SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Community National Bancorporation
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(Exact name of registrant as specified in its charter)
Georgia 6711 58-1856963
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(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification
incorporation of Classification Number)
organization) Code Number)
561 East Washington Avenue - Box 2619
Ashburn, Georgia 31714-2619
(912) 567-9686
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(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
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With a copy to:
T. Brinson Brock, Sr. Daniel D. Dinur, Esquire
561 East Washington Avenue Dinur & Associates, P.C.
- Box 2619 990 Hammond Drive, Suite 760
Ashburn, Georgia 31714-2619 Atlanta, Georgia 30328
(912) 567-9686 (770) 395-3170
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(Name, address, including zip code, and telephone number of agent
for service)
Approximate date of commencement of the proposed sale of the
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 of 1933,
as amended, check the following box and list the 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 of 1933, as amended, check the
following box and list the registration statement number of the
earlier effective registration statement for the same offering.
______
CALCULATION OF REGISTRATION FEE
_____________ ______________ __________ _____________ ____________
Title of Amount To Be Proposed Proposed Amount
Each Class Registered (1) Maximum Maxiomum Registration
Of Offering Aggregate Fee (2)
Securities Price Per Offering
To Be
Registered
_____________ ______________ __________ _____________ ____________
Common 248,000 shares $7.69 $1,907,120 $513.18
_____________ ______________ __________ _____________ ____________
(1) Computed as the maximum number of shares of the Registrant
which may be issued in connection with the merger of Tarpon
Financial Corporation with and into the Registrant.
(2) Computed in accordance with Rule 457(f)(2) under the
Securities Act of 1933, as amended, solely for the purpose of
calculating the registration fee, on the basis of the book value
of the common stock of Tarpon Financial Corporation at September
30, 1999, there being 155,000 shares of such stock issued and
outstanding, having an aggregate book value on that date of
$1,908,000.
The Registrant hereby amends this Registration Statement on such
date or dates as may be necessary to delay its effective date
until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until the Registration
Statement shall become effective on such date as the SEC, acting
pursuant to such Section 8(a), may determine.
TARPON FINANCIAL CORPORATION
To Our Shareholders:
You are cordially invited to attend a special meeting of the
shareholders of Tarpon Financial Corporation, or Tarpon, to be
held at 710 East Tarpon Avenue, Tarpon Springs, Florida 34689, at
10:00 A.M., on January -----, 2000.
At the meeting, you will be asked to vote on a merger that
would result in Tarpon's bank subsidiary, First National Bank,
becoming a subsidiary of Community National Bancorporation and
Tarpon ceasing to exist. Community is a bank holding company
headquartered in Ashburn, Georgia, which owns two national banks,
and has approximately $127 million in assets. Its common stock
trades on the Over-The-Counter Bulletin Board.
In the merger, each of you will receive $24 in cash and
common stock of Community for each share of Tarpon common stock
you own just before the merger. Of the total cash and stock you
are entitled to receive for your Tarpon shares, no more than 40%
can be in cash. So, for each 100 Tarpon shares you own, you can
elect to receive more than $1,440 ($24 X .6 X 100) in Community
stock, but not less than such amount. The Community shares will
each be valued at $15 for purposes of the merger. Thus, if you
elected to receive the cash and Community stock in the 40% - 60%
proportion, you will receive $960 in cash and 96 shares of
Community stock for each 100 Tarpon shares you own.
Your Board of Directors has unanimously approved the proposed
merger after determining that the consideration to be paid by
Community is fair to and in the best interests of Tarpon and its
shareholders. The Board of Directors recommends that you vote FOR
the merger.
Whether or not you plan to attend the meeting, please
complete, date, sign and promptly return the enclosed proxy card
in the enclosed postage-paid envelope so that your shares may be
represented at the meeting. Your vote is very important.
Returning the proxy card does not deprive you of the right to
attend the meeting and vote your shares in person.
Please read the section entitled "Questions and Answers About
the Merger" on page 1 and "Risk Factors" on page 11 before
completing your proxy card.
Very truly yours,
Mary Z. Smitzes
Chairman of the Board of Directors
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or passed upon the adequacy or accuracy of this
prospectus. Any representation to the contrary is a criminal
offense. These securities are not earnings on deposit accounts and
they are not insured by the Federal Deposit Insurance Corporation
or any other governmental agency.
Community's common stock is listed on the OTC Bulletin Board
under the ticker symbol "CBAC."
This Proxy Statement/Prospectus is dated December ---, 1999
and was first mailed to Tarpon shareholders on or about December -
- --, 1999.
TARPON FINANCIAL CORPORATION
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
Tarpon will hold a special meeting of its shareholders at its
main office at 710 East Tarpon Avenue, Tarpon Springs, Florida, at
10:00 A.M., local time, on January ---, 2000 for the following
purposes:
1. To consider the approval of an Agreement and Plan of Merger,
effective October 8, 1999, by and between Community and Tarpon,
and the transactions contemplated by the Agreement and Plan of
Merger. These transactions include the merger of Tarpon with and
into Community, and all matters necessary or incidental to the
merger; and
2. Any other matters that may properly come before the Special
Meeting or any adjournment thereof.
Only shareholders of record at the close of business on
December ---, 1999, will be entitled to receive notice of and to
vote at the Special Meeting or any adjournment thereof.
Tarpon shareholders will have the right to dissent from the
merger and receive payment in cash for the fair value of their
Tarpon shares by following the procedures set forth in Section
607.1301 et. seq. of the Florida Business Corporation Act, as
amended. A copy of these sections is attached as Appendix "A" to
the enclosed Proxy Statement/Prospectus.
______________________________
Mary Z. Smitzes
Chairman of the Board of
Directors
Tarpon Springs, Florida
December ---, 1999
Whether or not you plan to attend the Special Meeting ,
please complete, sign, date, and promptly return the accompanying
proxy in the enclosed self-addressed, postage-paid envelope.
TABLE OF CONTENTS
Page
QUESTIONS AND ANSWERS ABOUT THE MERGER........................1
SUMMARY.......................................................4
The Companies and Their Businesses.......................4
The Merger...............................................4
What the Tarpon Shareholders Will Receive................4
Our Reasons for the Merger...............................5
Opinion of Financial Advisor.............................5
Tarpon Special Shareholders' Meeting.....................5
Recommendation to Shareholders...........................6
Dissenters' Rights.......................................6
Vote Required to Approve the Merger......................6
Interests of Certain Persons in the Merger...............6
Conditions to the Merger; Regulatory Approvals...........7
Tax Considerations.......................................7
Effective Time of the Merger.............................8
Waiver and Amendment.....................................8
Termination of the Merger Agreement......................8
Effect of the Merger on Rights of Tarpon Shareholders....8
Unaudited Comparative Pro Forma Share Data...............9
Comparative Market Price Information....................10
Pro Forma Financial Information.........................11
RISK FACTORS.................................................11
Because the exchange price is fixed, you may
receive less than you expected in value for your
Tarpon shares.........................................11
You may have difficulty in selling your Community
shares because of the sporadic and thin trading
market for such shares................................11
It will be difficult for anyone to take over Community..11
A WARNING ABOUT FORWARD-LOOKING STATEMENTS..............12
THE SPECIAL MEETING..........................................13
General Information.....................................13
Voting Information......................................13
THE MERGER...................................................14
The Merger Agreement....................................14
How the Merger Will Work................................15
Background of and Reasons for the Merger................15
Recommendation of Tarpon's Board of Directors...........16
Opinion of Financial Adviser............................16
Conditions Precedent to Closing.........................21
Regulatory Approvals....................................22
Waiver and Amendment....................................22
Termination.............................................22
Interests of Certain Persons in the Merger..............22
Employee Benefits.......................................23
Income Tax Considerations...............................23
Accounting Treatment....................................25
Expenses................................................25
Resales of the Community Shares.........................25
OTC Bulletin Board Listing; Future NASDAQ
National Market Listing...............................26
DESCRIPTION OF STOCK AND EFFECT OF MERGER ON THE RIGHTS OF
TARPON SHAREHOLDERS........................................26
Capitalization of Community.............................27
Staggered Board of Directors; Supermajority Approvals...27
Capitalization of Tarpon................................28
Rights of Dissent and Appraisal.........................28
DESCRIPTION OF COMMUNITY.....................................30
Business................................................30
Additional Information..................................30
SUPERVISION AND REGULATION...................................31
Community...............................................31
Tarpon..................................................33
DESCRIPTION OF TARPON........................................33
Background..............................................33
Business................................................34
Market for Tarpon Shares and Related
Shareholder Matters...................................35
Management's Discussion and Analysis of Financial
Condition and Results of Operation For the Years Ended
December 31, 1998 and 1997 and the Nine Months Ended
September 30, 1999 and September 31, 1998.............35
EXPERTS......................................................37
Community...............................................37
Tarpon..................................................37
OTHER MATTERS................................................37
SHAREHOLDER PROPOSALS........................................38
WHERE YOU CAN FIND MORE INFORMATION..........................38
INDEX TO FINANCIAL STATEMENTS OF TARPON......................40
APPENDICES
Appendix "A" - Sections 607.1301, 607.1302 and 607.1320
of the Florida Business Corporation Act
Appendix "B" - Opinion of Alan C. Ewing & Co.
Appendix "C" - Agreement and Plan of Merger
Appendix "D" - Tax Opinion of Francis & Co., CPA's
Appendix "E" - Amended and Restated Articles of
Incorporation of Community
Appendix "F" - Amended and Restated Bylaws of Community
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: What is the proposed merger?
A: Community has agreed to acquire all of the issued and
outstanding Tarpon shares in a merger of Tarpon with and into
Community. As a result, Tarpon's bank subsidiary, First
National Bank, would become a wholly-owned subsidiary of
Community and Tarpon would cease to exist. The merger is
subject to the approval of a majority of the Tarpon shares.
Q: Who is Community?
A: Community is a 10-year old bank holding company headquartered
in Ashburn, Georgia. It owns two national banks, Community
National Bank, based in Ashburn, Georgia, and Cumberland
National Bank, based in St. Mary's, Georgia. It has assets of
$126.7 million and capital of $13.3 million and its shares are
traded on the OTC Bulletin Board.
Q: What will the Tarpon shareholders receive in the merger?
A: Each Tarpon share is valued in the merger at $24. A Tarpon
shareholder my elect to receive cash and Community shares or
only Community shares in exchange for his/her Tarpon shares, but
any cash he/she elects to receive cannot exceed 40% of the total
value of the consideration he/she is entitled to receive in the
merger. The Community shares are each valued at $15 for purposes
of the merger so that 1.6 Community shares have a value
equivalent to one Tarpon share. The $15 value is equal to the
average price the Community shares have been trading in sporadic
trading since June 1999, on the OTC Bulletin Board. As a result,
for each 100 Tarpon shares, a Tarpon shareholder can receive:
* 160 Community shares if he/she elects to take all of the
consideration in Community shares;
* $960 in cash and 96 Community shares if he/she elects to take
the maximum permissible cash consideration; or
* less than $960 in cash and more Community shares, if he/she
decides to take a position in between these two extremes.
Note that the $15 value and 1.6:1 exchange ratio will not
be adjusted if Community shares trade at a higher or lower level
immediately before the merger.
Q: Will the Community shares received by the Tarpon shareholders
be freely tradable?
A: Yes. This Proxy Statement/Prospectus is part of a
Registration Statement which became effective with the
Securities and Exchange Commission on December ___, 1999. As a
result, the Community shares will become freely tradable without
restrictions immediately after the merger is completed, except
in the hands of those Tarpon shareholders who serve as directors
or officers or who own on the date of this Special Meeting 10%
or more of the total shares of Community. See, "The Merger -
Resales of the Community Shares," on page 25.
Q: Does Tarpon's Board of Directors recommend voting in favor of
the merger?
A: Yes. After careful consideration, Tarpon's Board of
Directors unanimously recommends that the shareholders vote in
favor of the merger. In the directors' opinion, the merger is an
opportunity for First National Bank to become part of a larger,
better capitalized bank holding company structure, with
experienced management, and thus better equipped to compete in
Tarpon's marketplace. At the same time, it is also an
opportunity to preserve First National Bank's local identity.
Also, as a result of the merger, Tarpon shareholders will
exchange their non-publicly traded Tarpon shares for publicly-
traded Community shares. In this connection, after the merger,
Community's stock will satisfy the listing requirements of the
NASDAQ National Market. As the Community shares become listed on
NASDAQ, Tarpon shareholders will have access to an even broader
public market when wishing to sell their Community shares. In
recommending that the merger be approved, the Board of Directors
also relied on an opinion from the investment banking firm of
Alan C. Ewing & Co. For a more complete description of the
Board's recommendation, see "The Merger - Recommendation of
Tarpon's Board of Directors," on page 16.
Q: Have any Tarpon shareholders already indicated how they are
going to vote on the merger?
A: Yes. Mary Z. Smitzes, Chairman of the Board of Tarpon, and
the other directors and executive officers who together own
94,250, or 60.8%, of the Tarpon shares, have stated that they
will vote FOR the merger.
Q: How will the merger be treated for federal income tax
purposes?
A: Community and Tarpon received an opinion from Francis & Co.,
CPA's, that the merger will qualify as a tax-free reorganization
under the Internal Revenue Code of 1986, as amended. Tarpon
shareholders who receive only Community shares as consideration
in the merger will recognize no gain or loss. However, those
Tarpon shareholders receiving cash as partial consideration will
recognize gain or loss based on the cash received. See "The
Merger - Income Tax Considerations," on page 23.
Q: If I vote against the merger but the merger is approved, does
Florida law entitle me to dissent and appraisal rights?
A: Yes. Under Florida law, each Tarpon shareholder may dissent
from the merger and receive in cash the fair value, as of the
day prior to the Special Meeting, of his/her Tarpon shares.
Tarpon shareholders wishing to elect this option must strictly
comply with the procedure set forth in the Florida Business
Corporation Act. For a detailed summary of the procedure, see
"Description of Stock and Effects of Merger on Rights of Tarpon
Shareholders - Rights of Dissent and Appraisal," on page 28.
Q: When will the merger take place?
A: The merger will take place only after it is approved by the
holders of a majority of the Tarpon shares, with not more than
5% of such shares having elected dissenters' rights as described
above, and it is approved by the banking regulatory authorities.
As of the date of this Proxy Statement/Prospectus, the banking
regulators have not yet given final approval of the merger. You
will receive the Community shares and cash, if any, to which you
are entitled as soon as practicable after you indicate in
writing how many Community shares and how much cash you elect to
receive for your Tarpon shares.
Q: What do I need to do now?
A: After you have carefully read this Proxy
Statement/Prospectus, mail your signed proxy card in the
enclosed envelope as soon as possible so that your Tarpon shares
may be represented at the Special Meeting. If you do not
include instructions on how to vote your properly signed proxy,
your Tarpon shares will be voted "FOR" the approval of the
merger.
Q: If my Tarpon shares are held in "street name" by my broker,
will my broker vote my Tarpon shares for me?
A: Your broker will not be able to vote your Tarpon shares
without instructions from you. Your failure so to instruct your
broker will result in your Tarpon shares not being voted. If
you fail to return a proxy card or abstain from voting, the
effect will be a vote "AGAINST" the merger.
Q: Can I change my vote after I have submitted my proxy?
A: Yes. There are three ways you can change your vote. First,
you may send a written notice to the Secretary of Tarpon stating
that you would like to revoke your proxy. Second, you may
complete and submit a new proxy card by mail or submit your
proxy with new voting instructions. Third, you may attend the
Special Meeting and vote in person. Simply attending the Special
Meeting without voting, however, will not revoke your proxy. If
you have instructed a broker to vote your shares, you must
follow the procedure that you will have received from your
broker as to how to change or revoke your proxy.
Q: Who should I call with questions?
A: You may call Barbara Richards at (727) 938-9771 with any
questions about the merger. You may also obtain additional
information about Community from documents filed by Community
with the Securities and Exchange Commission by following the
instructions in the section entitled "Where You Can Find More
Information," on page 38.
SUMMARY
This summary highlights selected information contained in
this Proxy Statement/Prospectus and related documents. Because
this is a summary, it does not contain all of the information
that may be important to you. To understand the merger fully,
you should read this entire document and the other documents
that we have referred you to.
The Companies and Their Businesses
- ----------------------------------
Community National Bancorporation
561 East Washington Street, Box 2619
Ashburn, Georgia 31714-2619
Community, a Georgia corporation, is registered as a bank
holding company under the Bank Holding Company Act of 1956, as
amended. As of September 30, 1999, Community had total assets
of $126.7 million, total deposits of $112.4 million,
shareholders' equity of $13.3 million, and net loans of $104.6
million. Through its two banking subsidiaries, Community
National Bank and Cumberland National Bank, Community presently
provides banking services at 4 offices located in the State of
Georgia. See "Description of Community," on page 30.
Tarpon Financial Corporation
710 East Tarpon Avenue
Tarpon Springs, Florida 34689
Tarpon, a Florida corporation, is registered as a bank
holding company under the Bank Holding Company Act. As of
September 30, 1999, Tarpon had total assets of $20.8 million,
total deposits of $18.7 million, total shareholders' equity of
$1.9 million and net loans of $11.8 million. Through its
banking subsidiary, First National Bank, Tarpon Springs, Tarpon
presently provides banking services at an office in Tarpon
Springs, Florida. See "Description of Tarpon," on page 33.
The Merger
Tarpon will be merged with and into Community, with
Community being the survivor of the merger. After the merger,
Community will operate First National Bank as its wholly-owned
subsidiary.
What the Tarpon Shareholders Will Receive
In the merger, each Tarpon share will be cancelled and
converted into the right to receive, at the election of its
holder either $24.00 in cash or 1.6 Community shares, provided,
that in no event shall the total package of cash and Community
shares received by any Tarpon shareholder contain less than 60%
Community shares. No fractional Community shares will be issued
in connection with the merger. Cash (without interest) will be
paid instead of issuing fractional shares.
Our Reasons for the Merger
The Board of Directors of Tarpon considered a variety of
factors in evaluating the merger. These factors included the
following:
* the value of the consideration to be received by the Tarpon
shareholders relative to the book value and earnings per
share of the Tarpon shares;
* information concerning the financial condition, results of
operations and business prospects of Community and the
compatibility of Community's community banking concept with
Tarpon's;
* the financial terms of recent mergers in the financial
services industry;
* the alternatives to the merger, including remaining an
independent institution;
* the competitive and regulatory environment for financial
institutions generally;
* the fact that the merger will enable Tarpon shareholders to
exchange their Tarpon shares, in a tax-free or partially tax-
free transaction, for shares of common stock of a larger bank
holding company, the stock of which is publicly traded; and
* the opinion of Allen C. Ewing & Co., investment bankers, or
Ewing, that the consideration to be received by Tarpon
shareholders as a result of the merger is fair from a
financial point of view.
The Board of Directors of Community, after careful study
and evaluation of relevant factors, believes that the merger
will provide Community with expanded market opportunities for
profitable long-term growth. The Community Board believes that
the merger will result in the profitable integration of Tarpon
as a well-positioned banking organization into Community's
existing organization. See "The Merger - Background of and
Reasons for the Merger," on page 15.
Opinion of Financial Adviser
Ewing has rendered an opinion to Tarpon's Board of
Directors that the merger is fair from a financial point of view
to Tarpon and its shareholders. A copy of the opinion is
attached as Appendix "B" to this Proxy Statement/Prospectus. We
urge you to read the opinion in its entirety to understand the
assumptions made, other matters considered and the reviews
undertaken. See "The Merger - Opinion of Financial Adviser," on
page 16.
Tarpon Special Shareholders' Meeting
The Special Meeting will be held at 10:00 A.M., local time,
on January __, 2000, at Tarpon's main office at 710 East Tarpon
Avenue, Tarpon Springs, Florida 34689. Only holders of Tarpon
shares on December ___, 1999, will be entitled to vote at the
Special Meeting. See "The Special Meeting," on page 13.
Recommendation to Shareholders
The Board of Directors of Tarpon has determined that the
merger is in the best interests of the shareholders of Tarpon
and has approved the Agreement and Plan of Merger, or the Merger
Agreement, which governs the merger and a copy of which is
attached as Appendix "C" to this Proxy Statement/Prospectus.
Accordingly, the Board of Directors unanimously recommends that
the shareholders of Tarpon vote "FOR" the merger. See "The
Merger - Recommendation of Tarpon's Board of Directors," on page
16.
Dissenters' Rights
Sections 607.1301, 607.1302 and 607.1320 of the Florida
Business Corporation Act, as amended, entitle Tarpon
shareholders to statutory dissenters' rights of appraisal with
respect to the merger. These sections are reprinted in their
entirety as Appendix "A" to this Proxy Statement/Prospectus.
You may lose these dissenters' rights if you do not precisely
follow the statutory procedure for exercising dissenters'
rights. See "Description of Stock and Effect of Merger on the
Rights of Tarpon Shareholders - Rights of Dissent and
Appraisal," on page 28.
Vote Required to Approve the Merger
The holders of a majority of the issued and outstanding
Tarpon shares entitled to vote at the Special Meeting must
approve the Merger Agreement and authorize the merger. The
Tarpon shareholders are entitled to one vote on each matter to
be considered and voted on at the Special Meeting for each
Tarpon Share held by them of record at the close of business on
December __, 1999.
In comparison to the requirement that a simple majority
approve the merger, as of December ___, 1999, Tarpon's present
directors and executive officers had the power to vote, or
direct the voting of, approximately 60.8% of the outstanding
Tarpon shares. We expect that all of the Tarpon shares as to
which Tarpon's directors and executive officers control the
voting power will be voted to approve the Merger Agreement and
the merger. Approval of the merger by the Community
shareholders is not required and will not be sought. See "The
Special Meeting - Voting Information," on page 13.
Interests of Certain Persons in the Merger
Except for Mary Z. Smitzes, no officer or director of
Tarpon, or an associate of any such person, has any direct or
indirect material interest in the merger, including any
agreements for continued employment after the merger. Mrs.
Smitzes and Community will enter into a consulting agreement
which will continue for 5 years after the merger. Tarpon's
Board of Directors was aware of such agreement and took it into
account in approving the merger.
Conditions to the Merger; Regulatory Approvals
Consummation of the merger is subject to various
conditions, including:
* receipt of Tarpon shareholder approval where not more than 5%
of the Tarpon shares elect to dissent from the merger;
* receipt of the necessary regulatory approvals (described more
fully below);
* receipt of an opinion from Francis & Co., CPA's, regarding
certain tax aspects of the merger (which has been satisfied)
and;
* satisfaction of other customary closing conditions.
Consummation of the merger is subject to the receipt of the
prior approval of the Board of Governors of the Federal Reserve
System, or the Fed, under the Bank Holding Company Act. Upon
such approval, the U. S. Department of Justice will have up to
30 days to object to the merger on antitrust grounds, but may
shorten its review period to fifteen days. An application for
prior approval has been submitted but has not yet been approved.
See "The Merger - Conditions Precedent to Closing," on page 21
and "Regulatory Approvals," on page 22.
Tax Considerations
Community and Tarpon have received an opinion from Francis
& Co., CPA's, a copy of which is attached as Appendix "D" to his
Proxy Statement/Prospectus, that, among other things, for
federal income tax purposes:
* the merger will constitute a tax-free "reorganization" within
the meaning of Section 368(a)(1)(A) of the Internal Revenue
Code of 1986, as amended, or the Tax Code;
* Tarpon shareholders who receive only Community common stock
in exchange for their Tarpon common stock will not recognize
gain or loss in the merger except with respect to any
fractional share of Community common stock for which cash is
received;
* Tarpon shareholders who receive a combination or Community
common stock and cash in exchange for their Tarpon common
stock will recognize gain equal to the lesser of
* the fair market value of the Community common stock plus
the amount of cash received, less his/her tax basis in
the Tarpon common stock surrendered, or,
* the amount of cash received;
* the tax basis of the Community common stock received in the
merger by a Tarpon shareholder will be the same as the tax
basis of the Tarpon common stock exchanged for such Community
common stock, decreased by an amount of cash received in the
exchange and increased by the amount of gain recognized by
the Tarpon shareholder in the exchange; and
* the holding period of the Community common stock received by
a Tarpon shareholder will period include the holding during
which the Tarpon shareholder held the Tarpon common stock
exchanged provided the Tarpon common stock is held as a
capital asset at the effective date of the merger.
For a more detailed discussion, see "The Merger - Income
Tax Considerations," on page 23. All Tarpon shareholders are
urged to consult their own tax advisors as to the specific
consequences to them of the merger under federal, state, local
and any other applicable tax laws.
Effective Time of the Merger
The merger will become effective when Articles of Merger
are filed with both the Florida and Georgia Secretaries of
State, which will take place not more than 10 business days
following the later to occur of the effective date of the last
required regulatory consent and the date on which the Tarpon
shareholders approve the merger. This date is referred to herein
as the "Effective Time of the Merger." Subject to the
conditions specified in the Merger Agreement, the parties
anticipate that the merger will become effective during the
first quarter of 2000. There can be no assurances, however, as
to whether or when the merger will occur. See "The Merger -
Conditions Precedent to Closing," on page 21 and "Regulatory
Approvals," on page 22.
Waiver and Amendment
Prior to the Effective Time of the Merger, any provision of
the Merger Agreement may be waived by the party entitled to the
benefits of such provision or by all parties, to the extent
allowed by law. Except as limited by law, the Merger Agreement
may be amended at any time by an agreement in writing between
Community and Tarpon. See "The Merger - Waiver and Amendment,"
on page 22.
Termination of the Merger Agreement
The Merger Agreement may be terminated at any time prior to
the Effective Time of the Merger by the mutual consent in
writing of Community and Tarpon. The Merger Agreement may also
be terminated by either party under certain other circumstances.
See "The Merger - Termination," on page 22.
Effect of the Merger on Rights of Tarpon Shareholders
At the Effective Time of the Merger, Tarpon shareholders
(other than shareholders who exercise their statutory
dissenters' rights against the merger) will automatically become
holders of Community shares. At that time, their rights as
shareholders of Community will be determined by the Georgia
Business Corporation Code and by Community's Articles of
Incorporation and Bylaws. The rights of shareholders of
Community differ from the rights of shareholders of Tarpon with
respect to certain important matters, including the required
shareholder votes as to certain matters. See "Description of
Stock and Effect of Merger on the Rights of Tarpon Shareholders,"
on page 26.
Unaudited Comparative Pro Forma Share Data
The following tables show summary historical financial data
for Community and Tarpon and also show similar information
reflecting the merger of Community and Tarpon which is referred
to as "pro forma" information. The pro forma amounts assume
that the merger had been effective during the periods presented
and had been treated as a "purchase" for accounting and
financial reporting purposes.
The information listed as "pro forma equivalent" for Tarpon
was computed by multiplying the pro forma amounts by the per
share exchange ratio of 1.6. This information reflects the fact
that Tarpon shareholders will receive more than one Community
share for each Tarpon share that they own before the merger.
The pro forma information, while helpful in illustrating
the financial characteristics of the continuation of Community
and Tarpon under one set of assumptions, does not attempt to
predict or suggest future results. The pro forma information
also does not attempt to show how Community and Tarpon would
actually have performed had they been combined throughout these
periods. All adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of results of the
unaudited historical interim periods have been included.
The information in the following tables is based on the
historical financial information that Community has presented in
its prior filings with the SEC and the historical financial
information for Tarpon included in this Proxy
Statement/Prospectus. When you read the summary financial
information provided in the following tables, you should also
read the historical financial information provided in this
document, which you can find beginning at page F-1, as well as
the historical financial information in the other documents to
which Community refers. See "Where You Can Find More
Information," on page 38.
As of
1998 September 30, 1999
Book value per share (period end):
Community $ 8.24 $ 8.65
Tarpon 12.87 12.12
Community pro forma combined 8.25 8.54
Tarpon pro forma combined 13.20 13.66
For the nine months
ended
1998 September 30, 1999
Cash dividends declared per share:
Community $ .10 $ .10
Tarpon .20 - -
Community pro forma combined .11 .09
Tarpon pro forma combined .18 .14
For the nine months
ended
1998 September 30, 1999
Diluted income per share:
Community $ .85 $ .59
Tarpon .38 (.50)
Community pro forma combined .79 .50
Tarpon pro forma combined 1.26 .80
Comparative Market Price Information
The Community shares trade on the OTC Bulletin Board. In
sporadic trading, during the three months prior to the public
announcement of the merger on October 12, 1999, and since that
date, some 2900 Community shares have traded, at an average
price of $15 per share.
No established trading market for the Tarpon shares exists.
Transactions in the Tarpon shares are infrequent and are
negotiated privately between the persons involved in such
transactions. Such transactions are not reported on an exchange
or other organized trading system. For these reasons, Tarpon
does not have reliable data regarding recent trading activity in
the Tarpon shares. As of the date of this Proxy
Statement/Prospectus, there were 307 holders of record of Tarpon
shares. To the best knowledge of Tarpon's management, the
Tarpon shares have always traded at or around $10.00 per share.
The last transaction in Tarpon shares prior to announcement of
the merger, for 100 shares, took place in April 1999, at a price
of $10.00 per share.
Based on this information, the following table sets forth
the closing price for Community common stock on October 11,
1999, the estimated sale price of Tarpon common stock on such
date and the Tarpon common stock equivalent, which is equal to
the closing price of Community common stock on October 11, 1999,
multiplied by 1.6:
Community Tarpon Common Tarpon Common
Common Stock Stock (estimated) Stock Equivalent
------------ ----------------- ----------------
$15.00 $10.00 $24.00
The market price of the Community shares may fluctuate
before and after completion of the merger. No assurances can be
given as to the market price of Community shares or Tarpon
shares at, or in the case of the Community shares, after the
effectiveness of the merger.
Pro Forma Financial Information
Pro forma financial information reflecting the acquisition
of Tarpon by Community is not presented here because the pro
forma effect is not significant.
RISK FACTORS
By voting in favor of the proposal to approve the merger,
you will be choosing to invest in the Community shares. An
investment in the Community shares involves a high degree of
risk. In addition to the other information included in this
document, you should consider the matters described below
carefully in determining whether to approve the merger.
Because the In the merger, each Tarpon share will be
eExchanged price exchanged for a combination of $24 in cash and
is fixed, you 1.6 shares of Community common stock. This may
receive exchange price will not be adjusted if there is
less than you an increase or decrease in the per share price
expected in of Community from the $15 value assumed for
value for your purposes of the merger. Should such share price
Tarpon shares. decrease, due to changes in the business or
operations of Community, or due to general
market conditions, you may receive less than you
expected in value for your Tarpon shares.
You may have The Community shares you will receive in the
difficulty in merger will be freely transferable. However, at
selling your this time, Community's common stock is traded
Community sporadically and thinly on the OTC Bulletin
shares because Board. After the merger, the Community common
of the sporadic stock will become eligible for listing on the
and thin NASDAQ National Market and management intends to
trading market so list it. Nevertheless, there is no assurance
for such that an active public market for your shares
shares. will develop.
It will be After the merger, you will become a shareholder
difficult for of Community. In this connection, Community's
anyone to take Articles of Incorporation and Bylaws contain
over Community. certain anti-takeover provisions. These
provisions include:
* The power vested in the Board of Directors to
fix the terms of any preferred stock in its
sole discretion;
* Staggered terms for the directors where only
a third of them stand for reelection in any
given year; and
* The requirement that two-thirds of the
shareholders approve mergers and similar
transactions, amendments to the Articles of
Incorporation and Bylaws and removal of
directors.
These provisions may discourage non-
negotiated takeover attempts that you might
consider to be in your best interest. They will
also tend to perpetuate existing management.
See "Description of Stock and Effect of Merger
on the Rights Tarpon Shareholders - Staggered
Board of Directors; Supermajority Approvals," on
page 27.
A WARNING ABOUT FORWARD-LOOKING STATEMENTS
Both Community and Tarpon make forward-looking statements
in this document and in the Community public documents, that are
subject to risks and uncertainties. These forward-looking
statements include information about possible or assumed future
results of operations. Also, when the words "believes,"
"expects," "anticipates" or similar expressions are used, we are
making forward-looking statements. Many possible events or
factors could affect the financial results and performance of
each of the two companies. This could cause results or
performances to differ materially from those expressed in our
forward-looking statements. You should consider these risks
when you vote on the merger. These possible events or factors
include the following:
* we may lose more deposits, customers, or business than we
expect;
* competition in the banking industry may increase
significantly;
* our operating costs after the merger may be greater than we
expect;
* technological changes and systems integration may be harder
to accomplish or more expensive than we expect;
* changes in the interest rate environment may reduce our
margins;
* general economic or business conditions may be worse than
we expect;
* legislative or regulatory changes may occur that adversely
affect our business;
* changes may occur in business conditions and inflation;
* changes may occur in the securities markets; and
* we may have more trouble obtaining regulatory approvals for
the merger than we expect.
THE SPECIAL MEETING
General Information
This Proxy Statement/Prospectus is being furnished to the
Tarpon shareholders in connection with the solicitation, by and
on behalf of the Board of Directors of Tarpon, of proxies for
use at the Special Meeting of shareholders of Tarpon to be held
at 10:00 A.M., local time, on January ___, 2000, at Tarpon's
main office at 710 East Tarpon Avenue, Tarpon Springs, Florida
34789, and at any adjournment thereof, and is being mailed on
December ___, 1999, to the Tarpon shareholders entitled to
receive notice of and to vote at the Special Meeting.
The Special Meeting has been called by the Board of
Directors of Tarpon so that Tarpon shareholders may consider and
vote upon a proposal to merge Tarpon with Community, with
Community as the resulting bank holding company, pursuant to the
Merger Agreement, a copy of which is attached as Appendix "C" to
this Proxy Statement/Prospectus and incorporated herein by this
reference. Upon the consummation of the merger, each Tarpon
share will be cancelled and converted into the right to receive
at the election of its holder $24.00 in cash or 1.6 Community
shares, provided that, except with respect to Tarpon shares held
by dissenting shareholders, in no event shall the total
consideration received by any Tarpon shareholder consist of
Community shares to the extent of less than 60%.
No fractional Community shares will be issued in connection
with the merger, but, rather, cash (without interest) will be
paid in lieu thereof, with the amount of cash in lieu of
fractional shares to be determined based upon the $15 per share
price.
Voting Information
At the close of business on December__, 1999,, the record
date for determining the Tarpon shareholders eligible to receive
notice of and to vote at the Special Meeting, 155,000 Tarpon
shares were issued and outstanding. With respect to all matters
to be considered and voted upon at the Special Meeting, each
holder of Tarpon shares is entitled to one vote for each Tarpon
share he or she holds on the record date.
The presence, in person or by proxy, of at least a majority
of the total number of outstanding Tarpon shares is necessary to
constitute a quorum at the Special Meeting. Some proxies may be
broker non-votes (marked to indicate that the shares are not
being voted on the Merger Agreement). Any proxy authorized to
be voted at the Special Meeting, whether or not the proxy is
marked to "ABSTAIN" or to effect a broker non-vote, will be
counted in establishing a quorum.
Approval of the Merger Agreement and the authorization of
the merger require the affirmative vote of the holders of a
majority of the issued and outstanding Tarpon shares entitled to
vote at the Special Meeting. Consequently, both abstentions and
broker non-votes will have the effect of a vote "AGAINST" the
approval of the Merger Agreement.
As of the record date for the Special Meeting, Tarpon's
directors, executive officers and their affiliates had the power
to vote, or direct the voting of, approximately 62% of the
issued and outstanding Tarpon shares entitled to be voted at the
Special Meeting. Tarpon's management anticipates that all
Tarpon shares as to which Tarpon's present directors, executive
officers and their affiliates control the voting power will be
voted "FOR" approval of the Merger Agreement and the
authorization of the merger.
Shares represented by properly executed proxies, if such
proxies are received at or prior to the Special Meeting and not
subsequently revoked, will be voted at the Special Meeting in
accordance with the choice specified therein, or, if no choice
is specified therein, will be voted "FOR" approval of the Merger
Agreement and the authorization of the merger. A proxy may be
revoked by its maker at any time before it is exercised by
giving written notice of revocation to Tarpon's secretary or by
properly submitting to Tarpon a duly executed proxy bearing a
later date. Attendance at the Special Meeting will constitute
revocation of the proxy if the shareholder elects to vote in
person.
The cost of soliciting proxies from holders of the Tarpon
shares will be borne by Tarpon. In addition to use of the mail,
Tarpon shareholders may be solicited by personal contact, or by
telephone, e-mail or other electronic communications, by
directors, officers or employees of Tarpon, who will receive no
additional compensation for these activities. Tarpon will
reimburse custodians, nominees and fiduciaries for reasonable
out-of-pocket expenses incurred by them in connection with this
solicitation of proxies.
THE MERGER
The terms of the proposed merger are set forth in the
Merger Agreement, which is incorporated by reference into and a
copy of which is attached as Appendix "C" to this Proxy
Statement/Prospectus. The following description of the merger
summarizes the principal provisions of the Merger Agreement;
however, it is not complete, and is qualified in all respects by
reference to the Merger Agreement. All Tarpon shareholders are
urged to read carefully the Merger Agreement, as well as all
other appendices, in their entirety.
The Merger Agreement
The Board of Directors of Tarpon has approved, and the
proper officers of Tarpon have executed and delivered, the
Merger Agreement. The Merger Agreement sets forth the terms of
the merger and contains representations and warranties of each
of Community and Tarpon, conditions precedent to each of
Community's and Tarpon's obligations to consummate the merger,
provisions relating to Tarpon's operations pending consummation
of the merger and certain other provisions.
How the Merger Will Work
At the Effective Time of the Merger, which is the date of
or to be specified in the certificate to be issued by the
Secretaries of State of Georgia and Florida causing the merger
to become effective, the issued and outstanding shares of Tarpon
common stock will be converted into the right to receive either
$24 in cash or 1.6 shares of Community common stock. Within 10
business days after the Effective Time of the Merger, Community,
as the Exchange Agent, will send to each Tarpon shareholder a
letter of transmittal. In this letter, each Tarpon shareholder
will be asked to select the relative percentage of cash (not to
exceed 40%) and Community shares he/she desires, and to attach
his/her Tarpon stock certificates. The cash and stock
certificates representing the Community shares will be
distributed by Community as promptly as practicable after
receipt of each letter of transmittal and the Tarpon stock
certificates.
Community will not issue fractional shares of Community
common stock in connection with the merger. Instead, Community
will pay cash (without interest) in lieu of fractional shares,
with the amount of cash to be paid in lieu of fractional shares
being determined based upon the $15 per share purchase price.
The delivery of cash and Community stock certificates may
be subject to possible forfeiture under applicable escheat laws
if Tarpon stock certificates are not surrendered for exchange
within the legally specified periods of time, which periods vary
with the state of residence of the certificate holder.
Therefore, we urge all Tarpon shareholders to surrender their
Tarpon stock certificates at the earliest possible date after
consummation of the merger.
On the basis of the number of shares of Tarpon common stock
which were outstanding on the date of this Proxy
Statement/Prospectus, a maximum of 248,000 shares and a minimum
of 148,800 shares of Community common stock may be issued to the
Tarpon shareholders pursuant to the terms of the Merger
Agreement.
Background of and Reasons for the Merger
In early April 1999, shortly before his death on April 18,
1999, Louis J. Smitzes, then Chairman of the Board and President
of Tarpon, having been introduced to Community by Francis & Co.,
CPA's, inquired with Community about a possible affiliation.
Immediately after Mr. Smitzes' death, the Board of Directors of
Tarpon intensified its efforts to examine all strategic
alternatives available to Tarpon, including a possible merger
with Community. After a thorough analysis of these alternatives,
it became apparent to the Board of Directors that a merger with
and into a larger, better capitalized bank holding company, but
one which will allow First National Bank to preserve its local
identity as a community bank and yet make First National Bank
better equipped to compete within its marketplace of Pinellas
County, would be the alternative best suited for Tarpon. The
Board of Directors then determined that a merger with and into
Community, not a large multi-state financial institution already
having banking subsidies in Florida, would meet Tarpon's
objectives, including the preservation of the local identity of
First National Bank as a community bank.
After a period of mutual due diligence and to allow Tarpon
to settle certain litigation, the Merger Agreement was
unanimously approved by the Board of Directors of both companies
on September 29, 1999, became effective on October 8, 1999 and
was publicly announced on October 12, 1999.
The terms of the merger were the result of arms'-length
negotiations between representatives of Tarpon and
representatives of Community. Without assigning any relative or
specific weights to the factors, the Board of Directors of
Tarpon considered the following material factors:
* the value of the consideration to be received by Tarpon
shareholders relative to the book value and earnings per
share of Tarpon common stock;
* information concerning the financial condition, results of
operations and business prospects of Community and the
compatibility of Community's banking concept with Tarpon's;
* the financial terms of recent business combinations in the
financial services industry;
* the alternatives to the merger, including remaining an
independent institution;
* the competitive and regulatory environment for financial
institutions generally;
* the fact that the merger will enable Tarpon shareholders to
exchange their Tarpon shares, in a tax-free or partially
tax-free transaction, for shares of common stock of a
larger bank holding company, the stock of which is publicly
traded; and
* the opinion of Ewing, that the consideration to be received
by Tarpon shareholders as a result of the merger is fair
from a financial point of view.
Each member of the Board of Directors of Tarpon has agreed
to vote his/her shares of Tarpon common stock in favor of the
merger.
TARPON'S BOARD OF DIRECTORS RECOMMENDS THAT TARPON SHAREHOLDERS
VOTE FOR THE PROPOSAL TO APPROVE THE MERGER AGREEMENT.
Management of Community believes that the merger will
provide Community with expanded market opportunities for
profitable long-term growth. Management of Community also
believes that the merger will result in a profitable integration
of Tarpon as a well positioned banking organization into
Community's existing organization.
Opinion of Financial Adviser
Tarpon has retained Ewing to render to Tarpon's Board of
Directors an opinion with respect to the fairness to the
shareholders of the consideration to be received in the merger
from a financial point of view. On December 2, 1999, Ewing
delivered to Tarpon a letter confirming the consideration to be
received as fair from a financial point of view. The full text
of the letter appearing as Appendix "B" to this Proxy
Statement/Prospectus, should be read carefully and in its
entirety. Ewing's opinion does not constitute a recommendation
to any shareholder as to how such shareholder should vote on the
proposed transaction. The fairness opinion was based upon
information available to Ewing as of the date the opinion was
rendered.
In rendering its opinion, Ewing has, among other things:
* reviewed certain publicly available financial and other
data with respect to Community, including audited financial
statements for the past three years, Tarpon's audited
financial statements for the past three years, and certain
other relevant financial and operating records of Tarpon
and Community;
* reviewed the Merger Agreement;
* reviewed certain historical market prices and trading
volumes of the Community common stock as reported by the
OTC Bulletin Board and historical and current market prices
for the Tarpon shares;
* considered the financial terms, to the extent publicly
available, of selected recent acquisitions of financial
institutions which Ewing deemed to be comparable, in whole
or in part, to the merger;
* analyzed the business prospects of Tarpon and Community,
and the economies of their respective markets;
* inquired about and discussed the Merger Agreement and other
related matters with Tarpon's counsel; and
* performed such other analyses and examinations as Ewing
deemed appropriate.
In connection with this review, Ewing assumed and relied on
the accuracy and completeness of the financial and other
information provided to it by Tarpon and Community. Ewing made
no independent verification of the supplied information, did not
make or obtain any evaluation or appraisal of the assets or
liabilities of Tarpon and did not review any credit or loan
files from Tarpon's loan portfolio. Ewing did hold discussions
with the management of Tarpon concerning its historical
operations and future prospects and the decision of its Board of
Directors to negotiate with Community. The opinion is based
upon market and economic conditions as they existed on the date
of the opinion. Events occurring after the date of issuance of
the opinion, including but not limited to, changes in the market
price of securities, the results of operations, or material
changes in the value of the assets or liabilities of Tarpon
could affect the assumptions used and the conclusions of the
opinion.
Ewing is a regional investment banking firm that
specializes in the research, trading, and provision of corporate
finance services to the banking and thrift industries. Tarpon's
Board of Directors selected Ewing to provide the opinion on the
basis of the firm's expertise in mergers and acquisitions of
community banks, prior experience with Community, and knowledge
of the history of Tarpon.
The following summary of the analysis performed by Ewing in
connection with its opinion is not a complete description of the
analysis performed by Ewing. The evaluation of the fairness,
from a financial point of view, of the consideration to be
received in the merger was to some extent a subjective one based
on the experience and judgment of Ewing and not merely the
result of mathematical analysis of financial data. The
preparation of a fairness opinion involves a determination as to
the most appropriate factors to be considered as well as
relevant methods of financial analysis and the application of
those factors and methods to the particular circumstances and,
therefore, such an opinion is not readily susceptible to summary
description. Ewing believes that its analysis must be
considered as a whole and that selecting only portions of the
analysis and factors considered by Ewing could create an
incomplete view of the process underlying Ewing's opinion. In
addition, Ewing may have given various factors more or less
weight than others and may have deemed various assumptions more
or less probable than other assumptions. In its analysis, Ewing
incorporated numerous assumptions with respect to business,
market, monetary and economic conditions, industry performance
and other matters, many of which are beyond Tarpon's and
Community's control. Any estimates contained in Ewing's
analysis are not necessarily indicative of future results or
values, which may be significantly more or less favorable than
such estimates. Such estimates were prepared solely as part of
Ewing's analysis of the fairness to Tarpon's shareholders of the
consideration to be paid in the merger.
Value and Liquidity of Community Shares. Ewing reviewed
the terms of the proposed consideration as reflected in the
Merger Agreement, which include the issuance of Community shares
plus cash for shares of Tarpon. Ewing observed that the six-
month average trading price of Community shares which are listed
on the OTC Bulletin Board market has been approximately $15.00
per share. Ewing observed that the trading volume in the shares
has been nominal, as the average trading volume for the period
July 1999-November 1999 has been not more than 2000 shares per
month, and that there is only one broker-dealer making a market
in the stock. As the number of Community shares to be issued in
the merger will be at a minimum 148,800 shares with a maximum of
248,000 shares, the impact on the market price of Community
shares caused by even a small percentage of these shares being
offered for resale could be significant. For this reason, Ewing
believes that a "lack of marketability" discount should be
applied to the indicated market value of $15.00 per share to
determine a range of market value for the Community shares after
their issuance to Tarpon shareholders. Ewing applied a 20%
discount to the $15.00 price per share and determined that a
range of value for Community shares would be between $12.00 and
$15.00 per share.
Selection of Valuation Method. Of the four likely methods,
the Comparison Method, Control Premium Method, Net Asset or
Liquidating Value Method and Discounted Cash Flow Method, Ewing
found that the Comparison Method is the only one appropriate for
use in Tarpon's circumstances. Under this method, a comparison
is made between the purchase price of the transaction in
question with prices paid for similar banks during periods of
similar economic activity where prices are compared on the basis
of ratios commonly used in the industry, including price-to-
book, price-to-earnings, and price-to-deposits.
Analysis of Comparable Companies. Using industry
information, including information prepared by SNL Securities,
Ewing compared the financial performance of Tarpon with the
average performance of 201 independent Florida community banks.
The performance indicators, taken from the 1998 results,
utilized by Ewing for this comparison included:
* the return on average assets, which was .26% for Tarpon
compared to .87% for the 201 banks;
* the return on average equity, which was 2.91% for Tarpon
compared to 9.68% for the 201 banks;
* the equity-to-assets ratio, which was 9.16% for Tarpon
compared to 8.56% for the 201 Florida banks; and
* the ratio of non-performing assets-to-assets, which was
.28% for Tarpon compared to .29% for the 201 banks.
On the whole, Ewing observed that Tarpon's operating
performance in 1998 and in 1999 did not compare favorably with
the average performance of Florida's 201 community banks.
Analysis of Comparable Transactions. Ewing reviewed the
terms and financial characteristics of selected transactions
involving the acquisition of Florida banks by commercial bank
holding companies in 1998 and 1999. For comparison, Ewing
selected transactions involving similarly performing banks in
Florida during the 21 month period commencing January 1, 1998
and ending September 30, 1999. A total of 30 transactions were
identified, which Ewing believed was a sufficiently large number
for comparison purposes. After eliminating all transactions
involving selling banks with assets in excess of $75 million,
transactions in which the operations of the selling bank were
unprofitable in the year of acquisition and transactions
involving selling banks with non-performing assets in excess of
1% of assets, Ewing used 12 of the 30 transactions as the basis
for comparison.. In the comparison, Ewing analyzed the two
ratios that are generally utilized in the banking industry for
comparing the prices paid in transactions involving banks.
These ratios are price-to-book value ratio, which was between
1.73 and 1.92 for the Tarpon/Community transaction compared to
an average of 2.67 for the 12 transactions, and price-to-
earnings ratio, which was between 57.0 and 65.0 for the
Tarpon/Community transaction compared to 22.74 for the 12
transactions. On the whole, Ewing observed that the price to be
paid by Community is somewhat lower than the price paid in the
comparable transactions when based on the price-to-book ratio,
but is very much higher when based on the price-to-earnings
ratio.
Because the reasons for and circumstances surrounding each
of the transactions analyzed were diverse and because of the
inherent differences between the operations of Tarpon and the 12
banks in the selected transactions, Ewing believed that a strict
reliance on the quantitative comparable transaction analysis is
not meaningful without further qualitative considerations.
Ewing believed that the proper use of a comparable transaction
analysis would involve qualitative judgments concerning
differences between the characteristics of these transactions
and the Tarpon merger which may have affected the acquisition
value of the acquired companies and Tarpon. The qualitative
factors considered by Ewing in connection with its opinion
included Ewing's views as to the number of potential buyers in
each of these transactions and the ability of the acquirors to
implement cost savings and business synergies as a result of
each merger.
Analysis of Community's Financial Performance. Ewing
performed an analysis as to the relative profitability and
quality of the shares of Community including a comparison of
Community's operating performance with the average of 5 other
publicly traded smaller bank holding companies that serve
smaller markets in Georgia. Ewing observed that for the twelve-
month period ended June 30, 1999, Community produced an return
on assets of 1.21% compared to an average of .98% for the 5 bank
holding companies, a return on equity of 11.50% compared to an
average of 10.51% for the 5 bank holding companies, and had non-
performing assets-to-assets of .67% compared to an average of
.45% for the 5 bank holding companies, and an equity-to-assets
ratio of 10.48% compared to an average of 9.21% for the 5 bank
holding companies. On the whole, Ewing observed that Community
performed better than its peers with respect to 4 out of the 5
typical indicators of financial strength and performance.
There was no one company or transaction used in the above
analysis as a comparison that is identical to Tarpon, Community,
or the merger. Accordingly, an analysis of the results of the
foregoing necessarily involves complex considerations and
judgments concerning differences in financial and operating
characteristics of the companies and other factors that could
affect the public trading of the companies to which they are
being compared. Mathematical analysis (such as determining an
average or median) is not, in itself, a meaningful method of
using comparable company data. Analysis must also be given to
the consolidation issues within the financial services industry.
Ewing also analyzed the value that Community would add in
terms of:
* liquidity,
* capital required to continue the growth patterns of Tarpon,
and
* the ability of senior management of Tarpon to complement
that of Community as Community expands its franchise in
Pinellas County, Florida.
* payment of future dividends.
Trading in Community shares is currently being conducted on
the OTC Bulletin Board, and upon the effectiveness of the
merger, Community will apply to list the Community shares on the
NASDAQ National Market. Ewing concluded that such listing will
enhance the liquidity of the Community shares.
Ewing is continually engaged in the valuation of businesses
and their securities in connection with mergers and
acquisitions, and valuations for estate, tax, corporate and
other purposes. Tarpon has paid Ewing a fee of $6,000 in
connection with its engagement. No compensation payable to
Ewing is contingent on the conclusions reached in the opinion of
Ewing. Tarpon has also agreed to indemnify Ewing and certain
related persons against certain liabilities relating to or
arising out of its engagement.
The foregoing description of Ewing's opinion is qualified
in its entirety by reference to the full text of such opinion
which is attached as Appendix "B" to this Proxy
Statement/Prospectus. A copy of the report which accompanied
the opinion may be obtained by Tarpon shareholders by calling
Barbara Richards at (727) 938-9771.
Conditions Precedent to Closing
In addition to approval of the Merger Agreement by the
shareholders of Tarpon, consummation of the merger is subject to
the fulfillment, on or prior to the Effective Time of Merger, of
certain other conditions. Such conditions include, among
others, the following:
* the receipt of all necessary consents of the regulatory
authorities;
* there shall not be pending or threatened any action,
proceeding or investigation in connection with the merger;
* the accuracy of the representations and warranties of each
of Community and Tarpon;
* each of Community and Tarpon shall have performed and
complied with all agreements and conditions to be performed
or complied with by them under the Merger Agreement;
* each of Community and Tarpon shall have delivered to the
other party certain documents described in the Merger
Agreement;
* there shall have been no determination by either Community
or Tarpon that any fact, event or condition exists or has
occurred that, in the reasonable judgment of either party
would have a material adverse effect on the other party or
that would otherwise render inadvisable the consummation of
the merger;
* all employment agreements between Tarpon, First National
Bank and any officer or employee shall be terminated as of
the Effective Time of the Merger, and, at Community's
election, satisfactory replacement agreements, if any, will
have been executed and delivered;
* Community shall have received the resignation of all
officers and directors of Tarpon; and
* the holders of not more than 5% of the Tarpon shares have
elected to exercise their right to dissent for the merger
and demand payment for cash for the fair value of their
shares.
Regulatory Approvals
Consummation of the merger and the transactions
contemplated by the Merger Agreement are subject to, and
conditioned upon, receipt of approval from the Fed. Application
for prior approval pursuant to Section 3(a)(5) of the Bank
Holding Company Act has been filed with the Fed on or about
December 3, 1999. As of the date of this Proxy
Statement/Prospectus, the Fed has not yet approved the merger.
The merger may be consummated 30 days after the Fed grants its
approval, although this period may be shortened to 15 days by
the Attorney General of the United States. During this period,
the United States Justice Department may challenge the merger on
antitrust grounds.
There can be no assurance that the Fed will approve or take
other required action with respect to the merger. Community and
Tarpon are not aware of any governmental approvals or actions
that are required in order to consummate the merger except as
described above. Should any such other approval or action be
required, Community and Tarpon expect to seek the approval or
action. However, there can be no assurance as to whether or
when any other approval or action, if required, could be
obtained.
Waiver and Amendment
Prior to the Effective Time of the Merger, any provision of
the Merger Agreement may be waived by the party entitled to the
benefits of such provision or by all parties, to the extent
allowed by law. In addition, the Merger Agreement may be
amended at any time, to the extent allowed by law, by an
agreement in writing between Community and Tarpon.
Termination
The Merger Agreement may be terminated prior to the
Effective Time of the Merger, either before or after its
approval by the shareholders of Tarpon:
* by the mutual consent of Community and Tarpon
* by Community or Tarpon if consummation if the merger does
not occur by reason of the failure of any of the conditions
precedent set forth in the Merger Agreement; or
* by Community or Tarpon, in the event that the merger is not
consummated by March 31, 2000, unless the failure to
consummate by such time is due to the breach of the Merger
Agreement by the party seeking to terminate.
Interests of Certain Persons in the Merger
Except for Mary Z. Smitzes, no officer or director of
Tarpon, or any associate of any such party, has any direct or
indirect material interest in the merger, including agreements
for the continued employment by Community after the merger.
Effective after the merger, Community and Mary Z. Smitzes will
enter into a consulting agreement under which Mrs. Smitzes will
receive an annual consulting fee of $50,000 for 5 years, as well
as reimbursement for medical coverage and life insurance
premiums both at levels in effect on December 31, 1998. The
consulting agreement will terminate should Mrs. Smitzes die
prior to the expiration of the 5-year period. Community's
decision to enter into this agreement was based on the fact that
Mrs. Smitzes has been actively involved with First National Bank
since its inception and has many valuable contacts in the
community. The Tarpon Board was aware of these interests and
considered them, among other matters, in approving the Merger
Agreement.
Employee Benefits
Under the Merger Agreement, Tarpon and Community will take
appropriate steps to terminate all employee benefit plans of
Tarpon and First National Bank as of the Effective Time of the
Merger, or as promptly as practicable thereafter, except for the
health plan currently in effect for employees of First National
Bank, which shall continue in effect after the Effective Time of
the Merger. After the termination of all such plans, the
officers and employees of Tarpon will be eligible to participate
in Community's employee benefit plans, including welfare and
fringe benefit plans, on the same basis as any newly-hired
employee of Community, but effective at the earliest applicable
entry date set forth in such plans.
Income Tax Considerations
The following summarizes the material federal income tax
consequences of the merger to Community, Tarpon and the Tarpon
shareholders. This summary is based on current law, which is
subject to change at any time, possibly with retroactive effect.
This summary is not a complete description of all tax
consequences of the merger and, in particular, may not address
federal income tax consequences applicable to you if you are
subject to special treatment under federal income tax law, such
as rules relating to Tarpon shareholders who are not citizens or
residents of the United States, who are financial institutions,
tax exempt organizations, insurance companies or dealers in
securities, or shareholders who acquired their shares of Tarpon
common stock pursuant to the exerciserof options or otherwise as
compensation. In addition, this summary does not address the
tax consequences of the merger under applicable state, local or
foreign laws. This discussion assumes you hold your shares of
Tarpon common stock as a capital asset within the meaning of
Section 1221 of the tax code. Each Tarpon shareholder should
consult with his or her tax advisor about the tax consequences
of the merger in light of his or her individual circumstances,
including the application of any federal, state, local or
foreign law.
The merger is intended to be a "reorganization" under
Section 368(a)(1)(A) of the Tax Code. Community and Tarpon have
received an opinion to the effect that the merger will qualify
as a reorganization from Francis & Co., CPAs. The opinion
represents its best judgment and is not binding on the Internal
Revenue Service or any court. If the merger does not qualify as
a reorganization, the exchange of Tarpon common stock for
Community common stock in the merger will be a taxable
transaction. If the merger does qualify as a reorganization,
neither Tarpon nor Community will recognize any gain or loss for
federal income tax purposes.
The federal income tax consequences to you as a Tarpon
shareholder will depend on whether you receive only shares of
Community common stock or a combination of Community common
stock and cash for your Tarpon common stock. The consequences of
each of these two alternatives are summarized below.
If you receive only shares of Community common stock, or
only shares of Community common stock plus cash instead of a
fractional share, in exchange for all your Tarpon common stock,
then
* You will not recognize any gain or loss on the exchange of
your Tarpon common stock for Community common stock, except
for the receipt of cash instead of a fractional share;
* Your aggregate tax basis for the shares of Community common
stock, including any fractional share interest, received
for your Tarpon common stock will be the same as your
aggregate tax basis for the Tarpon common stock;
* Your holding period for shares of Community common stock,
including any fractional share interest, received for your
Tarpon common stock will include your holding period for
the Tarpon common stock exchanged for the Community common
stock.
* If you receive cash instead of a fractional share of
Community common stock, you will recognize gain or loss
equal to the difference between the amount of the cash
received and your tax basis allocable to the fractional
share. This gain or loss generally will be capital gain or
loss.
If you exchange your Tarpon common stock for shares of
Community common stock and cash, not counting any cash received
instead of a fractional share, then:
* You will recognize any gain you realize up to the amount of
cash received, excluding cash paid instead of a fractional
share, but will not recognize any loss on the exchange of
your Tarpon common stock for Community common stock and
cash. The amount of gain or loss you realize will be the
difference between your tax basis for your Tarpon common
stock and the sum of the fair market value, on the date of
the merger, of the Community common stock you receive and
the cash you receive.
* The amount of gain recognized generally will be a capital
gain. Under certain circumstances, however, the amount of
gain you recognize could be taxable as a dividend to the
extent of the portion of Tarpon's accumulated earnings, as
computed for federal income tax purposes, allocable to your
stock at the time of the merger. None of your gain should
be treated as a dividend if
* The Community common stock you and related persons,
directly or indirectly, own after the merger, as a
percentage of all Community common stock, is less than
* The percentage of all Community common stock that you
and related persons would, directly or indirectly, own
after the merger if all the outstanding Tarpon common
stock were exchanged solely for shares of Community
common stock.
* Your aggregate tax basis for the shares of Community common
stock, including any fractional share interest, received
for your Tarpon common stock will be the same as your
aggregate tax basis for the Tarpon common stock, plus the
amount of gain you recognize, minus the amount of cash you
receive, excluding cash paid instead of a fractional share.
* If you exchange two or more "blocks" of Tarpon common stock
for which you paid different prices per share or otherwise
have different tax bases, the amounts of gain realized and
recognized should be computed separately for each block. As
a result, you may not reduce the amount of gain to be
recognized for one block of Tarpon common stock by a loss
you realize on another block.
* If you receive cash instead of a fractional share, you will
recognize gain or loss equal to the difference between the
amount of cash received and your tax basis allocable to the
fractional share. This gain or loss generally will be
capital gain or loss.
You should consult your tax advisor to determine whether
the gain you recognize on the exchange of your Tarpon common
stock for Community common stock and cash is to be treated as a
capital gain or as a dividend.
Accounting Treatment
It is anticipated that the merger will be accounted for as
a "purchase" for financial reporting purposes.
Expenses
The Merger Agreement provides that Community and Tarpon
will each pay its own expenses in connection with the merger and
related transactions, including, but not limited to, the fees
and expenses of its own counsel and accountants.
Resales of the Community Shares
The Community shares issued pursuant to the Merger
Agreement will be freely transferable under the Securities Act
of 1933, except for shares issued to any Tarpon shareholder who
may be deemed to be an "affiliate" of Tarpon for purposes of
Rule 145 under the Securities Act as of the date of the Special
Meeting. Persons who may be deemed to be "affiliates" of Tarpon
will include certain officers and directors of Tarpon as well as
principal (10% or more) shareholders of Tarpon. Affiliates may
not sell their Community shares acquired in connection with the
merger, except pursuant to an effective registration statement
under the Securities Act covering such shares or in compliance
with Rule 145 or another applicable exemption from the
registration requirements of the Securities Act. Under Rule
145, a former director of Tarpon will be able to sell his/her
Community shares immediately after the merger if he/she does not
become a director or an officer of Community, but subject to the
volume limitations of Rule 144(e) under the Securities Act. The
former director will be able to sell his/her Community shares
without being subject to the volume limitations after the
expiration of an one-year period after the Effective Time of the
Merger.
This Proxy Statement/Prospectus does not cover resales of
Community shares following consummation of the merger, and no
person may make use of this Proxy Statement/Prospectus in
connection with any such resale.
OTC Bulletin Board Listing; Future NASDAQ National Market
Listing
Community common stock is listed and traded on the OTC
Bulletin Board. The Community shares issued to the Tarpon
shareholders pursuant to the Merger Agreement will also be so
listed. After the merger, Community intends to list the
Community shares on the NASDAQ National Market, in order to
facilitate broader trading and to enhance the liquidity of the
Community common stock.
DESCRIPTION OF STOCK AND EFFECT OF MERGER ON THE RIGHTS OF THE
TARPON SHAREHOLDERS
If the merger is consummated, Tarpon shareholders (other
than shareholders who perfect their statutory dissenters' rights
against the merger) will become holders of Community shares.
The following table sets forth, in summary form, a
comparison of certain rights of shareholders owning Community
shares and shareholders owning Tarpon shares.
Community Tarpon
One vote for each share held
One vote for each share held
No cumulative voting rights in
the election of directors,
meaning that the holders of a
plurality of the Community
shares elect the Board of
Directors
No cumulative voting rights in
the election of directors,
meaning that the holders of a
plurality of the Tarpon shares
elect the Board of Directors
Dividends may be paid from funds
legally available, subject to
contractual and regulatory
restrictions
Dividends may be paid from funds
legally available, subject to
contractual and regulatory
restrictions
Right to participate pro rata in
distribution of assets upon
liquidation
Right to participate pro rata in
distribution of assets upon
liquidation
No pre-emptive or other rights
to subscribe for any additional
shares or securities
No pre-emptive or other rights
to subscribe for any additional
shares or securities
No conversion rights
No conversion rights
Directors serve staggered three-
year terms
Directors serve one-year term
Certain corporate actions,
including business combinations,
an amendment of the Articles of
Incorporation, and the removal
of a director, require the
affirmative vote of two-thirds
of the votes entitled to be cast
by the holders of all voting
shares
Corporate actions require the
affirmative vote of a majority
of the votes actually cast at a
shareholders' meeting, except
that an amendment of the
Articles of Incorporation
requires the affirmative vote of
75% of the votes entitled to be
cast by the holders of all
voting shares
Preferred stock is authorized
No preferred stock is authorized
A copy of Community's Amended and Restated Articles of
Incorporation, dated May 21, 1999, and its Amended and Restated
Bylaws, is attached as Appendix "E" and "F," respectively, to
this Proxy Statement/Prospectus.
Capitalization of Community
Community is authorized to issue 60,000,000 shares of
capital stock, consisting of 50,000,000 shares of common stock
and 10,000,000 shares of no par value preferred stock. As of
December ___, 1999, there were 1,518,871 shares of Community
common stock issued and outstanding, and no shares of preferred
stock issued and outstanding. Community's Board of Directors
may at any time, without additional approval of the Community
shareholders, issue authorized but unissued shares of Community
common or preferred stock.
Staggered Board of Directors; Supermajority Approvals
Community's Articles of Incorporation and Bylaws contain
several provisions that may make Community a less attractive
target for an acquisition of control by an outsider who does not
have the support of Community's Board of Directors.
Pursuant to Community's Articles of Incorporation and
Bylaws, Community's Board of Directors is divided into three
classes of directors serving staggered three-year terms, with
the terms of each class of directors expiring each succeeding
year. Also pursuant to Community's Articles of Incorporation
and Bylaws, the vote or action of shareholders possessing two-
thirds of the votes entitled to be cast by the shareholders of
all the issued and outstanding shares of Community capital stock
is required to:
* remove a member of Community's Board of Directors;
* approve any merger or consolidation of Community with or
into any other corporation, and the sale, lease, exchange
or other disposition of all, or substantially all, of
Community's assets to or with any other corporation, person
or entity, with respect to which the approval of
Community's shareholders is required by the provisions of
the corporate laws of the State of Georgia; and
* alter, delete or rescind any provision of Community's
Articles of Incorporation.
Because vacancies on the Board of Directors can only be
filled by a majority vote of the directors then in office,
Community's staggered Board of Directors makes it more difficult
for its shareholders to force an immediate change in the
composition of the majority of the Board. A potential acquirer
of Community may, therefore, be discouraged or prevented from
soliciting proxies for the purpose of electing directors other
than those nominated by current management for the purpose of
changing the policies or control of Community.
Capitalization of Tarpon
Tarpon is authorized to issue 500,000 shares of common
stock, $.1 par value. As of December ___, 1999, 155,000 Tarpon
shares were issued and outstanding. All outstanding Tarpon
shares are fully paid and nonassessable.
The foregoing summary relating to both Community and Tarpon
is not complete and is qualified in all respects by reference to
the Articles of Incorporation and Bylaws of each of Community
and Tarpon and the laws of the States of Georgia and Florida,
respectively.
Rights of Dissent and Appraisal
In the event that the proposal is approved, under Florida
law, each Tarpon shareholder may dissent from the merger and
receive in cash the fair value, as of the day prior to the
Special Meeting, of his/her Tarpon shares. Such fair value is
exclusive of any appreciation or depreciation in anticipation of
the merger. The appraisal value of the Tarpon shares may differ
from the consideration that a Tarpon shareholder would be
entitled to receive under the terms of the merger. The
following description summarizes the shareholder dissent
provisions of the Florida Business Corporation Act, the full
text of which is set forth as Appendix "A" to this Proxy
Statement/Prospectus.
Under Florida law, a Tarpon shareholder may dissent from
the merger by complying with the following procedures:
* the dissenting shareholder must deliver to Tarpon, prior to
the Special Meeting, written notice of his or her intent to
demand payment for his or her Tarpon shares;
* the dissenting shareholder must refrain from voting in
favor of the proposal herein;
* within 10 days after the date of the Special Meeting,
Tarpon shall give written notice of authorization of the
merger by the shareholders to such dissenting shareholder;
and
* within 20 days after the dissenting shareholder receives
such notice of authorization of the merger, the dissenting
shareholder shall file with Tarpon a notice of his or her
election to dissent and a demand for payment of the fair
value of his or her shares. The notice must state the name
and address of the dissenting shareholder and the number of
shares to which the shareholder is dissenting. Any
dissenting shareholder filing an election to dissent shall
deposit his or her certificates for certificated shares
with Tarpon simultaneously with the filing of the election
to dissent. Any shareholder who fails to file this notice
of election within this period of time will be bound by the
merger.
A shareholder may dissent as to less than all of the Tarpon
shares held by him or her, and in such event, such dissenting
shareholder is treated as two separate shareholders. Once
Tarpon offers to pay the dissenting shareholder for such shares,
the notice of election cannot be withdrawn except with the
consent of Tarpon. However, the right of a dissenting
shareholder to be paid the fair value of his or her shares shall
cease if:
* the demand is withdrawn;
* the merger is abandoned;
* no demand or petition for determination of fair value is
filed with the appropriate court within the time provided
by law; or
* a court of competent jurisdiction determines that such
shareholder is not entitled to the relief provided under
Florida law.
Within 10 days after the later of the expiration of the
period in which the dissenting shareholder may file a notice of
election to dissent, or the Effective Time of the Merger (but
in no event later than 90 days after the Special Meeting),
Tarpon is required to make a written offer to each dissenting
shareholder to purchase such shareholder's Tarpon shares at a
price deemed by Tarpon to be the fair value of such shares. If,
within 30 days after the making of such offer, any shareholder
accepts the same, payment therefor shall be made within 90 days
after the later of the date such offer was made or the
consummation of the merger. However, if Tarpon has failed to
make an offer to purchase or, within the 30 day period after
Tarpon has made an offer to purchase, Tarpon and the dissenting
shareholder are unable to agree with respect to a price, then
Tarpon, within 30 days after receipt of written demand from such
dissenting shareholder given within 60 days after the Effective
Time of the Merger, shall, or at its election within such
period, may, file an action in a court of competent jurisdiction
in the county in which Tarpon maintains its registered office
requesting that the fair value of the Tarpon shares be found and
determined. If Tarpon shall fail to institute such proceedings,
any dissenting shareholder may do so in the name of Tarpon. All
dissenting shareholders, other than dissenting shareholders who
have agreed with Tarpon as to the value of their Tarpon shares,
shall be deemed to be parties to the proceeding as an action
against their shares. In such proceeding, the court may, if it
so elects, appoint one or more persons as appraisers to receive
evidence and recommend a decision on the question of fair value.
Tarpon shall pay each dissenting shareholder the amount found to
be due to such shareholder within 10 days after a final
determination of such proceedings. Upon payment of such
judgment, the dissenting shareholder will cease to have any
interest in the Tarpon shares.
Any judgment rendered in any dissent proceeding may, at the
discretion of the court, include an allowance for interest at
such rate as the court may deem fair and equitable. The cost
and expenses of any such dissent proceeding shall be determined
by the court and shall be assessed against Tarpon, but all or
any part of such costs and expenses may be apportioned and
assessed against the dissenting shareholders, in such amount as
the court deems equitable, if the court determines that Tarpon
made an offer to the dissenting shareholders and the
shareholders' failure to accept such offer was arbitrary,
vexatious, or not in good faith. The expenses awarded by the
court shall include reimbursement for reasonable compensation
for, and reasonable expenses of the appraisers, but not fees and
expenses of any attorney or expert employed by any of the
parties in the proceedings. However, reasonable compensation of
attorneys and experts of shareholders who are party to the
proceedings may be awarded at the court's discretion, if it is
determined that the fair value of the shares materially exceeds
Community's offer to purchase such shares.
The foregoing is only a summary of the Florida law relating
to shareholders rights of dissent. The full text of such
provisions is set forth as Appendix "A" to this Proxy
Statement/Prospectus and each Tarpon shareholder is urged to
read these provisions carefully.
DESCRIPTION OF COMMUNITY
Business
The disclosures made in this Proxy Statement/Prospectus,
together with the following information, which is specifically
incorporated herein by this reference, describe the business of
Community:
1. Community's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1998.
2. Community's Quarterly Reports on Form 10-QSB for the quarters
ended March 31, 1999. June 30, 1999 and September 30, 1999.
3. Community's Current Report on Form 8-K, dated October 12,
1999.
Additional Information
Information relating to executive compensation, voting
securities and securities held by directors and principal
holders, and other related matters as to Community is
incorporated by reference as set forth in Community's Annual
Report on Form 10-KSB for the year ended December 31, 1998,
which is incorporated herein by reference. Tarpon shareholders
desiring copies of any of these documents may read and/or copy
them at the SEC or obtain them from Community, all as stated
under "Where You Can Find More Information," on page 38.
SUPERVISION AND REGULATION
Community
General. Community is a bank holding company within the
meaning of the Bank Holding Company Act and is registered with
the Fed. Community National Bank and Cumberland National Bank,
Community's banking subsidiaries, are each subject to
restrictions under federal law which limit the transfer of funds
by it to Community, whether in the form of loans, extensions of
credit, investments or asset purchases, to 10% of its capital
and surplus. Furthermore, such loans and extensions of credit
are required to be secured in specified amounts. Except as
allowed under the recently enacted Financial Services
Modernization Act of 1999 (see discussion below), the Bank
Holding Company Act also prohibits, subject to certain
exceptions, a bank holding company from engaging in or acquiring
direct or indirect control of more than 5% of the voting stock
of any company engaged in nonbanking activities. An exception to
this prohibition is for activities expressly found by the Fed to
be so closely related to banking or managing or controlling
banks as to be a proper incident thereto.
As a bank holding company, Community is required to file
with the Fed periodic reports and such additional information as
the Fed may require. The Fed may also make examinations of
Community and each of its subsidiaries.
The approval of the Office of the Comptroller of the
Currency, or the OCC, is required for any dividend proposed to
be paid by a national bank subsidiary to Community if the total
of all dividends declared by the bank in any calendar year would
exceed the total of its net profits, as defined by the OCC, for
that year, combined with its retained net profits for the
preceding 2 years, less any required transfers to surplus or a
fund for the retirement of any preferred stock. Under the
foregoing laws and regulations, at December 31, 1998,
approximately $967,191 was available for payment of dividends to
Community by its subsidiaries, primarily Community National
Bank. In addition to the foregoing restrictions, the Fed has the
power to prohibit the payment of dividends by bank holding
companies, if their actions constitute unsafe or unsound
practices and the OCC has the authority to prohibit the payment
of dividends by a national bank when it determines such payment
to be an unsafe and unsound banking practice.
Capital Adequacy. Under the Fed's risk-based capital
guidelines currently applicable to Community, the minimum ratio
of capital to risk-weighted assets (including certain off-
balance sheet items, such as standby letters of credit) is 8%.
To be considered a "well capitalized" bank under the guidelines,
a bank must have a total risk-based capital ratio in excess of
10%. At December 31, 1998, Community National Bank, Community's
then only existing subsidiary, was considered "well
capitalized." Under these guidelines, at least half of the
total capital must be comprised of common equity, retained
earnings and a limited amount of perpetual preferred stock,
after subtracting certain intangibles, and certain other
adjustments ("Tier 1 capital"). The remainder may consist of
perpetual debt, mandatory convertible debt securities, a limited
amount of subordinated debt, other preferred stock not
qualifying for Tier 1 capital and a limited amount of loan loss
reserves. Community National Bank and Cumberland National Bank
is each subject to similar capital requirements adopted by the
OCC. In addition, the Fed, the OCC and the Federal Deposit
Insurance Corporation, or the FDIC, have adopted a minimum
leverage ratio (Tier 1 capital to adjusted quarterly average
assets) of 3%. Generally, banking organizations are expected to
operate well above the minimum required capital level of 3%,
unless they meet certain specified criteria, including that they
have the highest regulatory ratings. Most banking organizations
are required to maintain a leverage ratio of 3% plus an
additional cushion of at least 1% to 2%. The guidelines also
provide that banking organizations experiencing internal growth
or making acquisitions will be expected to maintain strong
capital positions substantially above the minimum supervisory
levels without significant reliance upon intangible assets. On
December 31, 1998, Community's consolidated Tier 1 capital ratio
was 13.8%, the total risk-based capital ratio was 15.1% and the
leverage ratio was 11.9%. Each of these ratios exceeds the
current Fed and OCC capital guidelines. Each of Community's
subsidiary banks is in compliance with the applicable minimum
capital requirements as of the date of this Proxy
Statement/Prospectus.
Failure to meet capital guidelines could subject a banking
institution to a variety of enforcement remedies available to
federal regulatory authorities, including the termination of
deposit insurance by the FDIC, issuance of a capital directive,
a prohibition on the taking of brokered deposits and certain
other restrictions on its business.
The Federal Deposit Insurance Corporation Improvement Act
of 1991, or FDICIA, substantially revised the depositary
institution regulatory and funding provisions of the Federal
Deposit Insurance Act as well as several other federal banking
statutes. Among other things, FDICIA requires the federal
banking regulators to take prompt corrective action in respect
of depositary institutions that do not meet minimum capital
requirements. FDICIA establishes five capital tiers: "well
capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized" and "critically
undercapitalized." A depository institution is well capitalized
if it significantly exceeds the minimum level required by
regulation for each relevant capital measure, is adequately
capitalized if it meets each such measure, is undercapitalized
if it fails to meet any such measure, is significantly
undercapitalized if it is significantly below any such measure
and is critically undercapitalized if it fails to meet any
critical capital level set forth in applicable regulations. The
critically undercapitalized level occurs where tangible equity
is less than 2% of total tangible assets or less than 65% of the
minimum leverage ratio to be prescribed by regulation (except to
the extent that 2% would be higher than such 65% level). A
depository institution may be deemed to be in a capitalization
category that is lower than is indicated by its actual capital
position if it receives an unsatisfactory examination rating.
Significantly undercapitalized depository institutions may
be subject to a number of requirements and restrictions,
including orders to sell sufficient voting stock to become
adequately capitalized, requirements to reduce total assets and
cessation of receipt of deposits from correspondent banks.
Critically undercapitalized depository institutions are subject
to appointment of a receiver or conservator.
Source of Strength. According to Fed policy, bank holding
companies are expected to act as a source of financial strength
to each subsidiary bank and to commit resources to support each
such subsidiary. This support may be required at times when a
bank holding company may not be able to provide such support.
Recent Legislation. Under the Riegle-Neal Interstate
Banking and Branching Efficiency Act of 1999, as of September
29, 1995, adequately capitalized and managed bank holding
companies are permitted to acquire banks in any state. State
laws prohibiting interstate banking or discriminating against
out-of-state banks were preempted as of the effective date,
although states were permitted to require that target banks
located within the state be in existence for a period of up to
five years before such bank may be subject to the Interstate
Banking Act. The Interstate Banking Act establishes deposit caps
which prohibit acquisitions that would result in the acquiror
controlling 30% or more of the deposits of insured banks and
thrifts held in the state in which the acquisition or merger is
occurring or in any state in which the target maintains a branch
or 10% or more of the deposits nationwide. State-level deposit
caps are not preempted as long as they do not discriminate
against out-of-state acquirors, and the federal deposit caps
apply only to initial entry acquisitions. In addition, the
Interstate Banking Act provides that as of June 1, 1997,
adequately capitalized and managed banks may engage in
interstate branching by merging banks in different states and
allowing banks to maintain branches in states other than the
states where they maintain their principal place of business.
On November 12, 1999, President Clinton signed into law
Public Law 106-102, known as the Gramm-Leach-Bliley Act, or the
Financial Services Modernization Act of 1999. The Modernization
Act repeals the Glass-Stegall Act by allowing full affiliation
between banks, securities firms and insurance companies. After
March 19, 2000, the effective date of the relevant provisions of
the Modernization Act, this act is likely to result in mergers
among banks, securities firms and insurance companies and the
formation of financial holding companies subject to the
supervision of both the Fed and the SEC. Passage of the
Modernization Act is very likely to increase competition faced
by Community it its markets, with some of the competitors having
significantly greater resources than Community.
Tarpon
Because Tarpon is a bank holding company within the meaning
of the Bank Holding Company Act and is registered with the Fed,
and because First National Bank, Tarpon's sole banking
subsidiary, is a national banking association, Tarpon and First
National Bank are subject to regulations substantially the same
as those to which Community and its national bank subsidiaries
are subject. On December 31, 1998, the First National Bank had a
Tier 1 capital ratio of 21.0%, a total risk-based capital ratio
of 22.2% and a leverage ratio of 9.3%.
DESCRIPTION OF TARPON
Background
Tarpon was chartered on November 13, 1984, and has operated
its wholly-owned direct subsidiary First National Bank, Tarpon
Springs, Florida, since August 1985.
Business
Services Offered. The principal business of Tarpon is to
operate First National Bank, which accepts deposits from the
public and makes loans and other investments in and around its
primary service area of Tarpon Springs, Florida. The principal
sources of income for First National Bank are interest and fees
collected on loans, interest and dividends collected on other
investments, and service charges on deposit accounts. The
principal expenses of the First National Bank are interest paid
on deposits, employee compensation, office expenses, and other
overhead expenses.
First National Bank offers a full range of deposit services
that are typically available from financial institutions,
including NOW accounts, demand accounts, savings accounts, and
other time deposit accounts. In addition, retirement accounts
such as Individual Retirement Accounts are available. All
deposit accounts are insured by the FDIC up to the maximum
amount currently permitted by law, which is generally $100,000
per depositor subject to certain aggregation rules.
First National Bank also provides loans to businesses,
including both secured and unsecured short-term loans for
working capital purposes, term loans for fixed asset and
expansion needs such as real estate acquisition and
improvements, real estate construction loans, and other
commercial loans suitable to the needs of its business
customers. Loans to individuals which are offered by First
National Bank include second mortgage loans and installment
loans for personal use such as education and personal
investment, or for the purchase of automobiles or other consumer
items.
Market Area and Competition. First National Bank's primary
service area is northern Pinellas County, Florida, including the
city of Tarpon Springs and the contiguous towns of Holiday and
Palm Harbor. Pinellas County occupies a peninsula bordered by
the Gulf of Mexico on the west and by Tampa Bay on the east,
covering approximately 264 square miles. As of June 1998, the
county had a permanent population of approximately 878,000, some
40,921 additional seasonal residents, and an estimated 4,251,045
visitors. Tarpon Springs is the county's oldest city. It was
incorporated in 1887 and quickly developed as a winter resort
and vacation destination. In 1905, Greek immigrants began
harvesting natural sponges from the adjacent Spring Bayou, and
today Tarpon Springs ranks among the world's leading producer of
natural sponges. Tourism and service industries are the area's
other principal industries. There are currently 8 banks serving
Tarpon Springs, Holiday and Palm Harbor. In Pinellas County as a
whole, as of June 1998, there were 317 banking branches with
total deposits of $15.6 billion, with First National Bank having
less than 1% of such deposits.
First National Bank's loan portfolio at September 30, 1999,
consisted of approximately 85% real estate mortgage loans and
15% commercial loans and consumer loans.
First National Bank's marketing plan relies heavily upon
local advertising and promotional activity and upon personal
contacts by its directors, officers and employees to attract
business and to acquaint potential customers with First National
Bank's personalized services. First National Bank emphasizes a
high degree of personalized client service to provide for each
customer's banking needs.
Market for Tarpon Shares and Related Shareholder Matters
As of December ___, 1999, 155,000 Tarpon shares were issued
and outstanding to 307 holders of record.
There is no established public market for the Tarpon
shares. In Tarpon's initial public offering completed in 1985,
Tarpon sold 155,000 Tarpon shares at a price of $10.00 per
share. Tarpon's management is aware of isolated private sales
that have occurred since December 31, 1998, in which the average
per share price was $10.00.
During the first three quarters of 1999, Tarpon declared
and paid a dividend of $31,000, i.e. $0.20 per Tarpon share. As
explained above, First National Bank is restricted in its
ability to pay dividends under the national banking laws and by
regulations of the OCC.
Management's Discussion and Analysis of Financial Condition and
Resutls of Operations for the Years ended December 31, 1998 and
1997 and the Nine Months Ended September
30, 1999 and September 30, 1998.
Total consolidated assets increased by $3.2 million to
$22.2 million during calendar year 1998. The increase was
generated primarily through a $3.1 million increase in deposits.
Tarpon utilized the above funds to increase its investment in
federal funds sold. For the nine-month period ended September
30, 1999, total consolidated assets decreased by $1.4 million to
$20.8 million. The majority of the reduction, or $1.3 million,
was due to a lower level of deposits.
Liquidity and Sources of Capital. Liquidity is Tarpon's
ability to meet all deposit withdrawals immediately, while also
providing for the credit needs of customers. The September 30,
1999, financial statements evidence a sound liquidity position
as total cash and cash equivalents amounted to $7.7 million,
representing 37.1% of total assets. In addition, the loan to
deposit ratio of 63.1% also evidences a sound liquidity posture.
Tarpon's management closely monitors and maintains appropriate
levels of interest earning assets and interest bearing
liabilities so that maturities of assets are such that adequate
funds are provided to meet customer withdrawals and loan demand.
There are no trends, demands, commitments, events or
uncertainties that will result in or are reasonably likely to
result in Tarpon's liquidity increasing or decreasing in any
material way.
First National Bank maintains a level of capitalization
higher than the minimum level required by the OCC, as follows:
Bank's Minimum required
September 30, 1999 by OCC
------------------ ------
Leverage ratio 9.3% 4.0%
Risk weighted ratio 18.6% 8.0%
Results of Operations. For the years ended December 31,
1998 and 1997, net income amounted to $58,142 and $83,070,
respectively. On a per share basis, basic income per share
amounted to $.38 (1998) and $.54 (1997). The reasons for the
reduction in net income in 1998 when compared to 1997 were as
follows:
* The net yield on earning assets decreased from 4.6% for the
year ended December 31, 1997, to 4.3% for the year ended
December 31, 1998. This situation occurred despite the
fact that average earning assets in 1998 were higher than
the average earning asset level in 1997. However, the
asset mix changed dramatically, moving toward categories
which produced lower yields. For example, during 1998 the
loan portfolio, which represents Tarpon's highest yielding
earning asset, declined by 11.7% to $10.4 million, while
federal funds sold, which represent Tarpon's lowest
yielding earning asset, increased by 301% to $8.2 million.
* Service fees on deposit accounts declined from $273,601
(1997) to $230,858 (1998), representing a decline of 15.6%,
despite an 18.8% increase in total deposits. This
situation occurred because the First National Bank's
customers are doing a better job in managing their
financial affairs.
* Total operating expenses increased from $970,631 (1997) to
$992,044 (1998), representing an increase of 2.2%. The
majority of the increase is due to higher personnel
expense.
At December 31, 1997, and 1998, the allowance for loan
losses was identical at $115,706. However, the allowance for
loan losses, as a percentage of gross loans, increased from .99%
at December 31, 1997 to 1.10% at December 31, 1998. Management
considers the allowance for loan losses to be adequate and
sufficient to absorb possible future losses; however, there can
be no assurance that charge-offs in future periods will not
exceed the allowance for loan losses or that additional
provisions to the allowance will not be required.
For the nine-month period ended September 30, 1999, net
loss amounted to $(78,220), or $(.50) per share. These results
compare unfavorably to the nine-months ended September 30, 1998,
when net income amounted to $60,848, or $.39 per share. The
primary reasons for the decline in net income for the nine-month
period ended September 30, 1999, as compared to the nine-month
period ended September 30, 1998, are as follows:
* Net yield on earning assets declined from 4.3% for the
nine-month period ended September 30, 1998, to 3.9% for the
nine-month period ended September 30, 1999. The primary
reason for the decline was due to a shift in the asset mix,
with concentration moving from the highest earning asset
(loans) to the lowest earning asset (federal funds sold).
* Other income, in the amount of $199,900 for the nine-month
period ended September 30, 1999, was $8,126 lower than the
$208,026 generated during the nine-month period ended
September 30, 1998.
* Other operating expenses were slightly higher for the nine-
month period ended September 30, 1999, when compared to the
nine-month period ended September 30, 1998.
* During the nine-month period ended September 30, 1999,
Tarpon recorded an extraordinary loss in the amount of
$105,000, net of tax benefits. The loss was due to a
settlement of a law suit filed against First National Bank.
For the nine-month period ended September 30, 1998, there
were neither extraordinary losses nor losses resulting from
a settlement of a law suit.
At September 30, 1999, and 1998, the allowance for loan
losses amounted to $111,830 and $115,706, respectively. As a
percentage of gross loans, however, .94% at September 30, 1999
and .90% at September 30, 1998, the allowance for loan losses
improved from September 30, 1998, to September 30, 1999.
Because of First National Bank's experience of low loan losses,
and because collateralized residential loans comprise 85% of the
loan portfolio, management considers the allowance for loan
losses to be adequate and sufficient to absorb possible future
losses; however, there can be no assurance that charge-offs in
future periods will not exceed the allowance for loan losses or
that additional provisions to the allowance will not be
required.
Tarpon is not aware of any current recommendation by the
regulatory authorities which, if they were to be implemented,
would have a material effect on Tarpon's liquidity, capital
resources, or results of operations.
EXPERTS
Community
The consolidated balance sheets of Community and its
subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of income, changes in shareholders'
equity and cash flows for each of the two years, all of which
are incorporated by reference in this Proxy
Statement/Prospectus, have been audited by Francis & Co., CPA's,
independent certified public accountants, whose report thereon
is incorporated herein by reference. Such financial statements
have been so incorporated herein by reference in reliance upon
the report of Francis & Co., CPA's, and upon their authority as
experts in accounting and auditing.
Tarpon
The consolidated balance sheets of Tarpon as of December
31, 1998 and 1997, and the related consolidated statements of
income, stockholders' equity and cash flows for each of the
years included in this Proxy Statement/Prospectus have been
audited by Francis & Co., CPA's, independent certified public
accountants, in reliance upon their report appearing elsewhere
herein, and upon their authority as experts in accounting and
auditing.
OTHER MATTERS
Tarpon's Board of Directors does not know of any matters to
be presented at the Special Meeting other than those set forth
above. If any other matters are properly brought before the
Special Meeting or any adjournment thereof, the enclosed proxy
will be deemed to confer discretionary authority on the
individuals named as proxies therein to vote the shares
represented by the proxy as to any such matters.
SHAREHOLDER PROPOSALS
Community's management expects to hold its next annual
meeting of shareholders during May 2000. Under the rules of the
SEC, proposals of shareholders intended to be presented at that
meeting must have been received by Community at its principal
executive offices on or before December 15, 1999, for
consideration by Community for possible inclusion in such proxy
materials.
If the merger is not consummated, Tarpon will inform its
shareholders of the date and time of the 2000 annual meeting of
shareholders of Tarpon.
WHERE YOU CAN FIND MORE INFORMATION
Community files annual, quarterly and special reports,
proxy statements and other information with the SEC. You may
read and copy any reports, statements or other information that
Community files with the SEC at the SEC's public reference rooms
in Washington, D.C., New York, New York and Chicago, Illinois.
Please call the SEC at 1-800-SEC-0330 for further information on
the public reference rooms. These SEC filings are also
available to the public from commercial document retrieval
services and at the Internet world wide web site maintained by
the SEC at "http://www.sec.gov."
Community filed a Registration Statement on Form S-4 to
register with the SEC the Community shares to be issued to
holders of the Tarpon shares pursuant to the merger. This Proxy
Statement/Prospectus is a part of that Registration Statement
and constitutes a prospectus of Community. As allowed by SEC
rules, this Proxy Statement/Prospectus does not contain all the
information you can find in Community's Registration Statement
or the exhibits to that Registration Statement.
The SEC allows Community to "incorporate by reference"
information into this Proxy Statement/Prospectus, which means
that Community can disclose important information to you by
referring you to another document filed separately with the SEC.
The information incorporated by reference is considered part of
this Proxy Statement/Prospectus, except for any information
superseded by information contained directly in this Proxy
Statement/Prospectus or in later filed documents incorporated by
reference in this Proxy Statement/Prospectus.
This Proxy Statement/Prospectus incorporates by reference
the documents set forth below that Community has previously
filed with the SEC. These documents contain important
information about Community and its finances.
Community SEC Filings (File No. 33-31013-A)
* Community's Annual Report on Form 10-KSB for the year ended
December 31, 1998;
* Community's Quarterly Reports on Form 10-QSB for the
quarters ended March 31, 1999, June 30, 1999 and September
30, 1999; and
* Community's Current Report on Form 8-K, dated October 12,
1999.
Community also incorporates by reference additional
documents that may be filed by it with the SEC between the date
of this Proxy Statement/Prospectus and the consummation of the
merger or the termination of the Merger Agreement. These
include periodic reports, such as Quarterly Reports on Form 10-
QSB and Current Reports on Form 8-K, as well as proxy
statements.
Community has supplied all information contained or
incorporated by reference in this Proxy Statement/Prospectus
relating to Community and Tarpon has supplied all information
contained in this Proxy Statement/Prospectus relating to Tarpon.
You can obtain any of the documents incorporated by
reference from Community, the SEC or the SEC's Internet web site
as described above. Documents incorporated by reference are
also available from Community without charge, excluding all
exhibits, except that if Community has specifically incorporated
by reference an exhibit in this Proxy Statement/Prospectus, the
exhibit will also be available without charge. You may obtain
documents incorporated by reference in this Proxy
Statement/Prospectus by requesting them in writing or by
telephone from:
Community National Bancorporation
561 East Washington Avenue -- Box 2619
Ashburn, Georgia 31714-2619
Attention: T. Brinson Brock, Sr., President
(912) 567-9686
INDEX TO FINANCIAL STATEMENTS OF TARPON
Independent Auditor's Report................................F-1
Consolidated Balance Sheets - December 31, 1998 and 1997....F-2
Consolidated Statements of Income for the years ended
December 31, 1998 and 1997................................F-3
Consolidated Statements of Changes in Shareholders' Equity
for the years ended December 31, 1998 and 1997............F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1998 and 1997................................F-5
Notes to Financial Statements...............................F-6
Unaudited Balance Sheet - September 30, 1999................F-
Unaudited Statements of Income for the Nine Months Ended
September 30, 1999 and 1998...............................F-
Unaudited Statements of Cash Flow for the Nine Months Ended
September 30, 1999 and 1998...............................F-
(COVER PAGE)
TARPON FINANCIAL CORPORATION
TARPON SPRINGS, FLORIDA
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 1998 AND 1997
TABLE OF CONTENTS
-----------------
REPORT OF INDEPENDENT ACCOUNTANTS.................1
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets..................2
Consolidated Statements of Income............3
Consolidated Statements of Changes
in Shareholders' Equity....................4
Consolidated Statements of Cash Flows........5
Notes to Consolidated Financial Statements...6
Francis & Co., CPAs
Report of Independent Accountants
---------------------------------
Board of Directors
Tarpon Financial Corporation
Tarpon Springs, Florida
We have audited the accompanying consolidated balance
sheets of Tarpon Financial Corporation, (the "Company"), and
subsidiary as of December 31, 1998 and 1997, and the related
consolidated statements of income, changes in shareholders'
equity and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these consolidated 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 consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Tarpon Financial Corporation, and subsidiary at
December 31, 1998 and 1997, and the consolidated results of their
operations and their cash flows for each of the years in the two-year
period ended December 31, 1998, in conformity with generally accepted
accounting principles.
/S/ Francis & Co., CPAs
FRANCIS & CO., CPAS
Atlanta, Georgia
October 15, 1999
- ------------------------------------------------------------
TARPON FINANCIAL CORPORATION
TARPON SPRINGS, FLORIDA
Consolidated Balance Sheets
ASSETS
------
As of December 31,
1998 1997
---- ----
Cash and due from banks $1,828,171 $1,057,335
Federal funds sold, net (Note 3) 8,200,000 2,720,000
--------- ---------
Total cash and cash equivalents $10,028,171 $3,777,335
Securities: (Notes 2 & 4)
Available-for-sale at fair value 1,343,729 3,139,016
Loans, net (Notes 2, 5, 6 & 13) 10,367,867 11,610,959
Property and equipment,
net (Notes 2 & 7) 244,969 250,268
Other assets 173,121 165,807
---------- ----------
Total Assets $22,157,857 $18,943,385
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Liabilities:
- -----------
Deposits
Non-interest bearing deposits $ 4,200,868 $ 3,470,601
Interest bearing deposits 15,736,384 13,309,757
---------- ----------
Total deposits (Note 9) $19,937,252 $16,780,358
Other liabilities 226,475 192,502
---------- ----------
Total Liabilities $20,163,727 $16,972,860
---------- ----------
Commitments and Contingencies (Note 8)
- -----------------------------
Shareholders' Equity: (Notes 1 & 15)
- ---------------------
Common stock, .10 par value,
500,000 shares authorized;
155,000 shares issued and
outstanding $ 15,500 $ 15,500
Paid-in-capital 1,534,500 1,534,500
Retained earnings 437,315 410,173
Unrealized gain on securities, net 6,815 10,352
---------- ----------
Total Shareholders' Equity $ 1,994,130 $ 1,970,525
---------- ----------
Total Liabilities and
Shareholders' Equity $22,157,857 $18,943,385
========== ==========
Refer to notes to the consolidated financial statements.
- -----------------------------------------------------------
TARPON FINANCIAL CORPORATION
TARPON SPRINGS, FLORIDA
Consolidated Statements of Income
Years Ended December 31,
------------------------
Interest Income: 1998 1997
- ---------------- ---- ----
Interest and fees on loans
(Note 2) $ 1,002,748 $ 1,006,372
Interest on investment
securities 146,927 185,646
Interest on federal funds sold 233,423 114,584
---------- -----------
Total interest income $ 1,383,098 $ 1,306,602
Interest Expense:
- ----------------
Interest on deposits (Note 10) 597,177 533,562
---------- ----------
Net interest income $ 785,921 $ 773,040
Provision for possible loan
losses (Note 6) - - - -
---------- ----------
Net interest income after provision
for possible loan losses $ 785,921 $ 773,040
---------- ----------
Other Income:
- -------------
Service fees on
deposit accounts $ 230,858 $ 273,601
Miscellaneous, other 45,422 34,163
---------- ----------
Total other income $ 276,280 $ 307,764
---------- ---------
Other Expenses:
- ---------------
Salaries $ 495,627 $ 477,910
Employee benefits 99,760 94,866
Occupancy and Maintenance 128,997 127,856
Depreciation 5,827 16,114
Data processing 67,298 64,910
Professional fees 48,125 46,652
Other operating
expenses (Note 11) 146,410 142,323
----------- ----------
Total other expenses $ 992,044 $ 970,631
---------- ---------
Income before income tax $ 70,157 $ 110,173
Income tax (Notes 2 & 12) 12,015 27,103
---------- ---------
Net income $ 58,142 $ 83,070
Unrealized gain/(loss), securities (3,537) 5,756
---------- ---------
Comprehensive income $ 54,605 $ 88,826
========== =========
Basic earnings per share (Note 2) $ .38 $ .54
===== =====
Refer to notes to the consolidated financial statements.
- -----------------------------------------------------------
TARPON FINANCIAL CORPORATION
TARPON SPRINGS, FLORIDA
Consolidated Statements of Changes in Shareholders' Equity
For the years ended December 31, 1998 and 1997
Unrealized
Gain on
Common Securities
Stock Available
Par Paid-In Retained for
Value Capital Earnings Sale, net Total
Balance,
December 31,
1995 -
155,000
shares $15,500 $1,534,500 $314,121 $(3,713) $1,860,408
------ --------- ------- ------ ---------
Net income,
1996 - - - - 74,982 - - 74,982
Net
unrealized
gains,
securities - - - - - - 8,309 8,309
Less
dividends
paid - - - - (31,000) - - (31,000)
------- ------- ------- ------- -------
Balance,
December 31,
1996
155,000
shares $15,500 $1,534,500 $358,103 $ 4,596 $1,912,699
------ --------- ------- ------ ---------
Net
income,
1997 - - - - 83,070 - - 83,070
Net
unrealized
gains,
securities - - - - - - 5,756 5,756
Less
dividends
paid - - - - (31,000) - - (31,000)
------- ------- ------- ------- -------
Balance,
December 31,
1997
155,000
shares $15,500 $1,534,500 $410,173 $10,352 $1,970,525
------ --------- ------- ------ ---------
Net income,
1998 - - - - 58,142 - - 58,142
Net
unrealized
(loss),
securities - - - - - - (3,537) (3,537)
Less
dividends
paid - - - - (31,000) - - (31,000)
------- ------- ------- ------- -------
Balance,
December 31,
1998
155,000
shares $15,500 $1,534,500 $437,315 $ 6,815 $1,994,130
------ --------- ------- ------ ---------
Refer to notes to the consolidated financial statements.
- -----------------------------------------------------------
TARPON FINANCIAL CORPORATION
TARPON SPRINGS, FLORIDA
Consolidated Statements of Cash Flows
Years Ended December 31,
Cash flows from 1998 1997
operating activities: ---- ----
- ----------------------
Net income 58,142 83,070
Adjustments to
reconcile net income to
net cash provided by
operating activities:
Depreciation 5,827 16,114
Net accretion on securities (14,160) (26,260)
(Increase) in receivables and
other assets (7,314) (32,270)
Increase in payables and
other liabilities 33,973 (28,223)
----------- -----------
Net cash provided by
operating activities 76,468 12,431
------------ -----------
Cash flows from
investing activities:
- ----------------------
Purchase of securities $ - - $(1,085,500)
Maturity of securities 1,805,910 1,000,000
Decrease in loans, net 1,243,092 98,604
Purchase of premises
and equipment (528) (24,949)
--------- -----------
Net cash provided from
investing activities $ 3,048,474 $ (11,845)
---------- -----------
Cash flows from
financing activities:
- ----------------------
Dividends paid $ (31,000) $ (31,000)
Increase in deposits 3,156,894 (325,463)
---------- -----------
Net cash provided by
financing activities $ 3,125,894 $ (356,463)
---------- -----------
Net increase in cash
and cash equivalents $ 6,250,836 $ (355,877)
Cash and cash equivalents,
beginning of period 3,777,335 4,133,212
---------- -----------
Cash and cash equivalents,
end period $10,028,171 $ 3,777,335
========== ===========
Supplemental Information:
Income taxes paid $ 26,790 $ 30,040
========== ==========
Interest paid $ 565,280 $ 526,651
========== ==========
Refer to notes to the consolidated financial statements.
- ---------------------------------------------------------------
TARPON FINANCIAL CORPORATION
TARPON SPRINGS, FLORIDA
Notes to Consolidated Financial Statements
Note 1 - Organization of the Business
Tarpon Financial Corporation, Tarpon Springs, Florida (the
"Company") was formed in late 1984 to serve as a holding company
for a de novo bank, First National Bank, Tarpon Springs, Florida
(the "Bank"). The Bank is regulated by the Office of the
Comptroller of the Currency and its deposits are each insured up
to $100,000 by the Federal Deposit Insurance Corporation. The
Company owns 100 percent of the voting shares of the Bank.
Note 2 - Summary of Significant Accounting Policies
Basis of Presentation and Reclassification.
------------------------------------------
The consolidated financial statements include the accounts
of the Company and the Bank. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Certain prior year amounts have been reclassified to conform to
the current year presentation. Such reclassifications had no
impact on net income or shareholders' equity.
Basis of Accounting.
-------------------
The accounting and reporting policies of the Company
conform to generally accepted accounting principles and to
general practices in the banking industry. In preparing the
financial statements, management is required to make estimates
and assumptions that affect the reported amounts of assets and
liabilities as of the date of the balance sheet and revenues and
expenses for the period. Actual results could differ
significantly from those estimates. Material estimates that are
particularly susceptible to significant change in the near term
relate to the determination of the allowance for loan losses and
the valuation of real estate acquired in connection with
foreclosures or in satisfaction of loans.
Investment Securities.
---------------------
The Company adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investment in Debt
and Equity Securities" ("SFAS 115") on January 1, 1994. SFAS
115 requires investments in equity and debt securities to be
classified into three categories:
1. Held-to-maturity securities.
---------------------------
These are securities which the Company has the ability and
intent to hold until maturity. These securities are stated
at cost, adjusted for amortization of premiums and the
accretion of discounts. As of December 31, 1998 and 1997,
the Company had no securities in this category.
2. Trading securities.
------------------
These are securities which are bought and held principally
for the purpose of selling in the near future. Trading
securities are reported at fair market value, and related
unrealized gains and losses are recognized in the income
statement. As of December 31, 1998 and 1997, the Company had
no securities in this category.
3. Available-for-sale securities.
-----------------------------
These are securities which are not classified as either
held-to-maturity or as trading securities. These securities
are reported at fair market value. Unrealized gains and
losses are reported, net of tax, as separate components of
shareholders' equity. Unrealized gains and losses are
excluded from the income statement.
A decline below cost in the fair value of any available-
for-sale or held-to-maturity security that is deemed other than
temporary, results in a charge to income and the establishment
of a new cost basis for the security.
Purchase premiums and discounts on investment securities
are amortized and accreted to interest income using the level
yield method on the outstanding principal balances. In
establishing the accretion of discounts and amortization of
premiums, the Company utilizes market based prepayment
assumptions. Interest and dividend income are recognized when
earned. Realized gains and losses for securities sold are
included in income and are derived using the specific
identification method for determining the costs of securities
sold.
Loans, Interest and Fee Income on Loans.
- ---------------------------------------
Loans are stated at the principal balance outstanding. Unearned
discount, unamortized loan fees and the allowance for possible
loan losses are deducted from total loans in the statement of
condition. Interest income is recognized over the term of the
loan based on the principal amount outstanding. Points on real
estate loans are taken into income to the extent they represent
the direct cost of initiating a loan. The amount in excess of
direct costs is deferred and amortized over the expected life of
the loan.
Accrual of interest on loans is discontinued either when
reasonable doubt exists as to the full or timely collection of
interest or principal or when a loan becomes contractually past
due by 90 days or more with respect to interest or principal.
When a loan is placed on non-accrual status, all interest
previously accrued but not collected is reversed against current
period interest income. Income on such loans is then recognized
only to the extent that cash is received and where the future
collection of principal is probable. Loans are returned to
accruing status only when they are brought fully current with
respect to interest and principal and when, in the judgment of
management, the loans are estimated to be fully collectible as
to both principal and interest.
The Company adopted the provisions of SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan," as amended
by SFAS No. 118, "Accounting for Impairment of a Loan - Income
Recognition and Disclosure." These standards require impaired
loans to be measured based on the present value of expected
future cash flows discounted at the loan's original effective
interest rate, or at the loan's observable market price, or the
fair value of the collateral if the loan is collateral
dependent. A loan is considered impaired when, based on current
information and events, it is probable that the Company will be
unable to collect all amounts due according to the contractual
terms of the note agreement. Cash receipts on impaired loans
which are accruing interest are applied to principal and
interest under the contractual terms of the loan agreement.
Cash receipts on impaired loans for which the accrual of
interest has been discontinued are applied to reduce the
principal amount of such loans until the principal has been
recovered and are recognized as interest income thereafter.
Allowance for Loan Losses.
- -------------------------
The allowance for loan losses is established through provisions
charged to operations. Such provisions are based on
management's evaluation of the loan portfolio under current
economic conditions, past loan loss experience, adequacy of
underlying collateral, changes in the nature and volume of the
loan portfolio, review of specific problem loans and such other
factors which, in management's judgment, deserve recognition in
estimating loan losses. Loans are charged off when, in the
opinion of management, such loans are deemed to be
uncollectible. Subsequent recoveries are added to the
allowance.
Management believes that the allowance for loan losses is
adequate. While management uses available information to
recognize losses of loans, future additions to the allowance may
be necessary based on changes in economic conditions. In
addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Company's
allowance for loan losses. Such agencies may require the
Company to recognize additions to the allowance based on their
judgments about information available to them at the time of
their examination.
Property and Equipment.
- ----------------------
Furniture, equipment and leasehold improvements are stated at
cost, net of accumulated depreciation. Depreciation is computed
using the straight line method over the estimated useful lives
of the related assets. Maintenance and repairs are charged to
operations, while major improvements are capitalized. Upon
retirement, sale or other disposition of property and equipment,
the cost and accumulated depreciation are eliminated from the
accounts, and gain or loss is included in income from
operations.
Other Real Estate.
- -----------------
Other real estate represents property acquired through
foreclosure or in satisfaction of loans. Other real estate is
carried at the lower of: (i) cost; or (ii) fair value less
estimated selling costs. Fair value is determined on the basis
of current appraisals, comparable sales and other estimates of
value obtained principally from independent sources. Any excess
of the loan balance at the time of foreclosure or acceptance in
satisfaction of loans over the fair value of the real estate
held as collateral is treated as a loan loss and charged against
the allowance for loan losses. Gain or loss on sale and any
subsequent adjustments to reflect changes in fair value and
selling costs are recorded as a component of income. Costs of
improvements to other real estate are capitalized, while costs
associated with holding other real estate are charged to
operations.
Income Taxes.
- ------------
Income tax expense consists of current and deferred taxes.
Current income tax provisions approximate taxes to be paid or
refunded for the applicable year. Deferred tax assets and
liabilities are recognized on the temporary differences between
the bases of assets and liabilities as measured by tax laws and
their bases as reported in the financial statements. Deferred
tax expense or benefit is then recognized for the change in
deferred tax assets or liabilities between periods.
Recognition of deferred tax balance sheet amounts is based
on management's belief that it is more likely than not that the
tax benefit associated with certain temporary differences, tax
operating loss carryforwards, and tax credits will be realized.
A valuation allowance is recorded for those deferred tax items
for which it is more likely than not that realization will not
occur.
Statement of Cash Flows.
- -----------------------
For purposes of reporting cash flows, cash and cash equivalents
include cash on hand, amounts due from banks and federal funds
sold. Generally, federal funds are purchased or sold for one
day periods.
Earnings Per Share ("EPS").
- --------------------------
The Company adopted Statement of Financial Accounting Standards
No. 128, "Earnings Per Share" ("SFAS 128"). SFAS 128
establishes standards for computing and presenting EPS. Because
the Company has a simple capital structure, it is only required
to report basic EPS. Basic EPS is defined as the amount of
earnings available to each share of common stock outstanding
during the reporting period.
Basic EPS is computed by dividing income available to
common shareholders by the weighted-average number of common
shares outstanding during the period. Basic EPS for the years
ended December 31, 1998 and 1997 was computed as follows:
1998 Basic EPS 1997 Basic EPS
Numerator Denominator Numerator Denominator
Net income $58,142 $83,070
Weighted
average
shares 155,000 155,000
------- ------- ------ -------
Totals $58, 142 155,000 $83,070 155,000
======= ======= ====== =======
EPS $.38 $.54
==== ====
Recent Accounting Pronouncements.
- --------------------------------
Beginning January 1, 1998, the Company adopted the provisions of
SFAS No. 131, "Disclosures About Segments of an Enterprise and
Related Information," which is effective for annual and interim
periods beginning after December 15, 1997. This Statement
establishes standards for the method that public entities are to
use when reporting information about operating segments in
annual financial statements and requires that those enterprise
reports be issued to shareholders, beginning with annual
financial statements in 1998 and for interim and annual
financial statements thereafter. SFAS 131 also established
standards for related disclosures about products and services,
geographic areas and major customers.
SFAS 132, "Employers' Disclosures About Pensions and Other
Postretirement Benefits" revises and standardizes certain
disclosures which were required under SFAS 87, 88 and 106.
Generally, the new Statement uses a separate but parallel
format, eliminates less useful information, requires additional
data deemed useful by analysts, and allows some aggregation of
presentation. This Statement was adopted by the Company during
1998.
SFAS 133, "Accounting for Derivative Instruments and Hedging
Activities" was issued in June, 1998 and is effective for all
calendar-year entities beginning in January, 2000. This Statement
applies to all entities and requires that all derivatives be
recognized as assets or liabilities in the balance sheet, at fair
values. Gains and losses of derivative instruments not designated as
hedges will be recognized in the income statement. The Company has
not made an assessment of the expected impact that SFAS 133 will have
on its financial statements.
Note 3 - Federal Funds Sold
The Bank is required to maintain legal cash reserves
computed by applying prescribed percentages to its various types
of deposits. When the Bank's cash reserves are in excess of the
required amount, the Bank may lend the excess to other banks on
a daily basis. At December 31, 1998 and 1997, the Bank sold
$8,200,000 and $2,720,000, respectively, to other banks through
the federal funds market.
NOTE 4 - SECURITIES AVAILABLE-FOR-SALE
The amortized costs and estimated market values of
securities available-for-sale as of December 31, 1998 follow:
Gross Estimated
Amortized Unrealized Market
Description Costs Gains Losses Values
- ----------- ---------- --------- ------ ---------
U.S. Treasury
securities $ 598,759 $ 5,929 $ - - $ 604,688
U.S. Agencies 395,833 4,397 - - 400,230
FRB stock 46,500 - - - - 46,500
Time deposits 292,311 - - - - 292,311
--------- --------- ----- ---------
Total securities $1,333,403 $ 10,326 $ - - $1,343,729
All national banks are required to hold FRB stock. No ready
market exists for the FRB stock nor does the stock have a quoted
market value. Accordingly, the FRB stock is reported at cost.
The amortized costs and estimated market values of securities
available-for-sale as of December 31, 1997 follow:
Gross Estimated
Amortized Unrealized Market
Description Costs Gains Losses Values
- ----------- ---------- --------- ------ ---------
U.S. Treasury
securities $2,980,432 $14,499 $(415) $2,994,516
FRB stock 46,500 - - - - 46,500
Other securities 98,000 - - - - 98,000
--------- ------ ---- ---------
Total securities $3,124,932 $14,499 $(415) $3,139,016
========= ====== ==== =========
The amortized costs and estimated market values of securities
available-for-sale at December 31, 1998, by contractual maturity ,
are shown in the following chart. Expected maturities may
differ from contractual maturities because issuers may have the right
to call or prepay obligations with or without call or prepayment
penalties.
Amortized Estimated
Costs Market Values
--------------- ------------
Due in one year or less $ 1,286,903 $ 1,297,229
FRB stock (no maturity) 46,500 46,500
---------- ----------
Total securities $ 1,333,403 $ 1,343,729
========== ==========
There were no sales of securities during 1998 and 1997. At
December 31, 1998 and 1997, none of the securities was pledged.
Note 5 - Loans
The composition of net loans by major loan category, as of
December 31, 1998 and 1997, follows:
December 31,
--------------------
1998 1997
---- ----
Commercial, financial, agricultural $ 667,923 $ 1,060,351
Real estate - mortgage 9,001,805 10,057,923
Installment 813,845 608,391
---------- ---------
Loans, gross $10,483,573 $11,726,665
Deduct:
Allowance for loan losses (115,706) (115,706)
---------- ----------
Loans, net $10,367,867 $11,610,959
========== ==========
At December 31, 1998 and 1997 the only impaired loans were
those which were placed on non-accrual status, or $63,495 and
$67,467, respectively. The average impaired loans for the years
ended December 31, 1998 and 1997 aggregated $65,394 and $83,263,
respectively. No interest income was recognized on impaired
loans during 1998 or 1997.
Note 6 - Allowance for Possible Loan Losses
The allowance for possible loan losses is a valuation
reserve available to absorb future loan charge-offs. The
allowance is increased by provisions charged to operating
expenses and by recoveries of loans which were previously
written-off. The allowance is decreased by the aggregate loan
balances, if any, which were deemed uncollectible during the
year.
Activity within the allowance for loan losses account for
the years ended December 31, 1998 and 1997 follows:
Years ended December 31,
------------------------
1998 1997
---- ----
Balance, beginning of year $ 115,706 $ 115,706
Add: Provision for loan losses - - - -
Add: Recoveries of previously
charged off amounts - - - -
-------- --------
Total $ 115,706 $ 115,706
Deduct: Amount charged-off - - - -
-------- --------
Balance, end of year $ 115,706 $ 115,706
======== ========
Note 7 - Property and Equipment
Furniture, equipment leasehold and land improvements are stated
at cost less accumulated depreciation. Components of property and
equipment included in the consolidated balance sheets at December 31,
1998 and 1997 follow:
December 31,
1998 1997
---- ----
Land $ 236,869 $ 236,869
Land improvements 66,222 66,222
Furniture, equipment 331,280 352,145
Leasehold improvements 45,459 45,459
--------- ---------
Property and equipment, gross $ 679,830 $ 700,695
Deduct:
Accumulated depreciation (434,861) (450,427)
--------- ---------
Property and equipment, net $ 244,969 $ 250,268
========= =========
Depreciation expense for the years ended December 31, 1998
and 1997 amounted to $5,827 and $16,114, respectively.
Depreciation is charged to operations over the estimated useful
lives of the assets. The estimated useful lives and methods of
depreciation for the principal items follow:
Type of Asset Life in Years Depreciation Method
Land improvements 5 to 7 Straight-line
Furniture and equipment 3 to 18 Straight-line
Leasehold improvements 5 to 7 Straight-line
Note 8 - Commitments and Contingencies
Please refer to Note 13 concerning the lease of the Bank
building.
Please refer to Note 14 concerning financial instruments
with off-balance sheet risk.
The Company is a defendant in one lawsuit incident to the
ordinary course of business. it is not possible to determine with
precision the probable outcome or the amount of liability, if any,
under the aforementioned lawsuit. Subsequent to the date of the
financial statements but before the issuance of this report, a Court
of Law found the Bank liable in the amount of $302,000 in the above
lawsuit; however, upon appeal, the Bank prevailed. There are no
charges against earnings for the years ended December 31, 1998 and
1997 resulting from the above lawsuit.
Note 9 - Deposits
The following details deposit accounts at December 31, 1998
and 1997:
December 31,
1998 1997
Non-interest bearing deposits $ 4,200,868 $ 3,470,601
Interest bearing deposits:
NOW accounts 2,699,429 2,209,393
Money market 1,304,969 998,732
Savings 2,250,778 2,267,605
Time, less than $100,000 8,093,465 7,051,969
Time, $100,000 and over 1,387,743 782,058
---------- ----------
Total deposits $19,937,252 $16,780,358
========== ==========
NOTE 10 - INTEREST ON DEPOSITS
A summary of interest expense for the years ended December
31, 1998 and 1997 follows:
December 31,
1998 1997
---- ----
Interest on NOW accounts $ 49,621 $ 47,152
Interest on money market accounts 37,674 30,354
Interest on savings accounts 51,968 53,129
Interest on CDs under $100,000 391,471 372,920
Interest on CDs $100,000 and over 66,443 30,007
------- -------
Total interest on deposits $597,177 $533,562
======= =======
NOTE 11 - OTHER OPERATING EXPENSES
A summary of other operating expenses for the years ended
December 31, 1998 and 1997 follows:
December 31,
1998 1997
---- ----
Supplies and printing 22,492 24,838
Insurance 27,366 26,440
Telephone and postage 23,539 24,021
Regulatory assessments 14,943 14,598
All other operating expenses 58,070 52,426
------- -------
Total other operating expenses $146,410 $142,323
======= =======
NOTE 12 - INCOME TAXES
As of December 31, 1998 and 1997, the Company's provision for
income taxes consisted of the following:
December 31,
1998 1997
---- ----
Current $ 12,015 $ 25,353
Deferred - - 1,750
------- -------
Federal income tax expense $ 12,015 $ 27,103
======= =======
Deferred income taxes consist of the following:
1998 1997
Depreciation $ - - $ 1,750
------ ------
Total $ - - $ 1,750
======= ======
The Company's provision for income taxes differs from the amounts
computed by applying the federal income tax statutory rates to income
before income taxes. A reconciliation of federal statutory income
taxes to the Company's actual income tax provision follows:
December 31,
1998 1997
Income taxes at statutory rate $ 23,857 $ 37,459
Federal surtax exemption (11,951) (11,241)
Other 109 885
------- -------
Total $ 12,015 $ 27,103
======= ========
The tax effects of the temporary differences that comprise
the net deferred tax assets at December 31, 1998 and 1997 are
presented below:
1998 1997
---- ----
Deferred tax assets:
Allowance for loan losses $17,014 $17,014
Unrealized gain, securities (3,511) (3,732)
Deferred asset, depreciation - - 2,017
Valuation reserve (6,773) (6,886)
Net deferred tax asset $ 6,730 $ 8,413
There was a net change in the valuation allowance during 1998.
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all
of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary
differences become deductible. Management considers the scheduled
reversal of deferred tax liabilities, projected future taxable income
and tax planning strategies in making this assessment. Based upon the
level of historical taxable income and projection for future taxable
income over the periods which the temporary differences resulting in
the deferred tax assets are deductible, management believes it is more
likely than not that the Company will realize the benefits of those
deductible differences, net of the existing valuation allowance at
December 31, 1998.
Note 13 - Related Party Transactions
Lease of Bank Building.
----------------------
The Bank leases the building from which it operates from
certain directors of the Company. The term of the lease is for
twenty years beginning June 1, 1985 and ending May 31, 2005. In
accordance with the lease agreement, the lease expense is the
higher of either $4,974 per month or all of monthly principal
and interest payments due from the lessor on the mortgage. In
addition, the Bank is accountable for all property taxes,
insurance and assessments, and all applicable sales taxes which
may become due. Lease expense for the years ended December 31
1998 and 1997 approximated $59,690 per year. During 1998 and
1997, taxes paid with respect to this lease were $9,629 and
$9,896, respectively. Also during the years ended December 31,
1998 and 1997, insurance paid with respect to this lease was
$9,274 and $8,236, respectively. There were no sales taxes due.
Subsequent to the date of the financial statements but before the
issuance of this report, the Bank purchased the building from which it
operates from certain directs. The purchase price of $400,000 was
based on an independent appraisal of a like-amount.
Payments to Directors.
---------------------
For their services as directors of the Company/Bank, the
directors received a combined aggregate total of $6,800 and $7,200 for
the years ended December 31, 1998 and 1997, respectively. In
addition, one director was paid $5,400 during 1997, for providing
periodic loan reviews of the Bank's loan portfolio. Another director
was paid $3,000 in 1997 for the use of an off-site records storage
facility.
Loans from and Deposits in the Bank.
-----------------------------------
Certain directors, executive officers, and companies with
which they are affiliated, are customers of and have banking
transactions with the Bank, in the ordinary course of business.
As of December 31, 1998 and 1997, there were $149,551 and zero
loans outstanding to directors, executive officers and their
related interests. Deposits by directors and their related
interests, as of December 31, 1998 and 1997, approximated
$233,615 and $249,526, respectively.
NOTE 14 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
In the ordinary course of business, and to meet the financing
needs of its customers, the Company is a party to various financial
instruments with off-balance sheet risk. These financial instruments,
which include commitments to extend credit and standby letters of
credit, involve, to varying degrees, elements of credit and interest
rate risk in excess of the amounts recognized in the balance sheets.
The contract amount of those instruments reflects the extent of
involvement the Company has in particular classes of financial
instruments.
The Company's exposure to credit loss in the event of
nonperformance by the other party to the financial instrument
for commitments to extend credit and standby letters of credit
is represented by the contractual amounts of those instruments.
The Company uses the same credit policies in making commitments
and conditional obligations as it does for on-balance sheet
instruments.
Commitments to extend credit are agreements to lend to a
customer as long as there is no violation of any material
condition established in the contract. Commitments generally
have fixed expiration dates or other termination clauses and may
require the payment of a fee. At December 31, 1998 and 1997,
there were no unfunded commitments to extend credit. If and
when there exists unfunded commitments to extend credit, the
Company evaluates each customer's credit worthiness on a case-
by-case basis. The amount of collateral obtained, if deemed
necessary by the Company upon extension of credit, is based on
management's credit evaluation of the borrower. Collateral
varies, but may include accounts receivable, inventory,
property, plant and equipment, residential homes and income
producing commercial properties.
At December 31, 1998 and 1997, there were no commitments
under letters of credit. The credit risk involved in issuing
letters of credit is essentially the same as that involved in
extending loan facilities to customers. Collateral varies but
may include accounts receivable, inventory, equipment,
marketable securities and property. Since most of the letters
of credit are expected to expire without being drawn upon, they
do not necessarily represent future cash requirements.
The Company makes commercial, real estate and consumer
loans to individuals and businesses located in and around
Pinellas County, Florida. The Company does not have a
significant concentration of credit risk with any individual
borrower. However, a substantial portion of the Company's loan
portfolio is collateralized by real estate located in and around
Pinellas County, Florida.
NOTE 15 - REGULATORY MATTERS
The Company and the Bank are subject to various regulatory
capital requirements administered by federal banking agencies.
Failure to meet minimum capital requirements can initiate certain
mandatory and possibly additional discretionary actions by regulators
that, if undertaken, could have a direct material effect on the
Company's financial statements. Under capital adequacy guidelines and
the regulatory framework for prompt corrective action, the Company and
the Bank must meet specific capital guidelines that involve
quantitative measures of the Company's assets, liabilities and certain
off-balance-sheet items as calculated under regulatory accounting
practices. The capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk
weighting and other factors.
Qualitative measures established by regulation to ensure
capital adequacy require the Company and the Bank to maintain
minimum amounts and ratios (set forth in the table below) of
total and Tier 1 capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier 1 capital to
average assets (as defined). Management believes, as of
December 31, 1998, that the Company and the Bank meet all
capital adequacy requirements to which they are subject.
As of December 31, 1998, the Bank was categorized as Well
Capitalized. To be categorized as Adequately Capitalized or
Well Capitalized, the Bank must maintain minimum total risk
based, Tier 1 risk-based and Tier 1 leverage ratios as set forth
in the table below. There are no conditions or events since
that notification that management believes have changed the
Company's capital category. The actual capital amounts and
rations are also presented in the table below:
Minimum Regulatory Capital Guidelines for Banks
-----------------------------------------------
(Dollars in Adequately Well
thousands) Actual Capitalized Capitalized
------------- ------------- -------------
Amount Ratio Amount Ratio Amount Ratio
As of
12/31/1998:
Total capital-
risk-based
(to risk-
weighted assets):
Bank $2,045 22.2% $735 : 8% $920 : 10%
Consolidated 2,103 22.9% 735 : 8% N/A N/A
Tier 1 capital-
risk-based
(to risk-
weighted assets):
Bank $1,930 21.0% $368 : 4% $552 : 6%
Consolidated 1,980 21.5% 368 : 4% N/A N/A
Tier 1 capital-leverage
(to average assets):
Bank $1,930 9.4% $818 : 4% $1,023 : 5%
Consolidated 1,980 9.7% 818 : 4% N/A N/A
As of 12/31/1997:
Total capital-
risk-based
(to risk-
weighted assets):
Bank $1,987 23.6% $672 : 8% $840 : 10%
Consolidated 2,065 25.5% 673 : 8% N/A N/A
Tier 1 capital-
risk-based
(to risk-
weighted assets):
Bank $1,882 22.4% $336 : 4% $504 : 6%
Consolidated 1,960 23.3% 336 : 4% N/A N/A
Tier 1 capital-leverage
(to average assets):
Bank $1,882 9.8% $764 : 4% $955 : 5%
Consolidated 1,960 10.3% 764 : 4% N/A N/A
Note 16 - Dividends
The primary source of funds available to the Company to pay
shareholder dividends and other expenses is from the Bank. Bank
regulatory authorities impose restrictions on the amounts of dividends
that may be declared by the Bank. Further restrictions could result
from a review by regulatory authorities of the Bank's capital
adequacy. During 1998 and 1997, the Company declared and paid
dividends in the amount of $.20 per share of common stock.
NOTE 17 - SUBSEQUENT EVENTS
Subsequent to December 31, 1998, and prior to the date of this
report, the Company declared a $.20 dividend for each share of the
Company's common stock, payable to those shareholders of record as of
April 14, 1999.
Note 18 - Parent Company Financial Information
This information should be read in conjunction with the
other notes to the consolidated financial statements.
Parent Company Balance Sheets
-----------------------------
December 31,
Assets: 1998 1997
- ------ ---- ----
Cash $ 51,358 $ 78,048
Investment in Bank 1,917,772 1,891,819
Other assets 25,000 3,923
---------- ----------
Total Assets $ 1,994,130 $ 1,973,790
========== ==========
Liabilities and Shareholders' Equity:
- ------------------------------------
Taxes payable $ - - $ 265
Accounts payable - - 3,000
---------- ----------
Total Liabilities $ - - $ 3,265
---------- ----------
Common stock $ 15,500 $ 15,500
Paid-in-capital 1,534,500 1,534,500
Retained earnings 437,315 410,173
Unrealized gain on securities 6,815 10,352
---------- ----------
Total Shareholders' equity $ 1,994,130 $ 1,970,525
---------- -----------
Total Liabilities and
Shareholders' equity $ 1,994,130 $ 1,973,790
========== ===========
PARENT COMPANY STATEMENTS OF INCOME
-----------------------------------
December 31,
1998 1997
---- ----
Interest income $ 1,497 $ 1,204
Cash dividends from Bank 25,000 35,000
Other income 3,445 - -
Miscellaneous expense (1,291) (165)
--------- ---------
Income before income tax, and
Equity in undistributed
earnings of the Bank $ 28,651 $ 36,039
Income tax expense - - 624
--------- ---------
Income before equity in
undistributed earnings
of the Bank $ 28,651 $ 35,415
Equity in undistributed
earnings of the Bank 29,491 47,655
--------- ---------
Net income $ 58,142 $ 83,070
========= =========
PARENT COMPANY STATEMENTS OF CASH FLOWS
---------------------------------------
Years Ended December 31,
Cash flows
from operating activities: 1998 1997
------------------------- ---- ----
Net income $ 58,142 $ 83,070
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Equity in undistributed
earnings of the Bank (29,491) (47,655)
(Increase) in other assets (21,076) (3,000)
(Decrease) in payables (3,265) (3,243)
--------- ---------
Net cash provided by
operating activities $ 4,310 $ 29,172
-------- ---------
Cash flows from
investing activities: $ - - $ - -
-------------------- -------- ---------
Cash flows from
financing activities:
--------------------
Dividends paid $ (31,000) $ (31,000)
-------- ---------
Net cash used by
financing activities $ (31,000) $ (31,000)
-------- ---------
Net (decrease) in cash
and cash equivalents $ (26,690) $ (1,828)
Cash and cash equivalents,
beginning of the year 78,048 79,876
-------- ---------
Cash and cash equivalents,
end of year $ 51,358 $ 78,048
======== =========
TARPON FINANCIAL CORPORATION
TARPON SPRINGS, FLORIDA
Consolidated Balance Sheet (Unaudited)
As of September 30, 1999
ASSETS
------
Cash and due from banks $ 1,380,483
Federal funds sold 6,325,000
----------
Total cash and cash equivalents $ 7,705,483
Securities available for sale 340,500
Loans, net 11,778,864
Land, building, furniture and equipment 706,241
Other assets 223,440
----------
Total Assets $20,754,528
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Liabilities:
- -----------
Deposits
Non-interest bearing deposits $ 3,643,216
Interest bearing deposits 15,014,985
----------
Total deposits $18,658,201
Other liabilities 218,232
----------
Total Liabilities $18,876,433
----------
Commitments and Contingencies
Shareholders' Equity:
- --------------------
Common stock, par value $.10; 500,000
shares authorized; 155,000 shares
issued and outstanding $ 15,500
Paid-in-capital 1,534,500
Retained earnings 328,095
----------
Total Shareholders' Equity $ 1,878,095
----------
Total Liabilities and Shareholders' Equity $20,754,528
==========
See notes to consolidated financial statements
TARPON FINANCIAL CORPORATION
TARPON SPRINGS, FLORIDA
Consolidated Statements of Income (Unaudited)
For the nine-month period ended
September 30,
1999 1998
---- ----
Interest income:
- ---------------
Interest and fees on loans $ 697,749 $ 759,753
Interest on investment securities 45,942 115,590
Interest on federal funds sold 268,654 157,295
--------- ---------
Total interest income $1,012,345 $1,032,638
Interest expense:
- ----------------
Interest on deposits 449,350 436,027
--------- ---------
Net interest income $ 562,995 $ 596,611
Provision for possible loan losses - - - -
--------- ---------
Net interest income after
provision for possible loan losses $ 562,995 $ 596,611
--------- ---------
Other income:
- ------------
Service fees on deposit accounts $ 172,070 $ 182,515
Miscellaneous, other 27,920 25,601
--------- ---------
Total other income $ 199,990 $ 208,116
--------- ---------
Other expenses:
- --------------
Salaries $ 348,528 $ 360,417
Employee benefits 72,310 75,890
Occupancy and maintenance 103,917 100,792
Depreciation 10,944 4,500
Data processing expense 45,570 49,581
Professional fees 37,669 29,839
Other operating expenses 108,668 101,819
--------- ----------
Total other expense $ 727,606 $ 722,838
--------- ---------
Income before income tax
and extraordinary item $ 35,379 $ 81,889
Provision for income tax 8,599 $ 21,041
--------- ---------
Income before extraordinary item $ 26,780 $ 60,848
Extraordinary item, net of
tax benefit of $35,000 (9-30-99) $ (105,000) $ - -
--------- ---------
Net income/(loss) $ (78,220) $ 60,848
--------- ---------
Other comprehensive income, net of tax:
Unrealized holding gains (losses)
on securities available for sale $ (6,815) $ 1,800
--------- ---------
Comprehensive income/(loss) $ (85,035) $ 62,648
========= =========
Basic income/(loss) per share $ (.50) $ .39
========= =========
See notes to consolidated financial statements
TARPON FINANCIAL CORPORATION
TARPON SPRINGS, FLORIDA
Consolidated Statements of Cash Flows (Unaudited)
for the nine-month period ended
September 30,
1999 1998
---- ----
Net cash provided from (used by)
operating activities $ (129,424) $ 100,047
---------- ----------
Cash flows from investing activities:
Purchase of securities AFS $ - - $ - -
Maturities and paydowns 1,000,000 792,004
(Increase) in loans, net (1,410,997) (1,140,929)
Purchase of property and equipment (472,216) (528)
---------- ----------
Net cash used in
investing activities $ (883,213) $ (349,453)
---------- ----------
Cash flows from financing activities:
(Decrease) in customer deposits $(1,279,051) $ 1,543,239
Payment of cash dividends (31,000) (31,000)
---------- ----------
Net cash provided from
(used by) financing activities $(1,310,051) $ 1,512,239
---------- ----------
Net (decrease) in
cash and cash equivalents $(2,322,688) $ 1,262,833
Cash and cash equivalents,
beginning of period 10,028,171 3,777,335
---------- ----------
Cash and cash equivalents,
end of period $ 7,705,483 $ 5,040,168
========== ==========
Refer to notes to the consolidated financial statements
TARPON FINANCIAL CORPORATION
TARPON SPRINGS, FLORIDA
Notes to Consolidated Financial Statements (Unaudited)
September 30, 1999
Note 1 - Basis of Presentation
The accompanying financial statements have been prepared in
accordance with generally accepted accounting principles for
interim financial information. Accordingly, they do not include
all the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the nine-
month period ended September 30, 1999 are not necessarily
indicative of the results that may be expected for the year ending
December 31, 1999. These statements should be read in conjunction
with the consolidated financial statements and footnotes thereto
as of and for the year ended December 31, 1998, which are included
elsewhere in this prospectus.
Note 2 - Extraordinary Item
An extraordinary item is an event or transaction that is
distinguished by both its unusual nature and infrequency of
occurrence. First National Bank (the "Bank"), Tarpon Financial
Corporation's (the "Company") sole subsidiary, settled a law suit
during November, 1999. The effects of the settlement on the
Company's financial statements are shown as an extraordinary item
as of September 30, 1999.
Note 3 - Recent Accounting Pronouncements
Beginning January 1, 1998, the Company adopted the provisions
of SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information," which is effective for annual and interim
periods beginning after December 15, 1997. This Statement
establishes standards for the method that public entities are to
use when
reporting information about operating segments in annual financial
statements and requires that those enterprise reports be issued to
shareholders, beginning with annual financial statements in 1998
and for interim and annual financial statements thereafter. SFAS
131 also established standards for related disclosures about
products and services, geographic areas and major customers.
SFAS No. 132, "Employers' Disclosures About Pensions and
Other Postretirement Benefits" revises and standardizes certain
disclosures which were required under SFAS Nos. 87, 88 and 106.
Generally, the new Statement uses a separate but parallel format,
eliminates less useful information, requires additional data
deemed useful by analysts, and allows some aggregation of
presentation. This Statement was adopted by the Company during
1998.
SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" was issued in June, 1998 and is effective for
all calendar-year entities beginning in January, 2000. This
Statement applies to all entities and requires that all
derivatives be recognized as assets or liabilities in the balance
sheet, at fair values. Gains and losses of derivative instruments
not designated as hedges will be recognized in the income
statement. The Company has not made an assessment of the expected
impact that SFAS No. 133 will have on its financial statements.
============
APPENDIX "A"
============
607.1301 Dissenters' rights; definitions. The following
definitions apply to ss. 607.1302 and 607.1320:
(1) "Corporation" means the issuer of the shares held by a
dissenting shareholder before the corporate action or the
surviving or acquiring corporation by merger or share exchange
of that issuer.
(2) "Fair value," with respect to a dissenter's shares,
means the value of the shares as of the close of business on the
day prior to the shareholders' authorization date, excluding any
appreciation or depreciation in anticipation of the corporate
action unless exclusion would be inequitable.
(3) "Shareholders' authorization date" means the date on
which the shareholders' vote authorizing the proposed action was
taken, the date on which the corporation received written
consents without a meeting from the requisite number of
shareholders in order to authorize the action, or, in the case
of a merger pursuant to s. 607.1104, the day prior to the date
on which a copy of the plan of merger was mailed to each
shareholder of record of the subsidiary corporation.
607.1302 Right of shareholders to dissent.--
(1) Any shareholder of a corporation has the right to
dissent from, and obtain payment of the fair value of his or her
shares in the event of, any of the following corporate actions:
(a) Consummation of a plan of merger to which the
corporation is a party:
1. If the shareholder is entitled to vote on the
merger, or
2. If the corporation is a subsidiary that is
merged with its parent under s. 607.1104, and the shareholders
would have been entitled to vote on action taken, except for the
applicability of s. 607.1104;
(b) Consummation of a sale or exchange of all, or
substantially all, of the property of the corporation, other
than in the usual and regular course of business, if the
shareholder is entitled to vote on the sale or exchange pursuant
to s. 607.1202, including a sale in dissolution but not
including a sale pursuant to court order or a sale for cash
pursuant to a plan by which all or substantially all of the net
proceeds of the sale will be distributed to the shareholders
within 1 year after the date of sale;
(c) As provided in s. 607.0902(11), the approval of a
control-share acquisition;
(d) Consummation of a plan of share exchange to which
the corporation is a party as the corporation the shares of
which will be acquired, if the shareholder is entitled to vote
on the plan;
(e) Any amendment of the articles of incorporation if
the shareholder is entitled to vote on the amendment and if such
amendment would adversely affect such shareholder by:
1. Altering or abolishing any preemptive rights
attached to any of his or her shares;
2. Altering or abolishing the voting rights
pertaining to any of his or her shares, except as such rights
may be affected by the voting rights of new shares then being
authorized of any existing or new class or series of shares;
3. Effecting an exchange, cancellation, or
reclassification of any of his or her shares, when such
exchange, cancellation, or reclassification would alter or
abolish the shareholder's voting rights or alter his or her
percentage of equity in the corporation, or effecting a
reduction or cancellation of accrued dividends or other
arrearages in respect to such shares;
4. Reducing the stated redemption price of any of
the shareholder's redeemable shares, altering or abolishing any
provision relating to any sinking fund for the redemption or
purchase of any of his or her shares, or making any of his or
her shares subject to redemption when they are not otherwise
redeemable;
5. Making noncumulative, in whole or in part,
dividends of any of the shareholder's preferred shares which had
theretofore been cumulative;
6. Reducing the stated dividend preference of any
of the shareholder's preferred shares; or
7. Reducing any stated preferential amount payable
on any of the shareholder's preferred shares upon voluntary or
involuntary liquidation; or
(f) Any corporate action taken, to the extent the
articles of incorporation provide that a voting or nonvoting
shareholder is entitled to dissent and obtain payment for his or
her shares.
(2) A shareholder dissenting from any amendment specified in
paragraph (1)(e) has the right to dissent only as to those of
his or her shares which are adversely affected by the amendment.
(3) A shareholder may dissent as to less than all the shares
registered in his or her name. In that event, the shareholder's
rights shall be determined as if the shares as to which he or
she has dissented and his or her other shares were registered in
the names of different shareholders.
(4) Unless the articles of incorporation otherwise provide,
this section does not apply with respect to a plan of merger or
share exchange or a proposed sale or exchange of property, to
the holders of shares of any class or series which, on the
record date fixed to determine the shareholders entitled to vote
at the meeting of shareholders at which such action is to be
acted upon or to consent to any such action without a meeting,
were either registered on a national securities exchange or
designated as a national market system security on an
interdealer quotation system by the National Association of
Securities Dealers, Inc., or held of record by not fewer than
2,000 shareholders.
(5) A shareholder entitled to dissent and obtain payment for
his or her shares under this section may not challenge the
corporate action creating his or her entitlement unless the
action is unlawful or fraudulent with respect to the shareholder
or the corporation.
607.1320 Procedure for exercise of dissenters' rights.--
(1) (a) If a proposed corporate action creating
dissenters' rights under s. 607.1302 is submitted to a vote at a
shareholders' meeting, the meeting notice shall state that
shareholders are or may be entitled to assert dissenters' rights
and be accompanied by a copy of ss. 607.1301, 607.1302, and
607.1320. A shareholder who wishes to assert dissenters' rights
shall:
1. Deliver to the corporation before the vote is
taken written notice of the shareholder's intent to demand
payment for his or her shares if the proposed action is
effectuated, and
2. Not vote his or her shares in favor of the
proposed action. A proxy or vote against the proposed action
does not constitute such a notice of intent to demand payment.
(b) If proposed corporate action creating dissenters'
rights under s. 607.1302 is effectuated by written consent
without a meeting, the corporation shall deliver a copy of ss.
607.1301, 607.1302, and 607.1320 to each shareholder
simultaneously with any request for the shareholder's written
consent or, if such a request is not made, within 10 days after
the date the corporation received written consents without a
meeting from the requisite number of shareholders necessary to
authorize the action.
(2) Within 10 days after the shareholders' authorization
date, the corporation shall give written notice of such
authorization or consent or adoption of the plan of merger, as
the case may be, to each shareholder who filed a notice of
intent to demand payment for his or her shares pursuant to
paragraph (1)(a) or, in the case of action authorized by written
consent, to each shareholder, excepting any who voted for, or
consented in writing to, the proposed action.
(3) Within 20 days after the giving of notice to him or her,
any shareholder who elects to dissent shall file with the
corporation a notice of such election, stating the shareholder's
name and address, the number, classes, and series of shares as
to which he or she dissents, and a demand for payment of the
fair value of his or her shares. Any shareholder failing to file
such election to dissent within the period set forth shall be
bound by the terms of the proposed corporate action. Any
shareholder filing an election to dissent shall deposit his or
her certificates for certificated shares with the corporation
simultaneously with the filing of the election to dissent. The
corporation may restrict the transfer of uncertificated shares
from the date the shareholder's election to dissent is filed
with the corporation.
(4) Upon filing a notice of election to dissent, the
shareholder shall thereafter be entitled only to payment as
provided in this section and shall not be entitled to vote or to
exercise any other rights of a shareholder. A notice of election
may be withdrawn in writing by the shareholder at any time
before an offer is made by the corporation, as provided in
subsection (5), to pay for his or her shares. After such offer,
no such notice of election may be withdrawn unless the
corporation consents thereto. However, the right of such
shareholder to be paid the fair value of his or her shares shall
cease, and the shareholder shall be reinstated to have all his
or her rights as a shareholder as of the filing of his or her
notice of election, including any intervening preemptive rights
and the right to payment of any intervening dividend or other
distribution or, if any such rights have expired or any such
dividend or distribution other than in cash has been completed,
in lieu thereof, at the election of the corporation, the fair
value thereof in cash as determined by the board as of the time
of such expiration or completion, but without prejudice
otherwise to any corporate proceedings that may have been taken
in the interim, if:
(a) Such demand is withdrawn as provided in this
section;
(b) The proposed corporate action is abandoned or
rescinded or the shareholders revoke the authority to effect
such action;
(c) No demand or petition for the determination of fair
value by a court has been made or filed within the time provided
in this section; or
(d) A court of competent jurisdiction determines that
such shareholder is not entitled to the relief provided by this
section.
(5) Within 10 days after the expiration of the period in
which shareholders may file their notices of election to
dissent, or within 10 days after such corporate action is
effected, whichever is later (but in no case later than 90 days
from the shareholders' authorization date), the corporation
shall make a written offer to each dissenting shareholder who
has made demand as provided in this section to pay an amount the
corporation estimates to be the fair value for such shares. If
the corporate action has not been consummated before the
expiration of the 90-day period after the shareholders'
authorization date, the offer may be made conditional upon the
consummation of such action. Such notice and offer shall be
accompanied by:
(a) A balance sheet of the corporation, the shares of
which the dissenting shareholder holds, as of the latest
available date and not more than 12 months prior to the making
of such offer; and
(b) A profit and loss statement of such corporation for
the 12-month period ended on the date of such balance sheet or,
if the corporation was not in existence throughout such 12-month
period, for the portion thereof during which it was in
existence.
(6) If within 30 days after the making of such offer any
shareholder accepts the same, payment for his or her shares
shall be made within 90 days after the making of such offer or
the consummation of the proposed action, whichever is later.
Upon payment of the agreed value, the dissenting shareholder
shall cease to have any interest in such shares.
(7) If the corporation fails to make such offer within the
period specified therefor in subsection (5) or if it makes the
offer and any dissenting shareholder or shareholders fail to
accept the same within the period of 30 days thereafter, then
the corporation, within 30 days after receipt of written demand
from any dissenting shareholder given within 60 days after the
date on which such corporate action was effected, shall, or at
its election at any time within such period of 60 days may, file
an action in any court of competent jurisdiction in the county
in this state where the registered office of the corporation is
located requesting that the fair value of such shares be
determined. The court shall also determine whether each
dissenting shareholder, as to whom the corporation requests the
court to make such determination, is entitled to receive payment
for his or her shares. If the corporation fails to institute the
proceeding as herein provided, any dissenting shareholder may do
so in the name of the corporation. All dissenting shareholders
(whether or not residents of this state), other than
shareholders who have agreed with the corporation as to the
value of their shares, shall be made parties to the proceeding
as an action against their shares. The corporation shall serve a
copy of the initial pleading in such proceeding upon each
dissenting shareholder who is a resident of this state in the
manner provided by law for the service of a summons and
complaint and upon each nonresident dissenting shareholder
either by registered or certified mail and publication or in
such other manner as is permitted by law. The jurisdiction of
the court is plenary and exclusive. All shareholders who are
proper parties to the proceeding are entitled to judgment
against the corporation for the amount of the fair value of
their shares. The court may, if it so elects, appoint one or
more persons as appraisers to receive evidence and recommend a
decision on the question of fair value. The appraisers shall
have such power and authority as is specified in the order of
their appointment or an amendment thereof. The corporation shall
pay each dissenting shareholder the amount found to be due him
or her within 10 days after final determination of the
proceedings. Upon payment of the judgment, the dissenting
shareholder shall cease to have any interest in such shares.
(8) The judgment may, at the discretion of the court,
include a fair rate of interest, to be determined by the court.
(9) The costs and expenses of any such proceeding shall be
determined by the court and shall be assessed against the
corporation, but all or any part of such costs and expenses may
be apportioned and assessed as the court deems equitable against
any or all of the dissenting shareholders who are parties to the
proceeding, to whom the corporation has made an offer to pay for
the shares, if the court finds that the action of such
shareholders in failing to accept such offer was arbitrary,
vexatious, or not in good faith. Such expenses shall include
reasonable compensation for, and reasonable expenses of, the
appraisers, but shall exclude the fees and expenses of counsel
for, and experts employed by, any party. If the fair value of
the shares, as determined, materially exceeds the amount which
the corporation offered to pay therefor or if no offer was made,
the court in its discretion may award to any shareholder who is
a party to the proceeding such sum as the court determines to be
reasonable compensation to any attorney or expert employed by
the shareholder in the proceeding.
(10) Shares acquired by a corporation pursuant to payment of
the agreed value thereof or pursuant to payment of the judgment
entered therefor, as provided in this section, may be held and
disposed of by such corporation as authorized but unissued
shares of the corporation, except that, in the case of a merger,
they may be held and disposed of as the plan of merger otherwise
provides. The shares of the surviving corporation into which the
shares of such dissenting shareholders would have been converted
had they assented to the merger shall have the status of
authorized but unissued shares of the surviving corporation.
============
APPENDIX "B"
============
[LETTERHEAD OF ALLEN C. EWING & CO.]
December 2, 1999
Board of Directors
Tarpon Financial Corporation
710 East Tarpon Avenue
Tarpon Springs, Florida 34689
Gentlemen:
You have requested our opinion as to the fairness, from a
financial point of view, to the shareholders of Tarpon Financial
Corporation ("Company"), the holding company for First National
Bank ("Bank") of Tarpon Springs, Florida, of the consideration
to be paid to the shareholders of the Company by Community
National Bancorporation ("Community") of Ashburn, Georgia, as
provided by the Agreement and Plan of Merger ("Merger
Agreement") entered into by the parties on October 8, 1999.
Pursuant to the Merger Agreement, Community will acquire all of
the outstanding shares of the Company by offering cash and
Community shares for the shares of the Company. The Company
will be merged with and into a subsidiary of Community and the
Company will cease to exist.
In arriving at our opinion, we have relied upon the accuracy and
completeness of the information provided to us by the Company
which we have used in the accompanying analysis. We have not
conducted an independent verification of such information or
performed an independent appraisal of the Company's assets and
liabilities.
Based upon the accompanying analysis and our knowledge of and
experience in the valuation of Florida banks and their
securities, it is our opinion that the consideration to be paid
by Community for the common shares of the Company is fair, from
a financial point of view, to the shareholders of the Company.
The opinion of Allen C. Ewing & Co. ("Ewing") is directed to the
Board of Directors and does not constitute a recommendation to
any shareholder as to how such shareholder should vote at the
shareholders' meeting held in connection with the proposed
transaction. Ewing has not been requested to opine as to, and
the opinion does not address, the Board's underlying business
decision to support and recommend the acquisition to the
shareholders.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement filed by Community in connection with the merger and
to the reference to this firm in the related Proxy Statement/Prospectus. In
giving this consent, we do not hereby admit that we come within the category
of persons whose consent is required under Section 7 of the Securities Act of
1933 or the rules and regulations of the Securities and Exchange Commission
thereunder.
Very truly yours,
ALLEN C. EWING & CO.
By: /S/ Benjamin C. Bishop, Jr.
-----------------------------
Benjamin C. Bishop, Jr.
President
==========
APPENDIX C
==========
AGREEMENT AND PLAN OF MERGER
OF
COMMUNITY NATIONAL BANCORPORATION
AND
TARPON FINANCIAL CORPORATION
ARTICLE I
THE MERGER
Section 1.1 Merger.....................................2
Section 1.2 Effect of Merger...........................2
Section 1.3 Directors and Officers.....................3
ARTICLE II
CONVERSION OF SHARES
Section 2.1 Manner of Conversion.......................3
Section 2.2 Effectuating Conversion....................4
Section 2.3 Laws of Escheat............................6
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF TARPON
Section 3.1 Corporate Organization.....................6
Section 3.2 Capitalization.............................7
Section 3.3 Financial Statements; Filings..............8
Section 3.4 Loan Portfolio.............................9
Section 3.5 Certain Loans and Related Matters.........10
Section 3.6 Authority; No Violation...................10
Section 3.7 Consents and Approvals....................11
Section 3.8 Broker' s Fees............................11
Section 3.9 Absence of Certain Changes or Events......11
Section 3.10 Legal Proceedings.........................11
Section 3.11 Taxes and Tax Returns.....................12
Section 3.12 Employee Benefit Plans....................13
Section 3.13 Title and Related Matters.................14
Section 3.14 Real Estate...............................14
Section 3.15 Environmental Matters.....................15
Section 3.16 Commitments and Contracts.................16
Section 3.17 Regulatory Matters........................16
Section 3.18 State Takeover Laws.......................16
Section 3.19 Insurance.................................16
Section 3.20 Labor.....................................17
Section 3.21 Compliance with Laws......................18
Section 3.22 Transactions with Management..............18
Section 3.23 The S-4/Proxy.............................19
Section 3.24 Deposit Insurance.........................19
Section 3.25 Untrue Statements and Omissions...........19
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF COMMUNITY
Section 4.1 Organization and Related Matters of
Community.................................19
Section 4.2 Capitalization............................20
Section 4.3 Authorization.............................20
Section 4.4 Financial Statements......................20
Section 4.5 Absence of Certain Changes or Events......21
Section 4.6 Legal Proceedings.........................21
Section 4.7 Insurance.................................21
Section 4.8 Consents and Approvals....................22
Section 4.9 Regulatory Matters........................22
Section 4.10 Proxy Materials...........................22
Section 4.11 No Broker's or Finder's Fees..............22
Section 4.12 Community Shares to be Delivered..........22
Section 4.13 Untrue Statements and Omissions...........22
ARTICLE V
COVENANTS AND AGREEMENTS
Section 5.1 Conduct of the Business of Tarpon.........23
Section 5.2 Current Information.......................24
Section 5.3 Access to Properties; Personnel
and Records...............................25
Section 5.4 Approval of Tarpon Shareholders...........26
Section 5.5 No Other Bids.............................26
Section 5.6 Deadlines.................................26
Section 5.7 Maintenance of Properties.................26
Section 5.8 Environmental Audits......................26
Section 5.9 Title Insurance...........................26
Section 5.10 Surveys...................................27
Section 5.11 Compliance Matters........................27
Section 5.12 Exemption Under Anti-Takeover Statutes....27
Section 5.13 Building Inspection.......................27
ARTICLE VI
ADDITIONAL COVENANTS AND AGREEMENTS
Section 6.1 Best Efforts; Cooperation.................27
Section 6.2 Regulatory Matters........................28
Section 6.3 Other Matters.............................28
Section 6.4 Indemnification...........................29
Section 6.5 Current Information.......................29
Section 6.6 Consideration.............................29
ARTICLE VII
MUTUAL CONDITIONS TO CLOSING
Section 7.1 Shareholder Approval......................29
Section 7.2 Regulatory Approvals......................29
Section 7.3 Litigation................................29
ARTICLE VIII
CONDITIONS TO THE OBLIGATIONS OF TARPON
Section 8.1 Representations and Warranties............30
Section 8.2 Performance of Obligations and
Settlement of Litigation..................30
Section 8.3 Certificate Representing Satisfaction of
Conditions................................30
Section 8.4 Absence of Adverse Facts..................30
Section 8.5 Opinion of Counsel........................31
Section 8.6 Consents Under Agreements.................31
Section 8.7 Material Condition........................31
Section 8.8 Matters Relating to Employment
Agreements................................31
Section 8.9 Resignation of Officers and
Directors.................................31
Section 8.10 Outstanding Shares of Tarpon..............31
Section 8.11 Dissenters................................32
ARTICLE IX
CONDITIONS TO OBLIGATIONS OF COMMUNITY
Section 9.1 Representations and Warranties............32
Section 9.2 Performance of Obligations................32
Section 9.3 Certificate Representing Satisfaction of
Conditions................................32
Section 9.4 Absence of Adverse Facts..................32
Section 9.5 Consents Under Agreements.................32
ARTICLE X
TERMINATION, WAIVER AND AMENDMENT
Section 10.1 Termination...............................33
Section 10.2 Effect of Termination.....................34
Section 10.3 Effect of Wrongful Termination............34
Section 10.4 Amendments................................34
Section 10.5 Waivers...................................34
Section 10.6 Non-Survival of Representations and
Warranties................................34
Section 10.7 Effect of Breach of Warranties............35
ARTICLE XI
MISCELLANEOUS
Section 11.1 Entire Agreement..........................35
Section 11.2 Notices...................................35
Section 11.3 Severability..............................36
Section 11.4 Costs and Expenses........................36
Section 11.5 Captions..................................37
Section 11.6 Counterparts..............................37
Section 11.7 Governing Law.............................37
Section 11.8 Persons Bound; No Assignment..............37
Section 11.9 Exhibits and Schedules....................37
Section 11.10 Waiver....................................37
Section 11.11 Construction of Terms.....................37
AGREEMENT AND PLAN OF MERGER
OF
COMMUNITY NATIONAL BANCORPORATION
AND
TARPON FINANCIAL CORPORATION
This AGREEMENT AND PLAN OF MERGER, dated as of the eighth
day of October 1999 (this "Agreement"), is by and between
Community National Bancorporation, a Georgia corporation and a
bank holding company ("Community") and Tarpon Financial
Corporation, a Florida corporation and a bank holding company
("Tarpon").
WITNESSETH THAT:
WHEREAS, the respective Boards of Directors of Community
and Tarpon deem it in the best interests of Community and
Tarpon, respectively, and of their respective shareholders, that
Community acquire all of the issued and outstanding capital
stock of Tarpon in a statutory merger qualifying as a tax-free
reorganization under Section 368(a)(1)(A) of the Internal
Revenue Code of 1986, as amended (the "Code"), and pursuant to
this Agreement (the "Merger");
WHEREAS, the Boards of Directors of Community and Tarpon
have approved this Agreement and the Board of Directors of
Tarpon has directed that this Agreement be submitted to its
shareholders for approval and adoption in accordance with the
laws of the State of Florida;
WHEREAS, Community will deliver, or cause to be delivered,
to the shareholders of Tarpon the consideration to be paid
pursuant to the Merger in accordance with the terms of this
Agreement;
NOW, THEREFORE, in consideration of the foregoing premises
and the mutual covenants, representations, warranties and
agreements herein contained, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree that, in accordance with the
applicable laws of the states of Florida and Georgia, the
method, terms and conditions of the Merger and the mode of
carrying such Merger into effect are and shall be as follows:
ARTICLE I
THE MERGER
Section 1.1 Merger. Subject to the terms and conditions of
this Agreement, Tarpon shall be merged with and into Community
pursuant to the Florida Business Corporation Act (the "Florida
Act") and the Georgia Business Corporation Code (the "Georgia
Code"), and Community shall be the "Surviving Corporation."
Section 1.2 Effect of Merger.
(a) The "Effective Time of the Merger" shall occur at
the time at which Articles of Merger are filed with both the
Florida and Georgia Secretaries of State and as soon as
practicable (but not more than 10 business days) following the
later to occur of (i) the effective date (including expiration
of any applicable waiting period) of the last required Consent
(as defined below) of any Regulatory Authority (as defined
below) having authority over the transactions contemplated under
this Agreement and (ii) the date on which the shareholders of
Tarpon approve the transactions contemplated by this Agreement.
As used in this Agreement, "Consent" shall mean a consent,
approval or authorization, waiver, clearance, making effective,
exemption or similar affirmation by any person pursuant to any
contract, permit, law, regulation or order, and "Regulatory
Authorities" shall mean, collectively, the Federal Trace
Commission (the "FTC"), the United States Department of Justice
(the "Justice Department"), the Board of Governors of the
Federal Reserve System (the "FRB"), the Office of the
Comptroller of the Currency (the "OCC"), the Federal Deposit
Insurance Corporation (the "FDIC"), any state regulatory
agencies having jurisdiction over the parties, the National
Association of Securities Dealers, Inc. (NASDAQ) and the
Securities and Exchange Commission (the "SEC").
(b) At the Effective Time of the Merger:
(i) The Articles of Incorporation of Community in
effect immediately prior to the Merger shall become and be the
Articles of Incorporation of the Surviving Corporation, and the
Bylaws of Community in effect immediately prior to the Merger
shall become and be the Bylaws of the Surviving Corporation.
(ii) Tarpon shall be merged with and into Community
and the separate corporate existence of Tarpon shall cease. The
Surviving Corporation will be deemed to be the same corporation
as each of the Community and Tarpon. The Surviving Corporation
shall have all rights, privileges, immunities and powers and
shall be subject to all the duties and liabilities of a
corporation organized under the laws of the State of Georgia and
shall thereupon and thereafter possess all of the privileges and
immunities and franchises, of a private as well as of a public
nature, of each of the constituent corporations. All property
(real, personal and mixed) and all debts on whatever account,
including subscriptions to shares, all choses in action, rights
to marks and every other interest of or belonging to or due to
each of the constituent corporations so merged shall be taken
and deemed to be transferred to and vested in the Surviving
Corporation without further act or deed. The title to any real
estate, or any interest therein, vested in any of the
constituent corporations shall not revert or be any way impaired
by reason of the Merger. Except as otherwise provided in this
Agreement, the Surviving Corporation shall thenceforth be
responsible and liable for all the liabilities and obligations
of each of the constituent corporations so merged and any claim
existing or action or proceeding pending by or against either of
the constituent corporations may be prosecuted as if the Merger
had not taken place or the Surviving Corporation may be
substituted in the place of either of the constituent
corporations. Neither the rights of creditors nor any liens
upon the property of any constituent corporation shall be
impaired by the Merger.
(c) The closing of the Merger (the "Closing") shall
take place at the principal offices of Tarpon at 10:00 a.m.
local time on the day that the Effective Time of the Merger
occurs, or such other date and time and place as the parties
hereto may agree (the "Closing Date"). subject to the provisions
of this Agreement, at the Closing there shall be delivered to
each of the parties hereto the opinions, certificates and other
documents and instruments required to be so delivered pursuant
to this Agreement.
Section 1.3 Directors and Officers. From and after the
Effective Time of the Merger, the directors of Community
immediately prior to the Effective Time of the Merger shall
become and be the directors of the Surviving Corporation from
and after the Effective Time of the Merger, and the officers of
Community immediately prior to the Effective Time of the Merger
shall become and be the officers of the Surviving Corporation.
ARTICLE II
CONVERSION OF SHARES
Section 2.1 Manner of Conversion. Subject to the provisions
hereof, as of the Effective Time of the Merger and by virtue of
the Merger and without any action on the part of any holder of
any shares of Common Stock of Tarpon, par value $0.10 per share
("Tarpon Shares," or, singly, a "Tarpon Share"):
(a) All Tarpon Shares which are held by Tarpon as
treasury stock, if any, shall be cancelled and retired and no
consideration shall be paid or delivered in exchange therefor.
(b) Subject to the terms and conditions of this
Agreement, and except with regard to Dissenting Tarpon Shares
(as hereinafter defined), each Tarpon Share outstanding
immediately prior to the Effective Time of the Merger shall be
cancelled and converted into the right to receive at the
election of the holder of such share: (i) $24.00 in cash or (ii)
1.60 shares of Community Common Stock, no par value ("Community
Shares") (singly or in combination hereinafter referred to as
the "Consideration"); provided, that except with respect to
Dissenting Tarpon Shares, in no event shall the total
Consideration received by any holder of Tarpon Shares for his or
her Tarpon Shares consist of Community Shares to the extent of
less than sixty percent (60%) of such Consideration. By way of
example, subject to the terms and provisions of this Agreement,
a shareholder of Tarpon owning 1,000 Tarpon Shares would
receive Consideration as follows:
(i) 1,600 (1.6 X 1,000) Community Shares and no
cash, if he/she elects to receive only Community Shares and no
cash,
(ii) 1,280 (1.6 X .8 X 1,000) Community Shares and
$4,800 in cash, if he/she elects to receive 80% of the
Consideration in Community Shares and 20% in cash; and
(iii) 960 (1.6 X .6 X 1,000) Community Shares and
$9,600 in cash, if he/she elects to receive the minimum 60% of
the Consideration in Community Shares and 40% in cash.
All outstanding certificates representing Tarpon Shares
shall thereafter represent solely the right to receive the
Consideration.
(c) Each outstanding Tarpon Share, the holder of which
has demanded and perfected his demand for payment of the "fair
or appraised" value of such share in accordance with Sections
607.1301 through 607.1320 of the Florida Code (the "Dissent
Provisions"), to the extent applicable, and has not effectively
withdrawn or lost such holder's right to such appraisal (the
"Dissenting Tarpon Shares"), shall not be converted into or
represent a right to receive the Consideration payable in the
Merger but the holder thereof shall be entitled only to such
rights as are granted by the Dissent Provisions. Tarpon shall
give Community prompt notice upon receipt by Tarpon of any
written objection to the Merger and any written demands for
payment of the fair or appraised value of Tarpon Shares, and of
withdrawals of such demands, and any other instruments provided
to Tarpon pursuant to the Dissent Provisions (any shareholder
duly making such demand being hereinafter called a "Dissenting
Shareholder"). Each Dissenting Shareholder who becomes entitled,
pursuant to the Dissent Provisions, to payment of fair value for
any Tarpon Shares held by such Dissenting Shareholder shall
receive payment therefor from Tarpon (but only after the amount
thereof shall have been agreed upon or at the times and in the
amounts required by the Dissent Provisions) and all of such
Dissenting Shareholder's Tarpon Shares shall be cancelled.
Tarpon shall not, except with the prior written consent of
Community, voluntarily make any payment with respect to, or
settle or offer to settle, any demand for payment by any
Dissenting Shareholder. If any Dissenting Shareholder shall have
failed to perfect or shall have effectively withdrawn or lost
such right to demand payment of fair or appraised value, Tarpon
Shares held by such Dissenting Shareholder shall thereupon be
deemed to have been converted into the right to receive
Consideration consisting of 40% in cash and 60% in Community
Shares (the "Standard Consideration"), to be paid as provided in
this Agreement.
Section 2.2 Effectuating Conversion.
(a) Community or such institution as Community may
designate shall serve as the exchange agent (the "Exchange
Agent"). The Exchange Agent may employ sub-agents in connection
with performing its duties. The Letter of Transmittal (as
hereinafter defined) will (i) provide for the election by each
shareholder of Tarpon to receive a greater proportion of his/her
Consideration in the form of Community Shares than 60% (ii) will
contain instructions with respect to the surrender of
certificates formerly representing Tarpon Shares and the receipt
of the Consideration contemplated by this Agreement and (iii)
require each holder of Tarpon Shares to transfer good and
marketable title to such certificates formerly representing
Tarpon Shares to Community, free and clear of all liens, claims
and encumbrances. Within ten (10) business days after the
Effective Time of the Merger, the Exchange Agent shall send or
cause to be sent to each former holder of record of Tarpon
Shares transmittal materials (the "Letter of Transmittal") for
use in exchanging their certificates formerly representing
Tarpon Shares for the Consideration provided for in this
Agreement. As promptly as practicable after receipt of properly
completed Letters of Transmittal and stock certificates
evidencing Tarpon Shares held by the former holders of Tarpon
shares, the Exchange Agent shall disburse the appropriate
Consideration on behalf of Community. Amounts that would have
been payable to Dissenting Shareholders for Tarpon Shares but
for the fact of their dissent in accordance with the provisions
of Section 2.1(c) hereof, shall be handled in accordance with
and in a manner consistent with the Dissent Provisions.
(b) At the Effective Time of the Merger, the stock
transfer books of Tarpon shall be closed as to holders of Tarpon
Shares immediately prior to the Effective Time of the Merger and
no transfer of Tarpon Shares by any such holder shall thereafter
be made or recognized and each outstanding certificate formerly
representing Tarpon shares shall, without any action on the part
of any holder thereof, no longer represent Tarpon Shares.
(c) In the event that any holder of Tarpon Shares is
unable to deliver any certificate which represents any of such
holder's Tarpon Shares, Community, in the absence of actual
notice that any Tarpon Shares theretofor represented by any such
certificate have been acquired by a bona fide purchaser, may, in
its discretion, deliver to such holder the Standard
Consideration contemplated by this Agreement to which such
holder is entitled in accordance with the provisions of this
Agreement upon the presentation of all of the following:
(i) An affidavit or other evidence to the
reasonable satisfaction of Community that any such certificate
has been lost, wrongly taken or destroyed;
(ii) Such security and indemnity as may be
reasonably requested by Community to indemnify and hold
Community harmless; and
(iii) Evidence to the satisfaction of Community that
such holder is the owner of the Tarpon Shares theretofor
represented by each certificate claimed by such holder to be
lost, wrongfully taken or destroyed and that such holder is the
person who would be entitled to present each such certificate
pursuant to his Agreement.
(d) In the event that the delivery of any Consideration
is made to a person other than the person in whose name any
certificate representing Tarpon Shares surrendered is
registered, such certificate so surrendered shall be properly
endorsed (or accompanied by an appropriate instrument of
transfer), with the signature(s) appropriately guaranteed, and
otherwise in proper form for transfer, and the person requesting
such delivery shall pay any transfer or other taxes required by
reason of the delivery to a person other than the registered
holder of such certificate surrendered or established to the
satisfaction of Community that such tax has been paid or is not
applicable.
(e) Until surrendered in accordance with the provisions
of this Section 2.2, each certificate representing Tarpon shares
shall represent for all purposes the right to receive the
Consideration contemplated by this Agreement and shall not
represent the right to receive any other consideration,
including, but not limited to, dividends of Tarpon or interest
with respect to such Consideration.
Section 2.3 Laws of Escheat. If any of the Consideration due
to be paid or delivered to the holders of Tarpon Shares is not
paid or delivered within the time period specified by any
applicable laws concerning abandoned property, escheat or
similar laws, and if such failure to pay or deliver such
consideration occurs or arises out of the fact that such
property is not claimed by the proper owner thereof, Community
or the Exchange Agent shall be entitled to dispose of any such
consideration or other payments in accordance with applicable
laws concerning abandoned property, escheat or similar laws. Any
other provision of this Agreement notwithstanding, none of
Tarpon, Community, the Exchange Agent nor any other person
acting on their behalf shall be liable to a holder of Tarpon
Shares for any amount paid or property delivered in good faith
to a public official pursuant to and in accordance with any
applicable abandoned property, escheat or similar law.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF TARPON
Tarpon hereby represents and warrants to Community as
follows as of the date hereof and as of all times up to and
including the Effective Time of the Merger (except as otherwise
provided):
Section 3.1 Corporate Organization.
(a) Tarpon is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Florida. Tarpon has the corporate power and authority to own or
lease all of its properties and assets and to carry on its
business as such business is now being conducted, and Tarpon is
duly licensed or qualified to do business where the nature (if
the business conducted by it or the character or location of the
properties and assets owned or leased by it make such
qualification necessary except where the failure to be so
licensed or qualified would not have a material adverse effect
on the business, assets, operations, financial condition or
results of operations (such business, assets, operations,
financial condition or results of operations hereinafter
collectively referred to as the "Condition") of Tarpon on a
consolidated basis. Tarpon is a bank holding company under the
Bank Holding Company Act of 1956, as amended, and has one
wholly-owned bank (or any other) subsidiary. True and correct
copies of the Articles or Certificate of Incorporation and the
Bylaws of Tarpon, each as amended to the date hereof, have been
delivered to Community.
(b) First National Bank, Tarpon Springs, Florida, the
sole wholly-owned subsidiary of Tarpon ("FN-Bank"), is a bank
organized, validly existing and in good standing as a national
bank under the laws of the United States. FN-Bank has the
corporate power and authority to own or lease all of its
properties and assets and to carry on its business as such
business is now being conducted, and FN-Bank is duly licensed or
qualified to do business in each jurisdiction in which the
nature of the business conducted by it or the character or
location of the properties and assets owned or leased by it
makes such licensing or qualification necessary, except where
the failure to be so licensed or qualified would not have a
material adverse effect on the Condition of the Bank. True and
correct copies of the Articles of Incorporation and Bylaws of
FN-Bank, as amended to the date hereof, have been delivered to
Community.
(c) Each of Tarpon and FN-Bank has in effect all
federal, state, local and foreign governmental, regulatory and
other authorizations, permits and licenses necessary for each of
them to own or lease its properties and assets and to carry on
its business as now conducted, the absence of which, either
individually or in the aggregate, would have a material adverse
effect on the Condition of Tarpon on a consolidated basis.
(d) Except for FN-Bank, Tarpon does not own any capital
stock of any subsidiary, and FN-Bank does not own any capital
stock of any subsidiary; Tarpon and FN-Bank do not have any
interest in any partnership or joint venture. For purposes of
this Agreement, a "subsidiary" means any corporation or other
entity of which the party referred to beneficially owns,
controls, or has the power to vote, directly or indirectly, more
than 5% of the outstanding equity securities.
(e) The minute books of Tarpon and FN-Bank contain
complete and accurate records in all material respects of all
meetings and other corporate actions held or taken by their
respective shareholders and Boards of Directors (including all
committees thereof).
Section 3.2 Capitalization.
(a) The authorized capital stock of Tarpon consists of
500,000 shares of common stock, par value $0.10 per share
(herein before and hereinafter referred to as "Tarpon Shares"),
155,000 shares of which as of the date hereof are issued and
outstanding (none of which is held in the treasury of Tarpon).
All of the issued and outstanding Tarpon Shares have been duly
authorized and validly issued and all such shares are fully paid
and nonassessable. As of the date hereof, there are no
outstanding options, warrants, commitments, or other rights or
instruments to purchase or acquire any shares of capital stock
of Tarpon, or any securities or rights convertible into or
exchangeable for shares of capital stock of Tarpon.
(b) The authorized capital stock of FN-Bank consists of
155,000 shares of common stock, par value $5 per share, 155,000
shares of which as of the date hereof are issued and outstanding
(none of which are held in the treasury of FN-Bank) (the "FN-
Bank Shares"). All of the issued and outstanding FN-Bank Shares
have been duly authorized and validly issued and all such shares
are fully paid and nonassessable. As of the date hereof, there
are no outstanding options, warrants, commitments or other
rights or instruments to purchase or acquire any shares of
capital stock of FN-Bank, or any securities or rights
convertible into or exchangeable for shares of capital stock of
FN-Bank.
(c) Except as may be limited or required by applicable
laws relating to banks, all of the issued and outstanding shares
of capital stock of FN-Bank:
(i) are owned by Tarpon; and
(ii) are so owned free and clear of all liens and
encumbrances and adverse claims thereto.
Section 3.3 Financial Statements; Filings.
(a) FN-Bank has previously delivered to Community
copies of the financial statements of FN-Bank as of and for the
years ended December 31, 1996, 1997 and 1998 and the financial
statements of FN-Bank as of and for the period ended June 30,
1999 and FN-Bank shall deliver to Community, as soon as
practicable following the preparation of additional financial
statements for each subsequent calendar quarter (or other
reporting period) or year of FN-Bank, the financial statements
of FN-Bank as of and for such subsequent calendar quarter (or
other reporting period) or year (such financial statements,
unless otherwise indicated, being hereinafter referred to
collectively as the "Financial Statements of FN-Bank").
(b) FN-Bank has previously delivered to Community
copies of the Call Reports of FN-Bank as of and for the years
ended December 31, 1996, 1997 and 1998 and the Call Reports of
FN-Bank as of and for the period ended June 30, 1999, and FN-
Bank shall deliver to Community, as soon as practicable
following the preparation of additional Call Reports for each
subsequent calendar quarter (or other reporting period) or year
of FN-Bank, the Call Reports of FN-Bank as of and for each such
subsequent calendar quarter (or other reporting period) or year
(such Call Reports, unless otherwise indicated, being
hereinafter referred to collectively as the "Call Reports of FN-
Bank").
(c) Tarpon has previously delivered to Community copies
of the consolidated financial statements of Tarpon as of and for
the years ended December 31, 1996, 1997 and 1998 and the
consolidated financial statements of Tarpon as of and for the
period ended June 30, 1999, and Tarpon shall deliver- to
Community, as soon as practicable following the preparation of
additional consolidated financial statements for each subsequent
calendar quarter (or other reporting period) or year of Tarpon,
the consolidated financial statements of Tarpon as of and for
such subsequent calendar quarter (or other reporting period) or
year (such financial statements, unless otherwise indicated,
being hereinafter referred to collectively as the "Financial
Statements of Tarpon").
(d) Each of the Financial Statements of Tarpon, each of
the Financial Statements of FN-Bank, and each of the Call
Reports of FN-Bank (including the related notes, where
applicable) have been or will be prepared in all material
respects in accordance with generally accepted accounting
principles or regulatory accounting principles, whichever is
applicable, which principles have been or will be consistently
applied during the periods involved, except as otherwise noted
therein, and the books and records of Tarpon and FN-Bank have
been, are being, and will be maintained in all material respects
in accordance with applicable legal and accounting requirements
and reflect only actual transactions. Each of the Financial
Statements of Tarpon, each of the Financial Statements of FN-
Bank, and each of the Call Reports of FN-Bank (including the
related notes, where applicable) fairly present or will fairly
present the financial position of Tarpon on a consolidated basis
and the financial position of FN-Bank (as the case may be) as of
the respective dates thereof and fairly present or will fairly
present the results of operations of Tarpon on a consolidated
basis and the results of operations of FN-Bank (as the case may
be) for the respective periods therein set forth.
(e) To the extent not prohibited by law, Tarpon has
heretofore delivered or made available, or caused to be
delivered or made available, to Community all reports and
filings made or required to be made by Tarpon, FN-Bank or any of
their respective subsidiaries with the Regulatory Authorities,
and will from time to time hereafter furnish, or cause FN-Bank
to furnish to Community, upon filing or furnishing the same to
the Regulatory Authorities, all such reports and filings made
after the date hereof with the Regulatory Authorities. As of
the respective dates of such reports and filings, all such
reports and filings did not and shall not contain any untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which
they were made, not misleading.
(f) Since December 31, 1998, none of Tarpon or FN-Bank
has incurred any obligation or liability (contingent or
otherwise) that has or might reasonably be expected to have,
individually or in the aggregate, a material adverse effect on
the Condition of Tarpon on a consolidated basis, except
obligations and liabilities (i) which are accrued or reserved
against in the Financial Statements of Tarpon, the Financial
Statements of FN-Bank or the Call Reports of FN-Bank, or
reflected in the notes thereto, or (ii) which were incurred
after December 31, 1998, in the ordinary course of business
consistent with past practices.
Section 3.4 Loan Portfolio. Except as set forth in
Disclosure Schedule 3.4, (i) all evidences of indebtedness
reflected as assets in the Financial Statements of Tarpon, the
Financial Statements of FN-Bank and the Call Reports of FN-Bank
as of and for the year ended December 31, 1998, and the period
ended June 30, 1999, were as of such dates in all respects the
binding obligations of the respective obligors named therein in
accordance with their respective terms, (ii) the allowances for
possible loan losses shown on the Financial Statements of
Tarpon, the Financial Statements of FN-Bank and the Call Reports
of FN-Bank as of and for the year ended December 31, 1998, and
the period ended June 30, 1999, were, and the allowance for
possible loan losses to be shown on the Financial Statements of
Tarpon, the Financial Statements of FN-Bank and the Call Reports
of FN-Bank as of any date subsequent to the execution of this
Agreement will be, as of such dates, adequate to provide for
possible losses, net of recoveries relating to loans previously
charged off, in respect of loans outstanding (including accrued
interest receivable) of Tarpon and FN-Bank and other extensions
of credit (including letters of credit or commitments to make
loans or extend credit), and (iii) each such allowance described
in (ii) above has been established in accordance with the
accounting principles described in Section 3.3(d).
Section 3.5 Certain Loans and Related Matters. Except as set
forth in Disclosure Schedule 3.5, neither Tarpon nor FN-Bank is
a party to any written or oral: (i) loan agreement, note or
borrowing arrangement, other than credit card loans and other
loans the unpaid balance of which does not exceed $5,000 per
loan, under the terms of which the obligor is sixty (60) days
delinquent in paymen IF NO DIRECTION TO THE CONTRARY IS INDICATED,
THIS PROXY WILL BE VOTED FOR PROPOSAL (1).
Dated: , 2000
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___________________________________
Signature(s) of Shareholder(s)
Please sign exactly as name appears hereon. If shares are
held jointly, each shareholder should sign. Agents, executors,
administrators, guardians, trustees, etc., should use full
title. and if more than one, all should sign. If the
shareholder is a corporation, please sign full corporate name by
an authorized officer.
Please fill in, date and sign the proxy and return it in
the enclosed postpaid envelope.
