Preview | Agreement and Plan of Reorganization |

AGREEMENT AND PLAN OF REORGANIZATION

BY AND BETWEEN

AMERICAN NATIONAL BANKSHARES INC.

AND

COMMUNITY FIRST FINANCIAL CORPORATION

_________________________

October 18, 2005

_________________________

TABLE OF CONTENTS

ARTICLE 1

The Merger and Related Matters

		Page
1.1	The Merger	1
1.2	Effective Time	1
1.3	Conversion of Community First Capital Stock	1
1.4	Board of Directors of American and American National Bank;
	Lynchburg Advisory Board	3
1.5	Community First Stock Options	3
1.6	Articles of Incorporation and Bylaws	3
1.7	Tax Consequences	4
1.8	Anti-Dilution	4
1.9	Dissenting Shares	4
1.10	Definitions	4

ARTICLE 2

Delivery of Merger Consideration

2.1	Election Procedures	5
2.2	Allocation of Shares	6
2.3	Exchange Procedures	8
2.4	No Fractional Securities	9

ARTICLE 3

Representations and Warranties

3.1	Disclosure Schedules	9
3.2	Standard	9
3.3	Representations and Warranties of Community First	9
3.4	Representations and Warranties of American	19

ARTICLE 4

Covenants and Agreements

4.1	Reasonable Best Efforts	22
4.2	Access to Information; Notice of Certain Matters; Confidentiality	22
4.3	Shareholder Approval	23
4.4	Registration Statement	23
4.5	Operation of the Business of Community First	24
4.6	Operation of the Business of American	26

		Page
4.7	Dividends	27
4.8	Transition	27
4.9	Control of Other Partys Business	27
4.10	No Other Acquisition Proposals	28
4.11	Regulatory Filings	28
4.12	Public Announcements	29
4.13	Tax Treatment	29
4.14	Affiliate Agreement	29
4.15	Benefit Plans; Employment Agreements	29
4.16	Indemnification	31
4.17	Nasdaq Listing	32

ARTICLE 5

Conditions to the Merger

5.1	General Conditions	32
5.2	Conditions to Obligations of American	33
5.3	Conditions to Obligations of Community First	33

ARTICLE 6

Termination

6.1	Termination	34
6.2	Effect of Termination	37
6.3	Non-Survival of Representations, Warranties and Covenants	37
6.4	Fees and Expenses	37

ARTICLE 7

General Provisions

7.1	Entire Agreement	39
7.2	Binding Effect; No Third Party Rights	39
7.3	Waiver and Amendment	39
7.4	Governing Law	39
7.5	Notices	39
7.6	Counterparts	40
7.7	Severability	40
7.8	Alternative Structure	41

Exhibit A -- Plan of Merger between American National Bankshares Inc. and Community First Financial Corporation

Exhibit B -- Form of Affiliate Agreement

AGREEMENT AND PLAN OF REORGANIZATION

THIS AGREEMENT AND PLAN OF REORGANIZATION (the Agreement) is made and entered into as of October 18, 2005, by and between American National Bankshares Inc., a Virginia corporation (American), and Community First Financial Corporation, a Virginia corporation (Community First).

WITNESSETH:

The parties desire that Community First shall be merged with and into American (the Merger) pursuant to a plan of merger (the Plan of Merger) substantially in the form attached as Exhibit A hereto, and the parties desire to provide for certain undertakings, conditions, representations, warranties and covenants in connection with the transactions contemplated hereby.

NOW, THEREFORE, in consideration of the premises and of the mutual representations, warranties, covenants and agreements herein contained, and intending to be legally bound hereby, the parties hereto agree as follows:

ARTICLE 1

The Merger and Related Matters

1.1 The Merger

Subject to the terms and conditions of this Agreement, at the Effective Time (as defined in Section 1.2 hereof), Community First will be merged with and into American pursuant to the Plan of Merger. The separate corporate existence of Community First thereupon shall cease, and American will be the surviving corporation. From and after the Effective Time, the Merger shall have the effect set forth in Section 13.1-721 of the Virginia Stock Corporation Act (the VSCA).

1.2 Effective Time

The Merger will become effective on the date and at the time shown on the Certificate of Merger issued by the Virginia State Corporation Commission (the Effective Time). Subject to the satisfaction or waiver of the conditions set forth in Article 5, the parties shall use their reasonable best efforts to cause the Effective Time to occur on or before March 31, 2006, or on such other date as the parties may agree in writing. All documents required by this Agreement to be delivered at or prior to the Effective Time will be exchanged by the parties at the closing of the Merger (the Merger Closing), which shall be held on or before the Effective Time. At or after the Merger Closing, American and Community First shall execute and deliver Articles of Merger containing the Plan of Merger to the Virginia State Corporation Commission.

1.3 Conversion of Community First Capital Stock

At the Effective Time, by virtue of the Merger and without any action on the part of a holder of shares of Community First common stock, without par value (Community First Common Stock), and the Series A Preferred Stock, $10.00 par value per share (the Series A Preferred Stock) (the shares of Community First Common Stock and Series A Preferred Stock shall be referred to collectively as Community First Capital Stock), but subject to the provisions of Section 6.1(h) hereof:

(a) Each share of common stock of American, par value $1.00 per share (American Common Stock), that is issued and outstanding immediately before the Effective Time shall remain issued and outstanding and shall remain unchanged by the Merger.

(b) Each share of Community First Common Stock issued and outstanding immediately before the Effective Time (other than the Dissenting Shares as defined in Section 1.9 hereof) shall be converted into, at the election of the holder thereof and in accordance with the election and allocation procedures set forth in Article 2, the right to receive the following, without interest:

(i) 0.9219 shares of American Common Stock (the Per Share Common Stock Consideration); or

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