EXHIBIT 2.1
AGREEMENT AND PLAN
OF REORGANIZATION AND MERGER
By and Between
CNB HOLDINGS, INC.
and
MOUNTAINBANK FINANCIAL CORPORATION
June 20, 2002
TABLE OF CONTENTS
PAGE
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ARTICLE I. THE MERGER.................................................................................. 1
1.01. Names of Merging Corporations............................................................. 1
1.02. Nature of Transaction; Plan of Merger..................................................... 1
1.03. Effect of Merger; Surviving Corporation................................................... 2
1.04. Assets and Liabilities of CNB............................................................. 2
1.05. Conversion and Exchange of Stock.......................................................... 2
(a) Conversion of CNB Stock.......................................................... 2
(b) Election of Form of Consideration................................................ 3
(c) Required Ratio of Consideration; Allocations of Consideration.................... 3
(d) Exchange and Payment Procedures; Surrender of Certificates....................... 3
(e) Antidilutive Adjustments......................................................... 4
(f) Dissenters....................................................................... 4
(g) Fractional Shares................................................................ 4
(h) Lost Certificates................................................................ 4
1.06. Articles of Incorporation, Bylaws and Management.......................................... 4
1.07. Closing; Effective Time................................................................... 4
ARTICLE II. REPRESENTATIONS AND WARRANTIES OF CNB....................................................... 5
2.01. Organization; Standing; Power............................................................. 5
2.02. Capital Stock............................................................................. 5
2.03. Principal Shareholders.................................................................... 5
2.04 Subsidiaries.............................................................................. 6
2.05 Convertible Securities, Options, Etc...................................................... 6
2.06 Authorization and Validity of Agreement................................................... 6
2.07. Validity of Transactions; Absence of Required Consents or Waivers......................... 6
2.08. CNB Books and Records..................................................................... 7
2.09. CNB Reports............................................................................... 7
2.10. CNB Financial Statements.................................................................. 7
2.11. CNB Tax Returns and Other Tax Matters..................................................... 7
2.12. Absence of Material Adverse Changes or Certain Other Events............................... 8
2.13. Absence of Undisclosed Liabilities........................................................ 8
2.14. Compliance with Existing Obligations...................................................... 8
2.15. Litigation and Compliance with Law........................................................ 8
2.16. Real Properties........................................................................... 9
2.17. Loans, Accounts, Notes and Other Receivables.............................................. 10
2.18. Securities Portfolio and Investments...................................................... 10
2.19. Personal Property and Other Assets........................................................ 11
2.20. Patents and Trademarks.................................................................... 11
2.21. Environmental Matters..................................................................... 11
2.22. Absence of Brokerage or Finders Commissions............................................... 12
2.23. Material Contracts........................................................................ 13
2.24. Employment Matters; Employee Relations.................................................... 13
2.25. Employment Agreements; Employee Benefit Plans............................................. 14
2.26. Insurance................................................................................. 15
2.27. Insurance of Deposits..................................................................... 16
2.28. Obstacles to Regulatory Approval ......................................................... 16
2.29. Disclosure................................................................................ 16
ARTICLE III.REPRESENTATIONS AND WARRANTIES OF MFC....................................................... 16
3.01. Organization; Standing; Power............................................................. 16
3.02. Capital Stock............................................................................. 16
3.03. Authorization and Validity of Agreement................................................... 16
3.04. Validity of Transactions; Absence of Required Consents or Waivers......................... 17
3.05. MFC Reports............................................................................... 17
3.06. MFC Financial Statements.................................................................. 17
3.07. Absence of Material Adverse Changes or Certain Other Events............................... 18
3.08. Litigation and Compliance with Law........................................................ 18
3.09. Obstacles to Regulatory Approval.......................................................... 18
3.10. Disclosure................................................................................ 18
ii
ARTICLE IV. COVENANTS OF CNB............................................................................ 18
4.01. Affirmative Covenants of CNB.............................................................. 18
(a) CNB Shareholders' Meeting........................................................ 18
(b) Affiliates Agreements............................................................ 19
(c) Conduct of Business Prior to Effective Time...................................... 19
(d) Periodic Financial and Other Information......................................... 20
(e) Notice of Certain Changes or Events.............................................. 20
(f) Accruals for Loan Loss Reserve, Expenses and Other Accounting Matters............ 20
(g) Loan Charge-Offs................................................................. 21
(h) Credit Files and Documentation................................................... 21
(i) Correction of Credit Documentation and Compliance Deficiencies................... 21
(j) Consents to Assignment of Contracts and Leases................................... 21
(k) Access........................................................................... 21
(l) Pricing of Deposits or Loans..................................................... 22
(m) Further Action; Instruments of Transfer.......................................... 22
4.02. Negative Covenants of CNB................................................................. 22
(a) Amendments to Articles of Incorporation or Bylaws................................ 22
(b) Change in Capitalization......................................................... 22
(c) Sale or Issuance of Shares....................................................... 22
(d) Purchase or Redemption of Shares................................................. 22
(e) Options, Warrants and Rights..................................................... 22
(f) Dividends........................................................................ 22
(g) Employment, Benefit or Retirement Agreements or Plans............................ 23
(h) Increase in Compensation; Bonuses................................................ 23
(i) Accounting Practices............................................................. 23
(j) Acquisitions; Additional Branch Offices.......................................... 23
(k) Changes in Business Practices.................................................... 23
(l) Exclusive Merger Agreement....................................................... 23
(m) Acquisition or Disposition of Assets............................................. 24
(n) Debt; Liabilities................................................................ 24
(o) Liens; Encumbrances.............................................................. 24
(p) Waiver of Rights................................................................. 24
(q) Other Contracts.................................................................. 25
(r) Deposit Liabilities.............................................................. 25
(s) Loans, Extensions of Credit and Loan Commitments................................. 25
ARTICLE V. COVENANTS OF MFC............................................................................. 25
5.01. Registration Statement.................................................................... 25
5.02. "Blue Sky" Approvals...................................................................... 25
5.03. Employees; Employee Benefits.............................................................. 26
(a) Employment of Community Employees................................................ 26
(b) Employee Benefits................................................................ 26
5.04. Further Action; Instruments of Transfer................................................... 26
5.05 Name Following Effective Time............................................................. 26
ARTICLE VI. ADDITIONAL AGREEMENTS....................................................................... 26
6.01 Preparation and Distribution of Proxy Statement/Prospectus................................ 26
6.02. Regulatory Approvals...................................................................... 27
6.03. Information for Proxy Statement/Prospectus and Applications for Regulatory Approvals ..... 27
6.04. Announcements; Confidential Information................................................... 27
6.05. Real Property Matters..................................................................... 29
6.06. Treatment of 401(k) Plan.................................................................. 30
6.07. Directors' and Officers' Liability Insurance.............................................. 30
6.08. Tax Opinion............................................................................... 30
6.09. Final Tax Return.......................................................................... 30
6.10. Restriction on MFC Stock Issued to Certain Persons........................................ 30
(a) Affiliates of CNB................................................................ 30
(b) Affiliates of MFC................................................................ 30
6.11. Expenses.................................................................................. 31
6.12. Directors................................................................................. 31
6.13. Cancellation of CNB Options............................................................... 31
6.14. President of Community.................................................................... 32
6.15. Due Diligence Reviews and Right to Terminate.............................................. 32
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ARTICLE VII. CONDITIONS PRECEDENT TO MERGER............................................................. 32
7.01. Conditions to all Parties' Obligations.................................................... 32
(a) Approval by Regulatory Authorities; Disadvantageous Conditions.................. 33
(b) Adverse Proceedings, Injunction, Etc............................................. 33
(c) Approval by Boards of Directors and Shareholders................................. 33
(d) Fairness Opinion................................................................. 33
(e) Tax Opinion...................................................................... 33
(f) No Termination or Abandonment.................................................... 33
(g) Articles of Merger; Other Actions................................................ 33
7.02. Additional Conditions to CNB's Obligations................................................ 34
(a) Material Adverse Change.......................................................... 34
(b) Compliance with Laws............................................................. 34
(c) MFC's Representations and Warranties
and Performance of Agreements; Officers' Certificate........................... 34
(d) Legal Opinion of MFC's Counsel................................................... 34
(e) Other Documents and Information.................................................. 34
(f) Acceptance by CNB's Counsel...................................................... 34
7.03. Additional Conditions to MFC's Obligations................................................ 34
(a) Material Adverse Change.......................................................... 35
(b) Compliance with Laws............................................................. 35
(c) CNB's Representations and Warranties
and Performance of Agreements; Officers' Certificate............................ 35
(d) Affiliates Agreements............................................................ 35
(e) Legal Opinion of CNB's Counsel................................................... 35
(f) Other Documents and Information.................................................. 35
(g) Merger Expenses.................................................................. 36
(h) Director Resignations............................................................ 36
(i) Option Cancellation Agreements................................................... 36
(j) Consents to Assignments.......................................................... 36
(j) Acceptance by MFC's Counsel...................................................... 36
ARTICLE VIII. TERMINATION; BREACH; REMEDIES............................................................. 36
8.01. Mutual Termination........................................................................ 36
8.02. Unilateral Termination.................................................................... 36
(a) Termination by MFC............................................................... 36
(b) Termination by CNB............................................................... 37
(c) Survival of Certain Covenants Following Termination.............................. 38
8.03. Breach; Remedies.......................................................................... 39
ARTICLE IX. INDEMNIFICATION............................................................................ 39
9.01. Indemnification Following Termination of Agreement........................................ 39
(a) By CNB........................................................................... 39
(b) By MFC........................................................................... 40
9.02. Procedure for Claiming Indemnification.................................................... 41
ARTICLE X. MISCELLANEOUS PROVISIONS.................................................................... 41
10.01. Survival of Representations, Warranties, Indemnification and Other Agreements............. 41
10.02. Waiver.................................................................................... 41
10.03. Amendment................................................................................. 42
10.04. Notices................................................................................... 42
10.05. Further Assurance......................................................................... 42
10.06. Headings and Captions..................................................................... 42
10.07. Gender and Number......................................................................... 42
10.08. Entire Agreement.......................................................................... 42
10.09. Severability of Provisions................................................................ 43
10.10. Assignment................................................................................ 43
10.11. Counterparts.............................................................................. 43
10.12. Governing Law............................................................................. 43
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10.13. Previously Disclosed Information.......................................................... 43
10.14. Best Knowledge............................................................................ 43
10.15. Inspection................................................................................ 43
EXHIBIT A - Plan of Merger........................................................................ A-1
EXHIBIT B - Form of Affiliates Agreement.......................................................... B-1
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AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
By and Between
CNB BANKSHARES CORPORATION
and
MOUNTAINBANK FINANCIAL CORPORATION
THIS AGREEMENT AND PLAN OF REORGANIZATION AND MERGER (the
"Agreement") is entered into as of the 20th day of June, 2002, by and between
CNB HOLDINGS, INC. ("CNB") and MOUNTAINBANK FINANCIAL CORPORATION ("MFC").
WHEREAS, CNB is a Virginia business corporation with its principal
office and place of business located in Pulaski, Virginia, and is the owner of
all the outstanding shares of common stock of Community National Bank
("Community");
WHEREAS, Community is a national banking association with its main
office and place of business located in Pulaski, Virginia, and is the
wholly-owned subsidiary of CNB; and,
WHEREAS, MFC is a North Carolina business corporation with its
principal office and place of business located in Hendersonville, North
Carolina, and is the owner of all the outstanding shares of common stock of
MountainBank; and,
WHEREAS, MountainBank is a North Carolina banking corporation with
its principal office and place of business located in Hendersonville, North
Carolina, and is the wholly-owned subsidiary of MFC; and,
WHEREAS, CNB and MFC have agreed that it is in their mutual best
interests and in the best interests of their respective shareholders for CNB to
be merged with and into MFC in the manner and upon the terms and conditions
contained in this Agreement; and,
WHEREAS, to effectuate the foregoing, CNB and MFC desire to adopt
this Agreement as a plan of reorganization in accordance with the provisions of
Section 368(a) of the Internal Revenue Code of 1986, as amended; and,
WHEREAS, CNB's Board of Directors has approved this Agreement; and,
WHEREAS, MFC's Board of Directors has approved this Agreement.
NOW, THEREFORE, in consideration of the premises, the mutual
benefits to be derived from this Agreement, and the representations, warranties,
conditions, covenants and promises herein contained, and subject to the terms
and conditions hereof, CNB and MFC hereby adopt and make this Agreement and
mutually agree as follows:
ARTICLE I. THE MERGER
1.01. NAMES OF MERGING CORPORATIONS. The corporations proposed to be
merged are CNB and MFC.
1.02. NATURE OF TRANSACTION; PLAN OF MERGER. Subject to the provisions of
this Agreement, at the "Effective Time" (as defined in Paragraph 1.07 below),
CNB will be merged into and with MFC (the "Merger") as provided in the plan of
merger (the "Plan of Merger") attached as Exhibit A to this Agreement.
1.03. EFFECT OF MERGER; SURVIVING CORPORATION. At the Effective Time, and
by reason of the Merger, (i) the separate corporate existence of CNB shall
cease, while the corporate existence of MFC as the surviving corporation in the
Merger shall continue with all of its purposes, objects, rights, privileges,
powers and franchises, all of which shall be unaffected and unimpaired by the
Merger, and (ii) Community will become a wholly-owned banking subsidiary of MFC.
The duration of the corporate existence of MFC, as the surviving corporation,
shall be perpetual and unlimited.
1.04. ASSETS AND LIABILITIES OF CNB. At the Effective Time, and by reason
of the Merger, and in accordance with applicable law, all of the property,
assets and rights of every kind and character of CNB (including without
limitation all real, personal or mixed property, all debts due on whatever
account, all other choses in action and every other interest of or belonging to
or due to CNB, whether tangible or intangible) shall be transferred to and vest
in MFC; and MFC shall succeed to all the rights, privileges, immunities, powers,
purposes and franchises of a public or private nature of CNB, all without any
conveyance, assignment or further act or deed; and MFC shall become responsible
for all of the liabilities, duties and obligations of every kind, nature and
description of CNB as of the Effective Time.
1.05. CONVERSION AND EXCHANGE OF STOCK.
(a) Conversion of CNB Stock. Except as otherwise provided in this
Agreement, at the Effective Time all rights of CNB's shareholders with respect
to all outstanding shares of CNB's common stock, $5.00 par value per share ("CNB
Stock"), shall cease to exist; and, as consideration for and to effect the
Merger, each such outstanding share shall be converted, without any action by
CNB, MFC or any CNB shareholder, into the right to receive (i) a number of
shares of MFC's common stock, $4.00 par value per share ("MFC Common Stock")
calculated in the manner described below, or (ii) cash in the amount of $13.50.
As further described in Paragraph 1.05(b), and subject to the
limitations described herein, each CNB shareholder will have the right to elect
the form of consideration into which his or her CNB Stock is converted and may
elect to receive a combination of cash and MFC Common Stock.
The number of shares of MFC Common Stock into which a CNB
shareholder may elect for each share of his or her CNB Stock to be converted at
the Effective Time shall be the number (rounded to four decimal places) equal to
$13.50 divided by the "Market Value" (as defined below). For purposes of this
Paragraph 1.05, the "Market Value" of a share of MFC Common Stock shall be the
average of the closing per share trade prices of MFC Common Stock as reported on
the OTC Bulletin Board (or, if MFC Common Stock is then traded on The Nasdaq
Stock Market, then on Nasdaq) for the 20 trading days immediately preceding the
business day prior to the "Closing Date" (as defined in Paragraph 1.07 below) on
which trades of MFC Common Stock are reported; provided however that, for
purposes of calculating the number of shares of MFC Common Stock into which CNB
Stock will be converted, the Market Value used in the calculation shall not
exceed $24.32 per share or be less than $17.98 per share. If the amount
determined as described above as the Market Value is more than $24.32, then the
Market Value shall be deemed to be $24.32, and if the amount determined as
described above as the Market Value is less than $17.98, then the Market Value
shall be deemed to be $17.98.
At the Effective Time, and without any action by CNB, MFC or
any CNB shareholder, CNB's stock transfer books shall be closed, and there shall
be no further transfers of CNB Stock on its stock transfer books nor the
registration of any transfer of a certificate evidencing CNB Stock (a "CNB
Certificate") by any holder thereof. The holders of CNB Certificates shall cease
to be, and shall have no further rights as, stockholders of CNB other than as
provided in this Agreement. Following the Effective Time, CNB Certificates shall
evidence only the right of the registered holders thereof to receive the
consideration into which their CNB Stock was converted at the Effective Time,
or, in the case of CNB Stock held by shareholders who properly shall have
exercised their right of dissent and appraisal under
2
Title 13.1, Chapter 9, Article 15 of the Code of Virginia (1950), as amended
("Dissenters' Rights"), cash as provided in that statute.
(b) Election of Form of Consideration. Subject to the limitations
described in this Agreement, each CNB shareholder shall have the right to elect
the form of consideration into which his or her shares of CNB Stock will be
converted and may elect to receive a combination of cash and MFC Common Stock by
having a portion of his or her shares converted into one form of consideration
and the remaining shares converted into the other form of consideration. Each
shareholder's election must be made in writing in a form prescribed by MFC (an
"Election of Consideration") which must be signed by the shareholder and
delivered to MFC within 15 days following the approval of this Agreement by
CNB's shareholders. Each shareholder of CNB who does not return an Election of
Consideration, or whose Election of Consideration is received by MFC after the
time prescribed, shall be deemed by MFC to have elected for 50% his or her
shares of CNB Stock to be converted into MFC Common Stock and for the other 50%
of those shares to be converted into cash.
(c) Required Ratio of Consideration; Allocations of Consideration.
Notwithstanding the right of CNB's shareholders to elect the form of
consideration into which their shares of CNB Stock are converted, the aggregate
value of the MFC Common Stock into which all shares of CNB Stock are converted
at the Effective Time (the "Aggregate Stock Value," which shall be based on the
Market Value of the MFC Common Stock as described above) shall not be (i) less
than 100% of the aggregate of the cash consideration paid in connection with the
transaction (the "Aggregate Cash Value"), including (A) the aggregate amount of
cash into which shares of CNB Stock are converted (including shares held by
shareholders who exercise Dissenters' Right), (B) cash paid by MFC in lieu of
issuing fractional shares of MFC Common Stock as described below, and (C) cash
paid by CNB upon the cancellation of outstanding options to purchase shares of
CNB Stock, or (ii) more than 55% of the total of (A) the Aggregate Stock Value,
plus (B) the Aggregate Cash Value. Following receipt of Elections of
Consideration from all CNB's shareholders (including the elections that
shareholders are deemed to have made as described above as result of not
returning Elections of Consideration), then the minimum number of additional
shares of MFC Common Stock, or the minimum amount of additional cash, in either
case sufficient to result in a ratio of MFC Common Stock and cash within the
above range, will be allocated by MFC pro rata among CNB's shareholders (other
than shareholders who exercise Dissenters' Rights). Such allocations may be made
in such manner as MFC, after consulting with CNB, considers to be reasonable and
appropriate, and MFC's decision regarding any such allocation shall be final and
binding on CNB's shareholders and both parties to this Agreement.
(d) Exchange and Payment Procedures; Surrender of Certificates. As
promptly as practicable, but not more than ten business days following the
Effective Time, MFC shall send or cause to be sent to each former CNB
shareholder of record immediately prior to the Effective Time written
instructions and transmittal materials (a "Transmittal Letter") for use in
surrendering CNB Certificates to MFC or to an exchange agent appointed by MFC.
Upon the proper surrender and delivery to MFC or its agent (in accordance with
its instructions, and accompanied by a properly completed Transmittal Letter) by
a former shareholder of CNB of his or her CNB Certificate(s), and in exchange
therefor, MFC shall as soon as practicable issue and deliver to the shareholder
stock certificates and/or a check evidencing the consideration into which the
shareholder's CNB Stock was converted at the Effective Time, together with cash
for any fractional shares of MFC Common Stock calculated as described in
Paragraph 1.05(g) below.
Subject to Paragraph 1.05(h), no certificate evidencing MFC
Common Stock or check for cash shall be issued or delivered to any former CNB
shareholder unless and until that shareholder shall have properly surrendered to
MFC or its agent the CNB Certificate(s) formerly representing his or her shares
of CNB Stock, together with a properly completed Transmittal Letter. Further,
until a former CNB shareholder's CNB Certificates are so surrendered and
certificates evidencing any MFC Common Stock into which his or her CNB Stock was
converted at the Effective Time actually are issued to him or her, no dividend
or other distribution payable by MFC with respect to that MFC
3
Common Stock as of any date subsequent to the Effective Time shall be paid or
delivered to the former CNB shareholder. However, MFC shall hold the amount of
any dividend or distribution related to the MFC Common Stock issued to such
shareholder, and upon the proper surrender of the shareholder's CNB Certificate
and the issuance to that shareholder of a certificate representing any MFC
Common Stock to which the shareholder is entitled, MFC shall pay to such
shareholder any dividend paid or any distribution made to the holders of its MFC
Common Stock of record in the interim between the Effective Time and such
surrender and issuance, without interest.
(e) Antidilutive Adjustments. If, prior to the Effective Time, CNB
shall declare any dividend payable in shares of CNB Stock, or shall subdivide,
split, reclassify or combine the presently outstanding shares of CNB Stock, then
an appropriate and proportionate adjustment shall be made in the number of
shares of MFC Common Stock and/or cash, as the case may be, into which each
share of CNB Stock will be converted at the Effective Time pursuant to this
Agreement.
(f) Dissenters. Any shareholder of CNB who properly exercises
Dissenters' Rights shall be entitled to receive payment of the fair value of his
or her shares of CNB Stock in the manner and pursuant to the procedures provided
for in Title 13.1, Chapter 9, Article 15 of the Code of Virginia (1950), as
amended. Shares of CNB Stock held by persons who exercise Dissenters' Rights
shall not be converted as described in Paragraph 1.05(a). However, if any
shareholder of CNB who exercises Dissenters' Rights shall fail to perfect those
rights, or effectively shall waive or lose such rights, then that shareholder
shall be deemed by MFC to have elected for 50% his or her shares of CNB Stock to
be converted into MFC Common Stock and for the other 50% of those shares to be
converted into cash as of the Effective Time as provided in this Paragraph 1.05.
(g) Fractional Shares. If the conversion of the shares of CNB Stock
held by any CNB shareholder results in a fraction of a share of MFC Common
Stock, then, in lieu of issuing that fractional share, MFC will pay to that
shareholder cash in an amount equal to that fraction multiplied by the Market
Value.
(h) Lost Certificates. Following the Effective Time, shareholders
of CNB whose CNB Certificates have been lost, destroyed, stolen or otherwise are
missing shall be entitled to receive the consideration into which their CNB
Stock has been converted in accordance with and upon compliance with reasonable
conditions imposed by MFC, including without limitation a requirement that those
shareholders provide lost instruments indemnities or surety bonds in form,
substance and amount satisfactory to MFC.
1.06. ARTICLES OF INCORPORATION, BYLAWS AND MANAGEMENT. The Articles of
Incorporation and Bylaws of MFC in effect at the Effective Time shall be the
Articles of Incorporation and Bylaws of MFC as the surviving corporation in the
Merger, and the officers and directors of MFC in office at the Effective Time
shall continue to hold such offices until removed as provided by law or until
the election or appointment of their respective successors.
1.07. CLOSING; EFFECTIVE TIME. The consummation and closing of the Merger
and other transactions contemplated by this Agreement (the "Closing") shall take
place at the offices of MFC's legal counsel, ▇▇▇▇ and ▇▇▇▇▇, P.A., in Raleigh,
North Carolina, or at such other place as MFC shall designate, on a date
mutually agreed upon by CNB and MFC (the "Closing Date") after the expiration of
any and all required waiting periods following the effective date of required
approvals of the Merger by governmental or regulatory authorities (but in no
event more than 30 days following the expiration of all such required waiting
periods). At the Closing, CNB and MFC shall take such actions (including without
limitation the delivery of certain closing documents and the execution of
Articles of Merger under North Carolina and Virginia law) as are required in
this Agreement and as otherwise shall be required by law to consummate the
Merger and cause it to become effective.
4
Subject to the terms and conditions set forth in this Agreement, the Merger
shall become effective on the date and at the time (the "Effective Time")
specified in Articles of Merger executed by MFC and filed by it with, and as
provided in the Certificates of Merger issued by, the North Carolina Secretary
of State and the Virginia State Corporation Commission in accordance with
applicable law; provided, however, that the Effective Time shall in no event be
more than ten days following the Closing Date.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF CNB
CNB hereby makes the following representations and warranties to MFC.
2.01. ORGANIZATION; STANDING; POWER. CNB is duly organized and
incorporated, validly existing and in good standing as a business corporation
under the laws of the Commonwealth of Virginia, and Community is duly organized,
validly existing and in good standing as a national banking association. CNB and
Community each (i) has all requisite power and authority (corporate and other)
to own, lease and operate its properties and to carry on its business as it now
is being conducted; (ii) is duly qualified to do business and is in good
standing in each jurisdiction in which the character of the properties owned,
leased or operated by it therein, or in which the transaction of its business,
makes such qualification necessary, except where failure so to qualify would not
have a material adverse effect on it; and (iii) is not transacting business or
operating any properties owned or leased by it in violation of any provision of
federal, state or local law or any rule or regulation promulgated thereunder,
except where such violation would not have a material adverse effect on it.
2.02. CAPITAL STOCK. CNB's authorized capital stock consists of
10,000,000 shares of common stock, par value $5.00, of which 926,399 shares are
issued and outstanding and constitute CNB's only outstanding securities, and
1,000,000 shares of preferred stock, par value $1.00, none of which is issued
and outstanding.
Community's authorized capital stock consists of 10,000,000 shares of
common stock, par value $5.00, of which 400,000 shares are issued and
outstanding ("Community Stock"). All of the Community Stock is held,
beneficially and of record, by CNB, and those shares constitute Community's only
outstanding securities.
Each outstanding share of CNB Stock and Community Stock (i) has
been duly authorized and is validly issued and outstanding, and is fully paid
and nonassessable, and (ii) has not been issued in violation of the preemptive
rights of any shareholder. The CNB Stock is registered with the Securities
Exchange Commission (the "SEC") under the Securities Exchange Act of 1934, as
amended (the "1934 Act"), and CNB is subject to the registration and reporting
requirements of the 1934 Act. The Community Stock is not registered under, and
Community is not subject to the registration and reporting requirements of, the
1934 Act.
2.03. PRINCIPAL SHAREHOLDERS. Except as otherwise described below, to the
Best Knowledge of CNB, no person or entity beneficially owns, directly or
indirectly, more than 5% of the outstanding shares of CNB Stock.
As of the date of this Agreement, the following persons owned,
beneficially and of record, more than 5% of the outstanding shares of CNB Stock:
NUMBER
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇. 57,595 (5.0%)
▇▇▇▇ ▇. ▇▇▇▇▇▇▇ 61,315 (5.3%)
5
2.04. SUBSIDIARIES. With the exception of Community, CNB has no
subsidiaries, direct or indirect; and, except for equity securities included in
its investment portfolio and Previously Disclosed to MFC, CNB does not own any
stock or other equity interest in any other corporation, service corporation,
joint venture, partnership or other entity.
Community has no subsidiaries, direct or indirect, and, except for equity
securities included in its investment portfolio and Previously Disclosed to MFC,
Community does not own any stock or other equity interest in any other
corporation, service corporation, joint venture, partnership or other entity.
2.05. CONVERTIBLE SECURITIES, OPTIONS, ETC. Except as Previously
Disclosed to MFC, neither CNB nor Community has any outstanding (i) securities
or other obligations (including debentures or other debt instruments) which are
convertible into shares of CNB Stock or Community Stock or any other securities
of CNB or Community, (ii) options, warrants, rights, calls or other commitments
of any nature which entitle any person to receive or acquire any shares of CNB
Stock or Community Stock or any other securities of CNB or Community, or (iii)
plan, agreement or other arrangement pursuant to which shares of CNB Stock or
Community Stock or any other securities of CNB or Community, or options,
warrants, rights, calls or other commitments of any nature pertaining to any
securities of CNB or Community, have been or may be issued.
2.06. AUTHORIZATION AND VALIDITY OF AGREEMENT. This Agreement has been
duly and validly approved by CNB's Board of Directors. Subject only to approval
of this Agreement by the shareholders of CNB and MFC in the manner required by
law and required approvals of federal, state or local governmental, regulatory,
or judicial authorities having jurisdiction over CNB, Community, MFC, or
MountainBank, or any of their business operations, properties or assets, or the
transactions described herein (collectively, the "Regulatory Authorities") (as
contemplated by Paragraph 6.02), (i) CNB has the corporate power and authority
to execute and deliver this Agreement and to perform its obligations and
agreements and carry out the transactions described in this Agreement, (ii) all
corporate proceedings and approvals required to authorize CNB to enter into this
Agreement and to perform its obligations and agreements and carry out the
transactions described herein have been duly and properly completed or obtained,
and (iii) this Agreement constitutes the valid and binding agreement of CNB
enforceable in accordance with its terms (except to the extent enforceability
may be limited by (A) applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws from time to time in effect which affect creditors'
rights generally, (B) legal and equitable limitations on the availability of
injunctive relief, specific performance and other equitable remedies, and (C)
general principles of equity and applicable laws or court decisions limiting the
enforceability of indemnification provisions).
2.07. VALIDITY OF TRANSACTIONS; ABSENCE OF REQUIRED CONSENTS OR WAIVERS.
Subject to approval of this Agreement by the shareholders of CNB in the manner
required by law and receipt of required approvals of Regulatory Authorities (as
contemplated by Paragraph 6.02), neither the execution and delivery of this
Agreement, nor the consummation of the transactions described herein, nor
compliance by CNB with any of its obligations or agreements contained herein,
nor any action or inaction by CNB required herein, will: (i) conflict with or
result in a breach of the terms and conditions of, or constitute a default or
violation under any provision of, the Articles of Incorporation or Bylaws of
CNB, or any material contract, agreement, lease, mortgage, note, bond,
indenture, license, obligation or understanding (oral or written) to which CNB
or Community is bound or by which either of them or its business, capital stock
or any of its properties or assets may be affected; (ii) result in the creation
or imposition of any material lien, claim, interest, charge, restriction or
encumbrance upon any of the properties or assets of CNB or Community; (iii)
violate any applicable federal or state statute, law, rule or regulation, or any
judgment, order, writ, injunction or decree of any court, administrative or
regulatory agency or governmental body, which violation will or may have a
material adverse effect on CNB or Community, or either of their financial
condition, results of operations, prospects, businesses, assets, loan portfolio,
investments, properties or operations, or on CNB's ability to consummate the
transactions described herein
6
or to carry on the business of CNB or Community as presently conducted; or (iv)
result in the acceleration of any material obligation or indebtedness of CNB or
Community.
No consents, approvals or waivers are required to be obtained from
any person or entity in connection with CNB's execution and delivery of this
Agreement, or the performance of its obligations or agreements or the
consummation of the transactions described herein, except for required approvals
of CNB's and MFC's shareholders and of Regulatory Authorities (as contemplated
by Paragraph 6.02).
2.08. CNB BOOKS AND RECORDS. CNB's and Community's respective books of
account and business records have been maintained in all material respects in
compliance with all applicable legal and accounting requirements, and such books
and records are complete and reflect accurately in all material respects their
respective items of income and expense and all of their respective assets,
liabilities and stockholders' equity. The minute books of CNB and Community are
complete and accurately reflect in all material respects all corporate actions
which their respective shareholders and boards of directors, and all committees
thereof, have taken during the time periods covered by such minute books, and
all such minute books have been or will be made available to MFC and its
representatives.
2.09. CNB REPORTS. To the "Best Knowledge" (as defined in Paragraph
10.14) of CNB, since December 31, 1996, CNB and Community each has filed all
reports, registrations and statements, together with any amendments required to
be made with respect thereto, that it or they were required to file with (i) the
Virginia Bureau of Financial Institutions (the "Virginia Bureau"), (ii) the
Comptroller of the Currency - Administrator of National Banks (the "OCC"), (iii)
the Federal Deposit Insurance Corporation (the "FDIC"), (iv) the Federal Reserve
Board or any Federal Reserve Bank (the "FRB"), (v) the SEC, or (vi) any other
Regulatory Authorities. Each such report, registration and statement filed by
CNB or Community with the Virginia Bureau, the OCC, the FDIC, the FRB, the SEC,
or any other Regulatory Authorities are collectively referred to in this
Agreement as the "CNB Reports." To the Best Knowledge of CNB, the CNB Reports
complied in all material respects with all the statutes, rules and regulations
enforced or promulgated by the Regulatory Authorities with which they were filed
and did 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. Neither CNB nor Community has been notified that any such CNB
Reports were deficient in any material respect as to form or content.
2.10. CNB FINANCIAL STATEMENTS. CNB has Previously Disclosed to MFC a
copy of its audited consolidated statements of financial condition as of
December 31, 2000 and 2001, and its audited consolidated statements of income,
stockholders' equity and cash flows for the three years ended December 31, 1999,
2000 and 2001, together with notes thereto (collectively, the "CNB Audited
Financial Statements"), and its unaudited consolidated statements of financial
condition as of March 31, 2002, and unaudited consolidated statements of income
and cash flows for the three-months ended March 31, 2001 and 2002, together with
notes thereto (collectively, the "CNB Interim Financial Statements"). Following
the date of this Agreement, CNB promptly will deliver to MFC all other annual or
interim financial statements prepared by or for CNB. The CNB Audited Financial
Statements and the CNB Interim Financial Statements (i) were prepared in
accordance with generally accepted accounting principles ("GAAP") applied on a
consistent basis throughout the periods indicated, (ii) are in accordance with
CNB's books and records, and (iii) present fairly CNB's consolidated financial
condition, assets and liabilities, results of operations, changes in
stockholders' equity and changes in cash flows as of the dates indicated and for
the periods specified therein. The CNB Audited Financial Statements have been
audited by ▇▇▇▇▇▇▇ & Company, PLC, which serves as CNB's independent certified
public accountants.
7
2.11. CNB TAX RETURNS AND OTHER TAX MATTERS. (i) CNB and Community each
has timely filed or caused to be filed all federal, state and local income tax
returns and reports which are required by law to have been filed, and, to the
Best Knowledge of CNB, all such returns and reports were true, correct and
complete and contained all material information required to be contained
therein; (ii) all federal, state and local income, profits, franchise, sales,
use, occupation, property, excise, withholding, employment and other taxes
(including interest and penalties), charges and assessments which have become
due from or been assessed or levied against CNB, Community or their respective
properties have been fully paid or, if not yet due, a reserve or accrual, which
is adequate in all material respects for the payment of all such taxes to be
paid and the obligation for such unpaid taxes, is reflected on the CNB Interim
Financial Statements; (iii) the income, profits, franchise, sales, use,
occupation, property, excise, withholding, employment and other tax returns and
reports of CNB and Community have not been subjected to audit by the Internal
Revenue Service (the "IRS") or the Virginia Department of Taxation in the last
ten years and neither CNB nor Community has received any indication of the
pendency of any audit or examination in connection with any such tax return or
report and, to the Best Knowledge of CNB, no such return or report is subject to
adjustment; and (iv) neither CNB nor Community has waived or extended the
statute of limitations (or been asked to execute a waiver or extend a statute of
limitations) with respect to any tax year, the audit of any such tax return or
report, or the assessment or collection of any tax.
2.12. ABSENCE OF MATERIAL ADVERSE CHANGES OR CERTAIN OTHER EVENTS.
(a) Since December 31, 2001, CNB and Community each has conducted
its business only in the ordinary course; and, there has been no material
adverse change, and there has occurred no event or development, and there
currently exists no condition or circumstance, which, with the lapse of time or
otherwise, may or could cause, create or result in a material adverse change in
or affecting the financial condition of CNB or Community or their respective
results of operations, prospects, business, assets, loan portfolio, investments,
properties or operations.
(b) Since December 31, 2001, and except as described in Paragraph
2.13 below, neither CNB nor Community has incurred any material liability,
engaged in any material transaction, entered into any material agreement,
increased the salaries, compensation or general benefits payable or provided to
its employees (with the exception of routine increases in the salaries of
certain employees effected by CNB and Community at such times and in such
amounts as is consistent with their past practices and their salary
administration and review policies and procedures in effect prior to December
31, 2001), suffered any material loss, destruction or damage to any of their
properties or assets, or made a material acquisition or disposition of any
assets or entered into any material contract or lease.
2.13. ABSENCE OF UNDISCLOSED LIABILITIES. Neither CNB nor Community has
any material liabilities or obligations, whether known or unknown, matured or
unmatured, accrued, absolute, contingent or otherwise, whether due or to become
due (including without limitation tax liabilities or unfunded liabilities under
employee benefit plans or arrangements), other than (i) those reflected in the
CNB Audited Financial Statements, (ii) increases in deposit accounts in the
ordinary course of Community's business since December 31, 2001, or (iii)
unfunded commitments to make, issue or extend loans, lines of credit, letters of
credit or other extensions of credit (together, "Loans") in amounts which do not
exceed those entered into in the normal course of CNB's and Community's
business.
2.14. COMPLIANCE WITH EXISTING OBLIGATIONS. CNB and Community each has
performed in all material respects all obligations required to be performed by
it under, and it is not in default in any material respect under, or in
violation in any material respect of, the terms and conditions of its Articles
of Incorporation, Bylaws and/or any material contract, agreement, lease,
mortgage, note, bond, indenture, license, obligation, understanding or other
undertaking (whether oral or written) to which it is bound or by which its
business, operations, capital stock, properties or assets may be affected.
8
2.15. LITIGATION AND COMPLIANCE WITH LAW.
(a) There are no actions, suits, arbitrations, controversies or
other proceedings or investigations (or, to the Best Knowledge of CNB, any facts
or circumstances which reasonably could be expected to result in such),
including without limitation any such action by any Regulatory Authority, which
currently exist or are ongoing, pending or, to the Best Knowledge of CNB, are
threatened, contemplated or probable of assertion, against, relating to or
otherwise affecting CNB or Community or any of their respective properties,
assets or employees.
(b) CNB and Community each has all licenses, permits, orders,
authorizations or approvals ("Permits") of all federal, state, local or foreign
governmental or regulatory agencies that are material to or necessary for the
conduct of its business or to own, lease and operate its properties; all such
Permits are in full force and effect; no violations have occurred with respect
to any such Permits; and no proceeding is pending or, to the Best Knowledge of
CNB, threatened or probable of assertion, to suspend, cancel, revoke or limit
any Permit.
(c) Neither CNB nor Community is subject to any supervisory
agreement, enforcement order, writ, injunction, capital directive, supervisory
directive, memorandum of understanding or other similar agreement, order,
directive, memorandum or consent of, with or issued by any Regulatory Authority
(including without limitation the OCC, the FDIC, the Virginia Bureau and the
FRB) relating to its financial condition, directors or officers, employees,
operations, capital, regulatory compliance or any other matter; there are no
judgments, orders, stipulations, injunctions, decrees or awards against either
CNB or Community which limit, restrict, regulate, enjoin or prohibit in any
material respect any present or past business or practice of CNB or Community;
and neither CNB nor Community has been advised, nor has any reason to believe,
that any Regulatory Authority or any court is contemplating, threatening or
requesting the issuance of any such agreement, order, writ, injunction,
directive, memorandum, judgment, stipulation, decree or award.
(d) To the Best Knowledge of CNB, neither CNB nor Community is in
violation or default in any material respect under, and each of them has
complied in all material respects with, all laws, statutes, ordinances, rules,
regulations, orders, writs, injunctions or decrees of any Regulatory Authority
(including without limitation all provisions of Virginia law relating to usury,
the Consumer Credit Protection Act, and all other federal and state laws and
regulations applicable to extensions of credit by Community). To the Best
Knowledge of CNB, there is no basis for any claim by any person or authority for
compensation, reimbursement, damages or other penalties or relief for any
violations described in this subparagraph (d).
2.16. REAL PROPERTIES. CNB has Previously Disclosed to MFC a listing of
all real property owned by CNB or Community (including Community's banking
facilities and all other real estate or foreclosed properties, including
improvements thereon (collectively, the "Real Property"). With respect to each
parcel of Real Property, CNB or Community has good and marketable fee simple
title to that Real Property and owns the same free and clear of all mortgages,
liens, leases, encumbrances, title defects and exceptions to title other than
(i) the lien of current taxes not yet due and payable, and (ii) such
imperfections of title and restrictions, covenants and easements (including
utility easements) which do not materially affect the value or marketability of
that Real Property or materially detract from, interfere with or restrict the
present or future use of that Real Property.
The Real Property complies in all material respects with all
applicable federal, state and local laws, regulations, ordinances or orders of
any governmental or regulatory authority, including those relating to zoning,
building and use permits. The parcels of Real Property upon which Community's
banking or other offices are situated, or which are used by Community in
conjunction with its banking or other offices or for other purposes, may, under
applicable zoning ordinances, be used for the purposes for which they currently
are used as a matter of right rather than as a conditional or nonconforming use.
9
With respect to each parcel of Real Property that currently is used
by Community as a banking office, all improvements and fixtures included in or
on that Real Property are in good condition and repair, ordinary wear and tear
excepted. There does not exist any condition which in any material respect
interferes with Community's use (or will interfere with Community's or MFC's use
after the Merger) of that Real Property or those improvements and fixtures as a
banking office, or that adversely affects the economic value of that Real
Property or those improvements and fixtures.
2.17. LOANS, ACCOUNTS, NOTES AND OTHER RECEIVABLES.
(a) All Loans, accounts, notes and other receivables reflected as
assets on CNB's and Community's books and records (i) have resulted from bona
fide business transactions in the ordinary course of their respective
operations, (ii) in all material respects were made in accordance with their
respective standard practices and procedures, and (iii) are owned by them,
respectively, free and clear of all liens, encumbrances, assignments,
participation or repurchase agreements or other exceptions to title or to the
ownership or collection rights of any other person or entity.
(b) All records of CNB and Community regarding all outstanding
Loans, accounts, notes and other receivables, and all other real estate owned,
are accurate in all material respects, and, to the Best Knowledge of CNB, each
Loan which CNB's or Community's Loan documentation indicates is secured by any
real or personal property or property rights ("Loan Collateral") is secured by
valid, perfected and enforceable liens on all such Loan Collateral having the
priority described in CNB's and Community's records of such Loan.
(c) To the Best Knowledge of CNB, each Loan reflected as an asset
on CNB's or Community's books, and each guaranty therefor, is the legal, valid
and binding obligation of the obligor or guarantor thereon, and no defense,
offset or counterclaim has been asserted with respect to any such Loan or
guaranty.
(d) CNB has Previously Disclosed to MFC a written listing of (i)
each Loan or other asset of CNB or Community which, as of June 1, 2002, was
classified by the OCC or CNB or Community as "Loss," "Doubtful," "Substandard"
or "Special Mention" (or otherwise by words of similar import), or which CNB or
Community otherwise has designated as a special asset, a "potential problem
Loan," or for special handling, or placed on any "watch list" because of
concerns regarding the ultimate collectibility or deteriorating condition of
such asset or any obligor or Loan Collateral therefor, (ii) each Loan of CNB or
Community which, as of June 1, 2002, was past due more than 30 days as to the
payment of principal and/or interest, and (iii) each Loan as to which any
obligor thereon (including the borrower or any guarantor) was in default (other
than as a result of nonpayment of principal or interest), was the subject of a
proceeding in bankruptcy, or has indicated any inability or intention not to
repay such Loan in accordance with its terms.
(e) To the Best Knowledge of CNB, each of the Loans of CNB or
Community (with the exception of those Loans Previously Disclosed to MFC
pursuant to Paragraph 2.17(d) above) is collectible in the ordinary course of
CNB's and Community's business in an amount which is not less than the amount at
which it is carried on Community's books and records.
(f) CNB's and Community's reserve for possible Loan losses (the
"Loan Loss Reserve") has been established in conformity with GAAP, sound banking
practices and all applicable requirements, rules and policies of the OCC and, in
the best judgment of management and the Boards of Directors of CNB and
Community, is reasonable in view of the size and character of CNB's and
Community's Loan portfolio, current economic conditions and other relevant
factors, and is adequate to provide for losses relating to or the risk of loss
inherent in CNB's and Community's Loan portfolios and other real estate owned.
10
2.18. SECURITIES PORTFOLIO AND INVESTMENTS. CNB has Previously Disclosed
to MFC a listing of all securities owned, of record or beneficially, by CNB or
Community as of June 1, 2002. All securities owned, of record or beneficially,
by CNB or Community are held free and clear of all mortgages, liens, pledges,
encumbrances or any other restriction or rights of any other person or entity,
whether contractual or statutory (other than customary pledges in the ordinary
course of CNB's and Community's business to secure public funds deposits), which
would materially impair the ability of CNB or Community to dispose freely of any
such security and/or otherwise to realize the benefits of ownership thereof at
any time. There are no voting trusts or other agreements or undertakings to
which either CNB or Community is a party with respect to the voting of any such
securities. With respect to all "repurchase agreements" under which CNB or
Community has "purchased" securities under agreement to resell, CNB or Community
has a valid, perfected first lien or security interest in the government
securities or other collateral securing the repurchase agreement, and the value
of the collateral securing each such repurchase agreement equals or exceeds the
amount of the debt owed to it which is secured by such collateral.
Since December 31, 2001, there has been no material deterioration
or adverse change in the quality, or any material decrease in the value, of
CNB's or Community's securities portfolio as a whole.
2.19. PERSONAL PROPERTY AND OTHER ASSETS. All banking equipment, data
processing equipment, vehicles, and other personal property used by CNB or
Community and material to the operation of its business are owned by them free
and clear of all liens, encumbrances, leases, title defects or exceptions to
title. To the Best Knowledge of CNB, all of CNB's and Community's personal
property material to its business is in good operating condition and repair,
ordinary wear and tear excepted.
2.20. PATENTS AND TRADEMARKS. To the Best Knowledge of CNB, CNB and
Community each owns, possesses or has the right to use any and all patents,
licenses, trademarks, trade names, copyrights, trade secrets and proprietary and
other confidential information necessary to conduct its business as now
conducted; and neither CNB nor Community has violated, and neither of them
currently is in conflict with, any patent, license, trademark, trade name,
copyright or proprietary right of any other person or entity.
2.21. ENVIRONMENTAL MATTERS.
(a) As used in this Agreement, "Environmental Laws" shall mean:
(i) all federal, state and local statutes, regulations and
ordinances,
(ii) all common law, and
(iii) all orders decrees, and similar provisions having the
force or effect of law and to which CNB or Community is
subject,
which, in the case of any of the above, concern or relate to pollution or
protection of the environment, standards of conduct and bases of obligations or
liability relating to the presence, use, production, generation, handling,
transportation, treatment, storage, disposal, distribution, labeling, reporting,
testing, processing, discharge, release, threatened release, control, or
clean-up of any "Hazardous Substances" (as defined below), or public or worker
health and safety, or to wetlands protection, drainage, noise, odor, indoor air,
or pullution.
"Hazardous Substance" shall mean any materials, substances,
wastes, chemical substances, or mixtures presently listed, defined, designated,
or classified as hazardous, toxic, or dangerous, or otherwise regulated, under
any Environmental Laws, whether by type or quantity, including without
limitation pesticides, pollutants, contaminants, toxic chemicals, oil, or other
petroleum products or
11
byproducts, asbestos or materials containing (or presumed to contain) asbestos,
polychlorinated biphenyls, urea formaldehyde foam insulation, lead, radon,
methyl tertiary butyl ether, or radioactive material.
(b) CNB has Previously Disclosed to MFC, and provided MFC with
copies of, all written reports, correspondence, notices or other information or
materials, if any, in its possession pertaining to environmental surveys or
assessments of the Real Property and any improvements thereon, the presence of
any Hazardous Substance on any of the Real Property, or any violation or alleged
violation of Environmental Laws on, affecting or otherwise involving the Real
Property or involving CNB or Community.
(c) There has been no presence, use, production, generation,
handling, transportation, treatment, storage, disposal, emission, discharge,
release, or threatened release of any Hazardous Substances by any person on,
from or relating to the Real Property which constitutes a violation of any
Environmental Laws, or any removal, clean-up or remediation of any Hazardous
Substances from, on or relating to the Real Property.
(d) Neither CNB nor Community has violated any Environmental Laws
relating to any of the Real Property, and there has been no violation of any
Environmental Laws relating to any of the Real Property by any other person or
entity for whose liability or obligation with respect to any particular matter
or violation for which CNB or Community is or may be responsible or liable.
(e) Neither CNB nor Community is subject to any claims, demands,
causes of action, suits, proceedings, losses, damages, penalties, liabilities,
obligations, costs or expenses of any kind and nature which arise out of, under
or in connection with, or which result from or are based upon the presence, use,
production, generation, handling, transportation, treatment, storage, disposal,
distribution, labeling, reporting, testing, processing, emission, discharge,
release, threatened release, control, removal, clean-up or remediation of any
Hazardous Substances on, from or relating to the Real Property or by any person
or entity.
(f) No facts, events or conditions relating to the Real Property,
or the operations of CNB or Community at any of their office locations, will
prevent, hinder or limit continued compliance with Environmental Laws or give
rise to any investigatory, emergency removal, remedial or corrective actions,
obligations or liabilities (whether accrued, absolute, contingent, unliquidated
or otherwise) pursuant to Environmental Laws.
(g) To the Best Knowledge of CNB (it being understood by MFC that,
for purposes of this representation, management of CNB has not undertaken a
review of each of Community's Loan files with respect to all Loan Collateral),
(i) there has been no violation of any Environmental Laws with respect to any
Loan Collateral by any person or entity for whose liability or obligation with
respect to any particular matter or violation for which CNB or Community is or
may be responsible or liable, (ii) Community is not subject to any claims,
demands, causes of action, suits, proceedings, losses, damages, penalties,
liabilities, obligations, costs or expenses of any kind and nature which arise
out of, under or in connection with, or which result from or are based upon, the
presence, use, production, generation, handling, transportation, treatment,
storage, disposal, distribution, labeling, reporting, testing, processing,
emission, discharge, release, threatened release, control, removal, clean-up or
remediation of any Hazardous Substances on, from or relating to any Loan
Collateral, by any person or entity, and (iii) there are no facts, events or
conditions relating to any Loan Collateral that will give rise to any
investigatory, emergency removal, remedial or corrective actions, obligations or
liabilities pursuant to Environmental Laws.
12
2.22. ABSENCE OF BROKERAGE OR FINDERS COMMISSIONS. Except for the
engagement by CNB of ▇▇▇▇▇▇▇▇▇ & Company, LLC, and CNB's obligations to that
firm pursuant to an engagement letter dated ▇▇▇▇▇ ▇▇, ▇▇▇▇, (▇) all negotiations
relative to this Agreement and the transactions described herein have been
carried on by CNB directly (or through its legal counsel) with MFC, and no
person or firm has been retained by or has acted on behalf of, pursuant to any
agreement, arrangement or understanding with, or under the authority of CNB or
its Board of Directors, as a broker, finder or agent or has performed similar
functions or otherwise is or may be entitled to receive or claim a brokerage fee
or other commission in connection with or as a result of the transactions
described herein; and (ii) CNB has not agreed, and has no obligation, to pay any
brokerage fee or other commission, fee or other compensation to any person or
entity in connection with or as a result of the transactions described herein.
2.23. MATERIAL CONTRACTS. Other than a benefit plan or employment
agreement Previously Disclosed pursuant to Paragraph 2.25, neither CNB nor
Community is a party to or bound by any agreement (i) involving money or other
property in an amount or with a value in excess of $25,000, (ii) which is not to
be performed in full prior to December 31, 2002, (iii) which calls for the
provision of goods or services to CNB or Community and cannot be terminated
without material penalty upon written notice to the other party thereto, (iv)
which is material to CNB or Community and was not entered into in the ordinary
course of business, (v) which involves hedging, options or any similar trading
activity, or interest rate exchanges or swaps, (vi) which commits CNB or
Community to make, issue or extend any Loan other than commitments in the
ordinary course of Community's business for Loans which do not exceed that
amount typically dealt with in the normal course of its business, (vii) which
involves the sale of any assets of CNB or Community which are used in and
material to the operation of its business, (viii) which involves any purchase or
sale of real property, or which involves the purchase or sale of any other
assets in the amount of more than that amount typically dealt with in the normal
course of CNB's and Community's business, (ix) which involves the purchase,
sale, issuance, redemption or transfer of any capital stock or other securities
of CNB or Community, or (x) with any director, officer or principal shareholder
of CNB or Community (including without limitation any consulting agreement, but
not including any agreements relating to Loans or other banking services which
were made in the ordinary course of CNB's or Community's business and on
substantially the same terms and conditions as were prevailing at that time for
similar agreements with unrelated persons).
Neither CNB nor Community is in default in any material respect,
and there has not occurred any event which with the lapse of time or giving of
notice or both would constitute such a default, under any contract, lease,
insurance policy, commitment or arrangement to which it is a party or by which
it or its property is or may be bound or affected or under which it or its
property receives benefits, where the consequences of such default would have a
material adverse effect on the financial condition, results of operations,
prospects, business, assets, Loan portfolio, investments, properties or
operations of CNB or Community.
2.24. EMPLOYMENT MATTERS; EMPLOYEE RELATIONS. CNB has Previously
Disclosed to MFC a listing of the names, years of credited service and current
base salary or wage rates of all of its and Community's employees as of June 1,
2002. CNB and Community each (i) has in all material respects paid in full to or
accrued on behalf of all its respective directors, officers and employees all
wages, salaries, commissions, bonuses, fees and other direct compensation for
all labor or services performed by them to the date of this Agreement, and all
vacation pay, sick pay, severance pay, overtime pay and other amounts for which
it is obligated under applicable law or its existing agreements, benefit plans,
policies or practices, and (ii) is in compliance with all applicable federal,
state and local laws, statutes, rules and regulations with regard to employment
and employment practices, terms and conditions, wages and hours and other
compensation matters; and no person has, to the Best Knowledge of CNB, asserted
that either CNB or Community is liable in any amount for any arrearage in wages
or employment taxes or for any penalties for failure to comply with any of the
foregoing.
13
There is no action, suit or proceeding by any person pending or, to
the Best Knowledge of CNB, threatened, against CNB or Community (or any of its
employees), involving employment discrimination, sexual harassment, wrongful
discharge or similar claims.
Neither CNB nor Community is a party to or bound by any collective
bargaining agreement with any of its employees, any labor union or any other
collective bargaining unit or organization. There is no pending or threatened
labor dispute, work stoppage or strike involving CNB or Community and any of
their employees, or any pending or threatened proceeding in which it is asserted
that CNB or Community has committed an unfair labor practice; and to the Best
Knowledge of CNB, there is no activity involving it or any of its employees
seeking to certify a collective bargaining unit or engaging in any other labor
organization activity.
2.25. EMPLOYMENT AGREEMENTS; EMPLOYEE BENEFIT PLANS.
(a) CNB has Previously Disclosed to MFC a true and complete list of
all bonus, deferred compensation, pension, retirement, profit-sharing, thrift,
savings, employee stock ownership, stock bonus, stock purchase, restricted stock
and stock option plans; all employment and severance contracts; all medical,
dental, health, and life insurance plans; all vacation, sickness and other leave
plans, all disability and death benefit plans; and all other employee benefit
plans, contracts, or arrangements maintained or contributed to by CNB or
Community for the benefit of any of their respective current or former employees
or directors or any of their beneficiaries (collectively, the "Plans"). True and
complete copies of all Plans, including, but not limited to, any trust
instruments and/or insurance contracts, if any, forming a part thereof or
applicable to the administration of any such Plans or the assets thereof, and
all amendments thereto, previously have been supplied to MFC. Except as
Previously Disclosed, neither CNB nor Community maintains, sponsors, contributes
to or otherwise participates in any "Employee Benefit Plan" within the meaning
of Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), any "Multi-employer Plan" within the meaning of Section 3(37)
of ERISA, or any "Multiple Employer Welfare Arrangement" within the meaning of
Section 3(40) of ERISA. Any Plan which is an "employee pension benefit plan"
within the meaning of Section 3(2) of ERISA and which is intended to be
qualified under Section 401(a) of the Internal Revenue Code of 1986, as amended
(the "Code") has received or applied for a favorable determination letter from
the IRS to the effect that they are so qualified, and neither CNB nor Community
is aware of any circumstances reasonably likely to result in the revocation or
denial of any such favorable determination letter. All reports and returns with
respect to the Plans (and any Plans previously maintained by CNB or Community)
required to be filed with any governmental department, agency, service or other
authority, including without limitation Internal Revenue Service Form 5500
(Annual Report), have been properly and timely filed.
(b) All "Employee Benefit Plans" maintained by or otherwise
covering employees or former employees of CNB or Community, to the extent
subject to ERISA, currently are, and at all times have been, in compliance with
all material provisions and requirements of ERISA. There is no pending or
threatened litigation relating to any Plan or any employee benefit plan,
contract or arrangement previously maintained by CNB or Community. Neither CNB
nor Community has engaged in a transaction with respect to any Plan that could
subject either of them to a tax or penalty imposed by either Section 4975 of the
Code or Section 502(i) of ERISA.
(c) CNB has delivered to MFC a true, correct and complete copy
(including copies of all amendments thereto) of each retirement Plan maintained
by either it or Community which is intended to be a plan qualified under Section
401(a) of the Code (collectively, the "Retirement Plans"), together with true,
correct and complete copies of the summary plan descriptions relating to the
Retirement Plans, the most recent determination letters received from the IRS
regarding the Retirement Plans, and the most recent Annual Reports (Form 5500
series) and related schedules, if any, for the Retirement Plans.
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The Retirement Plans are qualified under the provisions of
Section 401(a) of the Code, the trusts under the Retirement Plans are exempt
trusts under Section 501(a) of the Code, and determination letters have been
issued or applied for with respect to each such qualification and exemption,
including determination letters covering the current terms and provisions of the
Retirement Plans. The Retirement Plans have been, or not later than the date
such amendments are required to have been adopted will have been, amended to
comply with applicable law. There are no issues relating to said qualification
or exemption of the Retirement Plans currently pending before the IRS, the
United States Department of Labor, the Pension Benefit Guaranty Corporation or
any court. The Retirement Plans and the administration thereof meet (and have
met since the establishment of the Retirement Plans) in all material respects
all of the applicable requirements of ERISA, the Code and all other provisions,
laws, rules and regulations applicable to the Retirement Plans and do not
violate (and since the establishment of the Retirement Plans have not violated)
in any material respect any of the applicable provisions of the Retirement
Plans, ERISA, the Code and such other laws, rules and regulations. Without
limiting the generality of the foregoing, all reports and returns with respect
to the Retirement Plans required to be filed with any governmental department,
agency, service or other authority have been properly and timely filed. There
are no issues or disputes with respect to the Retirement Plans or the
administration thereof currently existing between CNB or Community, or any
trustee or other fiduciary thereunder, and any governmental agency, any current
or former employee of CNB or Community or beneficiary of any such employee, or
any other person or entity. No "reportable event" within the meaning of Section
4043 of ERISA has occurred at any time with respect to the Retirement Plans.
(d) No liability under subtitle C or D of Title IV of ERISA has
been or is expected to be incurred by CNB or Community with respect to the
Retirement Plans or with respect to any other ongoing, frozen or terminated
defined benefit pension plan currently or formerly maintained by CNB or
Community. Neither CNB nor Community presently contributes to a "Multiemployer
Plan" and neither of them has contributed to such a plan since December 31,
1996. All contributions required to be made pursuant to the terms of each of the
Plans (including without limitation the Retirement Plans and any other "pension
plan" as defined in Section 3(2) of ERISA maintained by CNB or Community) have
been timely made. Neither the Retirement Plans nor any other "pension plan"
maintained by CNB or Community have an "accumulated funding deficiency" (whether
or not waived) within the meaning of Section 412 of the Code or Section 302 of
ERISA. Neither CNB nor Community has provided, and neither of them is required
to provide, security to any "pension plan" or to any "Single Employer Plan"
pursuant to Section 401(a)(29) of the Code. Under the Retirement Plans and any
other "pension plan" maintained by CNB or Community as of the last day of the
most recent Plan year ended prior to the date hereof, the actuarially determined
present value of all "benefit liabilities," within the meaning of Section
4001(a)(16) of ERISA (as determined on the basis of the actuarial assumptions
contained in the Plan's most recent actuarial valuation), did not exceed the
then current value of the assets of such Plan, and there has been no material
change in the financial condition of any such Plan since the last day of the
most recent Plan year.
(e) Except as provided in the terms of the Retirement Plans
themselves, there are no restrictions on the rights of CNB or Community to amend
or terminate any Retirement Plan without incurring any liability thereunder.
Neither the execution and delivery of this Agreement nor the consummation of the
transactions described herein will, except as otherwise specifically provided in
this Agreement, (i) result in any payment to any person (including without
limitation any severance compensation or payment, unemployment compensation,
"golden parachute" or "change in control" payment, or otherwise) becoming due
under any Plan or agreement to any director, officer, employee or consultant,
(ii) increase any benefits otherwise payable under any Plan or agreement, or
(iii) result in any acceleration of the time of payment or vesting of any such
benefit.
2.26. INSURANCE. CNB has Previously Disclosed to MFC a listing of each
blanket bond, liability insurance, property and casualty, workers' compensation
and employer liability, life, or other insurance policy in effect on June 1,
2002, and in which CNB or Community was an insured party or beneficiary (the
"Policies"). The Policies provide coverage in such amounts and against such
liabilities,
15
casualties, losses or risks as is customary or reasonable for entities engaged
in the businesses of CNB and Community or as is required by applicable law or
regulation; and, in the reasonable opinion of management of CNB, the insurance
coverage provided under the Policies is reasonable and adequate in all respects
for CNB and Community. Each of the Policies is in full force and effect and is
valid and enforceable in accordance with its terms, and is underwritten by an
insurer of recognized financial responsibility qualified to issue those policies
in Virginia; and CNB and Community each has complied in all material respects
with requirements (including the giving of required notices) under each such
Policy in order to preserve all rights thereunder with respect to all matters.
Neither CNB nor Community is in default under the provisions of, has received
notice of cancellation or nonrenewal of or any premium increase on, or has
failed to pay any premium on, any Policy, and to the Best Knowledge of CNB,
there has not been any material inaccuracy in any application for any Policy.
There are no pending claims with respect to any Policy, and, to the Best
Knowledge of CNB, there currently are no conditions, and there has occurred no
event, that is reasonably likely to form the basis for any such claim.
2.27. INSURANCE OF DEPOSITS. All deposits of Community are insured by the
Bank Insurance Fund of the FDIC to the maximum extent permitted by law, all
deposit insurance premiums due from Community to the FDIC have been paid in full
in a timely fashion, and to the Best Knowledge of CNB, no proceedings have been
commenced or are contemplated by the FDIC or otherwise to terminate such
insurance.
2.28. OBSTACLES TO REGULATORY APPROVAL. To the Best Knowledge of CNB,
there exists no fact or condition (including without limitation Community's
record of compliance with the Community Reinvestment Act) that may reasonably be
expected to prevent or materially impede or delay MFC or CNB from obtaining the
regulatory approvals required in order to consummate the transactions described
in this Agreement; and if any such fact or condition becomes known to CNB, CNB
shall promptly (and in any event within three days after obtaining such
Knowledge) give notice of such fact or condition to MFC in the manner provided
herein.
2.29. DISCLOSURE. To the Best Knowledge of CNB, no written statement,
certificate, schedule, list or other written information furnished by or on
behalf of CNB to MFC or MountainBank in connection with this Agreement and the
transactions described herein, when considered as a whole, contains or has
contained any untrue statement of a material fact or omits or has omitted to
state a material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF MFC
MFC hereby makes the following representations and warranties to CNB.
3.01. ORGANIZATION; STANDING; POWER. MFC and MountainBank each (i) is
duly organized and incorporated, validly existing and in good standing under the
laws of North Carolina, (ii) has all requisite power and authority (corporate
and other) to own its respective properties and conduct its respective business
as it now is being conducted, and (iii) is duly qualified to do business and is
in good standing in each jurisdiction in which the character of the properties
owned or leased by it therein, or in which the transaction of its respective
business, makes such qualification necessary, except where failure so to qualify
would not have a material adverse effect on MFC and MountainBank considered as
one enterprise.
3.02. CAPITAL STOCK. MFC's authorized capital stock consists of
10,000,000 shares of MFC Common Stock, of which 3,112,022 shares are issued and
outstanding, and 3,000,000 shares of no par value preferred stock, of which
450,000 shares have been designated as a separate series ("MFC Series A
Preferred Stock") with an aggregate of 419,243 of those shares issued and
outstanding. The outstanding
16
shares of MFC Common Stock and MFC Series A Preferred Stock constitute MFC's
only outstanding equity securities. The shares of MFC Common Stock into which
shares of CNB Stock are to be converted at the Effective Time pursuant to this
Agreement will, at the time of issuance, be duly authorized, validly issued,
fully paid and nonassessable. MFC currently proposes to amend its Articles of
Incorporation to authorize another separate series of preferred stock ("MFC
Series B Preferred Stock") in conjunction with MFC's proposed acquisition of
Cardinal Bankshares Corporation.
3.03. AUTHORIZATION AND VALIDITY OF AGREEMENT. This Agreement has been
duly and validly approved by MFC's Board of Directors. Subject only to receipt
of required approvals of Regulatory Authorities (as contemplated by Paragraph
6.02), (i) MFC has the corporate power and authority to execute and deliver this
Agreement and to perform its obligations and agreements and carry out the
transactions described herein, (ii) all corporate proceedings required to be
taken to authorize MFC to enter into this Agreement and to perform its
obligations and agreements and carry out the transactions described herein have
been duly and properly taken, and (iii) this Agreement constitutes the valid and
binding agreement of MFC enforceable in accordance with its terms (except to the
extent enforceability may be limited by (A) applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws from time to time in effect which
affect creditors' rights generally, (B) legal and equitable limitations on the
availability of injunctive relief, specific performance and other equitable
remedies, and (C) general principles of equity and applicable laws or court
decisions limiting the enforceability of indemnification provisions).
3.04. VALIDITY OF TRANSACTIONS; ABSENCE OF REQUIRED CONSENTS OR WAIVERS.
Subject to receipt of required approvals of Regulatory Authorities (as
contemplated by Paragraph 6.02), and except where the same would not have a
material adverse effect on MFC and MountainBank considered as one enterprise,
neither the execution and delivery of this Agreement, nor the consummation of
the transactions described herein, nor compliance by MFC with any of its
obligations or agreements contained herein, will: (i) conflict with or result in
a breach of the terms and conditions of, or constitute a default or violation
under any provision of, MFC's Articles of Incorporation or Bylaws, or any
material contract, agreement, lease, mortgage, note, bond, indenture, license,
or obligation or understanding (oral or written) to which MFC or MountainBank is
bound or by which either of them, or their respective businesses, capital stock
or any of their respective properties or assets may be affected; (ii) result in
the creation or imposition of any material lien, claim, interest, charge,
restriction or encumbrance upon any of MFC's or MountainBank's properties or
assets; (iii) violate any applicable federal or state statute, law, rule or
regulation, or any order, writ, injunction or decree of any court,
administrative or regulatory agency or governmental body, which violation will
or may have a material adverse effect on MFC or MountainBank considered as one
entity or their respective abilities to consummate the transactions described
herein; or (iv) result in the acceleration of any material obligation or
indebtedness of MFC or MountainBank.
No consents, approvals or waivers are required to be obtained from
any person or entity in connection with MFC's execution and delivery of this
Agreement, or the performance of their respective obligations or agreements or
the consummation of the transactions described herein, except for required
approvals of Regulatory Authorities described in Paragraph 6.02.
3.05. MFC REPORTS. To the "Best Knowledge" (as defined in Paragraph
10.14) of MFC, since December 31, 1996, MFC and MountainBank each has filed all
reports, registrations and statements, together with any amendments required to
be made with respect thereto, that it or they were required to file with (i) the
North Carolina Commissioner of Banks (the "N.C. Commissioner"), (ii) the FDIC,
(iii) the FRB, (iv) the SEC, or (v) any other Regulatory Authorities. Each such
report, registration and statement filed by MFC or MountainBank with the N.C.
Commissioner, the FDIC, the FRB, the SEC, or any other Regulatory Authorities
are collectively referred to in this Agreement as the "MFC Reports." To the Best
Knowledge of MFC, the MFC Reports complied in all material respects with all the
statutes, rules and regulations enforced or promulgated by the Regulatory
Authorities with which they were filed and did 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
17
misleading. Neither MFC nor MountainBank has been notified that any such MFC
Reports were deficient in any material respect as to form or content.
3.06. MFC FINANCIAL STATEMENTS. MFC has Previously Disclosed to CNB a
copy of its audited consolidated statements of financial condition as of
December 31, 2000 and 2001, and its audited consolidated statements of income,
stockholders' equity and cash flows for the three years ended December 31, 1999,
2000 and 2001, together with notes thereto (collectively, the "MFC Audited
Financial Statements"), and its unaudited consolidated statements of financial
condition as of March 31, 2002, and unaudited consolidated statements of income
and cash flows for the three-months ended March 31, 2001 and 2002, together with
notes thereto (collectively, the "MFC Interim Financial Statements"). The MFC
Audited Financial Statements and the MFC Interim Financial Statements (i) were
prepared in accordance with GAAP applied on a consistent basis throughout the
periods indicated, (ii) are in accordance with MFC's books and records, and
(iii) present fairly MFC's consolidated financial condition, assets and
liabilities, results of operations, changes in stockholders' equity and changes
in cash flows as of the dates indicated and for the periods specified therein.
The MFC Audited Financial Statements have been audited by ▇▇▇▇▇▇▇ & Company PLLC
which serves as MFC's independent certified public accountants.
3.07. ABSENCE OF MATERIAL ADVERSE CHANGES OR CERTAIN OTHER EVENTS. Since
December 31, 2001, there has been no material adverse change in MFC's
consolidated assets, liabilities or operations, and, to the Best Knowledge of
MFC, there currently exists no condition or circumstance in MFC's assets,
liabilities or operations which, with the lapse of time or otherwise, may or
could cause, create or result in a material adverse change in or affecting the
consolidated financial condition of MFC or its consolidated results of
operations, prospects, business, assets, Loan portfolio, investments, properties
or operations.
3.08. LITIGATION AND COMPLIANCE WITH LAW. There are no actions, suits,
arbitrations, controversies or other proceedings or investigations (or, to the
Best Knowledge of MFC, any facts or circumstances which reasonably could result
in such), including without limitation any such action by any governmental or
regulatory authority, which currently exist or are ongoing, pending or, to the
Best Knowledge of MFC, threatened, contemplated or probable of assertion,
against, relating to or otherwise affecting MFC or MountainBank or any of their
properties, assets or employees which, if determined adversely, could have a
material adverse effect on the ability of MFC or MountainBank to consummate the
Merger.
3.09. OBSTACLES TO REGULATORY APPROVAL. To the Best Knowledge of MFC, no
fact or condition (including without limitation MountainBank's record of
compliance with the Community Reinvestment Act) exists that may reasonably be
expected to prevent or materially impede or delay MFC or CNB from obtaining the
regulatory approvals required in order to consummate the transactions described
in this Agreement; and, if any such fact or condition becomes known to the
executive officers of MFC, MFC promptly (and in any event within three days
after obtaining such Knowledge) shall communicate such fact or condition to the
Chairman, President and Chief Executive Officer of CNB.
3.10. DISCLOSURE. To the Best Knowledge of MFC, no written statement,
certificate, schedule, list or written information furnished by or on behalf of
MFC to CNB in connection with this Agreement, when considered as a whole,
contains or will contain any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements herein or
therein, in light of the circumstances under which they were made, not
misleading.
ARTICLE IV
COVENANTS OF CNB
4.01. AFFIRMATIVE COVENANTS OF CNB. CNB shall take the following actions:
18
(a) CNB Shareholders' Meeting; Recommendation. CNB shall cause a
meeting of its shareholders (the "CNB Shareholders' Meeting") to be duly called
and held as soon as practicable after the date of this Agreement for the purpose
of voting by CNB's shareholders on the approval of the Plan of Merger. In
connection with the call and conduct of, and all other matters relating to, the
CNB Shareholders' Meeting (including the solicitation of appointments of
proxies), CNB will comply in all material respects with all provisions of
applicable law and regulations and with its Articles of Incorporation and
Bylaws.
CNB will solicit appointments of proxies from its shareholders for
use at the CNB Shareholders' Meeting and, in connection with that solicitation,
will distribute to its shareholders proxy solicitation materials (a "Proxy
Statement") in the form of the "Proxy Statement/Prospectus" described in
Paragraph 6.01 below.
Unless, due to a material change in circumstances after the date
hereof, CNB's Board of Directors reasonably believes in good faith, based on the
written opinion of its legal counsel, that such a recommendation would violate
the directors' duties or obligations as such to CNB or to its shareholders, CNB
will cause its directors, individually and collectively as CNB's Board of
Directors, to recommend and actively encourage CNB's shareholders to vote their
shares of CNB Stock at the CNB Shareholders' Meeting in favor of ratification
and approval of the Plan of Merger. The Proxy Statement distributed to CNB's
shareholders in connection with the CNB Shareholders' Meeting will so indicate
and state that CNB's Board of Directors considers the Merger to be advisable and
in the best interests of CNB and its shareholders.
(b) Affiliates Agreements. With respect to shareholders of CNB
whose shares of MFC Common Stock to be received in connection with the Merger
are deemed by MFC to be subject to the transfer restrictions under the
Securities Act of 1933 (the "1933 Act) described in Paragraph 6.10(a) below, CNB
will use its best efforts to cause each such person to execute and deliver to
MFC prior to the Effective Time a written agreement (an "Affiliates Agreement")
relating to those transfer restrictions. Each Affiliates Agreement shall be in
form and content reasonably satisfactory to MFC and substantially in the form
attached as Exhibit B to this Agreement.
(c) Conduct of Business Prior to Effective Time. Although the
parties recognize that the operation of CNB and Community until the Effective
Time is the responsibility of their respective Boards of Directors and officers,
CNB agrees that, between the date of this Agreement and the Effective Time, and
except as otherwise provided herein or expressly agreed to in writing by MFC's
President or Chief Financial Officer, CNB will carry on its business, and will
cause Community to carry on its business, in and only in the regular and usual
course in substantially the same manner as such business heretofore was
conducted, and, to the extent consistent with such business and within its
ability to do so, CNB agrees that it will, and will cause Community to:
(i) preserve intact its present business organization, keep
available its present officers and employees, and preserve its relationships
with customers, depositors, creditors, correspondents, suppliers, and others
having business relationships with it;
(ii) maintain all of its properties and equipment in customary
repair, order and condition, ordinary wear and tear excepted;
(iii) maintain its books of account and records in the usual,
regular and ordinary manner in accordance with sound business practices applied
on a consistent basis;
(iv) comply in all material respects with all laws, rules and
regulations applicable to it, to its properties, assets or employees, and to the
conduct of its business;
19
(v) not change its existing Loan underwriting guidelines,
policies or procedures in any material respect except as may be required by law;
(vi) continue to maintain in force the Policies described in
Paragraph 2.26; and not cancel, terminate, fail to renew, or modify any Policy,
or allow any Policy to be cancelled or terminated, unless the cancelled or
terminated Policy is replaced with a bond or policy providing coverage, or
unless the Policy as modified provides coverage, that is substantially
equivalent to the Policy that is replaced or modified; and,
(vii) promptly provide to MFC such information about its
financial condition, results of operations, prospects, businesses, assets, Loan
portfolio, investments, properties, employees or operations, as MFC reasonably
shall request.
(d) Periodic Financial and Other Information. Upon the request of
MFC following the date of this Agreement and from time to time at reasonable
intervals until the Effective Time, CNB promptly will deliver the following
information to MFC in writing within five business days following each such
request by MFC:
(i) a copy of CNB's and Community's most recent consolidated
income statement and a consolidated statement of condition available;
(ii) a copy of CNB's and Community's interim consolidated
financial statements then available;
(iii) a copy of each report, registration, statement, or other
communication or regulatory filing made by CNB or Community with or to any
Regulatory Authority and not previously furnished to MFC;
(iv) an analysis of the Loan Loss Reserve and management's
assessment of the adequacy of the Loan Loss Reserve, which analysis and
assessment shall include a list of all classified or "watch list" Loans, along
with the outstanding balance and amount specifically allocated to the Loan Loss
Reserve for each such classified or "watch list" Loan; and,
(v) with respect to Community's Loans or any commitment to
make, issue or extend any Loan, a copy of each month's directors report,
simultaneously with the distribution thereof to members of Community's board of
directors,
(vi) the following additional information:
(A) a listing of each new Loan in excess of $25,000 in
principal balance made since the same information was
last provided;
(B) a listing of each renewal, extension or modification of
the terms of a Loan in excess of $25,000 in principal
balance effected since the same information was last
provided;
(C) a listing of each commitment to extend credit in excess
of $25,000 in principal balance issued since the same
information was last provided; and
(D) a then current listing of all documentation or compliance
exceptions relating to Community's Loans.
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(e) Notice of Certain Changes or Events. Following the execution of
this Agreement and up to the Effective Time, CNB promptly will notify MFC in
writing of and provide to it such further information as it shall request
regarding (i) any material adverse change in CNB's or Community's respective
financial condition, results of operations, prospects, business, assets, Loan
portfolio, investments, properties or operations, or of the actual or
prospective occurrence of any condition or event which, with the lapse of time
or otherwise, may or could cause, create or result in any such material adverse
change, or of (ii) the actual or prospective existence or occurrence of any
condition or event which, with the lapse of time or otherwise, has caused or may
or could cause any statement, representation or warranty of CNB herein to be or
become inaccurate, misleading or incomplete in any material respect, or which
has resulted or may or could cause, create or result in the breach or violation
in any material respect of any of CNB's covenants or agreements contained herein
or in the failure of any of the conditions described in Paragraphs 7.01 or 7.03.
(f) Accruals for Loan Loss Reserve, Expenses and Other Accounting
Matters. CNB will make, or will cause Community to make, such appropriate
accounting entries in its books and records and take such other actions as MFC,
in its sole discretion, deems to be required by GAAP, or which MFC otherwise
deems to be necessary, appropriate or desirable in anticipation of the Merger,
including without limitation additional provisions to Community's Loan Loss
Reserve or accruals or the creation of reserves for employee benefit and
Merger-related expenses; provided, however, that notwithstanding any provision
of this Agreement to the contrary, and except as otherwise agreed to by CNB and
MFC, CNB shall not be required to make any such accounting entries until
immediately prior to the Closing.
(g) Loan Charge-Offs. CNB will make, or will cause Community to
make, such appropriate accounting entries in its books and records and take such
other actions as MFC deems to be necessary, appropriate or desirable to
charge-off any Loans on Community's books, or any portions thereof, that MFC, in
its sole discretion, considers to be losses or that MFC otherwise believes, in
good faith, are required to be charged off pursuant to applicable banking
regulations, GAAP or otherwise, or that otherwise would be charged off by MFC
after the Effective Time in accordance with its Loan administration and
charge-off policies and procedures; provided, however, that notwithstanding any
provision of this Agreement to the contrary, and except as otherwise agreed to
by CNB and MFC, CNB shall not be required to make any such accounting entries or
take any such actions until immediately prior to the Closing.
(h) Credit Files and Documentation. Prior to the Effective Time,
CNB will cause Community to adopt and implement policies and procedures, or
amend its existing policies and procedures, as specified by MFC for the
creation, content and maintenance of credit files. CNB will cause Community to
review each existing credit file relating to an outstanding Loan on its book
having a principal balance of $50,000 or more and will take all such actions as
are necessary or that MFC specifies to conform the content and format of those
credit files, and to cause those credit files to contain all items of
information and documentation required by, MountainBank's policies and
procedures; and CNB will cause Community to use its best efforts in good faith
to take those same actions with respect to its other credit files.
(i) Correction of Credit Documentation and Compliance Deficiencies.
If, during the course of its continuing review of Community's credit files after
the date of this Agreement, MFC notifies CNB of situations or circumstances
relating to specific Loans or credit files that MFC has identified and that MFC,
in its discretion, considers to be deficiencies in Loan documentation or to
constitute violations of applicable banking rules or regulations relating to
Loans, CNB will cause Community to promptly take all such actions as are
necessary or that MFC specifies in order to correct those deficiencies or
violations, and each of those deficiencies or violations shall be corrected to
MFC's reasonable satisfaction prior to the Effective Time.
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(j) Consents to Assignment of Contracts and Leases. With respect to
each contract or other agreement, including without limitation each lease or
rental agreement pertaining to real or personal property, to which CNB or
Community is a party and which MFC reasonably believes requires the consent of
any other contracting party in connection with an actual or deemed assignment or
transfer of CNB's or Community's interest or obligation thereunder as a result
of the Merger, CNB will use its reasonable best efforts to obtain the written
consent of that other party to the assignment to MFC of CNB's or Community's
rights and obligations under the agreement, each of which consents shall be in a
form reasonably satisfactory to MFC.
(k) Access. CNB agrees that, following the date of this Agreement
and to and including the Effective Time, it will provide MFC and its employees,
accountants, legal counsel, environmental consultants or other consultants or
other representatives and agents access to all its and Community's books,
records, files (including credit files and Loan documentation and records) and
other information (whether maintained electronically or otherwise), to all its
properties and facilities, and to all its employees, accountants, legal counsel,
environmental or other consultants, or other representatives or agents, as MFC
shall, in its sole discretion, consider to be necessary or appropriate for the
purpose of conducting ongoing reviews and investigations of the assets and
business affairs of CNB and Community, preparing for consummation of the Merger
and the consolidation of CNB's operations into those of MFC, determining the
accuracy of CNB's representations and warranties in this Agreement or its
compliance with its covenants in this Agreement, or for any other reason;
provided, however, that any investigation or reviews conducted by or on behalf
of MFC shall be performed in such a manner as will not interfere unreasonably
with CNB's or Community's normal operations or with its relationship with its
customers or employees, and shall be conducted in accordance with procedures
established by the parties.
(l) Pricing of Deposits and Loans. Following the date of this
Agreement, CNB will make, and will cause Community to make, pricing decisions
with respect to Community's deposit accounts and Loans in a manner consistent
with its past practices based on competition and prevailing market rates in its
banking markets.
(m) Further Action; Instruments of Transfer. CNB covenants and
agrees with MFC that it (i) will use its best efforts in good faith to take or
cause to be taken all action required of it under this Agreement as promptly as
practicable so as to permit the consummation of the transactions described
herein at the earliest possible date, (ii) shall perform all acts and execute
and deliver to MFC all documents or instruments required of it herein, or as
otherwise shall be reasonably necessary or useful to or requested by MFC, in
consummating such transactions, and, (iii) will cooperate with MFC in every way
in carrying out, and will pursue diligently the expeditious completion of, such
transactions.
4.02. NEGATIVE COVENANTS OF CNB. Between the date hereof and the
Effective Time, without the prior written consent and authorization of MFC's
President or Chief Financial Officer:
(a) Amendments to Articles of Incorporation or Bylaws. Neither CNB
nor Community will amend its Articles of Incorporation or Bylaws.
(b) Change in Capitalization. Neither CNB nor Community will make
any change in its authorized capital stock, create any other or additional
authorized capital stock or other securities, or reclassify, combine or split
any shares of its capital stock or other securities.
(c) Sale or Issuance of Shares. Neither CNB nor Community will sell
or issue any additional shares of capital stock or other securities, including
any securities convertible into capital stock, or enter into any agreement or
understanding with respect to any such action. However, notwithstanding anything
contained herein to the contrary, CNB may issue and sell shares of CNB Stock to
a director, officer of employee of CNB or Community upon that person's exercise
of a stock option under CNB's Stock Option Plan (a "CNB Option") that was
granted prior to, and remains outstanding and in effect on, the date of this
Agreement, provided that the CNB Option is exercisable in accordance with its
terms at the
22
time of such exercise and that the sale of CNB Stock upon such exercise is in
accordance with the terms and conditions of that CNB Option and the Stock Option
Plan as in effect on the date of this Agreement.
(d) Purchase or Redemption of Shares. Neither CNB nor Community
will purchase, redeem, retire or otherwise acquire any shares of its capital
stock.
(e) Options, Warrants and Rights. Neither CNB nor Community will
grant or issue any options, warrants, calls, puts or other rights of any kind
relating to the purchase, redemption or conversion of shares of its capital
stock or any other securities (including securities convertible into capital
stock) or enter into any agreement or understanding with respect to any such
action.
(f) Dividends. CNB will not declare or pay any dividends on its
outstanding shares of capital stock or make any other distributions on or in
respect of any shares of its capital stock or otherwise to its shareholders.
(g) Employment, Benefit or Retirement Agreements or Plans. Except
as required by law, neither CNB nor Community will (i) enter into or become
bound by any oral or written contract, agreement or commitment for the
employment or compensation of any director, officer, employee or consultant
which is not immediately terminable by it without cost or other liability on no
more than 30 days' notice; (ii) adopt, enter into or become bound by any new or
additional profit-sharing, bonus, incentive, change in control or "golden
parachute," stock option, stock purchase, pension, retirement, insurance
(hospitalization, life or other), paid leave (sick leave, vacation leave or
other) or similar contract, agreement, commitment, understanding, plan or
arrangement (whether formal or informal) with respect to or which provides for
benefits for any of its current or former directors, officers, employees or
consultants; or (iii) enter into or become bound by any contract with or
commitment to any labor or trade union or association or any collective
bargaining group.
(h) Increase in Compensation; Bonuses. Neither CNB nor Community
will increase the compensation or benefits of, or pay any bonus or other special
or additional compensation to, any of its current or former directors, officers,
employees or consultants. However, notwithstanding anything contained herein to
the contrary, prior to the Effective Time CNB and Community may review and make
routine increases in the salaries of their employees; provided that the times
and amounts of those increases are consistent with CNB's and Community's past
practices and their salary administration and review policies and procedures in
effect on December 31, 2001.
(i) Accounting Practices. Neither CNB nor Community will make any
changes in its accounting methods, practices or procedures or in depreciation or
amortization policies, schedules or rates heretofore applied (except as required
by GAAP or governmental regulations).
(j) Acquisitions; Additional Branch Offices. Neither CNB nor
Community will directly or indirectly (i) acquire or merge with, or acquire any
branch or all or any significant part of the assets of, any other person or
entity, (ii) open any new branch office, or (iii) enter into or become bound by
any contract, agreement, commitment or letter of intent relating to, or
otherwise take or agree to take any action in furtherance of, any such
transaction or the opening of a new branch office.
(k) Changes in Business Practices. Except as may be required by the
Virginia Bureau, the OCC, the FDIC, the FRB, or any other Regulatory Authority,
or as shall be required by applicable law, regulation or this Agreement, neither
CNB nor Community will (i) change in any material respect the nature of its
business or the manner in which it conducts its business, (ii) discontinue any
material portion or line of its business, or (iii) change in any material
respect its lending, investment, asset-liability management or other material
banking or business policies.
(l) Exclusive Merger Agreement. Unless, due to a material change in
circumstances after the date hereof, CNB's Board of Directors reasonably
believes in good faith, based on
23
the written opinion of its legal counsel, that any such action or inaction would
violate the directors' duties or obligations as such to CNB or to its
shareholders, CNB will not, directly, or indirectly through any person, (i)
encourage, solicit or attempt to initiate or procure discussions, negotiations
or offers with or from any person or entity (other than MFC) relating to a
merger or other acquisition of CNB or Community or the purchase or acquisition
of any CNB Stock, any branch office of Community or all or any significant part
of CNB's or Community's assets, or provide assistance to any person in
connection with any such offer; (ii) except to the extent required by law,
disclose to any person or entity any information not customarily disclosed to
the public concerning CNB, Community or their business, or afford to any other
person or entity access to either of their respective properties, facilities,
books or records; (iii) sell or transfer any branch office of Community or all
or any significant part of CNB's or Community's assets to any other person or
entity; or (iv) enter into or become bound by any contract, agreement,
commitment or letter of intent relating to, or otherwise take or agree to take
any action in furtherance of, any such transaction.
(m) Acquisition or Disposition of Assets. Neither CNB nor Community
will:
(i) Sell or lease (as lessor), or enter into or become bound
by any contract, agreement, option or commitment relating to the sale, lease (as
lessor) or other disposition of, any real property in any amount;
(ii) Sell or lease (as lessor), or enter into or become bound
by any contract, agreement, option or commitment relating to the sale, lease (as
lessor) or other disposition of, any equipment or any other fixed or capital
asset (other than real property) having a book value or a fair market value,
whichever is greater, in an amount which, in the case any individual item or
asset or in the aggregate for all such items or assets, is more than is
customarily dealt with in the ordinary course of their respective businesses;
(iii) Purchase or lease (as lessee), or enter into or become
bound by any contract, agreement, option or commitment relating to the purchase,
lease (as lessee) or other acquisition of, any real property in any amount;
(iv) Purchase or lease (as lessee), or enter into or become
bound by any contract, agreement, option or commitment relating to the purchase,
lease (as lessee) or other acquisition of, any equipment or any other fixed
asset (other than real property) having a purchase price, or involving aggregate
lease payments, in excess of an amount which, in the case any individual item or
asset or in the aggregate for all such items or assets, is more than is
customarily dealt with in the ordinary course of their respective businesses;
(v) Enter into any purchase or other commitment or contract
for supplies or services other than in the usual and ordinary course of its
business consistent with past practices;
(vi) Except in the ordinary course of its business consistent
with its past practices, sell, purchase or repurchase, or enter into or become
bound by any contract, agreement, option or commitment to sell, purchase or
repurchase, any Loan or other receivable or any participation in any Loan or
other receivable; or
(vii) Sell or dispose of, or enter into or become bound by any
contract, agreement, option or commitment relating to the sale or other
disposition of, any other asset (whether tangible or intangible, and including
without limitation any trade name, trademark, copyright, service ▇▇▇▇ or
intellectual property right or license); or assign its right to or otherwise
give any other person its permission or consent to use or do business under the
corporate name of CNB or Community or any name
24
similar thereto; or release, transfer or waive any license or right granted to
it by any other person to use any trademark, trade name, copyright, service ▇▇▇▇
or intellectual property right.
(n) Debt; Liabilities. Neither CNB nor Community will (i) enter
into or become bound by any promissory note, Loan agreement or other agreement
or arrangement pertaining to its borrowing of money, (ii) assume, guarantee,
endorse or otherwise become responsible or liable for any obligation of any
other person or entity, or (iii) except in the ordinary course of its business
consistent with its past practices, incur any other liability or obligation
(absolute or contingent).
(o) Liens; Encumbrances. Neither CNB nor Community will mortgage,
pledge or subject any of its assets to, or permit any of its assets to become
or, except for those liens or encumbrances Previously Disclosed to MFC, remain
subject to, any lien or any other encumbrance (other than in the ordinary course
of business consistent with its past practices in connection with securing
public funds deposits or repurchase agreements).
(p) Waiver of Rights. Neither CNB nor Community will waive, release
or compromise any rights in its favor against or with respect to any of its
current or former officers, directors, shareholders, employees, consultants, or
members of families of current or former officers, directors, shareholders,
employees or consultants, nor will either of them waive, release or compromise
any material rights against or with respect to any other person or entity except
in the ordinary course of business and in good faith for fair value in money or
money's worth.
(q) Other Contracts. Neither CNB nor Community will enter into or
become bound by any contracts, agreements, commitments or understandings (other
than those permitted elsewhere in this Paragraph 4.02) (i) for or with respect
to any charitable contributions; (ii) with any governmental or regulatory agency
or authority; (iii) pursuant to which it would assume, guarantee, endorse or
otherwise become liable for the debt, liability or obligation of any other
person or entity; (iv) which is entered into other than in the ordinary course
of its business.s; or (v) which, in the case of any one contract, agreement,
commitment or understanding, would obligate or commit it to make expenditures
over any period of time in an amount which is more than the amount of contracts,
agreements, commitments or understandings entered into in the ordinary course of
its operations and otherwise permitted by this Agreement.
(r) Deposit Liabilities. Community will not make any material
change in its current deposit policies and procedures or take any actions
designed to materially increase or decrease the aggregate level of its deposits
as of the date of this Agreement.
(s) Loans, Extensions of Credit and Loan Commitments. Without prior
approval of lending personnel designated by MFC, CNB will not allow Community to
(i) make a Loan, or commit to make, issue or extend a Loan, in excess of that
amount typically dealt with in the normal course of Community's business, or
(ii) renew, extend or modify the terms of, or issue any commitment to renew,
extend or modify the terms of, any existing Loan to a borrower to whom it has a
credit exposure in excess of that amount typically dealt with in the normal
course of Community's business.
25
ARTICLE V
COVENANTS OF MFC
MFC hereby covenants and agrees as follows with CNB:
5.01. REGISTRATION STATEMENT. As soon as practicable following the date
of this Agreement, MFC will prepare and file with the Securities and Exchange
Commission (the "SEC") under the 1933 Act a registration statement on Form S-4
or other appropriate form (the "MFC Registration Statement") which covers MFC's
offer of MFC Common Stock to CNB's shareholders in exchange for their shares of
CNB Stock as described in this Agreement. The "Prospectus" contained in the MFC
Registration Statement will be in the form of the "Proxy Statement/Prospectus"
described in Paragraph 6.01 below. Following the filing of the MFC Registration
Statement, MFC will respond to comments of the SEC with respect thereto, file
any necessary amendments thereto, and take all such other actions as reasonably
shall be necessary, to cause the MFC Registration Statement to be declared
effective by the SEC; provided, however, that MFC shall not be required to file
any such amendment, or take any such other action, which it shall, in good
faith, reasonably consider to be excessively burdensome or to involve excessive
expense in relation to the benefits expected to be derived by it from the
Merger, or which it, in good faith, reasonably believes would have a material
adverse affect on its business.
5.02. "BLUE SKY" APPROVALS. As soon as practicable following the date of
this Agreement, MFC will take all actions, if any, required by applicable state
securities or "blue sky" laws (i) to cause the MFC Common Stock to be, at the
time of the issuance thereof, duly qualified or registered (unless exempt) under
such laws, or to cause all conditions to any exemptions from qualification or
registration thereof under such laws to have been satisfied, and (ii) to obtain
any and all other approvals or consents to the issuance of the MFC Common Stock
that are required under applicable state law.
5.03. EMPLOYEES; EMPLOYEE BENEFITS.
(a) Employment of Community Employees. Employees of Community at
the Effective Time may choose to continue as employees "at will" of Community
after the Effective Time. However, in the case of each such employee who elects
to continue his or her employment with Community following the Effective Time on
that basis (a "Community Employee"), and notwithstanding anything contained in
this Agreement to the contrary, neither Community, CNB nor MFC shall have any
obligation to employ or provide employment to any Community Employee for any
particular term or length of time following the Effective Time, and the ongoing
employment of each Community Employee shall be in such a position, at such
location within Community's branch system, and for such rate of compensation, as
shall be determined in the ordinary course of Community's business following the
Effective Time. The employment of each Community Employee after the Effective
Time will be on an "at-will" basis, and nothing in this Agreement shall be
deemed to constitute an employment agreement between Community and any such
person or to obligate Community or MFC to employ any such person for any
specific period of time, in any specific position, or at any specific salary or
rate of compensation, or to restrict Community's right to terminate the
employment of any such person at any time following the Effective Time and for
any reason satisfactory to it.
(b) Employee Benefits. Except as otherwise provided in this
Agreement, following the Effective Time, each Community Employee shall be
entitled to participate in employee benefit plans provided generally by
Community to its employees from time to time and, with respect to any employee
benefit plan offered by MFC to the employees of MountainBank and for which
Community does not offer a comparable plan, in those plans, all on the same
basis, and subject to the same eligibility and vesting requirements and other
conditions, restrictions and limitations, as generally are in effect and
applicable to other Community Employees or employees of MountainBank, as the
case may be. In the event that, following the Effective Time, any employee
benefit plan or program of MFC is offered to employees of Community, including
any such plan or program offered in the place of a plan or program offered by
Community prior to the Effective Time but which is discontinued after the
Effective Time, then each
26
Community Employee will be given credit for his or her full years of service
with Community prior to the Effective Time for purposes of (i) eligibility for
participation and vesting (in the case of MFC's Section 401(k) savings plan if
that plan is adopted by Community), and (ii) for all purposes under MFC's other
benefit plans that may be offered to Community Employees from time to time.
5.04. FURTHER ACTION; INSTRUMENTS OF TRANSFER. MFC covenants and agrees
with CNB that it (i) will use its best efforts in good faith to take or cause to
be taken all action required of it under this Agreement as promptly as
practicable so as to permit the consummation of the transactions described
herein at the earliest possible date, (ii) shall perform all acts and execute
and deliver to CNB all documents or instruments required of it herein, and (iii)
will cooperate with CNB in every way in carrying out, and will pursue diligently
the expeditious completion of, such transactions.
5.05. NAME FOLLOWING EFFECTIVE TIME. In the event that MFC completes its
proposed acquisition of Cardinal BankShares Corporation, MFC, following the
Effective Time, will not operate any of Community's branch offices under the
name Bank of ▇▇▇▇▇.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.01. PREPARATION AND DISTRIBUTION OF PROXY STATEMENT/PROSPECTUS. CNB and
MFC jointly will prepare a "Proxy Statement/Prospectus" for distribution to
shareholders as CNB's "Proxy Statement" described in Paragraph 4.01(a) above and
as MFC's Prospectus contained in the MFC Registration Statement as described in
Paragraph 5.01 above. The Proxy Statement/Prospectus will be prepared, in all
material respects in such form, and will contain or be accompanied by such
information regarding the CNB Shareholders' Meeting, this Agreement, the parties
hereto, the Merger and other transactions described herein, or otherwise, as is
required by the 1933 Act and rules and regulations of the SEC thereunder to be
included in MFC's Prospectus, and as is required by the 1934 Act and rules and
regulations of the SEC thereunder (including without lmitation Regulation 14A)
to be included in CNB's Proxy Statement, or as otherwise shall be agreed upon by
legal counsel for MFC and CNB.
CNB and MFC will mail the Proxy Statement/Prospectus to CNB's
shareholders on a date mutually agreed upon by CNB and MFC, but in no event less
than 20 days prior to the scheduled date of the CNB Shareholders' Meeting;
provided, however, that no such materials shall be mailed to CNB's shareholders
unless and until the SEC shall have declared the MFC Registration Statement to
be effective and approved CNB's Proxy Statement. The Proxy Statement/Prospectus
mailed to CNB's shareholders shall be in the form of the final Prospectus
contained in the MFC Registration Statement as it is declared effective by the
SEC.
6.02. REGULATORY APPROVALS. CNB and MFC each agrees with the other that,
as soon as practicable following the date of this Agreement, it will prepare and
file, or cause to be prepared and filed, all applications required to be filed
by it under applicable law and regulations for approvals by Regulatory
Authorities of the Merger or other transactions described in this Agreement,
including without limitation any required applications for the approval of the
OCC, the Virginia Bureau and the FRB. CNB and MFC each agrees (i) to use its
best efforts in good faith to obtain all necessary approvals of Regulatory
Authorities required for consummation of the Merger and other transactions
described herein, and (ii) before the filing of any such application required to
be filed, to give each other party an opportunity to review and comment on the
form and content of such application. Should the appearance of any of the
officers, directors, employees or counsel of CNB or MFC be requested by each
other or by any Regulatory Authority at any hearing in connection with any such
application, it will use its best efforts to arrange for such appearance.
6.03. INFORMATION FOR PROXY STATEMENT/PROSPECTUS AND APPLICATIONS FOR
REGULATORY APPROVALS. CNB and MFC each covenants with the other that (i) it will
cooperate with the other in the preparation of the Proxy Statement/Prospectus
and applications for required approvals of Regulatory
27
Authorities, and it will promptly respond to requests by the other and its legal
counsel for information, and will provide all information, documents, financial
statements or other material, that is required for, or that may be reasonably
requested by any other party for inclusion in, any such document; (ii) none of
the information provided by it for inclusion in any of such documents will
contain any untrue statement of a material fact, or omit any material fact
required to be stated therein or necessary in order to make the statements
contained therein, in light of the circumstances under which they were made, not
misleading, at and as of the time (A) MFC's Registration Statement is filed with
and/or declared effective by the SEC, (B) CNB's Proxy Statement is filed with
and/or approved by the SEC, (C) the Proxy Statement/Prospectus is mailed to
CNB's shareholders, or (D) the applications for required approvals of Regulatory
Authorities are filed and/or such approvals are granted.
6.04. ANNOUNCEMENTS; CONFIDENTIAL INFORMATION.
(a) CNB and MFC each agrees that no persons other than the parties
to this Agreement are authorized to make any public announcements or statements
about this Agreement or any of the transactions described herein, and that,
without the prior review and consent of the other parties (which consent shall
not unreasonably be denied or delayed), it will not make any public
announcement, statement or disclosure as to the terms and conditions of this
Agreement or the transactions described herein, except for such disclosures as
may be required incidental to obtaining the required approval of any Regulatory
Authority to the consummation of the transactions described herein.
(b) For purposes of this Paragraph 6.04, "Confidential Information"
refers to any information (including business and financial information) that a
party to whom the information pertains (an "Informing Party") provides or makes
available, in connection with this Agreement, to a party for whose benefit the
information is provided, or to that party's affiliates, directors, officers,
employees, attorneys, advisors, consultants, representatives and agents (a
"Receiving Party"), or which a Receiving Party may otherwise obtain from any
examination of an Informing Party's documents, books, records, files or other
written materials or from any discussions with any of the Informing Party's
directors, officers, employees, attorneys, advisors, consultants,
representatives and agents, and shall be deemed to include, without limitation,
(i) all such documents, books, records, files or other written materials
themselves and all information contained therein (whether maintained in writing,
electronically, on microfiche or otherwise), (ii) all corporate minutes,
financial projections and budgets, historical and projected sales reports,
acquisition or other expansion analyses or plans, pro forma financial data,
capital spending budgets and plans, market studies and business plans, (iii) all
information relative to financial results and condition, operations, policies
and procedures, computer systems and software, shareholders, employees,
officers, and directors, and (iv) all information relative to customers and
former or prospective customers.
(c) Prior to the Effective Time, all Confidential Information of an
Informing Party is proprietary to the Informing Party and constitutes either
trade secrets or confidential information of the Informing Party. Without the
Informing Party's express written consent, the Receiving Party shall not remove
any Confidential Information of the Informing Party in written or other recorded
form from the Informing Party's premises.
(d) Prior to the Effective Time, all Confidential Information of an
Informing Party is to be held in strict confidence by a Receiving Party and,
except as otherwise provided herein, may not be disclosed by a Receiving Party
to any person or entity not a party to this Confidentiality Agreement, unless
the Receiving Party:
(i) can demonstrate that the same information as the
Confidential Information to be disclosed already was in
its possession prior to such Confidential Information
being obtained;
(ii) can demonstrate that the same information as the
Confidential Information to be disclosed is already
publicly available or, at that time,
28
has become publicly available through no fault of, or
violation of this Confidentiality Agreement by, the
Receiving Party or any other person that the Receiving
Party knows, or has reason to know, is obligated to
protect such Confidential Information; or
(iii) demonstrates that the same information as the
Confidential Information to be disclosed was developed
independently by or for the Receiving Party, without the
use of the Confidential Information disclosed to or
obtained by the Receiving Party.
(e) Prior to the Effective Time, the Receiving Party (i) may
disclose Confidential Information of the Informing Party to the Receiving
Party's affiliates, directors, officers, employees, agents, attorneys, advisors
and consultants who are directly involved in discussions of a potential
transaction, only on a need to know basis and only if such persons or entities
are provided a copy of, and agree in writing for the benefit of the other party
to be bound by, the restrictions and obligations of this Confidentiality
Agreement; and (ii) will enforce its obligations under this Confidentiality
Agreement against all persons to whom it discloses Confidential Information and
shall be responsible and liable to the Informing Party for any disclosure of
Confidential Information by such persons or entities in violation of such
restrictions and obligations.
(f) Upon termination of this Agreement the Receiving Party will
deliver or cause to be delivered to the Informing Party all written Confidential
Information of the Informing Party in the possession of the Receiving Party, or
provide an officer's affidavit as to the destruction of all copies of such
Confidential Information.
(g) Prior to the Effective Time, the Receiving Party shall not use
any Confidential Information of the Informing Party in an unlawful manner, or to
interfere with or attempt to terminate or otherwise adversely affect any actual
or proposed contractual or business relationship of the Informing Party.
(h) Notwithstanding anything contained in this Paragraph 6.04 to
the contrary, neither CNB nor MFC shall be required to obtain the prior consent
of the other parties for any such disclosure which it, in good faith and upon
the advice of its legal counsel, believes is required by law; provided, however,
that before any such disclosure may be made by a Receiving Party upon the advice
of its legal counsel, it shall, except where such notice is prohibited by law,
give the Informing Party reasonable notice of its intent to make such
disclosure, the form of content of that disclosure, and the basis upon which its
legal counsel has advised it that such disclosure is required by law, so that
the Informing Party may seek a protective order or other similar or appropriate
relief, and the Receiving Party also shall undertake in good faith to have the
Confidential Information to be disclosed treated confidentially by the party to
whom the disclosure is made.
6.05. REAL PROPERTY MATTERS. At its option and expense, MFC may cause to
be conducted (i) a title examination, physical survey, zoning compliance review,
and structural inspection of the Real Property and improvements thereon
(collectively, the "Property Examination") and (ii) site inspections, historic
reviews, regulatory analyses, and environmental assessments of the Real
Property, together with such other studies, testing and intrusive sampling and
analyses as MFC shall deem necessary or desirable (collectively, the
"Environmental Survey").
If, in the course of the Property Examination or Environmental
Survey, MFC discovers a "Material Defect" (as defined below) with respect to the
Real Property, MFC will give prompt written notice thereof to CNB describing the
facts or conditions constituting the Material Defect, and MFC shall have the
option exercisable upon written notice to CNB to (i) waive the Material Defect,
or (ii) unless CNB is able to, and actually does, cure the Material Defect to
MFC's reasonable satisfaction within a reasonable period of time following such
notice and without making payments or incurring costs and expenses in excess of
an aggregate of $50,000 for all Material Defects related to all Real Property,
terminate this Agreement.
29
For purposes of this Agreement, a "Material Defect" shall include:
(a) the existence of any lien (other than the lien of real
property taxes not yet due and payable), encumbrance, zoning restriction,
easement, covenant or other restriction, title imperfection or title
irregularity, or the existence of any facts or conditions that constitute a
breach of CNB's representations and warranties contained in Paragraph 2.16 or
2.21, in either such case that MFC reasonably believes will adversely affect its
use of any parcel of the Real Property for the purpose for which it currently is
used or the value or marketability of any parcel of the Real Property, or as to
which MFC otherwise objects; or
(b) the existence of any structural defects or conditions of
disrepair in the improvements on the Real Property (including any equipment,
fixtures or other components related thereto) that MFC reasonably believes would
cost an aggregate of $50,000 or more to repair, remove or correct as to all such
Real Property;
(c) the existence of facts or circumstances relating to any of
the Real Property reflecting that (i) there likely has been a discharge,
disposal, release, threatened release, or emission by any person of any
Hazardous Substance on, from, under, at, or relating to the Real Property, or
(ii) any action has been taken or not taken, or a condition or event likely has
occurred or exists, with respect to the Real Property which constitutes or would
constitute a violation of any Environmental Laws or any contract or other
agreement between CNB or Community and any other person or entity, as to which,
in either such case, MFC reasonably believes, based on the advice of legal
counsel or other consultants, that CNB or Community could become responsible or
liable, or that MFC could become responsible or liable, following the Effective
Time, for assessment, removal, remediation, monetary damages, or civil, criminal
or administrative penalties or other corrective action and in connection with
which the amount of expense or liability which CNB or Community could incur, or
for which MFC could become responsible or liable, following consummation of the
Merger at any time or over any period of time, could equal or exceed an
aggregate of $50,000 or more as to all such Real Property.
It is contemplated that MFC will conduct the Property Examination
and the Environmental Survey following the date of this Agreement and prior to
the Effective Time. It is the intent of this Agreement, and CNB understands and
agrees, that, upon completion of the Property Examination and Environmental
Survey, any of the above facts, conditions, circumstances or other matters may
be deemed by MFC to constitute a "Material Defect," with the result that
(subject to CNB's above right to cure) MFC may exercise its right to terminate
this Agreement, without regard to any knowledge on the part of MFC or its
officers or advisors of that Material Defect or the facts, conditions,
circumstances or other matters pertaining thereto on the date of this Agreement
and without regard to the fact that any such Material Defect or the facts,
conditions, circumstances or other matters relating thereto have been disclosed
by CNB to MFC, or any of its officers or advisors prior to the date of this
Agreement (whether pursuant to Paragraph 10.13 below or otherwise).
6.06. TREATMENT OF 401(k) PLAN. As of the Effective Time, CNB's 401(k)
Plan will be merged into MFC's 401(k) plan, subject to review of the same by MFC
prior to the Effective Time. If MFC reasonably determines that such a plan
merger would create a risk of disqualification of MFC's plan, or if MFC
reasonably determines that such a plan merger is not advisable for any other
reason, then CNB's plan will be terminated, effective as of the Effective Time,
and its assets distributed in accordance with applicable law.
In the case of either a plan merger or the termination of CNB's
plan, prior to the Effective Time CNB shall take or cause to be taken such
actions as MFC shall reasonably consider to be necessary or desirable in
connection with or to effect or facilitate such plan merger or termination.
6.07. DIRECTORS' AND OFFICERS' LIABILITY INSURANCE. CNB and MFC agree
that, to the extent the same can be purchased at a reasonable cost (to be
determined in MFC's discretion), then immediately prior to the Effective Time
CNB shall purchase "tail" coverage, effective at the Effective Time and for the
maximum term available, under and in the same amount of coverage as is provided
by its then current directors' and officers' liability insurance policy.
30
6.08. TAX OPINION. CNB and MFC each agrees to use its best efforts to
cause the Merger, and the conversion of outstanding shares of CNB Stock into
shares of MFC Common Stock, on the terms contained in this Agreement, to be
treated as a tax-free reorganization within the meaning of Section 368(a) of the
Internal Revenue Code and to obtain the written opinion of a firm of independent
certified public accountants, or a law firm, which shall in either case be
mutually satisfactory to them (the "Tax Opinion"), addressed jointly to the
Boards of Directors of CNB and MFC, to the foregoing effect.
6.09. FINAL TAX RETURN. CNB and MFC each agrees that MFC will make all
necessary arrangements for CNB's and MFC's independent accountants, ▇▇▇▇▇▇▇ &
Company PLLC, to prepare, and MFC will cause to be filed, CNB's final federal
and state income tax returns for the year in which the Effective Time occurs.
6.10. RESTRICTIONS ON MFC STOCK ISSUED TO CERTAIN PERSONS.
(a) Affiliates of CNB. The transfer restrictions provided for in
Subsection (d) of the SEC's Rule 145 will apply to shares of MFC Common Stock
issued in connection with the Merger to persons who are deemed by MFC to be
"underwriters" pursuant to Subsection (c) of that Rule, including without
limitation all persons who are "affiliates" of CNB (as that term is defined in
the SEC's Rule 144(a)) on the date of the CNB Shareholders' Meeting and to those
persons' related parties. Certificates evidencing the shares of MFC Common Stock
issued to those persons and their related parties will bear a restrictive legend
relating to those restrictions substantially in the form set forth in the form
of Affiliates Agreement attached as Exhibit B hereto.
(b) Affiliates of MFC. MFC Common Stock issued in connection with
the Merger to persons who are "affiliates" of MFC (as that term is defined in
the SEC's Rule 144(a)) following the Merger, and to those persons' related
parties, may only be resold or otherwise transferred pursuant to the procedures
described in Rule 144, an effective registration statement filed with and
declared effective by the SEC, or another exemption from registration under the
1933 Act. Certificates evidencing the shares of MFC Common Stock issued to those
persons and their related parties may, at MFC's option, bear a restrictive
legend relating to those restrictions.
6.11. EXPENSES. Subject to the provisions of Paragraph 8.03 below, and
whether or not this Agreement shall be terminated or the Merger shall be
consummated, CNB and MFC each agrees to pay its own legal, accounting and
financial advisory fees and all its other costs and expenses incurred or to be
incurred in connection with the execution and performance of its obligations
under this Agreement, or otherwise in connection with this Agreement and the
transactions described herein (including without limitation all accounting fees,
legal fees, consulting or advisory fees, filing fees, printing and mailing
costs, and travel expenses). For purposes of this Agreement, expenses associated
with the printing and mailing of the Proxy Statement/Prospectus and amounts
payable with respect to the Tax Opinion will be deemed to have been incurred by
CNB and MFC equally. All amounts owed by CNB to ▇▇▇▇▇▇▇▇▇ & Company LLC,
including its consulting fees and fees for rendering the "CNB Fairness Opinion"
described in Paragraph 7.01(e)(i), will be deemed to have been incurred solely
by CNB. All amounts owed by MFC to ▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇▇▇▇, including its
consulting fees and fees for rendering the "MFC Fairness Opinion" described in
Paragraph 7.01(e)(ii), will be deemed to have been incurred solely by MFC.
6.12. DIRECTORS.
(a) MFC's Board of Directors. So long he remains a director of CNB
at the Effective Time, then, within ten business days following the Effective
Time, MFC's Board of Directors will increase its number of members by one, and
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇. will be appointed to serve as a director of MFC for a term
of office extending to the next annual meeting of MFC's shareholders at which
its directors are elected.
(b) Community's Board of Directors. Following the Effective Time,
and unless Community is merged into MountainBank, Community's Board of Directors
will consist of ten members. Eight
31
of these members will be the following members of CNB's and Community's current
Boards of Directors: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇ ▇. ▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇., A. ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇.,
and ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇ (the "Continuing Directors"). In the event any of those
persons are unable or unwilling to continue to serve as a director and it is
deemed necessary to fill the resulting vacancies, substitutes for them approved
by MFC. Immediately prior to the Closing, and as a condition to MFC's obligation
to consummate the Merger, all then current directors of Community other than the
Continuing Directors will submit written resignations from their positions as
directors, effective as of the Effective Time (the "Director Resignations"), and
Community's Board of Directors will accept those Director Resignations. The
resulting vacancies on Community's Board of Directors will be allowed to remain
open pending action by MFC, as Community's sole shareholder, to fill those
vacancies immediately after the Effective Time.
(c) Continuing Service as Directors. Following the Effective Time,
the continued service of ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇. as a director of MFC, and of the
Continuing Directors of Community, at the end of their then current terms, will
be subject, respectively, to MFC's and Community's then current nomination and
election processes.
6.13. CANCELLATION OF CNB OPTIONS. Effective simultaneous with the
Closing, each outstanding CNB Option shall be cancelled by agreement between CNB
and the holder of that CNB Option, and CNB will pay to the holder of that CNB
Option, in cash, an amount (if any) equal to (i) $13.50, minus the exercise
price of that CNB Stock as provided in the written agreement evidencing the CNB
Option, multiplied by (ii) the number of shares covered by the CNB Optiion. CNB
will obtain from each person who holds a CNB Option, and will deliver to MFC at
the Closing, a written agreement (an "Option Cancellation Agreement"), in a form
specified by and reasonably satisfactory to MFC, confirming and agreeing to the
cancellation of that person's CNB Option as described above in consideration of
his or her receipt of the above cash payment.
6.14. PRESIDENT OF COMMUNITY. As of the Effective Time, ▇▇▇▇▇▇ ▇▇▇▇▇ will
continue to serve as President of Community at the pleasure of its Board of
Directors.
6.15. DUE DILIGENCE REVIEWS AND RIGHT TO TERMINATE. During the period
beginning on the date of this Agreement and ending at 5:00 P.M. on July 10, 2002
(the "Due Diligence Period"), either of them may conduct continuing
investigations of the assets and business affairs of the other and may terminate
this agreement without liability or any further obligation to the other if it,
in its sole discretion exercised in good faith, and based on information that
comes to its attention as a result of such continuing investigation, believes
that the Merger is not in the best interests of its shareholders. For purposes
of CNB's continuing investigation of MFC, during the Due Diligence Period MFC
will give CNB access to MFC's and MountainBank's books, records, files and other
information to the same extent and in the same manner, as CNB is required to
give access to MFC through the Effective Time pursuant to Paragraph 4.01(k)
above.
However, before either may may terminate this Agreement pursuant to
this Paragraph 6.15, it shall give written notice to the other in the manner
provided herein stating its intent to terminate and a description of the
specific facts or circumstances underlying the condition upon which it bases its
belief that the Merger is not in the best interests of its shareholders, and
such termination by the party giving the notice of termination shall not become
effective if, within 30 days following the giving of such notice, the other
party shall cure the condition to the reasonable satisfaction of the party
giving the notice or, if such condition is not reasonably susceptible to cure
within 30 days, then following receipt of the written notice the other party
shall have promptly commenced good faith efforts to cure the condition, shall
diligently continue those efforts, and shall actually cure the condition within
a reasonable time thereafter. In the event the other party CNB cannot or does
not cure the condition to the reasonable satisfaction of the party giving the
notice within such notice period (or during the extended period described
above), termination of this Agreement by the party giving the notice thereafter
shall be effective upon its giving of a further written notice of termination to
the other party in the manner provided herein.
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ARTICLE VII
CONDITIONS PRECEDENT TO MERGER
7.01. CONDITIONS TO ALL PARTIES' OBLIGATIONS. Notwithstanding any other
provision of this Agreement to the contrary, the obligations of each of the
parties to this Agreement to consummate the transactions described herein shall
be conditioned upon the satisfaction of each of the following conditions
precedent on or prior to the Closing Date:
(a) Approval by Regulatory Authorities; Disadvantageous Conditions.
(i) The Merger and other transactions described in this Agreement shall have
been approved, to the extent required by law, by the Virginia Bureau, the OCC,
and the FRB, and by all other Regulatory Authorities having jurisdiction over
such transactions; (ii) no Regulatory Authority shall have objected to or
withdrawn its approval of such transactions or imposed any condition on such
transactions or its approval thereof, which condition is reasonably deemed by
MFC to so adversely impact the economic or business benefits of this Agreement
to MFC and MountainBank as to render it inadvisable for it to consummate the
Merger; (iii) the 15-day or 30-day waiting period, as applicable, required
following necessary approvals by the FRB for review of the transactions
described herein by the United States Department of Justice shall have expired,
and, in connection with any such review, no objection to the Merger shall have
been raised; and (iv) all other consents, approvals and permissions, and the
satisfaction of all of the requirements prescribed by law or regulation,
necessary to the carrying out of the transactions contemplated herein shall have
been procured.
(b) Adverse Proceedings, Injunction, Etc. There shall not be (i)
any order, decree or injunction of any court or agency of competent jurisdiction
which enjoins or prohibits the Merger or any of the other transactions described
in this Agreement or either of the parties hereto from consummating any such
transaction, (ii) any pending or threatened investigation of the Merger or any
of such other transactions by the United States Department of Justice, or any
actual or threatened litigation under federal antitrust laws relating to the
Merger or any other such transaction, (iii) any suit, action or proceeding by
any person (including any Regulatory Authority), pending or threatened before
any court or governmental agency in which it is sought to restrain or prohibit
CNB or MFC from consummating the Merger or carrying out any of the terms or
provisions of this Agreement, or (iv) any other suit, claim, action or
proceeding pending or threatened against CNB or MFC or any of their respective
officers or directors which shall reasonably be considered by CNB or MFC to be
materially burdensome in relation to the proposed Merger or materially adverse
in relation to the financial condition, results of operations, prospects,
businesses, assets, Loan portfolio, investments, properties or operations of
either such corporation, and which has not been dismissed, terminated or
resolved to the satisfaction of all parties hereto within 90 days of the
institution or threat thereof.
(c) Approval by Boards of Directors and Shareholders. The Boards of
Directors of CNB and MFC shall have duly approved and adopted this Agreement by
appropriate resolutions, and the shareholders of CNB shall have duly approved
the Plan of Merger at the CNB Shareholders' Meeting, all to the extent required
by and in accordance with the provisions of this Agreement, applicable law, and
applicable provisions of their respective Articles of Incorporation and ByLaws.
(d) FAIRNESS OPINIONS.
(i) CNB shall have received from its financial advisor,
▇▇▇▇▇▇▇▇▇ & Company LLC, a written opinion, dated within five business days
prior to the mailing date for the Proxy Statement/Prospectus, in a form
satisfactory to it (the "CNB Fairness Opinion"), to the effect that the
consideration to be received by CNB's shareholders in the Merger is fair, from a
financial point of view, to CNB and its shareholders.
(ii) MFC shall have received from its financial advisor, ▇▇▇▇▇
& ▇▇▇▇▇▇▇▇▇▇▇▇, a written opinion, in a form satisfactory to it (the "MFC
Fairness Opinion"), to the effect that the terms of the Merger are fair, from a
financial point of view, to MFC and its shareholders; and ▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇▇▇▇
shall have delivered a letter to MFC, dated as of a date within five business
days preceding the Closing Date, to the
33
effect that it remains its opinion that the terms of the Merger are fair, from a
financial point of view, to MFC and its shareholders.
(e) Tax Opinion. CNB and MFC shall have received the Tax Opinion in
form satisfactory to each of them.
(f) No Termination or Abandonment. This Agreement shall not have
been terminated or abandoned by either party hereto.
(g) Articles of Merger; Other Actions. The Articles of Merger
described in Paragraph 1.07 shall have been duly executed by MFC and filed with
the North Carolina Secretary of State and the Virginia State Corporation
Commission as provided in that Paragraph.
7.02. ADDITIONAL CONDITIONS TO CNB'S OBLIGATIONS. Notwithstanding any
other provision of this Agreement to the contrary, CNB's separate obligation to
consummate the transactions described herein shall be conditioned upon the
satisfaction of each of the following conditions precedent on or before the
Closing Date:
(a) Material Adverse Change. There shall not have occurred any
material adverse change in the consolidated financial condition or results of
operations of MFC, and there shall not have occurred any event or development,
and there shall not exist any condition or circumstance which, with the lapse of
time or otherwise, may or could cause, create or result in any such material
adverse change.
(b) Compliance with Laws. MFC shall have complied in all material
respects with all federal and state laws and regulations applicable to the
transactions described in this Agreement where the violation of or failure to
comply with any such law or regulation could or may have a material adverse
effect on MFC's ability to consummate the Merger.
(c) MFC's Representations and Warranties and Performance of
Agreements; Officers' Certificate. Unless waived in writing by CNB as provided
in Paragraph 10.02, each of the representations and warranties of MFC contained
in this Agreement shall have been true and correct in all material respects as
of the date hereof, and they shall remain true and correct on and as of the
Closing Date with the same force and effect as though made on and as of such
date, except (i) for changes which are not, in the aggregate, material and
adverse to MFC's consolidated financial condition or results of operations, or
to MFC's ability to consummate the Merger and other transactions described
herein, and (ii) as otherwise contemplated by this Agreement; and MFC shall have
performed in all material respects all of its obligations, covenants and
agreements hereunder to be performed by it on or before the Closing Date.
CNB shall have received a certificate dated as of the Closing Date
and executed by MFC and its President and Chief Financial Officer to the effect
that the conditions of this subparagraph have been met and as to such other
matters as may be reasonably requested by CNB.
(d) Legal Opinion of MFC's Counsel. CNB shall have received the
written legal opinion of ▇▇▇▇ and ▇▇▇▇▇, P.A., counsel for MFC, dated as of the
Closing Date, covering matters normally covered in such opinions and such other
matters as CNB shall reasonably request and otherwise in form and substance
reasonably satisfactory to CNB.
(e) Other Documents and Information. MFC shall have provided to CNB
correct and complete copies (certified by its Secretary) of resolutions of its
Board of Directors and shareholders pertaining to approval of this Agreement and
the Merger and other transactions contemplated herein, together with a
certificate of the incumbency of MFC's officers who executed this Agreement or
any other documents delivered to CNB in connection with the Closing.
(f) Acceptance by CNB's Counsel. The form and substance of all
legal matters described in this Agreement or related to the transactions
contemplated herein shall be reasonably acceptable to CNB's legal counsel.
34
7.03. ADDITIONAL CONDITIONS TO MFC'S OBLIGATIONS. Notwithstanding any
other provision of this Agreement to the contrary, MFC's separate obligation to
consummate the transactions described herein shall be conditioned upon the
satisfaction of each of the following conditions precedent on or before the
Closing Date:
(a) Material Adverse Change. There shall not have occurred any
material adverse change in the financial condition, results of operations,
prospects, businesses, assets, Loan portfolio, investments, properties or
operations of CNB or Community, and there shall not have occurred any event or
development, and there shall not exist any condition or circumstance which, with
the lapse of time or otherwise, may or could cause, create or result in any such
material adverse change.
(b) Compliance with Laws. CNB and Community shall have complied in
all material respects with all federal and state laws and regulations applicable
to the transactions described in this Agreement and where the violation of or
failure to comply with any such law or regulation could or may have a material
adverse effect on the financial condition, results of operations, prospects,
businesses, assets, Loan portfolio, investments, properties or operations of CNB
or Community, or of MFC after the Effective Time, or on CNB's ability to
consummate the Merger.
(c) CNB's Representations and Warranties and Performance of
Agreements; Officers' Certificate. Unless waived in writing by MFC as provided
in Paragraph 10.02, each of the representations and warranties of CNB contained
in this Agreement shall have been true and correct in all material respects as
of the date hereof, and they shall remain true and correct at and as of the
Closing Date with the same force and effect as though made on and as of such
date, except (i) for changes which are not, in the aggregate, material and
adverse to the financial condition, results of operations, prospects,
businesses, assets, Loan portfolio, investments, properties or operations of CNB
or Community or to CNB's ability to consummate the Merger and other transactions
described herein, and (ii) as otherwise contemplated by this Agreement; and CNB
shall have performed in all material respects all its obligations, covenants and
agreements hereunder to be performed by it on or before the Closing Date.
MFC shall have received a certificate dated as of the Closing Date
and executed by CNB and its Chairman, President and Chief Executive Officer and
its Chief Financial Officer to the effect that the conditions of this
subparagraph have been met and as to such other matters as may be reasonably
requested by MFC.
(d) Affiliates Agreements. CNB shall have delivered to MFC an
Affiliates Agreement described in Paragraph 4.01(b), in form and content
reasonably satisfactory to MFC and substantially in the form attached as Exhibit
B to this Agreement, and signed by each person who is deemed by MFC or its
counsel to be subject to the transfer restrictions described in Paragraph
6.10(a).
(e) Legal Opinion of CNB's Counsel. MFC shall have received the
written legal opinion of ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ & ▇▇▇▇▇, counsel to CNB, dated as of
the Closing Date, covering matters normally covered in such opinions and such
other matters as MFC shall reasonably request and otherwise in form and
substance reasonably satisfactory to MFC.
(f) Other Documents and Information. CNB shall have provided to MFC
correct and complete copies (all certified by CNB's Secretary) of CNB's Articles
of Incorporation and Bylaws, and resolutions of its Board of Directors and
shareholders pertaining to approval of this Agreement and the Merger and other
transactions contemplated herein, together with a certificate as to the
incumbency of CNB's officers who executed this Agreement or any other documents
delivered to MFC in connection with the Closing.
(g) Merger Expenses. Expenses incurred by CNB in connection with
this Agreement and the Merger (including without limitation the entire amount of
fees payable to ▇▇▇▇▇▇▇▇▇ & Company LLC for the CNB Fairness Opinion and its
financial consulting services, and fees payable to CNB's accountants and
attorneys) shall not exceed an aggregate of $350,000.
35
(h) Director Resignations. Community shall have received and
delivered to MFC a Director Resignation from each then current member of
Community's Board of Directors, other than the Continuing Directors, those
resignations shall have been accepted by Community's Board of Directors, and the
resulting vacancies shall not have been filled.
(i) Option Cancellation Agreements. An Option Cancellation
Agreement, as described in Paragraph 6.13 and in a form specified by and
reasonably satisfactory to MFC, shall have been executed and delivered by and
between CNB and each person who held a CNB Option at any time prior to the
Effective Time, and CNB shall have delivered a copy of each such Option
Cancellation Agreement to MFC.
(j) Consents to Assignments. CNB shall have obtained and delivered
to MFC the consents to assignments of contracts and leases requested by MFC
pursuant to Paragraph 4.01(i) above.
(k) Acceptance by MFC's Counsel. The form and substance of all
legal matters described in this Agreement or related to the transactions
contemplated herein shall be reasonably acceptable to MFC's legal counsel.
ARTICLE VIII
TERMINATION; BREACH; REMEDIES
8.01. MUTUAL TERMINATION. At any time prior to the Effective Time (and
whether before or after approval hereof by the shareholders of CNB and MFC),
this Agreement may be terminated by the mutual agreement of CNB and MFC. Upon
any such mutual termination, all obligations of CNB and MFC hereunder shall
terminate and each party shall pay its own costs and expenses as provided in
Paragraph 6.11.
8.02. UNILATERAL TERMINATION. Prior to the Effective Time, this Agreement
may be terminated by either MFC or CNB (whether before or after approval hereof
by CNB's shareholders) upon written notice to the other parties in the manner
provided herein and under the circumstances described below.
(a) Termination by MFC. This Agreement may be terminated by MFC by
action of its Board of Directors or Executive Committee:
(i) if any of the conditions to MFC's obligations set forth
in Paragraph 7.01 or 7.03 above shall not have been satisfied in all material
respects or effectively waived in writing by MFC by December 31, 2002 (except to
the extent the failure of such condition to be satisfied has been caused by the
failure of MFC to satisfy any of its obligations, covenants or agreements
contained herein);
(ii) if CNB shall have violated or failed to fully perform
any of its obligations, covenants or agreements contained in Article IV or VI
herein in any material respect;
(iii) if MFC determines at any time that any of CNB's
representations or warranties contained in Article II above or in any other
certificate or writing delivered pursuant to this Agreement shall have been
false or misleading in any material respect when made or would have been false
or misleading in any material respect except for the fact that the
representation or warranty was limited to or qualified based on the Best
Knowledge of CNB, or that there has occurred any event or development or that
there exists any condition or circumstance which has caused or, with the lapse
of time or otherwise, may or could cause any such representations or warranties
to become false or misleading in any material respect or that would cause any
such representation or warranty to become false or misleading in any material
respect except for the fact that the representation or warranty was limited to
or qualified based on the Best Knowledge of CNB;
(iv) if, notwithstanding MFC's satisfaction of its
obligations under Paragraphs 6.01 and 6.03 above, CNB's shareholders do not
ratify and approve this Agreement and the Merger at the CNB Shareholders'
Meeting or if the CNB Shareholders' Meeting is not held by December 31, 2002;
36
(v) if the Merger shall not have become effective on or
before February 28, 2003, or such later date as shall be mutually agreed upon in
writing by MFC and CNB;
(vi) if the shareholders of CNB exercise their right of
dissent and appraisal under Title 13.1, Chapter 9, Article 15 of the Code of
Virginia (1950), as amended, with respect to an aggregate number of shares of
CNB Stock amounting to 5% or more of the total outstanding shares of CNB Stock.
(vii) under the circumstances described in Paragraph 6.05; or
(viii) before the end of the Due Diligence Period under the
circumstances described in Paragraph 6.15 above.
However, before MFC may terminate this Agreement for any of the
reasons specified above in (i), (ii) or (iii) of this Paragraph 8.02(a), it
shall give written notice to CNB in the manner provided herein stating its
intent to terminate and a description of the specific breach, default, violation
or other condition giving rise to its right to so terminate, and such
termination by MFC shall not become effective if, within 30 days following the
giving of such notice, CNB shall cure such breach, default or violation or
satisfy such condition to the reasonable satisfaction of MFC or, if such breach,
default, violation or other condition is not reasonably susceptible to cure or
satisfaction within 30 days, then following receipt of MFC's written notice CNB
shall have promptly commenced good faith efforts to cure or satisfy the breach,
default, violation or condition, shall diligently continue those efforts, and
shall actually cure or satisfy the breach, default, violation or condition
within a reasonable time thereafter. In the event CNB cannot or does not cure
such breach, default or violation or satisfy such condition to the reasonable
satisfaction of MFC within such notice period (or during the extended period
described above), termination of this Agreement by MFC thereafter shall be
effective upon its giving of written notice of termination to CNB in the manner
provided herein.
(b) Termination by CNB. Prior to the Effective Time, this Agreement
may be terminated by CNB by action of its Board of Directors or Executive
Committee:
(i) if any of the conditions to CNB's obligations set forth
in Paragraph 7.01 or 7.02 above shall not have been satisfied in all material
respects or effectively waived in writing by CNB by December 31, 2002 (except to
the extent that the failure of such condition to be satisfied has been caused by
the failure of CNB to satisfy any of its obligations, covenants or agreements
contained herein);
(ii) if MFC shall have violated or failed to fully perform
any of its obligations, covenants or agreements contained in Article V or VI
herein in any material respect;
(iii) if CNB determines that any of MFC's representations and
warranties contained in Article III herein or in any other certificate or
writing delivered pursuant to this Agreement shall have been false or misleading
in any material respect when made or would have been false or misleading in any
material respect except for the fact that the representation or warranty was
limited to or qualified based on the Best Knowledge of MFC, or that there has
occurred any event or development or that there exists any condition or
circumstance which has caused or, with the lapse of time or otherwise, may or
could cause any such representations or warranties to become false or misleading
in any material respect or that would cause any such representation or warranty
to become false or misleading in any material respect except for the fact that
the representation or warranty was limited to or qualified based on the Best
Knowledge of MFC;
(iv) if, notwithstanding CNB's satisfaction of its
obligations under Paragraphs 4.01(a), 6.01 and 6.03 above, its shareholders do
not ratify and approve this Agreement and the Merger at the CNB Shareholders'
Meeting;
(v) if the Merger shall not have become effective on or
before February 28, 2003, unless such date is extended as evidenced by the
written mutual agreement of the parties hereto; or,
37
(vi) before the end of the Due Diligence Period under the
circumstances described in Paragraph 6.15 above.
However, before CNB may terminate this Agreement for any of the
reasons specified above in clause (i), (ii) or (iii) of this Paragraph 8.02(b),
it shall give written notice to MFC in the manner provided herein stating its
intent to terminate and a description of the specific breach, default, violation
or other condition giving rise to its right to so terminate, and such
termination by CNB shall not become effective if, within 30 days following the
giving of such notice, MFC shall cure such breach, default or violation or
satisfy such condition to the reasonable satisfaction of CNB or, if such breach,
default, violation or other condition is not reasonably susceptible to cure or
satisfaction within 30 days, then following receipt of CNB's written notice MFC
shall have promptly commenced good faith efforts to cure or satisfy the breach,
default, violation or condition, shall diligently continue those efforts, and
shall actually cure or satisfy the breach, default, violation or condition
within a reasonable time thereafter. In the event MFC cannot or does not cure
such breach, default or violation or satisfy such condition to the reasonable
satisfaction of CNB within such notice period (or during the extended period
described above), termination of this Agreement by CNB thereafter shall be
effective upon its giving of written notice thereof to MFC in the manner
provided herein.
(c) Survival of Certain Covenants Following Termination.
Notwithstanding anything contained in this Agreement to the contrary, CNB's and
MFC's respective obligations and liabilities pursuant to Paragraph 6.04 and
Articles VIII and IX of this Agreement shall not be affected by a termination of
this Agreement, and, following any such termination, those obligations and
liabilities shall survive, remain in full force and effect and be fully
enforceable in accordance with their terms.
8.03. BREACH; REMEDIES.
(a) Except as otherwise provided herein, (i) in the event of a
breach by CNB of any of its representations or warranties contained in Article
II of this Agreement or in any other certificate or writing delivered pursuant
to this Agreement, or in the event of CNB's failure to perform or violation of
any of its obligations, agreements or covenants contained in Articles IV or VI
of this Agreement, MFC's sole right and remedy shall be to terminate this
Agreement prior to the Effective Time as provided in Paragraph 8.02(a); and (ii)
in the event of any such termination of this Agreement by MFC due to a failure
by CNB to perform any of its obligations, agreements or covenants contained in
Articles IV or VI of this Agreement for reasons reasonably within its control,
CNB shall be obligated to reimburse MFC for up to (but not more than) $300,000
in expenses described in Paragraph 6.11 which actually have been incurred by
MFC.
(b) Except as otherwise provided herein, (i) in the event of a
breach by MFC of any of its representations or warranties contained in Article
III of this Agreement, or in the event of MFC's failure to perform or violation
of any of its obligations, agreements or covenants contained in Articles V or VI
of this Agreement, CNB's sole right and remedy shall be to terminate this
Agreement prior to the Effective Time as provided in Paragraph 8.02(b); and (ii)
in the event of any such termination of this Agreement by CNB due to a failure
by MFC to perform any of its obligations, agreements or covenants contained in
Articles V or VI of this Agreement for reasons reasonably within its control,
MFC shall be obligated to reimburse CNB for up to (but not more than) $300,000
in expenses described in Paragraph 6.11 which actually have been incurred by
CNB.
(c) Notwithstanding subparagraphs 8.02(a) and 8.02(b), or any other
provision of this Agreement to the contrary:
(i) if either party to this Agreement breaches this Agreement
by willfully or intentionally and without justification
failing to perform or violating any of its obligations,
agreements or covenants contained in Articles IV, V or VI
of this Agreement, such party shall be obligated to pay
all expenses of the other parties described in Paragraph
6.11, together with other damages recoverable at law or
in equity; and,
38
(ii) either party shall be entitled to commence a suit at law
for the purposes of (A) obtaining appropriate equitable
relief in the event of a violation, or imminent
violation, by the other party of Section 6.04 above, or
(B) enforcing the indemnification obligation of the other
party under Article IX of this Agreement.
ARTICLE IX
INDEMNIFICATION
9.01. INDEMNIFICATION FOLLOWING TERMINATION OF AGREEMENT.
(a) By CNB. CNB agrees that, in the event this Agreement is
terminated for any reason and the Merger is not consummated, it will indemnify,
hold harmless and defend MFC and its officers, directors, attorneys, financial
advisors and consultants from and against any and all claims, disputes, demands,
causes of action, suits or proceedings of any third party (including any
Regulatory Authority), together with all losses, damages, liabilities,
obligations, costs and expenses of every kind and nature in connection therewith
(including without limitation reasonable attorneys' fees and legal costs and
expenses in connection therewith), whether known or unknown, and whether now
existing or hereafter arising, which may be threatened against, incurred,
undertaken, received or paid by MFC:
(i) in connection with or which arise out of, result from, or
are based upon (A) CNB's or Community's operations or business transactions or
its relationship with any of its employees, or (B) CNB's or Community's failure
to comply with any statute or regulation of any federal, state or local
government or agency (or any political subdivision thereof) in connection with
the transactions described in this Agreement;
(ii) in connection with or which arise out of, result from, or
are based upon any fact, condition or circumstance that constitutes a breach by
CNB of, or any inaccuracy, incompleteness or inadequacy in, any of its
representations or warranties under or in connection with this Agreement, or any
failure of CNB to perform any of its covenants, agreements or obligations under
or in connection with this Agreement; or,
(iii) in connection with or which arise out of, result from, or
are based upon any information provided by CNB which is included in the Proxy
Statement and which information causes the Proxy Statement at the time of its
mailing to CNB's and MFC's shareholders to contain any untrue statement of a
material fact or to omit any material fact required to be stated therein or
necessary in order to make the statements contained therein, in light of the
circumstances under which they were made, not false or misleading.
(b) By MFC. MFC agrees that, in the event this Agreement is
terminated for any reason and the Merger is not consummated, it will indemnify,
hold harmless and defend CNB and its officers, directors, attorneys, financial
advisors and consultants from and against any and all claims, disputes, demands,
causes of action, suits, proceedings of any third party (including any
Regulatory Authority), together with all losses, damages, liabilities,
obligations, costs and expenses of every kind and nature in connection therewith
(including without limitation reasonable attorneys' fees and legal costs and
expenses in connection therewith), whether known or unknown, and whether now
existing or hereafter arising, which may be threatened against, incurred,
undertaken, received or paid by CNB:
(i) in connection with or which arise out of, result from, or
are based upon (A) MFC's or MountainBank's operations or business transactions
or its relationship with any of its employees, or (B) MFC's or MountainBank's
failure to comply with any statute or regulation of any federal, state or local
government or agency (or any political subdivision thereof) in connection with
the transactions described in this Agreement;
39
(ii) in connection with or which arise out of, result from, or
are based upon any fact, condition or circumstance that constitutes a breach by
MFC of, or any inaccuracy, incompleteness or inadequacy in, any of its
representations or warranties under or in connection with this Agreement, or any
failure of MFC to perform any of its covenants, agreements or obligations under
or in connection with this Agreement; or,
(iii) in connection with or which arise out of, result from, or
are based upon any information provided by MFC which is included in the Proxy
Statement and which information causes the Proxy Statement at the time of its
mailing to CNB's and MFC's shareholders to contain any untrue statement of a
material fact or to omit any material fact required to be stated therein or
necessary in order to make the statements contained therein, in light of the
circumstances under which they were made, not false or misleading.
9.02. PROCEDURE FOR CLAIMING INDEMNIFICATION. If any matter subject to
indemnification under this Article IX arises in the form of a claim (herein
referred to as a "Third Party Claim") against MFC or CNB, or their respective
successors and assigns, or any of their respective subsidiary entities,
officers, directors, attorneys, financial advisors or consultants (collectively,
"Indemnitees"), the Indemnitee promptly shall give notice and details thereof,
including copies of all pleadings and pertinent documents, to the party
obligated for indemnification hereunder (the "Indemnitor"). Within 15 days of
such notice, the Indemnitor either (i) shall pay the Third Party Claim either in
full or upon agreed compromise, or (ii) shall notify the applicable Indemnitee
that the Indemnitor disputes the Third Party Claim and intends to defend against
it, and thereafter shall so defend and pay any adverse final judgment or award
in regard thereto. Such defense shall be controlled by the Indemnitor and the
cost of such defense shall be borne by it, except that the Indemnitee shall have
the right to participate in such defense at its own expense and provided that
the Indemnitor shall have no right in connection with any such defense or the
resolution of any such Third Party Claim to impose any cost, restriction,
limitation or condition of any kind that compromises the Indemnitee hereunder.
In the case of an Indemnitee that is an officer, director or attorney of a party
to this Agreement, then that party agrees that it shall cooperate in all
reasonable respects in the defense of any such Third Party Claim, including
making personnel, books and records relevant to the Third Party Claim available
to the Indemnitor without charge therefor except for out-of-pocket expenses. If
the Indemnitor fails to take action within 15 days as hereinabove provided or,
having taken such action, thereafter fails diligently to defend and resolve the
Third Party Claim, the Indemnitee shall have the right to pay, compromise or
defend the Third Party Claim and to assert the indemnification provisions
hereof. The Indemnitee also shall have the right, exercisable in good faith, to
take such action as may be necessary to avoid a default prior to the assumption
of the defense of the Third Party Claim by the Indemnitor.
ARTICLE X
MISCELLANEOUS PROVISIONS
10.01. SURVIVAL OF REPRESENTATIONS, WARRANTIES, INDEMNIFICATION AND OTHER
AGREEMENTS. Except as provided below, none of the representations, warranties or
agreements of CNB or MFC contained in this Agreement shall survive consummation
of the Merger, and no party shall have any right after the Effective Time to
recover damages or any other relief from any other party to this Agreement by
reason of any breach of representation or warranty, any nonfulfillment or
nonperformance of any agreement contained herein, or otherwise.
10.02. WAIVER. Any term or condition of this Agreement may be waived
(except as to matters of regulatory approvals and other approvals required by
law), either in whole or in part, at any time by the party which is, and whose
shareholders are, entitled to the benefits thereof; provided, however, that any
such waiver shall be effective only upon a determination by the waiving party
(through action of its Board of Directors) that such waiver would not adversely
affect the interests of the waiving party or its shareholders; and, provided
further, that no waiver of any term or condition of this Agreement by either
party shall be effective unless such waiver is in writing and signed by the
waiving party, nor shall any such waiver be construed to be a waiver of any
succeeding breach of the same term or condition or a waiver of any other or
different term of condition. No failure or delay of either party to exercise any
power, or to insist upon a strict compliance by the other party
40
of any obligation, and no custom or practice at variance with any terms hereof,
shall constitute a waiver of the right of any either to demand full and complete
compliance with such terms.
10.03. AMENDMENT. This Agreement may be amended, modified or supplemented
at any time or from time to time prior to the Effective Time, and either before
or after its approval by the shareholders of CNB, by an agreement in writing
approved by the Boards of Directors of MFC and CNB executed in the same manner
as this Agreement; provided however, that, except with the further approval of
CNB's shareholders of that change or as otherwise provided herein, following
approval of this Agreement by CNB's shareholders no change may be made in the
amount of consideration into which each share of CNB Stock will be converted.
10.04. NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given if delivered personally or
by recognized overnight courier, by U.S. mail, first class postage prepaid, or
by telecopier when a receipt for delivery is obtained by the sender, in each
case addressed as follows (or to such other address as shall have been
communicated to the party giving the notice as provided above):
IF TO CNB, TO: WITH COPY TO:
CNB Holdings, Inc. ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
900 Memorial Drive Gentry, Locke, ▇▇▇▇▇ & ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ Suite 800, Sun Trust Plaza
Attn: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇., Chief Executive Officer ▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇.▇.
Fax: ▇▇▇-▇▇▇-▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
IF TO MFC, TO: WITH COPY TO:
MountainBank Financial Corporation ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇.
201 ▇▇▇▇ Drive ▇▇▇▇ and ▇▇▇▇▇, P.A.
▇▇▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Chief Financial Officer ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇ Fax: ▇▇▇-▇▇▇-▇▇▇▇
10.05. FURTHER ASSURANCE. CNB and MFC each agrees to furnish to each other
party such further assurances with respect to the matters contemplated in this
Agreement and their respective agreements, covenants, representations and
warranties contained herein, including the opinion of legal counsel, as such
other party may reasonably request.
10.06. HEADINGS AND CAPTIONS. Headings and captions of the Paragraphs of
this Agreement have been inserted for convenience of reference only and do not
constitute a part hereof.
10.07. GENDER AND NUMBER. As used in this Agreement, the masculine gender
shall include the feminine and neuter, the singular number shall include the
plural, and vice versa, whenever such meanings are appropriate.
10.08. ENTIRE AGREEMENT. This Agreement (including all schedules and
exhibits attached hereto and all documents incorporated herein by reference)
contains the entire agreement of the parties with respect to the transactions
described herein and supersedes any and all other oral or written agreement(s)
heretofore made, and there are no representations or inducements by or to, or
any agreements between, either of the parties hereto other than those contained
herein in writing.
10.09. SEVERABILITY OF PROVISIONS. The invalidity or unenforceability of
any term, phrase, clause, paragraph, restriction, covenant, agreement or other
provision hereof shall in no way affect the validity or enforceability of any
other provision or part hereof.
41
10.10. ASSIGNMENT. This Agreement may not be assigned by either party
hereto except with the prior written consent of the other parties hereto.
10.11. COUNTERPARTS. Any number of counterparts of this Agreement may be
signed and delivered, each of which shall be considered an original and which
together shall constitute one agreement.
10.12. GOVERNING LAW. This Agreement is made in and shall be construed and
enforced in accordance with the laws of North Carolina, except to the extent the
Virginia Stock Corporation Act shall apply.
10.13. PREVIOUSLY DISCLOSED INFORMATION. As used in this Agreement,
"Previously Disclosed" shall mean the disclosure of information by CNB to MFC,
or by MFC to CNB, in either case as of June 1, 2002, in a letter delivered by
the disclosing party to the other party prior to the date hereof, specifically
referring to this Agreement, and arranged in paragraphs corresponding to the
Paragraphs, Subparagraphs and items of this Agreement applicable thereto.
Information shall be deemed Previously Disclosed for the purpose of a given
Paragraph, Subparagraph or item of this Agreement only to the extent that a
specific reference thereto is made in connection with disclosure of such
information at the time of such delivery.
10.14. BEST KNOWLEDGE. The terms "Best Knowledge" and "Knowledge" as used
in this Agreement with reference to certain facts or information shall be deemed
to refer to facts or information of which, in the case of the Knowledge of CNB,
officers of CNB or Community are consciously aware or of which they should have
become consciously aware in the ordinary course of business and the performance
of their management duties, or which, in the case of the Knowledge of MFC,
executive officers of MFC or MountainBank are consciously aware or of which they
should have become consciously aware in the ordinary course of business and the
performance of their management duties.
10.15. INSPECTION. Any right of MFC under this Agreement to investigate or
inspect the premises, properties, books, records, files and other assets or
information of CNB or Community in no way shall establish any presumption that
MFC should have conducted any investigation or that such right has been
exercised by MFC, its agents, representatives or others. Any investigations or
inspections actually made by MFC or its agents, representatives or others prior
to the date of this Agreement or otherwise prior to the Effective Time shall not
be deemed in any way in derogation or limitation of the covenants,
representations and warranties made by or on behalf of CNB in this Agreement.
IN WITNESS WHEREOF, CNB and MFC each has caused this Agreement to be
executed in its name by its duly authorized officers and its corporate seal to
be affixed hereto as of the date first above written.
CNB HOLDINGS, INC.
[CORPORATE SEAL]
ATTEST: By: /s/ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇.
------------------------------------------
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇.
Chairman, President and Chief Executive
Officer
---------------------------
Secretary
MOUNTAINBANK FINANCIAL CORPORATION
[CORPORATE SEAL]
ATTEST: By: /s/ ▇.▇. ▇▇▇▇▇
------------------------------------------
▇.▇.▇▇▇▇▇
42
President and Chief Executive Officer
---------------------------
Secretary
43
EXHIBIT A
PLAN OF MERGER
By and Between
CNB HOLDINGS, INC.
and
MOUNTAINBANK FINANCIAL CORPORATION
1.01. NAMES OF MERGING CORPORATIONS. The names of the corporations
proposed to be merged are CNB HOLDINGS, INC. ("CNB") and MOUNTAINBANK FINANCIAL
CORPORATION ("MFC").
1.02. NATURE OF TRANSACTION; PLAN OF MERGER. Subject to the provisions of
this Plan of Merger, at the "Effective Time" (as defined in Paragraph 1.07
below), CNB will be merged into and with MFC (the "Merger").
1.03. EFFECT OF MERGER; SURVIVING CORPORATION. At the Effective Time, and
by reason of the Merger, (i) the separate corporate existence of CNB shall cease
while the corporate existence of MFC as the surviving corporation in the Merger
shall continue with all of its purposes, objects, rights, privileges, powers and
franchises, all of which shall be unaffected and unimpaired by the Merger, and
(ii) CNB's wholly-owned subsidiary, Community National Bank, will become a
wholly-owned banking subsidiary of MFC. The duration of the corporate existence
of MFC, as the surviving corporation, shall be perpetual and unlimited.
1.04. ASSETS AND LIABILITIES OF CNB. At the Effective Time, and by reason
of the Merger, and in accordance with applicable law, all of the property,
assets and rights of every kind and character of CNB (including without
limitation all real, personal or mixed property, all debts due on whatever
account, all other choses in action and every other interest of or belonging to
or due to CNB, whether tangible or intangible) shall be transferred to and vest
in MFC, and MFC shall succeed to all the rights, privileges, immunities, powers,
purposes and franchises of a public or private nature of CNB, all without any
conveyance, assignment or further act or deed; and MFC shall become responsible
for all of the liabilities, duties and obligations of every kind, nature and
description of CNB as of the Effective Time.
1.05. CONVERSION AND EXCHANGE OF STOCK.
(a) Conversion of CNB Stock. Except as otherwise provided in this
Plan of Merger, at the Effective Time all rights of CNB's shareholders with
respect to all outstanding shares of CNB's common stock, par value $5.00 per
share ("CNB Stock") shall cease to exist and, as consideration for and to effect
the Merger, each such outstanding share shall be converted, without any action
by CNB, MFC or any CNB shareholder, into the right to receive (i) a number of
shares of MFC's common stock, $4.00 par value per share ("MFC Common Stock")
calculated in the manner described below, or (ii) cash in the amount of $13.50.
As further described in Paragraph 1.05(b), and subject to the
limitations described herein, each CNB shareholder will have the right to elect
the form of consideration into which his or her CNB Stock is converted and may
elect to receive a combination of cash and MFC Common Stock.
The number of shares of MFC Common Stock into which a CNB
shareholder may elect for each share of his or her CNB Stock to be converted at
the Effective Time shall be the number (rounded to four decimal places) equal to
$13.50 divided by the "Market Value" (as defined below). For purposes of this
Paragraph 1.05, the "Market Value" of a share of MFC Common Stock shall be the
average of the closing per share trade prices of MFC Common Stock as reported on
the OTC Bulletin Board (or, if MFC Common Stock is then traded on The Nasdaq
Stock Market, then on Nasdaq) for the 20 trading days immediately preceding the
business day prior to the "Closing Date" (as defined in Paragraph 1.07 below) on
which trades of MFC Common Stock are reported; provided however that, for
purposes of calculating the number of shares of MFC Common Stock into which CNB
Stock will be converted, the Market Value used in
A - 1
the calculation shall not exceed $24.32 per share or be less than $17.98 per
share. If the amount determined as described above as the Market Value is more
than $24.32, then the Market Value shall be deemed to be $24.32, and if the
amount determined as described above as the Market Value is less than $17.98,
then the Market Value shall be deemed to be $17.98.
At the Effective Time, and without any action by CNB, MFC or
any CNB shareholder, CNB's stock transfer books shall be closed, and there shall
be no further transfers of CNB Stock on its stock transfer books nor the
registration of any transfer of a certificate evidencing CNB Stock (a "CNB
Certificate") by any holder thereof. The holders of CNB Certificates shall cease
to be, and shall have no further rights as, stockholders of CNB other than as
provided in this Agreement. Following the Effective Time, CNB Certificates shall
evidence only the right of the registered holders thereof to receive the
consideration into which their CNB Stock was converted at the Effective Time,
or, in the case of CNB Stock held by shareholders who properly shall have
exercised their right of dissent and appraisal under Title 13.1, Chapter 9,
Article 15 of the Code of Virginia (1950), as amended ("Dissenters' Rights"),
cash as provided in that statute.
(b) Election of Form of Consideration. Subject to the limitations
described in this Plan of Merger, each CNB shareholder shall have the right to
elect the form of consideration into which his or her shares of CNB Stock will
be converted and may elect to receive a combination of cash and MFC Common Stock
by having a portion of his or her shares converted into one form of
consideration and the remaining shares converted into the other form of
consideration. Each shareholder's election must be made in writing in a form
prescribed by MFC (an "Election of Consideration") which must be signed by the
shareholder and delivered to MFC within 15 days following the approval of this
Plan of Merger by CNB's shareholders. Each shareholder of CNB who does not
return an Election of Consideration, or whose Election of Consideration is
received by MFC after the time prescribed, shall be deemed by MFC to have
elected for 50% his or her shares of CNB Stock to be converted into MFC Common
Stock and for the other 50% of those shares to be converted into cash.
(c) Required Ratio of Consideration; Allocations of Consideration.
Notwithstanding the right of CNB's shareholders to elect the form of
consideration into which their shares of CNB Stock are converted, the aggregate
value of the MFC Common Stock into which all shares of CNB Stock are converted
at the Effective Time (the "Aggregate Stock Value," which shall be based on the
Market Value of the MFC Common Stock as described above) shall not be (i) less
than 100% of the aggregate of the cash consideration paid in connection with the
transaction (the "Aggregate Cash Value"), including (A) the aggregate amount of
cash into which shares of CNB Stock are converted (including shares held by
shareholders who exercise Dissenters' Right), (B) cash paid by MFC in lieu of
issuing fractional shares of MFC Common Stock as described below, and (C) cash
paid by CNB upon the cancellation of outstanding options to purchase shares of
CNB Stock, or (ii) more than 55% of the total of (A) the Aggregate Stock Value,
plus (B) the Aggregate Cash Value. Following receipt of Elections of
Consideration from all CNB's shareholders (including the elections that
shareholders are deemed to have made as described above as result of not
returning Elections of Consideration), then the minimum number of additional
shares of MFC Common Stock, or the minimum amount of additional cash, in either
case sufficient to result in a ratio of MFC Common Stock and cash within the
above range, will be allocated by MFC pro rata among CNB's shareholders (other
than shareholders who exercise Dissenters' Rights). Such allocations may be made
in such manner as MFC, after consulting with CNB, considers to be reasonable and
appropriate, and MFC's decision regarding any such allocation shall be final and
binding on CNB's shareholders and both parties to this Plan of Merger.
(d) Exchange and Payment Procedures; Surrender of Certificates. As
promptly as practicable, but not more than ten business days following the
Effective Time, MFC shall send or cause to be sent to each former CNB
shareholder of record immediately prior to the Effective Time written
instructions and transmittal materials (a "Transmittal Letter") for use in
surrendering CNB Certificates to MFC or to an exchange agent appointed by MFC.
Upon the proper surrender and delivery to MFC or its agent (in accordance with
its instructions, and accompanied by a properly completed Transmittal Letter) by
a former shareholder of CNB of his or her CNB Certificate(s), and in exchange
therefor, MFC shall as soon as practicable issue and deliver to the shareholder
stock certificates and/or a check evidencing the consideration
A - 2
into which the shareholder's CNB Stock was converted at the Effective Time,
together with cash for any fractional shares of MFC Common Stock calculated as
described in Paragraph 1.05(g) below.
Subject to Paragraph 1.05(h), no certificate evidencing MFC
Common Stock or check for cash shall be issued or delivered to any former CNB
shareholder unless and until that shareholder shall have properly surrendered to
MFC or its agent the CNB Certificate(s) formerly representing his or her shares
of CNB Stock, together with a properly completed Transmittal Letter. Further,
until a former CNB shareholder's CNB Certificates are so surrendered and
certificates evidencing any MFC Common Stock into which his or her CNB Stock was
converted at the Effective Time actually are issued to him or her, no dividend
or other distribution payable by MFC with respect to that MFC Common Stock as of
any date subsequent to the Effective Time shall be paid or delivered to the
former CNB shareholder. However, MFC shall hold the amount of any dividend or
distribution related to the MFC Common Stock issued to such shareholder, and
upon the proper surrender of the shareholder's CNB Certificate and the issuance
to that shareholder of a certificate representing any MFC Common Stock to which
the shareholder is entitled, MFC shall pay to such shareholder any dividend paid
or any distribution made to the holders of its MFC Common Stock of record in the
interim between the Effective Time and such surrender and issuance, without
interest.
(e) Antidilutive Adjustments. If, prior to the Effective Time, CNB
shall declare any dividend payable in shares of CNB Stock, or shall subdivide,
split, reclassify or combine the presently outstanding shares of CNB Stock, then
an appropriate and proportionate adjustment shall be made in the number of
shares of MFC Common Stock and/or cash, as the case may be, into which each
share of CNB Stock will be converted at the Effective Time pursuant to this Plan
of Merger.
(f) Dissenters. Any shareholder of CNB who properly exercises
Dissenters' Rights shall be entitled to receive payment of the fair value of his
or her shares of CNB Stock in the manner and pursuant to the procedures provided
for in Title 13.1, Chapter 9, Article 15 of the Code of Virginia (1950), as
amended. Shares of CNB Stock held by persons who exercise Dissenters' Rights
shall not be converted as described in Paragraph 1.05(a). However, if any
shareholder of CNB who exercises Dissenters' Rights shall fail to perfect those
rights, or effectively shall waive or lose such rights, then that shareholder
shall be deemed by MFC to have elected for 50% his or her shares of CNB Stock to
be converted into MFC Common Stock and for the other 50% of those shares to be
converted into cash as of the Effective Time as provided in this Paragraph 1.05.
(g) Fractional Shares. If the conversion of the shares of CNB Stock
held by any CNB shareholder results in a fraction of a share of MFC Common
Stock, then, in lieu of issuing that fractional share, MFC will pay to that
shareholder cash in an amount equal to that fraction multiplied by the Market
Value.
(h) Lost Certificates. Following the Effective Time, shareholders
of CNB whose CNB Certificates have been lost, destroyed, stolen or otherwise are
missing shall be entitled to receive the consideration into which their CNB
Stock has been converted in accordance with and upon compliance with reasonable
conditions imposed by MFC, including without limitation a requirement that those
shareholders provide lost instruments indemnities or surety bonds in form,
substance and amount satisfactory to MFC.
1.06. ARTICLES OF INCORPORATION, BYLAWS AND MANAGEMENT. The Articles of
Incorporation and Bylaws of MFC in effect at the Effective Time shall be the
Articles of Incorporation and Bylaws of MFC as the surviving corporation in the
Merger, and the officers and directors of MFC in office at the Effective Time
shall continue to hold such offices until removed as provided by law or until
the election or appointment of their respective successors.
1.07. CLOSING; EFFECTIVE TIME. The consummation and closing of the Merger
and other transactions contemplated by this Plan of Merger (the "Closing") shall
take place at the offices of MFC's legal counsel, ▇▇▇▇ and ▇▇▇▇▇, P.A., in
Raleigh, North Carolina, or at such other place as MFC shall designate, on a
date mutually agreed upon by CNB and MFC (the "Closing Date") after the
expiration of any and all required waiting periods following the effective date
of required approvals of the Merger by governmental or regulatory authorities
(but in no event more than 30 days following the expiration of all such required
waiting periods).
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At the Closing, CNB and MFC shall take such actions (including without
limitation the delivery of certain closing documents and the execution of
Articles of Merger under North Carolina and Virginia law) as are agreed upon by
the parties and/or as required by law to consummate the Merger and cause it to
become effective.
Subject to the terms and conditions set forth in this Plan of Merger, the
Merger shall become effective on the date and at the time (the "Effective Time")
specified in Articles of Merger executed by MFC and filed by it with, and as
provided in the Certificates of Merger issued by, the North Carolina Secretary
of State and the Virginia State Corporation Commission in accordance with
applicable law; provided, however, that the Effective Time shall in no event be
more than ten days following the Closing Date.
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