SCHEDULE 14A INFORMATION
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. ___)
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ]Preliminary Proxy Statement
[ ]CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY
(AS PERMITTED BY RULE 14a-6(e)(2))
[X]Definitive Proxy Statement
[ ]Definitive Additional Materials
[ ]Soliciting Material Under Rule 14a-12
CUMBERLAND MOUNTAIN BANCSHARES, INC.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
1. Title of each class of securities to which transaction applies:
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2. Aggregate number of securities to which transaction applies:
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3. Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it
was determined):
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5. Total fee paid:
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[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
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1. Amount Previously Paid:
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4. Date Filed:
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CUMBERLAND MOUNTAIN BANCSHARES, INC.
1431 CUMBERLAND AVENUE
MIDDLESBORO, KENTUCKY 40965
(606) 248-4584
September 26, 2001
Dear Shareholder:
You are cordially invited to attend a special meeting of shareholders of
Cumberland Mountain Bancshares, Inc., to be held at the main office of
Cumberland Mountain Bancshares, Inc., 1431 Cumberland Avenue, Middlesboro,
Kentucky, on Wednesday, October 24, 2001 at 5:00 P.m., local time.
On February 8, 2001, Cumberland Mountain Bancshares, Inc. agreed to merge
with Commercial Bancgroup, Inc. COMMERCIAL HAS AGREED TO PAY A TOTAL OF $9.52
MILLION FOR ALL OF THE OUTSTANDING SHARES OF COMMON STOCK OF CUMBERLAND AND TO
HOLDERS OF OUTSTANDING OPTIONS TO PURCHASE SHARES, OR APPROXIMATELY $14.32 FOR
EACH SHARE OF CUMBERLAND COMMON STOCK THAT YOU OWN ASSUMING NO OPTIONS ARE
EXERCISED. Upon completion of the merger you will no longer own any stock or
have any interest in Cumberland Mountain Bancshares, Inc., nor will you receive,
as a result of the merger, any stock of Commercial Bancgroup, Inc.
At the special meeting, you will be asked to approve the merger agreement.
A majority of the votes entitled to be cast at the special meeting must vote for
approval of the merger agreement for the merger to be completed. If the merger
agreement is approved, and all other conditions described in the merger
agreement have been met or waived, the merger is expected to occur during the
third quarter of 2001.
Your board of directors believes that the merger is in the best interests
of Cumberland Mountain Bancshares' shareholders and unanimously recommends that
you vote FOR the approval of the merger agreement. Your board of directors has
received the opinion of Carson Medlin Company that the consideration to be
received by Cumberland shareholders in the merger is fair from a financial point
of view.
This proxy statement provides you with detailed information about the
proposed merger and includes, as Appendix A, a complete text of the merger
agreement. We urge you to read the enclosed materials carefully for a complete
description of the merger. Please complete, sign and return the enclosed proxy
card as promptly as possible. We look forward to seeing you at the special
meeting.
Sincerely,
/s/ James J. Shoffner
James J. Shoffner
President and Chief Executive Officer
CUMBERLAND MOUNTAIN BANCSHARES, INC.
1431 CUMBERLAND AVENUE
MIDDLESBORO, KENTUCKY 40965
(606) 248-4584
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
A special meeting of shareholders of Cumberland Mountain Bancshares, Inc.
will be held on Wednesday, October 24, 2001, at 5:00 p.m., local time, at the
main office of Middlesboro Federal Bank, Federal Savings Bank, 1431 Cumberland
Avenue, Middlesboro, Kentucky, for the following purposes.
1. To approve the Agreement and Plan of Share Exchange, dated February 8,
2001, as amended by and between Commercial Bancgroup, Inc. and
Cumberland Mountain Bancshares, Inc.
2. To transact such other business as may properly come before the
special meeting including a proposal to adjourn or postpone the
special meeting.
The Board of Directors is not aware of any other business to come before
the special meeting.
Any action may be taken on this proposal at the special meeting or on any
date or dates to which the special meeting may be adjourned or postponed. You
can vote at the special meeting if you owned Cumberland Mountain Bancshares
common stock at the close of business on September 18, 2001.
As a shareholder of Cumberland Mountain Bancshares, you have the right to
dissent from the merger and demand payment of the fair value of your shares of
Cumberland Mountain Bancshares common stock under applicable provisions of
Tennessee law. In order to perfect dissenters' rights, you must give written
demand before the merger is voted on at the special meeting and must not vote in
favor of the merger. A copy of the Tennessee statutory provisions regarding
dissenters' rights is included as Appendix C to the accompanying proxy statement
and a summary of these provisions can be found under "THE AGREEMENT AND THE
MERGER - Dissenters' Rights."
In the event there are not sufficient votes to approve the proposal for the
adoption of the merger agreement at the time of the meeting, the meeting may be
adjourned in order to permit further solicitation of proxies by Cumberland
Mountain Bancshares, Inc.
Your attention is directed to the proxy statement accompanying this notice
for a more complete statement regarding the matters to be acted upon at the
special meeting.
BY ORDER OF THE BOARD OF Directors
/s/ J. D. Howard
J. D. Howard
SECRETARY
Middlesboro, Kentucky
September 26, 2001
IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE CUMBERLAND MOUNTAIN BANCSHARES
THE EXPENSE OF FURTHER REQUESTS FOR PROXIES TO ENSURE A QUORUM AT THE SPECIAL
MEETING. PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY AND PROMPTLY MAIL IT
IN THE ENCLOSED ENVELOPE. YOU MAY REVOKE YOUR PROXY IN THE MANNER DESCRIBED IN
THE PROXY STATEMENT AT ANY TIME BEFORE IT IS EXERCISED.
PLEASE DO NOT SEND IN YOUR STOCK CERTIFICATES AT THIS TIME.
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TABLE OF CONTENTS
Page
----
SUMMARY OF TERMS............................................................. 2
GLOSSARY .................................................................... 4
SUMMARY .................................................................... 5
The Companies................................................................ 5
The Special Meeting.......................................................... 6
Reasons for the Merger....................................................... 6
The Merger and the Bank Merger............................................... 6
What You Will Receive for Your Shares of Cumberland Common Stock............ 7
Vote Required to Approve the Agreement....................................... 7
Recommendation to Cumberland Mountain Bancshares's Shareholders.............. 7
Opinion of Cumberland 's Financial Advisor................................... 7
Interests of Certain Persons in the Merger................................... 8
Dissenters' Rights........................................................... 8
Taxable Transaction to Cumberland Shareholders............................... 8
CUMBERLAND MOUNTAIN BANCSHARES, INC. SELECTED CONSOLIDATED FINANCIAL AND
OTHER DATA................................................................... 9
MARKET PRICE AND DIVIDEND
DATA FOR CUMBERLAND MOUNTAIN BANCSHARES COMMON STOCK........................ 10
THE SPECIAL MEETING......................................................... 11
Date, Place and Time........................................................ 11
Matters to be Considered.................................................... 11
Record Date; Voting Rights; Vote Required................................... 11
Voting and Revocation of Proxies............................................ 11
Solicitation of Proxies..................................................... 12
Important Information for Shareholders Whose Stock is Held in Street Name... 12
Important Information for Participants in the Cumberland ESOP............... 13
THE AGREEMENT AND THE MERGER................................................ 13
The Parties to the Agreement................................................ 13
Description of the Agreement and the Merger................................. 13
Background of the Merger.................................................... 14
Reasons for the Merger and Recommendation of the Board of Directors......... 15
Opinion of Cumberland Mountain Bancshare's; Financial Advisor............... 17
Payment Procedures.......................................................... 24
Possible Adjustment of Merger Price......................................... 24
Closing..................................................................... 24
Conditions to Completion of the Merger...................................... 25
Restrictions on Operations.................................................. 26
Other Acquisition Proposals................................................. 29
Representations and Warranties.............................................. 29
Regulatory Approvals........................................................ 29
Termination of the Agreement................................................ 30
Amendment of the Agreement.................................................. 31
Waiver of Performance of Obligations........................................ 31
Accounting Treatment........................................................ 31
Expenses.................................................................... 31
Tax Consequences to Shareholders............................................ 31
Dissenters' Rights.......................................................... 32
Interests of Certain Persons in the Merger.................................. 37
PRINCIPAL HOLDERS OF CUMBERLAND MOUNTAIN BANCSHARES COMMON STOCK............ 39
OTHER MATTERS............................................................... 40
SHAREHOLDER PROPOSALS....................................................... 40
Appendix A - Agreement and Plan of Share Exchange.........................A-1
Appendix B - Fairness Opinion of Carson Medlin ...........................B-1
Appendix C - Dissenters' Rights Statutes..................................C-1
CUMBERLAND MOUNTAIN BANCSHARES, INC.
1431 CUMBERLAND AVENUE
MIDDLESBORO, KENTUCKY 40965
(606) 248-4584
PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS TO BE
HELD ON OCTOBER 24, 2001 AT 5:00 P.M.
AT 1431 CUMBERLAND AVENUE, MIDDLESBORO, KENTUCKY
Cumberland Mountain Bancshares, Inc. is holding a Special Meeting of
Shareholders to vote on an Agreement and Plan of Share Exchange by and between
Commercial Bancgroup, Inc. and Cumberland. If shareholders approve the Agreement
and the other conditions described below are met, Cumberland will merge with
Commercial. Commercial has agreed to pay an aggregate of $9.52 million to all
the holders of shares of Cumberland common stock and to holders of certain
options to purchase shares of Cumberland common stock (other than shareholders
who dissent from the Merger and comply with all applicable procedures) or
approximately $14.32 per share of Cumberland Common Stock that the shareholder
owns, based upon the number of shares of Cumberland common stock outstanding as
of the date hereof.
There were 679,620 shares of Cumberland Common Stock outstanding and
entitled to vote as of the Record Date. Each share is entitled to one vote on
the approval of the Agreement. The Merger has been approved by the Board of
Governors of the Federal Reserve System and the Tennessee Department of Banking,
the only requisite regulatory approvals.
Cumberland is furnishing this Proxy Statement to its shareholders on
approximately September 26, 2001. The Record Date to determine who may vote at
the meeting is September 18, 2001. Please see the "GLOSSARY" on page 4 for
definitions of capitalized and certain other terms used in this Proxy Statement.
PLEASE SIGN AND RETURN THE ENCLOSED PROXY CARD AS SOON AS POSSIBLE TO SIGNIFY
HOW YOU WANT TO VOTE YOUR SHARES
THE BOARD OF DIRECTORS OF CUMBERLAND MOUNTAIN BANCSHARES UNANIMOUSLY RECOMMENDS
THAT YOU VOTE IN FAVOR OF THE AGREEMENT AND PLAN OF SHARE EXCHANGE
SUMMARY OF TERMS
This is a summary of the most material terms of the proposed Merger.
o If the Merger occurs, each Cumberland shareholder will receive
approximately $14.32 in cash for each share of Cumberland Common Stock
owned, based upon the number of shares of Cumberland common stock
outstanding as of the date hereof. See the discussion under the
caption "THE AGREEMENT AND THE MERGER - Description of the Agreement
and the Merger" beginning on page 13 for more information.
o The Agreement provides for a possible reduction of the merger price in
the event the net worth of Cumberland is less than $8.0 million. See
"THE AGREEMENT AND THE MERGER - Possible Adjustment of Merger Price"
on page 24 for more information.
o The Merger cannot occur unless Cumberland's shareholders approve the
Agreement by a majority of the total number of shares outstanding. See
the discussions under the caption "THE SPECIAL MEETING - Record Date;
Voting Rights; Vote Required" beginning on page 11 for more
information.
o The Merger has been approved by both the Board of Governors of the
Federal Reserve and the Tennessee Department of Financial
Institutions, the only required regulatory approvals. See "THE
AGREEMENT AND THE MERGER - Regulatory Approvals" beginning on page 29
for more information.
o Shareholders will generally recognize a taxable gain or loss measured
by the difference between the cash received in the Merger and their
tax basis in their shares of Cumberland Common Stock. See the
discussion under the caption "THE AGREEMENT AND THE MERGER - Tax
Consequences to Shareholders" beginning on page 31 for more
information.
o Cumberland's Board of Directors has approved and adopted the Agreement
and the Merger and has unanimously recommended that Cumberland
shareholders vote in favor of it. See the discussion under the caption
"THE AGREEMENT AND THE MERGER - Reasons for the Merger and
Recommendation of the Board of Directors" beginning on page 15 for
more information.
o Cumberland's financial advisor has issued a fairness opinion dated
February 8, 2001 and updated on September 26, 2001 that, as of such
dates, the amount which will be paid to Cumberland shareholders in the
Merger is fair from a financial point of view. See the discussion
under the heading "THE AGREEMENT AND THE MERGER - Opinion of
Cumberland's Financial Advisor" beginning on page 17 for more
information.
o Cumberland has agreed that it will not seek or encourage a competing
transaction to acquire Cumberland except in very limited circumstances
in which an
2
unsolicited offer is made. See the discussion under the caption "THE
AGREEMENT AND THE MERGER - Other Acquisition Proposals" beginning on
page 29 for more information.
o The directors and executive officers of Cumberland Mountain who have
stock options under the Cumberland Mountain Bancshares' Stock Option
Plans will receive cash payments for their options based upon the
difference between $14.32 and the exercise price of their options. In
the event the exercise price is greater than $14.32, the options will
be cancelled. They will also receive continued directors and officers
liability insurance and indemnification from Commercial. Certain
executive officers whose employment will terminate as a result of the
Merger will also receive severance and other payments. See the
discussion under the caption "THE AGREEMENT AND THE MERGER - Interests
of Certain Persons in the Merger" beginning on page 37 for more
information.
o Shareholders who dissent from the Merger and follow statutory
procedures have the right to demand the fair value of the shares if
the Merger is consummated, provided that they satisfy the requirements
under Tennessee law. See the discussion under the caption "THE
AGREEMENT AND THE MERGER - Dissenters' Rights" beginning on page 32
for more information.
o Cumberland and Commercial expect that the Merger will be completed in
the fourth quarter of 2001.
3
GLOSSARY
The following terms are used in this Proxy Statement.
"AGREEMENT" means the Agreement and Plan of Share Exchange, dated February
8, 2001, as amended by and between Commercial Bancgroup, Inc. and Cumberland
Mountain Bancshares, Inc. A copy of the Agreement is attached as Appendix A to
this Proxy Statement.
"BANK MERGER" means the merger of Middlesboro Federal Bank, Federal Savings
Bank into Commercial Bank which will occur simultaneously with the Merger.
"BOARD OF DIRECTORS" OR "BOARD" means the board of directors of Cumberland
Mountain Bancshares, Inc.
"CARSON MEDLIN" means Carson Medlin Company, Cumberland Mountain
Bancshares' financial advisor.
"COMMERCIAL" means Commercial Bancgroup, Inc.
"COMMERCIAL BANK" means Commercial Bank, a wholly-owned subsidiary of
Commercial.
"COMMON STOCK" means the Common Stock of Cumberland Mountain Bancshares ,
all of which will be acquired by Commercial in the Merger.
"CUMBERLAND" means Cumberland Mountain Bancshares, Inc.
"EFFECTIVE TIME" means the date and time at which the Articles of Merger to
be filed with the Secretary of State of Tennessee evidencing the Merger shall
become effective.
"ESOP" means the Cumberland Mountain Bancshares, Inc. Employee Stock
Ownership Plan, as amended.
"MERGER" means the transaction in which Cumberland Mountain Bancshares will
merge into Commercial and all of the shares of Cumberland Common Stock and
certain options will be exchanged for an aggregate of $9.52 million, or
approximately $14.32 per share.
"MIDDLESBORO FEDERAL" means Middlesboro Federal Bank, Federal Savings Bank,
a wholly-owned subsidiary of Cumberland.
"MRP" means the Cumberland Mountain Bancshares Management Recognition Plan,
as amended.
"RECORD DATE" means September 18, 2001, the date which Cumberland will use
to determine which Cumberland shareholders of record are entitled to vote at the
Special Meeting.
"SPECIAL MEETING" means the Special Meeting of Cumberland's shareholders to
be held on October 24, 2001 and any adjournments or postponements of that
Special Meeting at which Cumberland will present the Agreement to its
shareholders for approval.
"STOCK OPTION PLAN" means the Cumberland Mountain Bancshares, Inc. 1993 and
1998 Stock Option and Incentive Plans.
4
SUMMARY
This brief summary highlights selected information contained in this Proxy
Statement. It does not contain all of the information that is important to you.
To fully understand the Merger, Cumberland urges you to carefully read the
entire Proxy Statement including the Agreement. Cumberland has attached the
Agreement to this Proxy Statement as Appendix A. Cumberland encourages you to
read the Agreement because it is the legal document that governs the Merger of
Cumberland and Commercial.
THE COMPANIES
COMMERCIAL BANCGROUP, INC.
COMMERCIAL BANK
6710 CUMBERLAND GAP PARKWAY
HARROGATE, TENNESSEE 37752
(423) 869-5151
Commercial Bancgroup, Inc. is the holding company for Commercial Bank, a
Tennessee commercial bank. Commercial and Commercial Bank are both headquartered
in Harrogate, Tennessee.
At June 30, 2001, Commercial Bancgroup, Inc., had consolidated assets of
$210.4 million, net loans of $165.4 million, deposits of $169.3 million and
shareholders' equity of $20.7 million.
CUMBERLAND MOUNTAIN BANCSHARES, INC.
MIDDLESBORO FEDERAL BANK, FEDERAL SAVINGS BANK
1431 CUMBERLAND AVENUE
MIDDLESBORO, KENTUCKY 40965
(606) 248-4584
Cumberland Mountain Bancshares, Inc. is a Tennessee corporation and was
incorporated in 1996 for the purpose of becoming the holding company for
Middlesboro Federal upon the completion of the conversion of Cumberland Mountain
Bancshares, M.H.C., the former mutual holding company for Middlesboro Federal to
stock form.
Middlesboro Federal was organized in 1994 as a stock subsidiary of
Cumberland Mountain Bancshares, M.H.C. Prior to that date, the Bank had operated
since 1915 in Middlesboro, Kentucky and since 1976 in Cumberland, Kentucky. At
June 30, 2001, Cumberland had consolidated assets of $125.7 million, net loans
of $98.8 million, deposits of $108.3 million and shareholders' equity of $8.5
million.
5
THE SPECIAL MEETING
The Special Meeting will be held on Wednesday, October 24, 2001, at the
main office of Middlesboro Federal, 1431 Cumberland Avenue, Middlesboro,
Kentucky, to vote on the proposal to approve the Agreement. You can vote at the
Special Meeting if you owned Cumberland Common Stock on the Record Date.
REASONS FOR THE MERGER
The Board of Directors of Cumberland reviewed a number of items in deciding
to enter into the Agreement with Commercial including the following:
o the strategic options available to Cumberland ;
o that the merger price exceeded the estimated value that could be
realized by Cumberland shareholders over the intermediate term, given
the rapidly changing nature of banking, competition and delivery
systems;
o the premium to recent market prices and book value represented by the
$14.32 per share to be received by the shareholders of Cumberland ;
o the historically limited liquidity of Cumberland's Common Stock;
o Commercial's community orientation and expanded services that would be
available to existing customers;
o the return to shareholders who purchased stock in Cumberland's initial
public offering; and
o the opinion of Cumberland's financial advisor, Carson Medlin, that the
transaction is fair to Cumberland's shareholders from a financial
point of view.
Generally, the Board of Directors concluded that in the long term
Cumberland could not produce shareholder value in excess of the merger price,
and that the merger price was fair, from a financial point of view, to
Cumberland's shareholders.
THE MERGER AND THE BANK MERGER
If the Agreement is approved by Cumberland's shareholders and the parties
satisfy the other conditions of the Agreement, Cumberland will be merged with
and into Commercial. As a result of the Merger, each share of Cumberland Common
Stock (other than shares owned by persons who have perfected dissenters'
rights), will be converted into the right to receive approximately $14.32 in
cash.
Simultaneously, Middlesboro Federal will be merged with and into Commercial
Bank and will thereafter operate as offices of Commercial Bank. If the Agreement
is not approved, Cumberland and Middlesboro Federal will continue as separate
entities.
6
WHAT YOU WILL RECEIVE FOR YOUR SHARES OF CUMBERLAND COMMON STOCK
Commercial has agreed to pay an aggregate of $9.52 million in exchange for
all of the outstanding shares of Cumberland Common Stock as well as to satisfy
options to purchase shares of Cumberland Common Stock assuming no options are
exercised prior to the Effective Time of the Merger.
Each of your shares of Cumberland Common Stock will automatically become
exchangeable for $14.32 in cash. You will have to surrender your Cumberland
stock certificate(s) to receive this cash payment. Commercial will appoint the
Exchange Agent who will send you written instructions for surrendering your
certificates after the Merger is completed. For more information on how this
exchange procedure works, see "THE AGREEMENT AND THE MERGER - Payment
Procedures" on page 24 of this proxy statement.
The Agreement provides for a possible reduction of the merger price in the
event the net worth of Cumberland at closing is less than $8.0 million. See "THE
AGREEMENT AND THE MERGER - Possible Adjustment of Merger Price" on page 24 for
more information.
Cumberland Common Stock is quoted on OTC Bulletin Board under the symbol
"CMBN." On February 2, 2001, which is the day the last trade occurred before the
Merger was announced, Cumberland Common Stock was sold at $8.875 per share.
VOTE REQUIRED TO APPROVE THE AGREEMENT
The Agreement will be approved if the holders of at least a majority of the
outstanding shares of Cumberland Common Stock vote for it. Directors and
executive officers of Cumberland and their affiliates beneficially owned an
aggregate of 103,507, or approximately 15.23%, of the shares of Cumberland
Common Stock outstanding on the Record Date (excluding shares which they had the
right to acquire on the exercise of options). A failure to vote, either by not
returning the enclosed proxy or by checking the "Abstain" box, will have the
same effect as a vote against the Agreement. Each of the directors of Cumberland
has executed an agreement with Commercial pursuant to which each director agreed
to vote his or her shares FOR approval of the Agreement.
RECOMMENDATION TO CUMBERLAND'S SHAREHOLDERS
The Board of Directors of Cumberland believes that the Merger is fair to
you and in your best interests and unanimously recommends that you vote "FOR"
the approval of the Agreement. For a discussion of the circumstances surrounding
the Merger and the factors considered by Cumberland's Board of Directors in
approving the Agreement see "THE AGREEMENT AND THE MERGER - Background of the
Merger" and "- Reasons for the Merger and Recommendation of the Board of
Directors" on pages 14 and 15 of this Proxy Statement.
OPINION OF CUMBERLAND'S FINANCIAL ADVISOR
Carson Medlin has delivered its written opinion to the Cumberland Board of
Directors, dated as of February 8, 2001 and confirmed as of the date of this
Proxy Statement, that the
7
consideration to be received by the shareholders of Cumberland in the Merger is
fair from a financial point of view. Cumberland has attached this opinion as
Appendix B to this Proxy Statement. You should read it carefully for a
description of the procedures followed, matters considered and limitations on
the reviews undertaken by Carson Medlin in providing its opinion.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Some of Cumberland's directors and officers have interests in the Merger
that are different from, or are in addition to their interests as shareholders
in Cumberland. The Board of Directors knew about these additional interests and
considered them when they approved and adopted the Agreement and the Merger.
These include:
o the cancellation of outstanding stock options in exchange for a cash
payment equal to the difference between $14.32 per share and the
option exercise price;
o payments to certain of Cumberland's executive officers under their
employment, severance and other agreements; and
o provisions in the Agreement relating to protection against claims.
DISSENTERS' RIGHTS
Shareholders have dissenters' rights under Tennessee law. If you want to
exercise dissenters' rights, you must carefully follow the procedures described
in "THE AGREEMENT AND THE MERGER - Dissenters' Rights" beginning on page 32 of
this Proxy Statement.
TAXABLE TRANSACTION TO CUMBERLAND SHAREHOLDERS
For United States federal income tax purposes your exchange of shares of
Cumberland Common Stock for cash generally will cause you to recognize a gain or
loss measured by the difference between the cash you receive in the Merger and
your tax basis in the shares of Cumberland Common Stock. See "THE AGREEMENT AND
THE MERGER - Tax Consequences to Shareholders" beginning on page 31 of this
Proxy Statement.
8
CUMBERLAND MOUNTAIN BANCSHARES, INC.
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
These tables show historical consolidated financial data for Cumberland.
The annual historical financial condition and operating data are derived from
Cumberland 's consolidated financial statements audited by Marr, Miller & Myers,
PSC, independent accountants.
AT OR FOR THE YEAR ENDED JUNE 30,
--------------------------------------------------------------
1997 1998 1999 2000 2001
-------- -------- ------- -------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
SELECTED FINANCIAL CONDITION DATA:
Total amount of:
Assets................................ $ 114,655 $ 135,906 $ 129,594 $ 128,175 $ 125,730
Loans receivable, net................. 99,623 118,061 111,612 109,610 98,829
Cash and cash equivalents............. 699 1,664 1,317 1,581 14,599
Mortgage-backed securities............ 6,353 5,578 3,579 2,626 1,143
Deposits.............................. 91,596 97,719 106,905 106,078 108,344
FHLB advances......................... 13,000 26,000 12,000 10,500 5,000
Stockholders' equity.................. 8,514 8,761 8,708 9,161 8,485
SELECTED OPERATIONS DATA:
Interest income......................... $ 7,290 $ 10,750 $ 10,568 $ 9,825 $ 9,548
Interest expense........................ 4,313 6,288 6,320 5,852 6,123
Net interest income..................... 2,977 4,462 4,248 3,973 3,425
Provision for loan losses............... 203 1,108 1,524 206 1,500
Noninterest income...................... 723 1,117 884 836 652
Noninterest expense..................... 2,899 3,349 4,050 3,840 3,884
Income (loss) before taxes.............. 599 1,122 (428) 763 (1,308)
Income tax expense (benefit)............ 190 370 (141) 286 (429)
--------- --------- --------- --------- ---------
Net income (loss)....................... $ 409 $ 751 $ (287) $ 477 $ (878)
========= ========= ========= ========= =========
Basic net income (loss) per share....... $ .6626 $ 1.3206 $ (.4858) $ .7944 $(1.3127)
========= ========= ========== ========= ========
Diluted net income (loss) per share..... $ .6626 $ 1.3206 $ (.4509) $ .7458 $(1.1222)
========= ========= ========= ========= ========
PERFORMANCE RATIOS:
Return on average assets................ 0.38% 0.60% (0.26)% 0.35% (0.70)%
Return on average equity................ 8.70 8.74 (4.06) 5.04 (9.95)
Interest rate spread.................... 2.61 3.00 3.72 3.44 3.14
Net interest margin..................... 2.81 3.43 3.53 3.36 3.03
ASSET QUALITY RATIOS:
Nonperforming loans to total loans (1).. 0.68 1.50 1.32 0.71 0.92
Net charge-offs to average loans
outstanding........................... 0.08 0.51 0.67 0.68 1.40
CAPITAL RATIOS:
Tangible capital ratio (3).............. 7.54 6.50 6.82 7.26 6.79
Core capital ratio (3).................. 7.54 6.50 6.82 7.26 6.79
Risk-based capital ratio (3)............ 11.36 10.65 10.65 11.42 11.61
<FN>
____________
(1) Nonperforming loans represents accruing loans which are contractually past
due 90 days or more.
(2) Nonperforming assets represents property acquired by Middlesboro Federal
through foreclosure or repossession or accounted for as an in-substance
foreclosure at its net realizable value plus nonperforming loans.
(3) Middlesboro Federal only.
</FN>
9
MARKET PRICE AND DIVIDEND DATA FOR CUMBERLAND MOUNTAIN BANCSHARES COMMON STOCK
Cumberland Common Stock is quoted on the OTC Bulletin Board under the
symbol "CMBN" The following table shows the high and low sale prices per share
of Cumberland Common Stock on the OTC Bulletin Board for the periods indicated.
No dividends have been paid on the Cumberland Common Stock:
QUARTER ENDED HIGH LOW
---------------------------- ---------- ---------
September 30, 1999 8.50 8.50
December 31, 1999 10.25 7.50
March 31, 2000 9.25 6.75
June 30, 2000 7.00 5.50
September 30, 2000 7.00 6.25
December 31, 2000 8.00 5.50
March 31, 2001 14.00 5.50
June 30, 2001 13.63 13.125
September 30, 2001 13.65 13.40
(through September
25, 2001)
On February 2, 2001, the last day on which a trade occurred prior to the
joint announcement by Commercial and Cumberland that they had entered into the
Agreement, the closing per share sales price of Cumberland Common Stock was
$8.875. On September 17, 2001, which is the last practicable date prior to the
printing of the Proxy Statement on which a trade occurred, the closing price for
Cumberland Common Stock was $13.63 per share.
As of September 25, 2001, there were approximately 156 holders of record of
Cumberland Common Stock. This number does not reflect the number of persons or
entities who may hold their stock in nominee or "street" name through brokerage
firms.
10
THE SPECIAL MEETING
DATE, PLACE AND TIME
The Special Meeting is scheduled to be held at 5:00 p.m., Eastern Time, on
Wednesday, October 24, 2001, at the main office of Middlesboro Federal, 1431
Cumberland Avenue, Middlesboro, Kentucky.
MATTERS TO BE CONSIDERED
At the Special Meeting, you will be asked to consider:
o a proposal to approve the Agreement and Plan of Share Exchange dated
February 8, 2001, as amended by and between Commercial Bancgroup, Inc.
and Cumberland; and
o such other business that may properly come before the Special Meeting,
including a proposal to adjourn or postpone the Special Meeting.
RECORD DATE; VOTING RIGHTS; VOTE REQUIRED
The Cumberland Board of Directors has fixed the close of business on
September 18, 2001 as the Record Date for the determination of shareholders of
Cumberland entitled to receive notice of and to vote at the Special Meeting. On
the Record Date, there were 679,620 shares of Cumberland Common Stock
outstanding. Each holder of Cumberland Common Stock is entitled to one vote per
share held of record on the Record Date.
The presence in person or by proxy at the Special Meeting of the holders of
a majority of the outstanding shares of Cumberland Common Stock is required for
a quorum. Under the Tennessee Business Corporation Act, approval of the
Agreement will require the affirmative vote of the holders of a majority of the
outstanding shares of Cumberland Common Stock. Accordingly, an abstention, a
failure to vote, or a broker non-vote, has the same effect as a vote against the
Agreement. Directors and executive officers of Cumberland and their affiliates
beneficially owned on the Record Date an aggregate of 103,507 or approximately
15.23%, of the outstanding shares of Cumberland Common Stock (excluding shares
which they had the right to acquire on the exercise of options). Cumberland's
directors and certain executive officers have entered into agreements to vote
all shares of Cumberland Common Stock held by them FOR the approval of the
Agreement.
VOTING AND REVOCATION OF PROXIES
Shares of Cumberland Common Stock represented by a proxy properly signed
and received at or prior to the Special Meeting, unless subsequently revoked,
will be voted at the Special Meeting in accordance with the instructions on the
proxy. If a proxy is signed and returned without indicating any voting
instructions, shares of Cumberland Common Stock represented by the proxy will be
voted "FOR" approval of the Agreement.
11
If you want to revoke the proxy you submit in response to this proxy
solicitation, you must: (i) sign and deliver a written notice with a later date
to the Assistant Secretary of Cumberland at or before the meeting stating that
you want to revoke the proxy; (ii) sign and deliver to the Assistant Secretary
of Cumberland at or before the meeting a later-dated proxy card relating to the
same shares; or (iii) attend the meeting and vote in person. Revoking a proxy is
effective only if it occurs before the polls close at the Special Meeting.
Attending the meeting does not automatically revoke a proxy. You must deliver
written notice revoking a proxy to J. D. Howard, Secretary, Cumberland Mountain
Bancshares, Inc., 1431 Cumberland Avenue, Middlesboro, Kentucky 40965; telephone
number (606) 248-4584.
A proxy may indicate that all or a portion of the shares represented by the
proxy are not being voted with respect to a specific proposal. This could occur,
for example, when a broker is not permitted to vote shares held in street name
on certain proposals in the absence of instructions from the beneficial owner.
Shares that are not voted with respect to a specific proposal will be considered
as not present for such proposal, even though such shares will be considered
present for purposes of determining a quorum and voting on other proposals.
Abstentions on a specific proposal will be considered as present for purposes of
quorum but will not be counted as voting in favor of such proposal.
SOLICITATION OF PROXIES
In addition to solicitation by mail, the directors, officers, employees and
agents of Cumberland may solicit proxies from Cumberland's shareholders, either
personally or by telephone or other form of communication. None of these persons
who solicit proxies will be specifically compensated for such services.
Nominees, fiduciaries and other custodians will be requested to forward
soliciting materials to beneficial owners. Cumberland will reimburse such
nominees, fiduciaries and other custodians for the reasonable out-of-pocket
expenses incurred by them in connection with this process. Cumberland will bear
its own expenses in connection with the solicitation of its proxies for the
Special Meeting.
IMPORTANT INFORMATION FOR SHAREHOLDERS WHOSE STOCK IS HELD IN STREET NAME
If you hold your stock in street name, which means that your stock is held
for you in a brokerage account and is not registered on Cumberland's stock
records in your own name, your broker will not vote your shares on the Agreement
unless you instruct your broker how you want your votes to be cast. Please tell
your broker as soon as possible how to vote your shares to make sure that your
broker has enough time to vote your shares before the polls close at the
meeting. If your broker does not vote your shares, that will have the same
effect as a vote against the Agreement. If your stock is held in street name,
you do not have the direct right to vote your shares or to revoke a proxy for
your shares unless the record holder of your stock gives you that right in
writing.
12
IMPORTANT INFORMATION FOR PARTICIPANTS IN THE CUMBERLAND ESOP
If you participate in the Cumberland ESOP, the proxy card represents a
voting instruction to the trustee of the ESOP as to the number of shares in your
plan account. Each participant in the ESOP may direct the trustee as to the
manner in which shares of Common Stock allocated to the participant's plan
account are to be voted. Unallocated shares of Common Stock held by the ESOP and
allocated shares for which no voting instructions are received will be voted by
the trustee in the same proportion as shares for which the trustee has received
voting instructions, subject to the trustee's exercise of his fiduciary
obligations.
THE AGREEMENT AND THE MERGER
The following discussion is qualified by reference to the Agreement which
is attached as Appendix A to this Proxy Statement and incorporated herein by
reference. You are urged to read the Agreement carefully in its entirety. All
information contained in this Proxy Statement with respect to Commercial and
Commercial Bank has been supplied by Commercial for inclusion herein and has not
been independently verified by Cumberland.
THE PARTIES TO THE AGREEMENT
CUMBERLAND AND MIDDLESBORO FEDERAL. Cumberland is the holding company for
Middlesboro Federal, a federal savings bank with three offices in Middlesboro,
Cumberland and Pineville, Kentucky and one office in Fountain City, Tennessee.
The principal executive offices of Cumberland and Middlesboro Federal are
located at 1431 Cumberland Avenue, Middlesboro, Kentucky 40965.
COMMERCIAL AND COMMERCIAL BANK. Commercial is the holding company for
Commercial Bank, a Tennessee chartered commercial bank with eight offices in
Claiborne, Union and Knox Counties.
DESCRIPTION OF THE AGREEMENT AND THE MERGER
Cumberland, Middlesboro Federal, Commercial and Commercial Bank entered
into the Agreement on February 8, 2001. The Agreement provides that if the
conditions described below are met, Cumberland will merge into Commercial.
Commercial has agreed to pay an aggregate of $9.52 million in exchange for all
of the outstanding shares of Cumberland common stock as well as to cancel
certain options to purchase shares of Cumberland common stock. As a result of
the Merger, each shareholder of Cumberland (other than those that choose to
exercise dissenters' rights) will receive approximately $14.32 in cash for each
share of Cumberland Common Stock owned. Holders of options to purchase shares of
Cumberland Common Stock will receive a cash payment equal to the excess of
$14.32 over the exercise price of such option multiplied by the number of shares
for which the option is exercisable, assuming no options are exercised prior to
the Effective Time. Cumberland shareholders will cease to be shareholders of
Cumberland and will not become shareholders of Commercial. Simultaneously with
the Merger, Middlesboro Federal will merge with and into Commercial Bank and
thereafter operate as a division of Commercial Bank.
13
BACKGROUND OF THE MERGER
Background of the Merger. During the last several years, there have been
significant developments in the banking and financial services industry. These
developments have included the increased emphasis and dependence on automation,
specialization of products and services, increased competition from other
financial institutions, and a trend toward consolidation and geographic
expansion, coupled with a relaxation of regulatory restrictions on interstate
conduct of business of financial institutions.
Cumberland Mountain Bancshares. Inc. has pursued a strategy for increasing
the long-term value of Cumberland Common Stock primarily by expanding the range
of financial services offered by Middlesboro Federal Bank, FSB. The Board of
Directors of Cumberland believed that such a strategy would lead to a
diversification of risk and enhancement of income and enable Cumberland to
better serve customer needs through a broader range of products and services.
The goal was to enable Cumberland to compete more effectively in the southeast
Kentucky market and to enhance the long-term value of Cumberland Common Stock.
In November 2000, Terry L. Lee, the President and Chief Operating Officer
of Commercial, and James J. Shoffner, the President and Chief Executive Officer
of Cumberland, met to discuss the possibility of a combination between
Commercial and Cumberland. Due to the long term relationship between their
banks, they were familiar with each other's operations and communities and
readily saw many of the benefits of a merger. Cumberland engaged The Carson
Medlin Company ("Carson Medlin") on November 21, 2001 to assist the company in
its negotiations with Commercial. Preliminary pro formas reflecting their
collective estimates of internal growth rates, potential savings, and revenue
enhancements were run and seemed to validate their perceptions of the potential
that could be created in such a merger.
On December 14, 2000, Mr. Shoffner discussed the proposed transaction with
the Board of Cumberland. The Board of Directors discussed the business of
Commercial and the opportunity presented by the proposed merger and decided to
continue negotiations toward a potential merger. Representatives of Commercial
and Cumberland and Carson Medlin continued negotiations over the next several
weeks.
Both parties performed due diligence during the period of January 8-18th.
Cumberland's board met on January 31, 2001 to consider a non-binding indication
of interest which called for the payment of $9,520,00 in cash for all the
outstanding shares of Cumberland Common Stock and options, subject to a
definitive merger agreement. The consideration paid to Cumberland shareholders
was approximately $14.00 per share.
Cumberland's due diligence investigation of Commercial included a review of
Commercial's business practices and policies, including but not limited to
employee benefits, insurance risk and coverage, and general accounting and
operational procedures and policies. Also, Cumberland investigated the financial
condition of Commercial on a historical and prospective basis. This
investigation included a review of asset quality and a comparison of the
methodology of calculating the allowance for loan losses of Commercial and
Cumberland.
14
Cumberland reviewed Commercial's investment portfolio and evaluated Commercial's
fixed assets from a risk standpoint.
Cumberland also investigated earnings of Commercial primarily on a
prospective basis. This investigation considered elements of the net interest
margin, as well as significant other income and other expense areas. Opportunity
for the proposed organization were analyzed. These included better market
opportunities for the combined organization, as well as economies of scale that
will be realized in data processing, operations, and accounting.
The operations and financial functions of Cumberland were reviewed in
detail to determine the accuracy of financial data, as well as to determine the
general level of operational efficiency of Cumberland. This investigation
consisted of both on-site and off-site review of all areas of Cumberland. The
due diligence team concluded that the financial condition of Cumberland, as well
as its operational organization and efficiency, was satisfactory and was
accurately presented in its current status.
Credit due diligence was performed by a team from Commercial who did both
on-site and off-site analysis of the loan portfolio of Cumberland, focusing upon
compliance with lending rules and regulations, as well as the proper margining
of secured loans and the overall quality of the loan portfolio, taking into
consideration the adequacy of its loan loss reserve. As a result of this due
diligence, Commercial believes that Cumberland's loan portfolio and the reserve
for possible loan losses were accurate, adequate and properly established.
Cumberland's Board met on February 8, 2001 to consider the Merger
Agreement. Representatives of Carson Medlin and Cumberland's legal advisors were
at the meeting to discuss the financial and legal issues of the Merger
Agreement. At that meeting, Carson Medlin issued its written opinion that the
consideration received in the transaction was fair, from a financial point of
view, to Cumberland's shareholders. The Board unanimously approved the Merger
Agreement.
On February 8, 2001, the parties executed the Merger Agreement and issued a
joint press release on February 9, 2001 announcing the execution of the Merger
Agreement.
REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD OF DIRECTORS
In reaching its conclusion to approve the Merger, Cumberland's Board of
Directors considered, among other factors, the following:
o The Financial Terms of the Merger. The Board believed that the
purchase price represented, among other things, a fair multiple of
Cumberland's tangible book value and earnings.
o Advice of Financial Advisor and Fairness Opinion. The Cumberland Board
considered the advice of its financial advisor and reviewed detailed
financial analyses and other information presented by Carson Medlin.
The Cumberland Board considered the opinion of Carson Medlin,
including the assumptions and
15
financial information and projections relied upon by Carson Medlin in
arriving at such opinion, that, as of February 8, 2001, and based upon
the matters set forth in its written opinion as of that date, the
aggregate consideration was fair, from a financial point of view, to
the holders of Cumberland Common Stock. See "Opinion of Cumberland's
Financial Advisor."
o Effect on Shareholder Value. In evaluating the effect on shareholder
value of Cumberland remaining independent compared to the effect of
its combining with Commercial, the Board considered various matters.
First, the Board considered whether it was reasonable to anticipate
that Cumberland, as an independent enterprise, could produce a value
comparable to the value to be received in the Merger. Second, the
Board took into account that Cumberland had special value to
Commercial in enhancing its presence in southeast Kentucky and
northeast Tennessee. Third, the Board was advised by management that
continued investment in technology by Cumberland to support its
delivery systems and to meet competition would be significant. Fourth,
there was no reliable evidence to suggest that another strategic
alternative would produce better value for the Cumberland
shareholders.
o Certain Financial and Other Information Concerning Cumberland. The
financial and other information concerning Cumberland considered by
Cumberland's Board included, but was not limited to, information with
regard to recent and historical stock performance, the depth of the
trading markets for Cumberland Common Stock, valuation analyses,
comparative financial and operating performance, and comparable merger
and acquisition transactions as presented by Carson Medlin.
o Effect on Cumberland Constituencies. The Cumberland Board also
considered the general effect the Merger would have on the various
constituencies served by Cumberland, including its customers,
employees, and others. The Cumberland Board took into account that the
combined entity would be able to offer a more extensive range of
products and banking services to Cumberland's customers and
communities.
o Economic and Competitive Environment. The Cumberland Board took into
account the current and prospective economic and competitive
environment facing the financial services industry generally, and the
respective capacities of Cumberland and Commercial to compete
effectively given the rapid changes in the financial services
industry.
o Regulatory Approvals. The Cumberland Board believed that the requisite
regulatory approvals necessary to complete the Merger would be
obtained. See "Regulatory Approvals."
The foregoing discussion of the information and factors considered by the
Cumberland Board is not intended to be exhaustive, but is believed to include
the material factors considered by the Cumberland Board. In reaching its
determination to approve the Merger, the Cumberland
16
Board did not assign any relative or specific weight to any of the foregoing
factors, and individual directors may have given differing weights to different
factors. After deliberating with respect to the Merger, and considering, among
other things, the matters discussed above and the opinion of Carson Medlin
referred to above, the Cumberland Board unanimously approved the Merger
Agreement and the transactions contemplated thereby as being in the best
interest of Cumberland and its shareholders and consistent with the interests of
all other Cumberland constituencies.
The Commercial Board of Directors, after consideration of relevant
business, financial, legal and market factors, approved the Merger Agreement.
Commercial's Board of Directors considered all material factors although it did
not assign any relative or specific weight to them. Commercial, in considering
the Merger, took into account its stated strategic long-term goal of continuing
to expand Commercial throughout southeast Kentucky and northeast Tennessee, as
well as other growth markets. In this regard, Commercial looked at the earnings
potential of Cumberland giving consideration to Cumberland's size and its
locations. The Commercial Board also considered potential adverse consequences
of transactions similar to the Merger, including the need to expand substantial
management time in order to integrate the operations of each entity and thereby
capture the benefits contemplated by the Merger. After considering these
factors, Commercial determined that the Merger would further its long-term goals
and would enhance Commercial's shareholder value, while permitting Commercial to
continue to grow and expand as an independent bank holding company. ACCORDINGLY,
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS APPROVE THE
AGREEMENT AND THE MERGER.
Generally, the Board of Directors concluded that in the long term
Cumberland could not produce shareholder value in excess of the merger price,
and that the merger price was fair, from a financial point of view, to
Cumberland's shareholders.
OPINION OF CUMBERLAND'S FINANCIAL ADVISOR
Cumberland engaged Carson Medlin pursuant to an engagement letter dated
November 21, 2000 to serve as its financial advisor in its negotiations with
Cumberland and to render its opinion as to the fairness, from a financial point
of view, of the consideration received by the shareholders of Cumberland in the
merger. Cumberland selected Carson Medlin as its financial adviser on the basis
of Carson Medlin's historical relationship with Cumberland and Carson Medlin's
experience and expertise in representing community banks in similar
transactions. Carson Medlin is an investment banking firm which specializes in
the securities of financial institutions located in the southeastern and western
United States. As part of its investment banking activities, Carson Medlin is
regularly engaged in the valuation of financial institutions and transactions
relating to their securities, including mergers and acquisitions.
Representatives of Carson Medlin participated in a meeting of Cumberland's
board of directors held on February 8, 2001. At that meeting Carson Medlin
delivered its written opinion to the effect that the consideration provided for
in the merger agreement is fair, from a financial point of view, to the
shareholders of Cumberland. Carson Medlin subsequently confirmed its opinion in
writing as of September 26, 2001.
17
You should consider the following when reading the discussion of the Carson
Medlin opinion in this document:
- The summary of the opinion of Carson Medlin set forth in this proxy
statement is qualified in its entirety by reference to the full text
of the opinion that is attached as Appendix B to this document. You
should read the opinion in its entirety for a full discussion to the
procedures followed, assumptions made, matters considered and
qualification and limitation on the review undertaken by Carson Medlin
in connection with its opinion.
- Carson Medlin's opinion does not address the merits of the merger
relative to other business strategies, whether or not considered by
Cumberland's board, nor does it address the decision by Cumberland's
board to proceed with the merger.
- Carson Medlin's opinion to Cumberland's board of directors rendered in
connection with the merger does not constitute a recommendation to any
Cumberland shareholder as to how he or she should vote at the special
meeting.
No limitations were imposed by Cumberland's board of directors or its
management upon Carson Medlin with respect to the investigations made or the
procedures followed by Carson Medlin in rendering its opinion.
The preparation of a financial fairness opinion involves various
determinations as to the most appropriate methods of financial analysis and the
application of those methods to the particular circumstances. It is therefore
not readily susceptible to partial analysis or summary description. In
connection with rendering its opinion, Carson Medlin performed a variety of
financial analyses. Carson Medlin believes that its analyses must be considered
together as a whole and that selecting portions of its analyses and the facts
considered in its analyses, without considering all other factors and analyses,
could create an incomplete or inaccurate view of the analyses and the process
underlying the rendering of Carson Medlin's opinion.
In performing its analyses, Carson Medlin made numerous assumptions with
respect to industry performance, business and economic conditions, and other
matters, many of which are beyond the control of Commercial and Cumberland, and
may not be realized. Any estimates contained in Carson Medlin's analyses are not
necessarily predictive of future results or values, which may be significantly
more or less favorable than the estimates. Estimates of values of companies do
not purport to be appraisals or necessarily reflect the prices at which the
companies or their securities may actually be sold. Except as described below,
none of the analyses performed by Carson Medlin was assigned a greater
significance by Carson Medlin than any other. The relative importance or weight
given to these analyses by Carson Medlin is not necessarily reflected by the
order of presentation of the analyses herein (and the corresponding results).
The summaries of financial analyses include information presented in tabular
format. The tables should be read together with the text of those summaries.
18
Carson Medlin has relied, without independent verification, upon the
accuracy and completeness of the information it reviewed for the purpose of
rendering its opinion. Carson Medlin did not undertake any independent
evaluation or appraisal of the assets and liabilities of Commercial or
Cumberland, nor was it furnished with any appraisals.
Carson Medlin is not an expert in the evaluation of loan portfolios,
including under-performing or non-performing assets, charge-offs or the
allowance for loan losses; it has not reviewed any individual credit files of
Commercial or Cumberland; and it has assumed that the allowances of Commercial
and Cumberland are in the aggregate adequate to cover losses. Carson Medlin's
opinion is necessarily based on economic, market and other conditions existing
on the date of its opinion, and on information as of various earlier dates made
available to it which is not necessarily indicative of current market
conditions.
In rendering its opinion, Carson Medlin made the following assumptions:
- that the merger will be accounted for as a purchase in accordance with
generally accepted accounting principles;
- that all material governmental, regulatory and other consents and
approvals necessary for the consummation of the merger would be
obtained without any adverse effect on Cumberland, Commercial or on
the anticipated benefits of the merger;
- that Cumberland had provided it with all of the information prepared
by Cumberland or its other representatives that might be material to
Carson Medlin in its review; and
- that the financial projections it reviewed were reasonably prepared on
a basis reflecting the best currently available estimates and
judgement of the management of Cumberland as to the future operating
and financial performance of Cumberland.
In connection with its opinion dated February 8, 2001, Carson Medlin
reviewed:
- the merger agreement;
- the audited financial statements of Commercial for the five years
ended December 31, 2000
- audited financial statements of Cumberland for the five fiscal years
ended June 30, 2000;
- unaudited interim financial statements of Cumberland for the six
months ended December 31, 2000; and
- financial and operating information with respect to the business,
operations and prospects of Commercial and Cumberland.
19
In addition, Carson Medlin:
- held discussions with members of management of Commercial and
Cumberland regarding the historical and current business operations,
financial condition and future prospects of their respective
companies;
- reviewed the historical market prices and trading activity for the
common stock of Commercial, as well as Cumberland common stock;
- compared the results of operations of Commercial and Cumberland with
those of certain financial institutions which it deemed to be
relevant;
- compared the financial terms of the merger with the financial terms,
to the extent publicly available, of certain other recent business
combinations of financial institutions;
- conducted such other studies, analyses, inquiries and examinations as
Carson Medlin deemed appropriate.
VALUATION METHODOLOGIES
The following is a summary of all material analyses performed by Carson
Medlin in connection with its opinion provided to Cumberland's board of
directors as of February 8, 2001. The summary does not purport to be a complete
description of the analyses performed by Carson Medlin.
SUMMARY OF MERGER AND ANALYSIS
Carson Medlin reviewed the terms of the proposed merger, including the form
of consideration, and the resulting price per share of Cumberland common stock
pursuant to the proposed merger. Under the terms of the merger agreement,
Commercial will pay $9,520,000 in cash for all outstanding common stock and
options of Cumberland. Each common shareholder will receive approximately $14.32
per share in cash.
Carson Medlin calculated that the indicated value on February 8, 2001
represented:
- a 61.4% premium to Cumberland's market value one day prior to
announcement and a 104.6% premium to Cumberland's market value one
month prior to announcement;
- 113% of stated book value at December 31, 2000;
- 25.4 times projected earnings for the twelve months ending December
31, 2001;
- 9.1% of total deposits at December 31, 2000;
20
- a 1.4% core deposit premium at December 31, 2000; and
- 7.5% of total assets of Cumberland at December 31, 2000.
INDUSTRY COMPARATIVE ANALYSIS
In connection with rendering its opinion, Carson Medlin compared selected
operating results of Cumberland to those of 20 publicly-traded thrift
institutions in Kentucky, Tennessee, Virginia and West Virginia, which Carson
Medlin considers comparable to Cumberland for financial performance
measurements. Carson Medlin compared, among other factors, profitability,
capitalization, and asset quality of Cumberland to these financial institutions
as well as current pricing multiples. Carson Medlin noted the following returns
based on results at or for the quarter ended September 30, 2000 (most recent
available):
--------------------------------------------------------------------------------
Average for
CMBN Peer Group
--------------------------------------------------------------------------------
Return on Average Assets -0.60% 0.66%
Return on Average Equity -8.68% 4.24%
Net Interest Margin 3.25% 3.43%
Efficiency Ratio 100.9% 64.3%
Non-Performing Assets (defined as 90 days past due, 1.34% 0.55%
nonaccrual loans and other real estate )
to Total Assets
Price to Book Value (at February 6, 2001) 71.4% 91.2%
Price to Trailing 12 months Earnings
(at February 6, 2001) nm 15.5X
--------------------------------------------------------------------------------
This comparison indicated that Cumberland's financial performance was below
the peer group for each factor analyzed.
Comparable Transaction Analysis
Carson Medlin reviewed certain information relating to the following
selected merger transactions involving thrifts in the certain markets in the
southeast United States, including Kentucky, North Carolina, Tennessee, and
Virginia, announced since January 1, 2000:
21
--------------------------------------------------------------------------------
SELLER BUYER
--------------------------------------------------------------------------------
Penfe Bancorp, Inc. KY Third FS&LA, MHC OH
Lexbanc Corporation KY First State Bancshares, Inc. KY
First Savings Bank of Virginia VA Southern Financial Bancorp, Inc. VA
Dominion Savings Bank, FSB VA Greater Atlantic Financial Corp. VA
Twin City Bancorp, Inc. TN Citco Community Bancshares, Inc. TN
SWVA Bancshares, Incorporated VA FNB Corporation VA
Century Bancorp, Inc. NC First Bancorp NC
--------------------------------------------------------------------------------
Carson Medlin considered, among other factors, the earnings, capital level,
asset size and quality of assets of the acquired financial institutions. Carson
Medlin compared the transaction prices at the time of announcement to the stated
book value, earnings, total and core deposits and total assets of the acquired
institutions.
COMPARABLE TRANSACTION ANALYSIS
-----------------------------------------------------------------------------------
PURCHASE PRICES AS A PERCENTAGE OF STATED BOOK VALUE Low High Average
-----------------------------------------------------------------------------------
Comparable Transactions 116.2% 156.7% 133.4%
Range of Values (based on CMBN stated book value $14.93 $20.14 $17.14
of $12.85 per share at December 31, 2000)
-----------------------------------------------------------------------------------
The implied consideration of the merger is approximately $14.32 per share, or
113% of stated book value, which is just below the low end of the range for the
comparable transactions.
-----------------------------------------------------------------------------------
PURCHASE PRICES AS A MULTIPLE OF EARNINGS Low High Average
-----------------------------------------------------------------------------------
Comparable Transactions 15.8 39.3 22.6
Range of Values (based on CMBN projected $9.01 $22.40 $12.88
share of $0.57 for 12 mos ended December 31, 2001)
-----------------------------------------------------------------------------------
The implied consideration of the merger of approximately $14.32 per share,
or 25.4 times projected twelve months earnings ending December 31, 2001, is
above the average for the comparable transactions.
-----------------------------------------------------------------------------------
CMBN Comparable Transactions
OTHER PRICING MULTIPLES Indicator Low High Average
-----------------------------------------------------------------------------------
Purchase Price % of Total Deposits 9.1% 2.8% 29.4% 19.0%
Core Deposit Premium 1.4% 0.4% 12.7% 6.7%
Purchase Price % of Total Assets 7.5% 2.5% 21.6% 14.4%
-----------------------------------------------------------------------------------
The purchase price as a percentage of total deposits implied by the merger
is 9.1%, which is above the low end of the range for the comparable
transactions. The core deposit premium,
22
which is the aggregate transaction value minus stated book value divided by core
deposits, is 1.4% and slightly above the low end of the range for the comparable
transactions. The purchase price as a percentage of total assets implied by the
merger is 7.5%, which is also above the low end of the range for the comparable
transactions.
No company or transaction used in Carson Medlin's analyses is identical to
Cumberland or the proposed merger. Accordingly, the results of these analyses
necessarily involves complex considerations and judgments concerning differences
in financial and operating characteristics of Cumberland and other factors that
could affect the value of the companies to which they have been compared.
PRESENT VALUE ANALYSIS
Carson Medlin calculated the present value of Cumberland assuming that
Cumberland remained an independent bank. For purposes of this analysis, Carson
Medlin utilized certain projections of Cumberland's future growth of assets,
earnings and dividends and assumed that Cumberland's common stock would be sold
at the end of 5 years at a price ranging from 100% to 160% of book value. These
values were then discounted to present value utilizing discount rates of 15% to
19%. These rates were selected because, in Carson Medlin's experience, they
represent the rates that investors in securities such as Cumberland's common
stock would demand in light of the potential appreciation and risks.
PRESENT VALUE ANALYSIS
(in millions)
--------------------------------------------------------------------------------
Price to Book Value Multiples
----------------------------------------------------------------
1.00 1.10 1.20 1.30 1.40 1.50 1.60
--------------------------------------------------------------------------------
15.0% 5.958 6.554 7.150 7.746 8.342 8.938 9.533
17.0% 5.466 6.013 6.560 7.106 7.653 8.199 8.746
19.0% 5.022 5.524 6.027 6.529 7.031 7.533 8.035
--------------------------------------------------------------------------------
On the basis of these assumptions, Carson Medlin calculated that the
present value of Cumberland as an independent bank ranged from $5.022 million to
$9.533 million. The consideration implied by the terms of the merger agreement
was $9.520 million, which falls slightly above the high end of the range under
present value analysis.
Carson Medlin noted that it included present value analysis because it is a
widely used valuation methodology, but also noted that the results of this
methodology are highly dependent upon the numerous assumptions that must be
made, including assets and earnings growth rates, dividend payout rates,
terminal values and discount rates.
HISTORICAL STOCK PERFORMANCE ANALYSIS
Carson Medlin reviewed and analyzed the historical trading prices and
volumes of Cumberland common stock since the Company's secondary stock offering
in mid 1997. Carson Medlin noted that Cumberland's stock traded as high as
$17.00 per share in mid 1998 and had steadily declined and recently traded as
low as $5.00 per share. Carson Medlin noted that most
23
financial institution stocks peaked in mid 1998 and had been declining over the
same period. Cumberland's volume had also steadily declined from the period
subsequent to the secondary offering.
The opinion expressed by Carson Medlin was based upon market, economic and
other relevant considerations as they existed and could be evaluated as of the
date of the opinion. Events occurring after the date of issuance of the opinion,
including but not limited to, changes affecting the securities markets, the
results of operations or material changes in the assets or liabilities of
Cumberland or Commercial, could materially affect the assumptions used in
preparing the opinion.
In connection with its opinion, dated as of the date of this Proxy
Statement, Carson Medlin confirmed the appropriateness of its reliance on the
analyses used to render its February 8, 2001 written opinion by performing
-------
procedures to update certain of such analyses and reviewing the assumptions on
which its analyses were based and the factors considered in connection
therewith.
PAYMENT PROCEDURES
Commercial will appoint an Exchange Agent to facilitate the payment for
shares of Cumberland Common Stock and options. At or before the Effective Time
of the Merger, Commercial will pay to the Exchange Agent sufficient funds so
that the Exchange Agent can pay the merger consideration to all remaining
shareholders of Cumberland and all holders of options to purchase Cumberland
Common Stock. No later than three business days after the Merger is consummated,
the Exchange Agent will mail transmittal letters and instructions to all
Cumberland shareholders and optionholders at their addresses as shown on
Cumberland's official stock records. Shareholders can then use the transmittal
letters to submit their stock certificates for payment. If a shareholder has
lost his or her stock certificate, the Agreement requires that the shareholder
submit an affidavit and a lost certificate indemnity bond in order to receive
payment.
The merger price will be paid without interest. Accordingly, shareholders
of Cumberland should promptly complete and return their transmittal letters as
quickly as possible. Transmittal letters will be sent to the addresses used to
mail this Proxy Statement. If you own your stock directly in your own name and
you want to update your address, you should immediately contact Cumberland 's
transfer agent, Illinois Stock Transfer Company. If you own your stock in
"street name" through a broker, the Exchange Agent will send the transmittal
letter to the record owner of your shares and you will not submit your shares
yourself for payment. Instead, you should contact your broker to receive
payment.
POSSIBLE ADJUSTMENT OF MERGER PRICE
In the event Cumberland's net worth at Closing is less than $8.0 million,
the parties may either elect to terminate the Merger Agreement or reduce the
aggregate Merger Consideration by the difference between $8.0 million and
Cumberland's actual net worth.
24
CLOSING
The closing of the Merger will take place on the last business day of the
month in which all regulatory and shareholder approvals have been received and
required waiting periods have expired or at such other date and time as the
parties agree. In no event, however, can the closing occur until all required
regulatory approvals have been obtained and all related waiting periods have
expired and Cumberland shareholders have approved the Agreement. Assuming
shareholders approve the Merger on October 24, 2001, the parties anticipate that
the Merger will close effective October 31, 2001.
CONDITIONS TO COMPLETION OF THE MERGER
The consummation of the Merger will only occur if all of the following
conditions are met or waived:
o The shareholders of Cumberland approve the Agreement;
o The Board of Governors of the Federal Reserve System and the Tennessee
Department of Financial Institutions shall have approved the Merger,
all related waiting periods have expired and no approval contains any
provision which, in the reasonable good faith opinion of Commercial
would so materially adversely impact the economic or business benefits
of the Merger so as to render it inadvisable;
o All other required consents necessary for the completion of the Merger
have been obtained and no such consent contains any provision which,
in the reasonable good faith opinion of Commercial, would have a
material adverse effect on its anticipated benefits from the Merger;
o There is no court or agency order, injunction or decree which
prohibits, restricts or makes illegal the Merger;
o The representations and warranties of all of the parties to the
Agreement are true and correct on the closing date;
o All of the agreements and covenants of the parties to the Agreement
which are set forth in the Agreement shall have been performed or
complied with in all material respects;
o Each of the directors and executive officers of Cumberland and
Middlesboro Federal shall have delivered certain letters to Commercial
regarding any known possible indemnification claims;
o Certain indemnification agreements shall have been terminated;
25
o Cumberland shall have delivered an instrument by which Mr. James J.
Shoffner agrees to the termination of his employment agreement in
exchange for a payment equal to $300,000 plus approximately $195,524
(which represents expected accrued benefits under the supplemental
retirement benefits under his employment agreement);
o Plan participants under the Cumberland stock option plan shall have
agreed to the cancellation of all options the exercise price of which
exceeds $14.32 per share;
o Commercial shall have entered into written amendments to the severance
agreements with three individuals who are currently officers of
Middlesboro Federal;
o Commercial shall have delivered to the Exchange Agent sufficient funds
to pay the aggregate amount that the shareholders and the
optionholders of Cumberland are entitled to receive and Cumberland
shall have received a certificate from the Exchange Agent to that
effect; and
o Other customary closing conditions are met, such as the requirements
for the delivery of customary officers' certificates and attorneys'
opinion letters.
RESTRICTIONS ON OPERATIONS
Pursuant to the Agreement, Cumberland and Commercial have each agreed to
operate their businesses only in the ordinary course, to preserve their business
organizations intact, and to maintain good relationships with their employees.
Each party has also agreed that it will not take any action that would have an
adverse effect on the ability of the parties to obtain all required regulatory
approvals and other consents or to perform their respective obligations and
agreements under the Agreement. The parties to the Agreement have also agreed
to:
o give prompt written notice to the other parties after becoming aware
of any situation that is reasonably likely to have a material adverse
effect on it or would cause or represent a material breach of any of
its representations and warranties or covenants and to use its best
efforts to promptly remedy such situation;
o make all required reports with the regulatory authorities and, if such
reports contain financial statements, the statements must fairly
present the financial condition and results of operations of the filer
and comply in all material respects with all applicable securities
laws;
o cooperate in the preparation and mailing of this Proxy Statement;
o cooperate in the preparation and filing of all required regulatory
applications and all other required filings;
26
o use their best efforts to take all actions necessary to consummate the
transactions contemplated by the Agreement;
o keep each other apprised of all material developments in their
respective businesses;
o maintain the confidentiality of all confidential information received
from the other parties to the Agreement; and
o cooperate in the preparation and issuance of all press releases
regarding the Agreement and the transactions contemplated thereby.
Cumberland has also agreed to use its best efforts to sell certain loans
from directors of Commercial. The Board of Directors of Cumberland also agreed
to recommend to shareholders that the Agreement and the Merger be approved and
to include such recommendation in this Proxy Statement. The Cumberland Board was
only obligated to do so, however, if such recommendation was consistent with the
Board's fiduciary duties and Carson Medlin was able to confirm its opinion that
the consideration to be received by shareholders was fair to them from a
financial point of view. Carson Medlin's updated opinion is included as Appendix
B to this Proxy Statement.
In addition, Cumberland and Middlesboro Federal have agreed that they will
not do any of the following without first having received the prior written
consent of Commercial, which Commercial has agreed will not be unreasonably
withheld:
o amend the charter of bylaws of Cumberland, Middlesboro Federal or any
of their subsidiaries;
o borrow, guarantee or otherwise become obligated to pay any debt in
excess of $5,000, other than in the ordinary course of business
consistent with past practices;
o permit any lien to be placed on any asset of Cumberland, Middlesboro
Federal or any of their subsidiaries, except for certain types of
liens customarily incurred by financial institutions or liens that had
been previously disclosed to Commercial;
o repurchase, acquire or exchange any shares of stock of Cumberland,
Middlesboro Federal or any of their subsidiaries other than in the
ordinary course of business in connection with employee benefit plans;
o declare or pay any dividend;
o issue any additional shares of capital stock, except pursuant to the
exercise of stock options any stock appreciation rights or any option
or other right to purchase shares of stock;
27
o adjust, split or combine any capital stock of Cumberland, Middlesboro
Federal or any of their subsidiaries;
o issue or authorize for issuance any shares in substitution for the
Cumberland Common Stock;
o sell, lease or otherwise dispose of or encumber any shares of stock of
any subsidiary or assets having a book value in excess of $5,000,
except in all instances, in the ordinary course of business;
o purchase any securities or make any material investment in any party
except for purchases of U.S. Treasury securities, U.S. Government
agency securities or mortgage-backed securities of maturity and grade
consistent with past produces;
o acquire direct or indirect control over any party other than in
connection with foreclosures or by Middlesboro Federal acting in its
fiduciary capacity;
o grant any increase in compensation or benefits to any employee or
officer except as may be required by law or consistent with past
practices;
o pay any severance or termination pay or bonus arrangement except
pursuant to written agreements or policies in effect on the date of
the Agreement;
o enter into or amend any severance agreements with officers of
Cumberland, Middlesboro Federal or any of their subsidiaries;
o grant any increase in fees or other increases in compensation and
benefits to directors of Cumberland, Middlesboro Federal or any of
their subsidiaries;
o voluntarily accelerate the vesting of any stock options or other
stock-based compensation or employee benefits;
o enter into or amend any employment contract (unless such amendment is
required by law) that cannot be unconditionally terminated without
liability other than for services rendered at any time before the
closing;
o adopt any new employee benefit plan or make any material change in or
to any existing employee benefit plan of Cumberland, Middlesboro
Federal or any of their subsidiaries, other than any change that is
required by law, is contemplated by the Agreement or, in the opinion
of counsel, is necessary or advisable to maintain the tax qualified
status of any such plan;
o make any significant change in any tax or accounting methods or
systems of internal accounting controls, except as may be appropriate
to conform to changes in tax laws or regulatory accounting
requirements or generally accepted accounting principles;
28
o settle any litigation involving any liability of Cumberland,
Middlesboro Federal or any of their subsidiaries for money damages in
excess of $5,000 or restrictions upon the operations of such entity;
o except in the ordinary course of business, modify, amend, or terminate
any material contract or waive, release, compromise, or assign any
material rights or claim;
o fail to make any required contribution to the ESOP as required by the
Plan documents;
OTHER ACQUISITION PROPOSALS
The Agreement provides that, until the Agreement is terminated, Cumberland
and its representatives and agents may not, directly or indirectly or initiate,
solicit any inquiries or proposals from persons other than Commercial to acquire
Cumberland. Cumberland has also agreed that it will not furnish any non-public
information to any parties, negotiated with such parties, or enter into any
agreement with any such parties, except as may be required by applicable law
(including the fiduciary duties of Cumberland's Board of Directors).
REPRESENTATIONS AND WARRANTIES
Cumberland and Middlesboro Federal have each made certain representations
and warranties in the Agreement. If any of these representations or warranties
is materially false on the closing date, Commercial has the right to terminate
the Agreement and not proceed with the Merger. The principal representations and
warranties relate to: (i) the due organization, good standing and corporate
power of Cumberland; (ii) Cumberland's authority to enter into the Agreement;
(iii) Cumberland's capital stock; (iv) the absence of proxy or shareholder
agreements; (v) subsidiaries of Cumberland; (vi) Cumberland's financial
statements; (vii) the absence of any undisclosed liabilities; (viii) the absence
of certain changes or events; (ix) certain tax matters; (x) the allowance for
loan losses; (xi) material assets; (xii) certain environmental matters; (xiii)
compliance with laws; (xiv) labor relations; (xv) employee benefit plans; (xvi)
material contracts; (xvii) legal proceedings; (xviii) regulatory reports; (xix)
accounting, tax and regulatory matters; (xx) the investment portfolio; (xxi) the
loan portfolio; (xxii) title to properties; (xxiii) insurance; (xxiv)
properties, contracts and other agreements; (xxv) fair lending and Community
Reinvestment Act matters; (xxvi) books and records; and (xvii) the truth and
accuracy of the information contained herein.
Commercial also has each made certain representations and warranties in the
Agreement. If any of these representations or warranties is materially false on
the closing date, Cumberland has the right to terminate the Agreement and not
proceed with the Merger. The principal representations and warranties relate to:
(i) the due organization, good standing and corporate power of Commercial; (ii)
Commercial's authority to enter into the Agreement; (iii) (iv) the truth and
accuracy of the information contained herein; (v) Commercial's financial
capacity to consummate the Merger; and (vi) regulatory matters.
29
REGULATORY APPROVALS
In order for the Merger and the Bank Merger to occur, the Board of
Governors of the Federal Reserve System and the Tennessee Department of
Financial Institutions must approve the transaction. Commercial has received
both of these approvals. The Office of Thrift Supervision which regulates
Cumberland and Middlesboro Federal has also been notified of the Merger as
required by OTS regulations.
Commercial is not aware of any other regulatory approvals that would be
required for completion of the Merger, except as described above. Should any
other approvals be required, it is presently contemplated that such approvals
would be sought. There can be no assurance that any other approvals, if
required, will be obtained.
The approval of any application merely implies the satisfaction of
regulatory criteria for approval, which does not include review of the Merger
from the standpoint of the adequacy of the consideration to be received by
Cumberland shareholders. Further-more, regulatory approvals do not constitute an
endorsement or recommendation of the Merger.
TERMINATION OF THE AGREEMENT
The Agreement may be terminated on or at any time prior to the closing date
by the mutual written consent of Cumberland and Commercial. In addition, the
Agreement may be terminated by Commercial or Cumberland (provided that the
terminating party is not then in breach of the Agreement):
o in the event of a material breach of any representation or warranty
(other than a de minimus error) of the other party contained in the
Agreement which cannot be or has not been cured within 30 days after
the giving of written notice to the breaching party of such
inaccuracy;
o in the event of a material breach by the other party of any covenant
or agreement contained in the Agreement which cannot be or has not
been cured within 30 days after the giving of written notice to the
breaching party of such breach;
o in the event any consent of any regulatory authority required for
consummation of the Merger and the other transactions contemplated
hereby shall have been denied by final nonappealable action of such
authority or if any action taken by such authority is not appealed
within the time limit for appeal;
o if shareholders of Cumberland fail to approve the Agreement at the
Special Meeting;
o in the event that the Merger shall not have been completed by December
31, 2001 or such later date as may be necessary to finalize any
required regulatory
30
approvals or waiting periods, provided that the delay is not caused by
any breach of the Agreement by the party electing to terminate;
o in the event that any of the conditions precedent to the obligations
of the terminating party to consummate the Merger cannot be satisfied
by December 31, 2001 provided that the terminating party is not in
breach of any representation or warranty or in material breach of any
covenant or obligation contained in the Agreement; or
o if the net worth of Cumberland as of the closing date is less than
$8.0 million, exclusive of any changes or modifications taken at the
direction of Commercial.
If the Agreement is terminated it will generally become void, and there
will be no further liability on the part of Cumberland, Middlesboro Federal,
Commercial or Commercial Bank to any other parties to the Agreement, except for
any liability arising out of any willful breach of any provision of the
Agreement.
AMENDMENT OF THE AGREEMENT
The Agreement may be amended by the respective boards of directors of the
parties at any time before or after approval of the Agreement by Cumberland's
shareholders. Any amendment to the Agreement after shareholders have approved
the Agreement that would decrease the price to be received or change the form of
consideration would require a resolicitation of shareholders.
WAIVER OF PERFORMANCE OF OBLIGATIONS
Either Cumberland or Commercial may, by a signed writing, give any consent,
take any action with respect to the termination of the Agreement or otherwise,
or waive any default or inaccuracies in the representations and warranties of
the other party or compliance by the other party with any of the covenants or
conditions contained in the Agreement.
ACCOUNTING TREATMENT
Commercial will account for the Merger under the purchase method of
accounting. This means that Commercial and Cumberland will be treated as one
company as of the date of the Merger and Commercial will record the fair value
of Cumberland's assets and liabilities on its financial statements. Commercial
will record the excess of its purchase price over the fair value of Cumberland's
identifiable net assets as goodwill.
EXPENSES
Whether or not the Merger is completed, Cumberland and Commercial will each
pay their own fees and expenses.
TAX CONSEQUENCES TO SHAREHOLDERS
31
The following is a discussion of the material federal income tax
consequences of the Merger to certain holders of Cumberland Common Stock. The
discussion is based upon the Internal Revenue Code, Treasury Regulations,
Internal Revenue Service rulings and judicial and administrative decisions in
effect as of the date of this Proxy Statement. This discussion assumes that the
Cumberland Common Stock is generally held for investment. In addition, this
discussion does not address all of the tax consequences that may be relevant to
you in light of your particular circumstances or to Cumberland shareholders
subject to special rules, such as foreign persons, financial institutions,
tax-exempt organizations, dealers in securities or foreign currencies or
insurance companies.
The receipt of cash for Cumberland Common Stock in connection with the
Merger will be a taxable transaction for federal income tax purposes to
shareholders receiving such cash, and may be a taxable transaction for state,
local and foreign tax purposes as well. You will recognize a gain or loss
measured by the difference between your tax basis for the Cumberland Common
Stock owned by you at the time of the Merger and the amount of cash you receive
for your Cumberland shares. Your gain or loss will be a capital gain or loss if
your Cumberland Common Stock is a capital asset to you.
The cash payments the holders of Cumberland Common Stock will receive upon
their exchange of the Cumberland Common Stock pursuant to the Merger generally
will be subject to "backup withholding" for federal income tax purposes unless
certain requirements are met. Under federal law, the third-party paying agent
must withhold 30.5% in calendar year 2001 (30% in calendar year 2002) of the
cash payments to holders of Cumberland Common Stock to whom backup withholding
applies, and the federal income tax liability of these persons will be reduced
by the amount that is withheld. To avoid backup withholding, a holder of
Cumberland Common Stock must provide the Exchange Agent with his or her taxpayer
identification number and complete a form in which he or she certifies that he
or she has not been notified by the Internal Revenue Service that he or she is
subject to backup withholding as a result of a failure to report interest and
dividends. The taxpayer identification number of an individual is his or her
social security number.
Neither Commercial nor Cumberland has requested or will request a ruling
from the Internal Revenue Service as to any of the tax effects to Cumberland's
shareholders of the transactions discussed in this Proxy Statement, and no
opinion of counsel has been or will be rendered to Cumberland shareholders with
respect to any of the tax effects of the Merger to shareholders.
THE ABOVE SUMMARY OF THE MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE
MERGER IS NOT INTENDED AS A SUBSTITUTE FOR CAREFUL TAX PLANNING ON AN INDIVIDUAL
BASIS. IN ADDITION TO THE FEDERAL INCOME TAX CONSEQUENCES DISCUSSED ABOVE,
CONSUMMATION OF THE MERGER MAY HAVE SIGNIFICANT STATE AND LOCAL INCOME TAX
CONSEQUENCES THAT ARE NOT DISCUSSED IN THIS PROXY STATEMENT. ACCORDINGLY,
PERSONS CONSIDERING THE MERGER ARE URGED TO CONSULT THEIR TAX ADVISORS WITH
SPECIFIC REFERENCE TO THE EFFECT OF THEIR OWN
32
PARTICULAR FACTS AND CIRCUMSTANCES ON THE MATTERS DISCUSSED IN THIS PROXY
STATEMENT.
DISSENTERS' RIGHTS
Under Tennessee law, if you do not wish to accept the cash payment provided
for in the Agreement, you have the right to dissent from the Merger and obtain
payment of the fair value of your shares. CUMBERLAND SHAREHOLDERS ELECTING TO DO
SO MUST COMPLY WITH THE PROVISIONS OF SECTION 48-23-201 ET SEQ. OF THE TENNESSEE
BUSINESS CORPORATION ACT IN ORDER TO PERFECT THEIR RIGHTS. CUMBERLAND WILL
REQUIRE STRICT COMPLIANCE WITH THE STATUTORY PROCEDURES. A copy of the
applicable statutes is attached as Appendix C.
The following is intended as a brief summary of the material provisions of
the Tennessee statutory procedures required to be followed by a Cumberland
shareholder in order to dissent from the Merger and obtain payment of the fair
value of his or her shares of Cumberland Common Stock. This summary, however, is
not a complete statement of all applicable requirements and is qualified in its
entirety by reference to Section 48-23-201 et seq. of the Tennessee Business
Corporation Act, the full text of which appears in Appendix C of this proxy
statement.
Section 48-23-201 requires that if a proposed corporate action creating
dissenters' rights is put to a vote of shareholders at a shareholders' meeting,
the meeting notice must state that shareholders are or may be entitled to assert
dissenters' rights and be accompanied by a copy of the applicable statutory
provisions. This Proxy Statement constitutes Cumberland's notice to its
shareholders of the availability of dissenters' rights in connection with the
Merger in compliance with the requirements of Section 48-23-201. If you wish to
consider exercising your dissenters' rights you should carefully review the text
of the statutory provisions contained in Appendix C because failure to timely
and properly comply with the requirements of these provisions will result in the
loss of your rights under Tennessee law.
If you elect to demand appraisal of your shares, you must satisfy both of
the following conditions:
o You must deliver to Cumberland a written demand for the payment of the
fair value for your shares before the vote is taken with respect to
the Merger. This written demand for appraisal must be in addition to
and separate from any proxy or vote abstaining from or against the
Merger. Voting against or failing to vote for the Merger by itself
does not constitute a demand for payment within the meaning of
Tennessee law.
o You must not vote in favor of the Merger. An abstention or failure to
vote will satisfy this requirement, but a vote in favor of the Merger,
by proxy or in person, will constitute a waiver of your dissenters'
rights in respect of the shares so voted and will nullify any
previously filed written demands for payment of fair value.
33
If you fail to comply with either of these conditions and the Merger is
completed, you will be entitled to receive the cash payment for your shares of
Cumberland Common Stock as provided for in the Agreement but will have no
dissenters' rights with respect to your shares of Cumberland Common Stock.
All demands for payment of fair value should be addressed to J. D. Howard,
Secretary, Cumberland, Inc., 1431 Cumberland Avenue, Middlesboro, Kentucky
40965, before the vote on the Merger is taken at the Special Meeting. A record
shareholder may assert dissenters' rights for fewer than all of the shares of
Cumberland Common Stock registered in his or her name only if such holder
dissents with respect to all shares beneficially owned by any one person and
notifies Cumberland in writing of the name and address of each person on whose
behalf he or she is asserting dissenters' rights. If a record shareholder holds
shares that are beneficially owned by two or more parties who do not all seek to
assert dissenters' rights, such record shareholder's rights are determined as if
the shares as to which he or she dissents and his or her other shares were
registered in the names of different shareholders. A beneficial shareholder may
assert dissenters' rights as to shares of Cumberland Common Stock held on his
behalf only if:
o the beneficial holder submits to Cumberland the record shareholder's
written consent to the dissent prior to the Special Meeting; and
o he or she does so with respect to all shares of Cumberland Common
Stock he or she beneficially owns or has power to direct the vote.
Within ten days after the date Cumberland's shareholders approve the
Agreement and the Merger, Cumberland (or Commercial, if the Merger has already
been consummated), must send a written dissenters' notice to all shareholders
who have properly perfected their dissenters' rights. This notice must:
o state where a payment demand must be sent and where and when
certificates for the shares must be deposited;
o inform holders of uncertificated shares to what extent transfer of the
shares will be restricted after the payment demand is received;
o supply a form for demanding payment that includes the date of the
first announcement to the news media or to shareholders of the
principal terms of the Merger and requires that the person asserting
dissenters' rights certify whether or not he or she acquired
beneficial ownership of the shares before that date;
o set a date by which Cumberland (or Commercial) must receive the
payment demand, which date may not be less than one month or greater
than two months after the date this notice is delivered; and
o be accompanied by a copy of the Tennessee dissenters' rights statutes
if the copy has not previously been provided.
34
A shareholder sent this dissenters' rights notice must demand payment and make
the required certification before the deadline that will be specified in the
notice. A dissenting shareholder must also deposit his or her Cumberland Common
Stock certificates in accordance with the procedures specified in the notice.
Cumberland may restrict the transfer of uncertificated shares from the date the
demand for payment is received until the date the Merger closes. If the Merger
does not close within two months of the deadline for submitting the demand for
payment, the restrictions will lapse. A shareholder who complies with all of
these requirements within the required time periods retains all other rights as
a shareholder until these rights are cancelled or modified by the closing of the
Merger. A shareholder who does not demand payment or deposit his or her stock
certificates within the required time periods is not entitled to continue to
seek payment pursuant to these procedures. ONCE A DEMAND FOR PAYMENT HAS BEEN
FILED BY SHAREHOLDER, IT MAY NOT BE WITHDRAWN UNLESS CUMBERLAND (OR COMMERCIAL
AS THE SURVIVING CORPORATION IN THE MERGER) CONSENTS TO THE WITHDRAWAL.
As soon as the Merger is closed, or upon receipt of a payment demand,
whichever is later, Commercial will pay each dissenter who complied with all
applicable statutory provisions the amount Commercial estimates to be the fair
value of such shares, plus accrued interest, from the effective date of the
Merger. The "fair value" of the shares means the value of such shares
immediately before the close of the Merger. This payment must be accompanied by:
o Cumberland's balance sheet as of the end of a fiscal year ending not
more than 16 months before the date of payment, an income statement
for that year, a statement of changes in shareholders' equity for that
year and the latest available interim financial statements, if any;
o a statement of the estimate of the fair value of the shares;
o an explanation of how interest was calculated;
o a statement of the shareholder's right to reject such offer and
provide his or her own estimate to Commercial of the fair value of
such shares (which counteroffer Commercial is not obligated to take)
as well as the procedures and deadlines for doing so; and
o a copy of the dissenters' rights statutes if not previously provided.
If the Merger is not closed within two months after the deadline for submitting
a demand for payment and depositing stock certificates, Cumberland will be
obligated to return any deposited certificates and release any transfer
restrictions. If the Merger subsequently closes, Commercial will be obligated to
send a new dissenters' rights notice and repeat the payment demand procedures
described above.
In the event that a dissenting shareholder acquired the shares of
Cumberland Common Stock on or after the date that the Merger was first
announced, Cumberland (or Commercial) may choose to withhold payment of the
estimated fair value of such shareholder's shares. If
35
Cumberland (or Commercial) elects to do so, after the Merger is closed,
Commercial shall be obligated to pay to such shareholder or shareholders an
amount equal to the estimated fair value of such shares plus interest to any
such shareholder who agrees to accept it in full satisfaction of his or her
demand. Commercial will be obligated to send with its offer a statement of its
estimate, an explanation of how interest was calculated and a statement of the
shareholder's right to reject such offer and provide his or her own estimate of
the fair value of the shares.
If a dissenting shareholder is not satisfied with Commercial's fair value
determination, the shareholder may notify Commercial in writing of his or her
own estimate of the fair value of his or her shares and amount of interest due,
and demand payment of that amount (less any payment previously paid to such
shareholder); or, in the case of a shareholder who acquired his or her shares of
Cumberland Common Stock after the date of the first public announcement of the
Merger, the shareholder may reject the written offer made by Commercial and
demand payment of the fair value of his or her shares, along with interest, in
either case only in the following circumstances:
o The dissenter believes that the amount paid or offered to be paid is
less than the fair value of his or shares or that the interest was
incorrectly calculated;
o Commercial fails to make payment within two months after the date set
for demanding payment; or
o Cumberland and Commercial have not merged and Cumberland has not
returned the deposited certificates or released the transfer
restrictions on uncertificated securities within two months of the
date for demanding payment.
A dissenter waives his or her right to reject payment or the offer of payment
unless he or she provides written notification of his or her objection within
one month after Commercial made or offered payment.
If a demand for payment remains unsettled, Commercial is required to
commence a proceeding within two months after receiving the payment demand and
petition the court to determine the fair value of the shares and the accrued
interest. If Commercial does not do so, it will be required to pay to each
dissenter whose demand remains unsettled, the amount such dissenter has
demanded. The legal action must be commenced in a court of record having equity
jurisdiction in the county where Commercial's principal office is located
(Claiborne County). All dissenters whose claims remain unsettled must be made
party to the proceeding and all parties must be served with a copy of the
proceeding although non-residents may be served by registered or certified mail
or by publication. This court will have exclusive jurisdiction over the matter.
The court may appoint one or more persons as appraisers to receive evidence
and recommend a decision as to the fair value of the shares. Each dissenter made
a party to the proceeding is entitled to a judgment:
36
o for the amount by which the court finds the fair value of his shares,
plus accrued interest, exceeds the amount previously paid by
Commercial; or
o for the fair value, plus accrued interest, of his or her
after-acquired shares for which Commercial elected to withhold
payment.
The court will also determine all costs resulting from the proceeding. The court
will generally require that Commercial pay all costs, except that the court may
assess the costs against some or all of the dissenters, in amounts the court
believes to be fair, to the extent that the court finds that the dissenters
acted arbitrarily, vexatiously, or not in good faith. The court may also assess
the fees and expenses of counsel and experts for the respective parties, in
amounts the court finds to be fair:
o against Commercial and in favor of all dissenters if the court finds
that Cumberland or Commercial did not substantially comply with the
requirements of the Tennessee dissenters' rights statutes; or
o against either Commercial or a dissenter, in favor of another party,
if the court finds that the party against whom the fees and expenses
are assessed acted arbitrarily, vexatiously, or not in good faith with
respect to the rights of the parties set forth in the Tennessee
dissenters' rights statutes.
If the court finds that the services of counsel for any dissenter were of
substantial benefit to other dissenters similarly situated, and that the fees
for those services should not reasonably be assessed against Commercial, the
court may award to these counsel reasonable fees to be paid out of the amounts
awarded to all of the dissenters who were benefited.
In view of the complexity of these provisions, Cumberland shareholders who
may wish to dissent from the Merger and pursue these rights should consult their
legal advisors.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Some members of Cumberland's Board of Directors and certain officers may
have interests in the Merger that are in addition to, or different from the
interests of shareholders. The Board of Directors was aware of these interests
and considered them in adopting the Agreement.
INDEMNIFICATION OF DIRECTORS AND OFFICERS AGAINST CLAIMS. For a period of
three years from the Effective Time, Commercial has agreed to indemnify and hold
harmless each present and former director and officer of Cumberland and
Middlesboro Federal from liability and expenses arising out of matters existing
or occurring at or prior to the consummation of the Merger to the fullest extent
permitted, but as may be limited, by Tennessee law. As a condition to closing,
each director and executive officer of Cumberland must deliver a letter to
Commercial stating that they have no claims for indemnification under
Cumberland's or Middlesboro Federal's Charter or Bylaws. All rights to
indemnification with respect to a claim asserted within the three-year period
shall continue until final disposition of the claim. This indemnification
includes but is not limited to liability arising out of the transactions
37
contemplated by the Agreement. Commercial has agreed to advance any costs to
each of these persons as they are incurred. Commercial has also agreed to
provide directors' and officers' liability insurance coverage for the benefit of
Cumberland's directors and officers by purchasing continuation coverage under
Cumberland's existing directors' and officers' liability policy.
CONVERSION OF STOCK OPTIONS. At the Effective Time, each unexercised option
to purchase shares of Cumberland Common Stock will be converted into the right
to receive in cash an amount equal to the difference between $14.32 and the
exercise price of each option multiplied by the number of shares of Cumberland
Common Stock subject to the option. In the event the exercise price of the
Option exceeds $14.32, such option will be cancelled. As of June 30, 2001, the
directors and executive officers of Cumberland held options to purchase a total
of 35,792 shares of Cumberland Common Stock, although the exercise price on some
of these options exceeded $14.32 per share. The following table reflects the
number of options, the weighted average exercise price of the options.
NUMBER OF SECURITIES WEIGHTED AVERAGE
NAME OF DIRECTOR OR UNDERLYING EXERCISE PRICE PER
EXECUTIVE OFFICER UNEXERCISED OPTIONS SHARE
------------------- --------------------- ------------------
Raymond Walker 998 $7.52
Reecie Stagnolia 1,028
Pat Huddleston 665 7.52
Flo Wilder 665 7.52
Roy Shoffner 11,426
J. D. Howard 521 7.52
Jay Shoffner 726 8.78
EMPLOYMENT AGREEMENTS. Middlesboro Federal is party to an employment
agreement with President and Chief Executive Officer James J. Shoffner, which
provides for a severance payment equal to 2.99 times his "base amount," as
defined in the Internal Revenue Code following his termination in connection
with a "change in control" of Cumberland, as defined in his agreement. The
Merger constitutes a change in control of Cumberland as defined in the
agreement. Mr. Shoffner will receive a payment of $300,000 in satisfaction of
Cumberland's obligations under this agreement. In addition, the employment
agreement provided for supplemental retirement benefits. In full satisfaction of
these obligations, he has agreed to accept a cash payment in the amount of
$195,524 which represented amounts accrued for such obligation as the date of
the Merger Agreement plus $3,500 per month for each of the intervening months
prior to closing.
EMPLOYEE BENEFIT PLANS. After the effectiveness of the Merger, Commercial
has agreed to provide generally to Cumberland's officers and employees who
became employees of Commercial or its subsidiaries, employee benefits under
employee benefit plans (other than stock option or other plans which would
involve the issuance of Commercial common stock) on terms and conditions which
when taken as a whole are substantially similar to these currently provided by
Commercial and its subsidiaries to their similarly situated officers and
employees. For purposes of participation and vesting (but not accrual of
benefits) service under qualified
38
defined benefit and defined contribution plans of Cumberland will be treated as
service under any defined benefit and defined contribution plans of Commercial.
EMPLOYEE STOCK OWNERSHIP PLAN. Prior to the consummation of the Merger,
Cumberland will take appropriate steps to terminate its ESOP. After consummation
of the Merger, the ESOP will repay the outstanding balance of its loan and
allocate any surplus cash to the accounts of ESOP participants in proportion to
their account balances, to the extent allowed under applicable law and the
governing documents of the ESOP.
NONCOMPETITION AGREEMENTS. As a condition to Commercial's entering into the
Agreement, each of Cumberland's directors was required to enter into a
Noncompetition/ Nonsolicitation Agreement with Commercial. Each of the directors
has further agreed that for a period of 18 months after the Effective Time, they
will not serve as a management official or consultant to, or become a major
shareholder in another financial institution having an office an any county in
which Middlesboro Federal has an office.
PRINCIPAL HOLDERS OF CUMBERLAND COMMON STOCK
The following table provides you with information regarding ownership of
Cumberland Common Stock by directors, executive officers and any person or group
Cumberland knows to beneficially own more than 5% of its outstanding Common
Stock. The information is as of the Record Date. Information about persons or
groups who own beneficially more than 5% of Cumberland Common Stock is based on
filings with the Securities and Exchange Commission on or before the Record
Date.
AMOUNT AND PERCENT OF
NATURE OF SHARES OF
BENEFICIAL COMMON STOCK
NAME OWNERSHIP 1 OUTSTANDING 2
---- ---------- ------------
PRINCIPAL SHAREHOLDER
---------------------
Cumberland Mountain Bancshares, Inc.
Employee Stock Ownership Plan Trust
1431 Cumberland Avenue
Middlesboro, Kentucky 40965 87,856 3 12.93%
Jeffrey L. Gendell 67,116 9.87%
Tontine Management, L.L.C.
Tontine Financial Partners, L.P.
Tontine Overseas Associates, L.L.C.
200 Park Avenue, Suite 3900
New York, New York 10166
Sandler O'Neill Asset Management, LLC 65,000 9.56%
Malta Partners, L.P.
Malta Hedge Fund, L.P.
Malta Partners II, L.P.
Malta Hedge Fund II, L.P.
SOAM Holdings, LLC
Terry Maltese
712 Fifth Avenue
22nd Floor
New York, New York 10019
James J. Shoffner 70,161 10.15%
1431 Cumberland Avenue
Middlesboro, Kentucky 40961
39
AMOUNT AND PERCENT OF
NATURE OF SHARES OF
BENEFICIAL COMMON STOCK
NAME OWNERSHIP 1 OUTSTANDING 2
---- ---------- ------------
MANAGEMENT
----------
James J. Shoffner 70,161 10.15%
J. Roy Shoffner 13,894 2.03
Reecie Stagnolia, Jr. 17,349 2.54
Raymond C. Walker 15,668 2.29
Barry Litton 3,665 0.54
All directors and executive
officers as a group (8 persons) 139,291 4 19.39
<FN>
___________
1 A person is considered the beneficial owner of any shares of Cumberland
Common Stock (1) over which he or she has or shares voting or
investment power, or (2) of which he or she has the right to acquire
beneficial ownership at any time within 60 days from the Record Date.
"Voting power" is the power to vote or direct the voting of shares and
"investment power" is the power to dispose or direct the disposition of
shares.
2 In calculating percentage ownership for a given individual or group of
individuals, the number of shares of Cumberland Common Stock
outstanding includes unissued shares subject to options exercisable
within 60 days of the Record Date held by that individual or group.
3 Includes shares which have been allocated to the accounts of
participants. The ESOP trustees vote all allocated shares in accordance
with instructions of the participants; unallocated shares and shares
for which no instructions have been received generally are voted by the
ESOP trustees in the same ratio as participants direct the voting of
allocated shares or, in the absence of such direction, as directed by
Cumberland.
4 Excludes unallocated shares held by the ESOP. Includes 35,792 shares
which all directors and executive officers as a group had a right to
purchase pursuant to the exercise of stock options exercisable within
60 days of the Record Date.
</FN>
OTHER MATTERS
Cumberland's Board of Directors is not aware of any business to come before
the Special Meeting other than those matters described above in this Proxy
Statement. However, if any other matters should properly come before the Special
Meeting, it is intended that proxies will be voted in accordance with the
determination of a majority of the Board of Directors provided, however, if a
proposal to adjourn the Special Meeting is properly presented, a proxy will not
have discretion to vote in favor of the adjournment proposal any shares of
Common Stock which have been voted against approval and adoption of the
Agreement.
SHAREHOLDER PROPOSALS
In the event that the Agreement is not approved by shareholders at the
Special Meeting, Cumberland expects it would hold an annual meeting of
shareholders in early 2002. In order to be eligible for inclusion in
Cumberland's proxy materials for any such meeting, any shareholder proposal to
take action at such meeting must be received at Cumberland's main office at 1431
Cumberland Avenue, Middlesboro, Kentucky, 40965, a reasonable time prior to any
such Annual Meeting. Any such proposal will be subject to the requirements of
the proxy rules adopted under the Securities Exchange Act of 1934, as amended.
Shareholder proposals, other than those submitted pursuant to the
Securities Exchange Act of 1934, as amended, must be delivered or mailed, in the
form prescribed by Cumberland's Charter to the Secretary of Cumberland at the
above address not fewer than 30 days nor more
40
than 60 days prior to any meeting; provided, however, that if notice or public
disclosure of the meeting is effected fewer than 40 days before the meeting,
such written notice shall be delivered or mailed, as prescribed, to the
Secretary of Cumberland not later than the close of the 10th day following the
day on which notice of the meeting was mailed to shareholders.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ J. D. Howard
J. D. HOWARD
SECRETARY
Middlesboro, Kentucky
September 26, 2001
41
APPENDIX A
Agreement and Plan of Share Exchange
--------------------------------------------
AGREEMENT AND PLAN OF SHARE EXCHANGE, AS AMENDED
CUMBERLAND MOUNTAIN BANCSHARES, INC.
AND
COMMERCIAL BANCGROUP, INC.
--------------------------------------------
February 8, 2001
TABLE OF CONTENTS
SECTION PAGE
1. Share Exchange........................................................... 1
1.1 Share Exchange................................................. 1
1.2 Closing........................................................ 1
1.3 Effective Time................................................. 1
2. Conversion and Exchange of Shares........................................ 2
2.1 Conversion of Shares........................................... 2
2.2 Shares Held by the Cumberland.................................. 2
2.3 Dissenting Shareholders........................................ 2
2.4 Exchange Procedures............................................ 3
2.5 Rights of Former Cumberland Shareholders....................... 3
2.6 Adjustment to Purchase Price................................... 4
3. Representations and Warranties of Cumberland............................. 4
3.1 Organization, Standing, and Power.............................. 4
3.2 Authority; No Breach by Agreement; Consents.................... 4
3.3 Capital Stock.................................................. 5
3.4 Voting Rights.................................................. 5
3.5 Cumberland Subsidiaries........................................ 5
3.6 Financial Statements........................................... 6
3.7 Absence of Undisclosed Liabilities............................. 6
3.8 Absence of Certain Changes or Events........................... 7
3.9 Tax Matters.................................................... 7
3.10 Allowance for Possible loan Losses............................. 8
3.11 Assets......................................................... 8
3.12 Environmental Matters.......................................... 9
3.13 Compliance with Laws........................................... 9
3.14 Labor Relations................................................10
3.15 Employee Benefit Plans.........................................10
3.16 Material Contracts.............................................13
3.17 Legal Proceedings..............................................13
3.18 Reports........................................................13
3.19 Accounting, Tax and Regulatory Matters.........................14
3.20 Investment Portfolio...........................................14
3.21 Loan Portfolio.................................................14
3.22 Title to Properties............................................15
-i-
TABLE OF CONTENTS
SECTION PAGE
3.23 Insurance......................................................15
3.24 Properties, Contracts and Other Agreements.....................16
3.25 Fair Lending; Community Reinvestment Act.......................16
3.26 Books and Records..............................................17
3.27 Statements True and Correct....................................17
4. Representations and Warranties of Commercial.............................17
4.1 Organization, Standing, and Power..............................17
4.2 Authority; No Breach By Agreement; Consents....................18
4.3 Statements True and Correct....................................18
4.4 Financial Ability to Consummate Share Exchange.................19
4.5 Regulatory Approvals...........................................19
5. Certain Covenants........................................................19
5.1 Operation in the Ordinary Course...............................19
5.2 Negative Covenants of Cumberland...............................19
5.3 Adverse Changes in Condition...................................21
5.4 Sale of Affiliate Debt.........................................22
5.5 Resignations...................................................22
5.6 Transition of Cumberland Companies.............................22
6. Additional Agreements....................................................22
6.1 Shareholder Approval...........................................22
6.2 Applications...................................................22
6.3 Termination of ESOP and ESOP Trust.............................23
6.4 Preliminary Closing Balance Sheet..............................23
6.5 Agreements as to Efforts to Consummate.........................23
6.6 Investigation and Confidentiality..............................24
6.7 Press Release..................................................25
6.8 Acquisition Proposals..........................................25
6.9 Certain Modifications..........................................25
6.10 Employee Matters...............................................25
6.11 Indemnification and Insurance..................................26
7. Conditions Precedent to Obligations to Consummate........................27
7.1 Conditions to Obligations of Commercial........................27
7.2 Conditions to Obligations of Cumberland........................30
-ii-
TABLE OF CONTENTS
SECTION PAGE
8. Termination..............................................................32
8.1 Termination....................................................32
8.2 Effect of Termination..........................................33
8.3 Non-Survival of Representations and Covenants..................33
9. Miscellaneous............................................................33
9.1 Definitions....................................................33
9.2 Expenses.......................................................39
9.3 Brokers and Finders............................................40
9.4 Entire Agreement...............................................40
9.5 Amendments.....................................................40
9.6 No Third Party Beneficiaries...................................40
9.7 Waivers........................................................40
9.8 Assignment.....................................................41
9.9 Notices........................................................41
9.10 Governing Law..................................................42
9.11 Counterparts...................................................42
9.12 Captions.......................................................42
9.13 Remedies.......................................................42
9.14 Severability...................................................43
-iii-
EXHIBITS
DESCRIPTION EXHIBIT
Articles of Share Exchange and Related Plan of Share Exchange..................2
Form of Non-Competition/ Non-Solicitation Agreement............................3
DISCLOSURE MEMORANDUM
DESCRIPTION SECTION
Authority; No Breach by Agreement; Consents..................................3.2
Capital Stock................................................................3.3
Financial Statements.........................................................3.6
Absence of Undisclosed Liabilities...........................................3.7
Absence of Change............................................................3.8
Taxes.....................................................................3.9(a)
Assets......................................................................3.11
Environmental Matters.......................................................3.12
Compliance with Laws........................................................3.13
Employee Benefit Plans......................................................3.15
Material Contracts..........................................................3.16
Legal Proceedings...........................................................3.17
Reports.....................................................................3.18
Investment Portfolio........................................................3.20
Insurance...................................................................3.23
Properties..................................................................3.24
Plan Participant Termination and Release Letters..........................7.1(j)
GLOSSARY OF DEFINED TERMS
DEFINED TERM SECTION
1933 Act..................................................................9.1(a)
1934 Act..................................................................9.1(b)
Acquisition Proposal......................................................9.1(c)
Affiliate.................................................................9.1(d)
Agreement.................................................................9.1(e)
Allowance...................................................................3.10
Assets....................................................................9.1(g)
BHC Act...................................................................9.1(h)
Change of Control Payments................................................9.1(i)
Closing......................................................................1.2
-iv-
DEFINED TERM SECTION
Closing Date..............................................................9.1(k)
Closing Net Worth.........................................................9.1(l)
Commercial..........................................................Introduction
Code......................................................................9.1(m)
Consent...................................................................9.1(n)
Contract..................................................................9.1(o)
CRA.......................................................................3.25
Cumberland..........................................................Introduction
Cumberland Benefit Plans.................................................3.15(a)
Cumberland Common Stock...................................................9.1(q)
Cumberland Companies......................................................9.1(r)
Cumberland Contracts.....................................................3.16(d)
Cumberland Disclosure Memorandum..........................................9.1(s)
Cumberland Mountain Bancshares, Inc. Management Recognition Plan..........2.1(c)
Cumberland Qualified Plans...............................................3.15(b)
Cumberland Subsidiaries...................................................9.1(t)
Default...................................................................9.1(u)
Dissenting Shares............................................................2.3
Effective Time...............................................................1.3
Environmental Laws........................................................9.1(v)
ERISA.....................................................................9.1(w)
ERISA Affiliate...........................................................9.1(x)
ERISA Plan................................................................9.1(y)
ESOP......................................................................9.1(z)
ESOP Costs...............................................................9.1(aa)
ESOP Fairness Opinion........................................................6.3
ESOP Note................................................................9.1(bb)
ESOP Trust...............................................................9.1(cc)
Exchange Agent...............................................................2.4
Exhibits.................................................................9.1(dd)
Financial Statements.........................................................3.6
GAAP.....................................................................9.1(ee)
Hazardous Material.......................................................9.1(ff)
HMLC................................................................Introduction
Interim Balance Sheet........................................................3.6
Interim Period...............................................................3.6
Knowledge................................................................9.1(gg)
Law......................................................................9.1(hh)
Liability................................................................9.1(ii)
-v-
DEFINED TERM SECTION
Lien.....................................................................9.1(jj)
Litigation...............................................................9.1(kk)
Loan Property............................................................9.1(ll)
Material.................................................................9.1(mm)
Material Adverse Effect..................................................9.1(nn)
Merger.................................................................Recital B
Middlesboro.........................................................Introduction
Net Worth................................................................9.1(oo)
Order....................................................................9.1(pp)
Participation Facility...................................................9.1(qq)
Party....................................................................9.1(rr)
Permit...................................................................9.1(ss)
Person...................................................................9.1(tt)
Preliminary Closing Balance Sheet............................................6.4
Purchase Price............................................................2.1(a)
Purchase Price Per Share..................................................2.1(a)
Regulatory Authorities...................................................9.1(uu)
Representatives..............................................................6.8
Rights...................................................................9.1(vv)
SEC......................................................................9.1(ww)
SEC Documents............................................................9.1(xx)
Securities Laws..........................................................9.1(yy)
Share Exchange...............................................................1.1
Shoffner Employment Agreement............................................9.1(zz)
Subsidiaries............................................................9.1(aaa)
Tax or Taxes............................................................9.1(bbb)
Tax Returns.............................................................9.1(ccc)
TBCA....................................................................9.1(ddd)
Transaction Costs.......................................................9.1(eee)
-vi-
AGREEMENT AND PLAN OF SHARE EXCHANGE, AS AMENDED
THIS AGREEMENT AND PLAN OF SHARE EXCHANGE is made and entered into this 8th
day of February, 2001, and amended on September __, 2001 by and between
COMMERCIAL BANCGROUP, INC. ("Commercial"), a Tennessee corporation, and
CUMBERLAND MOUNTAIN BANCSHARES, INC. ("Cumberland"), a Tennessee corporation and
owner of all the outstanding capital stock of Middlesboro Federal Bank, Federal
Savings Bank ("Middlesboro") and Home Mortgage Loan Corporation ("HMLC").
RECITALS:
A. The parties desire that Commercial acquire all of the outstanding shares
of Cumberland's Common Stock for cash by means of a share exchange, upon the
terms and conditions set forth in this Agreement.
B. Immediately after the Share Exchange (as defined in Section 1.1 below),
Commercial will merge Middlesboro with and into Commercial Bank, a Tennessee
state bank and a wholly-owned subsidiary of Commercial, and will operate
Middlesboro's offices as branches of Commercial Bank (the "Merger").
C. Certain terms used in this Agreement are defined in Section 9.1 of this
Agreement.
AGREEMENT:
NOW, THEREFORE, in consideration of the above recitals and the mutual
representations, warranties, covenants and agreements set forth in this
Agreement, the Parties to this Agreement hereby agree as follows:
1. SHARE EXCHANGE
1.1 SHARE EXCHANGE. Upon the terms and conditions contained in this
Agreement, at the Effective Time (as defined in Section 1.3 below) a statutory
share exchange pursuant to Section 48-21-103 of the TBCA (the "Share Exchange")
shall occur in the manner set forth in Section 2.
1.2 CLOSING. The closing ("Closing") of the Share Exchange shall take
place at the main office of Commercial, 6710 Cumberland Gap Parkway, Harrogate,
Tennessee 37752, at 10:00 a.m. on the date that the Effective Time occurs, or at
such other place, time and date as the Parties may agree.
1.3 EFFECTIVE TIME. The transactions contemplated by this Agreement
shall become effective on the date and at the time the Articles of Share
Exchange and related Plan of Share Exchange, a copy of which is attached as
Exhibit 1 hereto, shall become effective with the Secretary of State of the
State of Tennessee (the "Effective Time"). Subject to the terms and conditions
hereof, unless otherwise mutually agreed upon in writing by the chief executive
officer of each Party, the Effective Time shall occur on the last business day
of the month in which occurs the last to occur of (a) the effective date
(including
expiration of any applicable waiting period) of the last required Consent of any
Regulatory Authority having authority over and approving or exempting the
transactions contemplated by this Agreement, (b) the date of receipt of the
approvals referenced in Section 7.1(g), or (c) the date on which the
shareholders of the Cumberland approve this Agreement to the extent such
approval is required by applicable Law.
2. CONVERSION AND EXCHANGE OF SHARES
2.1 CONVERSION OF SHARES
(a) Subject to the provisions of this Section 2, at the Effective
Time, by virtue of the Share Exchange and without any action on the part of the
holders thereof, each share of Cumberland Common Stock (other than Dissenting
Shares as defined in Section 2.3 below or shares canceled pursuant to Section
2.2 below) shall be converted into the right to receive the Purchase Price per
Share (defined below). The aggregate purchase price paid at the Effective Time
to holders of shares of Cumberland Common Stock shall be $9,520,000 minus the
amounts paid to holders of certain Rights pursuant to Section 2.1(b) and 2.1(c),
subject to adjustment as set forth in Section 2.6 (the "Purchase Price"). For
purposes of this Agreement, "Purchase Price per Share" shall mean the Purchase
Price divided by the total number of shares of Cumberland Common Stock issued
and outstanding immediately prior to the Effective Time. The Parties agree that
"the total number of shares of Cumberland Common Stock issued and outstanding
immediately prior to the Effective Time" shall not include any shares canceled
pursuant to Section 2.2 below.
(b) Subject to Section 7.1(j), at the Effective Time, each
outstanding Right which has not been exercised, whether or not then vested,
shall be canceled, and in lieu thereof, the holders of such Rights shall be paid
in cash an amount equal to the product of (i) the number of shares of Cumberland
Common Stock subject to such Right at the Effective Time and (ii) the amount by
which the Purchase Price Per Share exceeds the applicable exercise price. In the
event the exercise price for a Right exceeds the Purchase Price Per Share, such
Right shall be cancelled without any payment made in exchange therefor.
(c) Subject to Section 7.1(j), at the Effective Time, each holder
of an award granted under the Cumberland Mountain Bancshares, Inc. Management
Recognition Plan (the "MRP") which has not yet fully vested shall be entitled to
receive the Purchase Price Per Share for each unvested share awarded under the
MRP.
2.2 SHARES HELD BY THE CUMBERLAND. Each of the shares of Cumberland
Common Stock held by Cumberland or any Cumberland Subsidiary, other than in a
fiduciary capacity or as a result of debts previously contracted, shall be
canceled and retired at the Effective Time and no consideration shall be issued
in exchange therefor.
2.3 DISSENTING SHAREHOLDERS. Any holder of shares of Cumberland Common
Stock ("Dissenting Shares") who perfects such holder's dissenters' rights of
appraisal in accordance with and as contemplated by Chapter 23 of the TBCA shall
be entitled to receive the value of such shares in cash as determined pursuant
to such provision of Law; provided, that no such payment shall be made to any
-2-
dissenting shareholder unless and until such dissenting shareholder has complied
with the applicable provisions of the TBCA and surrendered the certificate or
certificates representing the shares for which payment is being made. In the
event that after the Effective Time a dissenting shareholder of Cumberland fails
to perfect, or effectively withdraws or loses, such holder's right to appraisal
and of payment for such holder's shares, Commercial shall issue and deliver the
consideration to which such holder of shares of Cumberland Common Stock is
entitled under this Section 2 (without interest) upon surrender by such holder
of the certificate or certificates representing shares of Cumberland Common
Stock held by such holder.
2.4 EXCHANGE PROCEDURES. Unless the Parties otherwise agree, within
three business days after the Effective Time, Commercial shall cause a qualified
exchange agent (the "Exchange Agent") to mail to the former holders of
Cumberland Common Stock appropriate transmittal materials which shall specify
that delivery shall be effected, and risk of loss and title to the certificates
theretofore representing shares of Cumberland Common Stock shall pass, only upon
proper delivery of such certificates to the Exchange Agent. Commercial shall
also provide the transmittal materials to Cumberland at least ten business days
prior to the Effective Time. At or before the Effective Time, Commercial shall
deposit with the Exchange Agent for the benefit of holders of Cumberland Common
Stock an amount of cash equal to the Purchase Price. After the Effective Time,
each holder of shares of Cumberland Common Stock (other than shares to be
canceled pursuant to Section 2.2 of this Agreement or Dissenting Shares) issued
and outstanding at the Effective Time shall surrender the certificate or
certificates representing such shares to the Exchange Agent and shall promptly
upon surrender thereof receive in exchange therefor the consideration provided
in Section 2.1 of this Agreement. The Exchange Agent shall not be obligated to
deliver the consideration to which any former holder of Cumberland Common Stock
is entitled as a result of the Share Exchange until such holder surrenders his
or her certificate or certificates representing the shares of Cumberland Common
Stock for exchange as provided in this Section 2.4. The certificate or
certificates (or an affidavit of lost certificate and an indemnity bond,
according to Commercial's usual procedures) of Cumberland Common Stock so
surrendered shall be duly endorsed as the Exchange Agent may require. Any other
provision of this Agreement notwithstanding, Commercial shall not be liable to a
holder of Cumberland Common Stock for any amounts paid or property delivered in
good faith to a public official pursuant to any applicable abandoned property
Law.
2.5 RIGHTS OF FORMER CUMBERLAND SHAREHOLDERS. At the Effective Time,
the stock transfer books of Cumberland shall be closed as to holders of
Cumberland Common Stock immediately prior to the Effective Time and no transfer
of Cumberland Common Stock by any such holder shall thereafter be made or
recognized. Until surrendered for exchange in accordance with the provisions of
Section 2.4 of this Agreement, each certificate theretofore representing shares
of Cumberland Common Stock (other than shares to be canceled pursuant to Section
2.2) shall from and after the Effective Time represent for all purposes only the
right to receive the consideration provided in Section 2.1 of this Agreement in
exchange therefor (or with respect to Dissenting Shares the right to receive the
consideration provided in Section 2.3 of this Agreement).
-3-
2.6 ADJUSTMENT TO PURCHASE PRICE. The Purchase Price shall be adjusted
if Cumberland's Closing Net Worth is less than $8,000,000, after further
adjustments to exclude any changes requested by Commercial pursuant to Section
6.9, then either Party may, in its discretion, elect to terminate the Agreement
as provided in Section 8.1(b) or, alternatively, the Parties may agree that the
Purchase Price shall be reduced by the difference between $8,000,000 and the
Closing Net Worth of Cumberland.
3. REPRESENTATIONS AND WARRANTIES OF CUMBERLAND. Cumberland hereby
represents and warrants to Commercial as follows:
3.1 ORGANIZATION, STANDING, AND POWER. Cumberland is duly organized,
validly existing, and in good standing under the Laws of the State of Tennessee.
Cumberland has the corporate power and authority to carry on its business as now
conducted and to own, lease and operate its Assets. Cumberland is duly qualified
or licensed to transact business as a foreign corporation in good standing in
the states of the United States and foreign jurisdictions where the character of
its Assets or the nature or conduct of its business requires it to be so
qualified or licensed, except for such jurisdictions in which the failure to be
so qualified or licensed is not reasonably likely to have a Material Adverse
Effect on Cumberland. Cumberland is a unitary savings and loan holding company.
3.2 AUTHORITY; NO BREACH BY AGREEMENT; CONSENTS
(a) Cumberland has the corporate power and authority necessary to
execute, deliver and perform its obligations under this Agreement and to
consummate the transactions contemplated hereby. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action on the part of Cumberland, subject to shareholder approval.
This Agreement represents a legal, valid and binding obligation of Cumberland,
and subject to shareholder approval and Consents of Regulatory Authorities,
enforceable against Cumberland in accordance with its terms (except in all cases
as such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, receivership, conservatorship, moratorium or similar Laws
affecting the enforcement of creditors' rights generally and except that the
availability of the equitable remedy of specific performance or injunctive
relief is subject to the discretion of the court before which any proceeding may
be brought).
(b) Except as disclosed in Section 3.2 of the Cumberland
Disclosure Memorandum, neither the execution and delivery of this Agreement by
----------------------
Cumberland, nor the consummation
-4-
by Cumberland of the transactions contemplated hereby, nor compliance by
Cumberland with any of the provisions hereof will (i) conflict with or result in
a breach of any provision of a Cumberland Company's Charter or Bylaws, or (ii)
constitute or result in a Default under, or require any notice under or Consent
pursuant to, or result in the creation of any Lien on any Asset of a Cumberland
Company under, any Contract or Permit of a Cumberland Company, (iii) require any
notice to, filing with or Consent of any Person other than the Consents required
of Regulatory Authorities, or (iv) subject to receipt of the requisite approvals
referred to in Section 7.1(a) and 7.2(b) of this Agreement, violate any Law or
Order applicable to a Cumberland Company or any of its respective Assets.
(c) Other than in connection or in compliance with the provisions
of the Securities Laws and applicable state corporate, banking and securities
Laws, and other than Consents required from Regulatory Authorities, and except
as disclosed in Section 3.2(c) of the Cumberland Disclosure Memorandum, no
----------------------
notice to, filing with, or Consent of any public body or authority is necessary
for the consummation by Cumberland of the Share Exchange.
3.3 CAPITAL STOCK
(a) The authorized capital stock of Cumberland consists of
8,000,000 shares of Cumberland Common Stock, of which 679,620 shares are issued
and outstanding, and 2,000,000 shares of preferred stock, $.01 per value per
share, none of which are issued and outstanding. All of the issued and
outstanding shares of capital stock of Cumberland are duly and validly issued
and outstanding and are fully paid and nonassessable. None of the outstanding
shares of capital stock of Cumberland has been issued in violation of any Law or
any preemptive rights or other Rights of the current or past shareholders of
Cumberland.
(b) Except as set forth in Section 3.3(a) of this Agreement, or
as disclosed in Section 3.3 of the Cumberland Disclosure Memorandum, there are
----------------------
no shares of capital stock or other equity securities of Cumberland outstanding
and no outstanding Rights relating to the capital stock of the Cumberland.
3.4 VOTING RIGHTS. To the Knowledge of Cumberland, none of the shares
of capital stock of any Cumberland Company is subject to any proxy or voting
trust and no shareholder of a Cumberland Company has entered into any agreements
with respect to the voting of shares of capital stock of such Cumberland
Company.
3.5 CUMBERLAND SUBSIDIARIES. The only Subsidiaries of Cumberland are
Middlesboro and HMLC. Cumberland owns all of the issued and outstanding shares
of capital stock of Middlesboro and HMLC. No equity securities of any Cumberland
Subsidiary are or may become required to be issued (other than to Cumberland) by
reason of any Rights, and there are no Contracts by which any Cumberland
Subsidiary is bound to issue (other than to Cumberland) additional shares of its
capital stock or Rights, or by which any Cumberland Subsidiary is or may be
bound to transfer any shares of the capital stock of any Cumberland Subsidiary
(other than to Cumberland). There are no Contracts relating to the rights of any
Cumberland Subsidiary to vote or to dispose of any shares of the capital stock
of any Cumberland
-5-
Subsidiary. All of the shares of capital stock of each Cumberland Subsidiary are
fully paid and nonassessable under the applicable Law of the jurisdiction in
which such Subsidiary is incorporated or organized and, except as disclosed in
Section 3.5 of the Cumberland Disclosure Memorandum, are owned by the Cumberland
---------------------
free and clear of any Lien. Middlesboro is a federally chartered stock savings
bank duly organized and validly existing under the laws of the United States.
Middlesboro is a qualified thrift lender and has never failed the Qualified
Thrift Lender Test, except for any such failure which has not as of the date
hereof subjected Middlesboro to and will not subject Middlesboro to any
penalties or limitations on its activities. HMLC is a corporation duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Kentucky. Each Cumberland Subsidiary has the corporate power and
authority necessary for it to own, lease and operate its Assets and to carry on
its business as now conducted. Each Cumberland Subsidiary is duly qualified or
licensed to transact business as a foreign corporation in good standing in the
states of the United States and foreign jurisdictions where the character of its
Assets or the nature or conduct of its business requires it to be so qualified
or licensed, except for such jurisdictions in which the failure to be so
qualified or licensed is not reasonably likely to have a Material Adverse Effect
on such Cumberland Subsidiary. Middlesboro is an "insured depository
institution" as defined in the Federal Deposit Insurance Act and applicable
regulations thereunder, and its deposits are insured to applicable limits by the
Bank Insurance Fund or the Savings Association Insurance Fund, as appropriate.
3.6 FINANCIAL STATEMENTS. Section 3.6 of the Cumberland Disclosure
----------
Memorandum contains copies of the (a) audited consolidated financial balance
----------
sheets and statements of income, change in stockholders' equity and cash flows
of Cumberland and the Cumberland Subsidiaries (including the notes thereto) for
the years ended June 30, 1998, 1999 and 2000 together with the report thereon of
Marr, Miller & Meyers, PSC, independent certified public accountants, and (b) an
unaudited consolidated balance sheet ("Interim Balance Sheet") and statement of
income, changes in stockholders' equity and cash flow of Cumberland and the
Cumberland Subsidiaries for the six months ended December 31, 2000 (the "Interim
Period", and collectively, the "Financial Statements"). Except as set forth in
Section 3.6 of the Cumberland Disclosure Memorandum, the Financial Statements
----------------------
(including the notes thereto) represent actual, bona fide transactions, and were
prepared in accordance with GAAP, present fairly the financial condition of
Cumberland and the Cumberland Subsidiaries as of the respective dates of the
Financial Statements, and the results of operations, changes in stockholders'
equity and cash flows of Cumberland and the Cumberland Subsidiaries for such
periods, are consistent with the books and records of Cumberland and the
Cumberland Subsidiaries and do not contain any items of special or nonrecurring
nature except as noted therein, provided the Financial Statements for the
Interim Period are subject to normal year-end adjustments, which shall not be
Material, individually or in the aggregate, and lack footnotes and other
presentation items. No financial statement of any Person other than Cumberland
and the Cumberland Subsidiaries is required by GAAP to be included in the
consolidated Financial Statements of Cumberland and the Cumberland Subsidiaries.
3.7 ABSENCE OF UNDISCLOSED LIABILITIES. Neither Cumberland nor the
Cumberland Subsidiaries have any Liability, except as shown (and in the amounts
shown) on the face of the Interim Balance Sheet (rather than any notes thereto)
or as shown on Section 3.7 of the Cumberland Disclosure Memorandum. From the
----------------------
date of the Interim Balance Sheet to the date hereof, except as shown on
-6-
Section 3.7 of the Cumberland Disclosure Memorandum, neither Cumberland nor the
---------------------
Cumberland Subsidiaries has incurred or become subject to any Liability, other
than Liabilities (a) incurred in the ordinary course of business all of which
have been paid in full in the ordinary course of business or are reflected on
Cumberland Companies' regular books of account and none of which is (i)
inconsistent with the representations, warranties and covenants of Cumberland
contained herein or with any other provisions of this Agreement or (ii) has or
may be expected to have a Material Adverse Effect on any of the Cumberland
Companies and (b) in connection with the transactions contemplated by this
Agreement.
3.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since June 30, 2000, except
as disclosed in Section 3.8 of the Cumberland Disclosure Memorandum, (a) there
have been no events, changes or occurrences which have had, or are reasonably
likely to have a Material Adverse Effect on any of the Cumberland Companies, and
(b) no Cumberland Company has taken any action, or failed to take any action,
prior to the date of this Agreement, which action or failure, if taken after the
date of this Agreement, would represent or result in a Material breach or
violation of any of the covenants and agreements of Cumberland provided in
Section 5 of this Agreement.
3.9 TAX MATTERS
(a) Except as set forth on Section 3.9 of the Cumberland
Disclosure Memorandum, all Tax Returns required to be filed by or on behalf of
any of Cumberland Company prior to the date hereof have been prepared, signed
and timely filed by Cumberland or requests for extensions have been timely
filed, granted, and have not expired. Except as set forth on Section 3.9 of the
Cumberland Disclosure Memorandum, to the Knowledge of Cumberland, all returns
filed are complete and accurate in all Material respects. All Taxes shown as due
on filed returns have been timely paid. The provisions for Taxes in the Interim
Balance Sheet is sufficient for the payment of all Taxes attributable to all
periods ended on or before December 31, 2000, and adequate accruals have been
made by Cumberland for all liabilities for Taxes accruing since the date of the
Interim Balance Sheet. There is no Litigation now pending, nor, to the Knowledge
of Cumberland, proposed against any of the Cumberland Companies, nor are there
any matters under discussion with the Internal Revenue Service, or other
governmental authority, relating to any Taxes or assessments, or any claims or
deficiencies with respect thereto. The Tax Returns of the Cumberland Companies
have not been audited by the Internal Revenue Service or relevant state
authorities, except as set forth on Section 3.9(a) of the Cumberland Disclosure
Memorandum.
(b) Except as disclosed in Section 3.9(b) of the Cumberland
Disclosure Memorandum, no Cumberland Company has executed an extension or waiver
of any statute of limitations on the assessment or collection of any Tax. No
deficiencies, adjustments or changes in assessments for any Taxes have been
proposed, asserted or assessed against any Cumberland Company. All liabilities
in respect of federal income taxes of any Cumberland Company have been finally
determined for all taxable years prior to the date hereof.
(c) Deferred Taxes of Cumberland have been provided for in
accordance with GAAP.
-7-
(d) Cumberland is not a United States real property holding
corporation within the meaning of section 897(c)(2) of the Code during the
applicable period specified in section 897(c)(1)(A)(ii) of the Code and
Commercial is not required to withhold tax on the Share Exchange by reason of
section 1445 of the Code. Cumberland is not a "consenting corporation" under
section 341(f) of the Code. Cumberland has not agreed, nor is it required to
make, any adjustment under section 481(a) of the Code by reason of a change in
accounting method or otherwise.
(e) Except as disclosed in Section 3.9(e) of the Cumberland
Disclosure Memorandum, each Cumberland Company is not, nor has it ever been, a
----------------------
party to any tax allocation or sharing agreement. No Cumberland Company (1) has
been a member of any affiliated group filing a consolidated federal income tax
return other than an affiliated group filing by Cumberland for it and its
Subsidiaries, nor (2) has any liability for the Taxes of any corporation or
other entity (other than a Cumberland Company) under Treas. Reg. ss. 1.1502-6
(or any similar provision of state, local, or foreign law), as a transferee or
successor, by contract, or otherwise.
(f) Each Cumberland Company is in compliance in all Material
respects with, and its records contain all information and documents (including,
without limitation, properly completed IRS Forms W-9) necessary to comply in all
Material respects with, all applicable information reporting and Tax withholding
requirements under federal, state and local Tax Laws, and such records identify
with specificity all accounts subject to backup withholding under Section 3046
of the Code.
3.10 ALLOWANCE FOR POSSIBLE LOAN LOSSES. To the Knowledge of
Cumberland, the allowance for possible loan or credit losses (the "Allowance")
shown on the Interim Balance Sheet was, and the Allowance shown on the balance
sheets of Cumberland included in financial statements as of dates subsequent to
the execution of this Agreement will be, as of the dates thereof, adequate
(within the meaning of GAAP and applicable regulatory requirements or
guidelines) to provide for losses relating to or inherent in the loan and lease
portfolios (including accrued interest receivables) of Middlesboro and other
extensions of credit (including letters of credit and commitments to make loans
or extend credit) by Middlesboro as of the dates thereof.
3.11 ASSETS. Except as disclosed in Section 3.11 of the Cumberland
Disclosure Memorandum, the Cumberland Companies have good and marketable title,
---------------------
free and clear of all Liens, to all of their respective Assets. All Material
tangible properties used in the business of the Cumberland Companies are in good
condition, reasonable wear and tear excepted, and are usable in the ordinary
course of business consistent with the respective past practices of the
Cumberland Companies. All Assets which are Material to any Cumberland Company's
business, held under leases or subleases by any Cumberland Company, are held
under valid Contracts enforceable in accordance with their respective terms
(except in all cases as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, receivership, conservatorship,
moratorium or similar Laws affecting the enforcement of creditors' rights
generally and except that the availability of the equitable remedy of specific
performance or injunctive relief is subject to the discretion of the court
before which any proceeding may be brought), and each such Contract is in full
force and effect. The Assets of the Cumberland Companies include all Material
assets necessary to operate the business of the Cumberland Companies as
presently conducted.
-8-
3.12 ENVIRONMENTAL MATTERS
(a) Except as disclosed in Section 3.12(a) of the Cumberland
Disclosure Memorandum, to the Knowledge of Cumberland, the Cumberland Companies,
--------------------
and their respective Participation Facilities and Loan Properties are, and have
been, in compliance with all Environmental Laws in all Material respects.
(b) To the Knowledge of Cumberland, there is no Litigation
pending or threatened before any court, governmental agency or authority or
other forum in which any Cumberland Company or any of their respective Loan
Properties or Participation Facilities has been or, with respect to threatened
Litigation, may be named as a defendant or potentially responsible party (i) for
alleged noncompliance (including by any predecessor) with any Environmental Law
or (ii) relating to the release into the environment of any Hazardous Material
or oil, whether or not occurring at, on, under or involving a site owned, leased
or operated by any Cumberland Company or any of their respective Loan Properties
or Participation Facilities, and to the Knowledge of Cumberland, there is no
reasonable basis for any such Litigation.
(c) To the Knowledge of Cumberland, there have been no releases
of Hazardous Material or oil in, on, under or affecting any Participation
Facility of any Cumberland Company. To the Knowledge of Cumberland, there have
been no releases of Hazardous Material or oil in, on, under or affecting any
Loan Property of any Cumberland Company, except for such instances that are not
reasonably likely to (i) materially adversely effect the value of any security
interest held by a Cumberland Company or (ii) impose a Material liability on any
Cumberland Company as a result of its relationship to the Loan Property.
3.13 COMPLIANCE WITH LAWS. Each Cumberland Company has in effect all
Permits necessary for it to own, lease or operate its Assets and to carry on its
business as now conducted, except for those Permits the absence of which are not
reasonably likely to have a Material Adverse Effect on any of the Cumberland
Companies, and there has occurred no Default under any such Permit. Except as
disclosed in Section 3.13 of the Cumberland Disclosure Memorandum, no Cumberland
---------------------
Company:
(a) is, to the Knowledge of Cumberland, in violation of any Laws,
Orders or Permits applicable to its business or employees conducting its
business; and
(b) has received any notification or communication from any
agency or department of federal, state, or local government or any Regulatory
Authority or the staff thereof (i) asserting that any Cumberland Company is not
in compliance with any of the Laws or Orders which such governmental authority
or Regulatory Authority enforces, (ii) requiring any Cumberland Company to enter
into or consent to the issuance of a cease and desist order, formal agreement,
directive, commitment or memorandum of understanding, or to adopt any Board
resolution or similar undertaking, or (iii) lowering Middlesboro's Community
Reinvestment Act ratings to "needs to improve" or less.
-9-
3.14 LABOR RELATIONS. No Cumberland Company is the subject of any
Litigation asserting that it or any other Cumberland Company has committed an
unfair labor practice (within the meaning of the National Labor Relations Act or
comparable state law) or seeking to compel it or any other Cumberland Company to
bargain with any labor organization as to wages or conditions of employment, nor
is there any strike or other labor dispute involving any Cumberland Company,
pending or, to the Knowledge of Cumberland, threatened, nor, to the Knowledge of
Cumberland, is there any activity involving any Cumberland Company's employees
seeking to certify a collective bargaining unit or engaging in any other
organization activity.
3.15 EMPLOYEE BENEFIT PLANS.
(a) Cumberland has disclosed in Section 3.15 of the Cumberland
Disclosure Memorandum and delivered or made available to Commercial prior to the
execution of this Agreement copies in each case of all pension, retirement,
profit-sharing, deferred compensation, stock option, employee stock ownership,
severance pay, vacation, bonus, or other incentive plans, all other written
employee programs, arrangements, or agreements, all medical, vision, dental, or
other health plans, all life insurance plans, and all other employee benefit
plans or fringe benefit plans, including, without limitation, "employee benefit
plans" as that term is defined in Section 3(3) of ERISA, currently adopted,
maintained by, sponsored in whole or in part by, or contributed to by any
Cumberland Company or ERISA Affiliate thereof, and any such plan, program or
arrangement previously sponsored or maintained by any Cumberland Company within
the past six years, for the benefit of employees, retirees, dependents, spouses,
directors, independent contractors, or other beneficiaries and under which
employees, retirees, dependents, spouses, directors, independent contractors, or
other beneficiaries are eligible to participate (collectively, the "Cumberland
Benefit Plans"). Any of the Cumberland Benefit Plans which is an "employee
pension benefit plan," as that term is defined in Section 3(2) of ERISA, is
referred to herein as a "Cumberland ERISA Plan."
(b) Except as to those plans disclosed in Section 3.15(b) of the
Cumberland Disclosure Memorandum as tax-qualified Cumberland ERISA Plans (the
----------------------
"Cumberland Qualified Plans"), Cumberland does not maintain or has not
previously maintained during the six years preceding the date of this Agreement
a Cumberland Benefit Plan which meets or was intended to meet the requirements
of Section 401(a) of the Code. Except as set forth in Section 3.15(b) of the
Cumberland Disclosure Memorandum, the Internal Revenue Service has issued
----------------------
favorable determination letters to the effect that each Cumberland Qualified
Plan qualifies under Section 401(a) of the Code and that any related trust is
exempt from taxation under Section 501(a) of the Code, and such determination
letters remain in effect and have not been revoked. Copies of the most recent
determination letters and any outstanding requests for determination letters
with respect to each Cumberland Qualified Plan have been delivered or made
available to Commercial. Except as disclosed in Section 3.15(b) of the
Cumberland Disclosure Memorandum, no Cumberland Qualified Plan has been amended
---------------------
since the issuance of each respective determination letters. The Cumberland
Qualified Plans currently comply in form with the requirements under Section
401(a) of the Code, other than changes required by statutes, regulations and
rulings for which amendments are not yet required. No issue concerning
qualification of the Cumberland Qualified Plans is pending before or is
threatened by the Internal Revenue Service. Except as set forth in
-10-
Section 3.15(b) of the Cumberland Disclosure Memorandum, the Cumberland
----------------------
Qualified Plans have been administered according to their terms (except for
those terms which are inconsistent with the changes required by statutes,
regulations, and rulings of the Internal Revenue Service for which document
changes are not yet required to be made, in which case the Cumberland Qualified
Plans have been administered in accordance with the provisions of those
statutes, regulations and rulings) and in accordance with the requirements of
Section 401(a) of the Code. Except as disclosed in Section 3.15(b) of the
Cumberland Disclosure Memorandum, to the Knowledge of Cumberland, neither
----------------------
Cumberland, any ERISA Affiliate or any third party acting as a fiduciary of any
Cumberland Qualified Plan has done anything that would aversely affect the
qualified status of the Cumberland Qualified Plans or the related trusts. Any
Cumberland Qualified Plan which is required to satisfy Sections 401(k)(3) and
401(m)(2) of the Code has been tested for compliance with, and has satisfied the
requirements of, Sections 401(k)(3) and 401(m)(2) of the Code for each plan year
ending prior to the date of this Agreement.
(c) Except as set forth in Section 3.15(c) of the Cumberland
Disclosure Memorandum, all Cumberland Benefit Plans are in compliance in all
----------------------
Material respects with the applicable terms of ERISA, the Code, and any other
applicable Laws. Neither Cumberland nor any other party has engaged in a
transaction with respect to any Cumberland Benefit Plan that, assuming the
taxable period of such transaction expired as of the date hereof, would subject
Cumberland to a Tax imposed by either Section 4975 of the Code or Section 502(i)
of ERISA.
(d) Except as set forth in Section 3.15(d) of the Cumberland
Disclosure Memorandum, neither Cumberland nor any ERISA Affiliate of Cumberland
---------------------
maintains or has during the six years preceding the date of this Agreement
maintained an "employee benefit pension plan," within the meaning of Section
3(2) of ERISA that is or was subject to Title IV of ERISA.
(e) Neither Cumberland nor any ERISA Affiliate of Cumberland has
any past, present or future obligation or liability to contribute to any
multi-employer plan, as defined in Section 3(37) of ERISA.
(f) Except as disclosed in Section 3.15(f) of the Cumberland
Disclosure Memorandum, (i) Cumberland has no obligations for retiree health and
---------------------
life benefits under any of the Cumberland Benefit Plans and (ii) there are no
restrictions on the rights of Cumberland to amend or terminate any such Plan
without incurring any Liability thereunder, which Liability is reasonably likely
to have a Material Adverse Effect on Cumberland, other than for benefits accrued
before the date of such termination or amendment.
(g) Except as disclosed in Section 3.15(g) of the Cumberland
Disclosure Memorandum, neither the execution and delivery of this Agreement nor
---------------------
the consummation of the transactions contemplated hereby will (i) result in any
payment (including, without limitation, severance, unemployment compensation,
golden parachute or otherwise) becoming due to any director or any employee of
any Cumberland Company from any Cumberland Company under any Cumberland Benefit
Plan or otherwise, (ii) increase any benefits otherwise payable under any
Cumberland Benefit Plan, or (iii) result in any acceleration of the time of
payment or vesting of any such benefit.
-11-
(h) Except as set forth in Section 3.15(h) of the Cumberland
Disclosure Memorandum, the actuarial present values of all accrued deferred
compensation entitlements (including, without limitation, entitlements under any
executive compensation, supplemental retirement, or employment agreement) of
employees and former employees of any Cumberland Company and their respective
beneficiaries, other than entitlements accrued pursuant to funded retirement
plans subject to the provisions of Section 412 of the Code or Section 302 of
ERISA, have been reflected on the Financial Statements to the extent required by
and in accordance with GAAP.
(i) To the Knowledge of Cumberland, Cumberland and each ERISA
Affiliate of Cumberland has complied in all Material respects with applicable
continuation of coverage requirements of Section 1001 of the Consolidated
Omnibus Budget Reconciliation Act of 1985, as amended, and ERISA Sections 601
through 608.
(j) Except as disclosed in Section 3.15(j) of the Cumberland
Disclosure Memorandum, neither Cumberland or any ERISA Affiliate of Cumberland
----------------------
is obligated, contingently or otherwise, under any agreement to pay any amount
which would be treated as a "parachute payment," as defined in Section 280G(b)
of the Code (determined without regard to Section 280G(b)(2)(A)(ii) of the
Code).
(k) To the Knowledge of Cumberland, other than routine claims for
benefits, there are no actions, audits, investigations, suits or claims pending,
or threatened against any Cumberland Benefit Plan, any trust or other funding
agency created thereunder, or against any fiduciary of any Cumberland Benefit
Plan or against the assets of any Cumberland Benefit Plan.
(l) As of the Closing:
(1) Except as disclosed in Section 3.15(l) of the Cumberland
Disclosure Memorandum, the ESOP and the ESOP Trust have been duly authorized,
----------------------
organized and established by all necessary corporate action on the part of
Cumberland.
(2) Except as disclosed in Section 3.15(l) of the Cumberland
Disclosure Memorandum, the ESOP is a legal and valid employee stock ownership
----------------------
plan within the meaning of Section 4975(e)(7) of the Code and Treasury
Regulation Section 54.4975-11, and qualified under Section 401(a) of the Code,
and the ESOP Trust is exempt from taxation under Section 501(a) of the Code.
(3) Except as disclosed in Section 3.15(l) of the Cumberland
Disclosure Memorandum, all contributions by Cumberland or its Subsidiaries to
----------------------
the Trust and all dividends paid on the Cumberland Common Stock held by the ESOP
Trust which have been used by the ESOP Trust to make the required principal and
interest payments on the ESOP Notes have been deductible by Cumberland or its
Subsidiaries for federal income tax purposes under Section 404 of the Code.
-12-
(4) The shares of Cumberland Common Stock held by the ESOP
Trust to be transferred to Commercial hereunder are qualifying employer
securities under Section 409(1) of the Code.
3.16 MATERIAL CONTRACTS. Except as disclosed in Section 3.16 of the
Cumberland Disclosure Memorandum (and copies of each document listed or
----------------------
described in Section 3.16 of the Cumberland Disclosure Memorandum are appended
----------------------
to such Memorandum), neither Cumberland, nor its Subsidiaries, nor any of their
respective Assets, businesses or operations, is a party to, or is bound or
affected by, or receives benefits under:
(a) any employment, severance, termination, consulting or
retirement Contract providing for aggregate payments to any Person in any
calendar year in excess of $5,000, excluding "at will"employment arrangements
and the ESOP;
(b) any Contract relating to the borrowing of money by a
Cumberland Company or the guarantee by a Cumberland Company of any such
obligation (other than Contracts evidencing deposit liabilities, purchases of
federal funds, Federal Home Loan Bank advances, fully-secured repurchase
agreements, trade payables, and Contracts relating to borrowings or guarantees
made in the ordinary course of business);
(c) any Contracts between or among any Cumberland Company; and
(d) any other Contract (excluding this Agreement) or amendment
thereto filed as an exhibit to a Form 10-KSB (together with all Contracts
referred to in Sections 3.9, 3.15, 3.16, 3.23 and 3.24 of this Agreement, the
"Cumberland Contracts").
No Cumberland Company is in Default under any Cumberland Contract. To the
Knowledge of Cumberland, (i) there is no basis for any other parties to any
Cumberland Contract to assert that a Cumberland Company is in Default and (ii)
the other parties to such Cumberland Contracts are not in Default. Except as to
Federal Home Loan Bank advances, all of the indebtedness of any Cumberland
Company for money borrowed is prepayable at any time by such Cumberland Company
without penalty or premium.
3.17 LEGAL PROCEEDINGS. Except as disclosed in Section 3.17 of the
Cumberland Disclosure Memorandum, there is no Litigation instituted or pending,
---------------------
or, to the Knowledge of Cumberland, threatened against any Cumberland Company,
or against any Asset, interest, or right of any of them, nor are there any
Orders of any Regulatory Authorities, other governmental authorities, or
arbitrators outstanding against any Cumberland Company.
3.18 REPORTS. Except as disclosed in Section 3.18 of the Cumberland
Disclosure Memorandum, since March 31, 1997, Cumberland has timely filed all
----------------------
reports and statements (including without limitation suspicious activity
reports, fidelity bond claims, error and omission insurance policy claims, and
director and officer insurance policy claims), together with any amendments
required to be
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made with respect thereto, that it was required to file with (a) the SEC,
including, but not limited to, Forms 10-KSB, Forms 10-QSB, Forms 8-K, and proxy
statements, (b) other Regulatory Authorities, and (c) any applicable state
securities or banking authorities (except, in the case of state securities
authorities, failures to file which are not reasonably likely to have a Material
Adverse Effect). As of their respective dates, each of such reports and
documents, including the financial statements, exhibits and schedules thereto,
complied in all Material respects with all applicable Laws. As of its respective
date, each such report and document to Cumberland's Knowledge 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 made therein,
in light of the circumstances under which they were made, not misleading.
3.19 ACCOUNTING, TAX AND REGULATORY MATTERS. To the Knowledge of
Cumberland, no Cumberland Company or any Affiliate thereof has taken any action,
or agreed to take any action, or has any Knowledge of any fact or circumstance
that is reasonably likely to Materially impede or delay receipt of any Consents
of Regulatory Authorities referred to in Section 7.1(a) and 7.2(b) of this
Agreement or result in the imposition of a condition or restriction of the type
referred to in the second sentence of Section 7.1(a). To the Knowledge of
Cumberland there exists no fact, circumstance, or reason attributable to
Cumberland why the requisite Consents referred to in Section 7.1(a) and 7.2(b)
of this Agreement cannot be received in a timely manner without the imposition
of any condition or restriction of the type described in the second sentence of
such Section 7.1(a).
3.20 INVESTMENT PORTFOLIO.
(a) Except as set forth in Section 3.20(a) of the Cumberland
Disclosure Memorandum, all investment securities held by a Cumberland Company,
----------------------
as reflected in the consolidated balance sheets of Cumberland included in the
Financial Statements, are carried in accordance with GAAP, specifically
including but not limited to FAS 115.
(b) Section 3.20(b) of the Cumberland Disclosure Memorandum
----------------------
describes all interest rate swaps, caps, floors, option agreements or other
interest rate risk management arrangements or agreements, whether entered into
for the account of Cumberland or its Subsidiaries or for the account of their
customers. All such arrangements and agreements disclosed in Section 3.20(b) of
the Cumberland Disclosure Memorandum were entered into in the ordinary course of
---------------------
business and in accordance with prudent banking practice and applicable rules,
regulations and policies and with counter parties believed to be financially
responsible at the time and are legal, valid and binding obligations of such
Cumberland Company enforceable in accordance with their terms (subject to the
provisions of bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium or similar laws affecting the enforceability of creditors' rights
generally from time to time in effect, and equitable principles relating to the
granting of specific performance and other equitable remedies as a matter of
judicial discretion), and are in full force and effect. Each Cumberland Company
has duly performed all of its obligations thereunder to the extent that such
obligations to perform have accrued; and, to Cumberland's Knowledge, there are
no breaches, violations or defaults or allegations or assertions of such by any
party thereunder.
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3.21 LOAN PORTFOLIO
(a) All loans and discounts shown on the Financial Statements or
which were entered into after the date of the Interim Balance Sheet were and
shall be made for good, valuable and adequate consideration in the ordinary
course of business of Cumberland in accordance with sound banking practices, and
are not subject to any known defenses, setoffs or counterclaims, including
without limitation any such as are afforded by usury or truth in lending laws,
except as may be provided by bankruptcy, insolvency or similar laws or by
general principles of equity.
(b) The notes or other evidences of indebtedness evidencing such
loans and all forms of pledges, mortgages and other collateral documents and
security agreements are and shall be, enforceable, valid, true and genuine and
what they purport to be, except as may be provided by bankruptcy, insolvency or
similar laws or by general principles of equity.
(c) Cumberland has complied and, shall prior to the Closing Date,
comply with all Laws relating to such loans, except for such noncompliance which
is not reasonably likely to have a Material Adverse Effect.
3.22 TITLE TO PROPERTIES
(a) Cumberland and/or its Subsidiaries have marketable title free
and clear of all Liens (except Taxes which are a lien but not yet payable and
Liens reflected in the Financial Statements and easements, rights-of-way, and
further excepting in the case of other real estate owned (as such real estate is
internally classified on the books of each Cumberland Company) rights of
redemption under applicable Law)) to all of its real properties.
(b) All leasehold interests for real property and personal
property used by Cumberland or its Subsidiaries in their business are held
pursuant to lease agreements which are valid and enforceable in accordance with
their terms, except as may be provided by bankruptcy, insolvency or similar laws
or by general principles of equity.
(c) To the Knowledge of Cumberland, all such real estate and
leasehold interest properties comply with all applicable private agreements,
zoning requirements and other Laws relating thereto, except for any
noncompliance which is not reasonably likely to have a Material Adverse Effect;
and there are no condemnation proceedings pending or, to the Knowledge of
Cumberland, threatened with respect to such properties.
(d) Each Cumberland Company has valid title or other ownership
rights under licenses to all intangible personal or intellectual property
necessary to conduct its business and operations as presently conducted, free
and clear of any claim, defense or right of any other person or entity, subject
only to rights of the licensors pursuant to applicable license agreements, which
rights do not adversely interfere with the use of such property as such property
is being used as of the date hereof.
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3.23 INSURANCE.
(a) All insurable Assets owned or held by a Cumberland Company
are adequately insured by financially sound and reputable insurers in such
amounts and against fire and other risks insured against by extended coverage
and public liability insurance, as is customary with banks or companies (as
applicable) of similar size, and, except as disclosed in Section 3.23 of the
Cumberland Disclosure Memorandum, there are presently no claims pending under
----------------------
such policies of insurance and no notices have been given by any Cumberland
Company under such policies. The policies of fire, theft, liability and other
insurance maintained with respect to the respective Assets or businesses of the
Cumberland Companies provide adequate coverage under current industry practices
against loss or Liability, and the fidelity and blanket bonds in effect as to
any of the Cumberland Companies is named insured are reasonably sufficient.
(b) Section 3.23 of the Cumberland Disclosure Memorandum sets
----------------------
forth, for each policy of insurance maintained by any Cumberland Company, the
amount and type of insurance, the name of the insurer and the amount of the
annual premium. Cumberland has delivered to Commercial true and complete copies
of all insurance policies maintained by the Cumberland Companies.
3.24 PROPERTIES, CONTRACTS AND OTHER AGREEMENTS. Section 3.24 of the
Cumberland Disclosure Memorandum lists or describes the following (and copies of
---------------------
each document listed or described in Section 3.24 of the Cumberland Disclosure
----------
Memorandum are appended to such Memorandum (documents listed or described in
----------
Section 3.16 of the Cumberland Disclosure Memorandum may be excluded from
----------------------
Section 3.24 of the Cumberland Disclosure Memorandum):
---------------------
(a) Each parcel of real property owned by a Cumberland Company
and the principal buildings and structures located thereon;
(b) Each lease of real property to which a Cumberland Company is
a party, identifying the parties thereto, the annual rental payable, the term
and expiration date thereof and a brief description of the property covered;
(c) Each lease or license with respect to personal property
involving a Cumberland Company, whether as lessee or lessor or licensee or
licensor, with annual rental or other payments due thereunder in excess of
$5,000 and
(d) Each agreement, loan, contract, lease, guaranty, letter of
credit, line of credit or commitment of a Cumberland Company not referred to
elsewhere in Section 3.16 or 3.24 which (i) involves payment by a Cumberland
Company (other than as disbursement of loan proceeds to customers) of more than
$5,000, (ii) involves payments based on profits of a Cumberland Company, (iii)
relates to the future purchase of goods or services in excess of the
requirements of its respective business at current levels or for normal
operating purposes, or (iv) were not made in the ordinary course of business.
3.25 FAIR LENDING; COMMUNITY REINVESTMENT ACT. With the exception of
routine investigation of consumer complaints, no Cumberland Company has been
advised by any Regulatory
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Authority that it is or may be in violation of the Equal Credit Opportunity Act
or the Fair Housing Act or any similar federal or state statute. Each Cumberland
Subsidiary that is a depository institution received a Community Reinvestment
Act ("CRA") rating of "Outstanding" or "Satisfactory" in its most recent CRA
examination.
3.26 BOOKS AND RECORDS. The books of account and other financial
records of each Cumberland Company are, in all Material respects, complete and
correct, maintained in accordance with good business practice. The minute books
of each Cumberland Company accurately reflect all Material corporate action of
its shareholders and its Board of Directors (including any committees thereof).
3.27 STATEMENTS TRUE AND CORRECT. No statement, certificate,
instrument or other writing furnished or to be furnished by a Cumberland Company
to Commercial pursuant to this Agreement contains or will contain any untrue
statement of Material fact or will omit to state a Material fact necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. None of the information supplied or to be supplied by a
Cumberland Company for inclusion in the documents to be filed by any Cumberland
Company with any Regulatory Authority in connection with the transactions
contemplated hereby, will, at the respective times such documents are filed, be
false or misleading with respect to any Material fact, or omit to state any
Material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. All documents that any
Cumberland Company is responsible for filing with any Regulatory Authority in
connection with the transactions contemplated hereby will comply as to form in
all Material respects with the provisions of applicable Law. None of the
information disclosed by any Cumberland Company or any Affiliate thereof in the
Proxy Statement to be mailed to Cumberland's shareholders in connection with the
Shareholders' Meeting, will, when first mailed to the shareholders of
Cumberland, be false or misleading with respect to any Material fact, or contain
any misstatement of Material fact, or omit to state any Material fact required
to be stated thereunder or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, or, in the case of
the Proxy Statement or any amendment thereof or supplement thereto, at the time
of the Shareholders' Meeting, be false or misleading with respect to any
Material fact, or omit to state any Material fact required to be stated
thereunder or necessary to correct any Material statement in any earlier
communication with respect to the solicitation of any proxy for the
Shareholders' Meeting.
4. REPRESENTATIONS AND WARRANTIES OF COMMERCIAL. Commercial hereby
represents and warrants to Cumberland as follows:
4.1 ORGANIZATION, STANDING, AND POWER. Commercial is a
corporation duly organized, validly existing, and in good standing under the
Laws of the State of Tennessee, and is duly registered as a bank holding company
under the BHC Act. Commercial has the corporate power and authority to carry on
its business as now conducted and to own, lease and operate its Assets.
Commercial is duly qualified or licensed to transact business as a foreign
corporation in good standing in the states of the United States and foreign
jurisdictions where the character of its Assets or the nature or conduct of its
business requires it to be so qualified or licensed, except for such
jurisdictions in which the failure to be so qualified or licensed is not
reasonably likely to have a Material Adverse Effect on Commercial.
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4.2 AUTHORITY; NO BREACH BY AGREEMENT; CONSENTS.
(a) Commercial has the corporate power and authority
necessary to execute, deliver and perform its obligations under this Agreement
and to consummate the transactions contemplated hereby. The execution, delivery
and performance of this Agreement and the consummation of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action in respect thereof on the part of Commercial. Subject to any
approvals required of Regulatory Authorities, this Agreement represents a legal,
valid and binding obligation of Commercial, enforceable against Commercial in
accordance with its terms.
(b) Neither the execution and delivery of this Agreement by
Commercial, nor the consummation by Commercial of the transactions contemplated
hereby, nor compliance by Commercial with any of the provisions hereof will (i)
conflict with or result in a breach of any provision of Commercial's Articles of
Incorporation or Bylaws, or (ii) constitute or result in a Default under, or
require any notice under or Consent pursuant to, or result in the creation of
any Lien on any Asset of Commercial or any of its subsidiaries under, any
Contract or Permit of Commercial or any of its subsidiaries, (iii) require any
notice to, filing with or Consent of any Person, or (iv) subject to receipt of
the requisite approvals referred to in Section 7.1(a) and 7.2(b) of this
Agreement, violate any Law or Order applicable to any Commercial or any of its
Assets.
(c) Other than in connection or compliance with the
provisions of Consents required from Regulatory Authorities, no notice to,
filing with, or Consent of any public body or authority is necessary for the
consummation by Commercial of the transactions contemplated in this Agreement.
4.3 STATEMENTS TRUE AND CORRECT. None of the information supplied
or to be supplied by Commercial or any Affiliate thereof for inclusion in the
Proxy Statement to be mailed to Cumberland's shareholders in connection with the
Shareholders' Meeting, will, when first mailed to the shareholders of
Cumberland, be false or misleading with respect to any Material fact, or contain
any misstatement of Material fact, or omit to state any Material fact required
to be stated thereunder or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, or, in the case of
the Proxy Statement or any amendment thereof or supplement thereto, at the time
of the Shareholders' Meeting, be false or misleading with respect to any
Material fact, or omit to state any Material fact required to be stated
thereunder or necessary to correct any Material statement in any earlier
communication with respect to the solicitation of any proxy for the
Shareholders' Meeting. All documents that Commercial or any Affiliate thereof is
responsible for filing with any Regulatory Authority in connection with the
transactions contemplated by this Agreement will comply as to form in all
Material respects with the provisions of applicable Law.
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4.4 FINANCIAL ABILITY TO CONSUMMATE SHARE EXCHANGE. Commercial
will have sufficient capital resources available to allow it to consummate the
Share Exchange on the terms provided herein.
4.5 REGULATORY APPROVALS. To the Knowledge of Commercial,
Commercial has not, nor has any Affiliate thereof taken any action, or agreed to
take any action, or has any Knowledge of any fact or circumstance that is
reasonably likely to materially impede or delay receipt of any Consents of
Regulatory Authorities referred to in Section 7.1(a) and 7.2(b) of this
Agreement or result in the imposition of a condition or restriction of the type
referred to in the second sentence of Section 7.1(a). To the Knowledge of
Commercial, there exists no fact, circumstances or reason attributable to
Commercial why the requisite Consents referred to in Section 7.1(a) and 7.2(b)
of this Agreement cannot be received in a timely manner without the imposition
of any condition or restriction of the type described in the, second sentence of
Section 7.1(a).
5. CERTAIN COVENANTS
5.1 OPERATION IN THE ORDINARY COURSE. Unless the prior written
consent of Commercial shall have been obtained, and except as otherwise
contemplated herein, Cumberland shall, and shall cause each of the Cumberland
Subsidiaries, from the date of this Agreement until the Closing Date or
termination of this Agreement: (a) to operate its business in the usual, regular
and ordinary course; (b) to preserve intact and maintain its business
organization, Assets and Permits; (c) to use its reasonable efforts to cause its
representations and warranties to be correct at all times; and (d) to take no
action which would (i) adversely affect the ability of any Party to obtain any
Consents required for the transactions contemplated hereby without imposition of
a condition or restriction of the type referred to in the second sentence of
Section 7.1(a) of this Agreement, (ii) adversely affect any Permit or which is
reasonably likely to cause any Permit to be revoked, restricted or suspended, or
(iii) adversely affect in any Material respect the ability of any Party to
perform its covenants and agreements under this Agreement. Unless the prior
written consent of Cumberland shall have been obtained, and except as otherwise
contemplated herein, Commercial shall, and shall cause each of its Subsidiaries,
from the date of this Agreement until the Closing Date or termination of this
Agreement, to take no action which would (i) adversely affect the ability of any
Party to obtain any Consents required for the transactions contemplated hereby
without imposition of a condition or restriction of the type referred to in the
second sentence of Section 7.1(a) of this Agreement, or (ii) adversely affect in
any Material respect the ability of any Party to perform its covenants and
agreements under this Agreement.
5.2 NEGATIVE COVENANTS OF CUMBERLAND. Except as contemplated
hereby, from the date of this Agreement until the earlier of the Closing Date or
the termination of this Agreement, Cumberland covenants and agrees that it will
not do or agree or commit to do, or permit any of its Subsidiaries to do or
agree or commit to do, any of the following without the prior written consent of
the chief executive office or the chief financial officer of Commercial which
will not be unreasonably withheld:
(a) amend the Charter, Bylaws or other governing instruments
of any Cumberland Company, or
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(b) incur any additional debt obligation or other obligation
for borrowed money in excess of an aggregate of $5,000 (for Cumberland on a
consolidated basis) except in the ordinary course of the business of Cumberland
consistent with past practices (which shall include, for Middlesboro, creation
of deposit liabilities, purchases of federal funds, advances from the Federal
Reserve Bank or Federal Home Loan Bank, and entry into repurchase agreements
fully secured by U.S. government or agency securities), or impose, or suffer the
imposition, on any Asset of any Cumberland Company of any Lien or permit any
such Lien to exist (other than in connection with deposits, repurchase
agreements, bankers acceptances, Federal Home Loan Bank advances, "treasury tax
and loan" accounts established in the ordinary course of business of
Middlesboro, the satisfaction of legal requirements in the exercise of trust
powers, and Liens in effect as of the date hereof that are disclosed in Section
3.11 of the Cumberland Disclosure Memorandum); or
---------------------
(c) repurchase, redeem, or otherwise acquire or exchange
(other than exchanges in the ordinary course under employee benefit plans),
directly or indirectly, any shares, or any securities convertible into any
shares, of the capital stock of Cumberland or any Cumberland Subsidiary, or
declare or pay any dividend or make any other distribution in respect of
Cumberland Stock.
(d) except for this Agreement, or pursuant to the exercise
of stock options outstanding as of the date hereof and pursuant to the terms
thereof in existence on the date hereof, issue, sell, pledge, encumber,
authorize the issuance of or enter into any Contract to issue, sell, pledge,
encumber, or authorize the issuance of or otherwise permit to become
outstanding, any additional shares of Cumberland Common Stock or any other
capital stock of Cumberland or any Cumberland Subsidiary, or any stock
appreciation rights, or any option, warrant, conversion, or other right to
acquire any such stock, or any security convertible into any such stock; or
(e) adjust, split, combine or reclassify any capital stock
of Cumberland or issue or authorize the issuance of any other securities in
respect of or in substitution for shares of Cumberland capital stock or any
capital stock of a Cumberland Subsidiary, or sell, lease, mortgage or otherwise
dispose of or otherwise encumber (i) any shares of capital stock of any
Cumberland Subsidiary or (ii) any Asset having a book value in excess of $5,000
other than in the ordinary course of business for reasonable and adequate
consideration; or
(f) except for purchases of U.S. Treasury securities, U.S.
Government agency securities or mortgage-backed securities of maturity or grade
consistent with past practices, purchase any securities or make any Material
investment, either by purchase of stock or securities, contributions to capital,
Asset transfers, or purchase of any Assets, in any Person other than a
wholly-owned Cumberland Subsidiary; or otherwise acquire direct or indirect
control over any Person, other than in connection with (i) foreclosures in the
ordinary course of business, or (ii) acquisitions of control by a depository
institution Cumberland Company in its fiduciary capacity; or
(g) grant any increase in compensation or benefits to the
employees or officers of any Cumberland Company (including such discretionary
increases as may be contemplated by existing employment agreements) except
increases required by Law or routine salary adjustments consistent with
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past practice; pay any severance or termination pay or any bonus other than
pursuant to written policies or written Contracts in effect on the date of this
Agreement and disclosed to Commercial in Section 3.15 of the Cumberland
Disclosure Memorandum; enter into or amend any severance agreements with
----------------------
officers of any Cumberland Company; grant any increase in fees or other
increases in compensation or other benefits to directors of any Cumberland
Company; or voluntarily accelerate the vesting of any stock options or other
stock-based compensation or employee benefits; notwithstanding the foregoing
Cumberland may continue to accrue $3,500 a month towards supplemental retirement
benefits payable to James J. Shoffner pursuant to the Shoffner Employment
Agreement; or
(h) enter into or amend any employment Contract between
Cumberland Company and any Person (unless such amendment is required by Law)
that the Cumberland Company does not have the unconditional right to
automatically terminate without Liability (other than Liability for services
already rendered), at any time on or after the Closing Date; or
(i) adopt any new employee benefit plan of any Cumberland
Company or make any Material change in or to any existing employee benefit plans
of any Cumberland Company other than any such change that is required by Law or
that, in the opinion of counsel, is necessary or advisable to maintain the tax
qualified status of any such plan; or
(j) make any significant change in any Tax or accounting
methods or systems of internal accounting controls, except as may be appropriate
to conform to changes in Tax Laws or regulatory accounting requirements or GAAP;
or
(k) settle any Litigation involving any Liability of any
Cumberland Company for money damages in excess of $5,000 or Material
restrictions upon the operations of any Cumberland Company;
(l) prior to termination of the ESOP and ESOP Trust, fail to
make any contributions to the ESOP Trust in such amounts as are required under
the ESOP plan documents as in existence on the date hereof and as previously
presented to Commercial and as shall be sufficient to enable the ESOP Trust to
pay all interest on and scheduled principal on any ESOP Note, as and when such
obligations become due; or
(m) except in the ordinary course of business, modify, amend
or terminate any Material Contract or waive, release, compromise or assign any
Material rights or claims.
5.3 ADVERSE CHANGES IN CONDITION. Each Party agrees to give
written notice promptly to the other Party upon becoming aware of the occurrence
or impending occurrence of any event or circumstance relating to it or any
Subsidiary which (a) is reasonably likely to have a Material Adverse Effect or
(b) is reasonably likely to cause or constitute a Material breach of any of its
representations, warranties, or covenants contained herein, and to use its
reasonable efforts to prevent or promptly to remedy the same.
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5.4 SALE OF AFFILIATE DEBT. At or prior to Closing, Cumberland
agrees to use its best efforts to sell any and all related debt of the following
directors: Edwin Robertson, Craig Robertson and Terry L. Lee.
5.5 RESIGNATIONS. All of Cumberland's directors shall resign at
Closing. Commercial shall not be liable for accrued benefits associated with
these resignations except those accrued on Cumberland's books as of December 31,
2000 pursuant to the Middlesboro's Directors' Retirement Plan (subject to any
applicable modification to such accruals as of December 31, 2000, made in
accordance with GAAP, not to exceed $20,000). James J. Shoffner will become a
member of Commercial's board of directors at Closing.
5.6 TRANSITION OF CUMBERLAND COMPANIES. Cumberland shall
cooperate with Commercial in each and every reasonable way to effect the smooth
transition of the control and operation of the Cumberland Companies to
Commercial, as contemplated herein, including the retention of the customers of
the Company, by such means that Commercial may reasonably request. Cumberland
shall cooperate with Commercial in providing all information required hereunder
and access thereto during normal business hours and whatever is required to
carry out the purposes and intent of the transactions contemplated by this
Agreement.
6. ADDITIONAL AGREEMENTS.
6.1 SHAREHOLDER APPROVAL.
(a) Cumberland shall call a shareholders' meeting, to be
held as soon as reasonably practicable after the execution of this Agreement and
upon receipt of the applicable approvals pursuant to Section 7.1(g), for the
purpose of voting upon approval of this Agreement and the Plan of Share Exchange
and such other related matters as Cumberland deems appropriate. In connection
with such meeting, Cumberland shall prepare and file with the SEC a Proxy
Statement. Cumberland shall permit Commercial and its counsel to review and
approve such Proxy Statement prior to filing and mailing. Commercial shall have
the right to require Cumberland to obtain a fairness opinion from an independent
qualified investment bank, appraisal or similar firm acceptable to Commercial.
The Parties shall furnish to each other all information concerning them that
they may reasonably request in connection with such Proxy Statement.
(b) In connection with Cumberland's shareholders' meeting,
(i) the Board of Directors of Cumberland shall recommend (subject to compliance
with the fiduciary duties of the members of the Board of Directors and the
receipt from its financial advisor of a letter dated not more than three days
prior to the date of the mailing of the Proxy Statement confirming the opinion
given to the Board prior to execution of this Agreement to the effect that the
consideration to be received by the holders of Cumberland Common Stock in the
Share Exchange is fair from a financial point of view to such holders) to its
shareholders the approval of this Agreement and (ii) the Board of Directors and
officers of Cumberland shall use their reasonable best efforts to obtain such
shareholders' approval (subject to compliance with their fiduciary duties).
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6.2 APPLICATIONS. Commercial shall promptly prepare and file, and
Cumberland shall cooperate in the preparation and, where appropriate, filing of,
any applications, including without limitation, those with the Board of
Governors of the Federal Reserve System, the Office of Thrift Supervision, the
Kentucky Department of Financial Institutions and the Tennessee Department of
Financial Institutions, seeking the requisite Consents necessary to consummate
the transactions contemplated by this Agreement. Commercial shall permit
Cumberland and its counsel to review (and approve with respect to information
regarding Cumberland) such applications prior to filing same.
6.3 TERMINATION OF ESOP AND ESOP TRUST. Prior to the Effective
Time, Cumberland shall take such action as shall be necessary or advisable to
terminate the ESOP as of the Effective Time. Cumberland shall promptly prepare
and file all notices, returns and applications, and shall take all other
necessary action, to obtain the regulatory approvals relating to the operation,
documentation and termination of the ESOP as set forth in Section 7.1(g),
including those that Commercial requests Cumberland undertake or obtain.
Further, Cumberland shall cooperate with the trustees of the ESOP Trust and
engage a qualified independent appraisal or similar firm acceptable to the
trustees and Commercial, to assess the fairness of the Purchase Price per Share
and other terms and conditions of the transactions provided for in this
Agreement to the ESOP and its participants (the "ESOP Fairness Opinion").
6.4 PRELIMINARY CLOSING BALANCE SHEET. At least 15 days prior to
the Effective Time, Cumberland shall prepare and deliver to Commercial an
unaudited, consolidated balance sheet (the "Preliminary Closing Balance Sheet")
for the Cumberland Companies as of the close of business on last day of the
month immediately preceding the Effective Time. Cumberland shall prepare the
Preliminary Closing Balance Sheet in accordance with generally accepted
accounting principles applied on a basis consistent with the preparation of the
Interim Balance Sheet. If Commercial has any reasonable objections to the
Preliminary Closing Balance Sheet, it shall deliver a detailed statement
describing its objections to Cumberland within 10 days after receiving the
Preliminary Closing Balance Sheet. Cumberland and Commercial shall use their
reasonable best efforts to resolve any such objections themselves.
6.5 AGREEMENTS AS TO EFFORTS TO CONSUMMATE. No Party shall take,
or cause to be taken, any action which may reasonably be foreseen as delaying or
otherwise adversely impacting consummation of the transactions contemplated by
this Agreement. Neither Party will take or permit its Subsidiaries to do
anything which will be, or which would constitute if it occurs, a breach or
default of any representation, warranty or covenant set forth in this Agreement.
Subject to the terms and conditions of this Agreement, each Party agrees to use,
and to cause its Subsidiaries to use, its reasonable efforts to take, or cause
to be taken, all actions, and to do, or cause to be done, all things necessary,
proper or advisable under applicable Laws, as promptly as practicable so as to
permit consummation of the transactions contemplated hereby on June 30, 2001 or
as soon thereafter as practicable and shall cooperate fully with the other
hereto to that end, including, without limitation, using its reasonable efforts
to lift or rescind any Order adversely affecting its ability to consummate the
transactions contemplated herein and to cause to be satisfied the conditions
referred to in Section 7 of this Agreement. Each Party shall use, and shall
cause each of its Subsidiaries to use, its reasonable efforts to obtain all
Consents necessary or desirable for the consummation of the transactions
contemplated by this Agreement.
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6.6 INVESTIGATION AND CONFIDENTIALITY.
(a) Prior to the Closing Date, Cumberland will keep
Commercial advised of all Material developments relevant to its business and to
consummation of the transactions contemplated hereby and shall permit Commercial
to make or cause to be made such investigation of the business and properties of
Cumberland and its Subsidiaries and of their respective financial and legal
conditions as Commercial reasonably requests, provided that such investigation
shall be reasonably related to the transactions contemplated hereby and shall
not interfere unnecessarily with normal operations. No investigation by a Party
shall affect the representations and warranties of the other Parties.
(b) Each Party shall, and shall cause its advisers and
agents to, maintain the confidentiality of all confidential information
furnished to it by the other Parties concerning its and its Subsidiaries'
businesses, operations, and financial positions and shall not use such
information for any purpose except in furtherance of the transactions
contemplated by this Agreement. In the event that a Party is required by
applicable Law or valid court process to disclose any such confidential
information, then such Party shall provide the other Party with prompt written
notice of any such requirement so that the other Party may seek a protective
order or other appropriate remedy and/or waive compliance with this Section 6.6.
If in the absence of a protective order or other remedy or the receipt of a
waiver by the other Party, a Party is nonetheless, in the opinion of counsel,
legally compelled to disclose any such confidential information to any tribunal
or else stand liable for contempt or suffer other censure or penalty, a Party
may, without liability hereunder, disclose to such tribunal only that portion of
the confidential information which such counsel advises such Party is legally
required to be disclosed; provided that such disclosing Party use its best
efforts to preserve the confidentiality of such confidential information,
including without limitation, by cooperating with the other Party to obtain an
appropriate protective order or other reliable assurance that confidential
treatment will be accorded such confidential information by such tribunal. If
this Agreement is terminated prior to the Closing Date, each Party shall
promptly return all documents and copies thereof and all work papers containing
confidential information received from the other Parties.
(c) Each Party agrees to give the other Parties notice as
soon as practicable after any determination by it of any fact or occurrence
relating to the other Party which it has discovered through the course of its
investigation and which represents, or is reasonably likely to represent, either
a Material breach of any representation, warranty, covenant or agreement of the
other Parties or which has had or is reasonably likely to have a Material
Adverse Effect on the other Parties.
(d) Neither Party nor any of their respective Subsidiaries
shall be required to provide access to or to disclose information where such
access or disclosure would violate or prejudice the rights of its customers,
jeopardize the attorney-client or similar privilege with respect to such
information or contravene any Law, rule, regulation, Order, judgment, decree,
fiduciary duty, or agreement entered into prior to the date of this Agreement.
The Parties will use their reasonable efforts to make appropriate substitute
disclosure arrangements, to the extent practicable, in circumstances in which
the restrictions of the preceding sentence apply.
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6.7 PRESS RELEASES. Prior to the Closing Date, Cumberland and
Commercial shall agree with each other as to the form and substance of any press
release or other public disclosure materially related to this Agreement or any
other transaction contemplated hereby; provided, however, that nothing in this
Section 6.7 shall be deemed to prohibit any Party from making any disclosure
which its counsel deems necessary or advisable in order to satisfy such Party's
disclosure obligations imposed by Law.
6.8 ACQUISITION PROPOSALS. Except with respect to this Agreement
and the transactions contemplated hereby, no Cumberland Company nor any
director, employee, investment banker, attorney, accountant or other
representative thereof (collectively, "Representatives") retained by any
Cumberland Company shall directly or indirectly solicit any Acquisition Proposal
by any Person. Except to the extent necessary to comply with the fiduciary
duties of Cumberland's Board of Directors as advised by counsel, no Cumberland
Company nor any Representative thereof, shall furnish any non-public information
that it is not legally obligated to furnish with respect to, negotiate with
respect to, or enter into any Contract with respect to, any Acquisition
Proposals, but Cumberland may communicate information about such an Acquisition
Proposal to its shareholders if and to the extent that it is required to do so
in order to comply with its legal obligations as advised by counsel. Cumberland
shall promptly notify Commercial orally and in writing in the event that any
Cumberland Company receives any inquiry or proposal relating to any such
transaction. Cumberland shall (a) immediately cease and cause to be terminated
any existing activities, discussions or negotiations with any Persons conducted
heretofore with respect to any of the foregoing, and (b) direct and use its
reasonable efforts to cause all of its Representatives not to engage in any of
the foregoing.
6.9 CERTAIN MODIFICATIONS. Commercial and Cumberland shall
consult with respect to their loan, litigation, and real estate valuation
policies and practices (including loan classifications and levels of reserves)
and Cumberland shall make such modifications or changes to its policies and
practices, if any, prior to the Closing Date, as may be mutually agreed upon.
Commercial and Cumberland also shall consult with respect to the character,
amount, and timing of restructuring and expense charges to be taken by each of
them in connection with the transactions contemplated by this Agreement and
shall take charges in accordance with GAAP, prior to the Closing Date, as may be
mutually agreed upon by them. In no event, however, shall Cumberland be
obligated to take any such actions unless and until it shall have received from
Commercial written confirmation that all conditions precedent to Commercial's
obligation to close shall have been satisfied or waived. No Parties'
representations, warranties and covenants contained in this Agreement shall be
deemed to be inaccurate or breached in any respect or deemed to have a Material
Adverse Effect as a consequence of any modifications or charges undertaken
solely on account of this Section 6.9.
6.10 EMPLOYEE MATTERS. Commercial shall have no obligation to
continue the employment of any Cumberland Company employee. Commercial shall
recognize the length of service with a Cumberland Company of any Cumberland
Company employee employed by Commercial for purposes of determining their
participation eligibility and vesting rights, but not for purposes of benefit
accrual (except for vacation), in any and all retirement plans, medical, life
insurance, disability and other employee benefit plans, programs and/or policies
currently maintained by Commercial.
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6.11 INDEMNIFICATION AND INSURANCE.
(a) Subject to the conditions set forth in paragraph (b)
below, for a period of three years after the Effective Time, Commercial and
Commercial Bank shall indemnify, defend, and hold harmless each officer and
director of Cumberland or Middlesboro (each, an "Indemnified Party") against all
Liabilities arising out of actions or omissions occurring at or prior to the
Effective Time (including, without limitation, the transactions contemplated by
this Agreement) to the fullest extent permitted, but as may be limited, by
Tennessee Law, in each case as in effect on the date hereof, including
provisions relating to advances of expenses incurred in the defense of any
Litigation; provided, however, that all rights to indemnification in respect of
any claim asserted or made against an Indemnified Party within such three year
period shall continue until the final disposition of such claim. Without
limiting the foregoing, in any case in which approval by Cumberland is required
to effectuate any indemnification, Commercial shall direct, at the election of
the Indemnified Party, that the determination of any such approval shall be made
by independent counsel mutually agreed upon between Commercial and the
Indemnified Party.
(b) Any Indemnified Party wishing to claim indemnification
under paragraph (a) above, upon learning of any such Liability or Litigation,
shall promptly notify Commercial thereof. In the event of any such Litigation
(whether arising before or after the Effective Time), (i) Commercial shall have
the right to assume the defense thereof and Commercial shall not be liable to
such Indemnified Parties for any legal expenses of other counsel or any other
expenses subsequently incurred by such Indemnified Parties in connection with
the defense thereof (employing counsel reasonably satisfactory to the
Indemnified Parties), except that if Commercial elects not to assume such
defense or counsel for the Indemnified Parties advises in writing that there are
Material substantive issues which raise conflicts of interest between Commercial
and the Indemnified Parties, the Indemnified Parties may retain counsel
satisfactory to them, and Commercial shall pay all reasonable fees and expenses
of such counsel for the Indemnified Parties promptly as statements therefor are
received; provided, however, that (i) Commercial shall be obligated pursuant to
this paragraph (b) to pay for only one firm of counsel for all Indemnified
Parties in any jurisdiction, unless counsel for any Indemnified Party advises in
writing that there are Material substantive issues which raise conflicts of
interest between the Indemnified Parties, (ii) the Indemnified Parties will
cooperate (to the extent reasonably appropriate under the circumstances) in the
defense of any such Litigation, and (iii) Commercial shall not be liable for any
settlement effected without its prior written consent; and provided further that
Commercial shall not have any obligation hereunder to any Indemnified Party when
and if a court of competent jurisdiction shall determine, and such determination
shall have become final, that the indemnification of such Indemnified Party in
the manner contemplated hereby is not permitted by or is prohibited by
applicable Law.
(c) If Commercial or any of its successors or assigns shall
consolidate with or merge into any other Person and shall not be the continuing
or surviving Person of such consolidation or merger or shall transfer all or
substantially all of its Assets to any Person, then and in each case, proper
provision shall be made so that the successors and assigns of Commercial shall
assume the obligations set forth in this Section 6.11.
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(d) The provisions of this Section 6.11 are intended to be
for the benefit of and shall be enforceable by, each Indemnified Party, his or
her heirs and representatives.
(e) At the Effective Time, Commercial shall purchase
continuation coverage under Cumberland's existing directors' and officers'
liability insurance policy provided by Progressive Casualty Insurance Company
(Policy No. 10023340-00) (or provide a policy providing comparable coverage and
amounts and terms no less favorable to the persons currently covered by such
existing policy) covering persons who are currently covered by such insurance
for the Discovery Period, as defined in such policy.
7. CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE.
7.1 CONDITIONS TO OBLIGATIONS OF COMMERCIAL. The obligations of
Commercial to perform this Agreement and consummate the transactions
contemplated hereby are subject to the satisfaction of the following conditions,
unless waived by Commercial pursuant to Section 9.7(a) of this Agreement:
(a) REGULATORY APPROVALS. All Consents of filings and
registrations with, and notifications to all Regulatory Authorities required for
consummation of the transactions contemplated by this Agreement, including the
Merger and the operation of the branches of Middlesboro as branches of
Commercial Bank, shall have been obtained or made and shall be in full force and
effect and all waiting periods required by Law shall have expired. No Consent
obtained from any Regulatory Authority which is necessary to consummate the
transactions contemplated hereby shall be conditioned or restricted in a manner
(including, without limitation, requirements relating to the raising of
additional capital or the disposition of Assets) which in the reasonable
judgment of the Board of Directors of Commercial would so Materially adversely
impact the economic or business benefits of the transactions contemplated by
this Agreement as to render inadvisable the consummation of the transactions
contemplated by this Agreement.
(b) CONSENTS AND APPROVALS. Cumberland shall have obtained
any and all Consents required for consummation of the transactions contemplated
by this Agreement (other than those referred to in paragraph (a) of this Section
7.1 or for the preventing of any Default under any Contract or Permit of such
Party which, if not obtained or made, is reasonably likely to have a Material
Adverse Effect on any of the Cumberland Companies. No Consent so obtained which
is necessary to consummate the transactions contemplated hereby shall be
conditioned or restricted in a manner which in the reasonable judgment of the
Board of Directors of Commercial would so Materially adversely impact the
economic or business benefits of the transactions contemplated by this Agreement
as to render inadvisable the consummation of the transactions contemplated by
this Agreement.
(c) LEGAL PROCEEDINGS. No court or governmental or
regulatory authority of competent jurisdiction shall have enacted, issued,
promulgated, enforced or entered any Law or Order (whether temporary,
preliminary or permanent) or taken any other action which prohibits, restricts
or makes illegal consummation of the transactions contemplated by this
Agreement.
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(d) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Cumberland set forth in this Agreement shall be true and correct
in all Material respects as of the date hereof and shall be true and correct in
all Material respects on the Closing Date with the same force and effect as
though such representations and warranties had been made on and as of the
Closing Date (provided that representations and warranties which are confined to
a specified date shall be true and correct as of such specified date.)
(e) PERFORMANCE OF AGREEMENTS AND COVENANTS. Each and all of
the agreements and covenants of Cumberland to be performed and complied with
pursuant to this Agreement and the other agreements contemplated hereby prior to
the Closing Date shall have been duly performed and complied with in all
Material respects.
(f) CERTIFICATES. Cumberland shall have delivered to
Commercial (i) a certificate, dated as of the Closing Date and signed on its
behalf by its chief executive officer and its chief financial officer to the
effect that the conditions of its obligations set forth in Sections 7.1(d) and
7.1(e) of this Agreement have been satisfied, and (ii) certified copies of
resolutions duly adopted by Cumberland's Board of Directors and Cumberland's
shareholders evidencing the taking of all corporate action necessary to
authorize the execution, delivery and performance of this Agreement, and the
consummation of the transactions contemplated hereby, all in such reasonable
detail as Commercial and its counsel shall request.
(g) ESOP.
(i) Cumberland shall provide Commercial with evidence,
reasonably satisfactory to Commercial, that pass-through voting of allocated
ESOP shares with respect to approval of the Agreement consistent with Part 4,
Title I of ERISA as conducted by an independent ESOP fiduciary is completed,
together with disclosure of material terms of the Agreement and termination of
the ESOP, in compliance with Department of Labor regulations.
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(ii) Cumberland shall have received and delivered to
Commercial the ESOP Fairness Opinion. Commercial shall have received a release
in form satisfactory to Commercial of all Liens encumbering shares of Cumberland
Common Stock held by the ESOP Trust.
(h) UPDATE TO PRELIMINARY BALANCE SHEEt. Commercial shall
have not raised any unresolved objection to the Preliminary Closing Balance
Sheet delivered pursuant to Section 6.4. Cumberland shall have delivered a
certificate of its Chief Financial Officer, in form and substance reasonably
acceptable to Commercial, certifying and attaching a Closing Balance Sheet
separately itemizing (i) any changes in the financial conditions or results of
operations of Cumberland or its Subsidiaries from the Preliminary Closing
Balance Sheet that affect the Net Worth of Cumberland as of the Closing Date and
(ii) separately enumerating all ESOP Costs, Transaction Costs and Change of
Control Payments as of the Closing Date. Commercial shall have access to any
books and records, and Cumberland shall provide (and shall cause its
Representatives to provide) Commercial with such other information, as
Commercial shall deem reasonably necessary to verify the Net Worth of Cumberland
as of the Closing Date and the amount of ESOP Costs, Transaction Costs and
Change of Control Payments.
(i) NON-COMPETITION/ NON-SOLICITATION AGREEMENTS. Each
director of Cumberland shall have delivered to Commercial a Non-Competition/
Non-Solicitation Agreement substantially in the form of Exhibit 2.
(j) PLAN PARTICIPANT TERMINATION AND RELEASE LETTERS. All
holders of Rights and all holders of awards issued under the MRP receiving
consideration pursuant to Sections 2.1(b) and 2.1(c) of this Agreement shall
have delivered to Commercial instruments, in a form and substance reasonably
acceptable to Commercial, releasing Commercial, Cumberland and their Affiliates
and Representatives, from any and all claims, liabilities and obligations of any
nature whatsoever arising under or in connection with any Cumberland employee
benefit plans or agreements issued thereunder that grant such Rights or awards
to such holders. Further, Cumberland shall deliver to Commercial instruments in
a form and substance reasonably acceptable to Commercial, from each of the
holders of Rights granted pursuant to Cumberland's 1998 Stock Option and
Incentive Plan, or any other employee benefit plan or agreement pursuant to
which Rights have been granted, consenting to the cancellation of all Rights
granted thereunder having an exercise price in excess of the Purchase Price per
Share, agreeing to the termination of such plans and agreements, and agreeing to
release Commercial, Cumberland and their Affiliates and Representatives from all
claims, liabilities and obligations of any nature whatsoever arising under or in
connection with such plans and agreements. The Parties do not contemplate that
payment (other than payments pursuant to Section 2.1(b)) will be made to holders
of Rights to obtain their consent to cancellation of such Rights, provided, to
the extent any such payments need to be made to obtain such consent, Commercial
must first consent to such payment and the Purchase Price shall be reduced
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accordingly. Without limiting the foregoing, any current or former officer,
director or employee of Cumberland who is entitled to receive a payment in
connection with the closing of the transactions contemplated by this Agreement,
shall sign an instrument, in form and substance satisfactory to Commercial,
agreeing to the termination of any such agreement or plan entitling them to such
payment and agreeing to release Commercial, Cumberland and their Affiliates and
Representatives from all claims, liabilities and obligations of any nature
whatsoever arising under or in connection with such plans and agreements.
Notwithstanding the foregoing, the following obligations shall remain the
obligation of Cumberland following the Share Exchange: (1) certain annuity
payments due to two former directors of Cumberland, disclosed on Section 7.1(j)
of the Cumberland Disclosure Memorandum and (2) payments made to directors
---------------------
pursuant to Section 5.5.
(k) OFFICER AND DIRECTOR RELEASES. All Cumberland officers
and directors shall have delivered to Commercial instruments, in a form
reasonably acceptable to Commercial, releasing Commercial, Cumberland and their
Affiliates and Representatives from any and all claims, liabilities and
obligations of any nature whatsoever arising out of or relating to their
employment or service as a director prior to the Effective Time.
(l) TERMINATION OF SHOFFNER EMPLOYMENT AGREEMENT. Cumberland
shall have delivered to Commercial an instrument, in form and substance
reasonably acceptable to Commercial, pursuant to which, in exchange for a
payment to Mr. Shoffner at the Closing of an amount equal to $300,000.00 plus
$160,524.25 (representing the amount accrued as of December 31, 200 by
Cumberland on its books and records as supplemental retirement benefits due Mr.
Shoffner under the Shoffner Employment Agreement) plus $3,500 per month to be
accrued by Cumberland between December 31, 2000 and the Closing Date as a
supplemental retirement benefit due Mr. Shoffner, James J. Shoffner: (i) shall
agree to terminate the Shoffner Employment Agreement; (ii) shall acknowledge the
receipt of such payment in full satisfaction of all amounts due and owing to him
from Cumberland and the Cumberland Subsidiaries relating to his employment; and
(iii) shall agree to fully release and discharge the Cumberland Companies,
Commercial and their Affiliates and Representatives from any and all claims,
liabilities and obligations of any nature whatsoever related to or connected
with the Shoffner Employment Agreement and his employment relationship with the
Cumberland Companies. Cumberland shall also transfer to Mr. Shoffner at Closing,
the Mass Mutual Life Insurance Policy on his life (Policy Number _______).
(m) TERMINATION OF INDEMNIFICATION AGREEMENTS. Cumberland
and Middlesboro shall have terminated all Indemnification Agreements with their
respective directors.
7.2 CONDITIONS TO OBLIGATIONS OF CUMBERLAND. The obligations of
Cumberland to perform this Agreement and consummate the transactions
contemplated hereby are subject to the satisfaction of the following conditions,
unless waived by Cumberland pursuant to Section 9.7(b) of this Agreement:
(a) SHAREHOLDER APPROVAL. Cumberland's shareholders shall
have approved this Agreement.
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(b) REGULATORY APPROVALS. All Consents of filings and
registrations with, and notifications to all Regulatory Authorities required for
consummation of the transactions contemplated by this Agreement (excepting,
however, for purposes of this Section 7.2(b) the Merger and the operation of the
branches of Middlesboro as branches of Commercial Bank) shall have been obtained
or made and shall be in full force and effect and all waiting periods required
by Law shall have expired.
(c) LEGAL PROCEEDINGS. No court or governmental or
regulatory authority of competent jurisdiction shall have enacted, issued,
promulgated, enforced or entered any Law or Order (whether temporary,
preliminary or permanent) or taken any other action which prohibits, restricts
or makes illegal consummation of the transactions contemplated by this
Agreement.
(d) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Commercial set forth in this Agreement shall be true and correct
in all Material respects as of the date hereof and shall be true and correct in
all Material respects on the Closing Date with the same force and effect as
though such representations and warranties had been made on and as of the
Closing Date (provided that representations and warranties which are confined to
a specified date shall be true and correct as of such specified date).
(e) PERFORMANCE OF AGREEMENTS AND COVENANTS. Each and all of
the agreements and covenants of Commercial to be performed and complied with
pursuant to this Agreement and the other agreements contemplated hereby prior to
the Closing Date shall have been duly performed and complied with in all
Material respects.
(f) CERTIFICATES. Commercial shall have delivered to
Cumberland (i) a certificate, dated as of the Closing Date and signed on its
behalf by its chief executive officer and its chief financial officer, to the
effect that the conditions of its obligations set forth in Section 7.2(d) and
7.2(e) of this Agreement have been satisfied, and (ii) certified copies of
resolutions duly adopted by Commercial's Board of Directors evidencing the
taking of all corporate action necessary to authorize the execution, delivery
and performance of this Agreement, and the consummation of the transactions
contemplated hereby, all in such reasonable detail as Cumberland and its counsel
shall request.
(g) EXCHANGE AGENT CERTIFICATE. The Exchange Agent shall
have delivered to Cumberland a certificate dated the Effective Time certifying
as to receipt of sufficient cash to pay the Purchase Price.
8. TERMINATION.
8.1 TERMINATION. Notwithstanding any other provision of this
Agreement, this Agreement may be terminated and the transactions contemplated
hereby abandoned at any time prior to the Closing Date:
(a) By mutual consent of the Board of Directors of
Commercial and the Board of Directors of Cumberland; or
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(b) By the Board of Directors of either Commercial or
Cumberland if the Net Worth of Cumberland as of the Closing Date is less than
$8,000,000, exclusive of any modifications or charges undertaken solely on
account of Section 6.9; or
(c) By the Board of Directors of either Commercial or
Cumberland (provided that the terminating Party is not then in Material breach
of any representation or warranty or covenant or other agreement contained in
this Agreement) in the event of a Material breach by the non-terminating Party
of any representation or warranty or covenant contained in this Agreement which
cannot be or has not been cured within 30 days after written notice is given to
the breaching Party of such breach but in no event later than two days prior to
the Closing Date, and which breach would provide the non-breaching Party the
ability to refuse to consummate the transactions contemplated by this Agreement
or; or
(d) By the Board of Directors of either Commercial or
Cumberland in the event (provided that the terminating Party is not then in
Material breach of any representation or warranty or covenant or other agreement
contained in this Agreement) (i) any Consent of any Regulatory Authority
required for consummation of the transactions contemplated hereby shall have
been denied by final nonappealable action of such authority or if any action
taken by such authority is not appealed within the time limit for appeal or (ii)
the shareholders of Cumberland fail to vote their approval at the meeting of
Cumberland's shareholders where this Agreement is presented for their approval;
or
(e) by the Board of Directors of Commercial or Cumberland in
the event that the transactions contemplated by this Agreement shall not have
been consummated on or before June 30, 2001, unless the reason for the
transactions having not been consummated is that Consents have not been received
from Regulatory Authorities, or applicable waiting periods have not elapsed, or
the conditions set forth in Section 7.1(g) have not been satisfied, in any such
event such date shall be December 31, 2001 if the failure to consummate on or
before such date is not caused by any breach of this Agreement by the
terminating party; or
(f) By the Board of Directors of Commercial or Cumberland
(provided that the terminating Party is not then in breach of any representation
or warranty or covenant or other agreement contained in this Agreement) in the
event that any of the conditions precedent to the obligations of such Party to
consummate the transactions contemplated by this Agreement (other than as
contemplated by Section 8.1(d) of this Agreement) cannot be satisfied or
fulfilled by the date specified in Section 8.1(e) of this Agreement.
8.2 EFFECT OF TERMINATION. Each party's right of termination under
Section 8.1 is in addition to any other rights or remedies it may have under
this Agreement or otherwise, and the exercise of a right of termination will not
be an election of remedies. In the event of the termination and abandonment of
this Agreement pursuant to Section 8.1 of this Agreement, this Agreement shall
become void and have no effect, except that the provisions of Sections 6.6(b),
8.2, 9.1, 9.2 and 9.13 of this Agreement shall survive any such termination and
abandonment, provided, that if this Agreement is terminated by a Party because
of the breach of the Agreement by the other Party because one or more of the
conditions to the terminating party's obligations under this Agreement is not
satisfied as a result of the
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other party's failure to comply with its obligations under this Agreement, the
terminating party's right to pursue all legal remedies will survive each
termination unimpaired.
8.2 NON-SURVIVAL OF REPRESENTATIONS AND COVENANTS. The respective
representations, warranties, obligations, covenants and agreements of the
Parties shall not survive the Closing Date.
9. MISCELLANEOUS.
9.1 DEFINITIONS. Except as otherwise provided herein, the
capitalized terms set forth below (in their singular and plural forms as
applicable) shall have the following meanings:
(a) "1933 ACT" shall mean the Securities Act of 1933, as
amended.
(b) "1934 ACT" shall mean the Securities Exchange Act of
1934, as amended.
(c) "ACQUISITION PROPOSAL" with respect to a Party shall
mean any tender offer or exchange offer or any proposal for a merger (other than
the transactions contemplated by this Agreement), acquisition of all of the
stock or Assets of, or other business combination involving such Party or any of
its Subsidiaries or the acquisition of a substantial equity interest in, or a
substantial portion of the Assets of such Party or any of its Subsidiaries.
(d) "AFFILIATE" of a Person shall mean any person who is an
affiliate for purposes of Rule 145 under the 1933 Act.
(e) "AGREEMENT" shall mean this Agreement and Plan of Share
Exchange, including the Exhibits and Schedules delivered pursuant hereto and
incorporated herein by reference.
(f) "ALLOWANCE" shall have the meaning provided in Section
3.10 of this Agreement.
(g) "ASSETS" of a Person shall mean all of the assets,
properties, businesses and rights of such Person of every kind, nature,
character and description, whether real, personal or mixed, tangible or
intangible, accrued or contingent, or otherwise relating to or utilized in such
Person's business, directly or indirectly, in whole or in part, whether or not
carried on the books and records of such Person, and whether or not owned in the
name of such Person or any Affiliate of such Person and wherever located.
(h) "BHC ACT" shall mean the federal Bank Holding Company
Act of 1956, as amended.
(i) "CHANGE OF CONTROL PAYMENTS" shall mean any payments
made pursuant to any arrangement or agreement with any past or current
directors, officers or employees as a consequence of the consummation of the
Share Exchange other than pursuant to Section 2.1(b) or 2.1(c) hereof and/or
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any payments in connection with the requested termination and/or release letters
pursuant to Section 7.1(j), 7.1(k) and/or 7.1(l).
(j) "CLOSING" shall mean the closing of the transactions
contemplated hereby, as described in Section 1.2 of this Agreement.
(k) "CLOSING DATE" shall mean the date on which the Closing
occurs.
(l) "CLOSING NET WORTH" shall mean the sum of (i) the Net
Worth of Cumberland as of the Closing Date, as set forth on the Closing Balance
Sheet delivered by Cumberland pursuant to Section 7.1(h) and (ii) the balances
in the following contra-equity accounts presented in such Closing Balance Sheet:
(a) unearned MRP shares; (b) unearned stock options; and (c) unearned ESOP
Shares.
(m) "CODE" shall mean the Internal Revenue Code of 1986, as
amended, and the rules and regulations promulgated thereunder.
(n) "CONSENT" shall mean any consent, approval, authorization,
clearance, exemption, waiver, or similar affirmation by any Person pursuant to
any Contract, Law, Order, or Permit.
(o) "CONTRACT" shall mean any written or oral agreement,
arrangement, authorization, commitment, contract, indenture, instrument, lease,
obligation, plan, practice, restriction, understanding or undertaking of any
kind or character, or other document to which any Person is a party or that is
binding on any Person or its capital stock, Assets or business.
(p) "CUMBERLAND BENEFIT PLANS" shall have the meaning set
forth in Section 3.15 of this Agreement.
(q) "CUMBERLAND COMMON STOCK" shall mean the $.01 par value
common stock of Cumberland .
(r) "CUMBERLAND COMPANIES" shall mean, collectively,
Cumberland and all Cumberland Subsidiaries.
(s) "CUMBERLAND DISCLOSURE MEMORANDUM" shall mean the written
---------------------
information entitled "Cumberland Disclosure Memorandum" delivered prior to
----------------------
execution of this Agreement to Commercial describing in reasonable detail the
matters contained therein.
(t) "CUMBERLAND SUBSIDIARIES" shall mean the direct and
indirect Subsidiaries of Cumberland.
(u) "DEFAULT" shall mean (a) any breach or violation of or
default under any Contract, Order or Permit, (b) any occurrence of any event
that with the passage of time or the giving of notice or both would constitute a
breach or violation of or default under any Contract, Order or Permit,
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or (c) any occurrence of any event that with or without the passage of time or
the giving of notice, or both, would give rise to a right to terminate or
revoke, change the current terms of, or renegotiate, or to accelerate, increase,
or impose any Liability under, any Contract, Order or Permit.
(v) "ENVIRONMENTAL LAWS" shall mean all Laws pertaining to
pollution or protection of the environment and which are administered,
interpreted or enforced by the United States Environmental Protection Agency and
state and local agencies with primary jurisdiction over pollution or protection
of the environment.
(w) "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended.
(x) "ERISA AFFILIATE" shall refer to a relationship between
entities such that the entities would, now or at any time in the past,
constitute a "single employer" within the meaning of Section 414 of the Code.
(y) "ERISA PLAN" shall have the meaning provided in Section
3.15 of this Agreement.
(z) "ESOP" shall mean the Cumberland Employee Stock
Ownership Plan dated July 1, 1996.
(aa) "ESOP COSTS" shall mean all costs and expenses
associated with and in connection with operation, documentation and termination
of the ESOP and retirement of ESOP acquisition loans and related regulatory
approvals, the ESOP Fairness Opinion, valuations, and Taxes and other
assessments by regulatory authorities, if any, and related attorney and
accountant fees.
(bb) "ESOP NOTES" shall mean (i) that certain promissory
note in the principal amount of $271,830, dated March 25, 1997, payable to the
order of Cumberland, made in connection with that certain Stock Pledge Agreement
dated March 25, 1997 among Cumberland and J. Roy Shoffner, Robert R. Long and
James J. Shoffner, as the trustees of the ESOP Trust, (ii) that certain
promissory note in the principal amount of $543,619.88, dated May 1, 1997,
payable to the order of Powell Valley National Bank, made pursuant to that
certain Loan Agreement dated May 1, 1997 among J. Roy Shoffner, Robert R. Long
and James J. Shoffner, as the trustees of the ESOP Trust, and Powell Valley
National Bank and (iii) that certain promissory note in the principal amount of
$170,973.38, dated June 27, 1997, payable to the order of Powell Valley National
Bank, made pursuant to that certain Loan Agreement dated June 27, 1997 among J.
Roy Shoffner, Robert R. Long and James J. Shoffner, as the trustees of the ESOP
Trust, and Powell Valley National Bank.
(cc) "ESOP TRUST" shall mean that certain trust created
pursuant to the ESOP.
(dd) "EXHIBITS" shall mean the Exhibits so marked, copies of
which are attached to this Agreement. Such Exhibits are hereby incorporated by
reference herein and made a part hereof and
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may be referred to in this Agreement and any other related instrument or
document without being attached hereto.
(ee) "GAAP" shall mean generally accepted accounting
principles, consistently applied during the periods involved.
(ff) "HAZARDOUS MATERIAL" shall mean any pollutant,
contaminant, or toxic or hazardous substance, pollutant, chemical or waste
within the meaning of the Comprehensive Environment Response, Compensation, and
Liability Act, 42 U.S.C. ss. 9601 et seq., or any similar federal, state or
local Law (and specifically shall include asbestos requiring abatement, removal
or encapsulation pursuant to the requirements of governmental authorities,
polychlorinated biphenyls, and petroleum and petroleum products).
(gg) "KNOWLEDGE" as used with respect to a Party (including
references to a Party being aware of a particular matter) shall mean the
personal knowledge, after reasonable investigation and inquiry of the books and
records of such Party and its Subsidiaries and Representatives, of its Chairman,
President, Chief Financial Officer, Chief Operating Officer, Chief Lending
Officer, directors or, if applicable, trustees of the ESOP or 401(k) plan.
(hh) "LAW" shall mean any code, law, ordinance, regulation,
reporting or licensing requirement, rule, or statute applicable to a Person or
its Assets, Liabilities or business, including, without limitation, those
promulgated, interpreted or enforced by any of the Regulatory Authorities.
(ii) "LIABILITY" shall mean any direct or indirect, primary
or secondary, liability, indebtedness, obligation, penalty, cost or expense
(including, without limitation, costs of investigation, collection and defense
and reasonable attorneys' fees ), claim, deficiency, guaranty or endorsement of
or by any Person (other than endorsements of notes, bills, checks, and drafts
presented for collection or deposit in the ordinary course of business) of any
type, whether accrued, absolute or contingent, liquidated or unliquidated,
matured or unmatured, or otherwise.
(jj) "LIEN" shall mean any conditional sale agreement,
default of title, easement, encroachment, encumbrance, hypothecation,
infringement, lien, mortgage, pledge, reservation, restriction, security
interest, title retention or other security arrangement, or any adverse right or
interest, charge, or claim of any nature whatsoever of, on, or with respect to
any property or property interest, other than (i) Liens for current property
Taxes not yet due and payable, (ii) for depository institution Subsidiaries of a
Party, pledges to secure deposits and other Liens incurred in the ordinary
course of the banking business and (iii) such standard exceptions to title as
are pre-printed in Schedule B to the ALTA Form B title commitment.
(kk) "LITIGATION" shall mean any action, arbitration, cause
of action, claim, complaint, criminal prosecution, demand letter, governmental
or other examination or investigation, hearing, inquiry, administrative or other
proceeding, or notice (written or oral) by any Person alleging potential
Liability or requesting information relating to or affecting any of the
Cumberland Companies, their business,
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their Assets (including, without limitation, Contracts related to it), or the
transactions contemplated by this Agreement, but shall not include regular,
periodic examinations of depository institutions and their Affiliates by
Regulatory Authorities.
(ll) "LOAN PROPERTY" shall mean any property owned by the
Party in question or by any of its Subsidiaries or in which such Party or
Subsidiary holds a security interest, and, where required by the context,
includes the owner or operator of such property, but only with respect to such
property.
(mm) "MATERIAL" for purposes of this Agreement shall be
determined in light of the facts and circumstances of the matter in question;
provided that any specific monetary amount stated in this Agreement shall
determine materiality in that instance. "Material Adverse Effect" on a Party
shall mean an event, change or occurrence, individually or in the aggregate,
which has a material adverse impact on (a) the financial position, business,
results of operations or prospects of such Party and its Subsidiaries taken as a
whole, or (b) the ability of such Party to perform its obligations under this
Agreement or to consummate the transactions contemplated by this Agreement,
provided that "Material Adverse Effect" shall not be deemed to include the
impact of (a) changes in banking and similar Laws of general applicability or
interpretations thereof by courts or governmental authorities, (b) changes in
GAAP or regulatory accounting principles generally applicable to financial
institutions and their holding companies, (c) actions and omissions of a Party
(or any of its Subsidiaries) taken with the prior informed consent of the other
Party in contemplation of the transactions contemplated hereby, (d) the Merger
and compliance with the provisions of this Agreement on the operating
performance, and (e) changes in interest rates.
(oo) "NET WORTH" shall mean the excess of the total assets
over total liabilities, as set forth on the consolidated balance sheet of
Cumberland prepared in accordance with GAAP consistent with past practices.
Notwithstanding the foregoing, except as otherwise provided, the ESOP Costs,
Transaction Costs and Change of Control Payments shall be included in the
determination of Net Worth as of the Closing Date.
(pp) "ORDER" shall mean any administrative decision or
award, decree, injunction, judgment, order, quasi-judicial decision or award,
ruling, or writ of any federal, state, local or foreign or other court,
arbitrator, mediator, tribunal, administrative agency or Regulatory Authority.
(qq) "PARTICIPATION FACILITY" shall mean any facility or
property in which the Party in question or any of its Subsidiaries participates
in the management (including any property or facility held in a joint venture)
and, where required by the context, said term means the owner or operator of
such facility or property, but only with respect to such facility or property.
(rr) "PARTY" shall mean either Cumberland or Commercial, and
"Parties" shall mean both Cumberland and Commercial.
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(ss) "PERMIT" shall mean any federal, state, local, and
foreign governmental approval, authorization, certificate, easement, filing,
franchise, license, notice, permit, or right to which any Person is a party or
that is, or may be binding upon or inure to the benefit of any Person or its
securities, Assets, Liabilities, or business.
(tt) "PERSON" shall mean a natural person or any legal,
commercial or governmental entity, such as, but not limited to, a corporation,
general partnership, joint venture, limited partnership, limited liability
company, trust, business association, group acting in concert, or any person
acting in a representative capacity.
(uu) "REGULATORY AUTHORITIES" shall mean, collectively, the
Federal Trade Commission, the United States Department of Justice, the Board of
the Governors of the Federal Reserve System, the Office of Thrift Supervision
(including its predecessor, the Federal Home Loan Bank Board), the Office of the
Comptroller of the Currency, the Federal Deposit Insurance Corporation, all
state regulatory agencies having jurisdiction over the Parties and their
respective Subsidiaries, and the SEC.
(vv) "RIGHTS" shall mean all arrangements, calls,
commitments, Contracts, options, rights to subscribe to, scrip, understandings,
warrants or other binding obligations of any character whatsoever relating to,
or securities or rights convertible into or exchangeable for, shares of the
capital stock of a Person or by which a Person is or may be bound to issue
additional shares of its capital stock or other Rights.
(ww) "SEC" shall mean the United States Securities and
Exchange Commission.
(xx) "SEC DOCUMENTS" shall mean all forms, proxy statements,
registration statements, reports, schedules and other documents filed, or
required to be filed, by a Party or any of its Subsidiaries with any Regulatory
Authority pursuant to the Securities Laws.
(yy) "SECURITIES LAWS" shall mean the 1933 Act, the 1934 Act,
the Investment Company Act of 1940, as amended, the Investment Advisors Act of
1940, as amended, the Trust Indenture Act of 1939, as amended, and the rules and
regulations of any Regulatory Authority promulgated thereunder.
(zz) "SHOFFNER EMPLOYMENT AGREEMENT" shall mean that certain
Employment Agreement, dated August 12, 1996 between James J. Shoffner and
Middlesboro.
(aaa) "SUBSIDIARIES" shall mean all those corporations,
banks, associations, partnerships or other entities or ventures of which the
entity in question owns or controls 50% or more of the outstanding equity
securities or the ownership interest, as the case may be, either directly or
through an unbroken chain of entities as to each of which 50% or more of the
outstanding equity securities is owned directly or indirectly by its parent;
provided, however, there shall not be included any such entity acquired through
foreclosure or any such entity the equity securities of which are owned or
controlled in a fiduciary capacity.
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(bbb) "TAX" OR "TAXES" shall mean any federal, state, county,
local or foreign income, profits, franchise, gross receipts, payroll, sales,
employment, use, property, withholding, excise, occupancy, value added, capital
stock, transfer, registration, license and other taxes, assessments, charges, or
impositions, and any related charge or amount (including any fine, penalty,
interest or addition to tax), imposed, assessed or collected by or under
authority of any governmental or public body or authority or payable pursuant to
any tax-sharing agreement or any other Contract relating to the sharing or
payment of any such tax, levy, assessment, tariff, duty, deficiency or fee,
including interest, penalties and additions imposed thereon or with respect
thereto, whether disputed or not.
(ccc) "TAX RETURNS" shall mean any return (including any
information return), report, declaration of estimated Taxes, statement,
schedule, notice, form, or other document or information filed with or submitted
to, or required to be filed with or submitted to, any public or governmental
body or authority in connection with the determination, assessment, collection,
or payment of any Tax or in connection with the administration, implementation,
or enforcement of or compliance with any Law relating to any Tax.
(ddd) "TBCA" shall mean the Tennessee Business Corporation
Act.
(eee) "TRANSACTION COSTS" shall mean expenses and costs
incurred by Cumberland in connection with and related to the negotiation of this
Agreement and closing of the transactions contemplated hereby, including without
limitation, attorney fees, accountant fees, SEC filing fees, and printing fees
relating to Cumberland's Proxy Statement.
Any singular term in this Agreement shall be deemed to include the plural, and
any plural term the singular. Whenever the words "include," "includes," or
"including" are used in this Agreement, they shall be deemed followed by the
words "without limitation."
9.2 EXPENSES.
(a) Except as provided in Section 9.2(b), each Party shall
bear and pay all direct costs and expenses incurred by it or on its behalf in
connection with the transactions contemplated hereunder, including filing and
application fees, printing fees, and fees and expenses of its own financial or
other consultants, investment bankers, accountants and counsel.
(b) Notwithstanding the provisions of Section 9.2(a), if
Cumberland terminates this Agreement and accepts a higher Acquisition Proposal
within 12 months after terminating this Agreement, and such termination by
Cumberland is not pursuant to Section 8.1 of this Agreement or such termination
by Cumberland is for failure to obtain shareholder approval and a reason for
such failure is the existence of a bona fide higher Acquisition Proposal, then
Cumberland shall pay Commercial, all direct costs and expenses incurred by
Commercial or on its behalf in connection with the transactions contemplated
hereunder, plus $200,000. Final settlement with respect to payment of such fees
shall be made within thirty (30) days of entering into an agreement with a third
party relating to a higher Acquisition
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Proposal. Notwithstanding the foregoing, each Party shall have the right to
pursue all other rights and remedies as provided in Section 9.13.
9.3 BROKERS AND FINDERS. Each of the Parties represents and
warrants that neither Commercial nor Cumberland nor any of their officers,
directors, employees or Affiliates has employed any broker or finder or incurred
any Liability for any financial advisory fees, investment bankers' fees,
brokerage fees, commissions, or finders' fees in connection with this Agreement
or the transactions contemplated hereby except as disclosed in Section 9.3 of
the Cumberland Disclosure Memorandum. In the event of a claim by any other
broker or finder based upon its representing or being retained by or allegedly
representing or being retained by Commercial or Cumberland, each of Commercial
and Cumberland, as the case may be, agrees to indemnify and hold the other,
harmless from any Liability in respect of any such claim.
9.4 ENTIRE AGREEMENT. Except as otherwise expressly provided
herein, this Agreement (including the documents and instruments referred to
herein) constitutes the entire agreement between the Parties with respect to the
transactions contemplated hereunder and supersedes all prior arrangements or
understandings with respect thereto, written or oral.
9.5 AMENDMENTS. To the extent permitted by law, this Agreement
may be amended by a subsequent writing signed by each of the Parties upon the
approval of the Boards of Directors of Commercial and Cumberland; provided after
any approval of this Agreement by the shareholders of Cumberland, there shall be
no amendment decreasing the Purchase Price Per Share, except as set forth in
Section 2.6, or changing the form of the consideration without the further
approval of the shareholders.
9.6 NO THIRD PARTY BENEFICIARIES. This Agreement is not intended
to, and shall not be construed to, confer upon any third Person any right,
remedy or benefit nor is it intended to be enforceable by any third Person, and
shall only be enforceable by the parties hereto, and their respective
successors, permitted assigns, heirs and personal representatives, other than
provided in Section 6.11 of this Agreement.
9.7 WAIVERS.
(a) Prior to or at the Closing Date, Commercial, acting
through its Board of Directors, chief executive officer or other authorized
officer, shall have the right to waive any Default in the performance of any
term of this Agreement by Cumberland, to waive or extend the time for the
compliance or fulfillment by Cumberland of any and all of its obligations under
this Agreement, and to waive any or all of the conditions precedent to the
obligations of Commercial under this Agreement, except any condition which, if
not satisfied, would result in the violation of any Law, and except for the
Purchase Price payable set forth in Section 2.1. No such waiver shall be
effective unless in writing signed by a duly authorized officer of Commercial.
(b) Prior to or at the Closing Date, Cumberland, acting
through its Board of Directors, chief executive officer or other authorized
officer, shall have the right to waive any Default in the
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performance of any term of this Agreement by Commercial, to waive or extend the
time for the compliance or fulfillment by Commercial of any and all of its
obligations under this Agreement, and to waive any or all of the conditions
precedent to the obligations of Cumberland under this Agreement, except any
condition which, if not satisfied, would result in the violation of any Law, and
except for the Purchase Price payable set forth in Section 2.1. No such waiver
shall be effective unless in writing signed by a duly authorized officer of
Cumberland.
(c) The failure of any Party at any time or times to require
performance of any provision hereof shall in no manner affect the right of such
party at a later time to enforce the same or any other provision of this
Agreement. No waiver of any condition or of the breach of any term contained in
this Agreement in one or more instances shall be deemed to be or construed as a
further or continuing waiver of such condition or breach or a waiver of any
other condition or of the breach of any other term of this Agreement.
9.8 ASSIGNMENT. Except as may be expressly contemplated hereby,
neither this Agreement nor any of the rights, interests or obligations hereunder
may be assigned by any Party hereto (whether by operation of Law or otherwise)
without the prior written consent of the other Party. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of and be
enforceable by the Parties and their personal and legal representatives,
guardians, successors and assigns.
9.9 NOTICES. All notices or other communications which are
required or permitted hereunder shall be in writing and sufficient if delivered
by hand, by facsimile transmission, by registered or certified mail, postage
pre-paid, or by courier or overnight carrier, to the persons at the addresses
set forth below (or at such other address as may be provided hereunder), and
shall be deemed to have been delivered as of the date so delivered:
Commercial: Commercial Bancgroup, Inc.
6710 Cumberland Gap Parkway
P.O. Box 400
Harrogate, Tennessee 37752
Attn: E. Oscar Robertson
Chairman and CEO
-- and --
Terry Lee
President
With a copy (which shall not constitute, notice) to:
Reed Weitkamp Schell & Vice PLLC
2400 Citizens Plaza
Louisville, Kentucky 40202
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Attn: Ivan J. Schell, Esq.
Fax: (502) 562-2200
Cumberland: Cumberland Mountain Bancshares, Inc.
1431 Cumberland Avenue
Middlesboro, Kentucky 40965
Attn: James J. Shoffner
President and Chief Executive Officer
Fax: (606) 248-6400
With a copy (which shall not constitute notice):
Stradley Ronon Housley Kantarian & Bronstein, LLP
1220 19th Street, N.W., Suite 700
Washington, D.C. 20036
Attn: Joan S. Guilfoyle, Esq.
Fax: (202) 822-0140
9.10 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the Laws of the State of Tennessee, without regard
to any applicable conflicts of Laws, except to the extent that the federal laws
of the United States may apply to the transactions contemplated hereby.
9.11 COUNTERPARTS. This Agreement may be executed in one, or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
9.12 CAPTIONS. The captions contained in this Agreement are for
reference purposes only and are not part of this Agreement.
9.13 REMEDIES. No right or remedy conferred upon or reserved to
any of the Parties under the terms of this Agreement is intended to be, nor
shall it be deemed, exclusive of any other right or remedy provided in this
Agreement or by law or equity, but each shall be cumulative of every other right
or remedy. The Parties understand and acknowledge that a Party would be damaged
irreparably by reason of a failure of the Party to perform any obligation under
this Agreement. Accordingly, if any Party attempts to enforce the provisions of
this Agreement by specific performance (including preliminary or permanent
injunctive relief), the Party against whom such action or proceeding is brought
waives the claim or defense that the other Party has an adequate remedy at law.
9.14 SEVERABILITY. Any term or provision of this Agreement which
is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction,
be ineffective to the extent of such invalidity
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or unenforceability without rendering invalid or unenforceable the remaining
terms and provisions of this Agreement or affecting the validity or
enforceability of any of the terms or provisions of this Agreement in any other
jurisdiction. If any provision of this Agreement is so broad as to be
unenforceable, the provision shall be interpreted to be only so broad as is
enforceable.
[SIGNATURES ON NEXT PAGE]
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IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be
executed on its behalf and its corporate seal to be hereunto affixes and
attested by officers thereunto authorized as of the day and year first above
written.
ATTEST: COMMERCIAL BANCGROUP, INC.
By: /s/ E. Oscar Robertson
-----------------------------------------
Secretary Name: E. Oscar Robertson
Title: Chairman and CEO
[CORPORATE SEAL]
ATTEST: CUMBERLAND MOUNTAIN BANCSHARES, INC.
By: /s/ James J. Shoffner
-----------------------------------------
S ecretary Name: James J. Shoffner
Title: President and Chief Executive Officer
[CORPORATE SEAL]
APPENDIX B
Fairness Opinion of Carson Medlin
September 26, 2001
Board of Directors
Cumberland Mountain Bancshares, Inc.
1431 Cumberland Avenue
Middlesboro, KY 40965
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, of the consideration to be received by the shareholders of Cumberland
Mountain Bancshares, Inc. ("Cumberland") under the terms of that certain
Agreement and Plan of Merger dated February 8, 2001 (the "Agreement") which
provides for the merger of Cumberland with and into Commercial Bancgroup, Inc.
("Commercial") (the "Merger"). Under the terms of the Agreement, the
consideration paid to holders of Cumberland common stock shall be $9,520,000
less the amounts paid to the holders of Cumberland stock options. The
consideration paid to the holders of Cumberland stock options shall be equal to
the product of the number of shares subject to each Cumberland stock option and
the difference between the purchase price per share and the applicable exercise
price. The foregoing summary of the Merger is qualified in its entirety by
reference to the Agreement.
The Carson Medlin Company is a National Association of Securities Dealers, Inc.
member investment banking firm, which specializes in the securities of
southeastern United States financial institutions. As part of our investment
banking activities, we are regularly engaged in the valuation of southeastern
United States financial institutions and transactions relating to their
securities. We regularly publish our research on independent community banks
regarding their financial and stock price performance. We are familiar with the
commercial banking industry in the Southeastern states and the commercial banks
operating in those markets. We have been retained by Cumberland in a financial
advisory capacity to render our opinion hereunder, for which we will receive
compensation.
In reaching our opinion, we have analyzed the respective financial positions,
both current and historical, of Commercial and Cumberland. We have reviewed: (i)
the Agreement; (ii) the audited financial statements of Commercial for the five
years ended December 31, 2000; (iii) audited financial statements of Cumberland
for the five fiscal years ended June 30, 2000; (iv) unaudited interim financial
statements of Cumberland for the twelve months ended June 30, 2001; and, (v)
certain other financial and operating information with respect to the business,
operations and prospects of Commercial and Cumberland. We also: (i) reviewed and
discussed with members of management of Commercial and Cumberland the historical
and current business operations, financial condition and future prospects of
their respective companies; (ii)
Board of Directors
Cumberland Mountain Bancshares, Inc.
September 26, 2001
Page 2
reviewed the historical market prices and trading activity, if any, for the
common stocks of Commercial and Cumberland and compared them with those of
certain publicly-traded companies which we deemed to be relevant; (iii) compared
the results of operations of Commercial and Cumberland with those of certain
banking companies which we deemed to be relevant; (iv) compared the proposed
financial terms of the Merger with the financial terms, to the extent publicly
available, of certain other recent business combinations of commercial banking
and thrift organizations; (v) analyzed the pro forma financial impact of the
Merger on Commercial; and (vi) conducted such other studies, analyses, inquiries
and examinations as we deemed appropriate.
We have relied upon and assumed, without independent verification, the accuracy
and completeness of all information provided to us. We have not performed or
considered any independent appraisal or evaluation of the assets of Commercial
or Cumberland. The opinion we express herein is necessarily based upon market,
economic and other relevant considerations as they exist and can be evaluated as
of the date of this letter.
Based upon the foregoing, it is our opinion that the total consideration
provided for in the Agreement is fair, from a financial point of view, to the
shareholders of Cumberland Mountain Bancshares, Inc.
Very truly yours,
/s/ THE CARSON MEDLIN COMPANY
THE CARSON MEDLIN COMPANY
APPENDIX C
Dissenters' Rights Statutes
TENNESSEE BUSINESS CORPORATION ACT
Chapter 23
BUSINESS CORPORATIONS--DISSENTERS' RIGHTS
PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
48-23-101 DEFINITIONS.--(1) "Beneficial shareholder" means the person who
is a beneficial owner of shares held by a nominee as the record shareholder;
(2) "Corporation" means the issuer of the shares held by a dissenter before
the corporate action, or the surviving or acquiring corporation by merger or
share exchange of that issuer;
(3) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under Section 48-23-102 and who exercises that right when and
in the manner required by Sections 48-23-201--48-23-209;
(4) "Fair value", with respect to a dissenter's shares, means the value of
the shares immediately before the effectuation of the corporate action to which
the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action;
(5) "Interest" means interest from the effective date of the corporate
action that gave rise to the shareholder's right to dissent until the date of
payment, at the average auction rate paid on United States treasury bills with a
maturity of six (6) months (or the closest maturity thereto) as of the auction
date for such treasury bills closest to such effective date;
(6) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee certificate on file with a
corporation; and
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
48-23-102 RIGHT TO DISSENT.--(a) A shareholder is entitled to dissent from,
and obtain payment of the fair value of his shares in the event of, any of the
following corporate actions:
(1) Consummation of a plan of merger to which the corporation is a party:
(A) If shareholder approval is required or the merger by Section 48-21-103
or the charter and the shareholder is entitled to vote on the merger; or
(B) If the corporation is a subsidiary that is merged with its parent under
Section 48-21-104;
(2) Consummation of a plan of share exchange to which the corporation is a
party as the corporation whose shares will be acquired, if the shareholder is
entitled to vote on the plan;
(3) Consummation of a sale or exchange of all, or substantially all, of the
property of the corporation other than in the usual and regular course of
business, if the shareholder is entitled to vote on the sale or exchange,
including a sale in dissolution, but not including a sale pursuant to court
order or a sale for cash pursuant to a plan by which all or substantially all of
the net proceeds of the sale will be distributed to the shareholders within one
(1) year after the date of sale;
(4) An amendment of the charter that materially and adversely affects
rights in respect of a dissenter's shares because it:
(A) Alters or abolishes a preferential right of the shares;
(B) Creates, alters, or abolishes a right in respect of redemption,
including a provision respecting a sinking fund for the redemption or
repurchase, of the shares;
(C) Alters or abolishes a preemptive right of the holder of the shares to
acquire shares or other securities;
(D) Excludes or limits the right of the shares to vote on any matter, or to
cumulate votes, other than a limitation by dilution through issuance of shares
or other securities with similar voting rights; or
(E) Reduces the number of shares owned by the shareholder to a fraction of
a share, if the fractional share is to be acquired for cash under Section
48-16-104; or
(5) Any corporate action taken pursuant to a shareholder vote to the extent
the charter, bylaws, or a resolution of the board of directors provides that
voting or nonvoting shareholders are entitled to dissent and obtain payment for
their shares.
(b) A shareholder entitled to dissent and obtain payment for his shares
under this chapter may not challenge the corporate action creating his
entitlement unless the action is unlawful or fraudulent with respect to the
shareholder or the corporation.
(c) Notwithstanding the provisions of subsection (a), no shareholder may
dissent as to any shares of a security which, as of the date of the effectuation
of the transaction which would otherwise give rise to dissenters' rights, is
listed on an exchange registered under Section 6 of the Securities Exchange Act
of 1934, as amended, or is
C-1
a "national market system security," as defined in rules promulgated pursuant to
the Securities Exchange Act of 1934, as amended.
48-23-103 DISSENT BY NOMINEES AND BENEFICAL OWNERS.--(a) A record
shareholder may assert dissenters' rights as to fewer than all the shares
registered in his name only if he dissents with respect to all shares
beneficially owned by any one (1) person and notifies the corporation in writing
of the name and address of each person on whose behalf he asserts dissenters'
rights. The rights of a partial dissenter under this subsection are determined
as if the shares as to which he dissents and his other shares were registered in
the names of different shareholders.
(b) A beneficial shareholder may assert dissenters' rights to shares of any
one (1) or more classes held on his behalf only if:
(1) He submits to the corporation the record shareholder's written consent
to the dissent not later than the time the beneficial shareholder asserts
dissents' rights; and
(2) He does so with respect to all shares of the same class of which he is
the beneficial shareholder or over which he has power to direct the vote.
PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
48-23-201 NOTICE OF DISSENTERS' RIGHTS. --(a) If proposed corporate action
creating dissenters' rights under Section 48-23-102 is submitted to a vote at a
shareholders' meeting, the meeting notice must state that shareholders are or
may be entitled to assert dissenters' rights under this chapter and be
accompanied by a copy of this chapter.
(b) If corporate action creating dissenters' rights under Section 48-23-102
is taken without a vote of shareholders, the corporation shall notify in writing
all shareholders entitled to assert dissenters' rights that the action was taken
and send them the dissenters' notice described in Section 48-23-203.
(c) A corporation's failure to give notice pursuant to this section will
not invalidate the corporate action.
48-23-202 NOTICE OF INTENT TO DEMAND PAYMENT--(a) If proposed corporate
action creating dissenters' rights under Section 48-23-102 is submitted to a
vote at a shareholders' meeting, a shareholder who wishes to assert dissenters'
right:
(1) Must deliver to the corporation, before the vote is taken, written
notice of his intent to demand payment for his shares if the proposed action is
effectuated; and
(2) Must not vote his shares in favor of the proposed action. No such
written notice of intent to demand payment is required of any shareholder to
whom the corporation failed to provide the notice required by Section 48-23-201.
(b) A shareholder who does not satisfy the requirements of subsection (a)
is not entitled to payment for his shares under this chapter.
48-23-203 DISSENTERS' NOTICE--(a) If proposed corporate action creating
dissenters' rights under Section 48-23-102 is authorized at a shareholders'
meeting, the corporation shall deliver a written dissenters' notice to all
shareholders who satisfied the requirements of Section 48-23-202.
(b) The dissenters' notice must be sent no later than ten (10) days after
the corporate action was authorized by the shareholders or effectuated,
whichever is the first to occur, and must:
(1) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(2) Inform holders of uncertificated shares to what extent transfer of the
shares will be restricted after the payment demand is received;
(3) Supply a form for demanding payment that includes the date of the first
announcement to news media or to shareholders of the principal terms of the
proposed corporate action and requires that the person asserting dissenters'
rights certify whether or not he acquired beneficial ownership of the shares
before that date;
(4) Set a date by which the corporation must receive the payment demand,
which date may not be fewer than one (1) nor more than two (2) months after the
date the subsection (a) notice is delivered; and
(5) Be accompanied by a copy of this chapter if the corporation has not
previously sent a copy of this chapter to the shareholder pursuant to Section
48-23-201.
48-23-204 DUTY TO DEMAND PAYMENT.--(a) A shareholder sent a dissenters'
notice described in Section 48-23-203 must demand payment, certify whether he
acquired beneficial ownership of the shares before the date required to be set
forth in the dissenters' notice pursuant to Section 48-23-203(b)(3), and deposit
his certificates in accordance with the terms of the notice.
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(b) The shareholder who demands payment and deposits his share certificates
under subsection (a) retains all other rights of a shareholder until these
rights are cancelled or modified by the effectuation of the proposed corporate
action.
(c) A shareholder who does not demand payment or deposit his share
certificates where required, each by the date set in the dissenters' notice, is
not entitled to payment for his shares under this chapter.
(d) A demand for payment filed by a shareholder may not be withdrawn unless
the corporation with which it was filed, or the surviving corporation, consents
thereto.
48-23-205 SHARE RESTRICTIONS. --(a) The corporation may restrict the
transfer of uncertificated shares from the date the demand for their payment is
received until the proposed corporate action is effectuated or the restrictions
released under Section 48-23-207.
(b) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are cancelled or modified by the effectuation of the proposed corporate
action.
48-23-206 PAYMENT.--(a) Except as provided in Section 48-23-208, as soon as
the proposed corporate action is effectuated, or upon receipt of a payment
demand, whichever is later, the corporation shall pay each dissenter who
complied with Section 48-23-204 the amount the corporation estimates to be the
fair value of his shares, plus accrued interest.
(b) The payment must be accompanied by:
(1) The corporation's balance sheet as of the end of a fiscal year ending
not more than sixteen (16) months before the date of payment, an income
statement for that year, a statement of changes in shareholders' equity for that
year, and the latest available interim financial statements, if any;
(2) A statement of the corporation's estimate of the fair value of the
shares;
(3) An explanation of how the interest was calculated;
(4) A statement of the dissenter's right to demand payment under Section
48-23-209; and
(5) A copy of this chapter if the corporation has not previously sent a
copy of this chapter to the shareholder pursuant to Section 48-23-201 or Section
48-23-203.
48-23-207 FAILURE TO TAKE ACTION.--(a) If the corporation does not
effectuate the proposed action that gave rise to the dissenters' rights within
two (2) months after the date set for demanding payment and depositing share
certificates, the corporation shall return the deposited certificates and
release the transfer restrictions imposed on uncertificated shares.
(b) If after returning deposited certificates and releasing transfer
restrictions, the corporation effectuates the proposed action, it must send a
new dissenters' notice under Section 48-23-203 and repeat the payment demand
procedure.
48-23-208 AFTER-ACQUIRED SHARES.--(a) A corporation may elect to withhold
payment required by Section 48-23-206 from a dissenter unless he was the
beneficial owner of the shares before the date set forth in the dissenters'
notice as the date of the first announcement to news media or to shareholders of
the principal terms of the proposed corporate action.
(b) To the extent the corporation elects to withhold payment under
subsection (a), after effectuating the proposed corporate action, it shall
estimate the fair value of the shares, plus accrued interest, and shall pay this
amount to each dissenter who agrees to accept it in full satisfaction of his
demand. The corporation shall send with its offer a statement of its estimate of
the fair value of the shares, an explanation of how the interest was calculated,
and a statement of the dissenter's right to demand payment under Section
48-23-209.
48-23-209 PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER.--(a)
A dissenter may notify the corporation in writing of his own estimate of the
fair value of his shares and amount of interest due, and demand payment of his
estimate (less any payment under Section 48-23-206), or reject the corporation's
offer under Section 48-23-208 and demand payment of the fair value of his shares
and interest due, if:
(1) The dissenter believes that the amount paid under Section 48-23-206 or
offered under Section 48-23-208 is less than the fair value of his shares or
that the interest due is incorrectly calculated;
(2) The corporation fails to make payment under Section 48-23-206 within
two (2) months after the date set for demanding payment; or
(3) The corporation, having failed to effectuate the proposed action, does
not return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within two (2) months after the date set for
demanding payment.
(b) A dissenter waives his right to demand payment under this section
unless he notifies the corporation of his demand in writing under subsection (a)
within one (1) month after the corporation made or offered payment for his
shares.
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PART 3. JUDICIAL APPRAISAL OF SHARES
48-23-301 COURT ACTION.--(a) If a demand for payment under Section
48-23-209 remains unsettled, the corporation shall commence a proceeding within
two (2) months after receiving the payment demand and petition the court to
determine the fair value of the shares and accrued interest. If the corporation
does not commence the proceeding within the two-month period, it shall pay each
dissenter whose demand remains unsettled the amount demanded.
(b) The corporation shall commence the proceeding in a court of record
having equity jurisdiction in the county where the corporation's principal
office (or, if none in this state, its registered office) is located. If the
corporation is a foreign corporation without a registered office in this state,
it shall commence the proceeding in the county in this state where the
registered office of the domestic corporation merged with or whose shares were
acquired by the foreign corporation was located.
(c) The corporation shall make all dissenters (whether or not residents of
this state) whose demands remain unsettled, parties to the proceeding as in an
action against their shares and all parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
(d) The jurisdiction of the court in which the proceeding is commenced
under subsection (b) is plenary and exclusive. The court may appoint one (1) or
more persons as appraisers to receive evidence and recommend decision on the
question of fair value. The appraisers have the powers described in the order
appointing them, or in any amendment to it. The dissenters are entitled to the
same discovery rights as parties in other civil proceedings.
(e) Each dissenter made a party to the proceeding is entitled to judgment:
(1) For the amount, if any, by which the court finds the fair value of his
shares, plus accrued interest, exceeds the amount paid by the corporation; or
(2) For the fair value, plus accrued interest, of his after-acquired shares
for which the corporation elected to withhold payment under Section 48-23-208.
48-23-302 COURT COSTS AND COUNSEL FEES.--(a) The court in an appraisal
proceeding commenced under Section 48-23-301 shall determine all costs of the
proceeding, including the reasonable compensation and expenses of appraisers
appointed by the court. The court shall assess the costs against the
corporation, except that the court may assess costs against all or some of the
dissenters, in amounts the court finds equitable, to the extent the court finds
the dissenters acted arbitrarily, vexatiously, or not in good faith in demanding
payment under Section 48-23-209.
(b) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
(1) Against the corporation and in favor of any or all dissenters if the
court finds the corporation did not substantially comply with the requirements
of Sections 48-23-201--48-23-209; or
(2) Against either the corporation or a dissenter, in favor of any other
party, if the court finds that the party against whom the fees and expenses are
assessed acted arbitrarily, vexatiously, or not in good faith with respect to
the rights provided by this chapter.
(c) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to these counsel reasonable fees to be paid out of the amounts awarded to
the dissenters who were benefited.
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CUMBERLAND MOUNTAIN BANCSHARES, INC.
1431 CUMBERLAND AVENUE
MIDDLESBORO, KENTUCKY 40965
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints J. Roy Shoffner, James J. Shoffner and Reecie
Stagnolia, with full powers of substitution, to act as attorneys and proxies for
the undersigned, to vote all shares of Common Stock of Cumberland Mountain
Bancshares, Inc. (the "Company") which the undersigned is entitled to vote at
the Special Meeting of Stockholders (the "Special Meeting"), to be held at the
main office of Cumberland Mountain Bancshares, Inc., 1431 Cumberland Avenue,
Middlesboro, Kentucky on Wednesday, October 24, 2001, at 5:00 p.m., Eastern
Time, and at any and all adjournments thereof, as indicated below and in
accordance with the determination of a majority of the Board of Directors with
respect to other matters which come before the Annual Meeting.
A VOTE "FOR" APPROVAL OF THE AGREEMENT AND PLAN OF SHARE EXCHANGE IS RECOMMENDED
BY THE BOARD OF DIRECTORS
1. The approval of the Agreement and Plan of Share Exchange, as amended,
dated February 8, 2001, by and between Commercial Bancgroup, Inc. and
Cumberland Mountain Bancshares, Inc.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS
PROXY WILL BE VOTED FOR THE PROPOSAL LISTED ABOVE. IF ANY OTHER BUSINESS IS
PRESENTED AT THE SPECIAL MEETING, THIS PROXY WILL BE VOTED BY THOSE NAMED IN
THIS PROXY IN ACCORDANCE WITH THE DETERMINATION OF A MAJORITY OF THE BOARD OF
DIRECTORS. THIS PROXY CONFERS DISCRETIONARY AUTHORITY ON THE HOLDERS THEREOF TO
VOTE WITH RESPECT TO MATTERS INCIDENT TO THE CONDUCT OF THE SPECIAL MEETING.
___________________________________, 2001
____________________________________
Signature
____________________________________
Signature if Held Jointly
Please sign exactly as your name appears above. For joint accounts, both owners
should sign. When signing as executor, administrator, attorney, trustee or
guardian, etc., please give your full title. If a corporation, please sign in
full corporate name by President or other authorized officer. If a partnership,
please sign in partnership name by authorized person.