EXHIBIT 99.2
CUMBERLAND MOUNTAIN BANCSHARES, M.H.C.
1431 Cumberland Avenue
Middlesboro, Kentucky 40965
(606) 248-4584
NOTICE OF SPECIAL MEETING OF MEMBERS
Notice is hereby given that a Special Meeting of Members (the "Special
Meeting") of Cumberland Mountain Bancshares, M.H.C. (the "Mutual Holding
Company") will be held at _________________, __________________, Middlesboro,
Kentucky, on ____________, _________ __, 1997 at :__ .m., local time.
Business to be taken up at the Special Meeting shall be:
(1) To consider and vote upon a Plan of Conversion and Agreement and
Plan of Reorganization (the "Plan") among the Mutual Holding
Company, Middlesboro Federal Bank, Federal Savings Bank (the "Bank")
and Cumberland Mountain Bancshares, Inc. (the "Company") pursuant to
which: (i) the Mutual Holding Company, which currently owns
approximately 64.71% of the outstanding shares of the common stock,
$1.00 par value, of the Bank (the "Bank Common Stock"), will convert
from mutual form to a federal interim stock savings bank and
simultaneously merge into the Bank, with the Bank being the
surviving entity; (ii) the Bank will then merge with an interim
institution to be formed as a wholly owned subsidiary of the
Company, with the Bank as the surviving entity; (iii) the
outstanding shares of Bank Common Stock (other than those held by
the Mutual Holding Company, which will be cancelled) will be
converted into shares of the common stock, $0.01 par value, of the
Company (the "Common Stock") pursuant to a ratio that will result in
the holders of such shares (the "Public Stockholders") owning in the
aggregate approximately the same percentage of the Company as they
currently own of the Bank, before giving effect to such stockholders
purchasing additional shares in a concurrent stock offering by the
Company or the Company's Employee Stock Ownership Plan thereafter,
receiving cash in lieu of fractional shares or the exercise of
dissenters' rights; and (iv) the offer and sale of shares of the
Common Stock; and
(2) To consider and vote upon any other matters that may lawfully come
before the Special Meeting.
Note: The Board of Directors is not aware of any other matters that may
come before the Special Meeting.
The members entitled to vote at the Special Meeting shall be those
members of the Mutual Holding Company at the close of business on __________,
1997, and who continue as members until the Special Meeting, and should the
Special Meeting be, from time to time, adjourned to a later time, until the
final adjournment thereof.
BY ORDER OF THE BOARD OF DIRECTORS
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J.D. Howard
Secretary
_____________, 1997
Middlesboro, Kentucky
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YOUR BOARD OF DIRECTORS URGES YOU TO CONSIDER CAREFULLY THIS PROXY
MATERIAL AND, WHETHER OR NOT YOU PLAN TO BE PRESENT IN PERSON AT THE SPECIAL
MEETING, TO FILL IN, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD(S) AS SOON AS
POSSIBLE TO ASSURE THAT YOUR VOTES WILL BE COUNTED. THIS WILL NOT PREVENT YOU
FROM VOTING IN PERSON IF YOU ATTEND THE SPECIAL MEETING
THE BANK, AS TRUSTEE FOR RETIREMENT ACCOUNTS ON DEPOSIT AT THE BANK,
WILL VOTE FOR THE PLAN UNLESS THE BENEFICIAL OWNER EXECUTES A PROXY FOR THE
SPECIAL MEETING, ATTENDS AND VOTES IN PERSON, OR OTHERWISE DIRECTS THE BANK.
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CUMBERLAND MOUNTAIN BANCSHARES, M.H.C.
1431 Cumberland Avenue
Middlesboro, Kentucky 40965
(606) 248-4584
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PROXY STATEMENT
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YOUR PROXY, IN THE FORM ENCLOSED, IS SOLICITED BY THE BOARD OF DIRECTORS
OF CUMBERLAND MOUNTAIN BANCSHARES, M.H.C. FOR USE AT A SPECIAL MEETING OF ITS
MEMBERS TO BE HELD ON ____________, 1997 AND ANY ADJOURNMENT OF THAT MEETING,
FOR THE PURPOSES SET FORTH IN THE FOREGOING NOTICE OF SPECIAL MEETING. YOUR
BOARD OF DIRECTORS URGES YOU TO VOTE FOR THE PLAN OF CONVERSION AND AGREEMENT
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AND PLAN OF REORGANIZATION.
PURPOSE OF MEETING -- SUMMARY
A Special Meeting of Members (the "Special Meeting") of Cumberland
Mountain Bancshares, M.H.C. (the "Mutual Holding Company") will be held at
________________, ________________, Middlesboro, Kentucky on ____________,
____________, 1997, at :__ .m., local time, for the purpose of considering and
voting upon a Plan of Conversion and Agreement and Plan of Reorganization (the
"Plan") among the Mutual Holding Company, Middlesboro Federal Bank, Federal
Savings Bank (the "Bank" or "Middlesboro Federal") and Cumberland Mountain
Bancshares, Inc. (the "Company") pursuant to which: (i) the Mutual Holding
Company, which currently owns approximately 64.71% of the outstanding shares of
the common stock, $1.00 par value of the Bank (the "Bank Common Stock"), will
convert from mutual form to a federal interim stock savings bank and
simultaneously merge with an into the Bank, with the Bank being the surviving
entity; (ii) the Bank will then merge with an interim institution ("Interim") to
be formed as a wholly owned subsidiary of the Company, with the Bank as the
surviving entity; (iii) the outstanding shares of Bank Common Stock (other than
those held by the Mutual Holding Company, which will be cancelled) (the "Public
Bank Shares") will be converted in to shares of the common stock, $0.01 par
value, of the Company (the "Common Stock") pursuant to a ratio (the "Exchange
Ratio") that will result in the holders of such shares (the "Public
Stockholders") owning in the aggregate approximately the same percentage of the
Company as they currently own of the Bank, before giving effect to such
stockholders purchasing additional shares in a concurrent stock offering by the
Company or by the Company's Employee Stock Ownership Plan (the "ESOP")
thereafter, receiving cash in lieu of fractional shares or the exercise of
dissenters' rights; and (iv) the offer and sale of shares of the Company's
common stock (the "Conversion Stock") pursuant to the Plan. The offer and sale
of the Conversion Stock and the reorganization are collectively referred to
herein as the "Conversion and Reorganization."
Pursuant to the Plan and in connection with the Conversion and
Reorganization, the Company is offering up to _______ shares of Conversion Stock
in a Subscription Offering with nontransferable subscription rights being
granted, in the following order of priority, to: (i) depositors of the Bank with
account balances of $50.00 or more as of the close of business on September 30,
1995 ("Eligible Account Holders"); (ii) the ESOP; (iii) depositors of the Bank
with account balances of $50.00 or more as of the close of business on December
31, 1996 ("Supplemental Eligible Account Holders"); (iv) depositors of the Bank
as of the close of business on ______________ (other than Eligible Account
Holders and Supplemental Eligible Account Holder(s) ("Other Members"); (v)
directors, officers and employees of the Bank; and (vi) Public Stockholders.
Subscription rights will expire if not exercised by 12:00 p.m., Eastern Time, on
________________, 1997, unless extended.
Subject to the prior rights of holders of subscription rights,
Conversion Stock not subscribed for in the Subscription Offering may be offered
in a Community Offering to certain members of the general public to whom a copy
of the Prospectus is delivered, with preference given to natural persons
residing in Bell and Harlan Counties in the Commonwealth of Kentucky. It is
anticipated that shares not subscribed for in the Subscription Offering and the
Community Offering will be offered to certain members of the general public in a
Syndicated Community Offering. The Mutual Holding Company, the Bank and the
Company (the "Primary Parties") reserve the absolute
right to reject or accept any orders in the Community Offering or the Syndicated
Community Offering, in whole or in part, either at the time of receipt of an
order or as soon as practicable following the Expiration Date.
The Primary Parties have retained Trident Securities, Inc. as
financial advisor and marketing agent in connection with the Offerings and to
assist in soliciting subscriptions in the Offerings. See "The Conversion and
Reorganization --The Offerings -- Subscription Offering," " -- Community
Offering," " -- Syndicated Community Offering" and " --Marketing Arrangements"
in the accompanying Prospectus.
THE BOARD OF DIRECTORS OF THE MUTUAL HOLDING COMPANY UNANIMOUSLY
RECOMMENDS THAT YOU VOTE TO APPROVE THE PLAN. VOTING IN FAVOR OF THE PLAN WILL
NOT OBLIGATE ANY PERSON TO PURCHASE CONVERSION STOCK. EXCHANGE SHARES AND
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SHARES OF CONVERSION STOCK ARE BEING OFFERED ONLY BY THE PROSPECTUS, WHICH IS
AVAILABLE UPON REQUEST, IF NOT INCLUDED HEREIN. SEE "HOW TO OBTAIN ADDITIONAL
INFORMATION" AND "AVAILABLE INFORMATION."
VOTING RIGHTS AND VOTE REQUIRED FOR APPROVAL
Depositors of the Bank, and borrowers of the Bank as of __________,
1994 who continue to be borrowers of the Bank, are members of the Mutual Holding
Company under its current charter (the "Members"). All of the Members as of the
close of business on ____________________, 1997 (the "Voting Record Date") who
continue to be Members on the date of the Special Meeting or any adjournment
thereof will be entitled to vote on the Plan. If there are not sufficient votes
for approval of the Plan at the time of the Special Meeting, the Special Meeting
may be adjourned to permit further solicitation of proxies.
At the Special Meeting, each depositor Member will be entitled to cast
one vote for every $100 or fraction thereof, of the total withdrawal value of
all of his accounts in the Bank as of the Voting Record Date. Each borrower
Member will be entitled to one vote in the aggregate for all loans with the Bank
in addition to the votes such Member may be entitled to cast as a depositor. In
no event, however, may any Member cast more than 1,000 votes.
Pursuant to Office of Thrift Supervision ("OTS") regulations,
consummation of the Conversion and Reorganization is conditioned upon the
approval of the Plan by the OTS as well as: (i) the approval of the holders of
at least a majority of the total number of votes eligible to be cast by the
Members of the Mutual Holding Company as of the Voting Record Date at the
Special Meeting; and (ii) the approval of the holders of at least two-thirds of
the shares of the outstanding Bank Common Stock as of the voting record date for
the special meeting of stockholders called for that purpose (the "Stockholders'
Meeting). In addition, the parties have conditioned the consummation of the
Conversion and Reorganization on the approval of the Plan by the holders of at
least a majority of the votes cast, in person or by proxy, by the Public
Stockholders at the Stockholders' Meeting and the exercise of dissenters' rights
of appraisal by the holders of less than 10% of the outstanding shares of Bank
Common Stock. The Mutual Holding Company intends to vote its shares of Bank
Common Stock, which amount to 64.71% of the outstanding shares, in favor of the
Plan at the Stockholders' Meeting.
This Proxy Statement and related materials are first being mailed to
Members on or about _____________, 1997.
Approval of the Plan by the Members of the Mutual Holding Company will
require the affirmative vote of at least a majority of the total outstanding
votes of the Mutual Holding Company's Members eligible to be cast at the Special
Meeting. As of the Voting Record Date for the Special Meeting, there were
approximately ________ votes eligible to be cast, of which _________ votes
constitute a majority.
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PROXIES
The Board of Directors of the Mutual Holding Company is soliciting the
proxy which accompanies this Proxy Statement for use at the Special Meeting.
Each proxy solicited hereby, if properly executed, duly returned before the
Special Meeting and not revoked prior to or at the Special meeting, will be
voted at the Special Meeting in accordance with the Member's instructions
indicated thereon. If no contrary instructions are given on the proxy, the
proxy, if signed, will be voted in favor of the Plan. If you do not return a
proxy or vote at the Special Meeting, it will have the same effect as a vote
against the Plan. If any other matters are properly presented before the Special
meeting, the persons named in the proxy will vote upon such matters according to
their discretion. Except with respect to procedural matters incident to the
conduct of the Special Meeting, no additional matters are expected to come
before the Special Meeting.
Any Member giving a proxy may revoke it at any time before it is voted
by delivering to the Secretary of the Mutual Holding Company either a written
revocation of the proxy or a duly executed proxy bearing a later date, or by
voting in person at the Special Meeting. Proxies are being solicited only for
use at the Special Meeting and any and all adjournments thereof and will not be
used for any other meeting.
Proxies may be solicited by officers, directors and employees of the
Mutual Holding Company personally, by telephone or further correspondence
without additional compensation.
Deposits held in a trust or other fiduciary capacity may be voted by
the trustee or other fiduciary to whom voting rights are delegated under the
trust instrument or other governing document or applicable law. In the case of
individual retirement accounts ("IRAs") and Keogh trusts established at the
Bank, the beneficiary may direct the trustee's vote on the Plan by returning a
completed proxy card to the Mutual Holding Company. For IRAs and Keogh trusts,
if no proxy card is returned, the trustee will vote in favor of approval of the
Plan on behalf of such beneficiary.
The Board of Directors urges you to mark, sign, date and return the
enclosed proxy card in the enclosed postage-paid envelope as soon as possible,
even if you do not intend to purchase Common Stock. This will ensure that your
vote will be counted.
CUMBERLAND MOUNTAIN BANCSHARES, M.H.C.
The Mutual Holding Company is a federally chartered mutual holding
company chartered in March 1994 in connection with the mutual holding company
reorganization of the Bank (the "MHC Reorganization"). The Mutual Holding
Company's primary asset is 330,000 shares of Bank Common Stock, which represents
64.71% of the shares of Bank Common Stock outstanding as of the date of this
Prospectus. The Mutual Holding Company's only other assets at September 30,
1996 were all of the issued and outstanding shares of Home Mortgage Loan
Corporation ("Home"), which was formerly a wholly owned subsidiary of the Bank,
and a deposit account. As part of the Conversion and Reorganization, the Mutual
Holding Company will convert to an interim federal savings bank and
simultaneously merge with and into the Bank, with the Bank being the surviving
entity. Upon consummation of the Conversion and Reorganization, the stock of
Home and the deposit account will become assets of the Bank.
MIDDLESBORO FEDERAL BANK, FEDERAL SAVINGS BANK
Middlesboro Federal is a federally chartered stock savings bank that
was organized in 1994 as a subsidiary of the Mutual Holding Company. Prior to
that date, the Bank in mutual form (the "Mutual Bank") had operated since 1915
in Middlesboro, Kentucky and since 1976 in Cumberland, Kentucky. In connection
with the MHC Reorganization, the Mutual Bank transferred substantially all of
its assets and liabilities to the Bank in exchange for 330,000 shares of Bank
Common Stock and converted its charter to a federal mutual holding company known
as Cumberland Mountain Bancshares, M.H.C. In connection with the MHC
Reorganization, the Bank sold 180,000
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shares of Bank Common Stock to the general public at $10.00 per share. At
September 30, 1996, the Bank had $83.8 million of total assets, $79.4 of total
liabilities, including $71.9 million of deposits, and $4.4 million of
stockholders' equity. At September 30, 1996, there were 180,000 Public Bank
Shares outstanding. The Bank Common Stock is registered with the OTS under
Section 12(g) of the Securities Exchange Act of 1934 (the "Exchange Act").
Middlesboro Federal is primarily engaged in attracting deposits from
the general public through its offices and using those and other available
sources of funds to originate loans secured by single-family residences located
in the counties where its offices are located. Such loans amounted to $43.7
million or 60.3% of Middlesboro Federal's total loan portfolio (before net
items). At September 30, 1996, Middlesboro Federal held $11.4 million in
commercial real estate loans at that date, representing 15.7% of total loans
(before net items). The other significant areas of lending activity by
Middlesboro Federal are multi-family real estate loans, construction loans,
commercial business loans and consumer loans which, as of September 30, 1996,
represented $1.9 million or 2.6%, $4.2 million or 5.8%, $4.5 million or 6.2% and
$6.8 million or 9.4%, respectively, of Middlesboro Federal's total loan
portfolio. Middlesboro Federal also makes substantial investments in United
States Treasury and federal government obligations and mortgage-backed
securities which are insured by federal agencies. As of September 30, 1996, the
book value of U.S. Treasury and government agency securities was $2.7 million
and the book value of its mortgage-backed securities portfolio, was $7.7
million.
Middlesboro Federal is subject to regulation by the OTS, as its
primary federal regulator and by the Federal Deposit Insurance Corporation
("FDIC"), which, through the Savings Association Insurance Fund ("SAIF")
administered by it, insures Middlesboro Federal's deposits up to applicable
limits. Middlesboro Federal is a member of the Federal Home Loan Bank ("FHLB")
of Cincinnati, which is one of the 12 banks which comprise the FHLB System.
Middlesboro Federal's principal executive offices are located 1431
Cumberland Avenue, Middlesboro, Kentucky, 40965, and its telephone number is
(606) 248-4584.
CUMBERLAND MOUNTAIN BANCSHARES, INC.
The Company was organized on December 13, 1996 at the direction of the
Board of Directors of the Bank for the purpose of holding all of the capital
stock of the Bank and in order to facilitate the Conversion and Reorganization.
The Company has applied for the approval of the OTS to become a savings
institutions holding company and as such will be subject to regulation by the
OTS. After completion of the Conversion and Reorganization, the Company will
conduct business initially as a unitary savings institution holding company.
See "Regulation -- Regulation of the Company" in the accompanying Prospectus.
Upon consummation of the Conversion and Reorganization, the Company will have no
significant assets other than all of the outstanding shares of the Company, the
note evidencing the Company's loan to the ESOP and the portion of the net
proceeds from the Offerings retained by the Company, and the Company will have
no significant liabilities. See "Use of Proceeds" in the accompanying
Prospectus. Initially, the management of the Company and the Bank will be
substantially similar and the Company will neither own nor lease any property,
but will instead use the premises, equipment and furniture of the Bank. At the
present time, the Company does not intend to employ any persons other than
officers who are also officers of the Bank, and the Company will utilize the
support staff of the Bank from time to time. Additional employees will be hired
as appropriate to the extent the Company expands or changes its business in the
future.
Management believes that the holding company structure will provide
the Company with additional flexibility to diversify, should it decide to do so,
its business activities through existing or newly formed subsidiaries, or
through acquisitions of or mergers with other financial institutions and
financial services related companies. Although there are no current
arrangements, understandings or agreements regarding any such opportunities or
transactions, the Company will be in a position after the Conversion and
Reorganization, subject to regulatory limitations and the Company's financial
position, to take advantage of any such acquisition and expansion
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opportunities that may arise. The initial activities of the Company are
anticipated to be funded by the proceeds to be retained by the Company and
earnings thereon, as well as dividends from the Bank. See "Dividend Policy" in
the accompanying Prospectus.
The Company will be a unitary savings and loan holding company which,
under existing laws, would generally not be restricted as to the type of
business activities in which it may engage, provided that continues to be a
qualified thrift lender ("QTL"). Any portion of the net proceeds in excess of
the amount retained by the Company will be added to the Bank's general funds to
be used for general corporate purposes, including increased lending activities
and purchases of investments and mortgage-backed securities.
The Company's principal executive office is located at the home office
of the Bank at 1431 Cumberland Avenue, Middlesboro, Kentucky 40965, and its
telephone number is (606) 248-4584.
THE CONVERSION AND REORGANIZATION
The Boards of Directors of the Mutual Holding Company, the Bank and
the Company (the "Primary Parties") have approved the Plan, as has the OTS,
subject to approval by the Members of the Mutual Holding Company and the
Stockholders of the Bank entitled to vote on the matter and the satisfaction of
certain other conditions. Such OTS approval, however, does not constitute a
recommendation or endorsement of the Plan by such agency.
General
The Boards of Directors of the Mutual Holding Company and the Bank
unanimously adopted the Plan as of December 12, 1996. The Plan has been
approved by the OTS, subject to, among other things, approval of the Plan by the
Members of the Mutual Holding Company and the Stockholders of the Bank. The
Members' Meeting and the Stockholders' Meeting have been called for this purpose
on _________, 1997.
The following is a brief summary of pertinent aspects of the Plan and
the Conversion and Reorganization. The summary is qualified in its entirety by
reference to the provisions of the Plan, which is available for inspection at
the branch office of the Bank and at the offices of the OTS. See also the
description under "The Conversion and Reorganization" in the accompanying
Prospectus. The Plan also is filed as an exhibit to the Registration Statement
of which the Prospectus is a part, copies of which may be obtained from the
Securities and Exchange Commission ("SEC"). See "Available Information."
Effects of the Conversion and Reorganization
General. Prior to the Conversion and Reorganization, each depositor
in the Bank has both a deposit account in the institution and a pro rata
ownership interest in the net worth of the Mutual Holding Company based upon the
balance in his account, which interest may only be realized in the event of a
liquidation of the Mutual Holding Company. However, this ownership interest is
tied to the depositor's account and has no tangible market value separate from
such deposit account. A depositor who reduces or closes his account receives a
portion or all of the balance in the account but nothing for his ownership
interest in the net worth of the Mutual Holding Company, which is lost to the
extent that the balance in the account is reduced.
Consequently, the depositors of the Bank normally have no way to
realize the value of their ownership interest in the Mutual Holding Company,
which has realizable value only in the unlikely event that the Mutual Holding
Company is liquidated. In such event, the depositors of record at that time, as
owners, would share pro rata in any residual surplus and reserves of the Mutual
Holding Company after other claims are paid.
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Upon consummation of the Conversion and Reorganization, permanent
nonwithdrawable capital stock will be created to represent the ownership of the
net worth of the Company. The Common Stock of the Company is separate and apart
from deposit accounts and cannot be and is not insured by the FDIC or any other
governmental agency. Certificates are issued to evidence ownership of the
permanent stock. The stock certificates are transferable, and therefore the
stock may be sold or traded if a purchaser is available with no effect on any
account the seller may hold in the Bank.
Continuity. While the Conversion and Reorganization is being
accomplished, the normal business of the Bank of accepting deposits and making
loans will continue without interruption. The Bank will continue to be subject
to regulation by the OTS and the FDIC. After the Conversion and Reorganization,
the Bank will continue to provide services for depositors and borrowers under
current policies by its present management and staff.
The directors and officers of the Bank at the time of the Conversion
and Reorganization will continue to serve a directors and officers of the Bank
after the Conversion and Reorganization. The directors and officers of the
Company consist of individuals currently serving as directors and officers of
the Mutual Holding Company and the Bank, and they generally will retain their
positions in the Company after the Conversion and Reorganization.
Effect on Public Bank Shares. Under the Plan, upon consummation of
the Conversion and Reorganization, the Public Bank Shares shall be converted
into Common Stock based upon the Exchange Ratio without any further action on
the part of the holder thereof. Upon surrender of the Public Bank Shares,
Common Stock will be issued in exchange for such shares.
Upon consummation of the Conversion and Reorganization, the Public
Stockholders of the Bank, a federally chartered savings bank, will become
stockholders of the Company, a Tennessee corporation.
Effect on Deposit Accounts. Under the Plan, each depositor in the
Bank at the time of the Conversion and Reorganization will automatically
continue as a depositor after the Conversion and Reorganization, and each such
deposit account will remain the same with respect to deposit balance, interest
rate and other terms, except to the extent that funds in the account are
withdrawn to purchase Conversion Stock to be issued in the Offerings. Each such
account will be insured by the FDIC to the same extent as before the Conversion
and Reorganization. Depositors will continue to hold their existing
certificates, passbooks and other evidences of their accounts.
Effect on Loans. No loan outstanding from the Bank will be affected
by the Conversion and Reorganization, and the amount, interest rate, maturity
and security for each loan will remain as they were contractually fixed prior to
the Conversion and Reorganization.
Effect on Voting Rights of Members. At present, all depositors of the
Bank are members of, and have voting rights in, the Mutual Holding Company as to
all matters requiring membership action. Upon completion of the Conversion and
Reorganization, depositors will cease to be members and will no longer be
entitled to vote at meetings of the Mutual Holding Company. Upon completion of
the Conversion and Reorganization, all voting rights in the Bank will be vested
in the Company as the sole stockholder of the Bank and exclusive voting rights
with respect to the Company will be vested in the holders of Common Stock.
Depositors of the Bank will not have voting rights in the Company after the
Conversion and Reorganization, except to the extent that they become
stockholders of the Company.
Tax Effects. Consummation of the Conversion and Reorganization is
conditioned on prior receipt by the Primary Parties of rulings or opinions with
regard to federal and Kentucky income taxation which indicate that the adoption
and implementation of the Plan set forth herein will not be taxable for federal
or Kentucky income tax purposes to the Primary Parties or the Bank's Eligible
Account Holders, Supplemental Eligible Account Holders or Other Members, Public
Stockholders except as discussed below.
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Housley Kantarian & Bronstein, P.C., Washington, D.C., has issued an
opinion to the Company and the Bank to the effect that, for federal income tax
purposes: (1) the conversion of the Mutual Holding Company from mutual to stock
form and the simultaneous merger of the Mutual Holding Company with and into the
Bank, with the Bank being the surviving institution, will qualify as a
reorganization within the meaning of Section 368(a)(1)(A) of the Code, (2) no
gain or loss will be recognized by the Bank upon the receipt of the assets of
the converted Mutual Holding Company in such merger, (3) the merger of Interim
with and into the Bank, with the Bank being the surviving institution, will
qualify as a reorganization within the meaning of Section 368(a)(1)(A) of the
Code, (4) no gain or loss will be recognized by Interim upon the transfer of its
assets to the Bank, (5) no gain or loss will be recognized by the Bank upon Bank
the receipt of the assets of Interim, (6) no gain or loss will be recognized by
the Company upon the receipt of Bank Common Stock solely in exchange for Common
Stock, (7) no gain or loss will be recognized by the Public Stockholders upon
the receipt of Common Stock solely in exchange for their Public Bank Shares, (8)
the basis of the Common Stock to be received by the Public Stockholders will be
the same as the basis of the Public Bank Shares surrendered in exchange
therefor, before giving effect to any payment of cash in lieu of fractional
shares, (9) the holding period of the Common Stock to be received by the Public
Stockholders will include the holding period of the Public Bank Shares, provided
that the Public Bank Shares were held as a capital asset on the date of the
exchange, (10) no gain or loss will be recognized by the Company upon the sale
of shares of Conversion Stock in the Offerings, (11) the Eligible Account
Holders and Supplemental Eligible Account Holders will recognize gain, if any,
upon the issuance to them of withdrawable savings accounts in the Bank following
the Conversion and Reorganization, interests in the liquidation account and
nontransferable subscription rights to purchase Conversion Stock, but only to
the extent of the value, if any, of the subscription rights, and (12) the tax
basis to the holders of Conversion Stock purchased in the Offerings will be the
amount paid therefor, and the holding period for the shares of Conversion Stock
will begin on the date of consummation of the Offerings if purchased through the
exercise of subscription rights and on the day after the date of purchase if
purchased in the Community Offering or Syndicated Community Offering.
Robert L. Brown III, Esq., Corbin, Kentucky has issued an opinion to
the Company and the Bank to the effect that the income tax consequences of the
Conversion and Reorganization are substantially the same under Kentucky laws as
they are under the Code.
In the opinion of RP Financial, which opinion is not binding on the
IRS, the subscription rights do not have any value, based on the fact that such
rights are acquired by the recipients without cost, are nontransferable and of
short duration, and afford the recipients the right only to purchase the
Conversion Stock at a price equal to its estimated fair market value, which will
be the same price as the Purchase Price for the unsubscribed shares of
Conversion Stock. If the subscription rights granted to eligible subscribers
are deemed to have an ascertainable value, receipt of such rights likely would
be taxable only to those eligible subscribers who exercise the subscription
rights (either as a capital gain or ordinary income) in an amount equal to such
value, and the Primary Parties could recognize gain on such distribution.
Eligible subscribers are encouraged to consult with their own tax advisor as to
the tax consequences in the event that such subscription rights are deemed to
have an ascertainable value.
Unlike private rulings, an opinion is not binding on the IRS and the
IRS could disagree with conclusions reached therein. In the event of such
disagreement, there can be no assurance that the IRS would not prevail in a
judicial or administrative proceeding.
Effect on Liquidation Rights. Were the Mutual Holding Company to
liquidate, all claims of the Mutual Holding Company's creditors would be paid
first. Thereafter, if there were any assets remaining, members of the Mutual
Holding Company would receive such remaining assets, pro rata, based upon the
deposit balances in their deposit accounts at the Bank immediately prior to
liquidation. In the unlikely event that the Bank were to liquidate after the
Conversion and Reorganization, all claims of creditors (including those of
depositors, to the extent of their deposit balances) also would be paid first,
followed by distribution of the "liquidation account" to certain depositors (see
" --Liquidation Rights" below), with any assets remaining thereafter distributed
to the Company as the holder of the Bank's capital stock. Pursuant to the rules
and regulations of the OTS, a merger, consolidation, sale of bulk
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assets or similar combination or transaction with another insured savings
institution would not be considered a liquidation for this purpose and, in such
a transaction, the liquidation account would be required to be assumed by the
surviving institution.
Liquidation Rights
In the unlikely event of a complete liquidation of the Mutual Holding
Company in its present mutual form, each depositor of the Bank would receive his
pro rata share of any assets of the Mutual Holding Company remaining after
payment of claims of all creditors. Each depositor's pro rata share of such
remaining assets would be in the same proportion as the value of his deposit
account was to the total value of all deposit accounts in the Bank at the time
of liquidation. After the Conversion and Reorganization, each depositor, in the
event of a complete liquidation of the Bank, would have a claim as a creditor of
the same general priority as the claims of all other general creditors of the
Bank. However, except as described below, his claim would be solely in the
amount of the balance in his deposit account plus accrued interest. He would
not have an interest in the value or assets of the Bank or the Company above
that amount.
The Plan provides for the establishment, upon the completion of the
Conversion and Reorganization, of a special "liquidation account" for the
benefit of Eligible Account Holders and Supplemental Eligible Account Holders in
an amount equal to the amount of any dividends waived by the Mutual Holding
Company plus the greater of (i) the Bank's retained earnings of $_____ million
at September 30, 1996, the date of the latest balance sheet contained in the
final offering circular utilized in the Bank's initial public offering, or (ii)
64.71% of the Bank's total stockholders' equity as reflected in its latest
balance sheet contained in the final Prospectus utilized in the Offerings. As
of the date of this Prospectus, the initial balance of the liquidation account
would be $_____ million. Each Eligible Account Holder and Supplemental Eligible
Account Holder, if he were to continue to maintain his deposit account at the
Bank, would be entitled, upon a complete liquidation of the Bank after the
Conversion and Reorganization, to an interest in the liquidation account prior
to any payment to the Company as the sole stockholder of the Bank. Each Eligible
Account Holder and Supplemental Eligible Account Holder would have an initial
interest in such liquidation account for each deposit account, including
passbook accounts, transaction accounts such as checking accounts, money market
deposit accounts and certificates of deposit, held in the Bank at the close of
business on the Eligibility Record Date or the Supplemental Eligibility Record
Date, as the case may be. Each Eligible Account Holder and Supplemental Eligible
Account Holder will have a pro rata interest in the total liquidation account
for each of his deposit accounts based on the proportion that the balance of
each such deposit account on Supplemental Eligibility Record Date, as the case
may be bore to the balance of all deposit accounts in the Bank on such date.
If, however, on any June 30 annual closing date of the Bank,
commencing June 30 for Eligible Account Holders and June 30 for Supplemental
Eligible Account Holders, the amount in any deposit account is less than the
amount in such deposit account on September 30, 1995 or December 31, 1996, as
the case may be, or any other annual closing date, then the interest in the
liquidation account relating to such deposit account would be reduced by the
proportion of any such reduction, and such interest will cease to exist if such
deposit account is closed. In addition, no interest in the liquidation account
would ever be increased despite any subsequent increase in the related deposit
account. Any assets remaining after the above liquidation rights of Eligible
Account Holders and Supplemental Eligible Account Holders are satisfied would be
distributed to the Company as the sole stockholder of the Bank.
Required Approvals
Various approvals of OTS are required in order to consummate the
Conversion and Reorganization. The OTS has approved the Plan of Conversion,
subject to approval by the Mutual Holding Company's Members and the Bank's
Stockholders. In addition, consummation of the Conversion and Reorganization is
subject to OTS approval of the application of the Company to acquire control of
the Bank and the applications with respect to the merger of the Mutual Holding
Company (following its conversion to an interim federal stock savings
association) into the Bank
8
and the merger of Interim into the Bank, with the Bank being the surviving
entity in both mergers. Applications for these approvals have been filed and are
currently pending. There can be no assurances that the requisite OTS approvals
will be received or received in a timely manner, in which event the consummation
of the Conversion and Reorganization may be abandoned or delayed beyond the
expiration of the Offerings.
Pursuant to OTS regulations, the Plan of Conversion also must be
approved by (1) at least a majority of the total number of votes eligible to be
cast by Members of the Mutual Holding Company at the Members' Meeting, and (2)
holders of at least two-thirds of the outstanding Bank Common Stock at the
Stockholders' Meeting. In addition, the Primary Parties have conditioned the
consummation of the Conversion and Reorganization on the approval of the Plan by
at least a majority of the votes cast, in person or by proxy, by the Public
Stockholders at the Stockholders' Meeting.
Review By Administrative and Judicial Authorities
Federal law provides (i) that persons aggrieved by a final action of
the OTS which approves, with or without conditions, a plan of conversion may
obtain review of such final action only by filing a written petition in the
United States Court of Appeals for the circuit in which the principal office or
residence of such person is located, or in the United States Court of Appeals,
for the District of Columbia Circuit, requesting that the final action of the
OTS be modified, terminated or set aside, and (ii) that such petition must be
filed within 30 days after publication of notice of such final action in the
Federal Register, or 30 days after the date of mailing of the notice and proxy
statement for the meeting of the converting institution's members at which the
conversion is to be voted on, whichever is later.
HOW TO ORDER STOCK
The accompanying Prospectus contains information about the business
and financial condition of First Federal and additional information about the
Conversion and the Subscription Offering and the concurrent Community Offering.
Enclosed is an order form and a certification form to be used to subscribe for
Common Stock. You are not obligated to subscribe for Common Stock, and voting
to approve the Conversion will not obligate you to subscribe for Common Stock.
All subscription rights are nontransferable and will expire if not
exercised by returning the accompanying stock order form and a certification
form with full payment (or appropriate instructions authorizing withdrawal from
a savings or certificate account at the Bank) for all shares for which
subscription is made to the Company by 12:00 p.m., local time, on
______________, 1997, unless extended. A postage-paid reply envelope is
provided for this purpose. Provided that not all of the shares are subscribed
for in the Subscription Offering by members of the Mutual Holding Company, the
remaining shares are concurrently being offered to the general public in the
Community Offering with preference given to natural persons and trusts of
natural persons permanently residing in the counties of Bell and Harlan within
the Commonwealth of Kentucky.
The information contained in this Proxy Statement is limited in its
scope to use in the solicitation of proxies for the Special Meeting to consider
and vote on the Plan. It is not intended for use in the offering of the Common
Stock. Such offering is made only by the Prospectus.
AVAILABLE INFORMATION
The information contained in the accompanying Prospectus, including a
more detailed description of the Plan, is intended to help you evaluate the
Conversion and is incorporated herein by reference. All persons eligible to
vote at the Special Meeting should carefully review both this Proxy Statement
and the accompanying Prospectus.
The Company has filed with the SEC a Registration Statement under the
Securities Act with respect to the Conversion Stock and the Exchange Shares
offered hereby. As permitted by the rules and regulations of the SEC, this
Prospectus does not contain all the information set forth in the Registration
Statement. Such information can
9
be examined without charge at the public reference facilities of the SEC located
at 450 Fifth Street, N.W., Washington, D.C. 20549, and copies of such material
can be obtained from the SEC at prescribed rates. The statements contained in
this Prospectus as to the contents of any contract or other document filed as an
exhibit to the Registration Statement are, of necessity, brief descriptions
thereof and are not necessarily complete; each such statement is qualified by
reference to such contract or document.
The Mutual Holding Company has filed an Application for Conversion
with the OTS with respect to the Conversion and Reorganization. This Prospectus
omits certain information contained in that application. The application may be
examined at the principal office of the OTS, 1700 G Street, N.W., Washington,
D.C. 20552 and at the Central Regional Office of the OTS located at 200 West
Madison Avenue, Suite 1300, Chicago, Illinois 60606.
YOUR BOARD OF DIRECTORS URGES YOU TO CONSIDER CAREFULLY THIS PROXY
MATERIAL AND, WHETHER OR NOT YOU PLAN TO BE PRESENT IN PERSON AT THE SPECIAL
MEETING, TO FILL IN, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD(S) AS SOON AS
POSSIBLE TO ASSURE THAT YOUR VOTES WILL BE COUNTED. THIS WILL NOT PREVENT YOU
FROM VOTING IN PERSON IF YOU ATTEND THE SPECIAL MEETING. YOU MAY REVOKE YOUR
PROXY BY WRITTEN INSTRUMENT DELIVERED TO THE SECRETARY OF THE BANK AT ANY TIME
PRIOR TO OR AT THE SPECIAL MEETING OR BY ATTENDING THE SPECIAL MEETING AND
VOTING IN PERSON.
THIS PROXY STATEMENT IS NOT AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY THE COMMON STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS.
BY ORDER OF THE BOARD OF DIRECTORS
---------------------------------------
J.D. Howard
Secretary
___________, 1997
Middlesboro, Kentucky
Exhibit A
================================================================================
PLAN OF CONVERSION
of
CUMBERLAND MOUNTAIN BANCSHARES, M.H.C.
and
AGREEMENT AND PLAN OF REORGANIZATION
between
CUMBERLAND MOUNTAIN BANCSHARES, INC.
and
MIDDLESBORO FEDERAL BANK, FEDERAL SAVINGS BANK
================================================================================
TABLE OF CONTENTS
Page
----
INTRODUCTION............................................................................. A-1
I. DEFINITIONS....................................................................... A-2
II. GENERAL PROCEDURE FOR CONVERSION AND REORGANIZATION............................... A-7
III. CONVERSION STOCK.................................................................. A-9
A. TOTAL NUMBER OF SHARES AND PURCHASE PRICE OF CONVERSION STOCK................ A-9
B. SUBSCRIPTION OFFERING........................................................ A-10
C. COMMUNITY OFFERING, SYNDICATED COMMUNITY OFFERING AND OTHER OFFERINGS........ A-12
D. LIMITATIONS ON SUBSCRIPTIONS AND PURCHASES OF CONVERSION STOCK............... A-13
E. TIMING OF SUBSCRIPTION OFFERING, MANNER OF EXERCISING SUBSCRIPTION
RIGHTS AND ORDER FORMS....................................................... A-15
F. PAYMENT FOR CONVERSION STOCK................................................. A-16
G. ACCOUNT HOLDERS IN NONQUALIFIED STATES OR FOREIGN COUNTRIES.................. A-17
IV. CERTAIN OTHER EFFECTS OF CONVERSION AND REORGANIZATION............................ A-18
A. LIQUIDATION ACCOUNT.......................................................... A-18
B. VOTING RIGHTS OF STOCKHOLDERS................................................ A-19
C. TRANSFER OF DEPOSIT ACCOUNTS................................................. A-19
D. DIRECTORS AND OFFICERS OF THE BANK........................................... A-19
E. REQUIREMENTS FOLLOWING CONVERSION AND REORGANIZATION FOR REGISTRATION,
MARKET MAKING, AND STOCK EXCHANGE LISTING.................................... A-19
V. EFFECTIVE DATE.................................................................... A-20
VI. CERTAIN RESTRICTIONS FOLLOWING CONVERSION AND REORGANIZATION...................... A-20
A. REQUIREMENTS FOR STOCK PURCHASES BY DIRECTORS AND OFFICERS FOLLOWING
THE CONVERSION AND REORGANIZATION............................................ A-20
B. RESTRICTIONS ON TRANSFER OF STOCK............................................ A-20
C. RESTRICTIONS ON ACQUISITION OF STOCK OF THE HOLDING COMPANY.................. A-21
D. DIVIDEND AND REPURCHASE RESTRICTIONS......................................... A-21
VII. MISCELLANEOUS..................................................................... A-22
A. TAX RULINGS OR OPINIONS...................................................... A-22
B. STOCK COMPENSATION PLANS..................................................... A-22
ANNEX A - PLAN OF MERGER BETWEEN THE MUTUAL HOLDING COMPANY AND THE BANK
ANNEX B - PLAN OF MERGER BETWEEN THE ASSOCIATION AND INTERIM B
INTRODUCTION
For purposes of this section, all capitalized terms have the meanings
ascribed to them in Article I.
On March 2, 1994, Middlesboro Federal Bank, Federal Savings Bank, a federal
mutual savings bank reorganized into the mutual holding company form of
organization and completed a sale of stock to the public. To accomplish this
transaction, the Bank organized a federal stock savings bank as a wholly owned
subsidiary. The mutual Bank then transferred substantially all of its assets
and liabilities to the stock Bank in exchange for 330,000 shares of Bank Common
Stock, and reorganized itself into a federally chartered mutual holding company
known as Cumberland Mountain Bancshares, M.H.C. and sold 180,000 shares of Bank
Common Stock to certain members of the Bank and members of the general public.
As of the date hereof, the Mutual Holding Company and the Public Stockholders
own an aggregate of 64.7% and 35.3% of the outstanding Bank Common Stock,
respectively.
The Boards of Directors of the Mutual Holding Company and the Bank believe
that a conversion of the Mutual Holding Company to stock form and reorganization
of the Bank pursuant to this Plan of Conversion is in the best interests of the
Mutual Holding Company and the Bank, as well as the best interests of their
respective Members and Stockholders. The Boards of Directors have determined
that this Plan of Conversion equitably provides for the interests of Members
through the granting of subscription rights and the establishment of a
liquidation account. The Conversion and Reorganization will result in the Bank
being wholly owned by a stock holding company, which is a more common structure
and form of ownership than a mutual holding company. In addition, the
Conversion and Reorganization will result in the raising of additional capital
for the Bank and the Holding Company and should result in a more active and
liquid market for the Holding Company Common Stock than currently exists for the
Bank Common Stock, although there can be no assurances that this will be the
case. Finally, the Conversion and Reorganization has been structured to re-
unite the accumulated earnings and profits tax attribute retained by the Mutual
Holding Company with the retained earnings of the Bank through a tax-free
reorganization. This will increase the Bank's ability to pay dividends in the
future.
If the Bank had undertaken a standard conversion involving the formation of
a stock holding company in 1994, applicable Office of Thrift Supervision ("OTS")
regulations would have required a greater amount of Bank Common Stock to be sold
than resulted in the amount of net proceeds raised in the Bank's initial public
offering. In addition, if a standard conversion had been conducted in 1994,
management of the Bank believed that it would have been difficult to profitably
invest the larger amount of capital that would have been raised, when compared
to the amount of net proceeds raised in the Bank's initial public offering. A
standard conversion in 1994 also would have immediately eliminated all aspects
of the mutual form of organization.
Subsequent to the formation of the Mutual Holding Company, there have been
certain changes in the policies of the OTS relating to mutual holding companies.
In addition, market conditions for the stocks of savings institutions and their
holding companies have improved. In light of the foregoing, the Boards of
Directors of the Mutual Holding Company and the Bank believe that it is in the
best interests of such companies and their respective Members and Stockholders
to raise additional capital at this time, and that the most feasible way to do
so is through the Conversion and Reorganization.
In connection with the Conversion and Reorganization, the Bank will form a
new first-tier, wholly owned subsidiary known as Cumberland Mountain Bancshares,
Inc. which will become the Holding Company upon consummation of the Conversion
and Reorganization. The Holding Company will in turn form Interim B as a wholly
owned subsidiary. As described in more detail in Article II, the Mutual Holding
Company will convert to an interim stock savings association and will
simultaneously merge with and into the Bank pursuant to the Plan of Merger
included as Annex A hereto, pursuant to which the Mutual Holding Company will
cease to exist and a liquidation account will be established by the Bank for the
benefit of depositor Members as of specified dates, and Interim B will then
merge with and into the Bank pursuant to the Plan of Merger included as Annex B
hereto, pursuant to which the Bank will become a wholly owned subsidiary of the
Holding Company and, in connection therewith, each share of Bank Common Stock
outstanding immediately prior to the effective time thereof (other than shares
as to which the holders thereof have properly exercised dissenters' rights of
appraisal, if any) shall be
automatically converted, without further action by the holder thereof, into and
become the right to receive shares of Holding Company Common Stock based on the
Exchange Ratio, plus cash in lieu of any fractional share interest.
In connection with the Conversion and Reorganization, the Holding Company
will offer shares of Conversion Stock in the Offerings as provided herein.
Shares of Conversion Stock will be offered in a Subscription Offering in
descending order of priority to Eligible Account Holders, Tax-Qualified Employee
Stock Benefit Plans, Supplemental Eligible Account Holders, Other Members and
Public Stockholders. Any shares of Conversion Stock remaining unsold after the
Subscription Offering will be offered for sale to the public through a Community
Offering and/or Syndicated Community Offering, as determined by the Boards of
Directors of the Holding Company and the Bank in their sole discretion.
The Conversion and Reorganization is intended to provide a larger capital
base to support the Bank's lending and investment activities and thereby enhance
the Bank's capabilities to serve the borrowing and other financial needs of the
communities it serves. The use of the Holding Company will provide greater
organizational flexibility and possible diversification.
This Plan was adopted by the Boards of Directors of the Mutual Holding
Company and the Bank by at least a two-thirds vote of each such Board on
December 12, 1996.
This Plan is subject to the approval of the OTS and must be adopted by (1)
at least a majority of the total number of votes eligible to be case by Voting
Members of the Mutual Holding Company at the Special Meeting and (2) holders of
at least two-thirds of the outstanding Bank Common Stock at the Stockholders'
Meeting. In addition, the Primary Parties have conditioned the consummation of
the Conversion and Reorganization on the approval of the Plan by at least a
majority of the votes cast, in person or by proxy, by the Public Stockholders at
the Stockholders' Meeting.
After the Conversion and Reorganization, the Bank will continue to be
regulated by the OTS, as its primary federal regulator and its chartering
authority, and by the FDIC, which insures the Bank's deposits up to applicable
limits. In addition, the Bank will continue to be a member of the Federal Home
Loan Bank System and all insured savings deposits will continue to be insured by
the FDIC up to the maximum provided by law.
I. DEFINITIONS.
As used in this Plan, the terms set forth below have the following meaning:
Acting in Concert: The term "Acting in Concert" means: (i) knowing
-----------------
participation in a joint activity or interdependent conscious parallel action
towards a common goal whether or not pursuant to an express agreement; or (ii) a
combination or pooling of voting or other interests in the securities of an
issuer for a common purpose pursuant to any contract, understanding,
relationship, agreement or other arrangement, whether written or otherwise. A
person (as defined by Section 563b.2(a)(26) of the Regulations Applicable to All
Savings Associations) or company which acts in concert with another person or
company ("other party") shall also be deemed to be acting in concert with any
person or company who is also acting in concert with that other party, except
that any Tax-Qualified Employee Stock Benefit Plan will not be deemed to be
acting in concert with its trustee or a person who serves in a similar capacity
solely for the purpose of determining whether stock held by the trustee and
stock held by the Tax-Qualified Employee Stock Benefit Plan will be aggregated.
Actual Purchase Price: The term "Actual Purchase Price" means the price
---------------------
per share at which the Conversion Stock is ultimately sold by the Holding
Company in the Offerings in accordance with the terms hereof.
Affiliate: The term "Affiliate" means a Person who, directly or
---------
indirectly, through one or more intermediaries, controls or is controlled by or
is under common control with the Person specified.
A-2
Associate: The term "Associate" when used to indicate a relationship with
---------
any Person, means (i) a corporation or organization (other than the Mutual
Holding Company, the Bank, a majority-owned subsidiary of the Bank or the
Holding Company) of which such Person is a director, officer or partner or is,
directly or indirectly, the beneficial owner of 10% or more of any class of
equity securities, (ii) any trust or other estate in which such Person has a
substantial beneficial interest or as to which such Person serves as trustee or
in a similar fiduciary capacity, provided, however, that such term shall not
include any Tax-Qualified Employee Stock Benefit Plan of the Holding Company or
the Bank in which such Person has a substantial beneficial interest or serves as
a trustee or in a similar fiduciary capacity, and (iii) any relative or spouse
of such Person, or any relative of such spouse, who has the same home as such
Person or who is a director or officer of the Holding Company or the Bank or any
of the subsidiaries of the foregoing.
Bank: The term "Bank" means either Middlesboro Federal Bank, Federal
----
Savings Bank in its mutual or stock form or Middlesboro Federal Bank, Federal
Savings Bank following consummation of the Conversion and Reorganization, as the
context requires.
Bank Common Stock: The term "Bank Common Stock" means the common stock of
-----------------
the Bank, $1.00 par value per share, which stock is not and will not be insured
by the FDIC or any other governmental authority.
Bank Merger: The term "Bank Merger" means the merger of Interim B with and
-----------
into the Bank pursuant to the Plan of Merger included as Annex B hereto.
Code: The term "Code" means the Internal Revenue Code of 1986, as amended.
----
Community Offering: The term "Community Offering" means the offering for
------------------
sale by the Holding Company of any shares of Conversion Stock not subscribed for
in the Subscription Offering to (i) natural persons residing in the Local
Community, and (ii) such other Persons within or without the Commonwealth of
Kentucky as may be selected by the Holding Company and the Bank within their
sole discretion.
Control: The term "Control" (including the terms "controlling,"
-------
"controlled by," and "under common control with") means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of a Person, whether through the ownership of voting securities, by
contract or otherwise.
Conversion and Reorganization: The term "Conversion and Reorganization"
-----------------------------
means (i) the conversion of the Mutual Holding Company to an interim stock
savings association and the subsequent merger with the Bank, pursuant to which
the Mutual Holding company will cease to exist, (ii) the Bank Merger, pursuant
to which the Bank will become a wholly owned subsidiary of the Company and, in
connection therewith, each share of Bank Common Stock outstanding immediately
prior to the effective time thereof shall automatically be converted, without
further action by the holder thereof, into and become the right to receive
shares of Holding Company Common Stock based on the Exchange Ratio, plus cash in
lieu of any fractional share interest, and (iii) the issuance of Conversion
Stock by the Holding Company in the Offerings as provided herein, which will
increase the number of shares of Holding Company Common Stock outstanding and
the capitalization of the Holding Company and the Bank.
Conversion Stock: The term "Conversion Stock" means the Holding Company
----------------
Common Stock to be issued and sold in the Offerings pursuant to the Plan of
Conversion.
Deposit Account: The term "Deposit Account" means savings and demand
---------------
accounts, including passbook accounts, money market deposit accounts and
negotiable order of withdrawal accounts, and certificates of deposit and other
authorized accounts of the Bank held by a Member.
Director, Officer and Employee: The term "Director, Officer and Employee"
------------------------------
means the terms as applied respectively to any person who is a director, officer
or employee of the Mutual Holding Company, the Bank or any subsidiary thereof.
A-3
Effective Date: The term "Effective Date" means the effective date of the
--------------
Conversion and Reorganization as defined in Article V hereof.
Eligibility Record Date: The term "Eligibility Record Date" means the date
-----------------------
for determining Qualifying Deposits of Eligible Account Holders and is the close
of business on September 30, 1995.
Eligible Account Holder: The term "Eligible Account Holder" means any
-----------------------
Person holding a Qualifying Deposit on the Eligibility Record Date for purposes
of determining Subscription Rights and establishing subaccount balances in the
Liquidation Account.
Estimated Price Range: The term "Estimated Price Range" means the range of
---------------------
the estimated aggregate pro forma market value of the total number of shares of
Conversion Stock to be issued in the Offerings, as determined by the Independent
Appraiser in accordance with Section IV.A hereof.
Exchange Ratio: The term "Exchange Ratio" means the rate at which shares
--------------
of Holding Company Common Stock will be exchanged for shares of Bank Common
Stock held by the Public Stockholders (other than shares as to which dissenting
Public Stockholders properly exercise appraisal rights, if any) in connection
with the Bank Merger. The exact rate shall be determined by the Primary Parties
in order to ensure that upon consummation of the Conversion and Reorganization
the Public Stockholders will own in the aggregate approximately the same
percentage of the Holding Company Common Stock to be outstanding upon completion
of the Conversion and Reorganization as the percentage of Bank Common Stock
owned by them in the aggregate immediately prior to consummation of the
Conversion and Reorganization, before giving effect to (a) cash paid in lieu of
any fractional interests of Holding Company Common Stock and (b) any shares of
Conversion Stock purchased by the Public Stockholders in the Offerings or by
Tax-Qualified Employee Stock Benefit Plans thereafter.
Exchange Shares: The term "Exchange Shares" means the shares of Holding
---------------
Company Common Stock to be issued to the Public Stockholders in connection with
the Bank Merger.
FDIC: The term "FDIC" means the Federal Deposit Insurance Corporation or
----
any successor thereto.
Holding Company: The term "Holding Company" means Cumberland Mountain
---------------
Bancshares, Inc. a corporation to be organized under the laws of the State of
Tennessee. Such corporation will be initially formed as a first-tier, wholly
owned subsidiary of the Bank. Upon completion of the Conversion and
Reorganization, the Holding Company shall hold all of the outstanding capital
stock of the Bank.
Holding Company Common Stock: The term "Holding Company Common Stock"
----------------------------
means the common stock of the Holding Company, par value $.01 per share, which
stock cannot and will not be insured by the FDIC or any other governmental
authority.
Independent Appraiser: The term "Independent Appraiser" means a person
---------------------
independent of the Holding Company and the Bank, experienced and expert in the
area of corporate appraisal, and acceptable to the OTS, retained by the Bank to
prepare an appraisal of the pro forma market value of the Conversion Stock.
Initial Purchase Price: The term "Initial Purchase Price" means the price
----------------------
per share to be paid initially by Participants for shares of Conversion Stock
subscribed for in the Subscription Offering and by Persons for shares of
Conversion Stock ordered in the Community Offering and/or Syndicated Community
Offering.
Interim A: The term "Interim A" means Middlesboro Federal M.H.C. Interim
---------
Savings Bank, an interim federal stock savings association, which will be formed
as a result of the conversion of Cumberland Mountain Bancshares, M.H.C. into the
stock form of organization.
A-4
Interim B: The term "Interim B" means Middlesboro Federal Interim Savings
---------
Bank, which will be formed as a first-tier, wholly owned subsidiary of the
Holding Company to facilitate the Bank Merger.
Liquidation Account: The term "Liquidation Account" means the account to
-------------------
be maintained pursuant to Section IV.A by the Bank for the benefit of Eligible
Account Holders and Supplement Eligible Accounts who maintain Deposit Accounts
in the Bank after the Conversion and Reorganization.
Local Community: The term "Local Community" means the counties of Bell and
---------------
Harlan in the Commonwealth of Kentucky.
Member: The term "Member" means any Person qualifying as a member of the
------
Mutual Holding Company in accordance with its mutual charter and bylaws and the
laws of the United States.
M.H.C. Merger: The term "M.H.C. Merger" means the merger of Interim A with
-------------
and into the Bank pursuant to the Plan of Merger included as Annex A hereto.
Mutual Holding Company: The term "Mutual Holding Company" means Cumberland
----------------------
Mountain Bancshares, M.H.C. prior to its conversion into an interim stock
savings association.
Offerings: The term "Offerings" means the Subscription Offering, the
---------
Community Offering and the Syndicated Community Offering.
Officer: The term "Officer" means an executive officer of the Holding
-------
Company or the Bank (as applicable), including the Chairman of the Board,
President, Executive Vice President, Vice Presidents in charge of principal
business functions, Secretary and Treasurer.
Order Form: The term "Order Form" means the form or forms provided by the
----------
Holding Company, containing all such terms and provisions as set forth in
Section III.E hereof, to a Participant or other Person by which Conversion Stock
may be ordered in the Offerings.
Other Member: The term "Other Member" means a Voting Member who is not an
------------
Eligible Account Holder or a Supplemental Eligible Account Holder.
OTS: The term "OTS" means the Office of Thrift Supervision within the U.S.
---
Department of Treasury or any successor thereto.
Participant: The term "Participant" means any Eligible Account Holder,
-----------
Tax-Qualified Employee Stock Benefit Plan, Supplemental Eligible Account Holder,
Other Member, Director, Officer and Employee or Public Stockholder as of the
Voting Record Date.
Person: The term "Person" means an individual, a corporation, a
------
partnership, an association, a joint stock company, a trust, an unincorporated
organization or a governmental or any political subdivision thereof.
Plan or Plan of Conversion: The term "Plan" or "Plan of Conversion" means
---- ------------------
this Plan of Conversion and Agreement and Plan of Reorganization as adopted by
the Boards of Directors of the Mutual Holding Company and the Bank of any
amendment hereto approved as provided herein. The Board of Directors of the
Holding Company shall adopt this Plan as soon as practicable following its
organization, and the Board of Directors of Interim B shall adopt the Plan of
Merger included as Annex B hereto as soon as practicable following its
organization.
Primary Parties: The term "Primary Parties" mean the Mutual Holding
---------------
Company, the Bank and Holding Company and their successors.
A-5
Prospectus: The term "Prospectus" means the one or more documents to be
----------
used in offering the Conversion Stock in the Offerings.
Public Stockholders: The term "Public Stockholders" mean those Persons who
-------------------
own shares of Bank Common Stock, excluding the Mutual Holding Company, as of the
Voting Record Date.
Qualifying Deposits: The term "Qualifying Deposits" means the aggregate
-------------------
balance of all Deposit Accounts in the Bank of (i) an Eligible Account Holder at
the close of business on the Eligibility Record Date, provided such aggregate
balance is not less than $50, and (ii) a Supplemental Eligible Account Holder at
the close of business on the Supplemental Eligibility Record Date, provided such
aggregate balance is not less than $50.
Resident: The term "Resident" means any natural person subscribing for
--------
stock in the Subscription Offering who, on September 30, 1996, maintained a bona
fide residence within the Local Community. The Bank may utilize deposit or loan
records or such other evidence provided to it to make a determination as to
whether a person is a bona fide resident of the Local Community. In all cases,
however, such determination shall be in the sole and absolute discretion of the
Bank.
Sale: The terms "sale" and "sell" mean every contract to sell or otherwise
----
dispose of a security or an interest in a security for value, but such terms do
not include an exchange of securities in connection with a merger or acquisition
following consummation of the Conversion and Reorganization approved by the OTS
or any other federal agency having jurisdiction.
SEC: The term "SEC" means the Securities and Exchange Commission.
---
Special Meeting: The term "Special Meeting" means the Special Meeting of
---------------
Members of the Mutual Holding Company called for the purpose of submitting this
Plan to the Members for their approval, including any adjournments of such
meeting.
Stockholders: The term "Stockholders" means those Persons who own shares
------------
of Bank Common Stock.
Stockholders' Meeting: The term "Stockholders' Meeting" means the annual
---------------------
or special meeting of Stockholders of the Bank called for the purpose of
submitting this Plan to the Stockholders for their approval, including any
adjournments of such meeting.
Subscription Offering: The term "Subscription Offering" means the offering
---------------------
of the Conversion Stock to Participants.
Subscription Rights: The term "Subscription Rights" means nontransferable
-------------------
right to subscribe for Conversion Stock granted to Participants pursuant to the
terms of this Plan.
Supplemental Eligible Account Holder: The term "Supplemental Eligible
------------------------------------
Account Holder" means any Person, (other than Directors, Officers and their
respective Associates) holding a Qualifying Deposit at the close of business on
the Supplemental Eligibility Record Date.
Supplemental Eligibility Record Date: The term "Supplemental Eligibility
------------------------------------
Record Date, if applicable, means the date for determining Qualifying Deposits
of Supplemental Eligible Account Holders and shall be required if the
Eligibility Record Date is more than 15 months prior to the date of the latest
amendment to the Application for Conversion filed by the Mutual Holding Company
prior to approval of such application by the OTS. If applicable, the
Supplemental Eligibility Record Date shall be the last day of the calendar
quarter preceding OTS approval of the Application for Conversion submitted by
the Mutual Holding Company pursuant to this Plan of Conversion.
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Syndicated Community Offering: The term "Syndicated Community Offering"
-----------------------------
means the offering for sale by a syndicate of broker-dealers to the general
public of shares of Conversion Stock not purchased in the Subscription Offering
and the Community Offering.
Tax-Qualified Employee Stock Benefit Plan: The term "Tax-Qualified
-----------------------------------------
Employee Stock Benefit Plan" means any defined benefit plan or defined
contribution plan, such as an employee stock ownership plan, stock bonus plan,
profit-sharing plan or other plan, which is established for the benefit of the
employees of the Holding Company and the Bank and which, with its related trust,
meets the requirements to be "qualified" under Section 401 of the Code as from
time to time in effect. A "Non-Tax-Qualified Employee Stock Benefit Plan" is
any defined benefit plan or defined contribution stock benefit plan which is not
so qualified.
Voting Member: The term "Voting Member" means a Person who at the close of
-------------
business on the Voting Record Date is entitled to vote as a Member of the Mutual
Holding Company in accordance with its mutual charter and bylaws.
Voting Record Date: The term "Voting Record Date" means the date or dates
------------------
fixed by the Board of Directors for determining the eligibility of Members to
vote at the Special Meeting and of Stockholders to vote at the Stockholders'
Meeting, as applicable.
II. GENERAL PROCEDURE FOR CONVERSION AND REORGANIZATION.
A. An application for the Conversion and Reorganization, including the
Plan and all other requisite material (the "Application for Conversion"), shall
be submitted to the OTS for approval. The Mutual Holding Company and the Bank
also will cause notice of the adoption of the Plan by the Boards of Directors of
the Mutual Holding Company and the Bank to be given by publication in a
newspaper having general circulation in each community in which an office of the
Bank is located; and will cause copies of the Plan to be made available at each
office of the Mutual Holding Company and the Bank for inspection by Members and
Stockholders. After receipt of notice from the OTS to do so, the Mutual Holding
Company and the Bank will post the notice of the filing of the Application for
Conversion in each of their offices and will again cause to be published, in
accordance with the requirements of applicable regulations of the OTS, a notice
of the filing with the OTS of an application to convert the Mutual Holding
Company from mutual to stock form.
B. The Holding Company shall submit or cause to be submitted an
Application H-(e)1 or H-(e)1-S to the OTS for approval of the acquisition of the
Bank. Such application also shall include applications to form Interim A and
Interim B. In addition, an application to merge Interim A and the Bank and an
application to merge Interim B and the Bank shall be filed with the OTS, either
as an exhibit to the Application H-(e)1 or H-(e)1-S or as the case may be, or
separately. All notices required to be published in connection with such
applications shall be published at the times required. After the receipt of all
requisite regulatory approvals, the Holding Company will form Interim B as a
first-tier, wholly owned subsidiary the Company, and the Board of Directors of
Interim B shall adopt the Plan of Merger included as Annex B hereto by at least
a two-thirds vote. In addition, the Holding Company shall approve such Plan of
Merger in its capacity as the sole stockholder of Interim B.
C. The Holding Company shall file a Registration Statement with the SEC
to register the Holding Company Common Stock to be issued in the Conversion and
Reorganization under the Securities Act of 1933, as amended, and, if required,
shall register such Holding Company Common Stock under any applicable state
securities laws. Upon registration and after the receipt of all required
regulatory approvals, the Conversion Stock shall be first offered for sale in a
Subscription Offering to Eligible Account Holders, Tax-Qualified Employee Stock
Benefit Plans, Supplemental Eligible Account Holders, if any, Other Members,
Directors, Officers and Employees and Public Stockholders as of the Voting
Record Date. It is anticipated that any shares of Conversion Stock remaining
unsold after the Subscription Offering will be sold through a Community Offering
and/or a Syndicated Community Offering. The purchase price per share for the
Conversion Stock shall be a uniform price determined in accordance with Section
III.A hereof. The Holding Company shall contribute to the Bank an amount of the
net proceeds received
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by the Holding Company from the sale of Conversion Stock as shall be determined
by the Boards of Directors of the Holding Company and the Bank and as shall be
approved by the OTS.
D. Promptly following receipt of requisite approval of the OTS, this Plan
will be submitted to the Members for their consideration and approval at the
Special Meeting. The Mutual Holding Company may, at its option, mail to all
Members as of the Voting Record Date, at their last known address appearing on
the records of the Mutual Holding Company and the Bank, a proxy statement in
either long or summary form describing the Plan which will be submitted to a
vote of the Members at the Special Meeting. The Holding Company also shall mail
to all such Members (as well as other Participants) either a Prospectus and
Order Form for the purchase of Conversion Stock or a letter informing them of
their right to receive a Prospectus and Order Form and a postage prepaid card to
request such materials, subject to the provisions of Section III.G hereof. In
addition, all such Members will receive, or be given the opportunity to request
by returning a postage-prepaid card which will be distributed with the proxy
statement, letter or other written communication, a copy of the certificate of
incorporation and bylaws of the Holding Company. The Plan must be approved by
the affirmative vote of at least a majority of the total number of votes
eligible to be cast by Voting Members at the Special Meeting.
E. Subscription Rights to purchase shares of Conversion Stock will be
issued without payment therefor to Eligible Account Holders, Tax-Qualified
Employee Plans, Supplemental Eligible Account Holders, if any, Other Members,
Directors, Officers and Employees and Public Stockholders as of the Voting
Record Date, as set forth in Section III.B.
F. The Bank shall file preliminary proxy materials with the OTS in order
to seek the approval of the Plan by its Stockholders. Promptly following
clearance of such proxy materials and the receipt of any other requisite
approval of the OTS, the Bank will mail definitive proxy materials to all
Stockholders as of the Voting Record Date, at their last known address appearing
on the records of the Bank, for their consideration and approval of this Plan at
the Stockholders' Meeting. The Plan must be approved by the holders of at least
two-thirds of the outstanding Bank Common Stock as of the Voting Record Date.
In addition, the Primary Parties have conditioned the consummation of the
Conversion and Reorganization on the approval of the Plan by at least a majority
of the votes cast, in person or by proxy, by the Public Stockholders at the
Stockholders' Meeting.
G. The Effective Date of the Conversion and Reorganization shall be the
date set forth in Article V hereof. Upon the Effective Date, the following
transactions shall be deemed to have occurred simultaneously:
1. The Mutual Holding Company shall convert into an interim stock
savings association, Interim A, and Interim A shall simultaneously merge with
and into the Bank in the M.H.C. Merger, with the Bank being the surviving
institution. As a result of the M.H.C. Merger, (x) the shares of Bank Common
Stock currently held by the Mutual Holding Company shall be cancelled and (y)
Members of the Mutual Holding Company will be granted interests in the
Liquidation Account.
2. Interim B shall merge with and into the Bank pursuant to the Bank
Merger, with the Bank being the surviving institution. As a result of the Bank
Merger, (x) the shares of Holding Company Common Stock held by the Bank shall be
cancelled; (y) the shares of Bank Common Stock held by the Public Stockholders
(other than shares as to which the holders thereof have properly exercised
dissenters' rights of appraisal, if any) shall be converted into the right to
receive shares of Holding Company Common Stock based upon the Exchange Ratio,
plus cash in lieu of any fractional share interest based upon the Actual
Purchase Price; and (z) the shares of common stock of Interim B held by the
Holding Company shall be converted into shares of Bank Common Stock on a one-
for-one basis, with the result that the Bank shall become a wholly owned
subsidiary of the Company.
3. The Holding Company shall consummate the sale of the Conversion
Stock.
H. In the event the Holding Company Common Stock does not constitute
qualified consideration within the meaning of Section 552.14 of the Regulations
for Federal Savings Association (the "Appraisal Regulation"), the
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notice for the Stockholders' Meeting shall notify Public Stockholders of their
right to demand the payment of the appraised value of their shares upon
consummation of the Conversion and Reorganization. Such notice shall also
include a copy of the Appraisal Regulation. Within ten days after the Effective
Date, written notice shall be given to all Public Stockholders who have properly
exercised appraisal rights in accordance with the Appraisal Regulation.
Consummation of the Conversion and Reorganization is specifically conditioned on
the exercise of appraisal rights by less than 10% of the outstanding shares of
Bank Common Stock.
I. The Primary Parties may retain and pay for the services of financial
and other advisors and investment bankers to assist in connection with any or
all aspects of the Conversion and Reorganization, including in connection with
the Offerings, the payment of fees to brokers and investment bankers for
assisting Persons in completing and/or submitting Order Forms. All fees,
expenses, retainers and similar items shall be reasonable.
III. CONVERSION STOCK OFFERING
A. Total Number of Shares and Purchase Price of Conversion Stock.
--------------------------------------------------------------
1. The aggregate price at which shares of Conversion Stock shall be
sold in the Offerings shall be based on a pro forma valuation of the aggregate
market value of the Conversion Stock prepared by the Independent Appraiser. The
valuation shall be based on financial information relating to the Primary
Parties, market, financial and economic conditions, a comparison of the Primary
Parties with selected publicly held financial institutions and holding companies
and with comparable financial institutions and holding companies and such other
factors as the Independent Appraiser may deem to be important. The valuation
shall be stated in terms of an Estimated Price Range, the maximum of which shall
generally be no more than 15% above the average of the minimum and maximum of
such price range and the minimum of which shall generally be no more than 15%
below such average. The valuation shall be updated during the Conversion and
Reorganization as market and financial conditions warrant and as may be required
by the OTS.
2. Based upon the independent valuation, the Boards of Directors of
the Primary Parties shall fix the Initial Purchase Price and the number (or
range) of shares of Conversion Stock to be offered in the Subscription Offering,
Community Offering and/or Syndicated Community Offering. The Actual Purchase
Price and the total number of shares of Conversion Stock to be issued in the
Offerings shall be determined by the Boards of Directors of the Primary Parties
upon conclusion of the Offerings in consultation with the Independent Appraiser
and any financial advisor or investment banker retained by the Primary Parties
in connection therewith.
3. Subject to the approval of the OTS, the Estimated Price Range may
be increased or decreased to reflect market, financial and economic conditions
prior to completion of the Conversion and Reorganization, and under such
circumstances the Primary Parties may increase or decrease the total number of
shares of Conversion Stock to be issued in the Conversion and Reorganization to
reflect any such change. Notwithstanding anything to the contrary contained in
this Plan, no resolicitation of subscribers shall be required and subscribers
shall not be permitted to modify or cancel their subscriptions unless the gross
proceeds from the sale of the Conversion Stock issued in the Conversion and
Reorganization are less than the minimum or (excluding purchases, if any, by the
Holding Company's and the Bank's Tax-Qualified Employee Stock Benefit Plans
under Section III.B.2 hereof) more than 15% above the maximum of the Estimated
Price Range set forth in the Prospectus. In the event of an increase in the
total number of shares offered in the Conversion and Reorganization due to an
increase in the Estimated Price Range, the priority of share allocation shall be
as set forth in this Plan, provided, however, that such priorities will have no
effect whatsoever on the ability of the Tax-Qualified Employee Stock Benefit
Plans to purchase additional shares pursuant to Section III.B.2.
4. (a) In the event that Tax-Qualified Employee Stock Benefit Plans
are unable to purchase the number of shares subscribed for by such Tax-Qualified
Employee Stock Benefit Plans due to an oversubscription for shares of Conversion
Stock pursuant to Section III.B.1 hereof, Tax-Qualified Employee Stock
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Benefit Plans may purchase from the Holding Company, and the Holding Company may
sell to the Tax-Qualified Employee Stock Benefit Plans, such additional shares
("Additional Shares") of Holding Company Common Stock necessary to fill the
subscriptions of the Tax-Qualified Employee Stock Benefit Plans, provided that
such Additional Shares may not exceed 10% of the total number of shares of
Conversion Stock sold in the Conversion and Reorganization. The sale of
Additional Shares, if necessary, will occur contemporaneously with the sale of
the Conversion Stock. The sale of Additional Shares to Tax-Qualified Employee
Stock Benefit Plans by the Holding Company is conditioned upon receipt by the
Holding Company of a letter from the Independent Appraiser to the effect that
such sale would not have a material effect on the Conversion and Reorganization
or the Actual Purchase Price and the approval of the OTS. The ability of the
Tax-Qualified Employee Stock Benefit Plans to purchase up to an additional 10%
of the total number of shares of Conversion Stock sold in the Conversion and
Reorganization shall not be affected or limited in any manner by the priorities
or purchase limitations otherwise set forth in this Plan of Conversion.
(b) Notwithstanding anything to the contrary contained in this Plan,
if the final valuation range of the Conversion Stock exceeds the maximum
Conversion Stock offering range, up to 10% of the total number of shares of
Conversion Stock sold in the Conversion and Reorganization may be sold to Tax-
Qualified Stock Benefit Plans prior to filling any other orders for Conversion
Stock from such shares in excess of the maximum Conversion Stock offering range.
B. Subscription Offering
---------------------
Non-transferable Subscription Rights to purchase shares of Conversion Stock
will be issued at no cost to Eligible Account Holders, Tax-Qualified Employee
Stock Benefit Plans, Supplemental Eligible Account Holders and Other Members
pursuant to priorities established by applicable regulations. All shares must
be sold, and, to the extent that Conversion Stock is available, no subscriber
will be allowed to purchase fewer than 25 shares of Conversion Stock, provided
that this number shall be decreased if the aggregate purchase price exceeds
$500. The priorities established by applicable regulations for the purchase of
shares are as follows:
1. Category No. 1: Eligible Account Holders.
(a) Each Eligible Account Holder shall receive, without payment,
Subscription Rights to purchase up to the greater of (i) the maximum purchase
limitation established for the Community Offering and/or Syndicated Community
Offering, (ii) one-tenth of 1% of the total offering of shares of Conversion
Stock in the Subscription Offering, and (iii) 15 times the product (rounded down
to the next whole number) obtained by multiplying the total number of shares of
Conversion Stock offered in the Subscription Offering by a fraction, of which
the numerator is the amount of the Qualifying Deposits of the Eligible Account
Holder and the denominator is the total amount of all Qualifying Deposits of all
Eligible Account Holders, subject to Section III.G hereof.
(b) In the event of an oversubscription for shares of Conversion
Stock pursuant to Section III.B.1, available shares shall be allocated among
subscribing Eligible Account Holders so as to permit each such Eligible Account
Holder, to the extent possible, to purchase a number of shares which will make
his or her total allocation equal to the lesser of the number of shares
subscribed for or 100 shares. Any available shares remaining after each
subscribing Eligible Account Holder has been allocated the lesser of the number
subscribed for or 100 shares shall be allocated among the subscribing Eligible
Account Holders in the proportion which the Qualifying Deposit of each such
subscribing Eligible Account Holder bears to the total Qualifying Deposits of
all such subscribing Eligible Account Holders, provided that no fractional
shares shall be issued. Subscription Rights of Eligible Account Holders who are
also Directors or Officers and their Associates shall be subordinated to those
of other Eligible Account Holders to the extent that they are attributable to
increased deposits during the one-year period preceding the Eligibility Record
Date.
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2. Category No. 2: Tax-Qualified Employee Stock Benefit Plans.
Notwithstanding the purchase limitations discussed below, Tax-
Qualified Employee Stock Benefit Plans of the Holding Company and the Bank shall
receive, without payment, Subscription Rights to purchase in the aggregate up to
10% of the Conversion Stock and the Exchange Stock, including any shares of
Conversion Stock to be issued in the Conversion and Reorganization as a result
of an increase in the Estimated Price Range after commencement of the
Subscription Offering and prior to completion of the Conversion and
Reorganization. Consistent with applicable laws and regulations and policies
and practices of the OTS, Tax-Qualified Employee Stock Benefit Plans may use
funds contributed by the Holding Company or the Bank and/or borrowed from an
independent financial institution to exercise such Subscription Rights, and the
Holding Company and the Bank may make scheduled discretionary contributions
thereto, provided that such contributions do not cause the Holding Company or
the Bank to fail to meet any applicable regulatory capital requirement.
3. Category No. 3: Supplemental Eligible Account Holders.
(a) In the event that the Eligibility Record Date is more than 15
months prior to the date of the latest amendment to the Application for
Conversion filed prior to OTS approval, then, and only in such event, a
Supplemental Eligibility Record Date shall be set and each Supplemental Eligible
Account Holder shall receive, without payment, Subscription Rights to purchase
up to the greater of (i) the maximum purchase limitation established for the
Community Offering and/or Syndicated Community Offering, (ii) one-tenth of 1% of
the total offering of shares of Conversion Stock in the Subscription Offering,
and (iii) 15 times the product (rounded down to the next whole number) obtained
by multiplying the total number of shares of Conversion Stock offered in the
Subscription Offering by a fraction, of which the numerator is the amount of the
Qualifying Deposits of the Supplemental Eligible Account Holder and the
denominator is the total amount of all Qualifying Deposits of all Supplemental
Eligible Account Holders, subject to Section III.G hereof and the availability
of shares of Conversion Stock for purchase after taking into account the shares
of Conversion Stock purchased by Eligible Account Holders and Tax-Qualified
Employee Stock Benefit Plans through the exercise of Subscription Rights under
Sections III.B.1 and III.B.2 hereof.
(b) In the event of an oversubscription for shares of Conversion
Stock pursuant to Section III.B.3,, available shares shall be allocated among
subscribing Supplemental Eligible Account Holders so as to permit each such
Supplemental Eligible Account Holder, to the extent possible, to purchase a
number of shares which will make his or her total allocation (including the
number of shares, if any, allocated in accordance with Section III.B.1 hereof)
equal to the lesser of the number of shares subscribed for or 100 shares. Any
available shares remaining after each subscribing Supplemental Eligible Account
Holder has been allocated the lesser of the number subscribed for or 100 shares
shall be allocated among the subscribing Supplemental Eligible Account Holders
in the proportion which the Qualifying Deposit of each such subscribing
Supplemental Eligible Account Holder bears to the total Qualifying Deposits of
all such subscribing Supplemental Eligible Account Holders, provided that no
fractional shares shall be issued.
4. Category No. 4: Other Members.
(a) Each Other Member shall receive, without payment,
Subscription Rights to purchase up to the greater of (i) maximum purchase
limitation established for the Community Offering and/or Syndicated Community
Offering) and (ii) one-tenth of 1% of the total offering of shares of Conversion
Stock in the Subscription Offering, in each case subject to Section III.G hereof
and the availability of shares of Conversion Stock for purchase after taking
into account the shares of Conversion Stock purchased by Eligible Account
Holders, Tax-Qualified Employee Stock Benefit Plans, and Supplemental Eligible
Account Holders, if any, through the exercise of Subscription Rights under
Sections III.B.1, 2 and 3 hereof.
(b) If, pursuant to this Section III.B.4, Other Members subscribe
for a number of shares of Conversion Stock in excess of the total number of
shares of Conversion Stock remaining, available shares
A-11
shall be allocated among subscribing Other Members so as to permit each Other
Member, to the extent possible, to purchase a number of shares which will make
his or her total allocation equal to the lesser of the number of shares
subscribed for or 100 shares. Any remaining shares shall be allocated among
subscribing Other Members on a pro rata basis in the same proportion as each
such Other Member's subscription bears to the total subscriptions of all
subscribing Other Members, provided that no fractional shares shall be issued.
5. Category No. 5: Directors, Officers and Employees.
(a) To the extent that there are sufficient shares remaining
after satisfaction of all subscriptions under the above categories, Directors,
Officers and Employees of the Bank shall receive, without payment, Subscription
rights to purchase in this category up to an aggregate of 24.25% of the shares
of Conversion Stock offered in the Subscription Offering.
(b) In the event of an oversubscription for shares of Conversion
Stock pursuant to this Section III.B.5, Subscription Rights for the purchase of
such shares shall be allocated among the individual Directors, Officers and
Employees on a point system basis, whereby a point will be assigned for each
year of employment and for each salary increment of $5,000 per annum and five
points for each office held in the Mutual Holding Company and the Bank,
including a directorship. If any such Director, Officer or Employee does not
subscribe for his or her full allocation of shares, any shares not subscribed
for may be purchased by other Directors, Officers and Employees in proportion to
their respective subscriptions, provided that no fractional shares shall be
issued.
6. Category No. 6: Public Stockholders.
(a) Each Public Stockholder as of the Voting Record Date shall
receive, without payment, Subscription Rights to purchase up to the greater of
(i) the maximum purchase limitation established for the Community Offering
and/or Syndicated Community Offering and (ii) one tenth of 1% of the total
offering of shares of Conversion Stock in the Subscription Offering, in each
case subject to Section III.G hereof and the availability of shares of
Conversion Stock for purchase after taking into account the shares of Conversion
Stock purchased by Eligible Account Holders, Tax-Qualified Employee Stock
Benefit Plans, Supplemental Eligible Account Holders, if any, Other Members and
Directors, Officers and Employees.
(b) If, pursuant to this Section III.B.6, Public Stockholders as
of the Voting Record Date subscribe for a number of shares of Conversion Stock
in excess of the total number of shares of Conversion Stock remaining, available
shares shall be allocated among subscribing Public Stockholders as of the Voting
Record Date on a pro rata basis in the same proportion as each such Public
Stockholder's subscription bears to the total subscriptions of all such
subscribing Public Stockholders, provided that no fractional shares shall be
issued.
C. Community Offering, Syndicated Community Offering and Other Offerings.
---------------------------------------------------------------------
1. If less than the total number of shares of Conversion Stock are
sold in the Subscription Offering, it is anticipated that all remaining shares
of Conversion Stock shall, if practicable, be sold in a Community Offering
and/or a Syndicated Community Offering. Subject to the requirements set forth
herein, the manner in which the Conversion Stock is sold in the Community
Offering and/or the Syndicated Community Offering shall have as the objective
the achievement of the widest possible distribution of such stock.
2. In the event of a Community Offering, all shares of Conversion
Stock which are not subscribed for in the Subscription Offering shall be offered
for sale by means of a direct community marketing program, which may provide for
the use of brokers, dealers or investment banking firms experienced in the sale
of financial institution securities. Any available shares in excess of those
not subscribed for in the Subscription Offering will be available for purchase
by members of the general public to whom a Prospectus is delivered by the
Holding
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Company or on its behalf, with preference given to natural persons residing in
the Local Community ("Preferred Subscribers").
3. A Prospectus and Order Form shall be furnished to such Persons as
the Primary Parties may select in connection with the Community Offering, and
each order for Conversion Stock in the Community Offering shall be subject to
the absolute right of the Primary Parties to accept or reject any such order in
whole or in part either at the time of receipt of an order or as soon as
practicable following completion of the Community Offering. Available shares
will be allocated first to each Preferred Subscriber whose order is accepted in
an amount equal to the lesser of 100 shares or the number of shares subscribed
for by each such Preferred Subscriber, if possible. Thereafter, unallocated
shares shall be allocated among the Preferred Subscribers whose accepted orders
remain unsatisfied in the same proportion that the unfilled order of each bears
to the total unfilled orders of all Preferred Subscribers whose accepted orders
remain unsatisfied, provided that no fractional shares shall be issued. If
there are any shares remaining after all accepted orders by Preferred
Subscribers have been satisfied, any remaining shares shall be allocated to
other members of the general public who purchase in the Community Offering,
applying the same allocation described above for Preferred Subscribers.
4. The amount of Conversion Stock that any Person may purchase in
the Community Offering shall not exceed purchase limitation set forth in Section
III.D.2 hereof provided that, subject to the preferences set forth in Paragraphs
2 and 3 of this Section III.C of this Plan and to the extent applicable, orders
for Conversion Stock in the Community Offering shall first be filled to a
maximum of 2% of the total number of shares of Conversion Stock sold in the
Offerings and thereafter any remaining shares shall be allocated on an equal
number of shares basis per order until all orders have been filled. The Primary
Parties may commence the Community Offering concurrently with, at any time
during, or as soon as practicable after the end of, the Subscription Offering,
and the Community Offering must be completed within 45 days after the completion
of the Subscription Offering, unless extended by the Primary Parties with any
required regulatory approval.
5. Subject to such terms, conditions and procedures as may be
determined by the Primary Parties, all shares of Conversion Stock not subscribed
for in the Subscription Offering or ordered in the Community Offering may be
sold by a syndicate of broker-dealers to the general public in a Syndicated
Community Offering. Each order for Conversion Stock in the Syndicated Community
Offering shall be subject to the absolute right of the Primary Parties to accept
or reject any such order in whole or in part either at the time of receipt of an
order or as soon as practicable after completion of the Syndicated Community
Offering. The amount of Conversion Stock that any Person may purchase in the
Syndicated Community Offering shall not exceed purchase limitation set forth in
Section III.D.2 hereof provided that, to the extent applicable, orders for
Conversion Stock in the Syndicated Community Offering shall first be filled to a
maximum of 2% of the total number of shares of Conversion Stock sold in the
Offerings and thereafter any remaining shares shall be allocated on an equal
number of shares basis per order until all orders have been filled. The Primary
Parties may commence the Syndicated Community Offering concurrently with, at any
time during, or as soon as practicable after the end of, the Subscription
Offering and/or Community Offering, and the Syndicated Community Offering must
be completed within 45 days after the completion of the Subscription Offering,
unless extended by the Primary Parties with any required regulatory approval.
6. If for any reason a Syndicated Community Offering of shares of
Conversion Stock not sold in the Subscription Offering and the Community
Offering cannot be effected, or in the event that any insignificant residue of
shares of Conversion Stock is not sold in the Subscription Offering, Community
Offering or Syndicated Community Offering, the Primary parties shall use their
best efforts to obtain other purchasers for such shares in such manner and upon
such conditions as may be satisfactory to the OTS.
D. Limitations on Subscriptions and Purchases of Conversion Stock.
--------------------------------------------------------------
1. The maximum number of shares of Conversion Stock which may be
purchased in the Conversion by Tax-Qualified Employee Stock Benefit Plans shall
not exceed 10% of the total number of shares of
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Exchange Stock and Conversion Stock sold in the Offerings, including any shares
which may be issued in the event of an increase in the minimum of the Estimated
Price Range to reflect changes in market, financial and economic conditions
after commencement of the Subscription Offering and prior to completion of the
Offerings.
2. Except in the case of Tax-Qualified Employee Stock Benefit Plans
in the aggregate, as set forth in Section III.D.1, and subject to Section
III.D.6 and in addition to the other restrictions and limitations set forth
herein, the maximum number of shares of Holding Company Common Stock which any
Person together with any Associate or group of Persons Acting in Concert may,
directly or indirectly, subscribe for or purchase in the Conversion and
Reorganization shall not exceed 5% of the total offering of Conversion Stock in
the Conversion and Reorganization.
3. The number of shares of Conversion Stock which Directors and
Officers and their Associates may purchase in the aggregate in the Offerings
shall not exceed 34.25% of the total number of shares of Conversion Stock sold
in the Offerings, including any shares which may be issued in the event of an
increase in the maximum of the Estimated Price Range to reflect changes in
market, financial and economic conditions after commencement of the Subscription
Offering and prior to completion of the Offerings.
4. No Person may purchase fewer than 25 shares of Conversion Stock
in the Offerings, to the extent such shares are available; provided, however,
that if the Actual Purchase Price is greater than $20.00 per share, such minimum
number of shares shall be adjusted so that the aggregate Actual Purchase Price
for such minimum shares will not exceed $500.00
5. For purposes of the foregoing limitations and the determination
of Subscription Rights, (i) Directors, Officers and Employees shall not be
deemed to be Associates or a group acting in concert solely as a result of their
capacities as such, (ii) shares purchased by Tax-Qualified Employee Stock
Benefit Plans shall not be attributable to the individual trustees or
beneficiaries of any such plan for purposes of determining compliance with the
limitations set forth in Section III.D.2 hereof, (iii) shares purchased by Tax-
Qualified Employee Stock Benefit Plans shall not be attributable to the
individual trustees or beneficiaries of any such plan for purposes of
determining compliance with the limitation set forth in Section III.D.3 hereof,
and (iv) Exchange Shares shall be valued at the Actual Purchase Price.
6. Subject to any required regulatory approval and the requirements
of applicable laws and regulations, but without further approval of the Members
of the Mutual Holding Company or the Stockholders of the Bank, the Primary
Parties may increase or decrease any of the individual or aggregate purchase
limitations set forth herein whether prior to, during or after the Subscription
Offering, Community Offering and/or Syndicated Community Offering provided,
however, that in the event the individual purchase limit is increased above 5%
of the total number of shares of Conversion Stock sold in the offering, the
aggregate number of shares sold to subscribers in excess of 5% shall not exceed
10% of the total number of shares sold in the Offering. In the event that an
individual purchase limitation is increased after commencement of the
Subscription Offering or any other offering, the Primary Parties shall permit
any Person who subscribed for the maximum number of shares of Conversion Stock
to subscribe for an additional number of shares, so that such Person shall be
permitted to subscribe for the then maximum number of shares permitted to be
subscribed for by such Person, subject to the rights and preferences of any
Person who has priority Subscription Rights and the allocation formula described
in the foregoing sentence. In the event that an individual purchase limitation
is decreased after commencement of the Subscription Offering or any other
offering, the orders of any Person who subscribed for more than the new purchase
limitation shall be decreased by the minimum amount necessary so that such
Person shall be in compliance with the then maximum number of shares permitted
to be subscribed for by such Person.
7. Each Person purchasing Conversion Stock in the Conversion and
Reorganization shall be deemed to confirm that such purchase does not conflict
with the purchase limitations under the Plan or otherwise imposed by law, rule
or regulation. In the event that such purchase limitations are violated by any
Person (including any Associate or group of Persons affiliated or otherwise
Acting in Concert with such person), the Holding Company
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shall have the right to purchase from such Person at the Actual Purchase Price
per share all shares acquired by such Person in excess of such purchase
limitations or, if such excess shares have been sold by such person, to receive
the difference between the Actual Purchase Price per share paid for such excess
shares and the price at which such excess shares were sold by such Person. This
right of the Holding Company to purchase such excess shares shall be assignable
by the Holding Company.
8. The Primary Parties shall have the right to take all such action
as they may, in their sole discretion, deem necessary, appropriate or advisable
in order to monitor and enforce the terms, conditions, limitations and
restrictions contained in this Section III.D and elsewhere in this Plan and the
terms, conditions and representations contained in the Order Form, including,
but not limited to, the absolute right (subject only to any necessary regulatory
approvals or concurrences) to reject, limit or revoke acceptance of any
subscription or order and to delay, terminate or refuse to consummate any sale
of Conversion Stock which they believe might violate, or is designed to, or is
any part of a plan to, evade or circumvent such terms, conditions, limitations,
restrictions and representations. Any such action shall be final, conclusive
and binding on all persons, and the Primary Parties and their respective Boards
shall be free from any liability to any Person on account of any such action.
9. Notwithstanding anything to the contrary contained in this Plan,
no Public Stockholder will to be required to sell any Bank Common Stock or to be
limited in receiving Exchange Shares provided that their aggregate ownership of
Holding Company Common Stock including Conversion Stock purchased in the
Offering and Exchange Shares received pursuant to the Bank Merger would exceed
5.0% of the total number of shares of Holding Company Common Stock outstanding
immediately following the Conversion and Reorganization. Such percentage may be
increased but to no greater than 9.9% of the total number of shares outstanding
provided: (a) each Person who has subscribed for the maximum number of shares of
Conversion Stock shall have been offered the opportunity to increase their
subscriptions to such percentage of the Conversion Stock subject to the
provisions of Section III.D.6 hereof; and (b) the aggregate number of shares
held by all stockholders in excess of 5% shall not exceed 10% of the total
number of shares of Holding Company Common Stock outstanding immediately
following the Conversion and Reorganization. In calculating the percentage
ownership of any stockholder for purchases of this Section, the number of shares
outstanding shall be deemed to include any shares which the stockholder has the
right to acquire pursuant to presently exercisable options. In the event a
Public Stockholder's ownership would exceed the foregoing limitation, the
Holding Company shall have the right to reject, limit or revoke acceptance of
any subscription or order from such Person and/or the right to purchase any
excess shares from such Person at the Actual Purchase Price.
E. Timing of Subscription Offering, Manner of Exercising Subscription
------------------------------------------------------------------
Rights and Order Forms.
----------------------
1. The Subscription Offering may be commenced concurrently with or
at any time after the mailing to Voting Members of the Mutual Holding Company
and Stockholders of the Bank of the proxy statement(s) to be used in connection
with the Special Meeting and the Stockholders' Meeting. The Subscription
Offering may be closed before the Special Meeting and the Stockholders' Meeting,
provided that the offer and sale of the Conversion Stock shall be conditioned
upon the approval of the Plan by the Voting Members of the Mutual Holding
Company and the Stockholders of the Bank at the Special Meeting and the
Stockholders' Meeting, respectively.
2. The exact timing of the commencement of the Subscription Offering
shall be determined by the Primary Parties in consultation with the Independent
Appraiser and any financial or advisory or investment banking firm retained by
them in connection with the Conversion. The Primary Parties may consider a
number of factors, including, but not limited to, their current and projected
future earnings, local and national economic conditions, and the prevailing
market for stocks in general and stocks of financial institutions in particular.
The Primary Parties shall have the right to withdraw, terminate, suspend, delay,
revoke or modify any such Subscription Offering, at any time and from time to
time, as they in their sole discretion may determine, without liability to any
Person, subject to compliance with applicable securities laws and any necessary
regulatory approval or concurrence.
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3. The Primary Parties shall, promptly after the SEC has declared
the Registration Statement which includes the Prospectus effective and all
required regulatory approvals have been obtained, distribute or make available
the Prospectus, together with Order Forms for the purchase of Conversion Stock,
to all Participants for the purpose of enabling them to exercise their
respective Subscription Rights, subject to Section III.G hereof. The Primary
Parties may elect to mail a Prospectus and Order Form only to those Participants
who request such materials by returning a postage-paid card to the Primary
Parties by a date specified in the letter informing them of their Subscription
Rights. Under such circumstances, the Subscription Offering shall not be closed
until the expiration of 30 days after the mailing by the Primary parties of the
postage-paid card to Participants.
4. A single Order Form for all Deposit Accounts maintained with the
Bank by an Eligible Account Holder and any Supplemental Eligible Account Holder
may be furnished, irrespective of the number of Deposit Accounts maintained with
the Bank on the Eligibility Record Date and Supplemental Eligibility Record
Date, respectively.
5. The recipient of an Order Form shall have no less than 20 days
and no more than 45 days from the date of mailing of the Order Form (with the
exact termination date to be set forth on the Order Form) to properly complete
and execute the Order Form and deliver it to the Primary Parties. The Primary
Parties may extend such period by such amount of time as they determine is
appropriate. Failure of any Participant to deliver a properly executed Order
Form to the Primary Parties, along with payment (or authorization for payment by
withdrawal) for the shares of Conversion Stock subscribed for, within the time
limits prescribed, shall be deemed a waiver and release by such person of any
rights to subscribe for shares of Conversion Stock. Each Participant shall be
required to confirm to the Primary parties by executing an Order Form that such
person has fully complied with all of the terms, conditions, limitations and
restrictions in the Plan.
6. The Primary Parties shall have the absolute right, in their sole
discretion and without liability to any Participant or other Person, to reject
any Order Form, including, but not limited to, any Order From that is (i)
improperly completed or executed; (ii) not timely received; (iii) not
accompanied by the proper payment (or authorization of withdrawal for payment
or, in the case of institutional investors in the Community Offering, not
accompanied by an irrevocable order together with a legally binding commitment
to pay the full amount of the purchase price prior to 48 hours before the
completion of the Offerings; or (iv) submitted by a person whose representations
the Primary parties believe to be false or who they otherwise believe, either
alone, or acting in concert with others, is violating, evading or circumventing,
or intends to violate, evade or circumvent, the terms and conditions of the
Plan. The Primary Parties may, but will not be required to, waive any
irregularity on any Order Form or may require the submission of corrected Order
Forms or the remittance of full payment for shares of Conversion Stock by such
date as they may specify. The interpretation of the Primary Parties of the
terms and conditions of the Order Forms shall be final and conclusive.
7. The Primary Parties may elect to offer to pay fees on a per share
basis to securities brokers who assist purchasers of Conversion Stock in the
Offerings.
F. Payment for Conversion Stock.
----------------------------
1. Payment for shares of Conversion Stock subscribed for by
Participants in the Subscription Offering and payment for shares of Conversion
Stock ordered by Persons in the Community Offering shall be equal to the Initial
Purchase Price multiplied by the number of shares which are being subscribed for
or ordered, respectively. Such payment may be made in cash, if delivered in
person, or by check or money order at the time the Order Form is delivered to
the Primary Parties. The Primary Parties may also elect to receive payment for
shares of Conversion Stock by wire transfer. In addition, the Primary Parties
may elect to provide Participants and/or other Persons who have a Deposit
Account with the Bank the opportunity to pay for shares of Conversion Stock by
authorizing the Bank to withdraw from such Deposit Account an amount equal to
the aggregate Initial Purchase Price of such shares. If the Actual Purchase
Price is less than the Initial Purchase Price, the Primary Parties shall refund
the difference to all Participants and other Persons, unless the Primary Parties
choose to provide Participants and
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other Persons the opportunity on the Order Form to elect to have such difference
applied to the purchase of additional whole shares of Conversion Stock. If the
Actual Purchase Price is more than the Initial Purchase Price, the Primary
Parties shall reduce the number of shares of Conversion Stock ordered by
Participants and other Persons and refund any remaining amount which is
attributable to a fractional share interest, unless the Primary parties choose
to provide Participants and other Persons the opportunity to increase the Actual
Purchase Price submitted to them.
2. Consistent with applicable laws and regulations and policies and
practices of the OTS, payment for shares of Conversion Stock subscribed for by
Tax-Qualified Employee Stock Benefit Plans may be made with funds contributed by
the Holding Company and/or the Bank and/or funds obtained pursuant to a loan
from an unrelated financial institution pursuant to a loan commitment which is
in force from the time that any such plan submits an Order Form until the
closing of the transactions contemplated hereby.
3. If a Participant or other Person authorizes the Bank to withdraw
the amount of the Initial Purchase Price from his or her Deposit Account, the
Bank shall have the right to make such withdrawal or to place a hold on funds in
the Deposit Account equal to the aggregate Initial Purchase Price upon receipt
of the Order Form. Notwithstanding any regulatory provisions regarding
penalties for early withdrawals from certificate accounts, the Bank may allow
payment by means of withdrawal from certificate accounts without the assessment
of such penalties. In the case of an early withdrawal of only a portion of such
account, the certificate evidencing such account shall be cancelled if any
applicable minimum balance requirement ceases to be met. In such case, the
remaining balance will earn interest at the regular passbook rate. However,
where any applicable minimum balance is maintained in such certificate account,
the rate of return on the balance of the certificate account shall remain the
same as prior to such early withdrawal. This waiver of the early withdrawal
penalty applies only to withdrawals made in connection with the purchase of
Conversion Stock and is entirely within the discretion of the Primary Parties.
4. The Bank shall pay interest, at not less than the passbook rate,
for all amounts paid in cash, by check or money order to purchase shares of
Conversion Stock in the Subscription Offering and the Community Offering from
the date payment is received until the date the Conversion and Reorganization is
completed or terminated.
5. The Bank shall not knowingly loan funds or otherwise extend
credit to any Participant or other Person to purchase Conversion Stock.
6. Each share of Conversion Stock shall be non-assessable upon
payment in full of the Actual Purchase Price.
G. Account Holders in Nonqualified States or Foreign Countries.
-----------------------------------------------------------
The Primary Parties shall make reasonable efforts to comply with the
securities laws of all jurisdictions in the United States in which Participants
reside. However, no Participant will be offered or receive any Conversion Stock
under the Plan if such Participant resides in a foreign country or resides in a
jurisdiction of the United States with respect to which all of the following
apply: (a) there are few Participants otherwise eligible to subscribe for shares
under this Plan who reside in such jurisdiction; (b) the granting of
Subscription Rights or the offer or sale of shares of Conversion Stock to such
Participants would require any of the Primary Parties or their respective
Directors and Officers, under the laws of such jurisdiction, to register as a
broker-dealer, salesman or selling agent or to register or otherwise qualify the
Conversion Stock for sale in such jurisdiction, or any of the Primary Parties
would be required to qualify as a foreign corporation or file a consent to
service of process in such jurisdiction; and (c) such registration,
qualification or filing in the judgment of the Primary Parties would be
impracticable or unduly burdensome for reasons of cost or otherwise. No payments
will be made in lieu of the granting of Subscription Rights to any Person.
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IV. CERTAIN OTHER EFFECTS OF CONVERSION AND REORGANIZATION
A. Liquidation Account.
-------------------
1. At the time of the M.H.C. Merger, the Bank shall establish a
Liquidation Account in an amount equal to the amount of the dividends from Bank
Common Stock waived by the Mutual Holding Company plus the greater of (i) $3.2
million, which is equal to 100% of the retained earnings of the Bank as of
September 30, 1993, the date of the latest statement of financial condition
contained in the final offering circular utilized in the Bank's initial public
offering, or (ii) 64.7% of the Bank's total stockholders' equity as reflected in
its latest statement of financial condition contained in the final Prospectus
utilized in the Conversion and Reorganization. The function of the Liquidation
Account will be to preserve the rights of certain holders of Deposit Accounts in
the Bank who maintain such accounts in the Bank following the Conversion and
Reorganization to a priority to distributions in the unlikely event of a
liquidation of the Bank subsequent to the Conversion and Reorganization.
2. The Liquidation Account shall be maintained for the benefit of
Eligible Account Holders and Supplemental Eligible Account Holders, if any, who
maintain their Deposit Accounts in the Bank after the Conversion and
Reorganization. Each such account holder will, with respect to each Deposit
Account held, have a related inchoate interest in a portion of the Liquidation
Account balance, which interest will be referred to in this Section IV.A as the
"subaccount balance." All Deposit Accounts having the same social security
number will be aggregated for purposes of determining the initial subaccount
balance with respect to such Deposit Accounts, except as provided in Paragraph 4
of this Section IV.A.
3. In the event of a complete liquidation of the Bank subsequent to
the Conversion and Reorganization (and only in such event), each Eligible
Account Holder and Supplemental Eligible Account Holder, if any, shall be
entitled to receive a liquidation distribution from the Liquidation Account in
the amount of the then current subaccount balances for Deposit Accounts then
held (adjusted as described below) before any liquidation distribution may be
made with respect to the capital stock of the Bank. No merger, consolidation,
sale of bulk assets or similar combination transaction with another FDIC-insured
institution in which the Bank is not the surviving entity shall be considered a
complete liquidation for this purpose. In any merger or consolidation
transaction, the Liquidation Account shall be assumed by the surviving entity.
4. The initial subaccount balance for a Deposit Account held by an
Eligible Account Holder and Supplemental Eligible Account Holder, if any, shall
be determined by multiplying the opening balance in the Liquidation Account by a
fraction, of which the numerator is the amount of the Qualifying Deposits of
such account holder and the denominator is the total amount of Qualifying
Deposits of all Eligible Account Holders and Supplemental Eligible Account
Holders, if any. For Deposit Accounts in existence at both the Eligibility
Record Date and the Supplemental Eligibility Record Date, if any, separate
initial subaccount balances shall be determined on the basis of the Qualifying
Deposits in such Deposit Accounts on each such record date. Initial subaccount
balances shall not be increased, and shall be subject to downward adjustment as
provided below.
5. If the aggregate deposit balance in the Deposit Account(s) of any
Eligible Account Holder or Supplemental Eligible Account Holder, if any, at the
close of business on any June 30 annual closing date, commencing June 30, 1996
for Eligible Account Holders and June 30, 1997 for Supplemental Eligible Account
Holders, is less than the lesser of (a) the aggregate deposit balance in such
Deposit Account(s) at the close of business on any other annual closing date
subsequent to such record dates or (b) the aggregate deposit balance in such
Deposit Account(s) as of the Eligibility Record Date or the Supplemental
Eligibility Record Date, the subaccount balance for such Deposit Account(s)
shall be adjusted by reducing such subaccount balance in an amount proportionate
to the reduction in such deposit balance. In the event of such a downward
adjustment, the subaccount balance shall not be subsequently increased,
notwithstanding any subsequent increase in the deposit balance of the related
Deposit Account(s). The subaccount balance of an Eligible Account Holder or
Supplemental Eligible Account Holder, if any, will be reduced to zero if such
Account Holder ceases to maintain a Deposit Account at the Bank
A-18
that has the same social security number as appeared on his Deposit Account(s)
at the Eligibility Record Date or, if applicable, the Supplemental Eligibility
Record Date.
6. Subsequent to the Conversion and Reorganization, the Bank may not
pay cash dividends generally on deposit accounts and/or capital stock of the
Bank, or repurchase any of the capital stock of the Bank, if such dividend or
repurchase would reduce the Bank's regulatory capital below the aggregate amount
of the then current subaccount balances for Deposit Accounts then held;
otherwise, the existence of the liquidation account shall not operate to
restrict the use or application of any of the net worth accounts of the Bank.
7. For purposes of this Section IV.A, a Deposit Account includes a
predecessor or successor account which is held by an Account Holder with the
same social security number.
B. Voting Rights of Stockholders.
-----------------------------
Following consummation of the Conversion and Reorganization, voting rights
with respect to the Bank shall be held and exercised exclusively by the Holding
Company as holder of all of the Bank's outstanding voting capital stock, and
voting rights with respect to the Holding Company shall be held and exercised
exclusively by the holders of the Holding Company's voting capital stock.
C. Transfer of Deposit Accounts.
----------------------------
Each Deposit Account in the Bank at the time of the consummation of the
Conversion and Reorganization shall become, without further action by the
holder, a Deposit Account in the Bank equivalent in withdrawable amount to the
withdrawal value (as adjusted to give effect to any withdrawal made for the
purchase of Conversion Stock), and subject to the same terms and conditions
(except as to voting and liquidation rights) as such Deposit Account in the Bank
immediately preceding consummation of the Conversion and Reorganization.
Holders of Deposit Accounts in the Bank shall not, as such holders, have any
voting rights.
D. Directors and Officers of the Bank.
----------------------------------
Each person serving as a Director or Officer of the Bank at the time of the
Conversion and Reorganization shall continue to serve as a Director or Officer
of the Bank for the balance of the term for which the person was elected prior
to the Conversion and Reorganization, and until a successor is elected and
qualified. The number, names, business addresses and terms of the Directors of
the Bank are set forth in the Plans of Merger included as Annexes A and B
hereto.
E. Requirements Following Conversion and Reorganization for Registration,
----------------------------------------------------------------------
Market Making, and Stock Exchange Listing.
-----------------------------------------
In connection with the Conversion and Reorganization, the Holding Company
shall register the Holding Company Common Stock pursuant to Section 12(g) of the
Securities Exchange Act of 1934, as amended, and shall undertake not to
deregister such stock for a period of three years thereafter. The Holding
Company also shall use its best efforts to (i) encourage and assist a market
maker to establish and maintain a market for the Holding Company Common Stock
and (ii) list the Holding Company Common Stock on a national or regional
securities exchange or to have quotations for such stock disseminated on the
National Association of Securities Dealers Automated Quotation System.
F. Dissenting Stockholders.
-----------------------
If any Stockholders of the Bank dissent from the Conversion and
Reorganization and exercise and perfect the right to obtain valuation of and
payment for their shares of Bank Common Stock ("Dissenting Shares") pursuant to
the Appraisal Regulation, then (a) the Dissenting Shares, if any, will be deemed
to have been retired and
A-19
cancelled immediately prior to consummation of the Conversion and
Reorganization, with the effect that such shares will not be exchanged for
Holding Company Common Stock pursuant to Section II.G.2 hereof, and (b) all
payments to be made to the holders of such Dissenting Shares will be made
directly by the Bank. Consummation of the Conversion and Reorganization is
conditioned upon the number of Dissenting Shares being less than 10.0% of the
shares of Bank Common Stock issued and outstanding immediately prior to
consummation of the Conversion and Reorganization.
V. EFFECTIVE DATE
The effective date of the Conversion and Reorganization shall be the date
upon which the last of the following actions occurs: (i) the filing of Articles
of Combination with the OTS with respect to the Mutual Holding Company Merger,
(ii) the filing of Articles of Combination with the OTS with respect to the Bank
Merger, (iii) the closing of the issuance of the shares of Conversion Stock in
the Offerings, and (iv) compliance with any conditions imposed by the OTS that
is required to be complied with prior to the Effective Date. The filing of
Articles of Combination relating to the Mutual Holding Company Merger and the
Bank Merger and the closing of the issuance of shares of Conversion Stock in the
Offerings shall not occur until all requisite regulatory, Member and Stockholder
approvals have been obtained, all applicable waiting periods have expired and
sufficient subscriptions and orders for the Conversion Stock have been received.
It is intended that the closing of the Mutual Holding Company Merger, the Bank
Merger and the sale of shares of Conversion Stock in the Offerings shall occur
consecutively and substantially simultaneously.
VI. CERTAIN RESTRICTIONS FOLLOWING CONVERSION AND REORGANIZATION
A. Requirements for Stock Purchases by Directors and Officers Following
--------------------------------------------------------------------
the Conversion and Reorganization.
---------------------------------
For a period of three years following the Conversion and Reorganization,
the Directors and Officers of the Holding Company and the Bank and their
Associates may not purchase, without the prior written approval of the OTS,
Holding Company Common Stock except from a broker-dealer registered with the
SEC. This prohibition shall not apply, however, to (i) a negotiated transaction
arrived at by direct negotiation between buyer and seller and involving more
than 1% of the outstanding Holding Company Common Stock and (ii) purchases of
stock made by and held by any Tax-Qualified Employee Stock Benefit Plan (and
purchases of stock made by and held by any Non-Tax-Qualified Employee Stock
Benefit Plan following the receipt of stockholder approval of such plan) which
may be attributable to individual officers or directors.
The foregoing restriction on purchases of Holding Company Common Stock
shall be in addition to any restrictions that may be imposed by federal and
state securities laws.
B. Restrictions on Transfer of Stock by Directors and Officers.
-----------------------------------------------------------
All shares of the Conversion Stock which are purchased by Persons other
than Directors and Officers shall be transferable without restriction, except in
connection with a transaction proscribed by Section V.C of this Plan. Shares of
Conversion Stock purchased by Directors and Officers of the Holding Company and
the Bank on original issue from the Holding Company (by subscription or
otherwise) shall be subject to the restriction that such shares shall not be
sold or otherwise disposed of for value for a period of one year following the
date of purchase, except for any disposition of such shares following the death
of the original purchaser or pursuant to any merger or similar transaction
approved by the OTS. The shares of Conversion Stock issued by the Holding
Company to Directors and Officers shall bear the following legend giving
appropriate notice of such one-year restriction:
The shares of stock evidenced by this Certificate are restricted as to
transfer for a period of one year from the date of this Certificate
pursuant to Part 563b of the Rules and Regulations of the Office of Thrift
Supervision of the United States Department of the Treasury. Except in the
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event of the death of the registered holder of this Certificate, such
shares may not be transferred during such one-year period without a legal
opinion of counsel for the Company that said transfer is permissible under
the provisions of applicable law and regulation. This restrictive legend
shall be deemed null and void after one year from the date of this
Certificate.
In addition, the Holding Company shall give appropriate instructions to the
transfer agent for the Holding Company Common Stock with respect to the
applicable restrictions relating to the transfer of retired stock. Any shares
issued at a later date as a stock dividend, stock split or otherwise with
respect to any such restricted stock shall be subject to the same holding period
restrictions as may then be applicable to such restricted stock.
The foregoing restriction on transfer shall be in addition to any
restrictions on transfer that may be imposed by federal and state securities
laws.
C. Restrictions on Acquisition of Stock of the Holding Company.
-----------------------------------------------------------
The articles of incorporation of the Holding Company may prohibit any
Person together with Associates or group of Persons Acting in Concert from
offering to acquire or acquiring, directly or indirectly, beneficial ownership
of more than 10% of any class of equity securities of the Holding Company, or of
securities convertible into more than 10% of any such class, for up to five
years following completion of the Conversion and Reorganization. The articles
of incorporation of the Holding Company also may provide that all equity
securities beneficially owned by any Person in excess of 10% of any class of
equity securities during such period shall be considered "excess shares," and
that excess shares shall not be counted as shares entitled to vote and shall not
be voted by any Person or counted as voting shares in connection with any
matters submitted to the stockholders for a vote. If included in the articles
of incorporation, the foregoing restrictions shall not apply to (i) any offer
with a view toward public resale made exclusively to the Holding Company by
underwriters or a selling group acting on its behalf, (ii) the purchase of
shares by a Tax-Qualified Employee Stock Benefit Plan established for the
benefit of the employees of the Holding Company and its subsidiaries which is
exempt from approval requirements under Section 574.3(c)(1)(vi) of the
Regulations Applicable to All Savings Associations or any successor thereto, and
(iii) any offer or acquisition approved in advance by the affirmative vote of
two-thirds of the entire Board of Directors of the Holding Company. Directors,
Officers or Employees of the Holding Company or the Bank or any subsidiary
thereof shall not be deemed to be Associates or a group Acting in Concert with
respect to their individual acquisitions of any class of equity securities of
the Holding Company solely as a result of their capacities as such.
D. Dividend and Repurchase Restrictions.
------------------------------------
1. Except as may otherwise may be permitted by the OTS, the Holding
Company may not repurchase any shares of its capital stock during the first year
following consummation of the Conversion and Reorganization. During the second
and third years following consummation of the Conversion and Reorganization, the
Holding Company may not repurchase any of its capital stock from any person,
other than pursuant to (i) an offer to repurchase made by the Holding Company on
a pro rata basis to all of its stockholders and which is approved by the OTS,
(ii) the repurchase of qualifying shares of a director, if any, (iii) purchases
in the open market by a Tax-Qualified or Non-Tax-Qualified Employee Stock
Benefit Plan in an amount reasonable and appropriate to fund the plan, or (iv) a
repurchase program approved by the OTS.
2. The Bank may not declare or pay a cash dividend on, or repurchase
any of, its capital stock if the effect thereof would cause the regulatory
capital of the Bank to be reduced below the amount required for the Liquidation
Account. Any dividend declared or paid on, or repurchase of, the Bank's capital
stock also shall be in compliance with Section 563.134 of the Regulations
Applicable to All Savings Associations, or any successor thereto.
3. Notwithstanding anything to the contrary set forth herein, the
Holding Company may repurchase its capital stock to the extent and subject to
the requirements set forth in Section 563b.3(g)(3) of the
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Regulations Applicable to All Savings Associations, or any successor thereto, or
as otherwise may be approved by the OTS.
VII. MISCELLANEOUS
A. Tax Rulings or Opinions.
-----------------------
Consummation of the Conversion and Reorganization is conditioned upon prior
receipt by the Primary Parties of either a ruling or an opinion of counsel with
respect to federal tax law, and either a ruling or an opinion of counsel with
respect to Kentucky tax law, to the effect that consummation of the transactions
contemplated hereby will not result in a taxable reorganization under the
provisions of the applicable codes or otherwise result in any adverse tax
consequences to the Primary Parties or to account holders receiving Subscription
Rights before or after the Conversion and Reorganization, except in each case to
the extent, if any, that Subscription Rights are deemed to have fair market
value on the date such rights are issued.
B. Stock Compensation Plans.
------------------------
1. The Holding Company and the Bank are authorized to adopt Tax-
Qualified Employee Stock Benefit Plans in connection with the Conversion and
Reorganization, including without limitation an employee stock ownership plan.
2. The Holding Company and the Bank also are authorized to adopt
stock option plans, restricted stock grant plans and other Non-Tax-Qualified
Employee Stock Benefit Plans, provided that no stock options shall be granted,
and no shares of Conversion Stock shall be purchased, pursuant to any of such
plans prior to the earlier of (i) the one-year anniversary of the consummation
of the Conversion and Reorganization or (ii) the receipt of stockholder approval
of such plans at either the annual or special meeting of stockholders of the
Holding Company to be held not earlier than six months after the completion of
the Conversion and Reorganization.
3. Existing as well as any newly created Tax-Qualified Employee
Stock Benefit Plans may purchase shares of Conversion Stock in the Offerings, to
the extent permitted by the terms of such benefit plans and this Plan.
C. Amendment or Termination of the Plan.
------------------------------------
If deemed necessary or desirable by the Boards of Directors of the Primary
Parties, this Plan may be substantively amended, as a result of comments from
regulatory authorities or otherwise, at any time prior to the solicitation of
proxies from Members and Stockholders to vote on the Plan and at any time
thereafter with the concurrence of the OTS. Any amendment to this Plan made
after approval by the Members and Stockholders with the concurrence of the OTS
shall not necessitate further approval by the members or Stockholders unless
otherwise required by the OTS. Any amendment to this Plan which may be required
in connection with changes associated with the preference afforded to Persons in
the Local Community shall not be deemed to be a material change to the Plan, the
Primary Parties shall not resolicit subscribers and orders shall be filled in
accordance with any such revisions to the Local Community preference. This Plan
shall terminate if the sale of all shares of Conversion Stock is not completed
within 24 months from the date of the Special Meeting. Prior to the earlier of
the Special Meeting and the Stockholders' Meeting, this Plan may be terminated
by the Boards of Directors of the Primary Parties without approval of the OTS;
after the Special Meeting or the Stockholders' Meeting, the Boards of Directors
may terminate this Plan only with the approval of the OTS.
D. Interpretation of the Plan.
--------------------------
All interpretations of this Plan and application of its provisions to
particular circumstances by a majority of each of the Boards of Directors of the
Primary Parties shall be final, subject to the authority of the OTS. Nothing
A-22
expressed or referred to herein is intended to create any contractual rights in
any parties other than the parties hereto, their successors and permitted
assigns.
IN WITNESS WHEREOF, the parties have caused this Plan to be executed by
their duly authorized officers as of this __th day of December 1996.
CUMBERLAND MOUNTAIN BANCSHARES,
M.H.C.
Attest: By:
-------------------- ------------------------------------
Secretary J. Roy Shoffner
Chairman and Chief Executive Officer
MIDDLESBORO FEDERAL BANK, FEDERAL
SAVINGS BANK
Attest: By:
------------------- -----------------------------------
Secretary J. Roy Shoffner
Chairman and Chief Executive Officer
CUMBERLAND MOUNTAIN BANCSHARES, INC.
Attest: By:
------------------- ------------------------------------
Secretary J. Roy Shoffner
Chairman and Chief Executive Officer
A-23
ANNEX A
PLAN OF MERGER
Plan of Merger, dated as of December __, 1996, between Cumberland Mountain
Bancshares, M.H.C. (the "Mutual Holding Company"), a federally-chartered mutual
holding company, and Middlesboro Federal Bank, Federal Savings Bank (the "Bank"
or the "Surviving Corporation"), a federally-chartered savings bank.
WITNESSETH:
WHEREAS, the Mutual Holding Company and the Bank have adopted a Plan of
Conversion of the Mutual Holding Company and Agreement and Plan of
Reorganization between Cumberland Mountain Bancshares, Inc. (the "Holding
Company") and the Bank (the "Plan of Conversion"), pursuant to which (i) the
Mutual Holding Company will convert to a federally-chartered interim stock
savings bank and simultaneously merge with and into the Bank, (ii) the Bank and
a newly-formed interim savings bank will merge, pursuant to which the Bank will
become a wholly-owned subsidiary of the Holding Company (the "Bank Merger"), and
(iii) the Holding Company will offer shares of its common stock in the manner
set forth in the Plan of Conversion; and
WHEREAS, the Mutual Holding Company, which owns 64.7% of the outstanding
common stock of the Bank, $1.00 par value per share ("Bank Common Stock"), will
convert to a federally-chartered interim stock savings bank pursuant to the Plan
of Conversion and merge with and into the Bank pursuant to this Plan of Merger
(the "Mutual Holding Company Merger"), pursuant to which, among other things,
all interests of members in the Mutual Holding Company and all shares of Bank
Common Stock held by the Mutual Holding Company will be cancelled; and
WHEREAS, the Mutual Holding Company and the Bank (the "Constituent
Corporations") desire to provide for the terms and conditions of the Mutual
Holding Company Merger;
NOW, THEREFORE, the Mutual Holding Company and the Bank hereby agree as
follows:
1. Effective Date. The Mutual Holding Company Merger shall become
effective on the date specified in the endorsement of the Articles of
Combination relating to the Mutual Holding Company Merger by the Secretary of
the Office of Thrift Supervision ("OTS") pursuant to 12 C.F.R. (S) 552.13(k), or
any successor thereto (the "Effective Date").
2. The Mutual Holding Company Merger and Effect Thereof. Subject to the
terms and conditions set forth herein and the prior approval of the OTS of the
Conversion and Reorganization, as defined in the Plan of Conversion, and the
expiration of all applicable waiting periods, the Mutual Holding Company shall
convert from the mutual form to a federal interim stock savings bank and
simultaneously merge with and into the Bank, which shall be the Surviving
Corporation. Upon consummation of the Mutual Holding Company Merger, the
Surviving Corporation shall be considered the same business and corporate entity
as each of the Constituent Corporations and thereupon and thereafter all the
property, rights, powers and franchises of each of the Constituent Corporations
shall vest in the Surviving Corporation and the Surviving Corporation shall be
subject to and be deemed to have assumed all of the debts, liabilities,
obligations and duties of each of the Constituent Corporations and shall have
succeeded to all of each of their relationships, fiduciary or otherwise, as
fully and to the same extent as if such property, rights, privileges, powers,
franchises, debts, obligations, duties and relationships had been originally
acquired, incurred or entered into by the Surviving Corporation. In addition,
any reference to either of the Constituent Corporations in any contract, will or
document, whether executed or taking effect before or after the Effective Date,
shall be considered a reference to the Surviving Corporation if not inconsistent
with the other provisions of the contract, will or document; and any pending
action or other judicial proceeding to which either of the Constituent
Corporations
A-1
is a party shall not be deemed to have abated or to have been discontinued by
reason of the Mutual Holding Company Merger, but may be prosecuted to final
judgment, order or decree in the same manner as if the Mutual Holding Company
Merger had not occurred or the Surviving Corporation may be substituted as a
party to such action or proceeding, and any judgment, order or decree may be
rendered for or against it that might have been rendered for or against either
of the Constituent Corporations if the Mutual Holding Company Merger had not
occurred.
3. Cancellation of Bank Common Stock held by the Mutual Holding Company
and Member Interests; Liquidation Account
(a) On the Effective Date, (i) each share of Bank Common Stock issued and
outstanding immediately prior to the Effective Date and held by the Mutual
Holding Company shall, by virtue of the Mutual Holding Company Merger and
without any action on the part of the holder thereof, be cancelled, (ii) the
interests in the Mutual Holding Company of any person, firm or entity who or
which qualified as a member of the Mutual Holding Company in accordance with its
mutual charter and bylaws and the laws of the United States prior to the Mutual
Holding Company's conversion from mutual to stock form (the "Members") shall, by
virtue of the Mutual Holding Company Merger and without any action on the part
of the holder thereof, be cancelled, and (iii) the Bank shall establish a
liquidation account on behalf of each depositor member of the Mutual Holding
Company, as defined in the Plan of Conversion, in accordance with Section IV.B
of the Plan of Conversion.
(b) At or after the Effective Date and prior to the Bank Merger, each
certificate or certificates theretofore evidencing issued and outstanding shares
of Bank Common Stock, other than any such certificate or certificates held by
the Mutual Holding Company, which shall be cancelled, shall continue to
represent issued and outstanding shares of Bank Common Stock.
4. Dissenting Shares. No Member of the Mutual Holding Company shall have
any dissenter or appraisal rights in connection with the Mutual Holding Company
Merger. However, stockholders of the Bank shall have dissenter or appraisal
rights in accordance with the Plan of Conversion and 12 C.F.R. (S) 552.14.
5. Name of Surviving Corporation. The name of the Surviving Corporation
shall be "Middlesboro Federal Bank, Federal Savings Bank."
6. Directors of the Surviving Corporation. Upon and after the Effective
Date, until changed in accordance with the Charter and Bylaws of the Surviving
Corporation and applicable law, the number of directors of the Surviving
Corporation shall be six. The names of those persons who, upon and after the
Effective Date, shall be directors of the Surviving Corporation are set forth
below. Each such director shall serve for the term which expires at the annual
meeting of stockholders of the Surviving Corporation in the year set forth after
his respective name, and until a successor is elected and qualified.
Name Term Expires
---- ------------
J. Roy Shoffner 1997
R. R. Long 1997
George Taylor 1997
Reecie Stagnolia 1998
Raymond Walker 1998
James J. Shoffner 1999
The address of each such director is c/o Middlesboro Federal Bank, Federal
Savings Bank, 1431 Cumberland Avenue, Middlesboro, Kentucky 40965.
A-2
7. Officers of the Surviving Corporation. Upon and after the Effective
Date, until changed in accordance with the Charter and Bylaws of the Surviving
Corporation and applicable law, the officers of the Bank immediately prior to
the Effective Date shall be the officers of the Surviving Corporation.
8. Offices. Upon the Effective Date, all offices of the Bank shall be
offices of the Surviving Corporation. As of the Effective Date, the home office
of the Surviving Corporation shall remain at 1431 Cumberland Avenue,
Middlesboro, Kentucky 40965 and the location of the other deposit-taking offices
of the Surviving Corporation shall be as set forth below, except for the
addition of deposit-taking offices authorized or the deletion of the deposit-
taking offices closed subsequent to the date hereof and the Effective Date:
1520 East Main Street
Cumberland, Kentucky 40823
9. Charter and Bylaws. On and after the Effective Date, the Charter of
the Bank as in effect immediately prior to the Effective Date shall be the
Charter of the Surviving Corporation until amended in accordance with the terms
thereof and applicable law, except that the Charter shall be amended to provide
for the establishment of a liquidation account in accordance with applicable law
and regulation.
On or after the Effective Date, the Bylaws of the Bank as in effect
immediately prior to the Effective Date shall be the Bylaws of the Surviving
Corporation until amended in accordance with the terms thereof and applicable
law.
10. Stockholders and Member Approvals. The affirmative votes of the
holders of the Bank Common Stock set forth in Section II.F of the Plan of
Conversion and the Members set forth in Section II.D of the Plan of Conversion
shall be required to approve the Plan of Conversion, of which this Plan of
Merger is a part, on behalf of the Bank and the Mutual Holding Company,
respectively.
11. Abandonment of Agreement. This Plan of Merger may be abandoned by
either the Mutual Holding Company or the Bank at any time before the Effective
Date in the manner set forth in Section VI.D of the Plan of Conversion.
12. Amendments. This Plan of Merger may be amended in the manner set
forth in Section VI.D of the Plan of Conversion by a subsequent writing signed
by the parties hereto upon the approval of the Board of Directors of each of the
parties hereto.
13. Successors. This Agreement shall be binding on the successors of the
Mutual Holding Company and the Bank.
14. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the United States of America.
A-3
IN WITNESS WHEREOF, the Mutual Holding Company and the Bank have caused
this Plan of Merger to be executed by their duly authorized officers as of the
day and year first above written.
CUMBERLAND MOUNTAIN
BANCSHARES, M.H.C.
Attest:
By:
- ------------------------- ------------------------
J.D. Howard James J. Shoffner
Secretary President
MIDDLESBORO FEDERAL BANK, FEDERAL
SAVINGS BANK
Attest:
By:
- ------------------------ -----------------------
J.D. Howard James J. Shoffner
Secretary President
A-4
ANNEX B
PLAN OF MERGER
Plan of Merger, dated as of ____________ __, 199__, among Middlesboro
Federal Bank, Federal Savings Bank (the "Bank" or the "Surviving Bank"), a
federally-chartered savings bank, Cumberland Mountain Bancshares, Inc. (the
"Holding Company"), a Tennessee corporation, and Middlesboro Federal Interim
Savings Bank ("Interim"), a federally-chartered interim savings bank.
WITNESSETH:
WHEREAS, the Bank has organized the Holding Company as a first-tier,
wholly-owned subsidiary for the purpose of becoming the stock holding company of
the Bank upon completion of the Conversion and Reorganization, as defined in the
Plan of Conversion of Cumberland Mountain Bancshares, M.H.C. (the "Mutual
Holding Company") and Agreement and Plan of Reorganization between the Holding
Company and the Bank (the "Plan of Conversion"); and
WHEREAS, the Mutual Holding Company, a federally-chartered mutual holding
company which owns 64.7% of the common stock of the Bank, $1.00 par value per
share ("Bank Common Stock"), will convert to a federally-chartered interim stock
savings bank and simultaneously merge with and into the Bank pursuant to the
Plan of Conversion and the Plan of Merger included as Annex A thereto (the
"Mutual Holding Company Merger"), pursuant to which all shares of Bank Common
Stock held by the Mutual Holding Company will be cancelled; and
WHEREAS, the formation of a stock holding company by the Bank will be
facilitated by causing the Holding Company to become the sole stockholder of a
newly-formed interim federally-chartered stock savings bank and then merging the
interim savings bank with an into the Bank (the "Bank Merger"), pursuant to
which the Bank will become a wholly-owned subsidiary of the Holding Company and,
in connection therewith, all outstanding shares of Bank Common Stock will be
converted automatically into and become shares of common stock of the Holding
Company, $.01 par value per share ("Holding Company Common Stock"); and
WHEREAS, Interim is being organization by the officers of the Bank as an
interim federally-chartered stock savings bank with the Holding Company as its
sole stockholder in order to effect the Bank Merger; and
WHEREAS, the Bank and Interim (the "Constituent Banks") desire to provide
for the terms and conditions of the Bank Merger.
NOW, THEREFORE, the Bank and Interim hereby agree as follows:
1. Effective Date. The Bank Merger shall become effective on the date
specified in the endorsement of the Articles of Combination relating to the Bank
Merger by the Secretary of the Office of Thrift Supervision ("OTS") pursuant to
12 C.F.R. (S) 552.13(k), or any successor thereto (the "Effective Date").
2. The Bank Merger and Effect Thereof. Subject to the terms and
conditions set forth herein and the prior approval of the OTS of the
Conversation and Reorganization, as defined in the Plan of Conversion, and the
expiration of all applicable waiting periods. Interim shall merge with and into
the Bank, which shall be the Surviving Bank. Upon consummation of the Bank
Merger, the Surviving Bank shall be considered the same business and corporate
entity as each of the Constituent Banks and thereupon and thereafter all the
property, rights, powers and franchises of each of the Constituent Banks shall
vest in the Surviving Bank and the Surviving Bank shall be subject to and be
deemed to have assumed all of the debts, liabilities, obligations and duties of
each of the Constituent Banks and shall have succeeded to all of each of their
relationships, fiduciary or otherwise, as fully and to the same extent as if
such property, rights, privileges, powers, franchises, debts, obligations,
duties and relationships had been originally acquired, incurred or entered into
by the Surviving Bank. In addition, any reference
B-1
to either of the Constituent Banks in any contract, will or document, whether
executed or taking effect before or after the Effective Date, shall be
considered a reference to the Surviving Bank if not inconsistent with the other
provision of the contract, will or document; and any pending action or other
judicial proceeding to which either of the Constituent Banks is a party shall
not be deemed to have abated or to have been discontinued by reason of the Bank
Merger, but may be prosecuted to final judgment, order or decree in the same
manner as if the Bank Merger had not occurred or the Surviving Bank may be
substituted as a party to such action or proceeding, and any judgement, order or
decree may be rendered for or against it that might have been rendered for or
against either of the Constituent Banks if the Bank Merger had not occurred.
3. Conversion of Stock.
(a) On the Effective Date, (i) each share of Bank Common Stock issued and
outstanding immediately prior to the Effective Date (other than shares as to
which the holders thereof have properly exercised dissenter's rights of
appraisal, if any) shall, by virtue of the Bank Merger and without any action on
the part of the holder thereof, be converted into the right to receive Holding
Company Common Stock based on the Exchange Ratio, as defined in the Plan of
Conversion, plus the right to receive cash in lieu of any fractional share
interest, as determined in accordance with Section 3(c) hereof, (ii) each share
of common stock, $1.00 par value per share, of Interim ("Interim Common Stock")
issued and outstanding immediately prior to the Effective Date shall, by virtue
of the Bank Merger and without any action on the part of the holder thereof, be
converted into one share of Bank Common Stock, and (iii) each share of Holding
Company Common Stock issued and outstanding immediately prior to the Effective
Date shall, by virtue of the Bank Merger and without any action on the part of
the holder thereof, be cancelled. By voting in favor of this Plan of Merger,
the Holding Company, as the sole stockholder of Interim, shall have agreed to
(i) issue shares of Holding Company Common Stock in accordance with the terms
hereof, and (ii) cancel all previously issued and outstanding shares of Holding
Company Common Stock upon the effectiveness of the Bank Merger.
(b) On and after the Effective Date, there shall be no registrations of
transfers on the stock transfer books of Interim or the Bank of shares of
Interim Common Stock or Bank Common Stock which were outstanding immediately
prior to the Effective Date.
(c) Notwithstanding any other provision hereof, no fractional shares of
Holding Company Common Stock shall be issued to holders of Bank Common Stock.
In lieu thereof, each holder of shares of Bank Common Stock entitled to a
fraction of a share of Holding Company Common Stock shall, at the time of
surrender of the certificate or certificates representing such holder's shares,
receive an a mount of cash equal to the product arrived at by multiplying such
fraction of a share of Holding Company Common Stock by the Actual Purchase
Price, as defined in the Plan of Conversion. No such holder shall be entitled
to dividends, voting rights or any other rights in respect of any fractional
share.
4. Exchange of Shares.
(a) At or after the Effective Date, each holder of a certificate or
certificates therefore evidencing issued and outstanding shares of Bank Common
Stock (other than shares as to which the holders thereof have properly exercised
dissenter's rights of appraisal, if any), upon surrender of the same to an
agent, duly appointed by the Holding Company ("Exchange Agent"), shall be
entitled to receive in exchange thereof a certificate or certificates
representing the number of full shares of Holding Company Common Stock for which
the shares of Bank Common Stock therefore represented by the certificate or
certificates so surrendered shall have been converted as provided in Section
3(a) hereof. The Exchange Agent shall mail to each holder of record of an
outstanding certificate which immediately prior to the Effective Date evidenced
shares of Bank Common Stock, and which is to be exchanged for Holding Company
Common Stock as provided in Section 3(a) hereof, a form of letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and title
to such certificate shall pass, only upon delivery of such certificate to the
Exchange Agent) advising such holder of the terms of the exchange effected by
the Bank
B-2
Merger and of the procedure for surrendering to the Exchange agent such
certificate in exchange for a certificate or certificates evidencing Holding
Company Common Stock.
(b) No holder of a certificate therefore representing shares of Bank Common
Stock shall be entitled to receive any dividends in respect of the Holding
Company Common Stock into which such shares shall have been converted by virtue
of the Bank Merger until the certificate representing such shares of Bank Common
Stock is surrendered in exchange for certificates representing shares of Holding
Company Common Stock. In the event that dividends are declared and paid by the
Holding Company in respect of Holding Company Common Stock after the Effective
Date but prior to surrender of certificates rep[resenting shares of Bank Common
Stock, dividends payable in respect of shares of Holding Company Common Stock
not then issued shall accrue (without interest). Any such dividends shall be
paid (without interest) upon surrender of the certificates representing such
shares of Bank Common Stock. The Holding Company shall be entitled, after the
Effective Date, to treat certificates representing shares of Bank Common Stock
as evidencing ownership of the number of full shares of Holding Company Common
Stock into which the shares of Bank Common Stock represented by such
certificates shall have been converted, notwithstanding the failure on the part
of the holder thereof to surrender such certificates.
(c) The Holding Company shall not be obligated to deliver a certificate or
certificates representing shares of Holding Company Common Stock to which a
holder of Bank Common Stock would otherwise be entitled as a result of the Bank
Merger until such holder surrenders the certificate or certificates representing
the shares of Bank Common Stock for exchange as provided in this Section 4, or,
in default thereof, an appropriate Affidavit of Loss and Indemnity Agreement
and/or a bond as may be required in each case by the Holding Company. If any
certificate evidencing shares of Holding Company Common Stock is to be issued in
a name other than that in which the certificate evidencing Bank Common Stock
surrendered in exchange therefor is registered, it shall be a condition of the
issuance thereof that the certificate so surrendered shall be properly endorsed
and otherwise in proper form for transfer and that the person requesting such
exchange pay to the Exchange agent any transfer or other tax required by reason
of the issuance of a certificate for shares of Holding Company Common Stock in
any name other than that of the registered holder of the certificate surrendered
or otherwise establish to the satisfaction of the Exchange Agent that such tax
has been paid or is not payable.
(d) If, between the date hereof and the Effective Date, the shares of Bank
Common Stock shall be changed into a different number or class of shares by
reason of any reclassification, recapitalization, split-up, combination,
exchange of shares or readjustment, or a stock dividend thereon shall be
declared with a record date within said period, the Exchange Ratio specified in
Section 3(a) hereof shall be adjusted accordingly.
5. Dissenting Shares. Holders of shares of Bank Common Stock shall have
dissenter or appraisal rights in connection with the Bank Merger in accordance
with Section VI.D of the Plan of Conversion and 12 C.F.R. (S) 552.14(b).
6. Name of Surviving Bank. The name of the Surviving Bank shall be
"Middlesboro Federal Bank, Federal Savings Bank"
B-3
7. Directors of the Surviving Bank. Upon and after the Effective Date,
until changed in accordance with the Charter and Bylaws of the Surviving Bank
and applicable law, the number of directors of the Surviving Bank shall be six.
The names of those persons who, upon and after the Effective Date, shall be
directors of the Surviving Bank are set forth below. Each such director shall
service for the term which expires at the annual meeting of stockholders of the
Surviving Bank in the year set forth after his respective name, and until a
successor is elected and qualified.
Name Term Expires
---- ------------
J. Roy Shoffner 1997
R. R. Long 1997
George Taylor 1997
Reecie Stagnolia 1998
Raymond Walker 1998
James J. Shoffner 1999
The address of each such director is c/o Middlesboro Federal Bank, Federal
Savings Bank, 1431 Cumberland Avenue, Middlesboro, Kentucky 40965.
8. Officers of the Surviving Bank. Upon and after the Effective Date,
until changed in accordance with the Charter and Bylaws of the Surviving Bank
and applicable law, the officers of the Bank immediately prior to the Effective
Date shall be the officers of the Surviving Bank.
9. Offices. Upon the Effective Date, all offices of the Bank shall be
offices of the Surviving Bank. As of the Effective Date, the home office of the
Surviving Bank shall remain at 1431 Cumberland Avenue, Middlesboro, Kentucky
40965 and the location of the other deposit-taking offices of the Surviving Bank
shall be as set forth below, except for the addition of deposit-taking offices
authorized or the deletion of deposit-taking offices closed subsequent to the
date hereof and the Effective Date:
1520 East Main Street
Middlesboro, Kentucky 40823
10. Charter and Bylaws. On and after the Effective Date, the Charter and
Bylaws of the Bank as in effect immediately prior to the Effective Date shall be
the Charter and Bylaws of the Surviving Bank until amended in accordance with
the terms thereof and applicable laws.
11. Savings Accounts. Upon the Effective Date, any savings accounts of
Interim, without reissue, shall be and become savings accounts of the Surviving
Bank without change in their respective terms, including, without limitation,
maturity, minimum required balances or withdrawal value.
12. Stock Compensation Plans. By voting in favor of this Plan of Merger,
the Holding Company shall have approved adoption of the Bank's existing 1993
Stock Option Plan and 1993 Management Recognition and Retention Plan
(collectively, the "Plans") as plans of the Holding Company and shall have
agreed to issue Holding Company Common Stock in lieu of Bank Common Stock
pursuant to the terms of such Plans. As of the Effective Date, rights
outstanding under the Plans shall be assumed by the Holding Company and
thereafter shall be rights only for shares of Holding Company Common Stock, with
each such right being for a number of shares of Holding Company Common Stock
equal to the number of shares of Bank Common Stock that were available
thereunder immediately prior to the Effective Date times the Exchange Ratio, as
defined in the Plan of Conversion, and the price of each such right shall be
adjusted to reflect the Exchange Ratio and so that the aggregate purchase price
of the right is unaffected, but with no change in any other term or condition of
such right. The Holding Company shall make appropriate amendments to the Plans
to reflect the adoption of the Plans by the Holding Company without adverse
effect upon the rights outstanding thereunder.
B-4
13. Stockholder Approval. The affirmative votes of the holders of Bank
Common Stock set forth in Section II.F of the Plan of Conversion shall be
required to approve the Plan of Conversion, of which this Plan of Merger is a
part, on behalf of the Bank. The approval of the Holding Company, as the sole
holder of the Interim Common Stock, shall be required to approve the Plan of
Conversion, of which this Plan of Merger is a part, on behalf of Interim.
14. Registration; Other Approvals. In addition to the approvals set forth
in Section 1 and 13 hereof and the Plan of Conversion, the parties' obligations
to consummate the Bank Merger shall be subject to the Holding Company Common
Stock to be issued hereunder in exchange for Bank Common Stock being registered
under the Securities Act of 1933, as amended, and registered or qualified under
applicable state securities laws, as well as the receipt of all other approvals,
consents or waivers as the parties may deem necessary or advisable.
15. Abandonment of Agreement. This Plan of Merger may be abandoned by
either the Bank or Interim at any time before the Effective Date in the manner
set forth in Section VI.D of the Plan of Conversion.
16. Amendments. This Plan of Merger may be amended in the manner set
forth in Section VI.D of the Plan of Conversion by a subsequent writing signed
by the parties hereto upon the approval of the board of Directors of each of the
parties hereto.
17. Successors. This Agreement shall be binding on the successors of the
Bank and Interim.
18. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the United States of America.
IN WITNESS WHEREOF, the Bank and Interim have caused this Plan of Merger to
be executed by their duly authorized officers as of the day and year first above
written.
MIDDLESBORO FEDERAL BANK, FEDERAL
SAVINGS BANK
Attest:
By:
- ------------------- --------------------------
J.D. Howard James J. Shoffner
Secretary President
MIDDLESBORO FEDERAL INTERIM SAVINGS BANK
(In Organization)
Attest:
By:
- ------------------- --------------------------
J.D. Howard James J. Shoffner
Secretary President
B-5
REVOCABLE PROXY
(SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
CUMBERLAND MOUNTAIN BANCSHARES, M.H.C.
FOR A SPECIAL MEETING OF MEMBERS
TO BE HELD ON ______________, 1997)
The undersigned member of Cumberland Mountain Bancshares, M.H.C. hereby
appoints the Proxy Committee of the Board of Directors as attorneys-in-fact and
agents for and in the name of the undersigned, to vote such votes as the
undersigned may be entitled to cast at the Special Meeting of Members of
Cumberland Mountain Bancshares, M.H.C. to be held at ___________________,
_______________, Middlesboro, Kentucky, on ___________, ________________ __,
1997, at __:__ .m., Eastern Time, and at any adjournments thereof. They are
authorized to cast all votes to which the undersigned is entitled, as follows:
FOR AGAINST ABSTAIN
--- ------- -------
Adoption of the Plan of Conversion
and Agreement and Plan of
Reorganization among Cumberland
Mountain Bancshares, M.H.C. (the
"Mutual Holding Company"),
Middlesboro Federal Bank, Federal
Savings Bank (the "Bank") and
Cumberland Mountain Bancshares,
Inc. (the "Company") pursuant to
which (i) the Mutual Holding
Company, which currently owns
approximately 64.71% of the
outstanding shares of the common
stock $1.00 par value, of the Bank,
(the "Bank Common Stock"), will
convert from mutual form to a
federal interim stock savings bank
and simultaneously merge with and
into the Bank, with the Bank as the
surviving entity; (ii) the Bank
will subsequently merge with an
interim institution to be formed as
a wholly owned subsidiary of the
Company, with the Bank as the
surviving entity; (iii) the
outstanding shares of Bank Common
Stock (other than those held by the
Mutual Holding Company, which will
be cancelled) will be converted
into shares of the common stock,
$0.01 par value, of the Company
(the "Common Stock") pursuant to a
ratio that will result in the
holders of such shares owning in
the aggregate approximately the
same percentage of the Company as
they currently own of the Bank,
before giving effect of such
stockholders purchasing additional
shares in a concurrent stock
offering by the Company or the
Company's Employee Stock Ownership
Plan thereafter, the receipt of
cash in lieu of fractional shares
or the exercise of dissenters'
rights; and (iv) the offer and sale
of shares of Common Stock by the
Company. [ ] [ ] [ ]
In their discretion, on any other matters
that may lawfully come before the Meeting.
NOTE: The Board of Directors is not aware of any other matter that may come
before the Meeting.
THIS PROXY WILL BE VOTED FOR THE PLAN IF
NO CHOICE IS MADE HEREON
Should the undersigned be present and elect to vote at said Meeting or at any
adjournment thereof and, after notification to the Secretary of the Mutual
Holding Company at the Special Meeting of the member's decision to terminate
this Proxy, then the power of said attorneys-in-fact or agents shall be deemed
terminated and of no further force and effect. The undersigned hereby revokes
any and all proxies heretofore given.
The undersigned acknowledges receipt of a Notice of Special Meeting of the
Members of Cumberland Mountain Bancshares, M.H.C. to be held on ____________ __,
1997 and a Proxy Statement and a Prospectus from Cumberland Mountain Bancshares,
Inc. dated __________ __, 1997 prior to the execution of this Proxy.
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Date
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Signature
Note: Only one signature is required in
the case of a joint account.