A. Falkenberg
II-5
<PAGE>
Signature Title
- --------- -----
/s/ Joel E. Ferguson Director
- ---------------------------
Joel I. Ferguson
Director
- ---------------------------
Kathleen A. Gaskin
/s/ H. Nicholas Genova Director
- ---------------------------
H. Nicholas Genova
/s/ L. Douglas Johns Director
- ---------------------------
L. Douglas Johns
/s/ Michael E. Kasten Director
- ---------------------------
Michael L. Kasten
/s/ Leonard Maas Director
- ---------------------------
Leonard Maas
/s/ Lyle W. Miller Director
- ---------------------------
Lyle W. Miller
II-6
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
----------- -----------
(a)
2.1 Plan of Share Exchange (included in the Proxy
Statement/Prospectus as Annex A).
5 Opinion of Strobl Cunningham Caretti & Sharp, P.C. as
to the validity of the shares. (to be filed by
amendment)
8 Tax Opinion of Strobl Cunningham Caretti & Sharp, P.C.
(included in the Proxy Statement/Prospectus as Annex C).
23.1a and b Consent of BDO Seidman, LLP.
23.2 Consent of Strobl Cunningham Caretti & Sharp, P.C.
(included in Exhibit 5).
23.3 Consent of Strobl Cunningham Caretti & Sharp, P.C.
(included in Exhibit 8).
23.4 Consent of JMP Financial, Inc.
24 Power of Attorney (included on the signature page of
the Registration Statement).*
99 Form of proxy for the Special Meeting of Shareholders
of Brighton Commerce Bank.*
(b) Financial Statement Schedules included in the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1998 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.
EXHIBIT 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Capitol Bancorp Ltd.
Lansing, Michigan
We hereby consent to the use in the Prospectus constituting a part of the
Registration Statement on Form S-4 of Capitol Bancorp Ltd. of our report dated
January 29, 1999 relating to the consolidated financial statements of Capitol
Bancorp Ltd. which is contained in that Prospectus. We also consent to the
reference to us under the caption "Experts" in the Prospectus.
/s/ BDO SEIDMAN, LLP
Grand Rapids, Michigan
December 1, 1999
EXHIBIT 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Brighton Commerce Bank
Brighton, Michigan
We hereby consent to the use in the Prospectus constituting a part of the
Registration Statement on Form S-4 of Capitol Bancorp Ltd. of our report dated
January 29, 1999 relating to the financial statements of Brighton Commerce Bank
which is contained in that Prospectus. We also consent to the reference to us
under the caption "Experts" in the Prospectus.
/s/ BDO SEIDMAN, LLP
Grand Rapids, Michigan
December 1, 1999
EXHIBIT 23.4
_______________________, 1999
Capitol Bancorp Ltd.
200 Washington Square North, Fourth Floor
Lansing, MI 48933
RE: BRIGHTON COMMERCE BANK
Gentlemen:
JMP Financial, Inc. hereby consents to your including a copy of the
fairness opinion in the proxy statement/prospectus with regards to Brighton
Commerce Bank and to the reference to this firm in the proxy
statement/prospectus as financial advisor to Brighton Commerce Bank and under
the caption "Opinion of Financial Adviser".
Very truly yours,
/s/ JMP Financial, Inc.
EXHIBIT 99
BRIGHTON COMMERCE BANK
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
To Be Held On January 26, 2000
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS.
The undersigned shareholder of BRIGHTON COMMERCE BANK hereby appoints GARY
NICKERSON and ROBERT C. CARR, or either of them, to represent the undersigned at
the special meeting of the shareholders of BRIGHTON COMMERCE BANK to be held on
JANUARY 26, 2000, at 9:00 a.m. (local time), at Brighton Commerce Bank, 8700
North Second Street, Brighton, Michigan 48116, 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
January 31, 2000, between and among CAPITOL BANCORP LTD. and the shareholders of
BRIGHTON COMMERCE BANK to exchange the shares of common stock of BRIGHTON
COMMERCE BANK not now held by CAPITOL BANCORP LTD. for shares of common stock of
CAPITOL BANCORP LTD. according to the terms of the Plan of Share Exchange. After
the share exchange, BRIGHTON COMMERCE BANK will be a wholly owned subsidiary of
CAPITOL BANCORP LTD.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
[SIGNATURES ON REVERSE]
<PAGE>
Dated: JANUARY ________, 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.
